Wednesday
October 26, 1988
 Part II


 Environmental

 Protection Agency

 40 CFR Parts 280 and 281
 Underground Storage Tanks Containing
 Petroleum—Financial Responsibility
 Requirements and State Program
 Approval Objective; Final Rule

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 43322
Federal Register / Vol.  53;  No 207 / Wednesday,  October 26, 1988 / Rules and Regulations

 ENVIRONMENTAL PROTECTION
 AGENCY

 40 CFR Parts 280 and 281

 [FRL-UST-3; 3419-3]

 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 Section 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 parlies 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 January 24,1988.
 FOR FURTHER  INFORMATION CONTACT:
The RCRA/Superfund Hotline at (800)
424-9346 (toll free) or (202) 382-3000 in
Washington, DC.
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 (§ 280.90(b)J
                                  3. Applicability lo State'and Federal
                                Government Entities (§ 280.90(c))
                                  4. Applicability to Local Government
                                Entities
                                  5. Applicability to Indian Tribes
                                  6. Deferrals and Exclusions (§ 280.90(d))

                                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
                                (§ 280.94(b))
                                 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-Requjred Mechanisms
  (§280.1001    •     i

  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)         i

  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. Ill)          !

   1. Maintaining Oth£r 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'l Rdlemakings

 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'Finaricial
 Responsibility and Te'chriical Standards
 Regulatory Impact Analyses
   3. The Regulated .Community
- 4. Assumptions and Methodology Used in
 theRIA         •   i
   5. Annual Real Resource Costs
  6. Economic Impact^
  7. Benefits        !

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         Federal Register  / Vol.  53, .Not 207 ,/ Wednesday,. OetobeE 26j> .1988  / Ride* aiuir fiegalgtkms   43323
5. Regulatory Flexibility Act
C, Paperwork Reductiem Act
I. Authority
  These regulations are issued under the
authority oi Sections 2602; 9081, 9002,
900$ 9GQ4v 9S05, 9800.900!?, and 900Soi
tbe SoKd Waste Disposal Aet,. as
amended. The pimeipar amendments-to
this Act have- been under the Resource
Conservation and Recovery Act of 1976,
the Hazardous and Solid Waste •
Amendments of 1984 (Pub. L,98-616}
and the Superiund Amendments and
Reauthorization Act of 198a{Pub.,L. 99-
499) (42 U.S..C.. 6921,6991,6991(a}t
6991(b), 6991(c), 6991(d), 6991(6), 6994®,
and6991(h»,
II. Background
  This section provides the legislative
and regulatory background for the final
rule* describes' the comprehensive
underground storage tank (USTJ
regulatory program, and summarizes
today's, financial responsibility
rulemaking;
A- Legislative and Regulatory
Background of the Rule
  The Hazardous- and Solid Waste-
Amendments of 198* (HSWAJ extended
and strengthened the provisions of the
Resource Conservation and Recovery
Act (RCKA}. HSWA created Subtitle t
which provides for the development and
implementation of a regulatory program
for underground storage  tanks fUSTs} *•
   1 Under section. 9801(1} "underground, storage)
 tank" is defined as "any one or combination of
 tanks (including underground pipes eomiectee?
 thereto) whichis used'tacontain an.accumulation of
 regulated substances, and flie vohime of which
 (including the volume of tfte underground pipes*
 cojmeeted thereto) is IttpeEcehf or more beneath
 th& surface of. thaground.. Such term- dees not
 include any—
   (A) Farm or residential tank ofl.lOO gallons or
 less capacity used'for storing motoFfuel: for
 noncommercial' purposes,
   (B) Tank uasdforstoring-fteat&jgoifi&r
 consumptive use omthftgremtsea whete staceA.
   (,QjSeplie-tank,,
   (D) Pipeline facility (including gather.ing.Hnes),
 regulated1 under—
   (i) The Natural Gas Pipeline Safety Aefcof t9SB' (49
 U.&C; AppVHSTI, et seq.).
   (ii) The Hazardous Eiquid1 Pipette: Sa&ty AcCof
 1979 (49 U.S.C. App. 2001, etseq:%.
   (iii) Which, is an intrastate pipeline faeility
 regulated under State laws comparable to the
 provisions of law referred tp-itr clause ft)- or fnf ef
 this subparagraphi.
   (E) SucfaeeimpaundmenC, pit, pond;, or lagoon,
   (F) Storm water or waste wateBesileetienssystem.
   (G) Flaw-through process tank*
   (HJ Liq.uidtrap.or associated gathering lines
 directly related to oil on gas production anoS
 gathering-operations, OP
   {15 Storatge. Sank situated in an andfetgrouud are*
 (sueh- as-B: basenient,.ceUaK.miirevH)ridngs.di;rfU.
 shaft> or tunnel), if the storage: tank is situated apen:
 or above the surface ofcth'e floor.
containing regulated substances^
fnclttding petroleum 2 and other
regulated substances. * (such-
nonpetroleum regulated substances -are
hereinafter referred to as hazardous
substances}. Section 9003(aJ 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 23,1988J. '
  The Superfund Amendments and
Reauthorization Act of 198&(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. SAKA 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 level's for USTs at
facilities engaged in petroleum production,
refining; or marketing, and for USTs which
handle substantial amounts of petroleum-; the
Administrstormay set lower pet-occurrence
limits foE USTs. at othet types, of facilities.
  (Z) It authorized the Adminisfcatoii to
suspend enforcement of the financial
responsibility requirements if financial
assurance for a particular class or category of
USTs fs "not generally available" and steps
are being1 taken to' either form: a risk retention
group [RRG5>OF establish a* state fund-
pursuant to § 9Q04(cMl).
  (3) It created a $50armffion Leaking UST
Trust Fund to fund certain, corrective action
casts- for petroleum releases (including th& .
costs of cleanup, enforcement aad.cost
recovery I-4 Before the effective date of
today's rule, Trust Fund monies can be used-
whenever the Administrator os state under
 cooperative agreement determines that such
 action is necessary to protect human health
 and the environment and. when there is no>
 owner1 or operator capable or  willing, to
 undertake proper action. Priority must be
   The- term 'underground storage-tank' snail rrof
 include- any. pipes connected' to-any- tank whren. is
 described in subparagrapte (A); through. (I);'* These
 terms are further-defined by. regulation, under, the
 technical standards published- at (CIT&-TS).
   2 Under section 9001(8},. petroleum is.defined as
 "petroleum, including, crude, oil or. any, fraction.
 thereof," which is liquid at standard condiiions-of
 temperature (60 degrees Fahrenheit) and pressure
 (14.7 pounds per square inch absolute);.
   * Kinder section- £TOlf2)-, "regulated substances"
 are defined as "(A):any substance-defined1 trr section
 lOHSfof the-eomppeheBSFve Environmental
 Response; Comptensa'tiaH^and lability, AeBof T980
 (but not including any substance-flegsteted asa.
 hazardous! waste, under, Subtitle C^, and; OJi
 petroleum^'
   •^The Trust. Blind may noi be used, tocompensaie
 third parties,
given, to cases posing the greatest threat to.'
human health and the environment. After the
effective date of today's rule, the
circumstances mtdkr 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
commenfSj EPAhas revised the rule and
is. today promulgating a final rule, which
is summarized in Section C below,
   EPA has also issued an Advanced
Notice of Proposed Rulemaking,
(ANPRM) on- financial responsibility
requirements for USTs containing
hazardous substances (53 FR 3818,
February 9,1988}.
B. The Comprehensive-Federal UST
Regulatory Program

   In addition to  this financial
responsibility rule- for USTs containing
petroleum, the Agency has promulgated
technical standards for USTs containing
petroleum and hazardous substances (53
FR 37082, September 23,. 1988} and
procedures for approval of state UST
programs (53 FR 37212,, September 23,.
19881. The three  rulemakings together
establish a comprehensive program to
regulate USTst as required by Subtitle I
ofRCRA.
   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
 phases-in, period and the release
 detectiom requirements over a five-year
 phase-in period. The .corrective action
 standards!, which? apply to all tanks on
 the effective date,,reqoke owners;and.
 operators to- clean, up releases from UST
 systems. In. the.  short run. one; effect ef
 the technical standards will be  to

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43324  Federal Register / Vol.  53, No. 207  / Wednesday, October 26, 11988 f Rules and i Regulations
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
(S3 FR 37212, September 23,1988) enable
states whose programs are no less
stringent than the federal program and
which provide for adequate enforcement
of compliance to administer the UST
regulatory program. EPA has  designed
the approval criteria to provide
flexibility consistent with statutory
requirements to encourage states to
adopt the UST program. EPA believes
that regulation of the large and  varied
UST population is best implemented by
state and local agencies, which can
oversee and enforce the UST program
more effectively than EPA.
  Finally, the last major component of
the federal UST regulatory program,
establishing financial responsibility
requirements for USTs containing
hazardous substances, will be proposed
in the future.

C, Program Objectives and Summary of
Today's Rule
1. Program Objectives and Major
Changes in the Final Rule

  The Agency had three guiding
objectives in considering the comments
received on the proposed rule and in
adopting the changes for the final rule.
First, the financial responsibility
program for petroleum USTs must
require adequate and reliable financial
assurance for the costs of UST releases,
based on the following considerations:
  (1) The certainty that funds will be
available;
  (2) The sufficiency of funds to cover
the costs of releases; and
  (3) The availability of funds for
corrective action and third-party
liability.
  Second, while requiring adequate and
reliable financial assurances, the rule
must provide flexibility, where possible,
to increase the feasibility of compliance
by the regulated community. Subtitle I
specifically allows flexibility in
establishing per-occurrence levels of
assurance for USTs at facilities not
engaged in petroleum production,
refining, or marketing, and for aggregate
levels of assurance. The Agency has
carefully considered where to  allow
flexibility in the financial responsibility
program while ensuring adequate
protection for covering the costs of
petroleum UST releases.
  Finally, to the extent possible, this
rule should promote expansion of
existing assurance mechanisms and
development of new ones to achieve
maximum compliance by UST owners
and operators. The Agency recognizes
the current limited availability of
financial assurance mechanisms and the
difficulty many owners and operators
will have in complying with the
requirements, at least initially. However,
insurance coverage is available now to
some UST owners and operators, and a
number of states have either adopted or
are taking steps to adopt state funds.
The Agency has constructed the final
rule to promote timely compliance by all
owners and operators and to encourage
development of additional assurance
mechanisms.
  The major changes in the rule and the
way in which they further these
objectives are summarized below:
  • Phased schedule of compliance. The
final rule phases in compliance in  four stages
for different categories of UST owners. The
Agency has adopted this approach to allow
adequate time for compliance and to promote
development of financial assurance
mechanisms in the following ways:
—Owners most able to comply, based on
  financial strength, must do so 3 months
  after the promulgation date.
—Most owners in the next two groups have
  or can obtain insurance. The phase-in
  allows time for processing insurance
  applications (which may take several
  months per application). It also provides
  time for insurance providers to conform
  their policies to the requirements of this
  rule, as well as to decide whether to extend
  their policies to new segments of the
  regulated community. Some owners in
  these groups may also be able to rely on
  state funds.
—Owners scheduled for compliance 24
  months after the date of promulgation of
  the rule, e.g., single station owners and
  non-marketers, will rely primarily on state
  funds and expansion of insurance and
  RRGs beyond currently available
  programs. The schedule provides time for
  these mechanisms to become available.
—Phasing in compliance also provides UST
  owners and operators time to invest in  .
  technical improvements or replacement of
  tanks to make them insurable, as well as to
  comply with the UST technical standards.
  • $500,000per 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 jcoverage to non-
marketers,       i
  • 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 Agbncy has chosen to defer
the promulgation of these procedures. The
Agency hopes to gajn 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 r,ule, 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 dojcket 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

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         Federal  Registee / Vol. 53» Not 207 f Wednesday,  October 26,  1988 / Rules .and  Regulations   43325
at facilities engaged in petroleum.
production) refining, or marketing and)
owners, or-operators ofUSFs- 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 o£lO>000 gallons or less must
maintain financial assurance of at least
$500,000 pep occurrence. All ownens or
operators- must maintain an annual
aggregate of $1 million or $2 million,
depending on the number o£ USTs
assured-
  US? owners ou operators may satisfy
the requirements using: the following
mechanismsc insurance or risk retention
group,coverage, surety bond,,guarantee,
letter of credift.-financial test of self-
insurance,, trust fund, a- state-required
mechanism, or a- state fund or. other
state: assurance. Mechanisms* can be  •
used alone. OB in combination to cover
the costs of taking.corrective, action and
compensating third parties as long: as a.
mechanism or combination, oi
mechanisms provides the appr,aixi?iate
amount of assurance.; The only/
combination of mechanisms that is; not-
allowed is: the financial test o£ 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 o£ the requirements;. The
-Agency willpromulgat-e: suspension, of
enforcement .procedures, at a later date.
  The: final rule requires-awmess; or
onecatocs. to; submit dbfiunssntatkna; o£
financial,r.espaHsibiiity to the?
implementing agency after » known: or
suspected.? elease- occurs;, wlien:. a>,
provider^beGomea incapable-.of
providing- assurance; and when?a
pEowider revokes a mechanism; and the
o wrreis or operator is. unable to attain
alternate coverage. Owners: or operators
must alad submit documentation? of
financial responsibility/ if requested by
the implementing ageney.-, to addrfionv
UST owners, or-operatora'ntuist notify the
implemeirtiag agency .of their methods of
demonstrating financial responsibility
upon- instaflaticm- of new tanks- Owners
or operators must maintain records; of
th& financial assur,anee:»iaeehanJsms«
used to satisfy these- reQuireiBejatasHi?-
site. or- at thedij glace? of businessi, -
  The Jinat ride ajsoj resjufeesithatDST.
determine whether there are existing
releases.    .
  Owners and operators must comply7
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.
Lk 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; "Fhe guarantee, for example,
was included; because- some U$T owners
and operators have-'b-usmess'
relationships; with firms wha might be
willing and able to provide them
guarantees. Not all- owners and
operators, however; will have^that-
option.
   The1 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 p 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 tire unpredictability of the risks
iiivolvedior unprotected: tanks that have
not teen: subject to, regular leak
detectibm,.In.addttionvit\& unclear to
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.
Cbmmenters 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 o£ the
technical standards should make UST
risks more predictable and,, therefore,
insurers should, he 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 av/ailable 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 9a04[c]{lJ.
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 asisurance-reqnired. Some
currently available -funds' cover
                                                                               liability casfsverthef s saver bate,

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43.326   Federal Register,/  Vol. 53.  No. 207  /Wednesday, October 26, 1988 /Rules  and Regulations
Generally, these funds dp not supply .
coverage in the full amount required in
today's rule. State funds may need to be
used fn 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.
III.  Section-by-Section Analysis

A. 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
expliticly 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 coihmenters supported the
Agency's app'roach'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 cases 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.       j
  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 requiting both parties to
secure financial assurance.
  Other commenters expressed concern
about other applicability issues. Some
commenters objected to requiring
current owners a!nd operators to obtain
financial assuraijce 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 owneijs 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 ovyner oil 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  riot 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 hot be subjpct  to
today's rule. Parents, forexample, may
serve as guarantors for owners-and
operators, thereby enabling the owner or

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         Federal Register / Vok  53, No. W  /Wednesday,: October 26.  1988 / Rules ;and JRegtilatiQnis   43327
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 used 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). Gommenters gave
 the following reasons for such "an
 exemption:                      • '
   ••. Jroviders-of financiaLassurahce. are riot
 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 cpmmenter recommended ;that if
 the requirement for such tanks is
 retained, owners and operators  of .tanks
 that arej>roperly 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 uncertainly
  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 ritay
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 of 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 that 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 section 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 ithird parties arising

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 43328  'Federal Register  /  VoL 53.,  No. 207  /Wednesday, October 20. 1988  / Rules and Regulations
 £rom 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 tlie
 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 functioins.
 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
 entites. 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 governmens to provide funds m
 a timely manner; and £3} the financial
 strength and capability to raise funds in
 a timelymanner.
  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 bat 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, eommefiters claimed that local
governments have the requisite financial
 strength, to meet potential UST
 obligations in a timely manner. One
 commenter representing, city
governments pointed oat 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
 fund 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—tike stajtes.—have the ability to
 raise funds throagh taxes and debt
 issues. The comm-enter 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 ia local
 governments in terms of size, financial
 capacity, and functions. A number of
.commenfers 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 beqause if
 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 comp'anies 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, thb 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 befcfre their scheduled
compliance date.;

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         Federal Register / Vol.

  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 requirments. The Agency
sees no reason to treat particular special
purpose local government entities
differently from ail 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 ccmmenters 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 thai 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 Section 10Q4{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 :enliiies, 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 coimaetiters
 addressed these and other categories of
  tanks thai they beBev«d 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 L
  '  •  UST Systems Containing Electrical
  Equipment and Hydraulic Lifts. Equipment or
  machinery using regulated substances for
  operational purposes are now excluded from
  regulation.                  .    .  '
    •  Wastewater Tfedtmunt USTs. ..
  Wastewater treatment tanks regulated under
  the  Glean Water Act are excluded from
  regulation. Wastewater treatment USTs that
  are not regulated under the Clean Water Act
  are deferred from regulation.
    • Tanks Containing Be MinimisQuantities
  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 hulk
 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 OH. 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 requirement.

   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 contaming-under 5.00O
 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 markeiing. 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 busiaesses not
  engaged in petroleum marketing are
  addressed in establishing a phased   •
  compliance schedule {Section III.B in the
  preamble) and a lower peroccurrence amount
  for certain facilities riot  engaged in petroleum
  production, refining or marketing (Section
  II1.D.1J.
    • Tanks Containing Heating OIL Based on
  experience with releases in New Jersey, one
  commenter urged  that heating oil for on-site

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 43330   Federal Register / Vol. 53, No. 207  / Wednesday, October 26, 1988 /. Rules and' Regulations
 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
 pre-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: (I) 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 exgluded from these requirements.
 Thus, many aircraft owners with USTs that
 contain a capacity of less than 110 gallons
 are excluded under the de minimi's 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.

 B. Compliance Dates (§280.91)

   Today's rule is effective on January
 24,1988. 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 jdecision is explained
                                                                                     below.          i
                                                                                      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 orlmofe USTs and all
                                                                                     other UST-owninJE; 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.
                                                                                      USTs 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.        j
                                                                                      USTs owners in Category III are
                                                                                    required to comply by 18 months, after
                                                                                    the rule's promulgation date. UST
                                                                                    owners in Category HI include all
                                                                                    petroleum marketing firms owning 13 to
                                                                                    99 USTs at more than one facility.
                       TABLE 1.—COMPLIANCE DATES FOR AND COMPOSITION OF COMPLIANCE CATEGORIES
 Category and compliance date for this category
                                                                        Composition of category
                                               Petroleum marketing firms
                                                                                         Nonpetroleum marketing firms
I. 3-months after promulgation date of rule, on
  the effective date.


II. M  months after promulgation date of nile	

III. 18 months after promulgation date of rule	

IV. 24 months alter promulgation date of rule	.'.,
                                      All petroleum marketing firms owning 1,000 or
                                                                         '
                                        more USTs.
                                      AH petroleum marketing firms owning 100-999
                                        USTs.
                                      All petroleum firms owning 13-99 USTs at more
                                        than one facility.
                                      All  petroleum firms-  owning 1-12 USTs  or
                                        owning only one facility with fewer than 100
                                        USTs.
                                  All UST-owning non-petroleum marketing  firms 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.  '
                                  None. •  '  •

                                     Do.                     ',

                                  All UST-owning non-petroleum marketing  firms  that  do not
                                    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, including all local gov-
                                    ernment entities.             I         ''
   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 include 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 includes all
facilities at which petroleum is produced
and all facilities at which petroleum is
produced and all facilities from which
petroleum is sold or transferred to other
petroleum marketing 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
marketers facilities, such as bulk
terminals and bulk plants, and all Detail
petroleum marketing  facilities, such as
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 fqr such firms is based

-------
          Federal Register / Vol. ,§3, Nq. 207 /Wednesday, October 26,  1988 /Rules and Regulations   43331
 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 fee 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 FR10401} 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
 propo.sed 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
 aud|diverse regulated community; and
   • | The unavailability of mechanisms to .
 largp 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-ia
 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 section 9003(d){5)(D5 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
implemeatation of these rales. Their
arguments included:
  « Delaying implementation of financial
responsibility rules witl 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 afaie 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 thai 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
oudet) 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 alhfirms 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 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

-------
 43332   Federal Register  /  Vol. 53,  No. 207  /  Wednesday, October 26, 1988 /Rules and; Regulations
 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
 belter protected by establishing
 reasonable compliance dates than by
 requiring large portions of the regulated
 community to devote their immedaite
 compliance efforts to petitioning for a
 suspension of enforcement. During the
 phase-in period, the resources of the
 regulated community can be devoted tc
 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 hew
 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 arid
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 trie fund would be
 implemented, and to'develop revenue
 sources and capitalize the fund. In fact,
 EPA views the ph, ase-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 thus1 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 purpbse of the phase-in and.
 for the rule in general, that "individual
 persons controlling separately operated
 facilities may  * i • * 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.l.
 above), it is not the basis for the final
 rule's phase-in provision. Instead, the
 phase-in is basedjon 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).           i
  The majority of< commenters agreed
 that the number of tanks is the most.
reasonable basis on which'tp predicate

-------
         Federal Register / Vol.  53, No. 207  /  Wednesday, October 26,  1988 / Rules and Regulations   43333
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; arid
  • 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. w,quld be reluctant to
 insure additional'USTs and new
 insurers would be reluctant to enter the
 market. Therefore, this would «ct 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

6 months after effective date 	
12 months after effective date....
18 months after effective date....
Number of tanks
owned or operated
1 ,500 or more.
50 to 1,499.
6 to 49.
1 to 5.
  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 to 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 tune 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.l to 12'USTs or, as noted
above^only one facility with fewer than
100 USTs (as opposed,to 1 to 5 USTs).
This expansion.pf the upper limit of the
category from 5 to 12 USTs allows
   5 Information supporting EPA's assumptions with
 regard, to the types of financial assurance
 mechanisms ''available to petroleum marketing firms
 owning differenOnumbers of USTs canbefdundin
 the Regutetbiy Impact Analysis for the rute-tbat iis.
 available in the docket.
 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.

 C. 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 Section 9003(c)(6). In addition, the
 Agency proposed tp 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 thatthe
 definition of "occurrence", should be
 changed to reflect the ISO's newest CGI
 form.                         ,
    Gpmmentersjwarned thaUf:4he
 definitions in:the regulation remain, at
 variance  with those in use in the ISO's

-------
 43334   Federal Register  /  Vol. 53, No.  207 / Wednesday, October 26, 1988- / Rules and Regulations
 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 contractural
 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)(l)
 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 of
 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 liabilitias 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 approaeh.in.the proposed
rule, and.pcedicted that insurers .might
 exit the market if the term is given .a
 standard definition.
   Second, EPA recognizes that third
 parties will generally faring liability
 claims pursuant tp 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 definitioh) during litigation.
   Third, the Agenpy prefers the
 definitions of terrrjs 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.       I
   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 rale, 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-occurrehce levels of
 assurance for USTs. The definition
 closely follows the| statutory language of
 RCRA section 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 finps 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 definitioh also was not in the
proposed rule. It has been added to the
final rule.to assist in understanding the
phased schedule for compliance.

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         Federal Register /  Vol. 53, No. 207 /Wednesday, October 26, 1988 /Rules and Regulations   43335
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.
 D. 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.l, 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. Tha 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-throughout 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-occurf ence level
required for owners or operators of
USTs  at facilities engaged in petroleum
production, refining, or marketing was
based on the provisions of section
9003(d)(5) (A) and (B) of Subtitle I of
RGRA. 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 a'n
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, section 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

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 43336  -Federal Register / Vol. S3, Efov 207 /-Wednesday, October 26, 1988 / Rales  and| Regulations
 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 ilevel 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-ypar-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 imrior impacts on most
smaller firms that are not engaged in
retail motor fuel marketing. Further, the
threat to human h|ealth 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.

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         Federal Register ./ VtoL S3, iNo. 207 /  Wednesday, 'October 2.6., 1988  / Rules  and iBegutetrans  43337
  TheAgeacy.agreeswi.thithTa.se
:commea:ters -who suggested that
facilities .outside the retail motor foel
marketing industry may bave 'difficulty
obtaining financial assuramee
mechanisms. 'The Agency !has found -that
•no insurer 'offering policies to facilities
not engaged in petroleum production,
refining, or marketing meets these
coverage requirements. Lo-wening the
per-occurrence limit may serve to
increase the availability of financial
•assurance mechanisms. A lower per-
ocourrenoe fetit wil malce it -easier for
insurers with .limited .reserves 'to .offer
tbeae 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 900a(d]{5l(AJ of Subtitle I
grants fhe Administrator discretion to
set '"an appropriate aggregate
requirement" for financial .responsibility
for petroleum TJSTs. In §-2SQ3Z(b] of fhe
proposed rule issued on Apjil 17, 1987,
owners 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. fFor the purposes sf
determining required aggregate levels of
coverage -only, any -reference to tanks
means -only tadivtSual -containment -units
and does -not 'include Hjomtornations -erf
these units. See § 280;93(«?).')
               RQRQSED
               SCWEBSUUE
Number, of tanks
1-T21artks 	 '.

61-140 itartks . 	 :
141 250 tanks 	
?51-340 tariks 	
341 oi* more tariks . 	 	

/ftnnual
aggregate
amount
51 ;ooo;ooo
^toooi-ieo
,a!QDQ;ooo
•4(00.0,000
S(DOQ,DSO
B.'OOD.ODO

 The Agesacy caaiiisidered this ap^sroopiftaite
 becajase the aggraga ies ~xssem set .a t .a
 sufficiently high level that CMmaesti-ve
 action and third-party liability costs
 incurred in any one year from releases
 from petroleum USTs would nofbe
 exceeded aaaorfi thara sane freneent of USTs inoied tiaat
an aggregate -of $2jOOO,"OQO Jntad -never
been*xaeeded onsany of 'tbeh' policies.
  The . Agency .ooatinues to fad ithat ,the
aggoxegate is most ,appjp.o.priately set :'on
the .basis .of the number .of iUSTs 'Coveued
by -a f maoeial .mechanism, .aad that an
aggregate should "generally provide •
adequate lunding .99 p.encen:t ,of the .time.
However, !the Agency agrees with ihase
commenters wiio argiiaed.thatEPA'.s
initial .estimates, both .of the costs -and
probabilities .of releases., wease
. especially for fhose firms that will
actually 'be able to obtain 'insurance. In
addition, the Agency recognizes that
both the .availability .of financial
aaeofeanisms and aconomk: teipacts
should be considered u-n id-eteprarining
classes arid Ba'tegories with «eepHcit to
^gregate'ilimits, .-as aufhroriized ^BiBier
sectrcm'goOSfdJtSKC;). As -a -result off
these •considerations, the Agency 'has
revised its aggregate schedule so that
the maximum aggregate is .$2^)00,000
(the TOaxtmam ag®re,ga±e currently
iavailaMei), fflBdimecisantsms t)jEr»erAng
100 USTs or less may rase .a?m aggregate
of SliDOOiOOO. 'Ta-yie '3 presents the
a-ggregate -schedule included m the final
rule.    ,
      TABUE 13.— A-
                                                              ate Schedale
'Number of -tanks . :
1 ^100 'tanks . 	 	 I


.Annual
•aggregate
• amount
•$1(000)000


 This .resfeed .aggregate -sdhednie assures
 that most firms will not-exceed the
 aggregate more than 1 percent t# the
 time, given the Agency's revised
 estimates of the .risk of USTjaleases.
 t(.See Appfindix B >of -tfie .Regulatory
 Impact Analysis for the Financial
 Responsibility RegmraEaents fear
 •Lin dergroand .Storage 'Taraks >G®Tftairiing
 Petroleam.i) The revised ^aggregate
 schedule' also has,:a siumtoer'df important
 advantages ov.er*fae proposed stJiedule.
 First, 'instir.aHce ^rogcaims ;do not
 ourrsntry ipnevide .ooorerage ior
 aggregates higher *han :$2 million. Ttos,
 under the revised .schedule, a»hi-ch:caps
 aggregates ;ait $2 TtiilHon, 'firms will foe
 able to use existing iinsurajnce programs.
 Also, the 'lc-wer.ed aggregates shoul'd
 cencoEixage greater avaiiabi'lii'y off
 medhanisjns  .other ifaon JrasusanDe and
 thus enable amorfi ©wners tor operaitans to
 utilize alieriEale mechanisms. For
 example, by aredHciing .She iaanoanit >df
 capitalizaticm iseqained, *ke r-evfeed
 schedule will jmake -it easier to -capitalize
 RRGs and :staite imads *bai -foran te
. provide UST pollution liability
 insura-nae. fa additioiPi, fk>ms lihait
 already .have poliuticsn faMMty
 insurance for their !I3ST:s -at Jihe ^1
 !Hilldion.-and:$2 imiilioin aggregate leveis
 will not ^be required to fed inethads i.of
 meeting ithe balance aaf thsir fferamcial
 atespojasibiLity lOiWigatioas. Qven that
 these aggregate teweds snsape (that most
 USTiownecs and ^operators wil not
 exceed tfee :aggrega.te smeire than'!'
 peroenit of i&e ti'ioe, iBPA befieves tthat
 Ae cost iof requiring such 'additional
 assurance would-be >unmecfissairy..
    Under the  Revised .aggregate schedule,
 there are two .-categories of firms ithset
 may lexceed  fh.e sggEegaite jmor.e ithan 1
. percent '.of ihe it-tnae. The iirsit caStegory
 kaclndss limns with metre rthan :5QO 'USTs.
 (These Ifa-ras ako ccoatld bawieiesoBed-ed
 the aggregate mware t'ha;n :1 percent ;of rfa
 time iHiaAer ifce pr-ap'ose-d ;a@gi!ega1ie
 schedule.) 1'he Agfiacy fcas stcfi extemdad
 the ;a®gnegate 'RclKesyie ifsr fems roaMntEfg
 more than SDO 4JST« !b®.causE ittese ffirm*
 safe .-laige and aiaaadly fcaleak;deSE.aMm!a iprogtiaMis.
 iHoTwesvEr, rawxet sfirxas .iwilfc toHtween 40 .
 and 100 LJSTs a-ne CBirnan% insuBed ;aaai
 meet insurers' leak detection
 requirements.. Because ihs -small usiariber
  of firms 'Wisth toeiweem 40 and IBS DSTs
  that -do not -have .-safficientiealk
  detection proagpams 
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 43338   Federal.Regiater  / Vol. 53. No.  207 / Wednesday, October 26.  1988 /Rules and Regulations
 has decided not to set a higher aggregate
, for these firms on the basis of their
 temporarily higher risks.
   The Agency received a number of
 comments suggesting that a lower
 aggregate level for owners or operators
 of upgraded tanks could provide an
 incentive for other owners or operators
 to upgrade their systems—in essence a
 "credit system." EPA agrees with these
 suggestions, but because the Agency has
 lowered the maximum aggregate level of
 required  assurance from $6 million to $2
 million and has raised the number of
 tanks qualifying for the $1 million
 aggregate-from 12 to 100, much of the
 incentive to upgrade tanks and qualify
 for a lower level of required assurance
 has effectively been eliminated. Given
 that few owners or operators  would be
 able to upgrade tanks to a level that
 would quality for a lower amount of
 assurance, EPA believes that  the
 complexity of developing, implementing,
 and administering such a program far
 outweighs its potential benefits.
 Therefore, the Agency still believes that
 it is appropriate to continue to use the
 number of tanks owned or operated,
 rather than tank characteristics, as the
 basis for determining aggregate levels.
   During the comment period, a number
 of questions were raised regarding the
 effective  date for increases  in an
 aggregate level when an owner or
 operator  acquires or installs additional
 tanks. The Agency agrees that it could
 prove awkward to change an aggregate
 level in midyear and took that factor
 into consideration in determining when
 financial  assurance levels should be
 updated.  Financial assurance
 mechanisms such as insurance policies
 and letters of credit are generally
 written for one year, and the final rule is
 consistent,with this practice. Thus, an
 owner or operator who is using a single
 mechanism to assure his tanks and who
 has increased the number of tanks for
 which he is providing financial
 assurance is required to update the level
 of assurance (i.e.,  the aggregate level) on
 the anniversary date of the financial
 assurance mechanism. If this same
 owner or bperator is using'a
 combination of mechanisms to provide
 financial  assurance for his tanks, the
 level of assurance must be updated by
 the first-occurring anniversary of any of
 the mechanisms being used (excluding a
 financial  test or guarantee) (see
 § 260.93(f)).
   The question of tank numbers also   '
 arose in the context of determining the
 appropriate aggregate amount when a
 firm is acting as a self-insurer,
guarantor, and/or inderhnitor  (however,
 indemnities are not an allowable
mechanism under the final rule, as
discussed in Section III.G of the
preamble). By aggregate amount, EPA
means the total of all costs potentially
incurred within a given year for all
releases from petroleum USTs for which
evidence of financial responsibility is
being demonstrated by a single
mechanism or a combination of
mechanisms. If an owner or operator
uses different financial assurance
mechanisms to cover different USTs, the
appropriate aggregate amount is based
on the number  of tanks covered by each
separate mechanism or combination of
mechanisms. One commenter
recommended that, for the purpose of
determining whether a firm passes the
financial test, the aggregate level of
coverage be "based on the total number
of tanks for which a firm is responsible
by self-insurance, indemnity, or
guaranty." Because this was EPA's
intention at the time of the proposal, the
Agency recognizes that the explanation
in the preamble to the proposed rule
confused some commenters. By stating
that the aggregate amount is based on
the number of tanks for which a single
mechanism or combination of
mechanisms is  being used to
demonstrate evidence of financial
responsibility the Agency means:
  1. If an owner or operator self-insures his
own tanks and guarantees tanks belonging to
a different owner or operator, the owner must
pass \\iefinancial test based on the total
number of tanks self-insured and guaranteed.
Two different examples follow:
  • If an owner is self-insuring 60 tanks and
guaranteeing 60 tanks, the amount of annual
aggregate assurance to be demonstrated to
use the financial  test to self-insure and
guarantee these tanks is $2 million. The
guarantee must be issued for an aggregate
amount of $1 million.
  • If a guarantor guarantees 60 tanks for
each of three different owners, the amount of
annual aggregate assurance to be
demonstrated to use the financial test to
guarantee these 180 tanks is $2 million. Each
of the three guarantees, however, must be
issued for an aggregate amount of $1 million.
  2. If an owner or operator uses a
combination of mechanisms (e'.g./insurance
and surety' bond) to demonstrate evidence, of
financial responsibility, the aggregate
amounts provided by these mechanisms
added together must equal the required .
aggregate amount for the number t)f tanks for
wb.ich these mechanisms are demonstrating
financial responsibility. For example, if an
owner with 200 tanks has insurance with a $1
million aggregate, aggregates of additional
mechanisms for these tanks must equal at
least $1 million, for a total of $2 million in
aggregate coverage.
  3. If an owner or operator uses one
financial mechanism to demonstrate evidence
of financial responsibility for one set of tanks
and another mechanism to demonstrate
evidence of financial responsibility for a   .
 different set of tanks, each mechanism must
 have an aggregate amount appropriate to the
 separate set of tanks, assured. For example,
 an owner has a total of 300 tanks: 140 tanks
 in one state and 16(3 tanks in another state.
 The 140 tanks are assured at the $2 million
 aggregate level by a mandatory participation
 state fund that only assures tanks in that
 state. The owner must provide additional
 financial assurance at the $2 million
 aggregate level for 'the other 160 tanks located
 elsewhere.

