Underground Storage Tanks

FINANCIAL RESPONSIBILITY FOR PETROLEUM UNDERGROUND STORAGE TANKS
PREAMBLE

OCTOBER 1988

ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 280 and 281
[FRL-UST-3]

Underground Storage Tanks Containing Petroleum - Financial Responsibility Requirements and State Program Approval Objective

AGENCY: Environmental Protection Agency.

ACTION: Final Rule.

SUMMARY: The Environmental Protection Agency (EPA or the Agency) is promulgating financial responsibility requirements applicable to owners and operators of underground storage tanks containing petroleum under §§9003(c) and (d) of the Resource Conservation and Recovery Act (RCRA), as amended by the Hazardous and Solid Waste Amendments of 1984 (HSWA) and the Superfund Amendments and Reauthorization Act of 1986 (SARA). This rule establishes requirements for demonstrating financial responsibility for taking corrective action and compensating third parties for bodily injury and property damage caused by sudden and nonsudden accidental releases arising from the operation of underground storage tanks containing petroleum.

Today EPA is also promulgating, for purposes of state program approval, a federal technical objective for financial responsibility of owners and operators of petroleum UST systems. Subtitle I of RCRA allows EPA to approve state programs to operate in place of the federal UST requirements if those state programs have standards that are no less stringent than the federal requirements, and also provide adequate enforcement of compliance with those standards.

EFFECTIVE DATE: This rule becomes effective on (insert date 90 days after publication in the FEDERAL REGISTER).

FOR FURTHER INFORMATION CONTACT: The RCRA/Superfund Hotline at (800) 424-9346 (toll free) or (202) 382-3000 in Washington, D.C.

SUPPLEMENTARY INFORMATION: The contents of today's preamble are listed in the following outline:

I. Authority

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

III. Section-by-Section Analysis

A. Applicability (§280.90)

1. Owners and Operators

2. Tanks Taken Out of Operation Before the Date for Compliance

3. Applicability to State and Federal Government Entities

4. Applicability to Local Government Entities

5. Applicability to Indian Tribes

6. Deferrals and Exclusions

B. Compliance Dates (§280.91)

C. Definition of Terms (§280.92)

1. Accidental Release and Occurrence

2. Bodily Injury

3. Director of the Implementing Agency

4. Petroleum Marketing Facilities

5. Petroleum Marketing Firms

6. Property Damage

7. Additional Definitions

D. Amount and Scope of Required Financial Responsibility (§280.93)

1. Per-Occurrence Amount

2. Aggregate Amounts

3. Apportionment of Costs and Levels of Coverage Under Separate Mechanisms

E. Allowable Mechanisms and Combinations (§280.94)

1. Mechanisms Allowed

2. Combinations of Mechanisms

3. Attorney General Certification

4. New Mechanisms

5. Specification of Tanks in Financial Assurance Instruments

F. Financial Test of Self-Insurance (§280.95)

1. Proposed Financial Test

2. Comments on the Proposed Financial Test

3. Summary of Changes in the Financial Test

G. Guarantee (§280.96) and Indemnity Contract

H. Insurance and Risk Retention Group Coverage (§280.97)

1. Availability

2. Insurance Cost and Its Impact

3. Viability of Risk Retention Groups

4. Specific Requirements for Insurance and Risk Retention Group Coverage

I. Surety Bond (§280.98)

J. Letter of Credit (§280.99)

K. Use of State-Required Mechanisms (§280.100)

L. State Fund or Other State Assurance (§280.101)

M. Trust Fund (§280.102)

N. Standby Trust Fund (§280.103)

O. Substitution of Financial Assurance Mechanisms by an Owner or Operator (§280.104)

P. Cancellation or Nonrenewal by a Provider of Financial Assurance (§280.105)

1. Length of Notice Period

2. Termination for Non-Payment of Premium

Q. Reporting by Owner or Operator (§280.106)

R. Recordkeeping (§280.107)

S. Drawing on Financial Assurance Mechanisms (§280.108)

T. Release from the Requirements (§280.109)

U. Bankruptcy or Other Incapacity of Owner or Operator or Provider of Financial Assurance (§280.110)

V. Provisions Pertaining to Other Instruments (§280.111)

1. Maintaining Other Instruments at Required Levels of Coverage

2. Exclusionary Language for Other Instruments

W. Suspension of Enforcement (§280.112)

1. Statutory Authority

2. Suspension of Enforcement Process

IV. Integration with Other EPA Programs

A. Other Subtitle I Rulemakings

B. Leaking Underground Storage Tank (LUST) Trust Fund and Response Program

V. State Program Approval

A. Background

B. Financial Responsibility Objective (§281.37)

VI. Compliance Monitoring and Enforcement

VII. Economic and Regulatory Impacts

A. Regulatory Impact Analysis

1. Compliance with Executive Order 12291

2. Integration of the Financial Responsibility and Technical Standards Regulatory Impact Analysis

3. The Regulated Community

4. Assumptions and Methodology Used in the RIA

5. Annual Real Resource Costs

6. Economic Impacts

7. Benefits

B. Regulatory Flexibility Act

C. Paperwork Reduction Act

VIII. List of Subjects in 40 CFR Parts 280 and 281

Authority

These regulations are issued under the authority of Sections 2002, 9001, 9002, 9003, 9004, 9005, 9006, 9007, and 9009 of the Solid Waste Disposal Act, as amended. The principal amendments to this Act have been under the Resource Conservation and Recovery Act of 1976, the Hazardous and Solid Waste Amendments of 1984 (Public Law 98-616) and the Superfund Amendments and Reauthorization Act of 1986 (Public Law 99-499) (42 U.S.C. 6921, 6691, 6991(a), 6991(b), 6991(c), 6991(d), 6991(e), 6991(f), and 6991(h)).

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.

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)1 containing regulated substances, including petroleum2 and other regulated substances3 (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).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).

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 two to 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.

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.

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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Section-by-Section Analysis

Applicability (§280.90)

The rule promulgated today applies to owners and operators of all underground storage tank systems containing petroleum, with certain exemptions or deferrals. Commenters raised several issues concerning the applicability of this rule.

1. Owners and Operators (§280.90(a)). The final rule applies to owners and operators of all petroleum UST systems (as defined in §280.12 of the technical standards rule). If the owner and operator are separate persons, only one person is required to demonstrate financial responsibility although the Agency will hold each responsible if the financial responsibility requirements are not complied with by either party. While the Agency's intention with respect to this issue was explicitly stated in the preamble to the proposed rule (52 FR 12795, April 17, 1987), the rule also conveyed the Agency's intention by using the phrase "owner or operator" instead of "owner and operator" in all but the applicability section.

The Agency retains this approach and explicitly states it in the rule, as well as in the preamble, to avoid possible confusion. For this reason, the Agency has added the following language to §280.90 Applicability:

If the owner and operator of a petroleum UST system are separate persons, only one person is required to demonstrate financial responsibility.

Some commenters supported the Agency's approach to applicability when the owners and operators are separate persons; however, other commenters believed that EPA should designate which person should comply with the rules. Of these commenters, some supported a rule that required only the owners to comply with the requirements while other commenters believed only operators should be held responsible. Some commenters suggested that the person with responsibility for a particular activity, e.g. tank installation, maintenance or daily operation, should demonstrate financial responsibility.

The commenters who urged EPA to designate only one responsible person when the owners and operators are separate persons believed that the proposal left owners and operators to "fight it out" to determine who will demonstrate financial responsibility and that problems would occur when they do not agree who should obtain coverage. The commenters who urged EPA to hold only operators responsible pointed out that in many cases owners will have only minimal or nominal control over the operation of the tanks (e.g., passive lessors of property such as oil jobbers or marketers ordinarily do not control day-to-day tank operations). On the other hand, one commenter who supported holding only owners responsible pointed out that, when oil jobbers and marketers own tanks, they have usually assumed responsibility for tank replacement and maintenance.

The Agency has decided not to designate a single party, either the owner or operator, as responsible for compliance with the rules because the statute requires the UST standards to be applicable to "all owners and operators," and a determination of which person should assume these costs could only be made on a case by case basis. Under the technical requirements, both persons are responsible for corrective action; however, the liability of owners and operators to third-party claimants will vary depending on the circumstances of each case and on the applicable state law. Making financial assurance the responsibility of only the person engaged in a particular activity would also be inappropriate because the liability of an owner or operator is not limited to the results of particular activities. In some cases the person responsible for one activity may have allowed a release to occur and therefore incur liability to third parties, while in another case, the person responsible for a different activity may be liable. Under theories of strict liability and negligence, even passive lessors could be liable for third-party damages in some situations. Moreover, the person responsible for maintenance and installation will vary depending on the individual arrangements between owner and operator.

