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53 FR 43322-43383 Wednesday, Oct. 26, 1988 40 CFR Parts 280 and 281, Underground Storage Tanks Containing Petroleum-Financial Responsibility Requirements and State Program Approval Objective; Final Rule--Preamble Section II. Background

40 CFR Parts 280 and 281
(pp. 43323-43326)

II. Background

A. Legislative and Regulatory Background of the Rule

B. The Comprehensive Federal UST Regulatory Program

C. Program Objectives and Summary of Today's Rule

1. Program Objectives and Major Changes in the Final Rule

2. Summary of Today's Rule

D. Availability of Mechanisms

II. Background

This section provides the legislative and regulatory background for the final rule, describes the comprehensive underground storage tank (UST) regulatory program, and summarizes today's financial responsibility rulemaking.

A. Legislative and Regulatory Background of the Rule

The Hazardous and Solid Waste Amendments of 1984 (HSWA) extended and strengthened the provisions of the Resource Conservation and Recovery Act (RCRA). HSWA created Subtitle I, which provides for the development and implementation of a regulatory program for underground storage tanks (USTs) (FOOTNOTE #1) containing regulated substances, including petroleum (FOOTNOTE #2) and other regulated substances (FOOTNOTE #3) (such nonpetroleum regulated substances are hereinafter referred to as hazardous substances). Section 9003(a) of Subtitle I requires the EPA Administrator to promulgate requirements for release detection, prevention and correction as necessary to protect human health and the environment. These technical standards were promulgated at 53 FR 37082 (September 23, 1988).

The Superfund Amendments and Reauthorization Act of 1986 (SARA) amended Sections 9003 (c) and (d) of Subtitle I to mandate that the Agency establish financial responsibility requirements for UST owners and operators to assure the costs of corrective action and third-party liability caused by sudden and nonsudden accidental releases from USTs. SARA made other changes to Subtitle I affecting financial responsibility.

(1) It established $1 million per occurrence and an appropriate annual aggregate as the minimum assurance levels for USTs at facilities engaged in petroleum production, refining, or marketing, and for USTs which handle substantial amounts of petroleum; the Administrator may set lower per-occurrence limits for USTs at other types of facilities.

(2) It authorized the Administrator to suspend enforcement of the financial responsibility requirements if financial assurance for a particular class or category of USTs is "not generally available" and steps are being taken to either form a risk retention group (RRG) or establish a state fund pursuant to §9004(c)(1).

(3) It created a $500 million Leaking UST Trust Fund to fund certain corrective action costs for petroleum releases (including the costs of cleanup, enforcement and cost recovery). (FOOTNOTE #4) Before the effective date of today's rule, Trust Fund monies can be used whenever the Administrator or state under cooperative agreement determines that such action is necessary to protect human health and the environment and when there is no owner or operator capable or willing to undertake proper action. Priority must be given to cases posing the greatest threat to human health and the environment. After the effective date of today's rule, the circumstances under which Trust Fund monies may be used are more restricted (see Section IV.B).

On April 17, 1987, the Agency proposed financial responsibility requirements for USTs containing petroleum (52 FR 12786). The Agency provided a 60-day comment period and extended it for an additional 30 days. In addition, the Agency published two Supplemental Notices modifying the initial proposal (52 FR 48638, December 23, 1987, and 53 FR 10401, March 31, 1988). Based on EPA's analysis of the comments, EPA has revised the rule and is today promulgating a final rule, which is summarized in Section C below.

EPA has also issued an Advanced Notice of Proposed Rulemaking (ANPRM) on financial responsibility requirements for USTs containing hazardous substances (53 FR 3818, February 9, 1988).

B. The Comprehensive Federal UST Regulatory Program

In addition to this financial responsibility rule for USTs containing petroleum, the Agency has promulgated technical standards for USTs containing petroleum and hazardous substances (53 FR 37082, September 23, 1988) and procedures for approval of state UST programs (53 FR 37212, September 23, 1988). The three rulemakings together establish a comprehensive program to regulate USTs, as required by Subtitle I of RCRA.

The technical standards require UST owners and operators to meet standards for tank operation and design, release detection and reporting, corrective action, and closure. The operation and design standards require that USTs be protected from corrosion and equipped with devices to prevent spills and overfills. The release detection and reporting standards require owners and operators to install leak detection systems and report actual and suspected releases. These requirements pertain to new USTs on the effective date of the rule. Some operational requirements pertain to USTs currently in use on the effective date. USTs currently in use become subject to the tank operation and design requirements over a ten-year phase-in period and the release detection requirements over a five-year phase-in period. The corrective action standards, which apply to all tanks on the effective date, require owners and operators to clean up releases from UST systems. In the short run, one effect of the technical standards will be to increase detection of releases; over the long run, the standards will reduce the likelihood that new releases will occur.