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

   Several commenters questioned the
 provision that separate mechanisms (or
• combinations of mechanisms) obtained
 for corrective action and third-party
 liability must each be at the full amount
 of required assurance. The commenters
 believed that this; provision would be
 prohibitively expensive. "The Agency has
 retained this provision in the final rule
 despite the added costs of providing
 coverage under this approach. As
 explained in the preamble to the
 proposed rule, the-Agency decided not
 to apportion costs between third-party
 liability and corrective action because
 apportionment limits the amount of
 funds that are available for either type
 of cost. Thus, mechanisms covering
 these costs separately cannot be set at
 amounts less than the full amount of
 required assuranpe.
   Owners or operators may use a
 combination of mechanisms to obtain a
 total of $1 million per occurrence and   v
 appropriate aggregates, as long  as both
 corrective action and third-party
 compensation are fully covered. For
 example, an owner or, opera tor may
 obtain, insurance coverage for the  first
 $100,000 of corrective action and third-
 party liability costs and use  an
 approved state fund to cover corrective
 action and third-party liability costs in
 excess of $100,000 up to $1,000,000. In
 another example,' an owner or operator
 could obtain insurance coverage for the
 first $100,000-of corrective action and
$300,000 of liability costs and use an
 approved state fund to assure corrective
 action costs aboV|6 $100,000 and third-
party liability costs above $300,000, up
 to $1 million.     !  ,

E, Allowable Mechanisms and
Combinations (§'280.94)

  1. Mechanisms Allowed. The
proposed rule allowed a variety of
mechanisms to be used to  demonstrate
financial responsibility, including: a
financial test of s^lf-insurance,
guarantee contract, indemnity contract,
insurance, RRG coverage, surety bond
letter of credit, state-required
mechanisms, or a; state fund  or other

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         federal Hegister '/ Vol. S3, No. W J :^efces$aj, 'October  26,  19B8 / Rides an-d Regtdkfiqns  :. 43339
state .assimiption. of EesponsiMlity. fa
              eBteEB supported the
       , .
range of alksvssaWe saeehartisfffis
proposed by titee iAgemoy.. <&B idas
bielerav, the final rule authorizes *he WSE
of isffiott .of .the proposed iweoharoiBms,
with the •esaception asf tke iimdeniiHi9>y
conitract, and .an addftiiaiaall medseamsm,
•a f uliy-ftmded trust land.
  Xhe jpjeamble to ih-e proposed rule
.stated Aat &f. ee mechanisms wece
considered but .not included in .the set oof
allowable mechanisms.: ,tnust lands,
security agreements, and Mrtes .of ccedit.
One commenter explicitly supported the .
Ageracy's raitionafte  for exGhidfeg toast
funds and security  agreements. "Ife
Agency rejected security agreements
because of three concerns with respect
to .the aaJenpiaoy -of the assurance such
^gEeenaeats would pr-ovide: {Ij) Ifihe-
liquidity (of -the -amUaaisral subject to itihe
agneement;  [2] ,tb.e pitocediUEaJ
xe^uiremeiiis io .estafeMisli and maintain
a .seniority .ajgBeement; aad £3j Ae .ability
.of .the implementing agency .to seize :aad
sell. the. collalex-al.
  ' One commenter urged the Agency .to
allow lines  of credit, .statkjg that lines -.of
credit could Tae used for TJSTpurfios.es
as we'll as ior other 'business purposes.
The Agency believes, however, feat Its
'basis for rejecting Tines of credit .[i.e.,
that fhey are conditional on the current
financial standing of the borrower and
therefere do not represent a  substitution
of "the iss-uer'-s credit for  the borrswer'sj
TOrtfirowes to 'be valid aiid.'fhus, •Shat
lines of credit should not be an
allowable mechanism.
   Another Eommentej advocated flre
incluasom '.of trust funds in the set <®ve .edlieir (EiBaiaoiad
 assuianoe teechaiiifismfi »vaii-aJ
   EP A do.es agree, ihtawKe'vasr., that the
           '
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 43340   Federal Register / Vol. 53, No.  207 / Wednesday.  October 26,1988 / Rules and Regulations
 thai such a request could only be made
 through a state agency.
   Second, the surety bond and
 guarantee authorized in today's rule
 may be subject to the insurance laws
 and regulations of certain states.
 Although the "ultra vires" defense is
 generally no longer considered tenable,
 the Attorney General certification
 requirement ensures that any
 contractual formalities unique to a
 particular state have been addressed in
 the contractual agreement and that
 questions concerning the validity of the
 agreement will not delay the provision
 of funding for corrective  action. The
 Agency recognizes that some states may
 require minor changes to the wording of
 the instruments to ensure that they are
 valid and enforceable under the laws of
 the state. The final rule requires
 submission of a letter by the Attorney
 General of a state verifying the validity
 and enforceability of the guarantee and
 surety bond before these mechanisms
 may be used to demonstrate financial
 responsibility.
   4. ffew Mechanisms. Many
 commenters  advocated adding a
 mechanism under which  the Federal
 government provides some form of
 financial assurance. The  suggested
 forms for this mechanism ranged from a
 Federal fund to some form of Federal
 insurance pool.
   Several commenters advocated a
 Federal insurance program to offer
 liability insurance at a reasonable price.
 One commenter supported a program
 similar to the Federally-run Flood
 Insurance Program under which
 premiums are paid by member
 corporations. However, another
 commenter said this approach would not
 work, because insured parties would not
 want to subsidize other parties with
 USTs installed over vulnerable ground-
 water areas.
   Several other commenters  advocated
 various forms of Federal funds. One
 suggested approach was to establish a
 loan fund from which owners or
 operators could borrow at no interest
 and repay over a 25-year  period.
 Another suggestion was to establish a
 fund to cover events that  cost between
 some established amount that reflects
 average remedy costs and one million
 dollars. Under this approach, the fund
 would only be available to owners and
 operators who demonstrate responsible
 monitoring and leak prevention
 practices.
  In the SARA amendments to Subtitle
I, Congress has established a $500
million Leaking Underground Storage
Tank (LUST)  Trust Fund for addressing
releases from petroleum USTs.
However, after the effective date of .the
  technical standards, use of the Trust
  Fund is authorized by RCRA section
  9003(h) only in the following limited .
  circumstances: (1) A responsible owner
  or operator capable of taking prompt
  and appropriate corrective action
  cannot be identified; (2) prompt action is
  required to protect human health and
  the environment; (3) the cost of the
  corrective action exceeds the financial
  responsibility requirements established
  under this rule and expenditure  of
  additional funds is necessary; and (4)
  the owner or operator has failed or
  refused to comply with a corrective
  action order. (Uses of the Fund are
  discussed in more detail in Section
  IV.B.) The Fund may not be used for the
  purposes suggested by the commenters.
  Nor is EPA authorized under Subtitle I
  to develop another fund for any  of the
  purposes suggested by the commenters.
   In addition, one of the Agency's  major
  goals reflected throughout the entire
  UST regulatory program" is to encourage
  development of the UST program as a
  state-implemented program. EPA
  encourages states to consider
  developing the type of funds, that
  commenters urged should be undertaken
'  by the Federal government. Several
  different types of state funds or state-
  backed insurance programs can  serve as
  assurance mechanisms to allow  owners
  and operators to comply with the
 financialresponsibility rule. In addition,
  state funds  may provide valuable
 assistance and incentives to the
 regulated community to comply with the
 new tank'performance standards.
   5. Specification of Tanks in Financial
 Assurance Instruments. In the  proposed
 rule, the Agency required that the
 financial assurance instruments list by
 identification number the specific tanks
 that they cover-Many commenters
 addressing specific mechanisms  argued
 that this requirement is unnecessary and
 could in fact limit coverage or delay
 payment from the assurance mechanism.
 They felt that listing tanks individually
 could lead to contention as to which
 tanks was the source of release.
   This final rule requires the listing of
 facilities where assured tanks are
 located rather than the tanks
 themselves. The Agency has concluded
 that listing of tanks at a facility where
 all tanks are assured under a single
 mechanism  is unnecessary. A listing by
 facility should also provide greater
 certainty concerning which tanks at a
 given location are covered by the policy.
 Moreover, listing  tanks by facility also
 prevents delays in payment that might
 arise if coverage were triggered only
 after identification of the particular tank
 that had caused the damage.
   In today's rule the language of the
 assurance instruments is amended to
 strike the requirement for tank
 identification numbers and add a
 statement indicating that the required
 aggregate coverage, levels have been
 purchased. Each instrument must
 identify each facility covered by the
 mechanism and the number of tanks at
 each facility. If separate mechanisms
 are used to cover different USTs at one
 location, the tanks bovered by each
 mechanism must be identified in the
 wording of the mechanism.

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

 1. Proposed Financial'Test

   As part of the underground storage
 tank requirements proposed on April 17,
 1987, EPA included;a financial test that
 could be used by owners and operators
 to self-insure.  UST bwners or operators
 able to meet the proposed financial test
 criteria would not Be required to obtain
 insurance or another'financial assurance
 mechanism to demonstrate evidence of
 their financial responsibility for
 corrective action and third-party claims
 arising from UST releases. The financial
 test of self-insurance was also proposed
 as a means to  qualify guarantors and
 indemnitors of firms owning or-
 operating USTs.  ',       .
  As originally proposed, the Subtitle I
 financial test consisted of the following
 criteria:           :
  a. The firm must have a tangible net
 worth equal to at least 10 times the
 amount of aggregate assurance required
 for UST financial assurance. The
' proposed amount of required aggregate
 assurance ranged frbm $1 million to $6
 million, depending on the number of
 tanks the owner or operator, guarantor,
 or indemnitor was assuring for EPA or
 an authorized state.! If the firm was also
 using a financial test to meet the
 financial responsibility requirements for
 the costs of closured post-closure care,
 liability coverage, and/or corrective
 action at a  Subtitle C facility, or for the
 costs of plugging and abandonment at a
 Class I Hazardous Waste Injection Well,
 the firm was required to have a tangible
 net worth equal to a|t least 10 times the
 sum of these costs plus the required
 aggregated coverage for its USTs.
  b. The firm must have a tangible net
worth of at least $10 million.
  c. The firm must either file annual
financial statements; with the SEC or
annually report the firm's tangible net
worth to Dun and Bradstreet (D&fl),
which .must have assigned the firm a
financial strength rating of 4A o

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         Federal Register / Vol.  53, No. 207 /  Wednesday, October 26, 1988 / Rules and Regulations   43341
  d. The firm's year-end financial
statements, if independently audited,
could not include an adverse auditor's
opinion or a disclaimer of opinion.
  In addition to these financial test
criteria, the proposed requirements
included procedures for financial test
reporting and certification. Within 90
days after the close of each fiscal year,
the chief financial officer of the firm
owning, operating, guaranteeing, or
indemnifying had to sign a letter
reporting the year-end financial
information supporting the firm's use of
the financial test, If an owner or
operator, guarantor, or indemnitor found
at the end of the fiscal year that he was
no longer eligible to use a financial test,
the owner or operator was required to
obtain an alternate mechanism within
120 days of the end of the fiscal year.
Finally, the proposed rule authorized the
Regional Administrator to disqualify a
firm's use of the financial test if he
found, based on reports of the firm's  .
financial condition, that the firm no
longer met the financial test
requirements. The owner or operator
would have 30: days after notification of
such a finding to obtain another
financial assurance mechanism.
   The criteria-for the proposed Subtitle I
test reflected several key Agency
objectives. First, the  reliance of the test
principally on a net worth measure was
intended to keep the test relatively
simple to administer and monitor, in
view of the large number of firms to be
regulated under Subtitle I requirements.
At the same time, the net worth criteria
were designed to ensure that virtually
all firms able to pass the test would also
be able to meet their UST obligations. In
particular, the requirement that firms
demonstrate a level of net worth 10
times the size of their potential UST
obligations was based on an Agency
analysis of failure rates among firms
.classified on the basis of their ratios of
UST liabilities to net worth. The Agency
found that, for those firms with UST
liabilities equal to 10 percent or less of
their net worth,  the associated
probability of bankruptcy was
approximately one percent. Therefore,
to achieve a level of assurance such that
no more than one percent of financial
test users would go bankrupt as a result
of their UST obligations, the Agency
decided to require that financial test
users maintain their net worth at a level
at least 10 times their environmental
obligations.-
   By tequiring that other environmental
obligations assured by a financial test.
be aggregated with the required UST
assurance when determining the amount
of net worth to require, the Agency
wished to prevent financial test users
from diluting the degree of assurance
provided by the test. Similarly, the
requirement that there be no auditor's
disclaimer of opinion or adverse opinion
was also intended to increase the
margin of security provided by the test.
A disclaimer of opinion or an adverse
opinion indicates that the auditor has
found material uncertainties regarding
the firm's valuation of its assets, current
litigation or tax liabilities, or changes in
accounting method. Therefore, because
these opinions indicate that the reported
net worth of a firm may be greater than
its actual net worth, there is
considerable doubt as to whether a firm
receiving a disclaimer of opinion or an
adverse opinion has sufficient resources
to meet its UST obligations.
  Finally, the requirement that firms
either file their financial statements with
the SEC or report to D&B and obtain a
D&B financial strength  rating of 4A or
5A was meant to ensure that the
information used to support a financial
test would be publicly available and
therefore easily verified by EPA or state
regulators. At the same time, by
allowing a D&B rating as an alternative
to filing with the SEC, the Agency
wished to make the test available to the
large number of privately-held UST
owners and operators who would not
otherwise be submitting their financial
statements to the SEC.
2. Comments on the 'Proposed Financial
Test
  EPA received comments on its
proposed Subtitle I financial test from a
wide representation of firms and entities
that will be affected by the UST
requirements. These included both
publicly- and privately-held firms,
municipalities, trade associations,
environmental group's,  State regulatory
agencies, and firms representing all
aspects of UST ownership: owners of a
single tank or many tanks,, petroleum
refiners and marketers, and firms
engaged in businesses  other than
petroleum production, refining, or,
marketing. The majority of comments
focused on (1) the net worth criteria of
the financial test; (2) requirements for
financial test certification and reporting;
and (3) the 'ability of municipalities to
use the test. Comments were also
received on a number of miscellaneous
issues,- such'as -the aggregation of other
environmental costs with the required
level oHJST coverage; the use of a
binding; guarantee to support the
financial test; and the extension of the
aggregate schedule for owners or
operators using a financial test to assure
a large number of USTsi The substance
of the major comments received is
briefly summarized below, followed by
the Agency's rationale for accepting or
rejecting cominenters' recommendations
in the final financial test requirements.
  a. Net Wofth Criteria of the Financial
Test. Many commenters objected that
the proposed financial test would not be
available to any but the largest
petroleum distributors .or refiners and
therefore recommended that the net
worth criteria of the test be relaxed to
allow smaller businesses to use the test.
Other commenters argued that a lower
net worth multiple was appropriate in
view of the fact that the proposed per-
occurrence and aggregate amounts of
coverage were much higher than the
average costs of UST releases.
Commenters also questioned why a 10
times net worth multiple, was proposed
for Subtitle I, when a six times, net worth
multiple is required for the 'Subtitle, C
tests for closure and post-closure care
and liability coverage.,';'../..
  The Agency agrees that the
availability of the financial test will be
limited to larger firms in, the regulated
community; nevertheless, EPA also.
believes that this restriction is, necessary
to increase the likelihood that a
financial test user will be able to pay for
its potential UST obligations. Because
the incidence of bankruptcy among
firms with less than $10 million in
tangible net worth is approximately two
times as great as the bankruptcy rate
among firms with more than $10 million
in tangible, net worth, .the Agency has
decided to retain,the minimum $10
million tangible net worth requirement
in the final rule..    ...
  For similar reasons, the Agep,ey has
also decided to retain.the requirement
that tangible net worth be at least 10
times the required UST aggregate for
any firm using the financial test.
Lowering the net worth multiple would  '.
mean that more than one percent of
financial test users would be predicted
to fail without funding their UST
obligations—a risk that the Agency does
not believe should be accepted among
financial test users, particularly since
owners or operators who use any of the
other financial assurance mechanisms
allowable under Subtitle I(insurance,
surety bond, etc.) pose little risk of
incurring unfunded UST obligations.
  Other changes iare,--however, being
made in the final UST rule that should
make the 10 times level of net'worth
somewhat less restrictive to''potential
financial test users; First; thef schedule
of required annual 'aggregates has been
modified (see Section III;D), .so that the  '
maximum annual aggregate •• to be '   •
assured is $2:million:raUJerthan:$8  •  .
million as originally proposed.,Thus,

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 43342   federal Register ./ .Vol. 53. No.-2Q7./ rWednesdayy October 26,-1988  / Rules -and  Regulation
 without changing the net worth
 requirement, the corresponding level of
 required net worth will nevertheless be.
 lower for many firms owning and
 operating large numbers of USTs.
   Second, the Agency has incorporated
 into the final rule (§ 280.95{c)) a second
 set of financial test criteria that may be
 used instead of the originally proposed
 "net worth" test. Owners or operators
 may now choose to use the financial test
 criteria of the Subtitle C test for liability
 coverage, as specified in § 264.-147(f)(l)
 or § 265.147(f)(l), to demonstrate their
 ability to pay for their UST obligations.
 These criteria are included in the final
 rule as Alternative II, while the
 originally proposed financial test is
 retained as Alternative I. As a result of
 this addition, firms with a tangible net
 worth of $10 million and six times their
 UST obligations will be able to use a
 financial test under Alternative II, as
 long as they also have:
   • At least 90 percent of their assets in the
 United States, or U.S. assets at least six times
 their UST obligations; and
   • Net working capital at least six times the
 required amount of UST aggregate coverage;
 or
   • A current Standard and Poor's bond
 rating of AAA, AA, A, or BBB, or a current
 Moody's bond rating of Aaa, Aa, A, or Ba.
   As with Alternative I of the Subtitle I
 financial test, if the firm is using a
 financial test to assure the costs of
 closure, post-closure care, corrective
 action,  liability coverage, and/or
 plugging and abandonment costs at a
 Class I Hazardous Waste Injection  Well,
 then the multiple requirements of
 Alternative II must be applied to the
 sum of these costs plus the UST-
 required annual aggregate. EPA believes
 the two tests provide equivalent
 assurances of financial strength.
   EPA has decided to adopt this .
 Alternative II financial test in addition
 to Alternative I as a way of increasing
 the availability of the financial test
 without jeopardizing the level of
 assurance provided by the test. As
 designed for the Subtitle C liability  test,
 and now for  the UST Alternative II  test,
 the requirement that either 90 percent of
 a firm's assets be in the United States or
 that U.S. assets be at least six times its
 UST obligation is intended to ensure the
 accessibility of these assets, should the
 firm require them to meet its UST costs.
 The net working capital requirement is
 designed to measure the adequacy of a
 firm's liquid resources, given the
 potential level of its environmental
 obligations. Because, however, the level
 of net working capital can vary
significantly by industry, the Agency
 allows firms  to meet the bond rating
requirement as an alternative to the aet
 working capital requirement. Thus,
 financially healthy firms that typically
 maintain relatively low levels of
 working capital due to the nature of
 their business can nevertheless use the
 bond rating alternative to demonstrate
 that they have adequate liquid resources
 to meet their obligations.
   The Agency decided to use the
 financial test criteria of the Subtitle C
 test for liability coverage for the UST
 financial test because they were
 specifically designed for assurance of
 possible, rather than certain, costs. For
 this reason, these criteria are somewhat
 less stringent than the standards of the
 Subtitle C closure and post-closure test
 where future costs that are certain to be
 incurred are being assured. Furthermore,
 the criteria selected for the Alternative
 II test have the advantage of being
 easily obtained from public sources
 even for .those firms that do not have
 audited financial statements or do not
 report to the SEC.
   b. Requirements for Certification and
 Reporting. EPA received two comments
 endorsing the Agency's proposal not to
 require firms using the financial test to
 obtain a special auditor's report
 verifying the financial test information
 contained in the chief financial officer's
 report. Other commenters, however,
 objected to the proposed requirements
 for financial test certification and
 reporting on the grounds that such
 requirements were unnecessarily
 burdensome and restrictive. Specific
 objections to the reporting and
 certification requirements are
 summarized below, followed by the
 Agency's response to each of these
 objections.
  • The requirement that the chief financial
 officer list in his annual letter every tank
 being assured by the financial test would be
 especially time-consuming for owners and
 operators of a large number of tanks.

  EPA agrees that the requirement for
 individual tank listing in the chief
 financial officer's letter may impose an
 unnecessary recordkeeping burden on
 firms with many USTs or on firms that
 frequently change their inventory of
 USTs. The Agency has therefore
 adopted in the final rule the suggestion
 that financial test users list the sites or
 facilities where their tanks are located,
 rather than each tank. (This same
 suggestion has been adopted for all the
 financial assurance mechanisms in the
 final rule; see Section III.E.5.J If,
 however, separate mechanisms or
 combinations of mechanisms are used to
 assure;differeHt.sets of USTs at a
location, individual tanks, must still be .
identified.
   • Other ratings, such as a Moody's.or a -
 Standard and Poor's rating, should be
 allowed as a substitute for a D&B rating as
 part of the financial \esi criteria.

   EPA has decided not to allow a bond
 rating from Moody's or Standard and
 Poor (S&P) as part: of the Alternative I
 test, because these ratings cannot be
 used in the same dray as D&B ratings or
 SEC reports—namely, to verify that a
 firm has at least $10 million in net
 worth. The Agency has, nevertheless,
 incorporated requirements for a
 Moody's or S&P bond rating in the
 Alternative II test;iUnder § 280.95(c)(l),
 a financial test user may either
 demonstrate that it has net working
 capital at least sixjtimes the required
 amount of UST aggregate coverage or
 that its most recenj: bond issue has
 received an investment grade bond
 rating from Moody''s or S&P. As such,
 the bond ratings are intended to
 increase the availability of the test to
 those firms that are financially strong,
. but because of the nature of their
 business, do not routinely maintain high
 levels of working capital. The bond
 ratings are not, however, intended to
 provide evidence qf the level of a firm's
 net worth. In the Alternative II test, this
 purpose is instead accomplished by the
 requirement that a firm either report to
 the SEC, the Energy Information
 Administration, or the Rural
 Electrification Administration, in which
 case its net worth can be easily verified
 in the reports publicly available from
 these agencies,  or submit a special
 auditor's report, corroborating the firm's
 declaration that it has at least $10
 million in tangible net worth.
  •  The annual reports filed by utilities with
 the Energy Information Administration and
 by rural electric cooperatives with the Rural
 Electrification Administration are publicly
 available. The Agency should allow reporting
 to one of these agencies as a substitute for
 reporting to the SEC.'

  The Agency agrees with these
 commenters. Because the annual reports
 filed by utilities with the Energy
 Information Administration and by rural
 electric cooperatives with the Rural
 Electrification Administration are
 publicly available and equivalent to
 annual reports filed with the SEC, the
 Agency will allow an annual report to
 one of these two agencies to substitute
 for reporting to the SEC.
  • The 90-day deadline for filing financial
 test information after 'the firm's fiscal year
 end is inconvenient iri view of other
 deadlines for filing with public agencies.

  EPA recognizes that filing with the
SEC is.a time-consuming process,
 involving the compilation and

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         Federal Register  /Vol. 53,  No. 207 / Wednesday, October 26, 1988  /  Rules and Regulations   43343
verification of large amounts of financial
data. Because the UST financial test
relies oh the same information that is
reported to the SEC, many firms will not
be able to prepare their financial test
submission until they have first
.completed the SEC filing. Furthermore,
the deadline for the annual reports filed
by utilities with the Energy Information
Administration is April 30 (i.e., 119 days
after the end of the calendar year),
whereas there is no strict deadline fo.r
filing with the Rural Electrification
Administration, In view of these
considerations, the Agency has decided
to extend the deadline for completing
the UST financial test by an additional
30 days. This means that the financial
test information is now required to be
completed 120 days after the end of the
firm's reporting year, rather than 90
days, as originally proposed. With this
change, the preparation of the UST
financial test information should not
add significantly to the reporting burden
of firms.
  Given this extension of the reporting
deadline, the Agency has also decided
to extend the deadline for obtaining a
new financial assurance mechanism for
those firms that find that they can no
longer use a financial test. The final rule
now requires that firms must obtain
alternative coverage within 150 days of
the end of the year reported in their
annual financial statements if these
 statements indicate that they no longer
meet the financial test criteria
 (§ 280.95(e]). This 150-day period is
 based on the expectation that firms will
 need up to 120 days after the close of
 their reporting year to compile their
 financial information and an additional
 30 days to find an alternate mechanism
 if this information does not support
 renewing their financial test.
   « The proposed rule did not clearly define
 the authority given to the Regional
 Administrator to request further information
 from financial test users.
   EPA has retained in the final rule the
 proposed provision authorizing the
 Director of the implementing agency to
 require reports of financial condition at
 any time from a financial test user and
 to disallow use of the financial test if
 these reports demonstrate that the
 financial test criteria are no longer being
 met (§  280.95(fj). In response to
 commenters' concern that such authority
 could be used arbitrarily to disqualify
 the use of the test by some firms, the
 Agency emphasizes that the information
 requested by the Director of the
 Implementing Agency could be used
 only to verify compliance with the
 financial test requirements as they are
 promulgated under § 280.95 (b) or (c)
and (d). Generally, such information
would include unaudited interim
financial statements (such as 10-Qs
submitted to the SEC) or mid-year
restatements of financial information
(such as 8-Ks submitted to the SEC).
Any information not bearing on the
requirements specified in the financial
test would not be used to disqualify an
owner or operator. The Agency has
modified the wording of this provision to
make its intention clearer in this respect.
  « Reporting of financial information to EPA
could result in anti-competitive activity
because EPA is under no obligation to keep
such information confidential.           :
  EPA does not believe that the
financial test reporting requirements
will in any way violate a financial test
user's interest in keeping information
confidential, because the test relies only
on information  that is already reported
to other organizations that make this
information publicly available.
Furthermore, the financial assurance
rules do not require regular reporting of
information to EPA, but instead require
that owners or operators maintain a
record of this information at their place
of business.
  In summary, the Agency  emphasizes
that the reporting and certification
requirements for the Alternative I
financial test are  designed to  be
minimally burdensome to firms, while
still ensuring that financial test
information can be verified through
sources other than the owner or
operator. Because firms will be allowed
to meet the test requirements by   .
reporting their net worth to Dun &
Bradstreet as an alternative to reporting
to the SEC, the Energy Information.
Administration, or the Rural
Electrification Administration, financial
test users will not necessarily be
required to have audited financial
statements. For owners and operators
who opt for the Alternative II financial
test, however, the reporting and
certification requirements are stricter.
Specifically, Alternative II  requires that
the financial statements of an owner or
operator using  the financial test be
independently  audited. EPA considers
this requirement to be necessary in the
case of Alternative II because of the
type of information called for by the
test—namely, the level of net working
 capital and the level of U.S. assets. The
measurement of these, variables can
 differ substantially according to the
 accounting method used to prepare
 financial statements. By requiring that
 the financial statements of Alternative II
 test users be independently audited,
 EPA has, at a minimum, the assurance
 that these variables will be measured in
a relatively consistent and conservative
fashion and in accordance with
generally accepted accounting
principles.
  Furthermore, in the final rule,
Alternative II requires a special
auditor's report from those firms that do
not file their statements with the SEC,
the Energy Information Administration,
or the Rural Electrification
Administration. The reason for this
requirement is to provide the Agency
with some objective measure of the
validity of the information reported by
those firms whose financial information
may not otherwise be publicly available.
Thus, this requirement1 serves the same
basic purposes as the D&B rating that is
included as part of the Alternative I
financial test.
  c. Availability of the Financial Test to
Municipalities. Many commenters on
EPA's proposed financial test
requirements pointed out that the test
was designed for use by private
corporations and not by municipalities
or other governmental entities. In
particular, the reliance of the test on
measures of net worth makes it
inappropriate for use by most
municipalities since net worth is
generally not a meaningful or readily
measurable indicator of a government
entity's ability to meet its obligations.
Only for those special purpose
municipalities, whose operations and
accounting procedures are similar to
those of a privately owned firm, is "net
worth" a meaningful indicator of
financial condition. Commenters also
noted that the proposed financial test
reporting requirements were
inapplicable to those municipalities that
do not file financial statements with the
SEC or report their net worth to D&B.
   As discussed in Section III.A.4., the
Agency intends to propose a financial
test for local government entities. Under
this test, qualifying local government
entities would be able to demonstrate
that they are capable of self-insuring the
costs of cleanup and third-party liability
associated with UST releases, and thus
do not need to obtain a separate
financial assurance mechanism.
   d. Miscellaneous Issues Concerning
the Proposed Financial Test. In the
preamble to the April 17,1987, proposed
Subtitle I financial test, EPA requested
comments on two requirements under
consideration for inclusion in the final
rule: (1) A requirement that firms issue a
binding written guarantee that they will
pay for the corrective action and third-
party obligations that they were
assuring with a financial test or through
provision of a guarantee or indemnity
contract; and (2) a requirement

