F-15: Financial assurance guideline
This document explains what financial assurance is, when it applies and how to calculate it.
Environmental Protection Act, R.S.O. 1990, Part XII, Sections 131 to 136 and 176
Last Revision Date:
The Ministry encourages the distribution of this Guideline. However, any person who wishes to republish or reprint all or part of this Guideline should apply in writing for permission to do so to the Ontario Ministry of the Environment, Communications Branch, 2nd Floor, 135 St. Clair Avenue West, Toronto, Ontario, M4V 1P5, Canada.
Copyright: Her Majesty the Queen in Right of Ontario as Represented by the Ministry of the Environment, 2005. This publication may be cited and, with permission, reproduced for non-commercial purposes. Appropriate attribution is requested.
Cette publication hautement spécialisée n’est disponible qu’en anglais en vertu du règlement 441/97, qui en exempte l’application de la Loi sur les services en français. Pour obtenir de l’aide en français, veuillez communiquer avec le ministère de l’Environnement au 416 314-8001 (sans frais : 1-800-461-6290).
For the Purposes of this Guideline, on and after the day subsection 2 (1) of Schedule 7 to the Open for Business Act, 2010 comes into force, a reference to an approval, a certificate of approval, an approval under section 9 of the Environmental Protection Act, an approval under Part V of the Environmental Protection Act or an approval under section 53 of the Ontario Water Resources Act shall be deemed, unless the context requires otherwise, to be a reference to an environmental compliance approval.
Please note that Regulatory Requirements have been included in this Guideline for convenience only. A copy of current legislation should be obtained and used in conjunction with the guideline. To access legislation please refer to Service Ontario’s e-Laws site or contact Service Ontario by telephone at 1-800-668-9938 (locally at 416-326-5300) or by e-mail.
Financial Assurance is authorized under Part XII of the Environmental Protection Act (EPA) and allows Program Directors to require, as a condition of an order (only in a Director’s Order), approval or by regulation, the provision of financial security by regulated parties. Provincial Officers do not have the authority to require financial assurance as a condition of a Provincial Officer’s Order. The regulated parties are defined as firms, persons or crown corporations.
Financial Assurance can be required either to:
- Ensure compliance with environmental objectives;
- Ensure that requirements are achieved by a specified deadline; or
- Ensure that funds are available for future clean-up and remediation of landfills and other contaminated sites which require long-term care and monitoring.
This Guideline has been prepared to help Ministry staff administer financial assurance under different circumstances and to help regulated parties and their advisors comply with requirements.
In this Guideline, the following appendices are provided:
- Compliance Cost Items to Estimate the Amount of financial assurance Required for Specific Orders, Approvals, Facilities and Activities, Appendix A;
- Ontario Legislation – Part XII, sections 131 to 136 and section 176 of the Environmental Protection Act. Legal authority to require financial assurance is derived from these sections, Appendix B;
- Sections 1, 2, 17 and 18 of the Landfilling Sites Regulation (Ontario Regulation 232/98), Appendix C;
- Sections 1 and 8 of the Mobile PCB Destruction Facilities Regulation (Regulation 352), Appendix D;
- Templates for Standard Non-Cash Forms of financial assurance (Surety Bond and Irrevocable Letter of Credit), Appendix E;
- Flow Charts Showing financial assurance Procedures and Responsibilities, Appendix F;
- List of Planned Landfill Closures and Post-Closure Care Activities, Appendix G;
- Spreadsheet Template for Calculating financial assurance Amounts for a Typical Landfill Site, According to Ontario Regulation 232/98, Appendix H;
- Financial Assurance Refund/Disbursement Form, Appendix I;
- Definitions, Appendix J; and
- Procedures to Obtain Non-Residential Building Construction Price Index for Toronto (NRCPIT) from Statistics Canada Website, Appendix K.
For further information, call the Environmental Assessment and Approvals Branch or any Regional Office of the Ministry of the Environment, or visit the Ministry of Environment and Climate Change website.
2. Legislative authority
Legislative authority for the requirement of financial assurance is derived from Part XII (Financial Assurance), sections 131 to 136 and 176, of the Environmental Protection Act (EPA). financial assurance can be specified as conditions of orders and approvals that are issued under the EPA or the Ontario Water Resources Act (OWRA) or as required by regulation.
Orders and approvals should not refer to sections 35, 46 or 47 of the Environmental Protection Act as authority for financial assurance.
3. Statement of principles
3.1 This Guideline specifies how financial assurance requirements are to be administered by the Ministry of the Environment.
3.2 Financial assurance under Part XII of the EPA can be required as a condition of an order, an approval or a regulation.