The financial responsibility rule requires that UST owners or operators demonstrate financial responsibility for the costs of corrective action and compensation of third parties arising from release of petroleum from underground storage tanks. The financial responsibility requirements will help ensure that owners and operators can respond promptly to clean up releases and to compensate third parties for any injuries or damages associated with the releases. Because the providers of financial assurance mechanisms may require UST owners and operators to install leak detection and corrosion protection systems as a condition of coverage, the financial responsibility requirements may accelerate compliance with the technical standards.

The state program approval objectives (53 FR 37212, September 23, 1988) enable states whose programs are no less stringent than the federal program and which provide for adequate enforcement of compliance to administer the UST regulatory program. EPA has designed the approval criteria to provide flexibility consistent with statutory requirements to encourage states to adopt the UST program. EPA believes that regulation of the large and varied UST population is best implemented by state and local agencies, which can oversee and enforce the UST program more effectively than EPA.

Finally, the last major component of the federal UST regulatory program, establishing financial responsibility requirements for USTs containing hazardous substances, will be proposed in the future.

C. Program Objectives and Summary of Today's Rule

1. Program Objectives and Major Changes in the Final Rule

The Agency had three guiding objectives in considering the comments received on the proposed rule and in adopting the changes for the final rule. First, the financial responsibility program for petroleum USTs must require adequate and reliable financial assurance for the costs of UST releases, based on the following considerations:

1) The certainty that funds will be available;

2) The sufficiency of funds to cover the costs of releases; and

3) The availability of funds for corrective action and third-party liability.

Second, while requiring adequate and reliable financial assurances, the rule must provide flexibility, where possible, to increase the feasibility of compliance by the regulated community. Subtitle I specifically allows flexibility in establishing per-occurrence levels of assurance for USTs at facilities not engaged in petroleum production, refining, or marketing, and for aggregate levels of assurance. The Agency has carefully considered where to allow flexibility in the financial responsibility program while ensuring adequate protection for covering the costs of petroleum UST releases.

Finally, to the extent possible, this rule should promote expansion of existing assurance mechanisms and development of new ones to achieve maximum compliance by UST owners and operators. The Agency recognizes the current limited availability of financial assurance mechanisms and the difficulty many owners and operators will have in complying with the requirements, at least initially. However, insurance coverage is available now to some UST owners and operators, and a number of states have either adopted or are taking steps to adopt state funds. The Agency has constructed the final rule to promote timely compliance by all owners and operators and to encourage development of additional assurance mechanisms.

The major changes in the rule and the way in which they further these objectives are summarized below:

- Phased schedule of compliance. The final rule phases in compliance in four stages for different categories of UST owners. The Agency has adopted this approach to allow adequate time for compliance and to promote development of financial assurance mechanisms in the following ways:

-- Owners most able to comply, based on financial strength, must do so 3 months after the promulgation date.

-- Most owners in the next two groups have or can obtain insurance. The phase-in allows time for processing insurance applications (which may take several months per application). It also provides time for insurance providers to conform their policies to the requirements of this rule, as well as to decide whether to extend their policies to new segments of the regulated community. Some owners in these groups may also be able to rely on state funds.

-- Owners scheduled for compliance 24 months after the date of promulgation of the rule, e.g., single station owners and non-marketers, will rely primarily on state funds and expansion of insurance and RRGs beyond currently available programs. The schedule provides time for these mechanisms to become available.

-- Phasing in compliance also provides UST owners and operators time to invest in technical improvements or replacement of tanks to make them insurable, as well as to comply with the UST technical standards.

- $500,000 per occurrence level of assurance allowed for non-marketers with monthly throughput of 10,000 gallons of gasoline or less. The Agency has determined that this amount should be sufficient to cover about 99 percent of all claims at these facilities -- a key criterion in deciding the coverage amounts. At the same time, this lower coverage amount reduces the burden on individual owners or operators. In addition, allowing a lower level of assurance may increase the number of policies insurers are able to write and may provide an incentive to extend coverage to non-marketers.

- Lower aggregate level of assurance. The final rule requires a maximum aggregate of $2 million and raises the number of tanks qualifying for the $1 million aggregate to 100. These aggregate levels achieve the Agency's goal that releases at UST facilities not exceed the aggregate more than one percent of the time. At the same time, the lower levels significantly reduce the burden on owners and operators. More firms will be able to use existing insurance programs (which currently provide maximum aggregate coverage of $2 million). The lower aggregate will also make it easier to capitalize RRGs and state funds.