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43344   Federal Register /
                                                   Wednesday.  October 26. £988  /  Rales and| Regulations
 extending the aggregate schedule
 beyond the required maximum for
 financial test users.
   One commenter objected to the
 proposal to incorporate a binding
 written guarantee into the financial test
 criteria on the grounds that it could
 result in lower bond ratings for firms
 and increased interest costs on their
 debt, which in turn would impair firms'
 abilities to demonstrate financial
 assurance. Commenters also questioned
 whether such a guarantee would
 materially improve EPA's'ability to
 obtain the required funding for UST
 obligations in the event of a firm's
 bankruptcy. In view of these comments,
 EPA has decided not to incorporate a
 requirement for a binding guarantee in
 the financial test provisions of the final
 rule.
   With respect to extending the
 aggregate schedule for financial test-
 users, some commenters considered that
 this provision would be unfair to large,
 financially viable firms who seek to
 assure their obligations with a financial
 test. The Agency's original intention in
 making such a suggestion  was to limit
 the ability of financial test users to
 assure thousands of tanks on the
 strength of a limited net worth. Because
 the required aggregate is capped, it
 would be possible for a firm to add to
 the number of tanks it was assuring by
 means of the financial test without
 having to increase its required level of
 net worth. The Agency, however, has
 decided that extending the aggregate
 schedule is not necessary for financial
 test users assuring large numbers of
 USTs. As indicated above in discussing
 the aggregate schedule, those few firms
 that assure hundreds or thousands of
 USTs are also firms with resources that
 are substantial and more than sufficient
 to cover their obligations. Moreover.
 these same firms are likely to have good
 loss prevention programs to limit their
 potentially large liability.
  Other comments received on the
 proposed  financial test criteria included
 objections to the Agency's proposal to
 require, for purposes of the Subtitle I
 financial test, that an owner or operator
 add to the required UST aggregate any
 other environmental costs  for which a
 financial test is used to demonstrate
 financial assurance. Commenters
 questioned why a ten times net worth
multiple would be applied  to the  sum of
 these costs under Subtitle I, while under
 the provisions of the Subtitle C test, a
 six times net worth multiple is required
for coverage of all costs being assured
by a financial test
  The Agency believes that this addition
of costs is necessary to ensure that an
UST owner or operator canmeetall of
                                        its environmental obligations, without
                                        jeopardizing the financial health of the
                                        firm. The financial tests used for closure
                                        and post-closure care, liability coverage,
                                        and corrective action all rely on a
                                        measure of. a firm's net worth relative to
                                        the costs being assured. If, therefore,
                                        these costs were not added together in
                                        the UST financial test for purposes of
                                        determining the required amount of net
                                        worth, UST owners or operators would,
                                        in effect, be "double pledging" their
                                        financial resources, thereby reducing the
                                        likelihood that UST obligations could be
                                        met if they were also faced with other
                                        environmental costs.
                                          One commenter recommended that a
                                        firm owning or operating USTs and
                                        using a financial test to assure Subtitle
                                        C obligations should be required to have
                                        a tangible  net worth equal to the sum of
                                        10 times the applicable UST aggregate
                                       •plus six times the applicable Subtitle C
                                        costs, rather than a tangible net worth
                                        equal to 10 times the sum of all costs
                                        assured by a financial test, as the
                                        Agency proposed. It was argued that
                                        this procedure for determining the
                                        magnitude of net worth coverage for
                                        multiple environmental obligations was
                                        more consistent with the Subtitle C
                                        financial test requirements, which use a
                                        six times net worth multiple.  However,
                                        for reasons discussed in Section III.F.2.a.
                                        above, the Agency continues to believe
                                        that, for the purposes of the Alternative
                                        I financial  test, a requirement that net
                                        worth coverage be fully 10 times all
                                        costs being assured by a financial test is
                                        necessary to maintain the level of
                                        protection  that the Agency has set as the.
                                        standard for the Subtitle I test. The
                                        Alternative II financial test, by contract,
                                        requires that net worth coverage be at
                                        least six times all environmental costs
                                        being assured by a financial test. This
                                        lower net worth coverage is acceptable
                                        in the context of the Alternative II test
                                        because the test requires firms to meet
                                        other criteria indicative of financial
                                        strength that are not included in the
                                        Alternative I test.
                                         Another  set of recommendations
                                        received by EPA urged the Agency to
                                        make the Subtitle I test more consistent
                                       with the Subtitle C financial test. In one
                                        case, a commenter recommended that
                                        the Subtitle I test adopt the same
                                       •procedure for calculating tangible net
                                       worth as is currently used for the
                                       Subtitle C test for closure and post-     •
                                       closure care (§ 264.151(f) and (g)). Under
                                       this procedure, any of the costs being
                                       assured by the test that have been  •
                                       incorporated in the measure of a firm's
                                       liabilities can be subtracted from the
                                       liability total and added to net worth.
                                       Because generally accepted accounting
                                       principles require that firms accrue as
 liabilities those future costs that are
 reasonably certain and measurable,
 those firms with known future
 environmental obligation's are required
 to count these obligations as part of
 their liabilities. The net worth (or
 difference between total assets and total
 liabilities) of such firms will be
 decreased correspondingly by the
 amount of the accrued liability. Thus,
 generally accepted accounting
 procedures measure net worth as if
 known future obligations had already
 been paid for or discharged. However,
 the purpose of the net worth criteria in a
 financial test  is to measure the net
 worth resources available to a firm
 before it incurs ah environmental cost,
 and thereby to determine whether the
 firm can meet this cost without
 jeopardizing its ajbility to meet other
 unanticipated obligations. For the
 Subtitle C test, EPA therefore believed
 that the appropriate procedure for
 measuring a firm's available resources
 was to compute net worth before
 adjusting for those liabilities that  the
 test is being used to assure. EPA
 believes that the same reasoning is
 applicable to the Subtitle I test and,
 therefore, allows in the final rule any
 UST costs that have been accrued as
 part of total liabilities to  be subtracted
 from the sum of total liabilities and
 added back to net worth. The Agency
 has adopted this procedure for purposes
 of both  the Alternative I and the
 Alternative II  UST financial tests.

 3. Summary of Changes in the Financial
 Test

   As discussed in Section 2 above, the
 Agency has made, a number of changes
 to the Subtitle I financial test, proposed
 on April 17,1987, largely  in response to
 the comments received on the proposal.
 These changes are briefly summarized
 below.         . '   •
   a. Alternative Financial Test Option.
 In addition to  the originally proposed
 Subtitle I test,  th^Agency is allowing
 UST owners and operators who wish to
 use a financial test to meet the criteria
 of the Subtitle C test for liability
 coverage. Under this option, owners or
 operators, and/or .guarantors, would be
 required to demonstrate the following:
  • A tangible net worth of at least $10
 million;          ;
  • A tangible net worth of at least six times
 the amount of the applicable UST aggregate;
  • U.S.  assets at least 90 percent of total
 assets, or U.S. assets at least six times the
 amount of the appliqable UST-aggregate; and
 either:
  • Net working capital at least six times the
applicable UST aggregate, or
  • A current bond rating for the most recent
bond issue of AAA, IAA, A, or BBB as issued

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         Federal  Register / VoL 53, No. 207 / Wednesday, October 26, 1988  / Rules and- Regulations   43345
by Standard and Poor's, or Aaa, Aa, A, or
Baa as issued by Moody's.
  In addition, firms using this
alternative must have independently-
audited financial statements and cannot
have an auditor's adverse opinion,
disclaimer of opinion, or going concern
qualification. For those firms that do not
file their financial statements with the
SEC, the Energy Information
Administration or the Rural
Electrification Administration, a special
auditor's report, which compares the
financial information reported in the test
submission to. the firm's financial
statements and certifies that there are
no material differences between the
two, is also required.
   b. Disallowance of a Financial Test if
a "Going Concern" Qualification, Is
Received on a Firm's Financial
Statements. In the proposal, the Agency
stipulated that, if the financial
statements of a financial test user had
been independently audited, they could
not carry an adverse opinion by an
independent certified public accountant
or a disclaimer of opinion. In the final
rule, the Agency has decided to add a
"going concern" qualification to the
types of auditor's opinions that will
disqualify a firm from using a financial
 tes.t. Because a "going concern"
 qualification indicates that there is a
 question about the ability of a firm to
 stay in business, the Agency does not
 believe such firms should be allowed to
 rely on their own resources to cover
 their UST obligations.
   c: Reporting to the Energy Information
 Administration or the Rural
 Electrification Administration. The final
 rule allows utilities filing annual reports
 with the Energy Information   .
 Administration and rural electric
 cooperatives filing annual reports  with
 the Rural Electrification Administration
 to use the financial test.
   d. Listing of Locations of Covered
  USTs. The financial test, like all of the
 financial assurance mechanisms in the
 final rule, does not require identification
 of individual tanks at the locations
  assured by the financial test unless the
  financial test is.only being used to cover
  some of the USTs at one location.
    e. Extending the Deadline for
 Preparing the Financial Test. The final
  rule allows firms using a financial test
  120 days from the end of their reporting
  year to prepare their UST financial test.
  In-EPA^s original proposal, the chief
  financial officer of the firm had-to, sign
  the financial test documentation withia
  90 days-of the close of the fiscal year.
  The final rule also allows owners or
  operators- who can no longer use.,a
  financial test ISO days frqm the encf of
the reporting year to obtain alternative
means of financial assurance. In the
event that an owner or operator fails to
obtain alternative assurance, he must
notify the Director of the implementing
agency within 10 days. In the proposed
rule, only 120 days were allowed to •
obtain an alternative mechanism.
  f. Procedures for Determining
Tangible Net Worth. In the final rule,
the Agency has adopted the procedure
for calculating a firm's tangible net.  .
worth from the Subtitle C financial test
for closure and post-closure care. With
this procedure, firms are allowed to
deduct from their total liabilities any
accruals for costs that are being assured
by the financial test. This deduction can
then be added to the measure of tangible
net worth.
G. Guarantee (§28M6) and Indemnity
Contract
  The final rule, unlike the proposed
rule, allows only one form of financial
assurance by which-a firm promises to
pay the specified amounts for corrective
action or third-party liability for another
firm: a guarantee {§ 280.96). Indemnities,
which were included in the proposed
rule, are not authorized in the final rule.
EPA based its decision not to authorize
the indemnity on the following rationale.
   Many commenters on the proposed
rule noted that authorization of an
indemnity as an allowable mechanism
to provide financial assurance in this
regulatory context would seem to
endorse practices which, in the past,
required some petroleum product
marketers to indemnify their suppliers.
 Although the Agency's proposed
 authorization, was not intended to
 endorse any other use of indemnities,
 the Agency believes that dropping.the
 indemnity will prevent any possible
 misunderstanding.
   Moreover, in order to cover third-
 party liability, indemnities duplicate so
 closely the  structure and operation of a
 guarantee contract that, in effect,' no
 additional financial assurance option is
 added by including indemnities. In fact,
 their inclusion may create unnecessary
 confusion because, in the petroleum
 marketing industry, indemnities have
 been used in a very different context.
 Commenters on the proposal indicated
 that, in the past, petroleum product
 marketers have often been required by
 their contracts to indemnify their
 suppliers, rather than looking to them
 for indemnities and guarantees. Finally,
 because the same kinds.of firms ate
 likely to be guarantors and indemnitors,
 indemnities do not provide the regulated
 community with an addifionaLgroup.,of
 potential 'financial assurance providers.
 FSE thesareasons, the Agency
authorizes guarantees in today's rule but
not indemnities.
  A guarantee is a promise by one party
(the guarantor} to pay specified debts or
satisfy the specified obligations of
another party [the principal} in the event
the principal fails to satisfy the debts or
obligations. Under the final rule, a
guarantee may be provided by related
firms or by unrelated firms that have a
substantial business relationship with
the owner or. operator. The obligation
between the owner or operator (the
principal), the implementing agency, or
third parties rests on regulatory
requirements and potential tort liability.
If the owner or operator fails to perform
corrective action or satisfy certified
third-party claims, the guarantor agrees
to fund a standby trust from which the
implementing agency will direct the
payment of corrective action costs or
third-party claims.
   Guarantors must demonstrate that
they are qualified to provide financial
assurance by satisfying the Alternative I
or Alternative II financial test under
 § 280.95, described in Section III.F. Also,
to ensure that state insurance laws do
not call into question the enforceability
or validity of the mechanism,, the
guarantee can be used only if it is
 certified as valid and enforceable by the
Attorney General of the state where the
 USTs covered by the mechanism are
 located.
   Many commenters questioned the
 availability of the guarantee,
 particularly to small- and medium-size
 firms. These commenters were
 concerned that .such firms would not
 have the required relationship with a
 potential guarantor or. that a-potential
 provider would be unable to satisfy the
 financial test requirements. EPA's
 proposed rule included guarantees
 among a variety of alternative
 mechanisms to provide owners and
 operators a number of compliance
 options. Although some.segments of the
 regulated community will be unable  to
 use the guarantee because of the rule's
 business relationship and financial test
 requirements, the Agency continues to
 believe these requirements are
 necessary to ensure that the guarantee
 provides adequate financial assurance.
 These provisions, therefore* remain.
 unchanged in today's rule.
   The proposed rule allowed firms to
 provide a guarantee if they were related
-firms that own a controlling .interest in
 the owner or operator (parent firms).
 firms that own.a controlling interest in a
 parent firm of the owner of operator
 fgrandpareritfirms), or affiliated firme
 that «re controlled by & parent .that Taiso
 owns a conteilhng interes

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 43346   Federal Register / Vol. 53,  No. 207  / Wednesday,  October 26,  1988 / Rules and: Regulations
 or operator. As defined in § 280.92(c),
 "controlling interest" means direct
 ownership of at least 50 percent of the
 voting stock. The proposal also allowed
 a firm engaged in a "substantial
 business relationship" with the owner or
 operator to provide a guarantee as an
 act incidental to that business
 relationship. These firms were included
 to increase the number of potential
 financial assurance providers without
 sacrificing the validity or enforceability
 of the instrument. Section 280.91(j) of the
 proposed rule defined a "substantial
 business relationship" to mean the
 business relationship necessary under
 applicable state law to make a
 guarantee issued incident to the
 relationship valid and enforceable. A
 guarantee is considered incident to such
 a relationship if it arises from and
 depends on existing economic
 transactions between the guarantor and
 the owner or operator.
   These required relationships between
 owners  or operators and providers of
 guarantees were the subject of many
 comments. Several commenters praised
 the Agency for expanding the number
 and kinds of corporate affiliates that are
 authorized to provide guarantees of
 financial assurance and urged even
 further-broadening in recognition of the
 variety of corporate structures that exist
 within some sectors of the regulated
 community such  as electric utilities. One
 commenter suggested the broader
 definition of corporate affiliates used in
 Federal securities law, which would
 include any firm that, directly or
 indirectly, through one or more
 intermediaries, controls, or is controlled
 by, or is under common control with, the
 owner or operator.
   EPA's concern is to ensure that
 guarantees from corporate affiliates are
 valid under appropriate state law and
 that sufficient unity of interest exists
 between the guarantor and the owner or
 operator to provide adequate assurance
 of financial responsibility. The. proposed
 relationship requirements are those that
 seem most likely to result in adequate
 assurance. A firm engaged in a
 substantial business relationship with
 the owner or operator can, however,
 provide  a guarantee regardless, of its
'position within the corporate structure.
 Thus, the Agency will allow affiliates,
 such as those enumerated in the
 securities definition, that satisfy this
 criterion to provide financial assurance
 as guarantors.
   The proposed rule required providers
 to use the contractual language specified
 in the rule for the guarantee. Some
 commenters expressed concern that the
 proposed wording of the guarantee ,
 instrument did not sufficiently limit the
 providers' liability, particularly in the
 event of the bankruptcy of the owner or
 operator. The Agency believes that the
 required language explicitly limits the
 obligation of the provider to the per-
 occurrence and aggregate amounts for -
 corrective action and third-party
 liability as stated on the face  of the
 instrument and that the wording,
 therefore, need not be modified. In
 addition, as discussed in Section III.V.2
 of this preamble,  the Agency is
 incorporating certain exclusionary
 language into the terms of the guarantee
 to more clearly limit the type  and
 circumstances of third-party liability for
 which this mechanism can be used. A
 provider may, however, have incurred
 obligations outside those of the
 guarantee contract, under state law or
 other coiitractual agreements with the
 Owner or operator. Such legal
 obligations will not be changed by the
 limitations in the  guarantee.

 H. Insurance and Risk Retention Group
 Coverage (§ 280.97)  '
 1. Availability
   Today's rule  allows UST owners and
 operators to demonstrate financial
 responsibility through the purchase of
 insurance. The  Agency believes that for
 many owners and operators, insurance
 will be the private mechanism of choice
 because it will be less costly and more
 available to most owners and operators
 than the other commercial mechanisms.
 Many commenters expressed  concern,
 however, that insurance would not be
 readily available, and many felt that
 coverage, if available, would not be
 offered at the levels required by EPA
 and that it would  not be available to
 particular groups  of owners and
 operators.
   The Agency recognizes that the
 liability insurance market, particularly
 the market for pollution liability
 coverage, has become restricted in
 recent years. As many commenters
 pointed out, a number of factors.have
 contributed to the current limited
 availability of liability insurance.
   The Agency also believes that despite
 the tight market, some insurance is
 available for USTs and more may
 become available in the near future.
 Evidence from the commenters suggests
 that UST coverage is currently available
 from a small number' of specialty
 insurers, although some policies do not
 provide the level and scope of coverage
 required in the rule. One major provider
 of UST coverage insures over 80,000
 tanks at ,25,000 locations. A major
insurance broker has obtained coverage
for over 1,500 petroleum marketers with
 more than 90,000:tanks at over 26,000
 locations. Effective July 1,1987, the
 company that wrJDte policies for this
 broker stopped writing new policies or
 renewing existing policies. However, the
 broker is continuing to offer coverage
 through a RRG which has recently
 become licensed and which is currently
 offering policies. In addition to the
 petroleum marketers currently" covered
 through existing policies, the RRG
 intends to extend coverage eventually to
 many of the 78,000 open dealers who
 currently find it difficult to obtain
 insurance.      :
   Although UST insurance is most
 readily available !to petroleum
 wholesalers and ^distributors, some non-
 marketers (e.g., auto dealers) have also
 been able to purchase coverage. Many
 insurance companies that do not
 specialize in pollution insurance
 nevertheless offer UST coverage to their
 policyholders  who purchase other lines
 of commercial liability coverage. A
 major supplier of insurance to petroleum
 marketers also issues policies to non-
 marketers purchasing other liability
 lines. Three other major insurers also
 reported that they provide UST coverage
 to some non-marketers.
   The market  for UST coverage has.
 improved somewhat since the financial
 responsibility  regulations were proposed
 on April 17,1987. Two new UST insurers
 have entered the market (one of whom
 offers coverage to non-marketers) and
 an existing insurer, Who had provided
 coverage in only a few states, has
 expanded to offer coverage in all fifty
 states. This insurer also offers coverage
 to single station owners. TWO insurers
 already offering other pollution liability
 lines have indicated that they are
 considering offering UST coverage as
 well.           ,
  The Agency is aware that the
 availability of coverage at the per-
 occurrence limits required in the statute
 and today's rule is limited. Recently, one
 major insurer lowered its per-occurrence
 limits from $1 million to $500,000. Its
 aggregate coverage levels remain at .$2
 million, enough aggregate coverage for
 owners and operators with any number
 of tanks to meet the aggregate
 requirement in the rule. The RRG
 discussed above has begun offering
 policies with $750,000 per-occurrence
 limits and plans to offer $1 million limits
when it becomes sufficiently capitalized.
In addition, a number of insurers not
 specializing in pollution liability
 coverage continue to offer, coverage with
$1 million per-occurrence limits. While
some of these insurers offer aggregate
limits of only $1 million, in most cases
these insurers provide coverage to

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Federal Register / Vbfc ,J3,. No, .20? /Wednesday, Qctobefc 2& 198S-/  Rules arid


                                                                     product liability.poBey might be
                                                                     extended to provide indemnification for
                                                                     tank owners or operators! However,
                                                                     such a mechanism would present a
                                                                     number of.difficulties in meeting, the
                                                                     financial responsibility requirements.
                                                                     Among the difficulties would be setting
                                                                     a level of product liability insurance that
                                                                     would ensure indemnification of each
                                                                     tank purchaser at a level of $1 million. In
                                                                     addition, it is likely'that the scope of
                                                                     product liability insurance coverage
                                                                     would be unaeceptably low (e.g., it
                                                                     would only cover releases caused by
                                                                     tank defects). Also, administrative
                                                                     difficulties connected with securing
                                                                     payment through a manufacturer's
                                                                     policy might delay cleanup. For
                                                                     example, a claim might have to be made
                                                                     by first contacting the manufacturer who
                                                                     would then contact the insurer.
                                                                     Therefore, the Agency declines to   .  ,
                                                                      authorize such a mechanism as a means
                                                                      of compliance with the regulations. The
                                                                      Agency recognizes, however,, that tank
                                                                      manufacturers may act as guarantors for
                                                                      tank owners or operators provided that,
                                                                      they comply with the applicable
                                                                      requirements of § 280.96.
owners pr operators with fewer tanks
for whom feraillioiti would be adequate
to meet the Agency's requirement In
some 'cases, owners' and'operators may
have to combine policies and- other
mechanisms to obtain the required
coverage.
  While the current insurance supply is
inadequate to cover all members of the
regulated community, the Agency hopes
that the supply will expand in the
months between the promulgation, of the
regulations and the compliance dates for
the majority of unassured USTs. As
noted above, a slight expansion has
already occurred. The requirement to
demonstrate financial responsibility
should significantly increase the
demand by owners arid operators for
UST insurance. At the same time,
promulgation of UST technical
standards should increase the ability of
the insurance Industry to predict its risk
iii offering UST coverage. These two
factors may increase the certainty of the
profitability of insuring USTs andshouM
encour'age new entrants into the
marketplace.
  The Agency further believes feat 12 to
18 months is a reasonable time in which
to expect the insurance industry to
respond to the increased demand for
coverage and for alternatives to
conventional insurance,, like RRGs or
 state funds, to develop. Estimates of the
time frames for establishing new
insurance programs and RRGs range
 from 12 to 36 months. Commentera on
 the Supplemental Notice generally
 agreed with the estimates, with Only one
 commenter suggesting that it might take
 as long as 5 years for a RRG to form.
   Nevertheless, the Agency recognizes
 that some owners and operators  may
 have difficulty obtaining insurance after
 the date set for compliance with the
 rule. In particular, individual service
 station dealers who are not part of an
 industry association may face such
 difficulties because UST policies are
 often sold through such associations,
 making  it difficult for unaffiliated
 owners  or operators to obtain insurance
 on their own. Individual service station
 dealers  and other UST owners and
 operators not currently members of
 larger groups or trade associations may.
 have to form or join a group to facilitate
 purchase of UST.coverage or the
 formation of a RRG. Alternatively they
 may be able to rely on a state fund.

 2. Insurance Cost and Its Impact
    Many commenters felt that the cost of
 insurance for USTs would be
 prohibitively high and suggested that in
 considering the impact of the rale, the
 Agency haft underestimated the-cost of
 UST pollution, liabili^r policy premiums;
Other commenters addressed issues
coricerriing the high cost of insurance in
general, arid felt that particular groups of
owners and operators, especially small
businesses and local governments,
would be adversely affected by the
regulations.
  The Agency believes that its
projection of average premium costs of
$2,000 to $4,000 per facility is accurate.
The estimate was developed based on
current and projected premiums using
data supplied by insurers. .The
information received in the comments
supports this estimate. The proposed
RRG noted above reported that its
average premium for $1 million
peroccurrence coverage is expected to
be $2,000 per site. Other current
providers reported premiums of $500 to
$2,000  for coverage of one to twelve
tanks. The largest average premiums
were reported by the National
Association of Convenience Stores'
(NAGS) and the1 Society of Independent
Gasoline Marketers of America
(SIGMA). These trade associations
reported average premiums of $13,600
and $32,000 per member respectively.
NAGS and SIGMA members tend to
own several locations, however, and
there is likely to be more than one tank
at each location. Forty percent of NAGS
members own more than 10 stores,
while 47 percent of SIGMA members
own 11 to 50 outlets and 39 percent own
51 or more. Given the large numbers of
 sites covered, the high NAGS and
 SIGMA average premiums are also in
 line with  the Agency's, original estimate.
   Reported claims data suggest that
 UST claims have been predictable and
 not extremely costly. Most claims have
 been under.$100,000. In addition,
 insurers can expect the risks of UST
 coverage to become more predictable in
 the future.'While the cost of insurance
 for USTs could be relatively high
 initially, particularly when the
 regulations first go into effect, the
 increased predictability and decreased
 risk that the technical regulations are
 likely to promote should help to limit
 costs.
   The Agency recognizes that the cost
 of liability insurance in general may
 pose a hardship upon some members of
 the regulated community. However,  .
 average premiums of about $2,000 are
 small compared to the costs of
 corrective action whielu if incurred,
 would certainly pose a much greater
 economic hardship.
    The Agency received severaF
 comments with specific suggestions for
 alternative requirements that might
 reduce the cost of obtaining insurance
 coverage for USTs; One eonimenter"
 : ssiggested'thaf a-tiank maaafactBrer's:
                                                                      3. Viability of Risk Retention Groups

                                                                        Commenters raised a number of
                                                                      issues concerning the viability of risk
                                                                      retention groups (RRGs) as an
                                                                      alternative to traditional insurance
                                                                      coverage. Among the issues were:
                                                                      Difficulty of organization, cost of
                                                                      capitalization, instability of RRGs, and
                                                                      conflicts between current state- laws and
                                                                      regulations and the Liability Risk
                                                                      Retention Act of 1986 (RRA), 15U.S.C.
                                                                      39Gletseq.
                                                                        The Agency recognizes that forming
                                                                      an RRG requires considerable effort.
                                                                      Evidence from the comments suggests
                                                                      that it would take at least one year to
                                                                      establish a group. However, such groups
                                                                      are currently being organized to offer
                                                                      environmental impairment liability
                                                                      insurance. One of these RRGs is now
                                                                      offering coverage to a number of UST
                                                                      owners and operators, including owners
                                                                      of single outlets for retail motor fuel
                                                                      marketing.
                                                                        A number of commenters were
                                                                      concerned that costs of capitalization
                                                                      could be high for RRGs. The Agency
                                                                      recognizes that capitalization costs
                                                                      could be a significant barrier to RRG
                                                                      development. At present, however,, there
                                                                      is little evidence available to indicate
                                                                      what .typical capitalization costs per.
                                                                      owner or operator are likely to be. The
                                                                      recently formed RRG mentioned above
                                                                      requires a capital contribution of $2,000
                                                                      or an amount equivalent to the a^ruial
                                                                      premium, whichever is leas. Premiums

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  43348   Federal Register / Vol.53, No.  207 / Wednesday October 26, 1988 / Rules arid Regulations
  are currently around $1,600 per site and
  are expected to increase to about $2,000.
    Broader questions of general RRG
  stability and solvency, along with issues
  concerning the regulation of RRGs by
  states, are questions connected with the
  RRA and go beyond issues directly
  related to financial responsibility for
  underground storage tanks. Therefore, it
  is not within the scope of this
  rulemaking to address these broader
  RRG issues. Such issues, however, are
  being addressed by other agencies of the
  federal government. The Commerce
  Department has Tecently issued a report
  evaluating the effectiveness of the
  RRA.8 The report found no major
  problems with RRGs themselves  (in
  terms of solvency and potential risk to
  the public), but noted conflicts between
  state insurance laws and regulations '
  and the provisions of the RRA. Such
  conflicts are matters for the states to
  address.
   RRGs may be unavailable to some
  owners or operators due to an inability
  to o.rganize into a group or raise the
  necessary capital. Regulation may also
 limit the formation of such groups in
 some states. While some UST owners
 and operators may be unable to form
 RRGs, however, the Agency believes the
 groups may provide an alternative to
 insurance for a number of owners and
 operators of USTs.
 4. Specific Requirements for Insurance
 and Risk Retention Group Coverage
   A number of commenters questioned
 specific policy conditions that insurance
 mechanisms must include under this
 rule. In general^ commenters questioned
 the effect of these requirements on the
 availability of insurance. The Agency
 recognizes that the limited availability
 of insurance, in part, reflects the
 significant uncertainties regarding the
 risk'that insurance providers may be
 undertaking and that various policy
 language has been developed to
 minimize uncertainty. Therefore, in
 specifying certain policy conditions the
 Agency attempted to meet two
 objectives: (1) The need to ensure  that
 insurance coverage will provide the
 same level of protection as other
 mechanisms; and (2) the need to
 preserve flexibility in policy
 specifications to allow insurers to
 develop acceptable policies and 19 avoid
 unnecessarily constructing the
 availability of insurance.
  a. On-Site Cleanup. Several
 commenters questioned the availability
 of insurance for on-site cleanup and
  • U.S. Department of Commerce,       .
nttienlionAct'gf 1986 Implementation RijporL
Scplcmber"l£f87"
  suggested that financial responsibility
  for these costs not be required; The
  statute clearly requires financial
  assurance for corrective action.
  Corrective action,involves cleanup of
  contamination caused by a release.
  While a release may, for an initial
  period of time, be confined to the
  property of an owner or operator of an
  UST, there is no way to ensure, without
  corrective action, that the release will
  not eventually affect the health or
  property of others. Financial
  responsibility for corrective action will
  ensure that cleanup may be undertaken
  promptly, thus minimizing third-party
  and environmental damage.
   The Agency recognizes that some
  insurers are reluctant to provide on-site
  coverage because of the "moral hazard"
  involved. In other words, insurers fear
  that coverage of on-site corrective
  action could provide a disincentive to
  the owner or operator of an UST to
 maintain his site properly!of may
 encourage negligence and thus may
 result in more releases and more claims
 to the insurance provider. Insurers also
 fear that coverage for on-site cleanup
 might make them responsible for the
 costs of routine maintenance or site  ,
 restoration. First party coverage (i.e.,
 coverage of damages to the insured) has
 traditionally been offered as a separate
 type of coverage.
   Some insurers, however, provide on-
 site coverage in order to limit their
 exposure to more expensive third-party
 claims. Currently, the two primary
 sources of insurance for petroleum USTs
 cover on-site cleanup of UST releases. A
 recent entrant into the market also
 provides on-site cleanup coverage. In
 addition, some other insurance
 providers will cover on-site cleanup if it
 will prevent more costly third-party
 damages. The comments suggesting that
 on-site coverage is not generally
 available referred to policies covering
 environmental impairment liability in
 general and do not reflect the standard
 practice of the specialized market for
 UST coverage. The Agency received
 only one comment regarding the recent
 entry into the UST market of an insurer
 who will not cover on-site cleanup.
  One commenter suggested that
 coverage for cleanup be mandated
 whether or not the corrective action is
 ordered by the government. Such a
 requirement could be interpreted to
 mean that policies must Cover response
 actions that the owner or operator might
perform as a general ope'rating practice.
Although the Agency is requiring that
on-site'corrective action \)e covered by
all financial responsibility mechanisms;
it does riot intend to require policies that
  make insurers responsible for activities
  that are clearly ithe day-tc-iday
  responsibility of the owner or operator.
  Therefore, the Agency wished'to clarify
  that EPA is not mandating ihat
  acceptable insurance policies cover
  response actions that are part of routine
  maintenance of [the tank site, site
  restoration and enhancement.
  Corrective actiop, coverage Will be
  required only for cleanup of releases
  required by §§ 280.60 to 280^66 and
  280.72 of the technical standards or
  ordered by the implementing agency.
  The Agency believes that this
  requirement will ensure that adequate
  financial resources are available to
  perform necessary corrective action.
   b. Non-Sudden Accidental
  Occurrences. Several commenters also
  suggested that insurance companies
  would not be willing to provide
  coverage for non-Sudden occurrences as
  required by today's proposal. The
  statute requires; however, that all
  releases, whether sudden or non-
  sudden, be covered. This is particularly
  necessary to ensure adequate coverage
  for USTs, because it is often difficult to
  determine whether an UST release is
  sudden or gradual.' Therefore, to  ensure
  adequate protection of human health
 and the  environment, both types of
 coverage are necessary. Comments
 indicate that coverage for non-sudden
 releases is currently offered by the
 major providers, iln the event that an
 owner or operator could not obtkin
 insurance for non-sudden releases, a
 separate mechanism could be used. Both
 mechanisms, however, must provide $1
 million worth  of coverage (see Section
 III.D.3).         t
   c. Agency Specification of Various
 Policy Terms,. A number of commenters
 from the insurance industry felt that
 EPA-proposed coverage terms did not
 precisely follow insurance industry
 standards and would limit availability
 of insurance coverage for USTs.
 However, it was. also clear from
 industry comments that adoption of the
 recommended language would not, by
 itself, increase the availability of
 pollution insurance. The objections of
 the commenters centered on the
 definitions of the iterms occurrence, ,
 accidental release, and bodily injury; on
 the prohibition of; certain exclusions
 (those for non-sudden releases and on-
 site coverage); and the requirement that
 120-day notice be[ given to an insured in
 the event of a cancellation. The
 commenters recommended that the
Agency defer1 to standard industry
practice 'tit establishing policy 'language*;
One eommenter siiggested specific terms