The Agency recognizes that in some instances owners and operators will have difficulty agreeing which one of them will comply with the rules. Nonetheless, the Agency believes that owners and operators are in the best position to decide between themselves, as part of their ongoing business relationships, which one of them should demonstrate financial responsibility. Owners and operators may decide that the person most responsible for particular activities should obtain financial assurance, or they may decide that the person most able to demonstrate financial responsibility should do so. EPA believes this approach will allow for greater flexibility, yet avoids the considerable expense of requiring both parties to secure financial assurance.

Other commenters expressed concern about other applicability issues. Some commenters objected to requiring current owners and operators to obtain financial assurance when past owners and operators might be responsible for contamination. Another commenter pointed out that tank testers may be responsible for releases and urged that they should be subject to financial responsibility requirements.

Current owners and operators are responsible under the regulation for obtaining financial assurances for their tanks even if previous owners or operators are responsible for contamination. In situations where a current owner or operator is faced with claims for contamination that occurred under a previous owner or operator, he may pursue appropriate legal remedies against the previous owner or operator. Similarly, damage to tanks and releases which result from tank testing activity are subject to tort claims under applicable state law. Moreover, the statute does not authorize the imposition of financial responsibility requirements on tank testers, only UST owners and operators.

Finally, one commenter requested that the Agency clearly define owners and operators to exclude corporate parents or affiliates. Parents and affiliates generally would not be subject to today's rule. Parents, for example, may serve as guarantors for owners and operators, thereby enabling the owner or operator to satisfy financial responsibility requirements, but would not be directly responsible themselves for complying with these requirements. The Agency might, however, hold parents or affiliates subject to these requirements in certain situations. For example, if an owner or operator attempted to circumvent today's requirements through the creation of a sham subsidiary or through other arrangements, the Agency could in appropriate circumstances hold a parent or affiliate responsible for compliance with these rules. Thus, a definition of owners and operators which excludes corporate parents or affiliates in all situations is not appropriate. The Agency does not expect, however, that parents or affiliates will generally be subject to these financial responsibility requirements.

2. Tanks Taken Out of Operation Before the Date for Compliance (§280.90(b)). The preamble to the proposed rule stated EPA's intention to make the rule applicable to tanks taken out of operation before the effective date of the rule. The language of the proposed rule, however, did not state specifically that it would apply to such tanks.

The Agency received a number of comments on this provision. One commenter questioned the Agency's authority under Subtitle I to apply financial responsibility requirements retroactively to owners of tanks taken out of operation before Subtitle I was enacted in 1984.

The statutory definition of "owner" in RCRA Section 9001(3)(A) and (B) includes owners of tanks taken out of operation before enactment of HSWA, as well as owners of tanks in use on the date of enactment. RCRA Section 9003(a) further authorizes EPA to promulgate regulations, including financial responsibility regulations, applicable to all owners and operators of USTs. Therefore, the Agency has authority to regulate tanks taken out of operation before the enactment of Subtitle I and to impose financial responsibility requirements on owners and operators of such tanks where necessary to protect human health or the environment.

Some commenters, while not questioning the Agency's statutory authority, urged the Agency to exempt tanks taken out of operation before the effective date of the rule or before November 8, 1985 (one year after enactment of HSWA). Commenters gave the following reasons for such an exemption:

- Providers of financial assurance are not likely to offer assurance for tanks taken out of operation unless it can be proven that there is no contamination present.

- Because so many tanks have been taken out of operation in recent years, it would be extremely difficult to identify these tanks and inform former owners and operators of their obligations.

One commenter recommended that if the requirement for such tanks is retained, owners and operators of tanks that are properly closed should not be required to maintain financial assurance if they can demonstrate that no contamination is present.

At the time the Agency proposed to require owners or operators of tanks taken out of operation before the effective date to obtain financial assurance, it also proposed in the technical rule to require these tanks to comply with closure requirements (§280.80). The Agency reasoned that, because non-operational tanks were subject to the closure and corrective action requirements under Subparts F and H of the technical standards, requiring financial assurance was necessary to ensure that closure was undertaken properly and quickly.

Since that time, the Agency has decided to eliminate the requirement that all USTs taken out of operation before the effective date for the technical rule undergo closure. The rule does provide, however, that implementing agencies may require owners or operators to close these tanks properly if there is a reason to believe that they may pose a threat to human health and the environment. The preamble to the technical standards rule discusses the reasons for this change.

Based on comments on the proposed financial responsibility rule and the revisions to the technical standards, the Agency has decided not to require owners or operators of USTs taken out of operation before the compliance dates in this rule to obtain financial assurance. The Agency recognizes that for many owners and operators of USTs, insurance will be the only feasible financial assurance mechanism available. The Agency agrees with commenters, among them insurance companies, that insurance providers would be extremely reluctant to assure tanks taken out of operation because of the perceived greater uncertainty associated with them.

Even if providers of assurance would assure these tanks, it is unlikely that they would cover leaks which occurred before the effective date of the policy. For example, based on standard insurance industry practice, owners and operators applying for coverage must meet certain pre-conditions which may include tank tightness testing and a determination that there are no existing releases. If releases are discovered, insurance policies probably would not cover them, because the insurance industry's practice is to exclude pre-existing releases from coverage. In addition, as a condition for coverage of a tank not in operation, an insurer might require proper closure in order to minimize the risk of a release of material which might remain in the tank. Such an insurance policy would be of little value in protecting human health and the environment since it would not cover pre-existing conditions and would only cover tanks that have been emptied of their contents. The Agency believes that the owners' and operators' resources would be better spent in closure and corrective action than in attempting to procure this type of insurance. Nevertheless, owners and operators of tanks taken out of operation before the effective date remain responsible for the costs of releases associated with them.

3. Applicability to State and Federal Government Entities (§280.90(c)). The final rule, like the proposed rule, is not applicable to state and federal government entities whose debts and liabilities are the debts and liabilities of a state or the United States. Several commenters argued that state and federal government entities should not be exempt from the financial responsibility requirements. Their reasons included the following:

- Such an exemption conflicts with Congressional intent to have all tanks assured.

- The exemption will discourage sound tank management practices on the part of state and federal governments.

- The exemption would provide state-owned transit agencies with unfair advantages over private owners.

The Agency does not interpret the Congressional intent of Subtitle I to preclude exempting any class of USTs from otherwise applicable requirements when the Agency has determined that such requirements are not necessary to protect human health or the environment. See RCRA §9003(a). With respect to financial responsibility, such requirements need not be imposed where the owners or operators will consistently be able to cover the costs of releases in a timely fashion. The purpose of these financial responsibility requirements is to ensure that funds will be available in a timely manner to cover the costs of corrective action and compensation of third parties arising from UST releases. While the Agency recognizes that these requirements may provide an incentive for sound tank management practices, this is not their primary purpose.

No commenters disputed the Agency's opinion that federal and state governments have the requisite financial strength and stability to fulfill their financial assurance obligations. In addition, exemption from the requirements will not discourage sound tank management practices by state and federal government entities, because they remain responsible for the cost of corrective action associated with the releases.

The Agency concedes that not having to pay the costs of procuring a financial assurance mechanism may result in a slight competitive advantage for state-owned transit agencies. Such an advantage is not likely to be significantly greater than advantages already enjoyed by state-owned transit systems (e.g., through government subsidies). In addition, the financial advantage of the state-owned agency is comparable to the position of any firm which can rely on a guarantee provided by a parent or related firm, and merely reflects the difference between large and small businesses. If releases occur, state-owned agencies may rely on state assistance to pay the costs of damages. Privately-owned transit agencies, however, would have to rely on their own funds to pay these costs. Thus, even without today's rule, private transit agencies have a financial incentive to purchase insurance coverage not shared by the state-owned agency.

4. Applicability to Local Government Entities. While the proposed rule exempted from the requirements those government entities whose debts and liabilities are the debts and liabilities of federal or state governments, local government entities were required to provide financial assurance for USTs that they own or operate. The final rule remains applicable to local government entities. However, under the Agency's schedule for phased compliance with the rule, local government entities have 24 months from the promulgation date to comply. EPA also intends to develop a financial test in the interim that will allow local governments that can demonstrate the requisite financial strength and stability to cover the costs associated with UST releases to self-insure.