- Suspension of enforcement. Today's rule does not contain suspension of enforcement procedures. The Agency has chosen to defer the promulgation of these procedures. The Agency hopes to gain experience with implementation of the program on which to base a process that minimizes the administrative burden of suspension of enforcement on owners and operators as well as on the Agency.

2. Summary of Today's Rule

This section briefly summarizes EPA's financial responsibility rule for petroleum USTs. Section III of this preamble describes the final rule, some of the major comments that were made on the proposed rule, and the rationale for the changes. The Comment/Response Document ("Summary of Comments and EPA's Response to Comments on the April 17, 1987, Proposed Financial Responsibility Rule for Petroleum Underground Storage Tanks") in the docket contains a detailed summary of all comments on the proposed rule and the Agency's response to those comments.

Today's financial responsibility requirements are applicable to owners or operators of "petroleum UST systems" with the following exceptions: (1) Federal or state entities that own or operate USTs containing petroleum; and (2) owners and operators of USTs excluded from the technical standards (Section III.A.6 below). For purposes of covering costs of corrective action and third-party liability, EPA requires all owners or operators of petroleum USTs at facilities engaged in petroleum production, refining, or marketing and owners or operators of USTs with an average monthly throughput of more than 10,000 gallons to obtain financial assurance of at least $1 million per occurrence. Owners or operators of USTs at facilities not engaged in petroleum production, refining, or marketing with an average monthly throughput of 10,000 gallons or less must maintain financial assurance of at least $500,000 per occurrence. All owners or operators must maintain an annual aggregate of $1 million or $2 million, depending on the number of USTs assured.

UST owners or operators may satisfy the requirements using the following mechanisms: insurance or risk retention group coverage, surety bond, guarantee, letter of credit, financial test of self-insurance, trust fund, a state-required mechanism, or a state fund or other state assurance. Mechanisms can be used alone or in combination to cover the costs of taking corrective action and compensating third parties as long as a mechanism or combination of mechanisms provides the appropriate amount of assurance. The only combination of mechanisms that is not allowed is the financial test of self-insurance and a guarantee where the financial statements of the owner or operator and the guarantor are consolidated.

The final rule does not contain procedures for obtaining a suspension of enforcement of the requirements. The Agency will promulgate suspension of enforcement procedures at a later date.

The final rule requires owners or operators to submit documentation of financial responsibility to the implementing agency after a known or suspected release occurs; when a provider becomes incapable of providing assurance; and when a provider revokes a mechanism and the owner or operator is unable to obtain alternate coverage. Owners or operators must also submit documentation of financial responsibility if requested by the implementing agency. In addition, UST owners or operators must notify the implementing agency of their methods of demonstrating financial responsibility upon installation of new tanks. Owners or operators must maintain records of the financial assurance mechanisms used to satisfy these requirements on-site or at their place of business.

The final rule also requires that UST owners or operators receive a notice of cancellation before terminating coverage to allow them sufficient time to procure alternate assurance and to determine whether there are existing releases.

Owners and operators must comply with these financial responsibility requirements over a phased-in compliance period lasting up to 24 months from the promulgation date of this rule.

The state program approval objective for financial responsibility of owners and operators of petroleum UST systems is also promulgated today. This objective outlines the financial responsibility requirements that owners and operators of petroleum UST systems must meet in order to be "no less stringent" than the corresponding federal technical standard, and to demonstrate adequate enforcement of compliance.

D. Availability of Mechanisms

The Agency received many comments suggesting that the mechanisms allowed to demonstrate compliance with today's rule are generally unavailable. The Agency recognizes that, for several reasons, including cost, company size, or lack of qualified providers, some of the mechanisms proposed in the rule might have a limited availability at this time. Some mechanisms, such as surety bonds and letters of credit, are likely to be available and affordable to only a few owners and operators. However, in deciding to allow a wide variety of mechanisms to be used to demonstrate financial responsibility, the Agency did not want to preclude the use of any mechanism that might be used and that would provide an adequate degree of assurance that funds will be available if needed. The guarantee, for example, was included because some UST owners and operators have business relationships with firms who might be willing and able to provide them guarantees. Not all owners and operators, however, will have that option.

The Agency recognizes that insurance and state financial assurance programs are likely to be the most feasible mechanisms for most owners and operators to comply with today's rule. Currently, however, pollution liability insurance for USTs is not widely available for a number of reasons. Foremost is the fact that such pollution liability insurance is now and is likely to continue to be offered by a limited number of specialized providers. Second is the unpredictability of the risks involved for unprotected tanks that have not been subject to regular leak detection. In addition, it is unclear to insurers how the new UST technical requirements, especially for corrective action, may change the number and cost of claims. This current uncertainty also affects the amount of reinsurance that is available for insurance policies written for USTs and thereby limits the number of policies that insurers are able to issue.