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         Federal. Register /Vol. 53,  No. 207-/ Wednesday,  October 26,  1988 / Rules and Regulations   43349
that he felt would more strictly define
appropriate insurance coverage.
  The Agency has two reasons for
clearly delineating the terms of
insurance policies that are acceptable to
meet.financial responsibility
requirements. The first is that, given an
insurance market with widely varying
types and scopes of coverage, the
Agency is concerned that the insurance
provided to an UST owner*or operator in
fact provides a sufficient level of
financial .assurance. Second, because
the Agency has mandated that proof of
financial responsibility be demonstrated
only in the event of a release or if
specifically requested by the
implementing agency, the Agency wants
to define very clearly the terms of
acceptable coverage so that both the
insurer and the owner or operator can
determine whether the policy is
adequate to comply with the regulations.
  , Several commenters took issue with
the Agency's use of the terms
"occurrence."; and ."accidental release,"
preferring instead the combined term
"pollution incident," a term widely used
, 'in the insurance industry. Commenters
also suggested that the term "bodily  •
injury", be defined in a manner
consistent with the standard established
in ISO'.s new CGL policy. These issues
apply to all the instruments and have
been addressed in Section III.C above,
  Commenters also requested that the
120-Hay notification period for
cancellation of insurance be shortened.
The Agency agrees that a shorter time
period will still give owners and
operators adequate time.to locate-
another mechanism for financial
responsibility, and that the 120-day
requirement may put too severe a
burden on insurers by exposing them to
the risk that th'e'insured will fail to pay
the premium in those 120 days. Thus, the'
120-day notification period may limit the
availability of UST insurance. The
Agency is therefore shortening the
notification period to 60 days (see also
Section III.P below regarding
cancellation'of mechanisms). The
notification period for other
terminations of insurance policies has
 also been shortened to 60 days.
  . Commenters made a number of very
 specific recommendations regarding the
 terms of insurance policies. Several
 commenters suggested that acceptable
 policies be required to include a
 provision specifying that the insurer pay
 on behalf of the insured, rather than
 reimburse* the owner or operator for
 cleanup costs qr third-party .damage
 payments1* The Agency, has considered
 these cqnunents and has.determined. •
                 that insuEanoe policies.
                     r, than indemnify^
the insured is not necessary to ensure
that insurance will provide adequate
assurance for corrective action and
third-party liability costs. Many policies
currently in use already specify that the
insurer will pay on behalf of the'insured,
especially in cases of third-party
liability. In some cases of corrective
action, the implementing agency may
undertake response activities to clean
up a release in a timely manner. In such
cases the implementing agency would
receive reimbursement by the insurer.
  One commenter recommended that
lower premiums be mandated for tanks
brought into compliance with tank
performance standards in advance of
their compliance dates. The Agency
does not need to mandate particular
premium levels because the market
itself should respond to tank
improvements by offering lower
premiums for safer tanks.
  d. First Dollar Coverage. Many
commenters felt that the provision
requiring policies that make insurers
liable for amounts within the deductible
applicable to  the insurance policy would
be unfair to insurers, and ultimately
force them to bear the cost of the
deductible. The Agency disagrees with
these comments. The Agency'developed
this .requirement to ensure that disputes
(between the  insurer and the insured)
over who is responsible for paying
amounts within deductible limits will
not interfere with prompt performance
of corrective action measures or with
payment of third-party claims. The
Agency does  not intend to require
policies that limit the right of insurers ;to
specify deductibles applicable to    ;.
particular policies and to receive these
costs from insureds. Therefore, the  first
dollar coverage requirement should not
hinder development of a pollution
liability insurance market. If an owner
or operator is in bankruptcy at the time
'of a release and therefore cannot pay
the deductible, the insurer, as a creditor,
could seek payment through the
bankruptcy proceeding, just as any other
creditor would.
   Commenters suggested that the LUST*
Trust Fund might be used to guarantee
payment of deductibles to the-insurer.
However, the statute establishing the
LUST Trust Fund specifically defines
those cases in which the Fund will pay
corrective action costs and does not
include payment otdeductible  amounts.
In addition, the Trust Fund'cannot be •
used to pay third-party damages.
   Pollution liability policies.frequently
have high deduetibles in order to keep
pretoium. coats dowht and cqmmenters '.
suggested that paying :ampuntS7 within  .
these deductible^ may. notbe affordable;.
              , Jhe First dollar coverage
 requirement will prevent delay of
. cleanup or payment for third-party
 damages in such cases and will meet the
 Agency's goals of protecting human  .
 health and the environment. The insurer
 will still be entitled to recover costs
 within deductible limits from
 policyholders, although in such cases
 payment arrangements would have to be
 made,         , .
   e. Policy Retroactive Dates and
 Exclusions for Pre-Existing Conditions.
 Several commenters expressed concern
 that the Agency's acceptance of claims-
 made policies would limit protection of
 the insured and, consequently, the
 degree  of financial assurance. Claims-
 made policies typically provide
 coverage only for releases reported
 during the-policy period and that begin
 subsequent to the policy's retroactive
 date. The retroactive date is generally
 the same as the effective date of the
 policy.
   One  commenter suggested requiring
 the retroactive date to be 18 months
 prior to the effective date of the policy.
 The Agency understands the concern of
 the commenters arid realizes that use-of
 claims-made policies could result in
 occasional gaps in coverage-, particularly
 with respect to releases occurring prior
 to the retroactive date. The. Agency
 considered a requirement that claims-
 made policies have retroactive dates 6
 months, prior to the issue date-of the
 policy but decided against-suqh a
 requirement because few, if any,
 insurers are willing to' offer such a
 policy.  Given that "insurance is likely to
 be the "mechanism of choice" of most
 UST owners and operators (especially
 smaller businesses), the Agency feels
 that its goals of protecting human health
 and the environment will not be served
 by specifying policy provisions which
 will prevent most otherwise qualified.
 UST owners and operators from-being
 able to obtain insurance. Prohibiting the
 use of claims-made policies or requiring
 a retroactive date prior to the'policy
 effective date is likely to severely limit
 insurance availability.
   In. addition, the problem of gaps
 occurring in coverage prior to the
 retroactive date1 is likely to be a
 significant problem primarily at the
 outset of the UST financial  ,
 responsibility requirements, when large
 numbers of previously uninsured owners
 and operators purchase insurance for
 the  first time. After that initial time  '
 period, most owners or, opera tors, should
 be able-to maintain, continuous :. •....
 cpverage, given the advance notice of
 cancellation that the Agency is requiring
 .as well as this use of'extende.d repojiing,
 periods TOT claims-made cbntr,ajrit'8,;.!-;,, '

-------
 43350   fadecal Register J Vol. 53,, No. 2W/ .Wednesday, October 26, 1988  / Rules and I Regulations
 Ex tended reporting periods allow the
 insured to report a release occurring
 .during the policy period -after the
 termination date of the new policy. This
 "tail" coverage helps prevent gaps in
 coverage that could arise because the
 replacement policy will not cover
 releases that occur prior, to the
 retroactive date of the policy. In the
 case of policy renewal as opposed to
 policy replacement, most policies should
, provide continuous coverage over time
 because the retroactive date of the
 policy is generally the original issue
 date and not subsequent renewal dates.
   As the technical requirements for leak
 detection are phased in, owners and
 operators are likely to identify a number
 of USXs that are leaking and are not
 covered by a financial assurance
 mechanism. When die owners -or
 operators -of these tanks obtain
 insurance, these identified leaks are
 likely to be excluded from coverage as
 "pre-existing conditions.". The Agency
 realizes that insurance is not
 appropriate to meet the cost of known
 releases and is not requiring that
 insurance policies purchased to comply
 with today's rule cover known pre-
 existing conditions. Any requirement for
 coverage of known -conditions would be
 likely to severely limit UST insurance
 availability because insurers will not be
 willing to issue policies obligating   .
 payment for damages that have already
 occurred. UST owners and operators are
 responsible for cleanup and third-party
 liability costs that are not covered by
 financial assurance mechanisms. In
 some instances the LUST Trust Fund or
 state funding programs may be
 appropriate means to fund cleanup of
 those pre-existing conditions. .(Under the
 LUST TrastFund, however, owners and
 operators are liable for any funds.
 expended to clean up pre-existing
 conditions.)
   An insurance representative
 expressed concern that implementation
 of the technical regulations would result
 in discovery of more releases in. the
 early years of the regulation and lead
 insurers to avoid the UST market until
 compliance with the technical   ,
 regulations is complete. While it is likely
 that more releases will be discovered in
 the early years of regulation, this fact
 alone should not reduce insurance
 availability. Insurers will establish their
 own pre-conditions for iank coverage.
 Such pre-conditions may include
 inspections, audits-or other measures to
 identify existing leaks. Tanks that are
 insurable are likely to remain so. Tanks
 that ate discovered to be leaking are
likely to need-corrective action and
 appropriate repair, upgrading, or
 replacement before an insurer will
 accept them for .coverage. These
 measures will also be required by the
 technical standards. Phased
 implementation of the technical
 requirements should aot adversely
 affect insurance availability, because
 insurers .will be able to require
 correction of existing releases as a
 condition for coverage.
   f. Endorsement and Certificate of
 Insurance. The Agency received a
 number of comments regarding fee
 specific wording of the Endorsement
 and Certificate of Insurance requfeed for
 users of insurance and RRG coverage.
 AH commenters on this issue agreed ttiat
 the requirement that tanks be listed by
 identification numbers on the certificate
 of insurance or endorsement would
 result in more-limited insurance
 coverage than the standard i»dtretry
 practice of listing covered tanks by site.
 As described in Section Ifl.E.5, the
 Agency agrees with these comments.
 For the pmr-pose of determining Hie
 appropriate aggregate coverage,
 however, a statement indicating that the
 mechanism assures 100 or fewer or more
 than 100, USTs is necessary, m today's
 rule, the endorsement and certificate
 language (if 2S0.9?[bJ(l3 and
 280.97(bK2)l nas been amended to strike
 the requirement for tank serial numbers
 and instead requires a listing of the
 number, of tanks at each facility insured
 and the name and address of each
 facility.
  .Commenters also suggested that the
 issue date of the policy is unnecessary
 for the endorsement and certificate of
 insurance, given that the policy .effective
 date, which-defines the date on which
 coverage begins, is also required. The
 Agency again agrees with the
 commenters that inclusion of the issue
 date is unnecessary and that the scope
 of coverage provided is clearer when flie
 endorsement and certificate of
 insurance contain only the effective date
 of the policy. In policies wimo-ut' an
 effective date, the issue date is
 considered to be the sams as Ike
 effective date. However, in cases in
 which policies-include effective dates,
 coverage is generally considered to
 begin-tm the .effective date. In jno&t
 cases, the issue date and the effective
 date of the policy will be the same, but
 in those cases in which they are not, the
 difference could be a source of dispute
 concerning whether a particular release
 is covered. Listing only.the effective
 date on the endorsement and certificate
 will eliminate such a dispute. Today's
 rule does aot include the issue date of
 the poMcy in the endorsement or
-certificate OJl.2SO.S7 (fe)(l) and (b)£2)J,
but does continue, to require listing of
the policy effective date.  •
  g. Six Months Extended. Reporting
Period. As indicated am the April 3J987,
proposal, the Agency is concerned that a
claims-made contract may leave gaps in
coverage if, for ej|cample,' a claim is
reported after tfae -expiration of. a policy
for a release that jbegan prior to the
expiration date. Such claims may not be
covered by a replacement financial
assurance medaaiiism {see retroactive
date discussion, Section HLGAe above).
Originally, flbe Agency proposed a one
year "extended discovery" period to
address this concern. Under this
provision, claims teade during the
extended discovery period for losses
that occwrred during the policy period
would be covered. In today's rule, the
Agency has changed the term to
"extended reporting period" and
reduced the time frame to six months.
These changes w&re made for several
reasons.
  Commenters suggested replacing the
term "extended discovery'period" wi'fh
the term "extended reporting period" to
clarify that the period only covers
incidents which took place during the
actual policy period and were reported
during the extended reporting period.
The Agency agrees with commenters
that the insurance industry suggestion
more accurately describes the coverage
that the Agency intends. The Agency
intends to require that only releases
beginning during jfhe policy period itself
be covered during the extension and
agrees with comiAenters that the term
"extended discovery period" could
cause confusion dver whether a policy
would cover occurrences beginning
during the extended discovery period or
only those beginning under the actual
policy period and reported during the
discovery period. Therefore, the Agency
has changed the term to "extended
reporting period.11! The Agency also
agrees with the comment that it would
be unnecessary to include an extended
reporting period clause in an
occurrence-based contract because by
definition, such policies cover losses
occurring during the policy period
regardless of when they are reported.
Therefore paragraph 2(eJ of the
endorsement and certificate  of
insurance (§128G.97(b](l) and
280.97(b)(2)3 are required, only in the
case of a.claims-made contract.
.  The Agency alsb reconsidered ihs
proposed .one-year time frame for
extended reporting. Several commenters
addressed this issue. One suggested a
reporting period ojf three years. Others
urged that EPA should not establish a:
mandatory time .frame.-Wiiilei the

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         Federal Register / Vol.  53, No. .207  /  Wednesday. October 26,  1988 / Rules and Regulations  ^.43351
Agency recognizes thata three-year
reporting period may afford :even greater
assurance by allowing an owner or
operator more time in which to report
damages caused by a release, the
Agency has" declined to mandate such a
lengthy reporting period. Insurers are
.unlikely to be willing to offer "tail"
coverage as long as three years due to
the continuing risk to which such
coverage would expose them. Also, even
if insurers were willing to offer long
reporting periods,  the cost of the
coverage could be prohibitively
expensive. Because the Agency believes
that an extended reporting period is
essential to ensure adequate coverage
by claims-made policies, the Agency has
decided hot to mandate a reporting
period of such length that the insurance
would be unavailable or unaffordable to
 otherwise qualified UST owners and
operators. The significant, reduction in
 insurance coverage created by such a
 provision would result in lesser
 protection of human health and the
 environment.
   At the same time, the Agency does not
 believe that the length of the reporting
 period should be entirely discretionary.
 Therefore, the Agency has decided to
 set a shorter minimum length of six
 months for the extended reporting
 period.
   The Agency has decided that six
 months is a reasonable time frame in
 which to identify  and report a release
 following termination of a policy for the
 following reasons. First, implementation
 of leak detection  requirements should
 result in prompt detection of releases.
 Six months should be sufficient time.to ,
 report releases occurring during the
 policy period. The Agency is making
  such a reporting period mandatory for
  all claims-made contracts used to
  demonstrate compliance with today's
  rule,  regardless of the reason for
  termination. Although the extended
  reporting period differs from the
  industry standard, it is important to
  bridge the potential gap between the
  end of a claims-made insurance policy
  and the initiation of another assurance
  mechanism.
    Second, commenters estimated that
  the cost of the extended reporting period
  could range from half the premium cost
  to more than the cost of a yearly
  premium. This reflects the difficulty in
  establishing proof of when releases
  reported during this extension actually
  occurred. The Agency feels that the cost
  of a six-month period would be
  affordable for more owners or operators
  than the cost of a one-year period, thus
  increasing total insurance coverage.
  This is especially true because the
owner or operator must also pay the
cost of a new financial assurance
mechanism to remain in compliance
with the rule.
  The change of the reporting period
requirement from one year to six months
may help to address two other issues
raised by commenters. The first issue
raised by commenters concerned
potential conflicts over responsibility for
coverage during the reporting period. A
release  discovered during the reporting
period could either be covered by the
old insurance policy if it began prior to
policy termination or by the new
replacement mechanism if it began later.
There could be a delay in payment for
corrective action and third-party
damages while the date of the release
was determined. As the reporting period
was extended the potential for conflict
would increase. By reducing the
reporting period to six months; the
Agency intends to minimize the
potential for conflict between
mechanisms and thus the potential for
delay in meeting the costs of a release.
   Second, members of the insurance.
industry noted that the extended •
reporting period required by the Agency
differed from the reporting period in
common use in the industry in that it
was an "upfront" requirement, not an
 option  to be purchased only in the event
 that a policy was cancelled for reasons
 other than non-payment of premium.
 Insurers feared that mandatory
 reporting periods would expose them to
 the possibility of supplying coverage for
 one year to an insured who had not paid
 his premium, or who voluntarily
 cancelled, thus essentially receiving
 "free"  coverage for one year. The
 Agency wishes to stress that it is only
 requiring an extended reporting period
 during which insureds may report
 releases that occurred while their policy
 was in effect, not an extended coverage
 period during which insurers would be
 liable  for releases occurring after the
 policy's termination. Insureds who
 voluntarily cancel their policies,
 therefore, would not receive "free"
 coverage for any period of time.
 Futhermore, by establishing an
 appropriate schedule of premium
 payment, insurers can best protect
 themselves against providing "free"
  coverage to insureds whose policies
  they ultimately would cancel due to
  nonpayment of premium..
    One commenter recommended that
  forfeiture of insurance coverage due to
  delayed notice of a claim be prohibited.
  The Agency believes, however, that the
  extended reporting provisions of the rule
  adequately ensure that claims will be
  covered even if not reported
immediately to the insurer; The .
reporting period Vvpuld allow an insured
covered by a claims-made policy extra
time to report any releases which may
have occurred'during the policy period,
but which were not immediately
discovered.
  h. Legal Defense Costs. The Agency's
proposal to exclude legal defense costs
from the coverage limits of'insurance
policies used to comply with financial
responsibility requirements was
opposed by many commenters. The
commenters argued that insurers will
not provide coverage exclusive of legal
defense costs. The Agency has reviewed
these comments and decided to continue
to require exclusion of coverage for legal
defense costs from insurance policy
indemnity limits.   •
  The exclusion was originally proposed
for several reasons: (1) To ensure that
legal defense costs would not absorb too
great a portion of coverage limits and
thus leave little coverage available for
 corrective action and-third-party
 liability; (2) to conform to the general
 insurance industry standard practice for
 comprehensive general liability of
 paying all legal defense costs outside
 policy limits until the indemnity limits
 have been exhausted; and (3) to provide
 the same level of financial assurance to
 cover both third-party claims and
 corrective action as the other
 mechanisms {none of the other
 mechanisms for demonstrating financial
 responsibility under the rule covers legal
 defense costs).
   In general, the above reasons for the
 exclusion are still valid. Legal defense
 costs could amount to a significant
 portion of policy limits now and in the
 future.NA study-by the ISO indicates that
 legal defense costs have increased three
 times faster than indemnity losses since
 I960.7 Defense costs per one dollar of
 loss tripled between 1958 and 1984. This
 trend is not limited to any one particular
 area, but rather is common throughout
 the general liability field. There are few
 actual data on defense costs for liability
 suits brought in cases of pollution
 releases, but an Agency analysis of
 general liability, Superfund, and  .
  asbestos claims suggests that legal
  defense costs in Cases  involving '
  pollution liability could constitute as
  much as 36 to 42 percent of policy
  liability limits.
    The insurance industry standard for
  commercial general liability coverage
  continues to be payment for all legal
  defense costs outside general liability
  policy limits until the limits have been
    7 The Rising Costs of General Liability Legal
  Defense, Insurance Services Office, 1386.

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 43352   P-ederal, Register /  Vol. 53. No. 207. / Wednesday. October .26.  1988 /Rules alid Regulations
 exhausted by indemnity payments. Only
 about 25 percent of commercial.general
 liability policies include payment of,
 legal defense costs within policy limits
 and ISO's standard CGL policy includes
 a clause obligating the insurer to
 provide payment for legal defense until
 coverage is exhausted by indemnity
 payments. EH, policies are more likely
 than CGLpolicies to include legal
 defense costs within policy limits;
 however, industry practice .even within
 the smaller universe of EIL policies is
 not uniform. EEL policies are available
 that provide Indemnity limits exclusive
 oflEgal defense costs.
   The Agency recognizes that .the
 insurance industry attitude toward legal
 defense costs may be changing. Some
 members of the industry, in response to
 the spiralling costs of legal defense,
 "have begun examining ways to contain
 defense costs, feeling that the insurer's
 traditionally unlimited "duty to defend"
 may be a disincentive to pplicyholders
 to fceep legal defense costs down. At the
 same time, it does not appear that the
 industry is moving toward inclusion of
 legal defense costs within policy limits
 as  a solution to the problem. While ISO
 proposed at one time that some portion
 of legal defense costs be included within
 policy limits, it withdrew that proposal
 and has more recently pat forward ,a
 plan to limit legal defense costs outside
 of policy limits.
  Although the Agency's reasoning on
 costs of legal defense and standard
 insurance practice continue in general to
 hold true, EPA recognizes that legal
 defense costs are sometimes handled
 differently in-the specialized market of,
 insurance USTs. The consensus of
 commenlers is that insurance policies
 for USTs generally include legal defense
 costs within the policy limits. All
 policies issued through one major broker
 were written inclusive of legal defense
 costs. A number of other insurance
 providers similarly indicated that UST
 coverage would only be available if
 legal defense costs were included. One
 major insurer, however, has excluded,
 and will continue to exclude, legal
 defense costs for policy limits.  Thus,
 while many current UST policies include
 legal defense in policy limits, the
 Agency does not feel that the exclusion
 or inclusion of le^al defense costs will
 affect the availability of insurance
 coverage over the loag term.
  The Agency considered two other
 approaches to dealing with Segal defense
 costs. The first would be to allow
 insurers to include legal defense costs
within the limits. Because few UST
insurers currently offer coverage
exclusive-of defense costs, this option
 would at least reinforce currently
 available insurance policies as a means
 of compliance with financial
 responsibility regulations. In addMon,
 while it is clear that RRGs may (cover
 legal defense costs (section 3901{a}:(2j(A)
 of the RRA explicitly legal defense costs
 within the definition of allowable
 liability coverage), it is not clear that
 RRGs will genera te enough capital to
 cover legal defense costs above and
.. beyond policy limits, inclusion of
 defense costs in the limits could
 facilitate RRG formation. The second
 approach would be to allow insurers to
 include legal defense costs within policy
 limits higher than the ;$1 million
 requirement. This approach would
 address insurer concerns regarding
defense cost limitation, but probably
 would not address issues of RRG
 capitalization.
   The Agency believes, however, that
 arguments for continued .exclusion are.
 compelling and that development of
 higher insurance policy limits allowing
 defense costs to be included would not
guarantee that insurance would provide
adequate financial assurance. The linal
rule continues to require that policy
limits be exclusive of legal defense
costs. The statutory requirement is $1
million of per-occurrence coverage for
the costs of corrective actien  and third-
party liability for USTs at facilities
engaged in petroleum production,
refining, or marketing. If insurance
policy limits included defense costs,, in
effect, insurance policies would foe
providing financial assurance .a t a level
lower than that required by the statute.
Exclusion of legal defense costs from
policy limits is also consistent with
RCRA Subtitle C liability coverage
regulations.
  The Agency recognizes that in many
cases legal defense costs may not be
high enough to significantly affect the  •
adequacy of insurance policies to
provide the coverage required,
particularly that-for corrective action.
However, if defense costs for  petroleum
USTs are low, then the insurance   -
industry will not 'be excessively
burdened if it must cover these costs
outside of policy limits. Alternatively, if
defense costs for petroleum USTs are
high,  then coverage for these costs
outside policy limits is necessary to
ensure adequate financial assurance .for
corrective action and third-party
liability costs. While this may place a
greater burden on the insurer,  the
insurer is free, as many insurers are
cuniently doing, to limit defense costs in
some way outside of policy limits.
  i. Insurer Qualifications. The April
1987, proposal'required that insurers
  eligible to provide policies in
  compliance with UST financial
  responsibility [requirements be licensed
  to (transact th^ business of insurance or
  as an. excess or surplus lines insurer in
  each State where a covered UST is
  located. Oommenters suggested that the
  proposed qualifications were too .
  limiting and one commenter suggested
  substituting Department of
  Transportation'regulations that allow
  insurers licenced or approved fay a
  foreign government to provide coverage
  in addition to those licensed te any state
 or eligible to provide coverage as an
  excess or surplus lines insurer.
   The Agency idoes not, however, feel
 that its qualifications for insurers are
  overly stringent.'Foreign insurers
  offering coverage in the United States
 are generally licensed-to provide
  coverage in at jleast one state which
 would, in most cases, quality them to
 provide coverage as an excess lines
 insurer. Therefore, the EPA
 qualifications requirements 'should not
 necessarily prevent UST owners or
 operators froid purchasing insurance
 from a foreign insurer. The Agency does
 not, however, wish to allow UST owners
 and operators io purchase insurance to
 meet financial Responsibility
 requirements from an insurer who may
 not be a stablelsource  of-coverage. An
 insurer who is licensed only by a foreign
 government may not be subject to the
 same reserve requirements that help to
 ensure that an insurer can meet his
 obligations.   :
   The Agency has, however, decided to
 make other changes to the •qualifications
 for RRGs and insurers. Today1s rule
 does not include separate qualification
 for RRGs and insurers as originally
 proposed, but instead imposes the same
 qualifications fpr both. Because a RRG
 is a type of insurer, it is simpler and
•more appropriate to delete the separate
 requirements for RRGs. The Agency has
 also decided to. delete from the insurer
 qualifications the requirement that
 insurers be licensed or eligible in "each
 state where a csvered underground
 storage tank is jlacated." The final rate •
 requires instead that insurers and RRGs
. be licensed to transact the business of
 insurance or eligible as an excess or
 surplus lines insurer in "one or more
 states." This -change -was made because
 the Agency decided that the proposed
 requirements might too severely limit
 insurance coverage, available to owners'
 and operators with USTs in more ihan
 one state. While the Agency continues
 to believe that }t is essential that
 insurers and RRGs supplying financial
 assurance under today's rule be subject
 to adequate regulatory oversight, it

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          Federal Register / Vol. 53,. No.  207 / Wednesday, October 26, 1988  /  Rules and Regulations   43353
 believes that a requirement that inaurers
 be licensed or eligible in one or more
. states will ensure that insurers and
 RRGs are sufficiently qualified to
 provide UST coverage. This ensures tuat
 the insurance provider meets the
 qualifications of the state in which it is
 writing policies. If a provider writes a
 policy for a large firm with USTs in
 more than one state, the provider must
 meet the eligibility requirements in the
 state where the firm buys the policy, but
 does not need to meet licensing
 requirements in every state where an
 UST may be located.
   j. Other Comments. Commenters
 suggested specific changes regarding the
 manner in which insurance policies are
 interpreted by the courts, specifically,
 questions of joint and several liability
 and use of retroactive damages. These
 comments go beyond the scope of this
 rulemaking and are appropriately left to
 private insurance law. Note, however,
 that under RCRA section 9003{h}(6),
 liability is strict, joint and several for
 government costs incurred in responding
 to a release of petroleum from an UST
 under section 9003(h).
   Commenters also suggested that the
 potential for direct action against a
 provider of financial assurance would
 deter insurers from entering the market.
 The statutory-provisions of RCRA
 section 9003(d)(2),  how'eyer, specifically
 allow direct action against any provider
 of financial assurance. It is, therefore,
 beyond the  authority of the Agency to
 prevent such direct action.
    Other commenters suggested that
 private insurers provide guidance to
 states on the structure  of state programs,
 that insurance be used to fill gaps in
 state fund coverage for third-party
 liability, and that EPA develop outreach
 programs and programs te~ encourage
 entry of private insurers into the market.
 The Agency agrees: that private insurers
 can provide guidance on the structure of
  state funds and states may choose to
  consult with private insurers in the
  development of state funds. This rule
  allows several mechanisms and
  combinations of those  mechanisms to
  achieve compliance. For example,
  traditional insurance may be used in
  combination with some other
  mechanism {like a state fund} to-
  demonstrate financial  responsibility.
    To encourage the entry of private
  insurance carriers, the Ageney is
  currently working with the insurance
  industry to develop a better
  understanding^ the UST population
  and how UST insurance works. Several
  insurance companies-current^? provide-
  UST coverage aHd't&eBease-indicatkms-
  that other iaa&EeEs; are, jdaniring;i&-e»ter
  thermiatkefe hiadditioH. t
believes that the implementation of the
technical regulations will make UST
risks more predictable and thus make
the market more attractive to insurers.

/. Surety Bond (§280.98)
  The final rule, like the proposed rule,
allows owners or operators to use surety
bonds to satisfy their financial
responsibility obligations. Section
9003(d)(l) specifically lists surety bonds
as mechanisms to be considered in
establishing financial responsibility
requirements. Several commenters
expressed concern about the
availability, terms, and costs of surety
bonds. These commenters did not object
to the use of surety bonds as a financial
mechanism, but questioned whether
owners or operators would be able to
obtain surety bonds at a reasonable
cost. They cited several factors affecting
availability. Some commenters felt that
surety companies would be. reluctant to
provide coverage because they believe
the implementing agency would have
absolute discretion over the control of
the funds. For this reason, one
commenter objected to the cancellation
provision, which requires the surety to
fund a standby trust in the event the
principal fails to obtain an alternative
mechanism and the Director of the •
implementing agency knows or suspects
that a release has occurred. A large
number of commenters stated generally
that surety bonds will be unavailable for
third-party liability and corrective
action. Finally, some commenters stated
that if surety bonds are available, only
those companies able. to. meet the
financial test could afford the bond.
Along these lines, one commenter
explained that, in attempting, to meet the
collateral requirements of a surety bond,
petroleum marketers would reduce or
eliminate their financial ability to
puchase their products and equipment
or to upgrade or monitor their
equipment.
   The agency recognizes that certain
terma of the proposed performance bond
(e.g., .the cancellation provision) may
limit the availability of the bond. The
Ageney believes, however, that the
terras of the surety bond as, proposed
are necessary to ensure that coverage is
available when needed to taker  .
 corrective action and compensate third
parties. For example,, without the •
 cancellation provision, sureties eould
 cancel coverage when* a release is
 suspected and the costawoald be
 unfunded!..
   The «ommenters- whfr objected to the
 discretionary authority of fee Direetor. af
 the imptemeating agency to e0Ertr»l the
 proposed Emulations. The performance
 bond clearly describes the situations in
 which funds may be drawn; the Director-
 does not have unlimited discretion to
 draw on the funds. (See also Section
 IH.N of the preamble for discussion of
 the standby trust.)
   The Agency acknowledges that many
 companies will be unable to afford
 surety bonds, or meet collateral
 requirements. EPA has authorized the
 use of those bonds in order to allow
 those persons who can secure surety
 bonds the option of using them to
 comply with these requirements. The
 rule continues to allow use of a, surety
 bond.
   In addition, as discussed in Section
 III.V.2. the Agency is incorporating
 certain exclusionary language into the
 terms of the instrument to more clearly
 limit the type and circumstances of
 third-party liability for which this
 mechanism can be used.

 /. Letter ofCfedit (§280.99}

   The final rule, like the proposed rule,
 allows owners or operators to use
 letters of credit to satisfy their financial
 responsibility obligations. Section
 9003(d)(l) specifically lists letters of
 credit as a mechanism'to be considered
 in establishing financial responsibility
 requirements. Many commenters on this
 mechanism did not object to the use of
 letters of credit, but were concerned  -
 about whether this mechanism w_ould be
 available. For example, many
 commenters believed that letters of
 credit are not viable options for smaller
 entities. Comnienters pointed out that
 smaller companies cannot meet'
 collateral or liquidity requirements
 necessary to obtain letters of credit.
    Other commenters pointed out that
 the costs of letters of credit are much
 higher than the costs of insurance, and
 that tying up capital or collateral to
 purchase letters of credit would prevent
 owners or operators from using letters  of
 credit to purchase equipment for their
 businesses, including monitoring
 equipment and equipment for upgrading
 or replacing tanks. One commenter
 noted that the letter of credit would be
 unavailable to,many governmental
. bodies  because some lending
 institutions- refuse to issue them to
 governmental bodies, and some city
 codes prevent governmental entities
 from securing letters of credit.
    The Ageney acknowledges, that the
 collateral requirements, for letters of
 credit may approach- or exceed the face
 value of'teietteir of crediti and will-be
 prohibitively expensive far many
  owners and operators^ The'Agency is
  allowing thjfe usea* tettera of credit,.