Local government entities include both general purpose local governments and special purpose local entities. General purpose local government entities include municipalities, counties, townships, towns, villages, parishes and New England towns. Special purpose local governments perform a single function or a limited range of functions. Special purpose governments are generally designated as either public authorities or special districts such as school districts, water and sewer authorities, transit authorities or power authorities. All local governments, both general and special purpose, are subject to this rule.

One commenter supported application of the financial responsibility requirements to local government entities. However, many commenters stated that the proposed exemption for federal and state governments from demonstration of financial responsibility should be extended to local government entities. The major arguments in favor of such an exemption focused on three areas: (1) the permanence and stability of local governments; (2) the incentives for local governments to provide funds in a timely manner; and (3) the financial strength and capability to raise funds in a timely manner.

First, several commenters maintained that the permanence and stability that the Agency attributes to federal and state governments also apply to local governments; local governments are unalterably attached to their particular location. Moreover, commenters asserted that cities almost never go bankrupt, and when they are unable to meet their financial obligations over the short-term, their debts are not forgiven under the bankruptcy laws but are extended until they can be satisfied. Therefore, unlike private firms, local governments do not disappear even if they file bankruptcy.

Second, commenters stated that local governments have the same incentives as federal and state governments to meet their UST obligations in a timely manner. Local governments exist to safeguard public health and welfare, and local officials have voter accountability that helps assure an immediate and effective response to an UST release. One commenter, an association of city governments, stated that cities have consistently demonstrated an ability to respond to UST leaks in a timely manner and have taken prompt action to ensure that leaks do not recur in the future by either upgrading or removing failed USTs.

Third, commenters claimed that local governments have the requisite financial strength to meet potential UST obligations in a timely manner. One commenter representing city governments pointed out that cities are accustomed to addressing emergencies such as natural disasters and routinely establish contingency funds of a size that could easily cover the costs associated with most UST leaks. Another commenter noted that local appropriation procedures often are structured so that officials may take funds originally intended for one purpose and divert them to a more pressing need related to USTs.

Finally, one commenter argued that for UST releases in excess of fund reserves, many local government entities -- like states -- have the ability to raise funds through taxes and debt issues. The commenter stated that the delays involved with tax and bond initiatives are unlikely to affect the timeliness of an UST cleanup because cities tend to be excellent credit risks and can often have contracted work performed in an emergency without having to provide funds until after the emergency is remedied or use their own personnel to respond.

The Agency believes that there is merit in many of the points commenters raised as applied to particular municipalities. However, for several reasons, the Agency is unwilling to exempt all local government entities from these requirements. There is substantial variability in local governments in terms of size, financial capacity, and functions. A number of commenters urged that the financial test should be modified so that local government entities could use it. The corporate financial test is not applicable to most government entities because it contains a net worth indicator, a financial measure that is either unavailable to many local governments or does not measure financial strength in the same way it does for private firms. It requires reporting to the U.S. Securities and Exchange Commission (SEC) or to Dun and Bradstreet, which is also not applicable to government entities. Accordingly, the Agency is taking steps to develop a financial test that will allow local governments meeting the test criteria to self-insure like private companies that use the corporate financial test. Local governments which pass this financial test will not be required to obtain other financial assurance mechanisms to comply with the requirements of this rule. In the interim as discussed in Section III.B, under the phased schedule of compliance, the compliance date for local government entities is 24 months after promulgation. The Agency anticipates that the final financial test for local government entities will be promulgated before their scheduled compliance date.

Some commenters on the proposed rule suggested that particular special purpose local governments such as public power entities or airports should be exempt from the financial responsibility requirements. The Agency sees no reason to treat particular special purpose local government entities differently from all other local governments. All local governments remain subject to the rule and may be able to meet the local government financial test under development.

Some commenters suggested a change to the corporate financial test so that power authorities meeting the other criteria in the test could use it. Specifically, they suggested that the Agency accept reports to the Rural Electrification Administration and the Energy Information Administration, as an alternative to filing with the SEC or Dun and Bradstreet. Their comments indicated that other than filing annual statements with a different Agency, they could use the Subtitle I corporate financial test. This change has been made to the corporate financial test so that power authorities meeting the criteria in the test may use it.

5. Applicability to Indian Tribes. The proposed rule did not address the applicability of the financial responsibility requirements to Indian tribes. Indian tribes are included in the statutory definition of municipalities in RCRA §1004(13). Accordingly, under the phased schedule of compliance, Indian tribes will be required to comply with financial responsibility requirements on the last compliance date, 24 months after the promulgation date of the rule, similar to municipalities. However, in the proposed financial test for local government entities, the Agency will specifically request comments on whether this test should apply to Indian tribes. The Agency intends to finalize this proposed rule before the compliance date for local government entities and Indian tribes.

6. Deferrals and Exclusions (§280.90(d)). Under the proposed rule, EPA would have deferred from the financial responsibility requirements certain categories of tanks that the Agency also was proposing to defer under the technical requirements. The Agency proposed to defer the regulation of these categories of USTs because it had limited information about these USTs or was otherwise uncertain about the need to regulate them. Several commenters addressed these and other categories of tanks that they believed should be deferred or exempted from the final rule.

The proposed technical requirements deferred the following categories of tanks from all of their requirements (except the requirements for corrective action and notification and the prohibition of bare steel UST installation requirements): (1) wastewater treatment tanks, (2) sumps, (3) underground bulk storage tanks, (4) USTs containing radioactive waste and other radioactive materials, (5) UST systems containing electrical equipment, (6) hydraulic lift tanks, and (7) UST systems containing used oil.

In the final technical standards rule (53 FR 37082, September 23, 1988), the Agency has excluded some of these categories of USTs from the technical requirements. Some of the other categories of USTs that the Agency proposed to defer from regulation are now regulated. The Agency continues to defer regulating certain categories of USTs (except from corrective action requirements and prohibition of bare steel UST installation).

The financial responsibility rule tracks the final technical standards rule with respect to exclusions and deferrals from the requirements. All USTs excluded from regulation are excluded from these financial responsibility requirements. All USTs that are deferred from regulation also are not subject to these financial responsibility requirements. Because the Agency is uncertain about the need to regulate deferred categories of USTs, or has limited information about them, the application of financial responsibility requirements to the deferred categories of USTs is inappropriate at this point. The Agency's decision about the regulation of each of the categories of excluded or deferred tanks is summarized below. The preamble to the final technical standards rule contains a thorough discussion of the Agency's rationale for each decision.

- UST Systems Containing Hazardous Waste and Regulated Substances. The Agency has excluded these tank systems from regulation under Subtitle I.

- UST Systems Containing Electrical Equipment and Hydraulic Lifts. Equipment or machinery using regulated substances for operational purposes are now excluded from regulation.

- Wastewater Treatment USTs. Wastewater treatment tanks regulated under the Clean Water Act are excluded from regulation. Wastewater treatment USTs that are not regulated under the Clean Water Act are deferred from regulation.

- Tanks Containing De Minimis Quantities of Regulated Substances. The Agency is excluding the following categories of USTs:

-- USTs with a capacity of less than 110 gallons;

-- USTs holding a de minimis concentration of regulated substances; and

-- USTs that serve as emergency backup tanks, hold regulated substances for only a short period of time, and are expeditiously emptied after use.

- Sumps. Sumps are not excluded or deferred as a separate category; however, many sumps may be excluded under the de minimis exclusions, the wastewater treatment exclusion, and the statutory exclusion for storm water and wastewater collection systems. Other sumps may be deferred under the "field-constructed tank" deferral.

- Field-Constructed Tanks. Field-constructed tanks, which include many tanks that were classified as underground bulk storage tanks in the proposal, are deferred from regulation.

- UST Systems that Contain Radioactive Wastes and Other Radioactive Materials. The Agency is deferring UST systems that contain radioactive materials from regulation.

- Backup Diesel Tanks at Nuclear Facilities. These USTs are deferred from regulation.

- Airport Hydrant Fueling Systems. These USTs are deferred from regulation.

- Used Oil. Tanks containing used oil, including crankcase oil, are no longer deferred. They are now subject to the final technical rule, and are also subject to the financial responsibility requirements.

For each of the following categories of tanks, the Agency received comments supporting a deferral or exemption of these requirements from the financial responsibility requirements (see also the preamble to the technical standards rule for a more thorough discussion):

- Small Capacity Tanks. One commenter urged "special consideration" for small capacity users. One commenter suggested that petroleum USTs containing under 5,000 gallons should be exempt. Another commenter suggested 4,000 gallons as a cutoff. As noted above, the Agency has decided on a de minimis exclusion for tanks with a capacity of less than 110 gallons.