Despite its limited availability, a number of UST owners and operators have been able to find coverage. Commenters indicated that several insurers are already covering some USTs or are planning to offer such coverage in the future. While a substantial number of petroleum marketers are currently insured, the Agency recognizes that many smaller motor fuel marketers and UST owners not engaged in motor fuel marketing have had difficulty in obtaining coverage.

Implementation of the technical standards rule is likely to increase the availability of insurance over the long term. As old, unprotected tanks are removed and/or fitted with release detection systems, the number of leaks that are detected should increase significantly. As these leaks are detected and corrected, the requirements for upgrading or replacing tanks, combined with regular monitoring, should significantly reduce both the occurrence of leaks and their duration prior to detection. Over the long term, implementation of the technical standards should make UST risks more predictable and, therefore, insurers should be more willing to provide coverage.

Owners and operators who cannot secure traditional insurance coverage may also have alternatives. For some owners and operators, RRGs will offer an alternative to insurance. One such RRG has been formed and offers coverage to petroleum marketers. Several other commenters indicated an interest in forming RRGs.

State funds may also be available to UST owners and operators. In fact, Congress specifically recognized the important role that state funds may play in providing financial assurance by including attempts to form a state fund as a basis for suspension of enforcement and by explicitly allowing such funds to meet financial responsibility requirements for state program approval under RCRA Section 9004(c)(1). Although not widely available at present, state funds have already been established in several states. The Agency recognizes that, in most cases, state funds may only supply a portion of the financial assurance required. Some currently available funds cover corrective action but not third-party liability costs; others cover both. Generally, these funds do not supply coverage in the full amount required in today's rule. State funds may need to be used in combination with other mechanisms to meet the requirements of today's rule. Depending on their structure, state funds can provide an important means for compliance with financial responsibility requirements at the onset of the program and encourage development of insurance and RRGs over the longer term.

The Agency realizes that the mechanisms allowed in today's rule may be difficult to obtain at present. However, the phased-in schedule for compliance with the rule will provide insurers more time to develop and expand lines of insurance and states more time to establish state funds. In addition, the Agency expects to promulgate final procedures for suspension of enforcement in the near future. Following promulgation of that rule, those owners and operators unable to obtain a financial assurance mechanism by their compliance date may form classes and apply for a suspension of enforcement.

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FOOTNOTE #1 Under section 9001(1) "underground storage tank" is defined as "any one or combination of tanks (including underground pipes connected thereto) which is used to contain an accumulation of regulated substances, and the volume of which (including the volume of the underground pipes connected thereto) is 10 percent or more beneath the surface of the ground." Such term does not include any -

  1. Farm or residential tank of 1,100 gallons or less capacity used for storing motor fuel for noncommercial purposes,
  2. Tank used for storing heating oil for consumptive use on the premises where stored,
  3. Septic tank,
  4. Pipeline facility (including gathering lines), regulated under -
    1. The Natural Gas Pipeline Safety Act of 1968 (49 U.S.C. App. 1671, et seq.),
    2. The Hazardous Liquid Pipeline Safety Act of 1979 (49 U.S.C. App. 2001 et seq.),
    3. Which is an intrastate pipeline facility regulated under State laws comparable to the provisions of law referred to in clause (i) or (ii) of this subparagraph.
  5. Surface impoundment, pit, pond, or lagoon,
  6. Storm water or waste water collection system,
  7. Flow-through process tank,
  8. Liquid trap or associated gathering lines directly related to oil or gas production and gathering operations, or
  9. Storage tank situated in an underground area (such as a basement, cellar, mineworking, drift, shaft, or tunnel) if the storage tank is situated upon or above the surface of the floor.

The term 'underground storage tank' shall not include any pipes connected to any tank which is described in subparagraphs (A) through (I). "These terms are further defined by regulation under the technical standards published at (CITE–TS). Return to Text

FOOTNOTE #2 Under section 9001(8), petroleum is defined as "petroleum, including crude oil or any fraction thereof, "which is liquid at standard conditions of temperature (60 degrees Fahrenheit) and pressure (14.7 pounds per square inch absolute). Return to Text

FOOTNOTE #3 Under section 9001(2), "regulated substances" are defined as "(A) any substance defined in section 101(4) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (but not including any substance regulated as a hazardous waste under Subtitle C), and (B) petroleum. " Return to Text

FOOTNOTE #4 The Trust Fund may not be used to compensate third parties. Return to Text

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