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  43354
Federal Register / Vol. 53,No.  207 / Wednesday,  October 26,  1988 -/ Rules and  Regulations
  however, as an option for those owners
  and operators who can afford them.
    One commenter objected to the
  language in the letter of credit because
  he believed that it requires the issuer to
  examine the legitimacy of the conditions
  precedent to presentation of the sight
  draft. This commenter suggested that the
  sight draft and the statement that the
  Director of the implementing agency
  must provide to the bank should identify
  the purpose for which the letter is being
  issued (corrective action and/or third-
  party liability for sudden and/or non-
  sudden releases). This commenter also
  suggested that these documents should
  specify the tank identification number
  and name and address of each facility
  location.
   The letter of credit does not require
  the issuer to examine the legitimacy of
  the conditions precedent to presentation
  of the sight draft. The letter of credit is
  payable upon presentation of a sight
  draft and a signed statement certifying
  that the letter is payable pursuant to
  these regulations.
   A number of commenters, in
 addressing specific mechanisms,
 disagreed with the proposed    >
 requirement to identify individual tanks
 that are assured by the mechanisms.
 They.all felt that identification of the
 facilities covered by the mechanism
 would ensure that releases from the
 facilities are covered, without delays '
 and needless paperwork to determine
 which tank was the source of the
 release. The Agency agrees, and has
 revised the language of the mechanisms
 to specify coverage by facility, rather
 than by individual tank. Individual
 tanks must be identified if separate
 mechanisms are being used to cover
 different USTs. The letter of credit does
 allow the parties to specify the purpose
 for which the letter is  being issued
 ("corrective action" and/or
 "compensating third-parties for bodily
 injury and property damage").
  In addition, as discussed in Section
 III.V.2., the Agency is incorporating
 certain exclusionary language into the
 terms of the instrument to more clearly
 limit the type and circumstances of
 third-party liability for which this
 mechanism can be'used.

 K, Use of State-Required Mechanisms
 (§280.100)
  EPA proposed that, in those states
 that have not obtained UST regulatory
 program approval, UST owners and
 operators may use state-required
 financial assurance mechanisms'to meet
 the federal financial responsibility
requirements. However, the proposed
rule required the EPA Regional
Administrator to determine that such
                              mechanisms provide assurances that are
                              at least equivalent to those of
                              mechanisms specified in the Federal
                              requirements.
                                Several commenters noted that
                              allowing use of state-required
                              mechanisms will do little to help UST
                              owners'or operators because not all
                              states have established or will establish
                              their own financial responsibility
                              requirements. Another commenter
                              supported EPA's proposal that state-
                              required mechanisms used to determine
                              financial responsibility while EPA
                              reviews the state program will be
                              considered to be at least equivalent to
                              other required mechanisms and thus in
                              compliance with Subpart I for the
                              amount and types of costs covered by
                              the mechanisms.
                                In response, the Agency agrees that
                              some states' without authorized UST
                              programs may not have state-
                              implemented financial responsibility
                              requirements for USTs. However,
                              owners or operators in states that do not
                              have authorized programs, but which do
                              have financial responsibility
                              requirements, will be able to use
                              equivalent state-required mechanisms.
                              These owner or operators will not have
                              to procure additional mechanisms to
                              satisfy the Federal requirements. The
                              final rule regarding the use of state-
                              required mechanisms retains the
                              language in the proposed rule.
                              L. State Fund or Other State Assurance
                              (§280.101)
                               EPA proposed that UST owners or
                              operators may use state funds or other-
                              state assurance programs to meet the
                              financial responsibility requirements.
                              RCRA section 9004(c)(l) authorizes the
                              use of "corrective action and
                              compensation programs administered by
                              state or local agencies" as mechanisms
                              to provide evidence of financial  '   '
                             responsibility for state program
                             approval.                     .
                               Although several commenters
                             supported the use of state assurance
                             programs as an acceptable financial
                             assurance mechanism, commenters
                             remarked that state assurance programs
                             are generally not available and, even
                             where available, often do not provide
                             sufficient coverage. Several states
                             remarked that they did not plan to
                             establish funds or that the Federal
                             government should not rely on states ;to
                             demonstrate financial responsibility for
                             UST owners and operators.
                               The Agency recognizes that state
                             assurance programs are not widely
                             available to date. However, funds have
                             been established in several states,  •
                             including Virginia, Delaware, and
                             Minnesota. Other states are also in the
                  j
  process of attempting to establish funds.
  The Agency does not require any state
  to establish an assurance program.
    In addition, EPA is aware state
  assurance programs may not provide
  complete financial responsibility for
  UST owners or operators. For example,
  funds may not cover third-party
  compensation or all corrective action
  costs. Therefore, UST owners and
  operators using these types of programs
  must use other financial assurance
  mechanisms in combination with a state
  fund to demonstrate  compliance with
  the financial assurance requirements.
    Several commenters suggested that
  states use particular program structures
  or particular financing mechanisms. For
  example, several commenters suggested
  that state funds coyer corrective action
  costs above $100,000 and third-party
  compensation costs above $300,000, up
  $1 million per occurrence. Other
  commenters suggested that state funds
  be structured to entourage entry of
  private insurers intp the UST insurance
  market.         ' j
    The Agency believes that the structure
  and means of financing programs is at
  the discretion of eajch state. EPA will not
"  dictate the approach  states should take
  in establishing assiirarice programs.
  However, for those! states interested in
  establishing assurance programs, EPA
  will provide assistance in designing and
  evaluating such programs. In addition,
  EPA has developed a handbook
  providing guidance! on establishing state
  assurance programs.
   The Agency also idoes not intend to
  mandate a particular program structure
  in states that currently use funds to '
  cover UST release costs. For example,
  the Agency would not require a state
  with a fund that only covered corrective
  action costs to alter its fund structure
  (e.g., to add coveragetor third-party
 compensation) in order to qualify under
 this section. The oWner or operator
 would have to obtain  additional
 assurance to,cover third-party liability
 requirements.     |"   .     ',- •

 M. Trust Fund (§ 280.102)

   A trust fund was not included in the
 proposed rule as an1 allowable financial
 assurance mechanism; As stated in the
 preamble to the proposed rule, the
 Agency believed that a trust fund with a
 pay-in period would provide inadequate
 financial assurance [early in the period,
 and a fully-funded trust fund would be
 unaffordable to the bwners or operators
 most likely to need to use the trust fund.
 Moreover, the Agency felt that a trust
 fund used in combih'aition with an
 insurance policy would problably be
 more costly than paying the additional

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         Bedergl Register I Vol. 53, No, 2Q7, / Wednesday^October^ J9ag / Rales aftdr Regnlatfei^   43355
premium, for firstdollaE insurance
coverage because.:. .[I) Unlike the costs of
other mechanisms, truat fund deposits
are not business expenses for federal.
tax purposes; and [2] insurance policies
for USTs may be written to include
coverage of a deductible that is later
recovered from the insured.
  The Agency received a.comment
requesting that a trust fund be allowed
as .a financial assurance mechanism.
This commenter maintained that some
firms may wish to use a trust fund to
cover multiple tanks if other
mechanisms are not available, and
advocated allowing either a fully-funded
trust fund or a partially-funded trust
fund if combined with another
mechanism that provides the'remaining
amount of required coverage.
   In light of this comment, the Agency
decided to allow  trust funds' in' the final
rule. .Although the Agency believes that
trust funds will in general cost more
than other-mechanisms arid in many
cases wiKbeTiiiaffordable; frust funds
are allowed toprovide mdre';flexibility
to owners or operators in providing
financial assurance: To ensure that the
trust fund will provide adequate ,
 financial assurance, the Agency requires
 the trust fund to be Mly-funded for the
 amount of required coverage, or
 partially-funded and used in
 combination with another allowable
 mechanism that provides the remaining
 amount of required coverage.
   The language of the trust fund
 instrument is identical to the language of
 the standby trust fund used to manage
 funds paid from other mechanisms (e.g.,
 letter of credit). The amount of the trust
 fund is determined by the owner or
 operator, as long as the remaining
 amount of required coverage is provided
 by another mechanism.
   In addition, as discussed in Section
 III.V.2. of the preamble, the Agency is
 incorporating certain exclusionary
 language, into the terms of the
 instrument to more clearly limit the type
 and circumstsirces-ef-third-party
 liability for which this mechanism can
 be used.
 N. Standby Trust Fund (§280.103-}
    Under the proposed and final rule,
 EPA establishes the standby trust fund
 as the depository mechanism that an
 owner or operator must put in place
 upon acquiring one of the following
 financial assurance instruments:
 Guarantee (§280.96), surety bond
  [§ 28058), or letter of credit (§ 280.99),
 Funds drawn under any of these
  instruments, pursuant to the instruction
  of the Director of the implementing
  agency, must be deposited directly into
  the standby trust fund by-the institution
making the payment. Tfae use. of a
standby trust is necessary- because
without such a depository mechanism,
any funds drawn under those
instruments that are payable to the
Regional Administrator would have to
be paid into the U.S. Treasury and could
not be used specifically to pay for the
UST corrective action or third-party
liability claims for which the funds were
intended without Congressional action
(see 31 U.S.C. 3302). Similarly, funds
payable to the state Director may have
to be paid into the state treasury.
  The rule requires that the trustee must
have the authority to act as a trustee
and its trust operations must be
regulated and examined by a federal or
state agency.This trustee qualification
requirement is the same as the trustee
qualification requirement under the
Subtitle C regulations. If the trust
operations are not regulated and
examined by a federal agency, the trust;
operations must be regulated and      .:
examined by a state agency in each .
state in which a standby,trust fund is
established.
   All eommenters on the proposed ,
standby trust requirement argued that
the provision is unnecessary. In the case
where a guarantee is  used to provide
financial assurance, several commenters
asserted that the use  of the guarantee is
comparable to self-Insurance, which
does not require a standby trust  •
because, in each instance, funds are
 assured.from existing corporate assets.
The Agency recognizes that corporate
 assets are the source of the funds for
 both self-insurance and guarantees, but
 does not believe that the similarity
 obviates the need to establish the
 standby trust when a guarantee is used
 to provide financial assurance.
   The standby trust fund is necessary to
 ensure access to funds when they are
 required and to ensure that the
 implementing agency can address
 corrective action requirements promptly
 and preclude further damage to health
 or the environment.
   The financial test of self-insurance is
 a direct mechanism for providing
 finanical assurance. When it is used, the
 owner or operator ensures that he will
 take prompt* corrective action and pay
 valid third-party claims from existing
 corporate assets—evidenced by
 satisfaction of the financial test.
   A payment guarantee,, such as the
 guarantee in the proposed rule and
 today's rule, is an indirect mechanism.
 When, it is used,, the guarantor does not
 ensure that it will take prompt
 corrective action or.pa"y third-party
 claims, if the owner or operator does not
 Rather, the guarantor contracts with thft
 implementing-agency that, if the-awner-
or operator fafls; to undertake- required ••
activities, the guarantor wilt provide the
necessary fcinds- to undertake the
activities front its corporate assets. HPA
cannot hold the funds directly because
of the prohibitions of 31 U.S.C. 3302, as
discussed above. It is necessary,
because of the prohibition, that the
funds be placed in an existing
depository mechanism, the standby
trust, from which the implementing
agency can direct funding of required
actions as promptly as possible.
Therefore the standby trust requirement
for a guarantee remains a provision of
today's rule.
  Other commenters disagreed with the
provision that the standby trust mast be
established at the same time as the
fmanpial assurance mechanism, noting
that, under RCRA Subtitle C, the trust is
established only when assured funds
are required; The 'Commenters misstate
the requirements of Subtitle C. The
standby trust requirement-in'today's rule
differs from the Subtitle C model
because its purpose is different. In the
Subtitle C rule, guarantees are
recognized to assure funds for closure
and post-closure and third-party
liability. No standby trust is required for
 the guarantee for liability because valid
 third-party claims, if not paid by the
 owner or operator, are paid by the
 guarantor directly to the claimants. If an
 owner or operator fails to perform
 closure or post-closure 'caire whenever
 required to do so, the guarantor can
 perform the required activities itself or
 establish a trust from which EPA can
 fund the activities. Today's rule
 provides Financial assurance for both
 corrective action and third-party
 liability. A release from an UST may or
 may not occur. If a release does occur
 and corrective action is.necessary, it
 should not be delayed while a standby
 trust is put in place. Prompt action will
 prevent further damage to human health
 and the environment. In addition,
 because under Subtitle I one assurance
 mechanism covers both corrective
 action and third-party liability, the
 standby trust provides a mechanism for
 the Director of the implementing agency
 to ensure that funds are available first to
 pay for corrective action (see Section
 III.S). The Agency, therefore,, has not
 changed the requirement that a standby
 trust be established when a guarantee,
 letter of credit, or surety bond is
 acquired to provide financial assurance
 in compliance with this rule.
   The wording of the standby trust
 agreement must be identical to the
 wording provided by § 280.103tb).
 Uniform, wording ef the agreement
 minimizes the admini8tr,ative:biiEdeai-oa;

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   43356
Federal Register / Vol. 53. No. 207 / Wednesday. October 26. 1988 / Rules and Regulations
   the implementing agency by eliminating
   case-by-case review of standby trust
   agreements and provides owners and
   operators with the assurance that the
   agreements will satisfy the regulatory
   requirements. In addition, as discussed
   in Section III.V.2. of the preamble, the
   Agency is incorporating certain
   exclusionary language into the terms of
   the instrument to more clearly limit the
   use of the mechanism only to costs
   associated with releases from USTs.
    Commenters on the standby trust
  were also concerned about the  costs of
  trusts, particularly if the owner or
  operator has several facilities in several
  states for which standby trusts  must be
  established and maintained. The
  Agency evaluated the costs related to
  establishing and maintaining a standby
  trust fund when .today's rule was
  prbposed..The primary costs are the
  costs of managing the funds; other
  relatively .minor costs include the
  administrative fee charged to establish
  the trust.fund and fixed fees for simply
  maintaining the account. The
  incremental costs of establishing a
  standby trust" at the time the instrument
  is established will be minimal, since
  there will be no funds in the trust. The
  Agency believes, therefore, that the
  requirement to establish the standby
  trust fund at the time a financial
  assurance instrument is acquired will
  not be particularly burdensome to UST
  owners or operators.
   In addition, the final rule allows the
  owner or operator to establish one trust
  as the depository mechanism for all
  funds assured in compliance with this
 rule. Owners'and operators with a
 number of facilities in various states
 may, therefore, establish one standby
 trus.t into which funds can be deposited
 if and when  required. States authorized
 to implement this program may adopt
 this policy or may .require the owner or
 operator to establish a standby trust in
 their own jurisdictions.

 O. Substitution of Financial Assurance
 Mechanisms by an Owner or Operator
 (§280.104)
   Under § 280.104 of the proposed and
 final rule, the Agency allowed  an owner
 or operator to substitute alternate
 financial assurance, provided that an
 effective financial assurance mechanism
 or combination of mechanisms that
 satisfy the financial responsibility
 requirements existed at all times. After
 obtaining alternate financial assurance,
 an owner or operator may cancel a
financial assurance mechanism by
providing'notice to the provider of
financial assurance. The owner or
operator imlst rtlafritaln conUntibus
coveVage\with; a financJarassufande
                               mechanism'to ensure the availability of
                               funds'at.all times for corrective action
                               and third-party liability claims, should a
                               release occur from an UST containing
                               petroleum. •       •
                                The Agency received no' comments on
                               provisions regarding the substitution of
                               financial assurance mechanisms by an
                               owner or operator, and thus promulgates
                               these provisions as proposed.

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

                              1. Length of Notice Period
                                In the April 17,1987, proposal, the
                              Agency required insurers to provide
                              owners or operators 120 days notice
                              before cancelling (i.e., failing to renew)
                              insurance coverage and 90. days before
                              terminating a policy under other
                              circumstances'(eig., non-payment of
                              premium by an, insured). Other providers
                              of financial assurance were permitted to
                              cancel-refuse to renew, or otherwise
                              terminate an instrument only if the
                              provider first notified the owner or
                              operator at least 120,.days in advance.
                              Further, EPA required any owner or
                              operator failing to obtain an alternate
                              mechanism within 60 days after
                              receiving a notice of cancellation or
                             • termination to notify the implementing
                              agency of such failure and submit
                              evidence of the existing financial
                              assurance mechanism,, the name and
                             address of the provider of financial
                             assurance, and the date of cancellation.
                             In the sixty days remaining until
                             termination of coverage, the
                             implementing agency would then have
                             the opportunity-ID inspect the affected
                             tanks to determine if any releases had
                             occurred, thus assuring that the st.ill
                             viable mechanism could be drawn upon
                             to provide any necessary funds.
                             Moreover, the 120-day requirement
                             reflected the Agency's concern that
                             providers of financial assurance might
                             want to cancel their mechanisms upon
                             the discovery of an UST release, leaving
                             the owner or operator without assurance
                             when it is most needed.
                               Several commenters, primarily from
                             the insurance industry, urged EPA to
                             reduce the number-of days' notice
                             required for cancellation to 60 days. The
                             commenters presented several
                             arguments -supporting their fequest.
                            First, they argued that 60 days is an
                            adequate amount of time for/owners or
                            operators to search1 for ijnd obtain any
                            other type of available;cissurance, or to
                            determine that none is available and
                            report this1 to the implementing agency.
                            Second; coihmentefs noiejd' that a 60-day
                            notice period is becoming a standard
                            insurance practice iii riiany:states. Third,
   commenters vieVved the 120-day
   provision as puriitiye to insurers, and
   predicted that reducing the npfice period
   to 60 days would result; in the greater
   availability pf affordable Coverage.
   Finally, twd'comfteiiters warned that if
   90 days or more.riotice were required,
   insurers would automatically send out
   cancellation notices on ah annual basis
   to every insured party, thereby giving
   them the time toireview accounts at a
   point closer to the beginning of a new
   policy year.    j          .
    Based on these comments, the Agency
  has concluded that the 120-day notice
  period is unnecessary for insurance,
  RRG coverage, and state fund coverage.
  In the 60 days following.an owner's or
  operator's determination that no.other
  financial assurance .is available, the
  Director of the implementing agency-has
  the authority, to require a guarantor*
  surety, or issuer of a letter of credit to
  fund a standby trust. However,, the
  Director of the .implementing agency
  does nothavedhe authority to require.
  insurers, RRGs, ahd.state funds to >fund
  a standby trust should  a leak be
  suspected or confirmed. Consequently,
  an additional 60-.day period following
  the determination by an owner or
  operator that no. alternate financial
  assurance is available would not benefit
  an owner or operator using insurance,
  RRG coverage, orlstate  fund coverage in
  the manner intended by the Agency.
   Other circumstances  unique to •
  insurance, RRG coverage; and slate
  funds also support 'the conclusion' that a
  120-day notice-period for cancellation is
  inappropriate for these  mechanisms* In
  cases where insurance or RRG Coverage
 is cancelled, for example; an owner or
 operator has an incentive to: submit any
 claims if there is ^release. In addition,
 the extended repotting period for"'  ..
 claims-made poiicjes allows ah owner
 or operator to file a fclaim six months
 after the policy has been'cancelled;
 Finally, states are not likely to abruptly
 withdraw financial assurance in case of.
 an UST leak.     !
   Consequently, EPA has decided1 that
 providers of insurance, RRG coverage,
 and state-backed coverage need only
 provide a  60-day notice period for
 cancellation or termination of coverage.
 Owners or operators Who fail to obtain
 alternate coverage -. after  thes'e
 mechanisms are cancelled are still
 required to-riotify the implementing
 agency 60 days after being notified of
 cancellation<>r tenjtimatioh of financial
 assurance (i.e.< when .coverage expires).
Reporting at this time can trigger ,an
evaluation of the USTs,for release's"
which should be tepofted'during'.thV
extendedreportihgipeVidd.'   "'  '

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          Federal Register / Vol. 53, No.  207 / Wednesday, October 26, 1988 / Rules  and  Regulations   43357
   Nevertheless, the Agency, for the
 reasons rioted above, believes that the
 proposed 120-day period is essential in
 cases where an owner or operator has
 obtained a guarantee, letter of credit, or
 surety bond. Therefore, providers of
 these financial assurance mechanisms
 must still provide a 120-day advance
 notice of cancellation or. termination of
 coverage.

 2. Termination for Nori-Payment of
 Premium
   A number of commenters, primarily
 from the insurance industry, argued that
 the provisions should allow for a quick
 termination of coverage in the event of
 non-payment of premium by an insured.
 .Most suggested that this period be 10
 days. Under the proposed provisions,
 commenters noted that the insurance
 agent or insurer would have to provide
 9Q days worth of coverage on behalf of
 an insured who fails to pay his premium.
 Some commenters warned that should •
 the 90-day period be maintained in all
 cases, they might protect themselves
 from this contingency by requiring full
 payment of premium prior to the
 issuance of coverage. Moreover,
 commenters asserted that termination
 with 10 days notice for non-payment of
 premium conforms with standard
 industry practice on other types of
 insurance.
   While sympathetic to industry
 concerns, EPA is unwilling to accept a
 10-day notice period in these cases.
 First, the Agency-calculates that such  a
 brief notice period will not allow UST
 owners or operators sufficient time to
"obtain alternate assurance mechanisms,
 and hence will result in unacceptable
 gaps in coverage.
   Second, the Agency remains
 convinced that the shortened 60-day
 notice period will fulfill the needs of
 providers. As noted earlier, a 60-day
 •notice period is standard in many states.
 •In addition, insurers, for.example, could
 protect themselves by establishing an
 appropriate schedule of premium
 payment. Insurers could require
 payment 90 days before the expiration
 date of coverage for the maintenance or
 renewal of the policy. An insurer could
 then terminate.the. policy with 60 days
 notice;if an insured does not meet the
 schedule of payment within 30 days of
 the premium due date.
   The Agency therefore is requiring a
 60-day notice period for termination of
 coverage even in the event of.non- '
 payment of premium by an insured.
 Q. Reporting-by Owner or Operator
 (§280.16®                 :
   TheAp'rilrift198?,proposalreqiHred
 each UST'bwner' dr;operaior;tb..fee'ep
evidence of financial responsibility at
his UST site or at his place of business.
(Section IILR of this preamble describes
the nature of the records that the owner
or operator must maintain.) In addition,
the proposed rule required an owner or
operator to submit the appropriate
documentation of financial
responsibility to the implementing
agency in the following circumstances:
  (1) Wheri the owner or operator notifies the
Regional Administrator of the existence of a
new petroleum underground'storage tank
under § 280.22;
  (2) Within 30 days after the owner or
operator has a known or suspected release
from a petroleum underground storage tank
required to be reported under § 280.74;
  (3) If the owner or operator fails to obtain
alternate coverage as required by this
subpart within 30 days after the owner or
operator receives notice of:
  • Commencement of a voluntary or
involuntary proceeding under Tide 11
(Bankruptcy], U.S. Code, naming a provider
of:financial assurance as a debtor,
  • Suspension or revocation of the authority
of a provider of financial assurance to issue a
financial assurance mechanism,
  • Failure of a guarantor to meet the
requirements of the financial test, or
  • Other incapacity of a provider of
financial assurance;
  (4) If an owner or operator is unable to
obtain alternate assurance within 60 days
after receiving a notice of termination of a
mechanism, as required by § 280.105(b); or
  (5) If the owner or operator using the
financial test fails to meet the requirements
of the test, as required by § 280.94.
  The Agency received several
comments supporting the propose.d
reporting requirements. Two
commenters, both representative of
large segments of the regulated
community, noted that an annual
reporting requirement would impose
excessive administrative burdens on
small businesses. Moreover, a number of
state government commenters expressed
concern that they might be unable to
administer a mandatory reporting
requirement The commenters supported
their position by citing the large size of
the regulated community, the lack of
state financial and personnel resources,
and the excessive paperwork burdens
that would accompany such an effort.
  Other commenters, however, urged
EPA to mandate more extensive
reporting requirements. TWO
commenters suggested an annual
demonstration of financial
responsibility. The commenters cited
several benefits of enhanced
requirements, including: (1) Greater
incentives for proper tank management
and. rapid release! detection'and..
.response; (2) .the'Agency's ability to
t^rg&t..$nforcement efforts towards
owners or. Operators who fail to sujbrriil
 evidence; and (3) greater assurance that
 funds will be available to pay the costs
 of UST releases.
   There are other potential advantages
 of more stringent reporting
 requirements. Stringent reporting could
 increase the level of compliance with
 the regulations, since owners or
 operators would be required to
 demonstrate on an annual basis that
 they have obtained financial assurance
 required under this subpart.
   Despite these considerations, the
 Agency has 'decided that the advantages
 of more frequent reporting are
• outweighed by several factors unique to
 the UST financial responsibility
 program. First, the regulated UST
 community, consisting of an estimated
 1.7 million USTs located at 500,000
 facilities, is extremely large. Receiving
 and processing financial assurance
 certifications from all these UST owners
 or operators on an annual basis could
 •place substantial administrative
 burdens on implementing agencies. In
 fact, the sheer volume of reports could
 overwhelm implementing agencies and
 mask the more critical information, i.e.,
 cancellation or release notices.
 However, the Agency intends to develop
 non-traditional approaches to
 compliance monitoring and enforcement
 and will initiate pilot projects in states
• to test these approaches.'
   In addition, provisions in SARA for
 the LUST Trust Fund create incentives
 for owners and operators to comply with
 the regulations, since the fund may be
 used to pay for costs in excess of the
 required amount of financial
 responsibility if the owner or operator
 has maintained evidence of financial
 responsibility. To increase awareness of
 and compliance with UST rules, EPA is
 preparing a public outreach program
 aimed at providing UST owners and
 operators with information on all UST
 requirements. Mbreoye'r, many UST
 owners and operators are already
 obtaining insurance to limit their
 exposure to future liability due to UST
 costs.
   Finally, the alternative of reporting by
 postcard, while minimizing costs for
 owners and operators, would still
 inundate implementing agencies with
 the same number of reports, and thus
 would not alleviate the critical problem
 created by annual reporting.
   The Agency has thus decided not to
 impose more stringent reporting
 requirements on the regulated'
 community.          '
   The Agency also'received comments
 opposing certain provisions of the
 proposed reporting requirements/ • •
 Several c0mmentiers!disagree'd'.with-the

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43358   Federal Register / Vol. 53, No. .20.7 / :Wdday. -October
                                                                                            and
requirement to submit financial
responsibility documentation for new,
and not old, tanks, arguing that new
tanks are less likely to lealc than older-
tanks.
  The'Agency has retained this
provision in the final rule. As noted
above, the proposed requirement builds
upon existing notification requirements
mandated under section 9002(a] of
Subtititle I and codified in the UST
technical standards (53 FR 37082,
September 23,1988). Specifically,
§ 280.22 requires owners or operators
who bring a new tank into use to notify
the appropriate state or local agency or
department of the existence, age, size,
type, location, iand uses of the new tanks
as well as to obtain an installation
certification. Including financial
assurance information in these reports
involves a minimal increase in the cost
of these reports for the regulated
community and provides valuable
compliarice'monitoring information to
the implementing agency.
  Another coramenter argued that
owners or operators should not be
required to submit .financial assurance
documentation for new tanks to both the
EPA Regions and the states. The Agency
agrees with  the commenter. While the
proposed rule required owners or
operators to submit this documentation
lo the Regional Administrator, today's
rule relies on submittal of the. new tank
notification'to the appropriate state or
local agency or department, as required
in § 280.22 and RCRA section 9002(a).
  Another .commenter found the
wording of § 280.106^a)(2) unclear, and
inquired whether financial responsibility
documentation should be submitted for
a suspected release or only in the'event
of a confirmed release. The financial
assurance reporting requirements, which
have been revised to reflect provisions
for reporting releases for corrective
action in §§ 280.53  and 280.61 of the
UST technical standards, now require
submittals in the event of the confirmed
releases. (These provisions are
discussed in further detail in Section
1V.F of the UST technical standards  -
preamble.)
  The same commenter urged EPA to
allow entities installing large numbers of
tanks the option of submitting financial
responsibility documentation annually
to the Regional Administrator rather
than submitting multiple documentation
for each new tank. The Agency sees no
reason to adopt this approach. Section
260.22 requires that owners or operators
certify in the new tank notification form
that they are in compliance with the
financial responsibility provisions as
well as provide information on
                                         compliance with other technical
                                         requirements..

                                         R. Recordkeeping (§280.107)
                                          Under the proposed rule, owners or
                                         Operators were required to maintain
                                         evidence of all'financial assurance
                                         mechanisms used to demonstrate
                                         financial responsibility under this
                                         subpart\intil one year after closure or
                                         one year after the completion of closure
                                         and corrective action. An owner or
                                         operator was required to maintain at his
                                         UST site or place of business the
                                         following types of evidence for
                                         mechanisms used to demonstrate
                                         financial responsibility:
                                          (1) Copies of assurance mechanisms
                                         specified in § § 230.94  through 280.100,
                                         worded as specified.  '
                                          (2) Letters of certification from the chief
                                         financial officer of firms using the financial
                                         test of self-insurance or providing guarantees,
                                         based on year-end'financial statements for
                                         the last completed fiscal year. Such evidence
                                         must be on file no later than 120 days after
                                         the close of each fiscal year.
                                          (3) Originally-signed duplicates of the
                                         standby trust funds worded as specified in
                                         § 280.103(bj for guarantees, surety bonds, or
                                         letters of credit.                -
                                          (4) Originally-signed duplicates of the  ,
                                         insurance policies or RRG coverage policies
                                         with the endorsements or certificates of
                                         insurance and anyiatoendments.
                                          [5] Copies of letters or certificates from
                                         states regarding coverage by state funds or
                                         other state assurances.
                                          The  proposed rule also required the
                                         owner or operator to maintain a
                                         certification that the financial assurance
                                         mechanism used to  demonstrate
                                         financial responsibility is in compliance
                                         with the requirements of the rule- •
                                          The  Agency received a number of
                                         comments concerning the recprdkeeping
                                         requirements of owners or operators of
                                        •petroleum USTs. .Some commenters
                                         expressed unconditional support for the
                                         provisions.    .      .  . '
                                          Several commenters, however, were
                                         dissatisfied with the requirements. One
                                         commenter urged EPA to delete the
                                         recordkeeping requirements and instead
                                         require owners or operators to submit
                                         evidence of financial responsibility
                                         directly to the Agency. Since the
                                         Agency, as noted in Seption III.Q, does
                                         not require the automatic submission of
                                         financial responsibility documentation,
                                         it has decided to retain the
                                         recordkeeping requirements under
                                         §280,107.  .
                                          Another:cornrn.enter suggested that the
                                         certification of compliance be kept at
                                         the LTST.si.te, rather than at "the place of
                                         business, and. that it include the address
                                         of the cprporate.office where details
                                         would be maintained.. The provisions of
                                         this section allow UST owners or
operators to choose fhis reeordkeeping
option. However, ;as with the technical
standard rule, off-rsiie records must be  ,
made .available on request of the
implementing agency.
  One commentefnoted'that compiling
the annual letter from the chief financial
officer supporting' the use'of financial
tests or guarantees is' unnecessary. The
commenter suggested that this annual
letter should not be required, especially
since the certification of financial
responsibility presents essentially the
same information! Another commenter
asserted that the certification of
financial responsibility'iS'Unnecessary.
  The Agency has decided to retain
both requirements. Because EPA is not
receiving financial responsibility reports
on a regular basis, the Agency believes
that requiring an innual letter from the
chief financial off jcfer may be'necessary
to further ensure the. validity of various
financial responsibility mechanisms.
Morisovei', the Ag'ency notes' that large
firms, as('a matfef!6f sfimdard.'business
practice, routmeljf maintain'the
information requited in' the annual letter.
Similarly, requiring: the' certification of
financial responsibility will provide
additional incentives' for'owners or
operators to cpmjJly with the regulations
at all times, and will riot entail a
substantial administrative burden.
  One commenter argued that sending
the chief financial" officer's annual letter
to all UST'sites will present significant ;
administrative burdens on some firms.
The Agency .agree!?, and riptes that the
comrhariter mjght fiave misread the '
proposed rule', which allows owners or
operators to mainjtain all,documentation
at either the UST site or the owner's or
operator's place df business. However,
off-site records aniist be made available
upon request of the implementing
agency.'    .'. .!..'.'..•
  One cpmmentei; questipneid the need
to maintain an originaUyTsigned
duplicate of .the sfjandby trust,agreement
at each'UST location or place of
business when it is adequate to
maintain only a copy of the guarantee,
surety bond, or letter of credit Similarly,
the  commenter questioned the need to
maintain an origirially-signed.duplicate
of the. insurance pplicy when it is
adequate to maintain, a c.ppyof the
certificate of insurance, especially since
the  commenter's policy-contains
confidential information not intended
for widespread distribution. Requiring
originals, the cornmenter-asserted,
would increase,the paperwork burden
exponentially for firms with large
numbers of facilities. As an alternative,
the  commenter recommended that .the
Agency allow pw-ijers. or, operators to.