- Small Business. One commenter requested a small business cutoff for the final rules because insurance may be offered only at unaffordable rates. Other commenters requested an exemption for small businesses not engaged in petroleum marketing. The Agency has not exempted small businesses from the final financial responsibility requirements because the costs of corrective action and third-party claims will not be different for small businesses than for other owners and operators. The specific concerns of small businesses and businesses not engaged in petroleum marketing are addressed in establishing a phased compliance schedule (Section III.B in the preamble) and a lower per- occurrence amount for certain facilities not engaged in petroleum production, refining or marketing (Section III.D.1).

- Tanks Containing Heating Oil. Based on experience with releases in New Jersey, one commenter urged that heating oil for on-site consumption should not be excluded from the requirements. Because heating oil tanks are excluded from regulation by statute, EPA cannot require these USTs to obtain coverage.

- Small Throughput Tanks. One commenter supported exempting a system with small throughput volume. According to this commenter, this exemption is appropriate because most leaks are associated with piping. The Agency recognizes that a large number of releases are associated with piping; however, the Agency does not believe an exclusion for these tanks is appropriate. Releases may still occur from tanks with small throughput and owners or operators should obtain coverage for releases that do occur. However, the Agency has taken these concerns into account in establishing a lower per-occurrence amount of financial assurance for tanks at certain facilities not engaged in petroleum production, refining or marketing.

- Tanks Owned by Small, Rural Telephone Systems. One commenter urged EPA to consider exempting small, rural telephone systems from these requirements for the following reasons: (1) the unavailability of pollution insurance, (2) the high net worth requirement for self-insurance, and (3) the high per-occurrence and aggregate coverage levels. Although EPA recognizes owners and operators of these USTs may have difficulty obtaining financial assurances, releases from these USTs may still require corrective action and cause bodily injury and property damage to third-party claimants. For these reasons, EPA has not exempted these categories of USTs.

- Aircraft Owners. One commenter supported an exemption for aircraft owners, comparing these USTs to motor fuel tanks with a capacity less than 110 gallons. All tanks with a capacity of less than 110 gallons are now excluded from these requirements. Thus, many aircraft owners with USTs that contain a capacity of less than 110 gallons are excluded under the de minimis exclusion. In addition, EPA has deferred regulation of airport hydrant systems. The Agency is not aware of any evidence to support an additional exemption for these categories of USTs that contain more than 110 gallons.

III.B. Compliance Dates (§280.91)

Today's rule is effective on (insert date 90 days after date of publication in the FEDERAL REGISTER). However, UST owners are required to comply with this regulation by the date assigned to their appropriate compliance category in the rule. The composition of the compliance categories and the compliance dates for each of these categories is summarized in Table 1. As Table 1 shows, EPA has designated UST ownership as the factor determining compliance categories. The rationale for this decision is explained below.

UST owners in Category I are required to comply on the effective date three months after the rule's promulgation. UST owners in Category I include all petroleum marketing firms that own 1,000 or more USTs and all other UST-owning entities that report a tangible net worth of $20 million or more to the SEC, Dun and Bradstreet, the Energy Information Administration, or the Rural Electrification Administration.

UST owners in Category II are required to comply by 12 months after the rule's promulgation date. UST owners in Category II include all petroleum marketing firms owning 100 to 999 USTs.

UST owners in Category III are required to comply by 18 months after the rule's promulgation date. UST owners in Category III include all petroleum marketing firms owning 13 to 99 USTs at more than one facility.

UST owners in Category IV are required to comply by 24 months after the rule's promulgation date. UST owners in Category IV include all petroleum marketing firms owning 1-12 USTs or those owning only one facility with fewer than 100 USTs. (For example, a petroleum marketing firm owning 13 USTs at one facility would be classified by EPA in Category IV.) Category IV also includes all UST-owning firms not engaged in petroleum marketing but having tangible net worth of less than $20 million and all local government entities.

In §280.92 of the final rule, the Agency defines petroleum marketing firms as all firms owning facilities engaged in petroleum production, refining, or marketing. These include all facilities at which petroleum is produced and all facilities from which petroleum is sold or transferred to other petroleum marketers or to the public. Petroleum production facilities include all refineries and all facilities engaged in producing petroleum products from purchased materials. Facilities from which petroleum is sold or transferred to other petroleum marketers or to the public include all wholesale petroleum marketing facilities, such as bulk terminals and bulk plants, and all retail petroleum marketing facilities, such as

INSERT TABLE 1 HERE

automobile service stations, marine service stations, truck stops, convenience stores selling gasoline, etc. The Agency considers all facilities selling petroleum products to the public to be retail petroleum marketing facilities, even if the amount of petroleum sold is minimal. Facilities that store petroleum products in underground storage tanks only to refuel their own vehicles (e.g., establishments owning fleets of vehicles) are not considered facilities that are engaged in petroleum marketing. Establishments that store fuel to refuel vehicles rented to the public (e.g., rental car facilities) are not considered facilities engaged in petroleum marketing as long as the fuel is not sold to the public at large.

The Agency considers firms owning both petroleum marketing facilities and other types of facilities that are not engaged in petroleum marketing to be petroleum marketing firms. The compliance date for such firms is based on the total number of USTs owned at their petroleum marketing facilities and at their other facilities.

Many commenters on EPA's proposed rules suggested that the Agency delay the effective date of the rule because pollution liability insurance for USTs and other financial assurance mechanisms would not be available to a large number of UST owners and operators by the rule's effective date. Although EPA has decided not to delay the effective date of this rule, the Agency is concerned about the unavailability of financial assurance mechanisms for a large portion of the regulated community. On March 31, 1988, EPA published a supplement to the proposed rule (53 FR 10401) in which the Agency explained that it was considering a phase-in of the financial responsibility regulations to allow different categories of owners and operators to come into compliance at different times after publication of the final rules. The principal reason for the phase-in was to provide sufficient time for owners and operators to obtain financial assurance in accordance with the rules. Additional reasons for the proposed phase-in included:

- the time necessary for providers of financial assurance mechanisms to conform them to EPA's requirements;

- the time necessary to provide assistance and outreach programs for portions of the regulated community;

- the administrative difficulties of trying to implement this regulation for such a large and diverse regulated community; and

- the unavailability of mechanisms to large portions of the regulated community.

The Agency received a large number of comments in response to this notice. Although the majority of commenters generally agreed with the phase-in strategy, many suggested an across-the-board delay and still others were concerned about the possible negative consequences of any type of delay (including a phase-in) to the implementation of the financial responsibility rules. The Agency agrees with many commenters who pointed out that the relative unavailability of financial responsibility mechanisms (primarily insurance, the financial test of self-insurance, or state funds) presents a problem for some members of the regulated community and that a phase-in may help to alleviate this problem. However, the Agency recognizes that the problem of the unavailability of mechanisms for some members of the regulated community may not be resolved before the compliance date for the requirements for those owners. The Agency retains its discretion to use the suspension of enforcement authority provided in §9003(d)(5)(D) to address the problem of unavailability in the future. EPA expects that implementation of the rule during the phase-in period will enable the Agency to develop appropriate suspension of enforcement procedures based on this experience tailored to the numbers and types of facilities for which assurance remains unavailable.

Many commenters opposed a phase-in or any type of delay in the implementation of these rules. Their arguments included:

- Delaying implementation of financial responsibility rules will not increase the availability of insurance and may even further delay any response from the insurance marketplace.

- Delaying the implementation of financial responsibility rules removes a strong incentive to replace or upgrade substandard USTs quickly.

- Delaying implementation of the financial responsibility rules may delay the establishment of state funds.

- Delaying implementation of the financial responsibility rules will not eliminate the need for regulated entities to apply for a suspension of enforcement.

In deciding that a phase-in is the best regulatory strategy, the Agency has attempted to establish compliance dates which are as early as possible considering the type of assurance different types of facilities are likely to obtain. The use of an approach involving different compliance dates for different compliance categories is designed to achieve the maximum balance between the need to ensure financial capability for UST releases and the necessary time for owners and operators to obtain assurance mechanisms. For example, EPA believes that almost all firms in Category I will be able to comply with these requirements using the financial test of self-insurance or a guarantee. Chapter 2 of an EPA-sponsored study, entitled "Financial Responsibility for Underground Storage Tank Releases: Financial Profile of Retail Motor Fuel Marketing Firms," shows that all but one of the firms for whom data were collected that own 1,000 or more USTs (assuming that there are 4.1 USTs per outlet) have over $20 million in tangible net worth. Firms in other industry sectors with at least $20 million in tangible net worth will be able to pass the financial test of self-insurance as long as they file financial statements with the SEC, the Energy Information Administration, or the Rural Electrification Administration, or they report their tangible net worth to Dun and Bradstreet and Dun and Bradstreet assigns them a financial strength rating of 4A or 5A. The Agency sees no reason why such firms should not be required to comply with this regulation by the effective date of the requirements.

