Financial Responsibility Function
To ensure that vessels and facility owner/operators have adequate financial resources to pay cleanup and damage costs arising from an oil spill.
Owners or operators of tankers and barges that transport oil in bulk across state marine waters; nontank vessels of 300 gross tons or greater which carry oil as fuel; and facilities which are located where a spill could impact waters of the State of California. Marine facilities include marine terminals, marine refueling docks, offshore facilities, pipelines and mobile transfer units. Inland facilities include production facilities, terminals, pipelines and railroads.
Applications and evidence of financial responsibility (F.R.) will be reviewed within 30 calendar days of receipt. A Certificate of Financial Responsibility (COFR) will be issued within the 30-day period for a term not to exceed two years.
Levels of Financial Responsibility
Tankers, large barges, and owners of oil are currently required to demonstrate USD
one billion in F.R. (Large barges are defined as barges with cargo capacity of 150,000 barrels or more).
Nontank vessels are required to demonstrate USD 300 million dollars ($300,000,000) in F.R., except for nontank vessels that have a carrying capacity of 6,500 barrels of oil or less, or a carrying capacity of 7,500 barrels of oil or less for nontank vessels owned and operated by California or a federal agency, which are required to have the following F.R. amounts:
$2,000,000 for those that have a carrying capacity from less than 1 to not more than 10 barrels;
$5,000,000 for those that have a carrying capacity greater than 10 to not more than 50 barrels;
$10,000,000 for those that have a carrying capacity greater than 50 to not more than 500 barrels;
$18,900,000 for those that have a carrying capacity greater than 500 to not more than 1,000 barrels.
Those nontank vessels that have a carrying capacity greater than 1000 to not more than 6,500 barrels, or 7,500 barrels for nontank vessels owned and operated by California or a federal agency, shall determine the amount of financial responsibility as follows: subtract 1,000 barrels from the total carrying capacity of oil of the nontank vessel; multiply this amount by $5,670 (which represents 30% of the cargo multiplied by the maximum per barrel clean-up and damage cost of spilled oil of $18,900); then add $18,900,000.
Marine facilities and small barges are required to demonstrate $12,500 per barrel to cover cleanup and damage costs. Inland facilities are required to demonstrate $10,000 per barrel to cover cleanup and damage costs if it poses a risk to perennial waters of the State of California, while inland facilities that pose a risk to ephemeral waters are required to demonstrate $6,000 per barrel. This amount is based on a per barrel reasonable worst-case spill scenario. Reasonable worst-case spill formulas for facilities are based on linefill capacities, transfer rates, discovery and shut off time for pipelines, 10% of daily production rate, of largest-producing well, for production facilities and speed/volume factors for a railroad. The formula for mobile transfer units and small barges is based on 30% of the maximum cargo capacity.
Methods of Demonstrating Financial Responsibility
Insurance, self insurance, guaranty, letter of credit, certificate of deposits, surety bonds, Protection and Indemnity Club membership, a combination of methods, or other methods acceptable to the administrator.
In order to maintain a COFR, the applicant (for most demonstrating methods of F.R.) is required to annually provide evidence of renewed F.R. Additionally, prior to the expiration of the COFR a renewal application must be submitted. During the time the COFR is valid, changes to the method of demonstrating F.R., or changes to the operation of the vessel or facility must be reported to the Oil Spill Prevention and Response Program.
Title 14, California Code of Regulations Subdivision 4, Office of Oil Spill Prevention and Response Section 790-797, Chapter 1. [Authority: Government Code Sections 8670.37.54(b) and 8670.37.58]. [Reference: Government Code Sections 8670.37.51 - 8670.37.58].