3.3 Financial assurance is required to ensure that funds are available for, but not limited to the following:
- The performance of environmental measures specified in approvals, orders or regulations;
- Decommissioning, clean-up, rehabilitation, monitoring and perpetual care of facilities such as private waste processing and disposal sites as well as other types of contaminated sites;
- The operation and maintenance of private water or sewage treatment facilities until they can be assumed by a municipality;
- Alternate water supplies may be required where the Director has reasonable grounds to believe that existing water supplies are, or are likely to be, contaminated or otherwise interfered with by the works to which the approval or order is related;
- Compensation to third parties who incur damages due to polluting activities if such a condition is stated in the approval or order. Compensation is limited to areas where there is statutory authority; and
- Various facilities identified in Sections 4.2, 4.3 and 4.4.
3.4 Financial assurance may be required by a Program Director under the following circumstances:
- Financial Assurance is compulsory in every case when stipulated by a regulation. As of June 2004, only two regulations require financial assurance:
- Ontario Regulation 232/98 - Landfilling Sites
- Regulation 352 - Mobile PCB Destruction Facilities
- For all other cases, financial assurance requirements are discretionary on the part of the Program Director.
- Financial Assurance is normally required (i.e., usually required in every case) as a condition of orders or approvals that are listed in Section 4.3. However, if the Program Director exercises discretion in not requiring financial assurance, he/she must document reasons in the case file.
- With respect to orders and approvals listed in Section 4.4, financial assurance is not normally required however, the Program Director exercises discretion in whether financial assurance is required. The Program Director must document the reasons for requiring financial assurance in the case file. financial assurance should be required when one or more of the situations or conditions listed in Section 4.4 apply.
3.5 Although Part XII of the EPA was enacted in 1986, financial assurance can be applied as conditions in approvals that were issued before 1987 by amending the said approval. The Program Director must have valid reasons for doing so, such as a risk of financial liability to the Ministry exists if the regulated parties fail to meet the obligations of their orders or approvals by reason of bankruptcy or insolvency.
3.6 Financial assurance can be applied to provide an incentive for regulated parties to implement compliance activities but it cannot be retained as a penalty. financial assurance must ultimately be used to pay for compliance actions or be returned to the regulated party.
3.7 Above all, financial assurance requirements should be:
- Sufficient to pay for all of the potential costs associated with conditions in an order or approval; and
- Easily accessible when the Ministry needs to use it.
3.8 This Guideline addresses the following topics:
- Situations where financial assurance should be required of proponents who are subject to orders or approvals (Section 4);
- The form in which financial assurance can be provided to the Ministry (Section 5);
- How to determine the amount of financial assurance to be required (Section 6);
- Procedures for issuing an order or approval with a financial assurance requirement and for accepting, receiving and handling financial assurance funds or documents (Section 7);
- Criteria and procedures for converting non-cash financial assurance to cash and for using financial assurance to implement the terms and conditions in orders and approvals (for example, responses to defaults) (Section 8);
- Criteria and procedures for returning financial assurance to regulated parties when it is no longer required (Section 8); and
- Responsibilities carried out by Ministry staff (Section 9).
3.9 Financial assurance will not normally be required of municipalities, other provincial ministries, and other public bodies or institutions for the following reasons:
- These entities are not subject to bankruptcy and financial insolvency to the same degree as are private companies;
- Municipalities have a permanency of place which prevent them from walking away from local problems; and
- Public institutions are generally backed by provincial or federal government resources.
3.10 Municipal Corporations formed in accordance with section 203 of the Municipal Act, 2001 must provide financial assurance until such time that the Municipal Corporation can satisfy the Ministry of the Environment that their financial assurance will be guaranteed by the municipality.
4. Rules and conditions to determine when financial assurance should be required
4.1 The flow chart presented in Appendix F illustrates the categories of financial assurance according to the degree of discretion. financial assurance is mandatory in every case when it is required by a regulation. Regulations that require financial assurance are detailed in Section 4.2.
Orders, approvals and other activities for which financial assurance is usually required in every case are detailed in Section 4.3.
Orders, approvals and other activities for which financial assurance is usually required where certain situations or conditions apply are detailed in Section 4.4.
In all other cases, financial assurance is discretionary.
4.2 Financial assurance is required by the following regulations:
- Ontario Regulation 232/98 - Landfilling Sites
- Regulation 352 - Mobile PCB Destruction Facilities
4.2.1 In accordance with Ontario Regulation 232/98 - Landfilling Sites, financial assurance is mandatory for:
- New private sector landfill sites intended to accept municipal (i.e., non-hazardous) waste that came into existence after August 1, 1998 and that were intended, at the time they came into existence, to have a total waste disposal volume of more than 40,000 cubic metres; and
- Expanded private sector landfill sites in which:
- the alteration, enlargement or extension was proposed after August 1, 1998,
- the total waste disposal volume would be increased to more than 40,000 cubic metres, and
- only municipal (i.e., non-hazardous) waste would be accepted.