Further, almost all firms in Category II either have insurance now or can buy it from providers already in the marketplace, on the condition that they upgrade their tanks to meet insurers' criteria. These firms have 12 months from the promulgation date to apply for insurance and to upgrade their tanks. This period also gives insurance providers time to conform their pollution liability or environmental impairment policies to EPA's regulatory requirements and to raise the necessary capital or reinsurance to offer the limits of liability required in today's rules.

The Agency recognizes that the smaller petroleum marketing firms in Category III are less likely than firms in Category II to have insurance and therefore need additional time for processing of their insurance applications and upgrading their USTs to meet insurers' requirements. These firms have 18 months from the promulgation date to comply with the regulations.

The Agency expects that regulated entities in Category IV (which includes the smallest petroleum marketing firms, general industry firms with tangible net worth under $20 million, local government entities, etc.) will have the most difficulty obtaining financial assurance. Most of these entities cannot pass the financial test of self-insurance included in today's rule, and pollution liability insurance has not generally been available to them. EPA expects that the majority of these regulated entities will have to rely on state funds for assurance. Many commenters responding to the Supplemental Notice (53 FR 10401) stressed that EPA's estimate of 18 months for state funds to form was overly optimistic. Today's rule would give those entities relying on a state fund for financial assurance 24 months from the rule's promulgation date to come into compliance.

In the absence of a phase-in, the Agency does not believe that most entities in the regulated community would have adequate time to comply with the financial responsibility regulations, because only the self-insurance mechanism can be implemented immediately by those firms able to use it. Those firms able to use insurance will probably not be able to comply by the effective date of the regulations. Even those firms that already have UST pollution liability policies probably do not have policies that conform to EPA's requirements or that have sufficient limits of liability. These policies will have to be changed or augmented to comply with today's financial responsibility regulation.

It will be even more difficult for those firms that may be able to obtain insurance but have not yet done so to comply by the effective date of the regulations. One current insurer of USTs commented that some type of phase-in is "imperative" because the administrative capacity of UST insurers is not sufficient to accommodate all tank owners and operators who want to purchase insurance. In addition, most of the pollution liability insurance currently being offered to petroleum marketers contains preconditions with respect to the age of the USTs insured and leak detection methods. Firms with older USTs or inadequate leak detection methods will need time to comply with these insurer requirements. It would be impossible for all firms not already meeting these requirements to comply with them by the effective date of the regulations. Finally, as pointed out by many commenters, the development of state funds can take a considerable amount of time. Thus, the Agency concludes that it would be impossible for most of the regulated community to comply with today's financial responsibility requirements within 90 days of the promulgation of the regulations.

At the same time, the discretionary authority to suspend enforcement of the rules is not an adequate substitute for the phase-in because suspension does not serve the same purpose as a phase-in. The Agency believes that human health and the environment will be better protected by establishing reasonable compliance dates than by requiring large portions of the regulated community to devote their immediate compliance efforts to petitioning for a suspension of enforcement. During the phase-in period, the resources of the regulated community can be devoted to obtaining financial assurance mechanisms, and the resources of the states, EPA, and the regulated community can be devoted to developing and encouraging the development of mechanisms such as state funds and RRGs. Inclusion of a phase-in will restrict the use of the suspension of enforcement mechanism to those situations where compliance difficulties have to do with things other than inadequate time to complete administrative activities and to meet insurers' preconditions.

The Agency also does not believe that deferral of the requirements is a useful substitute for a phase-in. A phase-in has two advantages over a deferral. First, a phase-in is more protective of human health and the environment than a deferral in that it requires those who can obtain financial responsibility mechanisms to do so. Second, when the deferral period is ended, there is likely to be a last-minute rush of activity that could overwhelm the insurance industry's administrative capacity and the capacity of those businesses providing tank replacement, upgrading, and release-detection services.

Furthermore, the Agency does not think this relatively short phase-in will delay the entry of new insurers into the marketplace. If the rule did not include a phase-in of compliance dates, any new insurer would have to (1) develop and announce a new program that would comply with EPA's requirements and (2) process and accept applications for this program within 90 days to allow the regulated community to comply by the effective date of the regulations. EPA believes it would be extremely difficult for UST owners and operators to get pollution liability insurance conforming to the requirements of this rule from new insurers within 90 days of the rule's effective date. The phase-in establishes the necessary time for new insurance programs to develop, publicize their operations, and process applications. With the phase-in, a new program would have 1 year to carry out these steps for its first customers and an additional year to process applications for other members of the regulated community. Furthermore, the regulated community still has a strong incentive to purchase insurance prior to the required compliance dates. The phase-in of compliance with the financial responsibility requirements does not relieve the regulated community of liability for corrective action and third-party liability. Thus, many in the regulated community will attempt to obtain insurance as soon as it becomes available.

Nor does the Agency believe that the phase-in will remove incentives for regulated entities to replace or upgrade substandard USTs or to initiate leak detection. If the rule had only one compliance date, it would be impossible for the existing tank replacement and leak detection industries to provide adequate professional service to the many firms that may need their services. The technical standards rule phases in leak detection and tank upgrading and replacement requirements for the same reason.

Finally, the Agency does not believe that the phase-in will delay the implementation of state funds. None of the state representatives who commented on the Supplemental Notice (53 FR 10401) were of the opinion that the phase-in would delay the implementation of state funds. They explained that states would need time to pass laws authorizing the establishment of a fund, to develop regulations specifying how the fund would be implemented, and to develop revenue sources and capitalize the fund. In fact, EPA views the phase-in as the only way to allow states adequate time to develop thoughtful, sound, and adequately-funded programs. The Agency believes it is more protective of human health and the environment to allow time for the development of well-thought-out programs than to create a situation that will result in the development of state funds that have not been properly designed.

In the example given in the Supplemental Notice (53 FR 10401), the phase-in categories were set up based on the number of tanks owned or operated as an indicator of financial strength and thus the time needed to comply with the rule. In today's rule, the phase-in categories are set up based on UST ownership for petroleum marketing firms and on net worth for non-petroleum marketing firms. One commenter requested that EPA clarify, both for the purpose of the phase-in and for the rule in general, that "individual persons controlling separately operated facilities may... treat themselves either as a single owner or operator or as several independent operators." Although this interpretation reflects EPA's intention with regard to most provisions of the final rule being promulgated today (see Section III.A.1. above), it is not the basis for the final rule's phase-in provision. Instead, the phase-in is based on the total number of USTs owned to make clear at what time USTs that are owned and operated by different entities are required to be in compliance with the final rule. UST ownership is a better indicator of both ability to comply with the financial test and to obtain insurance. If the Agency adopted the commenter's suggestion, many more owners or operators of USTs at more than one facility could qualify for a later compliance date. EPA has designated UST ownership, rather than UST operation, as the factor determining the compliance category so that earlier compliance dates will be required for most USTs (since UST-owning firms tend to be larger than UST-operating firms).

The majority of commenters agreed that the number of tanks is the most reasonable basis on which to predicate a compliance date phase-in. The reasons for the choice of the number-of-tanks criterion included:

- The number of tanks reflects a firm's financial strength and its ability to get insurance (and thus to comply with the rule);

- The number of tanks is a partial measure of the risk of release; and

- The number of tanks is easy to determine for compliance purposes and easy to verify for enforcement purposes.

Other phase-in criteria suggested by commenters included measures that were more reflective of risk (e.g., age, storage capacity, or location of tanks), financial strength, and type of industry. One commenter suggested that the basis for compliance should be the ability of owners or operators to self-insure or to obtain insurance from private or public sources. In essence, this is the strategy the Agency has adopted: it involves separating the regulated community into two groups, petroleum marketing firms and other regulated entities. For petroleum marketing firms, the number of tanks owned acts as a reasonable proxy for the ability of a firm to self-insure or to obtain insurance. For other regulated entities, the $20 million in tangible net worth requirement is a good proxy for firms that will be able to use the financial test because almost all firms with $20 million in tangible net worth should be able to use the financial test, irrespective of how many tanks that they own. (Entities with less than $20 million in tangible net worth may not be able to self-insure and insurance has not been available to such firms up to now.)