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         Federal  Register /Vol. 53, No.  207• / Wednesday, October 26; 1988  /  Rules and Regulations   43359
keep copies at each location and be
required to. submit originals only in
accordance with proposed (§280.106 or
within 15 days of a written request by
the Agency.
  The Agency agrees with the
commenter that requiring an originally-
signed duplicate of the standby trust
agreement and the insurance policy to
be maintained at each facility is
unnecessary. An owner or operator need
not maintain an originally-signed
duplicate of an insurance policy in order
to draw on the policy; similarly, an
owner or operator need not present an
originally-signed copy of a standby trust
in order to exercise the trust.
  Consequently, the Agency has revised
the final rule to require an owner or
operator using a guarantee, surety bond,
or letter of credit to maintain a copy of
the signed standby trust fund agreement
and copies of any amendments to the
agreement. In addition, an owner or
operator using an insurance policy or
RRG coverage is npw required to
maintain a copy of the signed insurance
policy or RRG coverage policy, with the
endorsement or certificate of insurance
and any amendments to the agreements.
   The Agency also received two
comments suggesting that including a
list of specific tanks and tank numbers
in the financial assurance mechanism is
unnecessary. The Agency agrees with
these comments and has revised the
required wording of all mechanisms to
reference each facility where covered
USTs are located rather than a'tank-
specific list  of USTs at each facility (see
discussion under Section III.E of this
preamble).
   Pursuant to the changes outlined in
Section III.T, owners or operators will
not be required to maintain evidence of
financial responsibility for one year
after-closure. Rather, owners or
operators need only maintain such
evidence until the date of closure or
until corrective action is completed if a
release is found at the time of closure.,
S. Drawing  on Financial Assurance
Mechanisms (§ 28O.108)
   The proposed rule provided special
 procedures  for funding and drawing on
 the trust fund and on the standby trust
 fund for those financial assurance
 mechanisms (guarantees, indemnity
 contracts, surety bonds, and letters of
 credit) that require action by EPA to
 initiate payment. The rule proposed ,
 procedures  for EPA to follow in funding
 corrective action and paying valid third-
 party claims, while minimizing the
 administrative burdens on the Agency
 and owners, operators, and claimants.
   For corrective action claims, the
 proposed rule required that an owner  or
operator .who notifies the Regional
Administrator of a release in
accordance with proposed notification
requirements (Subpart F of 40 CFR Part
280) must provide evidence of financial
assurance within 30 days. Once EPA
possessed the evidence of the assurance
mechanism, the Regional Administrator
would be able to prepare and submit the
appropriate instructions to the provider
of financial assurance to fund the
standby trust, if necessary. If the owner
or operator fails to conduct any
necessary corrective action, the
Regional Administrator can direct, the
provider to fund the standby trust and
can direct payments from the fund.
  The proposal provided different
procedures for third-party compensation
claims in § 280.108(b)(2) than were
established for  corrective action claims,
because the UST owner or operator may
contest a third-party compensation
claim as invalid or inaccurate. In order
to avoid EPA being placed in the role of
a claims adjuster, the proposal required
the owner or operator and the third-
party claimant  to submit a document
signed by each .party and by attorneys
representing  each party certifying the
validity and amount of the claims. If the
parties cannot agree on the claims or
amount underlying the signed certificate,
a lawsuit may be required to adjudicate
the validity of the claim and any amount
due.
  In addition, § 280.108{c} of the
proposed rule established procedures
for the Regional Administrator to draw
on the financial assurance mechanisms
once estimates or known costs of
•corrective action and third-party claims
are available. The rule required the
Regional Administrator to instruct the
trustee to pay corrective action costs
before paying third-party claims in order
to minimize further threats to human
health and the  environment and
additional third-party claims caused by
the release.
   A number of commenters criticized
the Regional Administrator's
discretionary authority  to fund the
standby trust fund as too vague,
especially in light of the Regional
Administrator's apparent lack of
 training in technical and financial
 issues, his vulnerability as a political
 appointee to political pressures, and the
 lack of a mechanism by which a
 guarantor .or indemnitor can appeal the
 Administrator's decision to fund the
 amount awarded. Some commenters
 thought that this loss of control over
 funds by financial institutions or other
 entities will  discourage participation by
 such entities in providing financial
 assurance.
  One commenter argued that providers
of financial assurance will be reluctant
to issue instruments if they believe they
will have to process paperwork arid
follow the funding protocol even when
their customers are financially capable
of performing corrective action or
paying third-party claims, or are able to
obtain a substitute instrument.
Apparently, providers of surety bonds
and letters of-credit carefully screen
customers in order to minimize the
likelihood that the instrument will ever
be drawn upon; that is, these are truly
intended to be "standby" instruments.
As a solution, the commenter
recommended that the 120-day
cancellation provision be shortened, and
that the instrument be drawn on only if
substitute coverage has not been
provided five working days before the
instrument expires. This timeframe
would lessen the probability that
unnecessary paperwork and processing
would commence and that cash would
sit needlessly in trust funds requiring
management by the trustee.
   The essence of these comments is that
 the mechanism for funding the standby
 trust will diminish the availability of the
 financial assurance vehicles requiring
 establishment of a staridby,.trust. In
 responding to these comments, as well
 as those discussed below, it should be
 noted that the Agency's desire to
 encourage the availability of a wide
 array  of financial assurance vehicles
 under this rule is secondary to the
 Agency's mandate to assure that all
 financial vehicles will be readily
 available when a leaking UST is
 discovered. Thus, assuring the
.availability of funds for corrective
 actions must take precedence over
 marginally enhancing the availability of
 any one mechanism.
   With respect to the commenters who
 thought that the Regional
 Administrator's role in ordering the,
 funding of the standby trust or the
 disbursement of funds would'impair
 availability or, worse, compromise the
 integrity of the financial assurance
 program, these comments greatly
 overstate the discretion accorded to the
 Director of the implementing agency
 (either the Regional Administrator or the
 state Agency director) under these
 regulations. The Director of the
 implementing agency is required to act
 only under clearly defined
 circumstances, and, other than for
 cancellations, only when the owner or
 operator does not cover the costs of
 corrective action and third-party
 liabilities. For example, the Director will
 require funding of and draw on the
 standby trust in three situations: (1) If

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43360   Federal Register /  Vol 53, No. 207 / Wednesday,  October 26,  1988\J Rules and Regulations
the owner or operator fails to establish
alternative financial assurance within 60
days of notice of cancellation, and the
Director of the implementing agency
determines >or suspects that a release
has occurred and so notifies the owner
or operator (evidence of a'suspected
release under § 280.50 includes positive
monitoring results from testing,
monitoring and sampling, unusual
operating conditions, or the discovery of
regulated substances in the
environment); {2) if the Director
determines .that there is a release and
the owner or operator fails-to undertake
necessary corrective action; or {3} if the
Director receives proper-certification of
a third-parly liability claim or a valid
final-court order for a third-party
liability claim that the owner or operator
fails to-pay •(§ 280.108(a)(2) in the final
rule). Thus, while the Director is a
critical participant, the provider of
financial assurance and the owner or
operator are intimately involved in the
actions triggering funding of the trust,
and ample notification accompanies
each step.
  One .commenter see.med to argue that
availability does not hinge on the
Director's role so much as it is a
function of the provider of assurance's
aversion to risk and paperwork.
According io this arugment, these
mechanisms will be available only to
owners and  operators who have the
ability to .undertake corrective action
and meet demands for third-party
damages, but be jeopardized if it is
likely that the standby trust might be
tunded, necessitating cost and
paperwork.
  In response, EPA notes that payment
into the standby trust fund is not easily
triggered, but occurs when cancellation
of the financial assurance vehicle
coincides with the likelihood of
certainty of a release from an UST or
xvhen the owner or operator fails to
carry out or  pay for the actual costs of
corrective action or fails to pay valid
third-party claims. When an instrument
is cancelled  and there is a known or
suspected release, questions of aversion
to handling costs or red tape are clearly
secondary to securing the availability of
funds for corrective action. The only
other circumstances under which the'
standby trust would be drawn upon are
consistent with the commenter's
concern; that is when the owner or
operator truly fails to cover the assured
costs. Further discussion of cancellation
and notice is provided in Section III.P,
above.
  One commenter objected to the
specific langauge in the proposed
§ 280.108(a)(l)(ii) that empowers the
 Regional Administrator to require
 funding of die standby trust if the
 financial assurance mechanism is
 cancelled and not replaced and if the
 Regional Administrator "determine or
 suspects that a release ... has
 occurred," arguing that mere "suspicion"
 on the part of the Regional
 Administrator was not adequate ground
 for funding the trust.-The commenter
 'wouldamend this language to prevent
 the Regional Administrator from acting
 unless a determination has been made
 that a release has actually occurred.
   The Agency cannot accept this
 restriction on the Director's authority to
 .act on the suspicion that a release has
 occurred. EPA intends that this
 suspicion be based on objective
 evidence, such as failure of a tank
 tightness test, discovery of free product
 in adjacent sewer and utility lines,
 notice by the owner or operator, or other
 clear but unverified evidence. Further,
 the suspicion must be coupled with the
 cancellation and nonreplaeement of the
 financial assurance mechanism as
 described above. In this case, there
 would be no new assurance mechanism
 to take over when the cancellation
 becomes effective, leaving the owner or
 operator potentially unable to fund
 corrective action and third-party
 liabilities arising from release that
 occurred before the cancellation.
   Finally, a number of commenters
 misunderstood the workings of the
 provision. One commenter thought that
 EPA should not propose procedures to
 evaluate third-party claims, but, rather,
 should allow the parties themselves or
 the courts to settle claims. An insurance
 company association commented that
 the language suggested that the owner
 or operator may settle a claim with a
' potential claimant without consultation
 with the insurer, thus placing the  insurer
 in the position of indemnifying any
 claim, no matter how frivolous, if the
 owner or operator chooses to settle* An
 insurance company commenter
 requested that the standby trust
 provision be clarified to prevent its
 application to insurance entirely.
   In response, the Agency notes that the
 claims for third-party damages are
 settled by the parties themselves, with
 full access to the courts if unresolved
 issues remain. The regulations simply
 provide a mechanism that expedites
 settlement of claims made against the
 funds held in trust if the parties agree on
 the.details of the settlement. It is
 unlikely that insurance companies will
- be providing surety bonds, guarantees,
 or letters of credit, but if they do,  issues
 concerning any alleged breach of duty
 by parties to the agreement are the
 province of the legal system, not the
 Director. Finally, She regulations state
 clearly that the provisions of the
 standby trust do not apply to insurance
 policies.      ;
   After reviewing all of the comments
 on drawing on the financial assurance
 mechanisms, EPA has concluded that
 only two changes should be made to
 § 280.108 as proposed. All references to
 the Regional Administrator have been
 changed to the Director to clarify that
 these responsibilities are delegated to
 the Director of the state implementing
 agency in authorized states. In addition,
 the standby trust is only required for
 guarantees, letters of credit, and surety
 bonds becaus^ indemnity contracts are
 not included a|s -an allowable mechanism
 in the final rule-

 T. Release From the Requirements
 (§280.109)    i                 ;
              I
   Under the proposed rule., owners and
 operators were released from the
 requirements after completion of closure
 or, if corrective action was required,
 after the tank was properly closed and
 after completion of corrective action.
 The preamble jto the rule, however,
 discussed the Agency's intention to
. require owners and operators to comply
 with the requirements-for one year after
 closure. Many: commenters objected to
 the possibility I that owners or operators
 who properly close their tanks wouid be
 subject to the requirements for one year
 after closure. These commenters pointed
 out that there is no need to require
 coverage afte^ closure because
 corrective action, when required, must
 be taken before closure, and because
 they believe that insurers are unlikely to
 insure ownersjand operators after tanks
 are closed.        .          .
   Commenters indicated that it is
 unlikely that financial assurance
 providers will jprovide coverage after
 tank closure. The Agency recognizes
 that this is the1 case. The closure
 requirements in Subpart G of the
 technical standards specify a closure
 process that requires owners and
 operators to notify the Director of the
 implementing agency before closure,
 and conduct a;site assessment. If
 releases are identified, the owner or
 operator mustjconduct corrective action
 and the tanks jsannot be closed until
 corrective  actijon is completed. This
 process will ensure that closure is not
 completed until any releases from the
 petroleum UST system have been
 cleaned up.
   Therefore, the Agency has determined
 that the need for. financial assurance
 will be greatly diminished after
 corrective action and closure are

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         Federal Register. / Vok 53, Net 2Q7  / Wednesday,, October 26% 1988 / Rules- and Regulations   4336.1
completed and will not require owners
and" operators to maintain financial
assurance, after proper closure of their
tanks. Under the. final rufe*. owners and
operators are released from the,
requirements after, completion of closure
or of corrective action and closure,
when required.
U. Bankruptcy err Other Incapacity of
Owmer-ar Operator or Provider. &f
Fimmciat Assurance (§2O8i£tO)
  The proposed rule required that any
owner or operator named as a debtor in
voluntary or fnvohmtary bankruptcy
proceedings (under Title 11 of the U.S.
CodeJ notify the Regional' Administrator
within 10 days after commencement of
such- proceeding; In addition, the
proposed rale required a guarantor or
indemrritor to notify the owner or
operator by certified' mail wilhm "£& days
after eommeneement of a voluntary or
involuntary proceeding under TMe M
(Banlmiptcyjof tfee-TJ.S. Code that
names- such guarantor or indemnitos as
debtor. The proposed* rote s%elated,
fuBlhermore, that any owner wh»
demonstrated; financial responsibility
using a mechanism other than the
financial test of self-insurance- wilt be
deemed: to be without the required
financial assurance in the event  of a
bankruptcy or incapacity of its fwaewtef
of financial assurance, or a suspension
or revocation of the authority of a.
provider to issue a guarantee, indemnity
enatract,' surety bond, insurance peBey,
risk Eeteatfon.^eonp coverage policy,
letter of credit. cn-state-Fequiredi
mechaniant, Fina%v proposed §  280HIO
required states to notify the Segionat
Admmiatrafear and owitess and
operators covered by a state fund: oir
other state assurance within 3D days
after the assurance mechanism becomes
incapable of covering assared coats. The
proposed rule adopted ths pcovisJOQ in
Subtitle C rules- for the incapaeitjf di
owners.QE opera torSy guarantors, or •
financial iaslitetkras (jsee §;& 2&£14a and
265.140^ but amended ttekngaags IET
make ft more applicable to the
requkements iW Subtitle I financial
responsibiltty.
  One e©HHn$n*esdoaMed-whether aa
owner OF operator would be- informed
withia 1O days after th« commGacement
of baoakBaptey/ of a prewide* of assurance
to notify EPA of the bankruptcy. The.
commenter aaggested that this
requirement be eliminated.
  The enmmenteB appears to have
misread the rufe. Proposed f 28a.tl0r
required, a guarantor or indemnitot to
notify the awner, or operator bjj  certified
mail-within la days, aftei
commencement of a voluntary, or
involuntary bankcupt&jf pr.aceedtog
naming the guarantor or indemnitor as a
debtor. (As noted in Section IIL G of
today's preamble,, indemnity contracts
cannot be. used t& satisfy tb& fiaancial
responsibility requiEements.) AH owner
or operrator, in aceordance with
§ 280.106, must notify the Diiector of the
implementing agency of the. incapacity
(e.g.» bankruptcy) of a provides of
financial assurance only if the owner or
operator fails, to, obtain alternate
assurance wtthia 3Q days of receiving
notice of such incapacity.
  The Agency, therefore-,, has; deeided to
promulgate these provisions as
proposed.
V. Provisions Pertaining to Other
Instruments (§28ff.llll

1. Maintaining Other Instruments at
Required Levels ofCoveBage
  If the Director of the implemenrnig
agency requires fandingoif the standby
trust where- financial assurance'i's.
provided by a guarantee! fetter of credit,
or a surety bond, and draws on the
standby trust or on a trust fund: fo pay
the cost of corrective action or third-
party" damages; me faff amount of
assurance required by § 280'.93' witt no
longer be asaSabte. Tlie proposed
regulations did not specify the steps the
owner or operator had to take .to assure
that his financial responsibility.
obligations w.ere being met' after one of
these mechanisms had been used. WfiiFe
the need to take these steps was implicit
in the proposed: rolev t&e Ageacy is
making, a technical addition, to the, rule
to clarify precisely how the meehanisms
would tie implemented. Accordingly, a
new- section: has been, added to the final
financial responsibility regulation.  •
(§ 280J.11}- establishing requirements, for
replenishing a guarantee, letter of credit,
surety boHd,OE trust fond if the
assurance these mechanisms provide
falls below the required amount.
   These, new provisions provide, that, if
the amount in the- standby bast is
reduced below the fall amount-of
assurance required* the owner, or
operator shall:,
   (1) By the anniversary/ dfete of the {foascial
mgcbanisEQi fsoau whicb the funds were-
drawre,
   (,2} Replenish, the value o£ finaneial
assurance to equal the full amount of
-assuranee Beq.uire«Jt oc
   (3) Acquire another Kkahcial assurance
mechaism for tfie amount by Whfe&fnhcls in
the standby trust have beea teSoced
   If a^Gombination of mechanisjns v«as.
used to pr&vide, the-assuraatce funds
which, were drawn, upon,, replenis&mani
shall occur by, the earltest aauuversary
date among, the mechanisms. This,new
sectioa provides, needed:-iaatroction. for
the Director of the implementing agpaey
and the owner or operator, and,, more
importantly, ensures, that aoa adequate
level of funding will be available far
coraective action and. payment of thrfd-
party damage claims.

2. Exclusionary Language for Other
Instruments

  The language of the instrraaeBte for
guarantees, letters of credit, sorety
bonds and teust funds hi today's rule
contains a provision that they do, not
apply to certain categories; of damages
or obligations. These exclusions we
patterned; on existing: standard
exclusions found in insurance coverage!.
and are intended to ensure that the
coverage is not exhausted- by the
payment of claims, that are covered by
other compensation systems or- that aie
otherwise not intended to beinelmded
within the scope of. coverage^. The five
exclusions do not, cepcesent aE common
insurance poliey exclusions, bat were
selected because they were considered
most relevant to the financial assurance
mechanisms for Hability requked under
Subtitle I. In commeating an specific
mechanisms^ some csmmenteis were
concerned about the possible uses foe -
the mechanisms oc the Director's
perceived diseretion in ordering
pay%reiits firouj th® standby trnsfc
Incorporating this-exekisfonary' l
will ensure ntDre certaiaty  for&e
or operator and for the prouder that
these mechanisB3S;wilfcb.e-used!Q!iiiy for
costs associated with UST releases, as
therufe reqskes..
  Hie exclu^ons,-wife on« exception,
parallel exclasions that are being
proposed fer .iristramente. raader Subtftte
C.'Ehepuppose of aeM-ing these
exclusions- to Subtitle C instruments is-
similar to the pappose under Sabtitte{r
to ensure that coverage, provided by the
instruments will be available only to-
respond to corrective action and third-
party claims related to releasesfrouj
underground storage tanks-and will not
be available to cover routine accidents
not related to USt releases or claims foi
damage to the owner OE operateE,. orto
meet other liabilitiea assumed by the
awner or operator vjliick are uncefafed
ta UST releases. The Subtitle. G
exclusiQH,, however,, excludes damage to
the property o£ the owner, or operator.
While, penoissifalfi for Subtitle C liability
reQuiEemeats because only-thizd-paitjf
damages, must be covered, such an,
exclusion. we
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 43362   Federal  Register / Vdl 53. No.  207 / Wednesday,  October 26.  1988 / Rules and' Regulations
 corrective action (e.g., cleanup which
 •would be part of routine maintenance
 and not subject to Subpart F of the
 technical standards).
   Exclusion (a), for obligations under
 workers' compensation, disability
 benefits, or unemployment
 compensation law or similar law, is
 intended to prevent the use of Subtitle I
 financial assurance mechanisms to
 cover such claims.
   Exclusion (b), for bodily injury to the
 employees of the owner or operator, is
 also intended to ensure that such claims
 are not covered by assurance
 mechanisms obtained to comply with
 this rule.
   Exclusion (c), for bodily injury or'
 property damage arising out of the
 ownership or use of any aircraft, motor
 vehicle, or watercraft, is to prevent use
 of an authorized financial assurance
 mechanism for routine accidents that
 are not directly related to management
 of underground storage tanks.
   Exclusion (d), for property damage
 other than that related to cleanup as
 required by under Subpart F of the
 technical standards, is intended to
 prevent use of the instruments' funds to
 meet other on-site cleanup costs such as
 those for routine maintenance.
   Exclusion (e), for bodily injury or
 property damage for which the owner or
 operator is obligated to pay damages by
 reason of the assumption of liability in a
 contract or agreement, is intended to
 exclude liabilities assumed by contract
 that do not involve the ownership or
 operation of the underground storage
 tank. It does not exclude settlements or
 other agreements to pay damages in
 connection with accidental occurrences
 resulting in bodily injury, or property
 damage caused by releases from
 underground storage tanks.

 W. Suspension  of Enforcement
 (§280.112)

 1. Statutory Authority
   RCRA section 9003(d)(5)(D) authorizes
 the Administrator to suspend
 enforcement of the financial
 responsibility requirements for
 particular classes or categories of USTs.
 Suspensions of-enforcement may allow
 time for owners and operators of USTs
 in particular classes or categories or
 located in particular states to obtain
 assurance for corrective action and
 third-party compensation costs. Because
 some'owners or operators of certain
 classes or categories of USTs" may find
 that financial assurance mechanisms are
not generally available on the date set
for compliance in the rule, suspensions
would allow these owners and operators
time to comply with the requirements
 through the formation of RRGs or the
 establishment of state funds.
   The statute requires that, to suspend
 enforcement, the Administrator must
 determine that (1) methods of financial
 responsibility are not generally
 available for USTs in the class or
 category; and (2) either steps are being
 taken to establish a RRG for that class
 of tanks or a state is taking steps to
 establish a corrective action and
 compensation fund under RCRA section
 9004(c)(l). A suspension of enforcement
 may not exceed 180 days. The
 Administrator has the discretion to
 suspend enforcement for a period of less
 than 180 days.
   After an initial suspension expires,
 the Administrator may again suspend
 enforcement of financial responsibility
 requirements, but only if (1) methods of
 financial responsibility are still not
 generally available, and (2) either (a)
 "substantial progress" has been made  in
 establishing a RRG; or (b) the owners or
 operators of USTs belonging to the  class
 or category demonstrate, and the
 Administrator finds, that the state is
 unable or unwilling to establish a fund
 and formation of a RRG is not possible.
   EPS proposed relatively detailed
 procedures and criteria for its
 consideration of suspension
 applications. EPA requested comment
 on all aspects of the proposed
 suspension of enforcement procedures
 and on any alternative procedures.
 2. Suspension of Enforcement Process
   A number of commenters stated that
 the proposed requirements were
 unnecessarily complex and burdensome.
 They urged the Agency to simplify the
 procediirarrequiremerits associated
 with suspension of enforcement. (A
 detailed summary of these comments is
 contained in the Response to Comments
 document, Section H.T., in the docket.)
 Based on these comments and the
 enormous uncertainty over the number
 of suspension applications the Agency
 will receive on the dates set for
 compliance, the Agency has decided to
 defer promulgation of the final
 procedures for suspension of
 enforcement. Therefore, this section is
 not included in today's final rule; EPA
 intends  to promulgate final suspension
 procedures as necessary in the future.
  As- noted earlier, the regulated
 community subject to these rules is
 extremely large. Due to current
 constraints in the insurance industry
 and the  assurance risks associated with
 the existing'tank universe, there is also
 a correspondingly large universe of
USTs for which- financial' assurance  is
currently available. HoweverV EPA is
today-phasing :in these requirements
 over two years and recognizes that the
 availability of certain financial assuance
 mechanisms (particularly state funds)
 may change dramatically during that
 time. Moreover, some states may receive
 approval to operate their programs in
 lieu of the Federal UST program as the
 compliance dates arrive. As a result of
 these factors, there is significant
 uncertainty over whether, and to what.
 extent, suspension of enforcement will
 be necessary in the future. Thus, it is
 impossible for the Agency to craft
 appropriate procedures for
 implementing the provision in a manner
 that is'at the same time consistent with
 statutory requirements, responsive to
 the regulated community, and not an
 overwhelming burden on the Agency.
   During the phase-in period, the
 Agency will gain experience with
 implementation of the UST financial
 responsibility program and gather
 additional information on the form that
 suspension of enforcement petitions
 should take. This will serve as the basis
 for adopting procedures, if necessary,
 before the scheduled compliance dates
 for the largest group of UST owners and
 operators. Until such procedures are
 promulgated, however, the Agency does
 not intend to exercise its discretionary
 suspension authority.

 IV. Integration with Other EPA
 Programs

   In promulgating the Subtitle I financial
 responsibility requirements, the Agency
 received a humjber of comments  •
 concerning integration of these
 requirements with other EPA program,
 including other iSubtitle I rulemakings
 and the LUST Trust Fund programs.

 A. Other Subtitle I Rulemakings  :
  The proposal noted that certain
 requirements in other Subtitle I
 rulemakings were relevant to UST
 financial responsibility requirements.
 One set of relationships raised in the
 preamble was the influence of UST
 technical standards on the cost of
 corrective action and third third-party
 liability, and on the amounts of
 aggregate coverage needed. Early
 detection or  reduction in the probability
 of release will reduce the occurrence
 and extent of harm, thus influencing
 coverage. These relationships were the
 subject of numerous comments
 addressed in Section III.D of this    .  •
preamble concerning aggregate levels of
coverage.    .'.',-.
  Numerous coijiments raised' other
significant concerns about the
relationship between'thetechnical and
financial responsibilityrequireiH&jtS.
Commenters wejre concerned" a&Wt the

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        ^Federal Register / Vol. 53, No. 207 •/-. Wednesday. October 26,  1988 / Rules and Regulations   43363
impact providers of financial assurance
would have on tank upgrading and
replacement vis-a^vis the proposed
phasing of requirements in the technical
standards rule. For example, several
state and local governments addressed
the relationship between the content
and timing of the proposed technical
UST requirements and the financial
requirements, primarily the securing of
insurance. They thought that insurance
would become more-readily available
and less expensive if tank inspection
and certification were required first
since insurance companies generally
attached these conditions  to coverage.
However, they were surprised that the
Agency's tiineframe for bringing tanks
into compliance with new tank
standards was so long in view of the
relationship between tank upgrading
and inspection and availability of
insurance.  .•
   Some went further, stating that the
insurance industry via the financial
responsibility requirements would be
 determining the technical  tank
 standards, .and that this incongruity was
 a major philosophical and logical flaw in
 the regulations. Rather, technical
 considerations should drive the
 construction and monitoring standards;
 then, with tougher tank standards, the
 financial responsibility requirements
 cna be significantly curtailed.
 Furthermore, they argued that the heavy
 relia'nceLplaced by Congress and EPA on
 financial-responsibility was not
 consistent with the goal of Subtitle-I to
 prevent contamination of ground water.
 Instead, consideration should be given
 to expanding efforts in preventing
 contamination, which should be the
 objective of regulation, rather than
 environmental reclamation after the
 fact.      .   •
    Commenters from the regulated
 community made approximately the
 same comment as the above, noting that
 meeting conditions imposed by insurers
 for tank tightness and leak detection
 will force tank owners'arid operators to
 meet technical standards when the
 financial responsibility requirements
 become/effective, despite the later
  compliance schedules under the
  technical standards.
    Drawing a blunter-economic
  relationship between the financial
  responsibility and.the technical
  requirements, these commenters stated
  thatthe money spent on insurance
  would be unavailable for tank upgrading
  where, they.reasoned, it would be better
  spent. One commenter concluded that a
  conservative UST technical program
  and the state-of-the-art UST
  manufacturing; and installation .
techniques currently available will
substantially reduce, if not eliminate,
the need for excessive financial
responsibility in most cases.
  Commenters from states and the
regulated community argued that the
timing and content of the technical and
financial responsibility regulations will
result in remediation, rather than
prevention, being the dominant
consideration behind UST control, and_
in the providers of financial assurance
specifying the technical requirements for
tank owners and operators as a
condition for coverage. The states and
owners and operators apparently differ
on how each would correct this
situation. The states would strengthen
the technical requirements and reduce
the financial responsibility
requirements, whereas commenters from
the regulated community would
substitute state-of-the-art technical
requirements for all financial assurance
requirements.
   EPA does not believe either correction
is necessary. EPA does not agree with
the assumption that the technical and
financial responsibility rules are
necessarily competing alternatives, and
in its final rules has attempted to
 interrelate the  two more clearly.
   Congress specified that financial
 responsibility under section 9003 (c) and
 (d) of RCRA could be required at the
 discretion of the Administrator. SARA
 amended these provisions to mandate
 financial responsibility coverage and to
 provide a response program for
 petroleum UST releases. Congress did,
 not present these amendments as
 alternatives to technical specifications
 for USTs. The  sections of this;
 comprehensive legislation cannot be
 viewed in isolation, but must be viewed
 as a whole; the overallgoal of the
 legislation is to reduce the unacceptable
 risk to human health and the
 environment posed by thousands of UST
 leaks through  prevention and assuring
 quick response when leaks occur.
   Both the technical and financial
 responsibility requirements are
 preventive in nature. Neither would be
 totally preventive of harm to the public
 health and environment in itself, but in
 conjunction they will assure a high
 degree of protection. The direct control
 of leakage from USTs is obviously a
 preventive strategy,, but is not foolproof.
 The funds assured through the various
  mechanisms permitted in this
  rulemaking establish a safety net that
  finances immediate and thorough
  corrective actipn when a release does
  occur and before the spread of  ;
  contamination. If the provider of
  assurance also places demands on the
owner or. operator for technical controls,
this strengthens protection af public"
health and the environment by
increasing the incentive for tank
upgrading and replacement as well as
assuring funds for corrective action and
third-party liability.
  Phasing in compliance for the
financial responsibility requirements
brings this compliance schedule more
into balance with the compliance
schedule for the technical requirements.
The Agency projects that many owners'
and operators will begin to comply with
the technical standards early in the
phased-in schedule for tank testing and
upgrading or replacement. These tanks
will represent low-risk USTs and thus
financial assurance, particularly
insurance, should be available for them
at a lower cost than for pre-regulation
tanks.
  The Agency recognizes that there
might be continuing concern because the
timeframes for the two regulations are
not the same; however, EPA cannot wait
until all technical requirements are in
place before imposing the financial
responsibility rules. The result of further
 delay would be an unduly long period of
 time during which many members of the
regulated community would have-no
 financial assurance and could be unable
 to  afford-the cost of cleanup or liability.
 Moreover, longer delay would provide
 little incentive to states and insurance
 providers to develop mechanisms that
 will be needed to comply with the rule*
   Several commenters claimed that the
 burden of complying with financial
 responsibility requirements would force
 owners and operators to move tanks
 aboveground and, thus, that ;the final
 rules' should contain criteria that help
 the changeover to aboveground systems.
 For example, commenters suggested that
 an owner or operator's commitment to  ,
 move tanks aboveground over a
 specified period of time should trigger
 an exemption from interim requirements
 for leak detection. Small, businesses
 would be especially likely.to install
 aboveground petroleum tanks in place
 of USTs. Because these tanks would
 pose significant hazards to facility
 personnel, local communities, and the
 environment, the commenters went on
 to urge the Agency to assess the
 consequences of this scenario before
 promulgating a" final rule, and,
 meanwhile, to exempt small businesses
 not involved in petroleum marketing
  from •financial responsibility
  requirements.
    The Agency feels that moving tanks
  aboveground is not necessarily,a
  problem-if done in compliance with .
  applicable state and local .requirements.

