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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 V. State Program Approval

40 CFR Parts 280 and 281
(pp. 43365-43366)

V. State Program Approval

A. Background

B. Financial Responsibility Objective (§281.37)

V. State Program Approval

A. Background

Section 9004 of RCRA allows any state to submit an underground storage tank regulatory program for review and approval by EPA. An EPA-approved state UST regulatory program will operate "in lieu of" the federal program. The Agency may approve the state program if the state demonstrates that its program (1) imposes requirements that are "no less stringent" than the federal release detection, prevention, correction, and financial responsibility requirements, and (2) provides for adequate enforcement of compliance with such requirements.

B. Financial Responsibility Objective (§281.37)

In its final State Program Approval rule (53 FR 37212, September 23, 1988), EPA promulgated criteria for state program approval in the form of objectives for seven of the technical program elements in the final technical standards rule (53 FR 37082, September 23, 1988): new UST system design, construction, installation and notification; upgrading existing UST systems; general operating requirements; release detection; release reporting and investigation; corrective action; and out-of-service and closed UST systems. The eighth objective for financial responsibility of owners and operators of petroleum UST systems is promulgated in today's rule.

These objectives represent the Agency's expectations of what constitutes a no-less-stringent state program. By requiring the state to achieve the objectives underlying the detailed federal requirements in each element rather than match each regulatory detail of the federal requirements, EPA provides a performance-based measure for evaluating programs and recognizes that the precise details in the federal program are not the only feasible approach to UST regulation. By establishing these objectives, EPA also provides a framework for approval that guarantees that each state UST program provides a minimum level of protection.

An important objective of the federal program is that owners and operators of UST systems containing petroleum have adequate financial responsibility to undertake corrective action and meet third-party liability claims. The federal law mandates $1 million per occurrence with appropriate aggregate amounts as the minimum level of assurance needed by most owners and operators of petroleum UST systems to meet cleanup and liability costs. Today's federal financial responsibility rule allows an exception for certain classes of owners and operators who store small quantities of petroleum for purposes other than selling it as a product. More specifically, owners and operators not engaged in petroleum production, refining, or marketing and who have a throughput of 10,000 gallons or less per month are required to have only $500,000 per occurrence for corrective action and third-party liability claims. In addition, the financial responsibility rule sets the aggregate amounts at $2 million for owners and operators with more than 100 UST systems, and $1 million for those who have 100 or fewer UST systems. Finally, the financial responsibility requirements will be phased-in over a 24-month period from the date of promulgation for different groups of owners and operators. In order to be no less stringent than the federal requirements for financial responsibility for USTs containing petroleum, the state must have requirements for owners and operators to have financial assurance and for the types of mechanisms used to provide that financial assurance.

The Agency received comments in support of the holistic approach to determining no less stringent state programs, particularly because such an approach would enable a state to trade-off more stringent technical requirements with less stringent financial requirements, for example, lower amounts of financial responsibility. While the Agency understands that states may experience difficulty in obtaining statutory or regulatory authority to require $1 million in coverage, that amount was established by Congress in Subtitle I and EPA believes it does not have the flexibility to lower that level of coverage as part of the federal program or as part of state program approval.

The first aspect of this objective (§281.37(a)) concerns the amount of financial assurance, both per occurrence and in aggregate, that an owner or operator must have. First, the state must have a statute or regulations that require an owner or operator to have at least $1 million or $500,000 per occurrence and $1 million or $2 million in aggregate, depending on the size and type of the operation. This requirement follows directly from the federal financial responsibility regulations for petroleum-containing UST systems.