The Agency rejected basing the phase-in on risk-related measures because a schedule designed to require the highest risk USTs to comply first would not further the Agency's objective in phasing in compliance with the rules. The Agency's objective for phasing in compliance is to give the regulated community the time it will need to obtain assurance. For this reason, in developing the phase-in the Agency considered only those factors (e.g., financial strength) related to the ability of various segments of the regulated community to obtain assurance.

The Agency also notes that requiring high-risk USTs to comply first could have a negative impact on the availability of financial assurance mechanisms. If high-risk USTs were required to comply first (as some commenters suggested), insurers already in the market would be reluctant to insure additional USTs and new insurers would be reluctant to enter the market. Therefore, this would act as a disincentive to a gradual increase in the availability of insurance.

In the example described in the March 1988 FEDERAL REGISTER notice, EPA set up compliance categories and compliance dates as follows:

Compliance Date Number of Tanks Owned or Operated

Effective Date 1,500 or more

of Rule

6 Months After 50 to 1,499

Effective Date

12 Months After 6 to 49

Effective Date

18 Months After 1 to 5

Effective Date

For reasons already discussed, EPA decided to base the phase-in on the number of USTs owned and to develop different compliance categories for petroleum marketing firms and for non-petroleum marketing firms to reflect the time necessary for regulated entities to comply with this regulation. The Agency decided to give firms in the second category more time to comply and to change the number of tanks owned (for petroleum marketing firms) in each category so that the categories would more accurately reflect this objective. In making these changes, the Agency was aided by information provided by commenters with regard to the availability of assurance to various segments of the regulated community.

Petroleum marketing firms owning 1,000 or more USTs (as opposed to 1,500 or more USTs) are in Category I because the Agency believes that such firms can almost always use the financial test of self-insurance.5 Petroleum marketing firms owning between 100 and 999 USTs (as opposed to 50 to 1,499 USTs) are in Category II because the Agency believes this UST ownership spread more accurately represents the UST-owning firms that have insurance now or can obtain it most easily. Petroleum marketing firms owning between 13 and 99 USTs at more than one facility (as opposed to 6 to 49 USTs) are in Category III because this range more accurately represents UST-owning firms that are eligible for insurance but may need more time to obtain it than firms in Category II. In addition, because insurance has not been available to petroleum marketing firms owning only one facility in the past, such facilities have been moved to Category IV.

Category IV was expanded to include firms owning 1 to 12 USTs or, as noted above, only one facility with fewer than 100 USTs (as opposed to 1 to 5 USTs). This expansion of the upper limit of the category from 5 to 12 USTs allows additional time for compliance for the smallest rural jobbers. These firms may have older USTs and greater difficulty obtaining insurance than other petroleum marketers. All non-petroleum marketing firms which cannot self-insure, including local government entities, have also been included in Category IV because pollution liability insurance has not been available to these entities in the past.

Definition of Terms (§280.92)

In the preamble to the proposed rule, the Agency discussed definitions for several terms used in the rule. With the exception of "occurrence," the Agency is adopting the definitions as proposed. This discussion addresses only those terms for which the Agency received comment.

1. Accidental Release and Occurrence. In the April 17, 1987, proposal, the Agency defined "accidental release" as

"any sudden or nonsudden release of petroleum arising from operating an underground storage tank that results in a need for corrective action, bodily injury or property damage neither expected nor intended by the tank owner or operator" (§280.91).

This definition incorporates both sudden and nonsudden releases, as required by RCRA §9003(c)(6). In addition, the Agency proposed to define "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in a release from an underground storage tank."

Two commenters asserted that the proposed definitions of occurrence and accidental release do not reflect standard insurance definitions. The commenters noted that the comprehensive general liability (CGL) form issued by the Insurance Service Office (ISO) defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same generally harmful conditions." They also noted that the ISO's pollution liability coverage form does not define "occurrence" or "release." Instead, the policy uses the term "pollution incident." These commenters urged EPA to remove the definitions of "occurrence" and "accidental release" from the rule and the certificate and endorsement forms, and to replace them with the term "pollution incident." Another commenter argued that the definition of "occurrence" should be changed to reflect the ISO's newest CGL form.

Commenters warned that if the definitions in the regulation remain at variance with those in use in the ISO's pollution liability coverage form, courts will have to review more than one definition of key policy terms during litigation. Insurers indicated that EPA's use of non-standard definitions in today's rule would reduce the range of predictability in UST coverage and expose insurers to an uncertain amount of liability. Such conditions, they argued, would seriously impair the insurance industry's willingness to provide liability insurance required by today's rule.

In specifying the language in the certificate of insurance and endorsement, the Agency does not intend to modify contractual obligations regarding the extent of coverage under insurance policies used to satisfy the liability coverage requirement. In response to the problems cited by commenters, the Agency has retained the definition of "occurrence" but added clarifying language to the rule. The rule now allows insurance policies containing alternate definitions of "occurrence" or standard terms other than "occurrence," such as "pollution incident," to be used to satisfy the UST liability coverage requirements. This definition of occurrence is included in today's rule to assist in the understanding of the financial assurance requirements, i.e., to clarify the scope of coverage required under the rule. It is not intended to limit the meaning of "occurrence" in a way that conflicts with general insurance industry usage.

The Agency prefers not to require that policies incorporate a specific definition of "occurrence" because of the wide range of definitions currently in use and because insurance practices may change over time. However, the Agency has the authority under RCRA Section 9003(d)(1) to specify acceptable and unacceptable liability insurance policy terms and the Agency may need to specify such terms in the future. In addition, policies employing unsatisfactory definitions of "occurrence" or unsatisfactory terms other than "occurrence" may not provide liability protection in accordance with today's rule.

In addition, the Agency has made a minor change to the definition of "accidental release" simply to capture the meaning more precisely. The modified definition, with the modification in italics, is as follows:

"any sudden or nonsudden release of petroleum arising from operating an underground storage tank that results in a need for corrective action and/or compensation for bodily injury or property damage neither expected nor intended by the tank owner or operator" (§280.92(a)).

The Agency received two comments arguing that the definitions of "occurrence" and "accidental releases" should include releases that are caused intentionally (e.g., sabotage, vandalism). EPA believes that an explicit inclusion is unnecessary. Since "accidental release" is defined as a release resulting in "a need for corrective action and/or compensation for bodily injury or property damage, neither expected nor intended by the tank owner or operator," the relevant determinants of coverage are the intentions and expectations of the insured. Thus, damage resulting from sabotage or vandalism is accidental if the insured party had no intention or expectation of such damage.

Finally, a commenter also suggested that vague terms like "intended" or "expected" in the definition of accidental release be defined in the rule. However, as discussed above, EPA intends to allow insurers flexibility in writing policy language by not defining every policy term explicitly. The Agency recognizes that such terms are open to interpretation, but also realizes that because they are common in insurance industry usage, defining them in the rule is not necessary and may limit availability. Therefore, the Agency believes that it is appropriate to leave interpretation of such terms to private insurance law.

2. Bodily Injury. In the proposal and in the final rule, the Agency defines "bodily injury" as having the meaning given to it by applicable state law. In addition, the definition excludes those liabilities that, consistent with standard industry practice, are excluded from coverage in liability insurance policies for "bodily injury."

The Agency received several comments in favor of the proposed definition and some comments opposed. Commenters opposed to the definition maintained that it would create inconsistent definitions, and thus varying scopes of coverage, from state to state. One commenter proposed that EPA define "bodily injury" as "any damage to a third party which the tank owner or operator is legally liable for causing due to negligence."

The Agency is reluctant to adopt a standard definition for a number of reasons. First, the Agency fears that any attempt to redefine "bodily injury" will result in a more tightly limited insurance market. Comments received from the insurance industry strongly urged EPA to retain the approach in the proposed rule, and predicted that insurers might exit the market if the term is given a standard definition.

Second, EPA recognizes that third parties will generally bring liability claims pursuant to state law. Because the definition of "bodily injury" and the treatment of bodily injury claims differ from state to state, the Agency believes that mandating a nationwide definition would promote confusion in state courts, which would be required to review two definitions of "bodily injury" (i.e., a definition pursuant to state law and a standard definition) during litigation.

Third, the Agency prefers the definitions of terms used in the liability insurance requirements to be consistent with their common meanings within the insurance industry. Since the definition of "bodily injury" often varies from state to state, mandating a standard definition would establish definitions of terms inconsistent with their common meanings.

Consequently, EPA has retained the proposed definition of "bodily injury" in today's final rule.

3. Director of the Implementing Agency. This term refers to the person responsible for implementing the UST program under Subtitle I of RCRA. For USTs in authorized states, this person is the Director of the state agency; for USTs in states without approved programs, this person is the EPA Regional Administrator.