4.2.2 In accordance with Regulation 352 - Mobile PCB Destruction Facilities, financial assurance is mandatory for:
- Class 1 mobile PCB destruction facility waste disposal sites, and
- Class 2 mobile PCB destruction facility waste management systems.
4.3 Financial assurance should normally be required in an order or approval for the types of facilities listed in Sections 4.3.1 and 4.3.2. The reasons should be recorded in the case file if the Program Director exercises his/her discretion not to require financial assurance in any of these cases.
4.3.1 Approvals under Part V, EPA including but is not restricted to:
- Private landfill sites not covered in Section 4.2.1. For example,
- new private landfill sites which have a total waste disposal volume of 40,000 cubic metres or less;
- proposed expansion of private landfill site of a total waste disposal volume of 40,000 cubic metres or less; or
- existing private landfills in existence prior to August 1, 1998 either operating or closed, but are in the contaminating life span stage.
- Private transfer stations, private waste processing sites (i.e., private recycling operations and private material recovery facilities). In addition, financial assurance is not normally required from private facilities which handle biosolids under the organic soil conditioning program and septic wastes;
- Private waste management (haulage) systems which carry biomedical and PCB wastes;
- Private used tire storage or disposal facilities which contain more than 5,000 tire units;
- Incineration facilities including sites burning waste derived fuels (WDF).
4.3.2 Approvals under section 53, OWRA including:
- Private communal sewage works in unorganized areas where there is no agreement with the Ministry of Municipal Affairs and Housing for a local government agency (for example, an area services board or a municipality to be created, or an existing municipality to be expanded) to take over the works in the event of a default;
- Private communal sewage works in organized areas without an agreement with the local government agency to take over the system in a default situation.
4.3.3 Financial assurance is not meant to take the place of an agreement with a municipal authority. At the time of initial approval, the Ministry will continue to require a municipality or, in an unorganized area, another governmental organization to enter into a responsibility agreement for the long-term operation and maintenance of communal sewage works and systems. However, financial assurance should be provided until such agreements are finalized. Furthermore, if the local agency or municipality has obtained financial assurance, there is no need for the Ministry to obtain financial assurance.
4.4 Financial assurance should be required for facilities listed in Sections 4.4.1 to 4.4.5 if any of the following situations apply, which should be specified in the order or approval file as reason(s), including:
- Where a required action, process or task could result in adverse effects, such as increased health or environmental risks, contamination of or interference with the operation and use of municipal or private wells, or hazards to public health and safety.
- When the operation or waste residuals of a facility are judged to be high risk in that the release of a contaminant could cause health, environmental or property damage, including contamination of the operation or interference with the operation and use of a municipal or private well.
- When a Ministry of the Environment official determines that a facility or operation will require future decommissioning, rehabilitation, site rededication or environmental clean-up measures and includes these requirements as conditions in an order or approval.
- When future long-term or perpetual management or monitoring of an existing or potential pollution or contamination problem is required by an order or approval.
- When there is reason to expect that the regulated party might become insolvent in the future and be unable to complete or comply with the terms and conditions of an order or approval.
- When a regulated party or person has been convicted of violations involving pollution discharges or emissions for specific or related problems addressed in an order or approval.
- When the regulated party has missed a deadline in any previous orders or approvals.
- When the regulated party has received an extension to a compliance date in an order or approval.
- Where any past or current activities of the regulated party have resulted in any documented occurrence of human health or environmental damage or have resulted in significant risk of human health or environmental damage.
4.4.1 Approvals under Part V, EPA including:
- PCB storage sites established in accordance with written Director’s instructions under Regulation 362 - Waste Management – PCBs;
- Waste management systems (haulage) which handle any material except biomedical and PCB waste. The financial assurance requirements for biomedical and PCB waste are noted in Section 4.3.1, paragraph c). Finally, financial assurance is not normally required from haulers of biosolids (processed organic wastes and hauled sewage).
4.4.2 Approvals under section 53, OWRA including:
- Private communal sewage systems and works;
- Industrial and milling activities that generate tailings, ash or other waste materials subject to section 53, OWRA (but not facilities which provide financial assurance under the Mining Act);
- Any sewage works in which waste materials that are generated by the sewage works, including sludges, are stored or disposed of on the site of the sewage works; and
- Any sewage works, or any part thereof, that contain waste materials, such as sludges, that are to remain on the site after decommissioning.
4.4.3 Approvals under section 9, EPA including (but not limited to) those that contain conditions associated with:
- Specific abatement actions that contain time deadlines;
- Equipment and technologies for air pollution reduction;
- The storage of subject waste materials from air pollution control equipment;
- Equipment used in the mobile in-situ chemical oxidation process; and
- Back-up control equipment.
4.4.4 Permits to take water under section 34, OWRA where there is the expectation of associated adverse effects on:
- Other known users of the same surface or ground water supply source;
- The environment, such as low flows in streams, etc.;
- Surrounding properties which take water from the same ground water supply; and
- Where potential rededication measures are likely required.