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 43364
Register./  Vol. 5&  No. 207-./  Wednesday, October 26, 1SB8  / Rules and
 Any, tank removed from underground, to
 aboveground must meet the same
 closure requirements under Sub.part G
 as any other tank that ia taken out .of"
 service or permanently closed. Mo
 reasons have been put forth by
 commenlers for why financial.assurance
 requirements should be waived for
 owners and operators who intend to
 withdraw tanks from coverage under
 these regulations in  the future. In
 addition, because numerous
 jurisdictions already stringently regulate
 or prohibit aboveground tanks, the
 Agency suspects that moving tanks will
 not present as appealing an alternative
 to leaving the tanks underground and
 providing mandated protection.
 Therefore, EPA has not provided an
 exemption from these requirements for
 tanks that may be moved aboveground.
   Finally, two suggestions were
 submitted that would relate technical
 and financial requirements. One
 commenter  suggested that a financial
 credit should be available to owners
 and operators who installed secondary
 containment with continuous interstitial
 monitoring,  thereby minimizing the
 potential  for leak occurrence and
 attendant cleanup costs and third-party
 damages. However, EPA has rejected
 the use of such credits, as discussed in
 Section HI.D, above.
   The second mechanism consists of a
 new federal fund, financed by a sales
 tax on petroleum products; to be
 collected  and used by states as a state
 cleanup fund. One condition on the fund
 is that owners and operators would
 have to register.tanks with the state
 environmental department within 90
 days, with failure to comply triggering
 the need to supply proof of insurance
 and/or net worth as prescribed in the
 proposed  financial responsibility
 regulations.  However, the only available
 federal fund, -the LUST Trust Fund under
 section 9003(h), was created to provide
 cleanup of UST releases in particular
 circumstances. Congress did not
 authorize  its use as a financial
 assurance mechanism. Rather the fund
 is intended to "stand behind" the owner
 or operator who has obtained financial
 responsibility in the required amounts.
 SARA Conference Report H. Rep. 99-
 962.99th Cong., 2nd Sess. at 271.
B. Leaking Underground Storage Tank
 (LUST) Trust Fund and Response
Program
  Because the LUST Trust Fund and the
financial responsibility .program are
 closely related, the comments proposed
a wide range of uses for the Fund.
Several  commenters stated that .the .final
regulation should .require states to uae
the Trust Fund tp. cover costs in; excess
                      of financial- responsibility limits'where
                      the owner or operator has complied-with
                      all regulatory and financial
                      respOns'ibi;tity-reqnKemen.tsI In support,
                      the commeritefs cited the Agency's
                      discretion to forego full cost-recovery in
                      section gq03(h)(6)(B3 and the .potential
                      incentive this provision might give
                      owners and operators to secure
                      financial responsibility and report leaks
                      promptly, as reasons why the final rules
                      should specify such a condition on use
                      of the Trust Fund.
                        Several additional .uses of the Trust.
                      Fund were suggested. One commenter.
                      encouraged EPA to allow use of Trust
                      Fund monies in cases where a leak
                      occurs at. the site of an owner, or
                      operator who belongs to a class against
                      which enforcement has been suspended.
                      Another commenter suggested that the
                      Trust Fund could be used to repay RRGs
                      for payments for deductibles. To offset
                      these costs to the Fund, the RRG would
                      require protection beyond that required
                      by the final regulations .(e.g., secondary
                      containment). Another commenter
                      objected to the requirement that an
                      insurance company must pay the
                      deductible for a company in bankruptcy,
                      because if the Trust Fund were used for
                      such purposes, the US. Government
                      would be a preferred creditor in
                      bankruptcy, whereas an insurance
                      company making the payment would be
                      non-preferred.
                       A state commenter argued that Trust
                      Fund money should not be given only to
                      states with approved UST regulatory
                      programs. The commenter stated that
                      the Trust Fund and the regulatory
                      program.were created separately and
                      shpujd remain so; that the loss of Fund
                      monies would place, a major financial
                      burderj on states with marginal
                      capability to fund the base progra*m;
                     .and, furthermore, that the environment
                      and public, health would be jeopardized
                      by not using the Trust Fund separately;
                     from the regulatory .program,  as
                      designedly .Congress. Mayors could tap
                     into the Fund if EPA would require, as
                     part of state program approval, that the
                     state program provide direct municipal
                     access to the Trust Fund for cleanup and
                     oblige the state to address other local
                     concerns. In addition, the.commenter
                     urged EPA to seek authority to use the
                     Fund as. a source of grants to develop
                     local programs.
                       With respect to the numerous and
                     varied uses of the LUST Trust Fund
                     offered in.the comments, as noted
                     earlier, Congress has authorized,use of
                     the Fund  to pay corrective action costs.
                     only under limited and spectfically
                     defined, eircumstances. After final
                     regulations, on the technical-standards
 sand financial responsibility .go into
 effect, Fund monies can he used to pay
 for corrective, action; only in the,
 following situations;-; ..      ,    •.. :.-
   (l)'An otorieror operator wbo- isre^i'freflto
 undertake .the'canective:actien- and who is
 capable of ^carrying out corrective actkm'
 properly does not exist or cannot be
 identified;       !
   (2) Prompt action by the Administrator (or
 state) is necessary to protect human health
 and the environment;          "••'.'•
   (3J The financial resources of the owner or
 operator, inchidingiany UST financial
 assurance, are inadequate to pay the entire
 cost of the corrective.action, and,-
 expenditures from the Fund are necessary to
 assure effective corrective action; or
   (4) An owner or operator has failed or
 refused to-comply with an order to pterfonn
 corrective action.. '

   Section 9p03(hHll) explicitly prohibits
 the expenditure of Fund monies for
 corrective action iat any facility-where
 theowner or operator ha's failed to
 maintain evidence of financial
 responsibility in the Tequired amounts,
 except (1) in'cases where there .is no
 solvent owner or operator, or (2} in
 cases  where .immediate action is
 necessary to jresppnd to an imminent
 and substantial .epdangerment of human
 health or the environment, or .{3} to
 undertake an "allowable  corrective
 action" to protect human health.
 (Section 9003(h}(5) defines these
 allowable corrective actions to include
 "temporary or permanent relocation of
 residents and alternative water
 supplies" and exposure assessments
 undertaken to >protect human health.)
   One result of these requirements .is the
 preclusion of many of-the alternative
 uses for the Fund 'suggested by
 commenters: Specifically, EPA does not
 agree that the state should be required
 to use  the Trust Fund to cover costs in
 excess of the financial responsibility
 requirement. While the statute clearly
 allows the state to-use the Trust Fund-in
 such a situation, the decision should be
 made-on a case-by-case basis at the
 discretion of the state. EPA also .does
 not agree with comrnenters who
 suggested that the trust Fund be used to
 (1) repay RRGs fat payments for
 deductibles, and (2) to pay deductibles
 for companies in bankruptcy. Owners
 and operators are. expected to maintain
 evidence of financial responsibility and
 pay the costs of their releases. Congress
 intended the Trust Fund to stand behind
 an owner OT operator, who obtained
 assurance to meet th& financial
responsibility .requirement and, as  .
indicated ahove^is-ta be used in-
mstaaces, where Ae .cost of correjEitiye
action exceed&4heLevels of JuianciaL
responsibility required to he maintained.

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         Federal Register / Vol. 53, No. 207 /Wednesday,  October 26>  1988 / Rules and Regulations   43365
  In response to the comment that Trust
Fund money should not be given to
states that do not have approved UST
regulatory programs, the Agency wants
to emphasize that the negotiation of
state cooperative agreements for use of
the LUST Trust Fund is proceeding on a
path separate from the approval of state
programs. However, ElPA has decided to
make a link between the LUST Trust
Fund and UST regulatory program to
ensure that future contamination is
minimized. After the effective date of
today's final rule, a state's success in .
making reasonable progress toward
submitting a completed application for
state program approval may be grounds
for increasing state access to the Trust
Fund in fiscal year 1990 and thereafter.
  In response to the commenters urging
that the Trust Fund be made directly
available to local governments, EPA's
cooperative agreement process involves
states negotiating arrangements for
proper use, recovery, and accounting of
Trust Fund money with EPA. The
municipalities are not parties to these
negotiations and will need to rely on the
state to implement a sound and effective
program for the use of the Trust Fund for
corrective action. The statute does not
provide for any direct EPA/municipality
arrangement.
   Finally, as discussed in Section IILW
of this preamble, the Agency has
decided to defer promulgation of final
procedures for suspension of
enforcement. Until such procedures are
promulgated, the Agency does not
intend to exercise its discretionary
 suspension of enforcement authority. At
 that tinie, the Agency will address the
 use of LUST Trust Fund monies to
 respond to releases from tanks whose
 owner or operator is a member of a
 class which has been granted a
 suspension of enforcement.

 V. State Program Approval

 A. Background

   Section 9004 of RCRA allows any
 state to submit an underground storage
 tank regulatory program for review and
 approval by EPA. An EPA-approved
 state UST regulatory program will
 operate "in lieu of the Federal program.
 The Agency may approve the state
 program if the state demonstrates that
 its program (1) imposes requirements
 that are "no less stringent" than the
 Fe'deral release detection, prevention,
 correction, and financial responsibility
 requirements, and (2) provides for
 adequate enforcement -of compliance
 •with Biieh requirements.
B. Financial Responsibility Objective
(§281.37)
  In its final State Program Approval
rule (53 FR 37212, September 23,1988),
EPA promulgated criteria for state
program approval in the form of
objectives for seven of the technical
program elements in the final technical
standards rule (53 FR 37082, September
23,1988): New UST system design,
construction, installation and
notification; upgrading existing UST
systems; general operating
requirements; release detection; release
reporting and investigation; corrective
action; and out-of-service and closed
UST systems. The eighth objective for
financial responsibility of owners and
operators of petroleum UST systems is
promulgated in today's rule.
  These objectives represent the
Agency's expectations of what
constitutes a no-less-stringent state
program. By requiring the state to  •
achieve the objectives underlying the
detailed Federal requirements in each
element rather than match each
regulatory detail of the Federal
requirements, EPA provides a
performance-based measure for
evaluating programs and recognizes that
the precise details in the Federal
program are not the only feasible
approach to UST regulation. By
establishing these objectives, EPA  also
provides a framework for  approval that
guarantees that each state UST program
provides a minimum level of protection.
  An important objective  of the Federal
program is that owners and operators of
UST systems containing petroleum have
 adequate financial responsibility to
 undertake corrective action and meet
 third-party liability claims. The Federal
 law mandates $1 million per occurrence
 with appropriate aggregate amounts as
 the minimum level of assurance needed
 by most owners and operators of
 petroleum UST systems to meet cleanup
 and liability costs. Today's Federal
 financial responsibility rule allows an
 exception for certain  classes of owners
 and operators who store small
 quantities of petroleum for purposes
 other than selling it as a product. More
 specifically, owners and operators not
 engaged in petroleum production,
 refining, or marketing and who have a   .
 throughput of 10,000 gallons or less per
 month are required to have only
 $500,000 per occurrence for corrective
 action and third-party liability claims. In
 addition, the financial responsibility rule
 sets the aggregate amounts at $2 million
 for .owners and operators with more
 than 100 UST systems, and $1 million for
  those who have 100 or fewer.IJST
 systems. Finally, the  financial
responsibility requirements will be
phased-in over a 24-month period from
the date of promulgation for different
groups of owners and operators. In order
to be no less stringent than the Federal
requirements for financial responsibility
for USTs containing petroleum, the state
must have requirements for owners and
operators to have financial assurance
and for the types of mechanisms used to
provide that financial assurance.
  The Agency received comments in
support of the holistic approach to
determining no less stringent state
programs, particularly because such an
approach would enable'a state to trade-
off more stringent technical
requirements with less stringent
financial requirements, for example,
lower amounts of financial
responsibility. While the Agency
understands that states may experience
difficulty in obtaining statutory or
regulatory authority to require $1 million
in coverage, that amount was
established by Congress in Subtitle I
and EPA believes it does not have the
flexibility to lower that level of coverage
as part of the Federal program or as part
of state program approval.
   The first aspect pf this objective
(§ 281.37(a)) concerns the amount of
financial assurance, both per occurrence
and in aggregate, that an owner or
operator must have. First, the state must
have a statute or regulations that require
an owner or operator to have at least $1
million or $500,000 per occurrence and
$1 million or $2 million in aggregate,
depending on the size and type of the
operation. This requirement follows
 directly from the Federal financial
 responsibility regulations  for petroleum-
 containing UST systems.
   The Supplemental Notice published
 on December 23,1987 (52 FR 48644)
 included an objective for financial
 responsibility; however, aggregate levels
 were not included in the proposed
 objective; To remain consistent with the
 Federal requirements for financial
 responsibility, the Agency today is
 promulgating the final objective with a
 requirement that the owner or operator
 have financial assurance in appropriate
 aggregate levels. Addition of the
 aggregate is necessary to  ensure that
 approved states'require an adequate
 level of coverage. The aggregate level
 varies depending on the number of tanks
 owned or operated. Owners and
 operators with 1 to 100 tanks must have
 an aggregate level of coverage of $1
 million  arid those with more than 100
 tanks must have an aggregate level of
 coverage of $2 million. The final
 objective establishes the same levels of
 coverage. Further discussion on pre-

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  43366   Federal Register / Vol. 53.  No. 207 / Wednesday, October 26, 1988 / Rules anid Regulations
  occurrence and aggregate levels of
  coverage can be found in today's
  preamble at Section 1II.D.
   The second aspect of this objective
  (§ 281.37(b)J concerns the phase-in
  compliance schedule for owners and
  operators. The objective proposed on
  December 23,1987 (52 FR 48644) did not
  include a provision for a phase-in
  schedule. This provision is being added
  to be consistent with decisions made
  following the Supplemental Notice to the
  proposed rule for financial responsibility
  for petroleum USTs that was published
  in the Federal Register on March 31,
  1988 (53 FR 10401). In today's final
  financial responsibility rule,,EPA has
  decided to phase-in compliance over 24
  months from the date of promulgation at
  all UST systems following a schedule
  based on net worth and the number of
  tanks owned. Although EPA
  recommends that a similar approach be
 used by state programs, the Agency has
  decided to allow flexibility in the
 objective for states to use other phase-in
 approaches provided that the schedule
 is completed in 24 months. Approaches
 that allow all of the regulated
 community to wait until the end of the
 24-month period would not be accepted
 as an orderly schedule.
   The third aspect of this  objective
 (§ 281.37(c)) concerns the  variety of
 financial mechanisms that may be used
 by owners and operators to demonstrate
 adequate financial responsibility. The
 Federal financial responsibility rule  •
 allows a wide variety of mechanisms
 and combinations of mechanisms to be
 used. The state may also allow a variety
 of financial mechanisms to be used. To
 determine whether state-allowed or
 required mechanisms are no less
 stringent than the Federal requirement,
 general criteria have been established
 that are applicable to all financial,
 mechanisms. By establishing these
 criteria in the Federal objective, the
 Agency believes that it is unnecessary
 for the state to have detailed
 requirements for each mechanism
 affected by these criteria for purposes of
 state program approval. However, ERA
 encourages states to adopt the •financial
 responsibility regulation, especially the
 language of each mechanism, .since they
 have been developed and  tested to
 ensure that adequate financial
 responsibility will be available when  '
 necessary. For example, the state will
 not be expected to demonstrate that its
 regulations require a surety company to
 state in a bond that the bond cannot be
 cancelled during a 120^day period
 folio wing'Holiceiof cancellatiort-pf the
 bond to -the owner or'operator; The state
must, however, be .able to draw on the
  funds assured by the bond before
  cancellation occurs. The state
  regulations must ensure that the time
  period before the effective cancellation
  of the bond provides ample opportunity
  for the state -to assess the facility,
  determine if a release has occurred, and,
  if needed, draw funds from the
  instrument In this way, the Federal
  objectives for financial responsibility for
  UST systems containing petroleum are
  met.
    Section 9004(c)(l) of Subtitle I allows
  states to set up a fund that may be used
  to meet the no less stringent requirement
  for financial responsibility. The state
  may choo.se to establish a state fund to
  provide financial assurance for certain
  classes of owners and operators or for
  all owners and operators. The general
  criteria for state funds are represented
  in the objective (§ 281.37(a) and (c));
  these criteria are essentially the same as
  the requirements for state funds set out
  in the Federal financial responsibility
  rule in § 280.100. Further discussion on
  state funds and their use in providing
  financial assurance will be available in
  guidance due to be issued this fall by
  EPA. A briefer discussion can also be
  found in EPA's State Program Approval
 Handbook.
   Some commenters expressed concern
  that the requirement that states have a
 financial responsibility program that is
 no less stringent than the Federal
 program in order to receive state
 program approval will delay approval of
 state programs. The commenters stated
 that complex financial responsibility
 requirements could discourage states
 from submitting UST programs for
 approval They urged that EPA
 promulgate a simple financial
 responsibility framework and provide
 guidance to the states.
   As explained above, the requirement
 that an approved state program contain
 financial responsibility requirements
 that are no less stringent than  those
 under the Federal program is required.
 by RCRA Section 9004. However, EPA
 has developed an approach to  state
 program approval that provides states
 as much latitude as possible consistent
 with the statute in adopting approaches
• to 'fulfill the requirement The Agency
 recognizes the .difficulties for states in
 developing financial responsibility
 programs and is preparing detailed
guidance and outreach assistance to
 states to-help them develop their
 programs.
  A more -complete analysis 
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         Federal Register / Vol. 53, No.  207 / Wednesday,  October 26,  1988 / Rules and Regulations   43367
challenge and considerable confusion
about EPA's program for dealing with
this challenge. The Agency believes that
UST requirements can best be
implemented if the program is delegated
to the states and localities. In a
companion rule to the financial
responsibility rules, EPA has set forth
the requirements and approval
procedures for state UST programs (53
FR 37212, September 23,1988). States
with approved programs will have
primary enforcement responsibility for
their own UST programs. Under this
rule, EPA has provided .states as much
flexibility as possible to develop their
own approach to UST regulation and
implementation consistent with
statutory requirements.
  Thus, in response to state concerns,
the Agency will be allowing each state
seeking program approval considerable
latitude in establishing the details of an
enforcement program. Although Federal
law mandates certain elements of the
financial responsibility requirements
(e.g., the one million dollar minimum
level of assurance), the Federal program
not only allows a wide variety of
mechanisms, but allows the states to
develop their own financial mechanisms
(e.g., state funds) to meet these
requirements. In short, contrary to the
concerns expressed in the comments,
EPA intends that, over time, states will
assume primary responsibility for the
UST program and will also have
considerable ability to tailor their
programs to each state's experiences
and resources.
  States could adopt more stringent
provisions, such as reporting
requirements, than are established in
the Federal requirements, or they could
adopt any  of the mechanisms for
assuring compliance that have been
submitted  in comments. Although EPA
believes that the event-based reporting
requirements finalized today are
sufficient to ensure compliance by the
regulated community and to provide
timely, information to the implementing
agency for compliance monitoring,
states can  and, in many instances, have
imposed annual notification
requirements on owners or operators.
   In addition to assisting the states
seeking approval with the development
of their programs, EPA will be providing
the regulated community with extensive
compliance outreach materials, which
should include materials targeted to the
needs of the large and diverse UST
population. A secondary benefit of
compliance outreach should be a higher
degree-of awareness of these regulations
and a greater level of voluntary
 compliance, thus easing the enforcement
 burden on the states.

 VII. Economic and Regulatory Impacts
 A. Regulatory Impact Analysis

 1. Compliance with Executive Order
 12291
  Sections 2 and 3 of Executive Order
 12291 (46 FR 131393, February 19,1981)
 require that a regulatory agency
 determine whether a new regulation will
 be "major" and, if so, that a regulatory
 impact analysis (RIA) be conducted. A
 major rule is defined as one that is likely
 to result in (1) an annual effect on the
 economy of $100 million or more; (2) a
 major increase in costs or prices for
 consumers, individual industries,
 Federal, state, or local government
 agencies, or geographic regions; or (3)
 significant adverse effects on
 competition, employment, investment,
 productivity, innovation, or on the
 ability of U.S.-based enterprises to
 compete with foreign-based enterprises
 in domestic or export markets."
  EPA has conducted an RIA of the
 Subtitle I financial responsibility
 requirements for petroleum-containing
 underground storage tanks. Based on
 this analysis, the Agency has concluded
 that this regulation may have annual
 costs of greater than $100 million.
 Therefore, the regulation promulgated
 today is a major rule, as defined by E.O.
 12291. The following six sections
 summarize the results  of the RIA:
 Section 2 describes the integration of the
 technical standards and financial
 responsibility RIAs; section 3 describes
 the regulated community affected by
 this regulation; section 4 presents some
 of the methods and assumptions used to
 produce the financial responsibility RIA;
 section 5 presents EPA's estimates, of
 the. present value of real resource costs;
 section 6 discusses the regulation's
 economic impacts; and section 7
 describes its potential benefits.
 2. Integration of the Financial
 Responsibility and Technical Standards
 Regulatory Impact Analyses
   Under section 9003 of Subtitle I of
 RCRA, the Administrator of EPA is
 required to promulgate both technical
 and financial responsibility
 requirements for USTs. The RIA
 described here presents the costs,
 economic impacts, and benefits
 associated with the UST financial
 responsibility requirements^ A separate
 RIA assesses the costs, economic
 impacts, and benefits ofthe technical
. standards (53 FR 37212, September 23,
 1988).
   The results ofthe RIA for the financial
 responsibility regulation are presented
both in terms of the incremental costs
and economic impacts of the financial
responsibility requirements (the
additional costs and impacts that
owners or operators complying with the
technical standards will absorb to
comply with the financial responsibility
requirements) and in terms of the total
costs and economic impacts associated
with the imposition of the technical
standards and the financial
responsibility requirements. (The
benefits of the technical standards and.
the financial responsibility requirements
were not integrated because these two
regulations have different types of
benefits that are not additive.)
  Methodology-—There are two
important differences between the
regulated community for the technical
standards rules and that for the
financial responsibility requirements.
First, the technical standards apply to
petroleum-containing and hazardous-
substance-containing USTs. The
financial responsibility requirements
only apply to petroleum-containing
USTs. Owners or operators of
hazardous-substance-containing USTs
are not yet required to demonstrate
evidence of financial responsibility.
Second, all owners or operators of USTs
falling within the scope of the technical
standards rule will incur costs to comply
with the. technical standards. States and
the Federal government, however, will
not incur costs to;Gomply with the
financial responsibility requirements,
because they, are not required to
demonstrate evidence of financial
responsibility for their USTs. Therefore,
the regulatory impact analysis for the
financial responsibility requirements
applies to a smaller universe of USTs
(approximately 1.5 million) than does
the regulatory impact analysis for the
technical standards (approximately 1.7
million). The combined costs and
economic impacts of both rules apply to
the entire universe of 1.7 million USTs.
   The technical standards will require
firms to improve their methods of leak
detection within 2 to 5 years after these
rules are promulgated; in addition, firms
are allowed up to 10 years to replace or
upgrade their UST systems to meet UST
system performance requirements. To
comply with the financial responsibility
requirements, many firms will similarly
have to improve their methods of leak
detection and replace or upgrade UST
system components, although within a
faster timeframe. This is because, to
demonstrate evidence of financial
responsibility, many firms that cannot
self-insure and that do not currently
have insurance will have to attempt to
get insurance within two years of the,.

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43368   Federal ffegigter/..VQl. :5.3,. No.c2Q7; /Wediaaesday,October  26. 1988.
finanCial.reBppnsibility rule's effective
date. Insurers .will generally require
.upgrading of,UST systems as a
prerequisite to coverage.
   For the financial responsibility RIA,
EPA assumed that insurers would
require that:
   • Tanks be less than 15 years old or
retrofitted to meet new tank performance
standards; and
   • Leak detection measures taken by tank
owners or operators be at least as stringent
as those required by the technical standards.
   To avoid doubleHxmnting leak
detection and tank upgrading costs, the
combined costs of the technical
standards and the financial
responsibility requirements are
estimated by attributing to the financial
responsibility requirements the
difference between the present value of
the costs of meeting insurers'criteria
and the present value of the costs of
meeting the technical standards. The
only other cost elements added by the
financial responsibility requirements to
the total costs of both rules are the costs
of procuring and maintaining financial
assurance mechanisms.
   The financial responsibility RIA
compares the economic impacts of the
technical standards alone to the
combined economic impacts of the
technical standards and the financial
responsibility requirements; While the
combined impacts of both requirements
are, in all cases, more severe than the
impacts of the technical standards
alone, in individual cases, the financial
responsibility requirements actually
help to mitigate the economic impacts of
the technical standards. Quicker
detection of UST releases and the
availability of insurance to pay UST
corrective action costs will lessen, for
some firms, the economic impacts of
having to comply with corrective action
requirements.
3. The Regulated Community
   This regulation is estimated to apply
to 1.5 million underground storage tanks
(USTs) containing petroleum located at
468,000 separate facilities. For the
purpose of this analysis, the regulated
community was divided into four major
sectors: Retail motor fuel marketing,
agriculture, local government entities,
and general industry. Retail motor fuel
marketing is the largest single affected
sector and includes 193,000 retail motor
fuel outlets owned by approximately
90,000 firms. This sector has been
further subdivided into three segments:
Refiners, multi-outlet retail chains, and
open dealers (defined as firms owning
and operating^ single retail motor fuel
outlet). The agricultural sector includes
all-farms owning USTs with capacities
of more than 1,100 gallons;
approximately 46^)00 USTs located at
30,500 farms'meet this definition. Local
government entities own approximately
62,000 USTs at 29,000 facilities. For the
purposes of this analysis, the general
industry sector includes all other sectors
(i.e., sectors other than retail motor fuel
marketing, government, and agriculture)
where USTs are located. Firms in the
general industry sector range from large
manufacturing concerns to small retail
operations. USTs in this sector usually
are used to provide motor Jiiel for fleets
of vehicles (e,g.r at trucking firms and
automobile rental agencies) or to
provide convenient access to motor fuel
for  off-the-rbad vehicles (e.g.,
construction equipment). The general
industry Sector is estimated to contain
642,000 USTs at 192,000 facilities owned
by approximately 137,000 firms.

4. Assumptions and Methodology Used
in the RIA

  Following are the key assumptions
used to estimate the costs and other
impacts of this regulations:
  •  The costs and economic impacts of the
technical standards are the baseline from
which the costs and economic impacts of the
financial responsibility requirements will be
measured.
  •  Owners, rather than operators, satisfy
and pay the costs of financial responsibility
requirements, except when the owner is a
private individual and the operator is a
business corporation.
  •  All owners who qualify for self-
insurance use this mechanism to satisfy their
financial responsibility requirements and
incur real resource costs for developing and
maintaining the required records and reports.
  •  All firms or local governments currently
insured for corrective action and
compensation of third-parties will maintain
their insurance to comply with this
regulation.
  •  Firms or local governments that are-not
currently insured and that cannot use the
financial test of self-insurance will attempt to
obtain insurance (rather than other financial
assurance mechanisms) to comply with this
regulation.
  •  Insurance, will only be available to firms
or local governments meeting insurers'
criteria for insurability. The RIA presents
regulatory costs assuming that all firms and
local governments that do.not currently have
insurance or pass the financial test are able
to get insurance by meeting insurers' criteria
for insurability (i.e., upgrading or replacing
tanks greater than 15 years old and instituting
suitable leak detection measures}. Using this
assumption results in higher costs than
assuming that firms and local governments
that,doi not currently have insurance or meet
the financial test cannot get insurance.
Obtaining a suspension of enforcement
should be less expensive than meeting
insurers'• 'eligibility Tequirements-'withm %.
years and paying insurance premiums
thereafter.      :
  • Insurance premium costs are estimated
by assuming that,premiums will be double.
the expected value of corrective action and
third-party liability costs for the USTs
covered. The expected value of costs of
corrective actionjand third-party liability are
based on the UST model developed for. the
technical standards RIA.

5. Annual Real Resource Costs

  There are three main cost elements hi
the combined total costs of the financial
responsibility and technical standards
requirements; Costs related to the tank
replacement and upgrading and to leak
detection; costs related to performing
corrective actionj.and the costs of
procuring financial assurance
mechanisms. The costs of procuring
financial assurance mechanisms do not
include the costs related to performing
corrective action because these costs
are accounted for separately. They also
do not include the costs of satisfying
third-party liability awards because
such costs would be incurred even if the
technical standards and the financial
responsibility requirements were not
promulgated. The cost of insurance, for
example, does not include that portion
of insurance premiums used to pay the
costs of .corrective action and third-
party liability awards. It does include
the cost of insurers' profits,
administrate  costs,  and sales costs.
  These costs (the real resource costs of
insurance) are 0qual to approximately
40 percent of the total insurance
premium cost.
  The present value of the combined
real resource costs of the technical
standards and |he financial
responsibility requirements over 30
years is $70.28 billion. $38.83 billion of
these costs represent the costs of tank
replacement, tank upgrading, and leak
detection. $29.49 billion of these costs .
represent the cpsts of performing
corrective action. $1.96 billion of these
costs represent, the real resource costs of
financial assurance .mechanisms. A
portion of these costs (e.g., the costs of
tank upgrading and replacement, and
the costs of procuring insurance) would
be incurred even if the technical
standards and financial responsibility
requirements were not promulgated. The
present value of the' total incremental
costs 'of both niles (the costs of the .
technical standards and the financial
responsibility requirements attributable
to the promulgation of these rules)  is
$49.63 billion. $18.50 billion of these
costs are attributable to tank
replacement; tank'upgrading, and leak
detection; $29.49 billion are; attributable

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         Federal Register / ,Vol.  53, No. 207  /  Wednesday, October 26,  1988 / Rules and Regulations   43363
to corrective action; and $1.64 billion are
attributable to procuring financial
assurance mechanisms.  •
  The incremental costs of complying
with? the financial.responsibility
requirements represent a minor portion
of the combined incremental costs of the
technical standards and financial
responsibility rules. The incremental
costs of the financial responsibility
requirements alone are $701 million.
These incremental costs include $1.55
billion for accelerated tank replacement,
tank upgrading, and leak detection (to
meet insurers' criteria for insurance);
$1.64 billion for financial assurance
mechanisms [for firms that do not
currently have them); and a $2.49 billion
cost savings in the cost of corrective
action. This savings results .from the
earlier .application of improved leak
detection, and earlier tank upgrading
than would be required if only the
technical standards were promulgated.

