2010 Issue

26 T HE REGULATORY AGENCIES NEED TO be satisfied about the solvency of the polluter for a period of time it takes to remove pollutants. Funding methods to demonstrate such assurance is through letters of credit or bond or an upfront deposit covering the entire period. The first two instruments which are affected by factors such as inflation, borrowing rates, increase in consumables etc., have to be reviewed for adequacy over the period of time. he amount required for the letter of credit to assure financial responsibility, typically costs one to eight percent of the total amount subject to the financial standing of the beneficiary. Fundamental formula for summation of a series of uniform payments A 0 deposited at the beginning of the period to cover an outlay required at the end of the period, over a period n years with an inflation rate, a percent per year and interest rate, i percent per year is as shown below: Any escalation or reduction of payments over different timeframes for the entire duration of remediation, modification of the formula becomes inevitable. Let us consider for example, a remediation strategy for three periods with three different series of uniform payments. Then the formula would look like: Financial Assurance Evaluation KIRAN L. BHAYANI, P.E., D.EE ., F.ASCE Utah Division of Water Quality Many industrial operations inadvertently may cause natural resource damage. This damage has to be compensated through settlement with or litigating regulatory agencies. One of the aspects of the natural resource damage remediation is removal of pollutants through some treatment technology. The polluter may have to operate the selected treatment scheme for a period of time until pollutants have reached benign levels. Where, P 0 represents outlays over first three years P 1 represents outlays over next seven years P 2 represents outlays over next ten years a – rate of inflation i – discount rate n 1 , n 2 and n 3 are time intervals continued on page 28