4.4.5 Orders including:
- Industrial abatement programs under section 18, EPA;
- An industrial or commercial site which is contaminated with hazardous materials and is to be decommissioned; and
- Operations which store subject wastes on site under Regulation 347 - General – Waste Management, for more than 90 days.
5. Forms of financial assurance
5.1 The form of financial assurance to be provided is to be chosen by the Program Director based on consultation with other Ministry staff and the regulated party.
5.2 Forms of financial assurance which are acceptable are described in section 131 of the EPA. Definitions of financial terms are found in Appendix J.
5.3 The Business and Fiscal Planning Branch holds all original financial assurance forms as well as supporting documents for safekeeping.
5.4 There are three basic forms of financial assurance: Standard, Non-standard and Unacceptable. Forms can either be cash or non-cash within the classifications.
5.4.1 Standard forms of financial assurance are always acceptable and include:
- Irrevocable letters of credit;
- Surety bonds; and
- Negotiable securities issued by or guaranteed by provincial or federal government.
5.4.2 Non-standard forms are not generally recommended but may be accepted if a proponent makes a compelling case. Staff should request that the proposal be reviewed by Legal Services Branch, Business and Fiscal Planning Branch and Economic Analysis Section to determine whether the proposed form should be accepted. Non-standard forms include:
- Any security or collateral accepted by the Program Director;
- Agreements, contracts or other non-standard forms of financial assurance with conditions stated in the order or approval;
- Insurance policies;
- Guaranteed Investment Certificates (GICs) reissued payable to the Ontario Minister of Finance;
- Marketable securities (apart from those mentioned above in Section 5.4.1) or other negotiable securities;
- Indemnification Agreements;
- Letters of guarantee; and
- Qualified Environmental Trust accompanied by letter of credit, cash or bond. This form is an agreement made between two parties for the purpose of a tax benefit to the regulated party.
The Condominium Act, 1998, subsection 115 (5), defines an eligible security as “a bond, debenture, guaranteed investment certificate, deposit receipt, deposit note, certificate of deposit, term deposit or other similar instrument that,
- is issued or guaranteed by the government of Canada or the government of any province of Canada,
- is issued by an institution located in Ontario insured by the Canada Deposit Insurance Corporation, or
- is a security of a prescribed class.”
Apart from negotiable bonds and debentures, each of these forms are considered non-standard for purposes of financial assurance and staff should seek assistance and advice from Legal Services Branch, Business and Fiscal Planning Branch and the Economic Analysis Section before accepting them.
5.4.3 The following forms are unacceptable and should not be accepted by Ministry staff:
- Guaranteed Investment Certificates (GICs) which are not transferable;
- All bonds which are not transferable;
- Bank accounts held by the regulated party or joint bank accounts held by the Ministry and the regulated party;
- Insurance policies for long-term projects or landfill sites; and
- Guarantees from out-of-province, off-shore firms.
5.4.4 Any form of financial assurance offered by a proponent that is not mentioned in Sections 5.4.1 or 5.4.2 should be considered unacceptable until reviewed and approved by Legal Services Branch, Business and Fiscal Planning Branch and/or the Economic Analysis Section. All unusual wording of standard forms (e.g., letters of credit or surety bonds) should always be reviewed by Legal Services Branch.
5.5 During the time that a non-standard form is being reviewed, a standard form of financial assurance (e.g., cash or a letter of credit) should be provided to the Ministry. If the non-standard form is approved by the Ministry, the standard form should be returned to the regulated party.
5.6 Where it is necessary to use financial assurance for clean-up or long-term care and maintenance activities in the future, a cash account is recommended. The advantages of a cash account are:
- Cash is readily accessible to the Ministry;
- Cash does not require interaction with other institutions to retrieve the funds;
- Cash deposits do not require monitoring to ensure that the value is sufficient each year; and
- Non-cash forms of financial assurance such as letters of credit, surety bonds and negotiable securities guaranteed by government will normally have to be monitored and increased annually in accordance with a cumulative financial assurance balance schedule stated as a condition in the order or approval.
5.7 Where marketable securities or other negotiable securities are accepted as financial assurance, the market value of these securities should be at least 20 per cent in excess of the agreed to amount of financial assurance in order to allow for fluctuations in the market prices of these securities.
5.8 Examples of wording for two standard forms of financial assurance, a surety bond and an irrevocable letter of credit, are presented in Appendix E.
5.9 Procedures by which Ministry staff should accept, process and handle financial assurance payments for all forms of financial assurance are described in Section 7.3; procedures for specific forms of financial assurance are described in Section 7.4 of this Guideline.
5.10 Regulations may be made from time to time to require particular forms or amounts of financial assurance in specific cases.