The Supplemental Notice published on December 23, 1987 (52 FR 48644) included an objective for financial responsibility; however, aggregate levels were not included in the proposed objective. To remain consistent with the federal requirements for financial responsibility, the Agency today is promulgating the final objective with a requirement that the owner or operator have financial assurance in appropriate aggregate levels. Addition of the aggregate is necessary to ensure that approved states require an adequate level of coverage. The aggregate level varies depending on the number of tanks owned or operated. Owners and operators with 1 to 100 tanks must have an aggregate level of coverage of $1 million and those with more than 100 tanks must have an aggregate level of coverage of $2 million. The final objective establishes the same levels of coverage. Further discussion on per-occurrence and aggregate levels of coverage can be found in today's preamble at Section III.D.

The second aspect of this objective (§281.37(b)) concerns the phase-in compliance schedule for owners and operators. The objective proposed on December 23, 1987 (52 FR 48644) did not include a provision for a phase-in schedule. This provision is being added to be consistent with decisions made following the Supplemental Notice to the proposed rule for financial responsibility for petroleum USTs that was published in the Federal Register on March 31, 1988 (53 FR 10401). In today's final financial responsibility rule, EPA has decided to phase-in compliance over 24 months from the date of promulgation at all UST systems following a schedule based on net worth and the number of tanks owned. Although EPA recommends that a similar approach be used by state programs, the Agency has decided to allow flexibility in the objective for states to use other phase-in approaches provided that the schedule is completed in 24 months. Approaches that allow all of the regulated community to wait until the end of the 24-month period would not be accepted as an orderly schedule.

The third aspect of this objective (§281.37(c)) concerns the variety of financial mechanisms that may be used by owners and operators to demonstrate adequate financial responsibility. The federal financial responsibility rule allows a wide variety of mechanisms and combinations of mechanisms to be used. The state may also allow a variety of financial mechanisms to be used. To determine whether state-allowed or required mechanisms are no less stringent than the federal requirement, general criteria have been established that are applicable to all financial mechanisms. By establishing these criteria in the federal objective, the Agency believes that it is unnecessary for the state to have detailed requirements for each mechanism affected by these criteria for purposes of state program approval. However, EPA encourages states to adopt the financial responsibility regulation, especially the language of each mechanism, since they have been developed and tested to ensure that adequate financial responsibility will be available when necessary. For example, the state will not be expected to demonstrate that its regulations require a surety company to state in a bond that the bond cannot be canceled during a 120-day period following notice of cancellation of the bond to the owner or operator. The state must, however, be able to draw on the funds assured by the bond before cancellation occurs. The state regulations must ensure that the time period before the effective cancellation of the bond provides ample opportunity for the state to assess the facility, determine if a release has occurred, and, if needed, draw funds from the instrument. In this way, the federal objectives for financial responsibility for UST systems containing petroleum are met.

Section 9004(c)(1) of Subtitle I allows states to set up a fund that may be used to meet the no less stringent requirement for financial responsibility. The state may choose to establish a state fund to provide financial assurance for certain classes of owners and operators or for all owners and operators. The general criteria for state funds are represented in the objective (§281.37(a) and (c)); these criteria are essentially the same as the requirements for state funds set out in the federal financial responsibility rule in §280.100. Further discussion on state funds and their use in providing financial assurance will be available in guidance due to be issued this fall by EPA. A briefer discussion can also be found in EPA's State Program Approval Handbook.

Some commenters expressed concern that the requirement that states have a financial responsibility program that is no less stringent than the federal program in order to receive state program approval will delay approval of state programs. The commenters stated that complex financial responsibility requirements could discourage states from submitting UST programs for approval. They urged that EPA promulgate a simple financial responsibility framework and provide guidance to the states.

As explained above, the requirement that an approved state program contain financial responsibility requirements that are no less stringent than those under the federal program is required by RCRA Section 9004. However, EPA has developed an approach to state program approval that provides states as much latitude as possible consistent with the statute in adopting approaches to fulfill the requirement. The Agency recognizes the difficulties for states in developing financial responsibility programs and is preparing detailed guidance and outreach assistance to states to help them develop their programs.

A more complete analysis of issues regarding state program approval is presented in the preamble to that rule (53 FR 37212, September 23, 1988).

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