In today's rule, this term replaces the term "Regional Administrator," a term used in the proposed rule, wherever appropriate.

4. Petroleum Marketing Facilities. This definition was not in the proposed rule. It has been added to the final rule to assist in understanding the phased schedule for compliance and to define per-occurrence levels of assurance for USTs. The definition closely follows the statutory language of RCRA §9003(d)(5)(A) and (B). "Petroleum marketing facilities" are all facilities at which petroleum is produced or refined and all facilities from which petroleum is sold or transferred to other petroleum marketers or to the public.

5. Petroleum Marketing Firms. These are all firms owning petroleum marketing facilities. Firms owning other types of facilities with USTs, as well as petroleum marketing facilities, are considered to be petroleum marketing firms. This definition also was not in the proposed rule. It has been added to the final rule to assist in understanding the phased schedule for compliance.

6. Property Damage. In the proposed rule and in the final rule, the Agency defines property damage as having the meaning given it by applicable state laws. In addition, the term excludes those liabilities which, consistent with standard industry practice, are excluded from coverage in liability insurance policies.

One commenter agreed with the Agency's approach, while other commenters suggested that the definition be modified to cover an intentional act (e.g., sabotage). Including intentional acts in the definition, the commenters argued, would ensure that owners or operators will be financially responsible for all leaks and spills, not just those that are accidental or unintentional.

As noted above, the relevant intentions and expectations of damage or injury are those of the insured. Thus, damage resulting from sabotage would be considered accidental if the insured party did not intend or expect such damage.

Consequently, EPA has decided that including intentional acts in the definition of "property damage" is unnecessary.

7. Additional Definitions. One commenter suggested that EPA use the broad term "financial assurance" to designate all acceptable methods of satisfying the financial responsibility requirements, and proposed a definition of the term.

EPA uses the term "financial assurance" to designate all acceptable methods of satisfying the financial responsibility requirements, but is not defining the term in today's rule. Because the rule clearly delineates all financial assurance mechanisms by which owners or operators may satisfy these requirements, the Agency believes that defining the term is unnecessary.

Amount and Scope of Required Financial Responsibility

(§280.93)

The rule promulgated today requires that owners or operators of petroleum USTs that are located at facilities engaged in petroleum production, refining, or marketing or that handle more than 10,000 gallons of petroleum per month demonstrate evidence of financial responsibility in the minimum amount of $1 million per occurrence to cover corrective action and third-party compensation costs for accidental releases from their tanks. The minimum per-occurrence amount of assurance required for owners or operators of USTs that are not located at facilities engaged in petroleum production, refining, or marketing and that handle 10,000 gallons or less of petroleum per month is $500,000. In addition, the Agency is establishing requirements for annual aggregate levels of assurance, based on the number of USTs to be assured. Today's rule also includes a paragraph (§280.90(e)) that explicitly states that if the owner and the operator of a tank are separate persons, only one person must demonstrate financial responsibility. The Agency's reason for adding this paragraph is discussed in Section III.A.1, Owners and Operators.

The rationale for determining the amount and scope of required assurance is discussed below, as it pertains to the following topics:

(1) Per-Occurrence Amounts

(2) Aggregate Amounts

(3) Apportionment of Costs and Level of Assurance under Separate Mechanisms.

1. Per-Occurrence Amount. Section 280.93(a) of today's rule establishes $1 million per occurrence as the minimum amount of required financial assurance for owners or operators of petroleum USTs located at facilities engaged in petroleum production, refining, or marketing and for owners or operators of petroleum USTs that handle more than 10,000 gallons of petroleum per month. The minimum amount of required assurance for USTs that handle 10,000 or less gallons of petroleum per month and are located at facilities that are not engaged in petroleum production, refining, or marketing is $500,000. The proposed rule required that all owners or operators of petroleum-containing USTs provide assurance in the minimum amount of $1 million.

EPA received numerous comments on the subject of the required per-occurrence amount of assurance. Arguments for lowering this amount of assurance included:

- The costs of almost all UST releases are far lower than $1 million;

- Small businesses cannot afford to obtain $1 million in per-occurrence coverage;

- The money required to pay insurance premiums would be better spent on upgrading tanks;

- Insurance coverage for $1 million per-occurrence is not available; and

- A lower per-occurrence limit would encourage insurers and reinsurers to offer UST pollution liability coverage.

Several commenters pointed out that EPA had required the same per-occurrence limit of $1 million for all USTs even though Subtitle I clearly allows the Agency to set limits lower than $1 million for USTs at facilities not engaged in petroleum production, refining, or marketing and that are not used to handle large amounts of petroleum. The reasons given in support of a lower per-occurrence limit for USTs at these facilities included many of the same arguments presented above and additional reasons specific to facilities not engaged in petroleum production, refining, or marketing. Some of these additional reasons included:

- Low-volume facilities are less likely to have catastrophic-failure-induced large releases;

- Low-throughput facilities will have smaller releases from their underground pipes; and

- Low-throughput facilities can be monitored more accurately.

Finally, several commenters argued that $1 million in per-occurrence coverage might be too low. They explained that past claims data underestimate future claims and that both corrective action and third-party liability awards will be more costly in the future than they have been in the past because of corrective action regulations that impose minimum cleanup standards.

As explained in the proposal, the minimum $1 million per-occurrence level required for owners or operators of USTs at facilities engaged in petroleum production, refining, or marketing was based on the provisions of §9003(d)(5)(A) and (B) of Subtitle I of RCRA. These sections state:

(5)(A) The Administrator, in promulgating financial responsibility regulations under this section, may establish an amount of coverage for particular classes or categories of underground storage tanks containing petroleum which shall satisfy such regulations and which shall not be less than $1,000,000 for each occurrence with an appropriate aggregate requirement.

(B) The Administrator may set amounts lower than the amounts required by subparagraph (A) of this paragraph for underground storage tanks containing petroleum which are at facilities not engaged in petroleum production, refining, or marketing and which are not used to handle substantial quantities of petroleum.

The Agency's interpretation of these provisions is confirmed by the discussion of this amendment to Subtitle I, §205 of SARA, in the Conference Report accompanying SARA. The Report states that "The Administrator cannot set a minimum financial responsibility requirement of less than $1 million for tanks which are engaged in petroleum production, refining or marketing...." (House Report 99-962, 99th Congress, 2nd Session, p. 264.)

Therefore, absent further instruction from Congress, EPA's per-occurrence requirement for USTs at facilities engaged in petroleum production, refining, and marketing must be at least $1,000,000.

The Agency shares the concern expressed by commenters that releases may be more expensive in the future, and performed an analysis of this issue. The model developed to aid in this analysis estimates both the costs and frequency of UST-related corrective actions. It takes into account both the more stringent cleanup standards that will prevail under the technical standards being imposed by EPA and the fact that releases will be detected sooner, when they are smaller, once the regulations have been promulgated. This analysis showed that the average costs of UST-related corrective actions will be lower rather than higher in the future (see Appendix A of the Regulatory Impact Analysis for the Financial Responsibility Requirements for Underground Storage Tanks Containing Petroleum and Chapter 7 of the Regulatory Impact Analysis of the Technical Standards for Underground Storage Tanks). Because the number of UST-related releases and the extent of the damage associated with these releases will not increase in the future, the Agency is confident that corrective action and third-party liability costs will also not increase in the years after promulgation of these requirements.

In the final rule, EPA allows owners or operators of petroleum underground storage tanks that are not located at facilities engaged in petroleum production, refining, or marketing and that handle an average of 10,000 gallons or less of petroleum per month (based on annual throughput for the previous calendar year) to provide a minimum of $500,000 in per-occurrence assurance. As indicated above, section 9003(d)(5)(B) authorizes the Administrator of EPA to set per-occurrence amounts lower than $1 million for petroleum USTs located at facilities that are not engaged in petroleum production, refining, or marketing and that are not used to handle substantial quantities of petroleum.

Section 9003(d)(5)(C) of Subtitle I lists the factors that the Administrator may consider in setting an amount of assurance lower than $1 million for certain classes and categories of USTs:

- The size, type, location, storage, and handling capacity of underground storage tanks in the class or category and the volume of petroleum handled by such tanks;

- The likelihood of release and the potential extent of damage from any release from underground storage tanks in the class or category;

- The economic impact of the limits on the owners and operators of each such class or category, particularly relating to the small business segment of the petroleum marketing industry;

- The availability of methods of financial responsibility in amounts greater than the amount established by this paragraph; and

- Such other factors as the Administrator deems pertinent.

