Recent EPA PPAs Require Financial Assurances

EPA recently published notice of two proposed prospective purchaser agreements (PPAs) . PPAs had been a critical tool for brownfield development prior to the 2002 CERCLA amendments that added the bona fide prospective purchaser (BFPP) defense. Following the 2002 amendments, EPA issued guidance that indicated that the agency would only issue PPAs in special circumstances since the BFPP was self-implementing (i.e, the defense could be asserted as a matter of law without express approval by EPA).

The fact that the agency has considered entering into these PPAs is newsworthy in itself. The Glendale/Goodwin Realty PPA was also noteworthy because it involved a private purchaser. What is more interesting, though, is that both PPAs require the settling party to establish financial assurances for the amount of the cleanup.

In the PPA for Glendale/Goodwin Realty I LLC (GGRI) agreed to purchase a parcel to facilitate expansion of a warehouse and distribution facility operated by Ralphs Grocery Co. (RGC) located adjacent to the property.  The parcel subject to the PPA lies above a regional groundwater plume known as Glendale Operable Unit of the San Fernando Valley Supefund Site Area 2.  The parcel had been used by a number of companies that conducted engaged in plating, anodozong and painting of metal parts  from 1946 to December 2004. The owners of the parcel, two family trusts, had received PRP notice letters from EPA. In addition, the Los Angeles Regional Water Quality Control Board had issued a number of Cleanup and Abatement Orders and the state Department of Toxic Substances Control had issued an Imminent and Substantial Endangerment Determination and Order. A cleanup plan was approved in 2010 but the family trusts lacked the resources to implement the cleanup. RGC, another settling party to the PPA, had a license to park empty delivery trailors on the paved portions of the parcel subject to the PPA.

GGRI agreed to purchase the parcel provided a PPA could be obtained. EPA agreed to issue the PPA to GGRI, RGC and The Kroger Co. (Kroger), the parent of RGC, in exchange for GGRI’s commitment to implement the cleanup. However, the parties had to agree to establish and maintain financial responsibility in the amount of $3.4MM which is the estimated cleanup costs. The financial assurance can be met using a surety bond, letter of credit, trust fund, insurance policy or by  Kroger satisfying the RCRA financial assurance criteria.

In the City of Dowagiac Brownfield Redevelopment Authority (CDBRA) PPA, ICG Castings ceased operations in December 2010. As is frequently the case with abandoned properties, the city responded to complaints of vandalism and tresspassing, and observed that numerous drums containing hazardous wastes and chemicals. EPA then performed a number of time critical removal actions to remove the waste containers from the site. The city had property tax liens in the amount of $228K and had estimated the cost to develop the site for reuse would be between $560K to $700K. EPA agreed to issue a PPA in exchange for the CDBRA agreeing to secure the property, extend and maintain essential utilities, rehabiliate and operate the wastewater treatment system, decontaminating building interiors, performing supplement sampling and implementing post-removal measures required by EPA. The authority was also required to reimburse EPA $25K in past response costs as well as establish and maintain a performance guarantee of $300K using one or more of the standard forms of acceptable financial assurance.

EPA did not typically impose financial assurance requirements in past PPAs. Under section 108 of CERCLA, EPA was authorized to require financial assurances to ensure completion of remedies but EPA had largely ignored this provision for the bulk of the CERCLA program. It was only two years ago that EPA promulgated regulations to implement this requirement for certain industrial sectors.  It is unclear if the financial responsibility provisions of these PPAs represents new policy for PPAs.

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