When the Agency considered these factors for the proposed rule, it concluded that a $1 million per-occurrence level of assurance for all USTs was appropriate and would achieve EPA's goal, which was to set a per-occurrence level high enough to cover the costs of 99 percent of UST release occurrences.

The Agency still believes that this goal is appropriate. Material submitted to the docket in response to the proposed rule has enabled the Agency to perform a more refined analysis of the frequency of per-occurrence claims at various levels. From this analysis, the Agency concludes that a $500,000 level of assurance is adequate to assure the costs of approximately 99 percent of per-occurrence claims for USTs with throughputs no greater than the throughputs characteristic of USTs at retail motor fuel marketing facilities. (This analysis is provided in Appendix B to the Regulatory Impact Analysis.) Thus, the Agency has revised the final rule to provide a lower per-occurrence level for such facilities, and has limited facilities qualifying for this lower per-occurrence amount to those with UST throughputs no greater than retail motor fuel marketing facilities (i.e., 10,000 gallons per month).

In responding to comments on the proposal and revising the rule, the Agency considered each of the criteria in Section 9003(d)(5)(C), both when evaluating a per-occurrence limit of $500,000 and when identifying the class of USTs that would be allowed to use this lower per-occurrence limit. The Agency decided to use monthly throughput as the measure that best distinguishes USTs used in petroleum producing, refining, and marketing, for which Congress mandated a minimum per-occurrence limit of $1,000,000, from USTs used in other industries that might appropriately be assigned a lower per-occurrence limit. As discussed in the preamble to the proposed rule, factors such as age of tank, material of construction, and the presence of a secondary containment are not critical in determining a per-occurrence limit:

Although such factors do affect a tank's propensity to leak, there is no evidence to suggest that any of these factors affects the costs related to a release. The setting of an appropriate per-occurrence level depends on the costs of individual releases rather than on the probability that a release will occur, and there is therefore no reason why the factors mentioned above should have a bearing on the per-occurrence level of coverage required. For example, a release from a 1-year-old tank can be just as expensive to address as a release from a 20-year-old tank.

The Agency based its decision to allow a lower per-occurrence limit for facilities that are not engaged in petroleum production, refining, or marketing and that have a monthly throughput of 10,000 gallons or less primarily on the extent of the potential damage associated with releases from these tanks. The Agency also carefully analyzed the extensive UST claims record submitted by the largest insurer of service station USTs and found that this record provided statistically significant evidence that releases costing more than $500,000 occur less than 1 percent of the time. The Agency has concluded that coverage of $500,000 will assure that the per-occurrence limit is exceeded less than 1 percent of the time. These same data show that a per-occurrence limit set below the $500,000 level would be exceeded more than 1 percent of the time.

For this reason, the final rule rejects those suggestions of commenters that low-throughput USTs be exempted or that the per-occurrence limit for such USTs be set below $500,000.

The choice of 10,000 gallons per month as the definition of "substantial quantities of petroleum" is also consistent with Congressional intent as expressed in the Conference Report accompanying SARA. It states that the Administrator cannot:

set a minimum financial responsibility requirement of less than $1 million...for tanks that dispense very large volumes, for instance tanks at airports. (p. 264)

The 10,000-gallon-per-month throughput limit for USTs qualifying for the $500,000 minimum per-occurrence amount is far lower than the volume of fuel dispensed monthly at typical airports.

EPA has not considered economic impact to be a primary factor in determining the appropriate per-occurrence limits. The Agency's regulatory impact analysis found that the cost of insurance premiums would have relatively minor impacts on most smaller firms that are not engaged in retail motor fuel marketing. Further, the threat to human health and the environment posed by releases from USTs is the same, in terms of severity, whether the leaking tank is owned by a small firm or a large firm.

The Agency agrees with those commenters who suggested that facilities outside the retail motor fuel marketing industry may have difficulty obtaining financial assurance mechanisms. The Agency has found that no insurer offering policies to facilities not engaged in petroleum production, refining, or marketing meets these coverage requirements. Lowering the per-occurrence limit may serve to increase the availability of financial assurance mechanisms. A lower per-occurrence limit will make it easier for insurers with limited reserves to offer these policies, will ease the capitalization of RRGs, and will allow states to set up state funds with less commitment of funds.

2. Aggregate Amounts. Section 9003(d)(5)(A) of Subtitle I grants the Administrator discretion to set "an appropriate aggregate requirement" for financial responsibility for petroleum USTs. In §280.92(b) of the proposed rule issued on April 17, 1987, owner s or operators of petroleum USTs were required to demonstrate evidence of financial responsibility in annual aggregate amounts that varied from $1 million to $6 million, depending on the number of USTs assured (see Table 2) by the mechanism or combination of mechanisms. [For the purposes of determining required aggregate levels of coverage only, any reference to tanks means only individual containment units and does not include combinations of these units. See

Table 2. Proposed Aggregate Schedule

Number of Tanks Annual Aggregate Amount

1-12 tanks $1,000,000

13-60 tanks $2,000,000

61-140 tanks $3,000,000

141-250 tanks $4,000,000

251-340 tanks $5,000,000

341 or more tanks $6,000,000

§280.93(c).] The Agency considered this appropriate because the aggregates were set at a sufficiently high level that corrective action and third-party liability costs incurred in any one year from releases from petroleum USTs would not be exceeded more than one percent of the time. The aggregate amounts were derived from an analysis of the probability and magnitude of corrective action and third-party liability costs during the first five years after the technical standards were promulgated. EPA's analysis used an annual probability of 11.8 percent that a tank would experience a release during these years.

The Agency received numerous comments on the proposed aggregate schedule, many of which called for lower aggregate levels. Commenters justified their requests for lower aggregates on the grounds that insurers reported no release costs exceeding $2 million and that the Agency had based its proposed aggregate schedule on an unrealistically high (11.8 percent) release probability rate. They also pointed out that aggregate insurance coverage over $2 million was unavailable, higher aggregate levels would cause correspondingly higher insurance premium costs, and the money needed for higher premium costs would be better spent on upgrading tanks. The two largest insurers of USTs noted that an aggregate of $2,000,000 had never been exceeded on any of their policies.

The Agency continues to find that the aggregate is most appropriately set on the basis of the number of USTs covered by a financial mechanism, and that an aggregate should generally provide adequate funding 99 percent of the time. However, the Agency agrees with those commenters who argued that EPA's initial estimates, both of the costs and probabilities of releases, were too high, especially for those firms that will actually be able to obtain insurance. In addition, the Agency recognizes that both the availability of financial mechanisms and economic impacts should be considered in determining classes and categories with respect to aggregate limits, as authorized under section 9003(d)(5)(C). As a result of these considerations, the Agency has revised its aggregate schedule so that the maximum aggregate is $2,000,000 (the maximum aggregate currently available), and mechanisms covering 100 USTs or less may use an aggregate of $1,000,000. Table 3 presents the aggregate schedule included in the final rule.

Table 3. Aggregate Schedule

Number of Tanks Annual Aggregate Amount

1-100 tanks $1,000,000

101 or more tanks $2,000,000

This revised aggregate schedule assures that most firms will not exceed the aggregate more than 1 percent of the time, given the Agency's revised estimates of the risk of UST releases. (See Appendix B of the Regulatory Impact Analysis for the Financial Responsibility Requirments for Underground Storage Tanks Containing Petroleum.) The revised aggregate schedule also has a number of important advantages over the proposed schedule. First, insurance programs do not currently provide coverage for aggregates higher than $2 million. Thus, under the revised schedule, which caps aggregates at $2 million, firms will be able to use existing insurance programs. Also, the lowered aggregates should encourage greater availability of mechanisms other than insurance and thus enable more owners or operators to utilize alternate mechanisms. For example, by reducing the amount of capitalization required, the revised schedule will make it easier to capitalize RRGs and state funds that form to provide UST pollution liability insurance. In addition, firms that already have pollution liability insurance for their USTs at the $1 million and $2 million aggregate levels will not be required to find methods of meeting the balance of their financial responsibility obligations. Given that these aggregate levels ensure that most UST owners and operators will not exceed the aggregate more than 1 percent of the time, EPA believes that the cost of requiring such additional assurance would be unnecessary.

Under the revised aggregate schedule, there are two categories of firms that may exceed the aggregate more than 1 percent of the time. The first category includes firms with more than 500 USTs. (These firms also could have exceeded the aggregate more than 1 percent of the time under the proposed aggregate schedule.) The Agency has not extended the aggregate schedule for firms owning more than 500 USTs because these firms are large and usually have more than $1 billion in net worth. Such