6. Economic Impacts
  The economic impacts of the
regulations are assessed for all firms in
the retail motor fuel marketing sector,
except refiners, and for firms in the
general industry sector for which the
expected annual insurance premium
costs are more than 10 percent of the
before:t.ax-profits.
  In the retail motor fuel marketing
sector, 'economic impacts are measured
in terms of the percentage' of existing
outlets surviving 5,10, and 15 years  after
the imposition pf regulations. Through
year 5, 57 percent of existing small-firm-.
owned outlets would survive if only the
technical requirements were imposed.
(Small firms are defined as firms with
. less than $4.6 million in annual sales.
This corresponds to the Small Business
Administration's definition of small
firms in this sector.) Assuming the
imposition of technical and financial
responsibility requirements, 55 percent
 of existing outlets survive, if all small
 firms obtain insurance. By year 15, 34
 percent "of outlets would survive the
 imposition of technical requirements
 and 47 perce'nt would survive the
 imposition of both technical and
 financial responsibility requirements, if
 all small firms obtain insurance. Thus,
 by year 15, the imposition of the
 financial responsibility requirements
 has a beneficial impact on the survival
 of small-firm-owners and operators.
   Small-firm-owned outlets that do not
 have existing releases and that can
 afford Improved leak detection and tank
 upgrading-or replacement costs are -
 better, abje'to survive with insurance
 than without it. Those small-firm-owned
 outlets Mthrexisting releases .and outlets
 owned: 1$ &»nciaily-jnsrgiaal. small
firms will exit the industy more quickly
with the imposition of the financial
responsibility requirements than with
the imposition of the technical standards
alone.                 ,
  The technical standards RIA does not
account.for the fact that many large
firms in the retail motor fuel marketing
sector have .insurance which can
mitigate the economic impacts of having
to perform corrective action. It thus
presents a worst case economic impact
scenario! The technical standards RIA
estimates that 73 percent of existing
retail motor fuel marketing outlets
owned by large firms (other than
refiners) would survive through year 5.
The financial responsibility RIA, which
accounts for the fact that many of these
firms have insurance, estimates that 83
percent of large-firm-owned outlets
survive through year 5. By year 15, only
50 percent of large*firm-owned outlets
would survive the imposition of the
technical standards if they did not have
insurance. When insurance is
considered, 78 percent of large-firm-
owned outlets survive through year 15.
   In the general industry sector, EPA
examined financial data for firms in 65
four-digit SIC.cbde categories that
contain firms that own USTs. In only 4
of these SIC code categories would the
value of premiums exceed 10 percent of
the before-tax profits of average firms in
those categories having less than $1
million in assets, and the impact of these
premium costs on. the pre-tax returns on.
assets for these firms ranged between
.0.1 and 0.9 percent. Most firms in these
SIC code categories do not use USTs,
and it is impossible that, if the costs of
today's regulation imposed severe
impacts oh those'firms in  those sectors
that do use them; they could avoid these
costs by closing their UST facilities.
 7. Benefits
   Today's rule is associated with a.,
variety of potential economic benefits
 that are discussed in qualitative terms in
 the RIA. Potential economic benefits
 from the financial responsibility
 requirements can be placed in three
 categories:
   •  Resource allocation;
   •  Willingness to pay for distributional
 goals; and
   •  Reductions in cleanup costs,
 environmental and health damage, UST
 releases, and business disruptions.
   If the financial responsibility   .
 requirements induce firms tq consider
 th6 futtcosts of UST releases as part of
 their real production costs (i.e., cost
 internalization), the result may be an.
 improvement in4he aik>eative .efficiency
 of LIST users. Sinee.allocative efficiency
improvements result in improvements
for the population in the aggregate, the
population can be expected to be willing
to pay for this improvemerit. Similarly,
the population'also could be willing to
pay for progress toward'distributional
goals (i.e., be willing to incur some cost
to ensure that the UST owners and
operators and the consumers of goods
whose production involves the use of
USTs and who benefit from the use of
the USTs also bear the costs of that
activity).
   Small firms that use insurance to meet
their financial responsibility
requirements may be more inclined to
report releases from their USTs
promptly, whereas firms without
insurance may be reluctant to report
releases out of a fear that the costs
associated with the release could force
the firms.out of business. In addition,
firms having to obtain insurance will
have to meet insurers' eligibility
requirements (e.g., improved.leak
detection, and tank upgrading), thus
reducing .the likelihood of releases.
   As reported above, meeting insurers'
eligibility criteria is estimated to save
$2.49 billion in corrective action costs
over 30 years. Over the long term, the
imposition of the financial-responsibility
requirements also reduces the economic
disruptions caused by the bankruptcy of
firms unable to meet'the costs of
performing corrective action or
satisfying third-party liability awards.
After 15 years, the number of surviving
outlets, is 14 percentage points higher if
financial responsibility requirements are
imposed..             .   '••.
   The RIA also estimates the
quantitative benefits  of the 'financial
responsibility rule. It.provideS'3
 comparison Of the value .of unfunded
financial responsibility obligations that
would occur if'the; technical standards
 alone were implemented, to> the value of
 unfunded financial responsibility
 obligations if all businesses in'the retail
 motor fuel marketing sector meet
 financial .responsibility requirements
 using -insurance or the financial test. In
 making this comparison, the RIA finds
 that the promulgation of the financial
 responsibility, in addition to the
 technical, standards saves $391 million,
 or $494 per UST, over a 30-year period.

 B. Regulatory Flexibility Act
   Pursuant to the Regulatory Flexibility
 Act (5 U.S.C. 601, etseq.], whenever an
 agency is required to publish-a general-
 notice of rulemaking  forany'proposed.or
 final rule, it must prepare and make
 available for public 'Commenta
 regulatory^ flexibility analysis that
 describes the impact ftflhe rule on small

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43370   Federal Register ./Vol. m .No.  207. / -Wednesday, October 26t 1688 / Rules arid 'Regulations
 entities :(iand
 recordkeeping burden on the public tot
 this Collection is estimated at 65,707
 hours for the 265,534 respondents, with
 an average of 0.1 hours per response.
 These'burden estimates include all
 aspects of the collection effort and may
 include time for reviewing instructions,
 searching existing data' sources,
 gathering and maintaining the data
 needed, completing and reviewing 'the
 collection of information, etc.
   If you wish to submit .comments
 regarding anyiaspect of this collection .of
 information,, including suggestions for
 reducing the burden, or if you would like
•a .copy of the. information .collection
 request (please reference ICR #3.359),
 contact Rick Westland, Information
 Policy Branch, PM-223, U.S.,
 Environmental Protection Agency, 401 M
 St., SW,, Washington, DC 20460 {20^
 382-2745); and Marcus Peacock, Office
 of Management and .Budget,
 Washington, DC 20503.

 List of Subjects hi 40 CER Parts 280 and
 281

   Administrative practice and
 procedure, Environmental protection,
 Hazardous materials insurance, Oil
•pollution, Penalties, Petroleum,
 Reporting and recordkeeping
 requirements. State program approval,  ,
 Surety bonds. Underground .Storage
 tanks, Water, pollution- control.
 Lee M.Thomas,
Administrator.
  .Dated: October 14, 1988.
   For ihe reasons set out in ihe
 preamble, Parts 280 and 281 of Title 40
 of. the Code of Federal Regulations are.
 amended ss- follows:

PART 260— TECHNICAL STANDARDS
 AND CORRECTIVE ACTION
 REQUIREMENTS FOR OWNERS AND
 OPERATORS OF UNDERGROUND
STORAGE TANKS

   1. The authority citation for Part 280
 continues to read as follows:
, and
6991{b), 699>l'(lO,
6991(h);       .

  2. Appendicest"throug"hlII'fo'llowing
Sub'part ifi 'are designated as,AppendiGes
                                          3. 40CFR3PaErt 280 JB amended to add
        Subpart H-—Financial Responsibility

        Sec.          :  -  • .
        280,96  Applicability.
        280;91  Compliance dates,   "
        280.92  Definition of terms.
        280.93  Amenint and scope of required
           ' financial responsibility.
        280.94  Allowable mechanisms and
           combinations .of'mechanisms.
        280.95  Financial test of self-insurariee.
        280.96  Guarantee.
        280.97  Insurance and risk retention, group
           coverage.    :
        280.98  Surety jbond.
        280.99  Letter of credit.
        280.100 .Use of state-required mechanism.
        280.101 State fund or other state assurance.
        280.102 Trust fund.
        280:103 Standby trust fund.
        280.104 Substitution of financial-assurance
           "mechanisms 'by owneror'operatdr.
        .280.105 Cancellation omonrenewarby-a
           provider of financial  assurance.
        280.106 Reporting by-ownerror operator.
        280.107 Recordkeeping.
        280.108 Drawing on financial assurance'
           mechanisms.
        •280,109 . Releasifjrpm,the requirements.
        280.110 Bankruptcy or other incapacity of
           owner or operator or jjrpyider-of
           financial assurance.       '
        280.111 . Replenishment of guarantees, .letters
           of credit, or [surety bonds.
        280.112 Susperision of enforcement.
           [Reserved] |
 Subpart H—Financial Responsibility

 §280.90  Applicability.
  fa') This sabpart applies -to -owners and
 operators of allpetroleum underground
 storage tank (IJST) systems 'exceptais
 otherwise;provided in this section.
  fb)'Owners and operators 6f
 petroleum UST systems: are'subjeet td;
 these^requh-emeets if they are in     '
 operation on or after the date for
 compliance established in ? 280i91.
  {c) State and Federal .government
 entities whoseidebts  and liabilities aie
 the debts and liabilities of a .state or the
 United States are exempt from the
 requirements of this subpart.
  (d) The Tequirements of this subpart
 do not apply to' owners -and operators of
 any UST system described .in § 28O10
 (b)orfQ).     .
  fe) If the owner -and operator of a
 petroleum underground istOEage.tank ane
 separate'persops, only one;persoais
 required to demonstratte-'financial1
 responsibittty;;however, bath parties aie
Jiable in Bvent |of .noncompkance. -   .
 Regardless ^f-w*ich iparty complied"*be
 date set for compliance at a particular
  The ;mf cnroaftian coltection

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         FederalRegister / Vol. ^ No; 207  / Wednesday.  October 26. 1988 /Rules .and RiBgaiQtions   43371
§280.91  Compliance dates.
  Owners of petroleum underground
storage tanks are required to comply
with the requirements of this subpart by
the following dates:
  (a) All petroleum marketing firms
owning 1,000 or more USTs and all other
UST owners that report a tangible net
worth of $20 million or more to the U.S.
Securities and Exchange Commission
(SEC), Dun and Bradstreet, the Energy
Information Administration, or the Rural
Electrification Administration; January
24,1989.
  (b) All petroleum marketing firms
owning 100-999 USTs; October 26,1989.
  (c) All petroleum marketing firms
owning 13-99 USTs at more than one
facility; April 26,1990.
  (d) All petroleum UST owners not
described in paragraphs (a), (b), or (c) of
this section, including all local .
government entities; October 28,1990.

§ 280.92  Definition of terms.
  When used in this subpart, the
following terms shall have the meanings
given below:
  (a) "Accidental release" means any
sudden or nonsudden release of
petroleum from 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.
  (b) "Bodily injury" shall have the
meaning given to this term by applicable
state law; however, this term shall not
include those liabilities which,
consistent with standard insurance
industry  practices, are excluded from
coverage in liability insurance policies
for bodily injury.
 . (c) "Controlling interest" means direct
ownership of at least 50 percent of the
voting stock of another entity.
1  (d) "Director of the Implementing
Agency" means the EPA Regional
Administrator, or, in the case of a state
with a program approved under section
9004, the Director of the designated state
or local agency responsible for carrying
out an approved UST program.
  (e) "Financial reporting year" means
the latest consecutive twelve-month
period for which any of the  following
reports used to support a financial test
is prepared:
  (1) a 10-K report submitted to the
SEC;
  (2) an annual report of tangible net
worth submitted to Dun and Bradstreet;
or
  (3) annual reports submitted to the
Energy Information Administration or
the Rural Electrification Administration.
"Financial reporting year" may thus
comprise a fiscal or a calendar year
period.
  (f) "Legal defense cost" is any
expense that an owner or operator or
provider of financial assurance incurs in
defending against claims or actions
brought,
  (1) By EPA or a state to require
corrective action or to recover the costs
of corrective action;
  (2) By or on behalf of a third party for
bodily injury or property damage caused
by an accidental release; or
  (3) By any person to enforce the terms
of a financial assurance mechanism.
  (g) "Occurrence" means an accident,
including continuous or repeated
exposure to conditions, which results in
a release from an underground storage
tank.
  Note: This definition is intended to assist in
the understanding of these regulations and is
not intended either to limit the meaning of
"occurrence" in a way that conflicts with
standard insurance usage or to prevent the
use of othet standard insurance terms in
place of "occurrence."
  (h) "Owner or operator," when the
owner or operator are separate parties,
refers to the party that is obtaining or
has obtained financial assurances.
  (i) "Petroleum marketing facilities"
include 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.
  (j) "Petroleum marketing firms" 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. .
  (k) "Property damage" shall have the
meaning given this term by applicable
state law. This term shall not include
those liabilities which, consistent with
standard insurance industry practices,
are excluded from coverage in liability
insurance policies for property damage.
However, such exclusions for property
damage shall not include corrective
action associated with releases from
tanks which are covered by the policy.
  (1) "Provider of financial assurance"
means an entity that provides financial
assurance to an owner or operator of an
underground storage tank through one of
the mechanisms listed in §§ 280.95-
280.103, including a guarantor, insurer,
risk retention group, surety, issuer of a
letter of credit, issuer of a state-required
mechanism,  or a state.
  (m) "Substantial business
relationship" means the extent of a
business relationship necessary under
applicable state law to make a
guarantee contract issued incident to
that relationship valid and enforceable.
A guarantee contract is issued "incident
to that relationship" if it arises from and
depends on existing economic
transactions between the guarantor and
the owner or operator.
  (n) "Tangible net worth" means the
tangible assets that remain after
deducting liabilities; such assets do not
include intangibles such as goodwill and
rights to patents or royalties. For
purposes of this definition, "assets"
means all existing and all probable
future economic benefits obtained or
controlled by a particular entity as a
result of past transactions.

§ 280.93  Amount and scope of required
financial responsibility.
  (a) Owners or operators of petroleum
underground storage tanks must
demonstrate financial responsibility for
taking corrective action and for
compensating third parties for bodily
injury and property damage caused by
accidental releases arising from the
operation of petroleum underground
storage tanks in at least  the following
per-occurrence amounts:
  (1) For owners Or operators of
petroleum underground storage tanks
that are located at petroleum marketing
facilities, or that handle  an average of
more than 10,000 gallons of petroleum
per month based on annual throughput
for the previous calendar year; $1
million.
  (2) For all other owners or operators
of petroleum underground storage tanks;
$500,000.
  (b) Owners or operators of petroleum
underground storage tanks must
demonstrate financial responsibility for
taking corrective action and for
compensating third parties for bodily
injury and property damage caused-by
accidental releases arising from'the
operation of petroleum underground
storage tanks in at least  the following
annual aggregate amounts:
  (1) For owners or operators of 1 to 100
petroleum underground storage tanks, $1
million; and
  (2) For owners or operators of 101 or
more petroleum underground storage
tanks, $2 million.
  (c) For the purposes of paragraphs (b)
and (f) of this section, only, "a
petroleum underground storage tank"
means a single containment unit and
does not mean combinations of single
containment units.
  (d) Except as provided in paragraph
(e) of this section, if the owner or
operator uses separate mechanisms or
separate combinations of mechanisms to
demonstrate financial responsibility for:

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43372   Fqderal Register !/ Val «SS, No; 297 / Wedaesctey, October 28, 1988, j/ iRifles autt-JLegulatidns
   (1) Taking corrective action;
   (2] Compensating third parties for
 bodily injury and .property-damage
 caused by sudden accidental releases;
 or
   (3) Compensating third parties for
 bodily injury and property damage
 caused by nonsudden accidental
 releases, the amount of assurance
 provided by each mechanism or
 combination of mechanisms must "be,in
 the full amount specified in paragraphs
 (a) and (b) ,of this section.
   (e) If an owner or operator uses
 separate mechanisms or separate
 combinations of mechanisms to
 demonstrate financial responsibility for
 different petroleum underground storage
 tanks, the annual aggregate required
 shall be based on the number of tanks
 covered by each such separate
 mechanism or combination of
 mechanisms.
   (f) Owners or operators shall review
 the amount of aggregate assurance
 provided whenever additional
 petroleum underground storage tanks
 are acquired or installed. If the number
 of petroleum underground storage tanks
 for which assurance must be provided
 exceeds 100, the owner or operator shall
 demonstrate financial responsibility in
 the amount of at least $2 million of
 annual aggregate assurance by the
 anniversary of the date on which the
 mechanism demonstrating financial
 responsibility became effective. If
 assurance is being demonstrated by a
 combination of mechanisms, the owner
 or operator shall demonstrate financial
 responsibility in the amount of at least
 $2 million of annual aggregate assurance
 by the first-occurring effective date
 anniversary of any one of the
 mechanisms combined (other than a
 financial test or guarantee) to provide
 assurance.
   (g) The amounts of assurance required
 under this section exclude legal defense
 costs.
   (h) The required per-occurrence and
 annual aggregate coverage amounts do
 not in any way limit the liability of the
 owner or operator.

 § 280.94 Allowable mechanisms and
 combinations of mechanisms.
   (a) Subject to the limitations of
paragraphs (b) and (c) of this section, an
owner or operator may use any one or
 combination of the mechanisms listed in
 §§ 280.95 through 280.103 to demonstrate
financial responsibility under this
subpart for one or more underground
storage tanks.
  (b) An owner or operatormay use a
guarantee or surety bond to establish
financial responsibility-only if the
Attorney (s) General of thestate(a) in
 which the underground storage tanks
 are 'located has -(have) submitted^
 written statement to the implementing
 agency that a guarantee or isurety bond
 executedas described in this section is
 a legally valid and enforceable
 obligation in that state.
   [c) An owner or operator may use
 self-insurance in combination with a
 guarantee only if, for the purpose of
 meeting the requirements of the
 financial test under this rule, the
 financial statements of the owner or
 operator are not-consolidated with the
 financial statements of the guarantor.

 § 280.95  Financial test of self-insurance.
   (a) An owner or operator,'and/or
 guarantor, may satisfy the requirements
 of § 280.93 by passing a financial testas
 specified in this section. To pass the
 financial test of self-insurance, the
 owner or operator, and/or guarantor
 must meet the Icriteria of paragraph (b)
 or (c) of this section based on year-end
 financial statements for the latest
 completed fiscal year.
  (b)(l) The owner or operator, and/or
 guarantor, must have a tangible net
 worth of at least ten'times:
  (i) The total of the applicable
 aggregate amount required by § 280.93,
 based on the number of underground
 storage tanks for which a financial test
 is used to demonstrate financial
 responsibility to EPA .under this section
 or to a state implementing agency under
 a state program approved by EPA under
 40 CFR Part 281;
  (ii) The sum of the corrective action
 cost estimates, the current closure and
 post-closure care cost estimatss, and
 amount of liability coverage for which a
 financial test is used to demonstrate
 financial responsibility to EPA under 40
 CFR 264.101, 264.143, 264.145, 265.143,
 165.145, 264.147, and 265.147 or to a state
 implementing agency under a state
 program authorized by EPA under 40
 CFR Part 271; and
  (iii) The sum of current plugging and
 abandonment cost estimates for which a
 financial test is used to demonstrate
 financial responsibility to EPA under 40
 CFR 144.63 or to a state implementing
 agency under a state program
 authorized by EPA under 40 CFR Part
 145.
  (2) The owner or-operator, and/or
 guarantor, must have a tangible.net
 worth of at least $10 million.
  :(3) The owner or operator, and/or
guarantor, must have a letter signed by
 the chief financial officer worded as
 specified in paragraph >(d) of this
section.
  (4) The owner or operator, and/or
guarantor, must either:
   (i) File financial statements annually
 with the UiS. Securities and Exchange
 Commission, thp Energy Information
 .Administeation,] or the Rural
 Electrification Administration; or
   (ii) Report annually the firm's tangible
 net worth to Dun and Bradstreet, and
 Dun .and Bradstreet must have assigned
 the firm a financial strength-rating of 4A
 orSA.         i
   (5) The firm'siyear-end financial
 statements, if independently audited,
 .cannot include an adverse auditor's
 opinion, a disclaimer of opinion,'or a
 "going concern'! qualification.
   (c)(l) The owner or operator, and/or
 guarantor must meet the financial test
 requirements of 40 CFR 264.147(f)(l),
 substituting the;appropriate amounts
 specified in § 280.93 (b)(l) and (b)(2) for
 the "amount of liability coverage" each
 time specified in that section.
   (2) The fiscariyear-end financial
 statements of the owner or  operator,
 and/or guarantor, must be examined by
 an independent! certified public
 accountant andjbe accompanied by the
 •accountant's report of the examination.
   (3) The firm's jyear-end financial
 statements cannot include an adverse
 auditor's opinion, a disclaimer of
 opinion, or-a "g^ing concern"
 qualification.   ;
   (4) The owner, or operator, and/or
 guarantor, mustihaye a letter signed by
 the chief financial officer, worded as
 specified in paragraph (d) of this
 section.       ;
   (5) If the financial statements of the
 owner or operator, and/or guarantor,
 are not submitted annually  to the U.S.
 Securities and Exchange Commission,
 the Energy Infoijmation Administration
 or the Rural Electrification
 Administration,;the owner or operator,
 and/or guarantor, must obtain a special
 report by an independent certified
 public accountant stating that:
   (i) He has compared the data that the
 letter form the chief financial officer
.specifies as having been derived from
 the latest year-end financial statements
 of the owner or bperator, and/or
 guarantor, with jthe amounts in such
 financial statements; and
   (ii) In connection with that
 comparison, no matters came to his
 attention which caused him to believe
 that the specified data should be
 adjusted.      I
   (d) To demonstrate that it meets the
 financial test unpler paragraph (b) or (c)
 of this section, the chief financial officer
 of the owner or operator, or guarantor,
 must sign, within 120 days of the close
 of each financial reporting year, as
 defined by the twelve-month period for
 which financial statements used to

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          Federal  Register / VoL S3, No.  207  /  Wednesday, October 26, 1988  / Rules and Regulations   43373
support the financial test are prepared, a
letter worded exactly as follows, except
that the instructions in brackets are to
be replaced by the relevant information
and the brackets deleted:

Letter from Chief Financial Officer
   I am the chief financial officer of [insert;
name and address of the owner or operator,
or guarantor}. This letter is hi support of the
use of [insert: "the financial test of self-
insurance," and/or "guarantee"] to
demonstrate financial responsibility for
[insert: "taking corrective action" and/or
"compensating third parties for bodily injury
and property damage"] caused by [insert
"suddent accidental releases" and/or
"nonsudden accidental releases"] in the
amount of at least [insert: dollar amount] per
occurrence and [insert: dollar amount] annual
aggregate arising from operating (an]
underground storage tank(s).
   Underground storage tanks at the following
facilities are assured by this  financial test or
a financial test under an authorized State
program by this  [insert: "owner or operator,"
and/or "guarantor"]: [List for each facility:
the name and address of the facility where
tanks assured by this financial test are
located, and whether.tanks are assured by
this financial test or a financial test under a
State program approved under 40 CFR Part
281. If separate mechanisms  or combinations
of mechanisms are being used to assure any
of the tanks at this facility, list each tank
assured by this financial test or a financial
test under a State program authorized under
40 CFR Part 281  by the tank identification
number provided in the notification
submitted pursuant to 40 CFR 280.22 or the
 corresponding State requirements.]
   A [insert: "financial test,"  and/or
 "guarantee"] is also used by this [insert:
 "owner or operator," or "guarantor"] to
 demonstrate evidence of financial
 responsibility in the following amounts under
 other EPA regulations or state programs
 authorized by EPA under 40 CFR Parts 271
 and 145:

         EPA Regulations           Amount

 Closure (§§ 264.143 and 265.143)-	
 Post-Closure  Care (§§264.145  and
   265.145)	
 Liability Coverage (§§ 264.147 and
   265.147)..			
 Corrective Action (§§ 284.101(bH ....J
 Plugging     and    Abandonment
   (§144.63)	....
 Closure	
 Post-Closure  Care	—...
 Liability -Coverage	
 Corrective Action	
 Plugging and Abandonment™,	
     Total	—.	
   This [insert: "owner or operator," or
  "guarantor"] has not received aa adverse
  opinion, a disclaimer of opinion, or a 'Agoing
  concern", qualification frara.an independent
  auditor,on his financial .statements for the
  latest completed fiscal year.
   [Fill in the information forAJtemaUve I if
  the criteria =of paragraph!(b}-irf.§ 28O8S are
being used to demonstrate compliance with
the financial test requirements. Fill in the
information for Alternative II if the criteria of
paragraph (c) of § 280.95 are being used to
demonstrate compliance with the financial
test requirements.]
               Alternative 1

 1.  Amount of annual UST aggre-
      gate coverage bejng  assured
      by  a financial test, and/or
      guarantee	
 2.  Amount  of corrective  action,
      closure   and  post-closure
      care costs, liability coverage,
      and plugging  and abandon-
      ment costs covered  by a fi-
      nancial test,  and/or guaran-
      tee		
 3.  Sum of lines 1 and 2...
 4.  Total tangible assets
 5.  Total liabilities [if  any of the
      amount reported on  line 3 is
      included in  total  liabilities,
      you may deduct that amount
      from this, line and add  that
      amount to line 6]	
    Tangible  net  worth  [subtract
      line 5 from line 4]
                                                    Alternative I—Continued

                                           7.  Total  assets  in  the  U.S.  [re-
                                                 quired  only if less than 90 '
                                                 percent of assets are located
                                                 in the U.S.]		.$_	
                                                                             Yes No
                                           8.  Is line 6 at least $10 million?.,..i$—_ —
                                           9.  Is line 6 at least 6 times line 3? —_  —
                                           10.  Are  at  least 90  percent of
                                                 assets located in the U.S.? [If
                                                 "No," complete line 11.].;		  —
                                           11.  Is line 7 at least 6 times line 3?	—
                                             [Fill in either lines 12-15 or lines 16-18:]
                                           12.  Current assets	.'.	.....$	
                                           13.  Current liabilities..
                                           14.  Net working capital  [subtract
                                                 line 13 from line 12]	
6.
 10.
 11.
 12.
  1.
  8.
                                  Yes
   Is line 6 at least $10 million?	_
   Is line 6 at least 10 times line
      3?	-
   Have  financial  statements for
      the  latest fiscal year  been
      filed with the Securities and
      Exchange Commission?	_
   Have  financial  statements for
      the  latest fiscal year  been
      filed with the Energy Infor-
      mation Administration?	..._
   Have  financial  statements for
      the  lastest  fiscal year been
      filed with the Rural Electrifi-
      cation Administration?	_
   Has financial information been
      provided to Dun and Brad-
      street,  and  has Dun  and
      Bradstreet-provided a finan-
      cial strength rating of 4A or
      5A? [Answer  "Yes"  only  if
      both criteria have been met.] .._
               Alternative II
    Amount of annual UST aggre-
      gate coverage being assured
      by a test, and/or guarantee—
    Amount of corrective action,
      closure   and   post-closure
      care costs, liability coverage,
      and plugging  and abandon-
      ment costs covered by a fi-
      nancial  test,  and/or guaran-
      tee	...„,.....„„......„„	»..-.$_
    Sum of lines 1 and 2..~		~$-
    Total tangible assets		.-.$_
    Total liabilities {if any of the
      amount .reported on line 3 is
      included in  total  liabilities,
      you may deduct that amount
      from this line and add that
      'amount to line 6]	.'	
    Tangible net worth [subtract
      line -5 bom line 4} _
                                                                            Yes  No
    Is line 14 at least 6 times line
      3?	
16.  Current  bond  rating  of  most.
      recent bond issue	
17.  Name of rating service	
18.  Date of maturity of bond....	
19.  Have financial  statements  for
      the latest fiscal year  been
      filed  with  the  SEC,   the
      Energy Information Adminis-
      tration, or the Rural Electrifi-
      cation Administration?		
,  [If "No," please attach a report from an
independent certified public accountant
certifying that there are no material
differences between the data as reported in
lines 4-18 above and the financial statements
for the latest fiscal year.]
  [For both Alternative I and Alternative II
complete the certification with this
statement.]
  I hereby certify that the wording of this
letter is identical to the wording specified in
40 CFR Part 280.95(d) as such regulations
were constituted on the date shown
immediately below,

  [Signature]
  [Name]
  [Title]
  [Date]

   (e) If an owner or operator using the
test to provide financial assurance finds
that he or she no longer meets the  .
requirements of the financial test based
on the year-end financial statements, the
owner or operator must obtain
alternative coverage within 150 days of
the end of the year for which financial
statements have been prepared.
   (f) The Director of die implementing
agency-may require reports of financial
condition at any time from the owner or.
operator, and/or guarantor. If the
Director finds, on the basis of such
reports or other information, that the
owner or operator, and/or guarantor, no
longer meets the financial test
requkeiaents of § ;280.95{b) JOT (cj and
(d), the ;owner or operator.must Jobtain-

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 43374.  Federal Register  /Vol.  53,  No.. 207, / Wednesday,  October  26,  1988  / Rides and Regulations
 alternate coverage within 30 days after
 notification of such a finding.
    (g) If the owner or operator fails to
 obtain alternate assurance within 150
 days of finding that he or she no longer
 meets the requirements of the financial
 test based on the year-end financial
 statements, or within 30 days of
 notification by the Director of the
 implementing agency that he or she no
 longer meets the requirements of the
 financial test, the owner or operator
 must notify the Director of such failure
 within 10 days.

 §280.96  Guarantee.
    (a) An owner or operator may satisfy
 the requirements of § 280.93 by
 obtaining a guarantee that conforms to
 the requirements of this section. The
 guarantor must be:
    (1) A firm-that (i) possesses a
 controlling interest in the owner or
 operator; (ii) possesses a controlling
 interest in a firm described under
 paragraph (a)(l)(i) of this section; or, (iii)
 is  controlled through stock ownership by
 a common parent firm that possesses a
 controlling interest in the owner or
 operator; or,
   (2) A firm engaged in a substantial
 business relationship with the owner or
 operator and issuing the guarantee as an
 act incident to  that business
 relationship.
   (b) Within 120 days of the close of
 each financial reporting year the
 guarantor must demonstrate that it
 meets the financial test criteria of
 § 280.95 based on year-end financial
 statements for the latest completed
 financial reporting year by completing
 the letter from the chief financial officer
 described in § 280.95(d) and must deliver
 the letter to the owner or operator. If the
 guarantor fails  to meet the requirements
 of the financial test at the end of any
 financial reporting year, within 120 days
 of the end of that financial reporting
 year the guarantor shall send by
 certified mail, before cancellation or
 nonrenewal of the guarantee, notice to
 the owner or operator. If the Director of
 the implementing agency notifies the
 guarantor that he no longer meets the
 requirements of the financial test of
 § 280.95 (b) or (c) and (d), the guarantor
 must notify the owner or operator within
 10 days of receiving such notification
 from the Director. In both cases, the
 guarantee will terminate no less than
 120 days after the date the owner or
 operator receives the notification, as
 evidenced by the return receipt. The
 owner or operator must obtain
 alternative coverage as specified in
 § 280.110{c).
  (c) The guarantee must be worded as
follows, except that instructions in
 brackets are to be replaced with the
 relevant information and the brackets
 deleted:

 Guarantee
   Guarantee made this [date] by [name of
 guaranteeing entity], a business entity
 organized under the laws of the state of
 [name of state], herein referred to as
 guarantor, to [the state implementing agency]
 and to any and all third parties, and obligees,
 on behalf of [owner or operator] of [business
 address].

 Recitals.
   (i) Guarantor meets or exceeds the
 financial test criteria of 40 CFR 280.95 (b) or
 (c) and (d) and agrees to comply with the
 requirements for guarantors as specified in 40
 CFR 280.96(b).
   (2) [Owner or operator] owns or operates
 the following underground storage tank(s)
 covered by this guarantee: [List the number
 of tanks at each facility and the name(s) and
 address(es) of the facility(ies) where the
 tanks are located. If more than one
 instrument is used to assure different tanks at
 any one facility, for each tank covered by this
 instrument, list the tank identification
 number provided in the notification
 submitted pursuant to 40 CFR 280.22 or the
 corresponding state requirement, and the
 name and address of the facility.] This
 guarantee satisfies 40 CFR Part 280, Subpart
 H requirements for assuring funding for
 [insert: "taking corrective action" and/or
 "compensating third parties for bodily injury
 and property damage caused by" either
 "sudden accidental releases" or "nonsudden
 accidental releases" or "accidental releases";
 if coverage is different for different tanks or
 locations, indicate the type of coverage
 applicable to each tank or location] arising
 from operating the above-identified
 underground storage tank(s) in the amount of
 [insert dollar amount] per occurrence and
 [insert dollar amount] annual aggregate.
  (3) [Insert appropriate phrase: "On behalf
 of our subsidiary" (if guarantor is corporate
 parent of the owner or operator); "On behalf
 of our affiliate" (if guarantor is a related firm
 of the owner or operator); or "Incident to our
 business relationship with" (if guarantor is
 providing the guarantee as an incident to a
 substantial business relationship with owner
 or operator)] [owner or operator], guarantor
 guarantees to [implementing agency] and to
 any and all third parties that:
  In the event that [owner or operator] fails
 to provide alternative coverage within 60
 days,after receipt of a notice of cancellation
 of this guarantee and  the [Director of the
 implementing agency] has determined or
 suspects that a release has occurred at an
 underground storage tank covered by this.
 guarantee, the guarantor, upon instructions
 from the  [Director], shall fund a standby trust
 fund in. accordance with the provisions of 40
•CFR 280.108, in an amount not to exceed the
 coverage limits specified above.
  In the event that the [Director] determines
 that [owner or operator] has failed to perform
 corrective action for releases arising out of
 the .operation of the above-identified tank(s]
 in accordance with 40 CFR Part 280, Subpart
 F, the-guarantor upon written-instructions
  from the [Director] shall fund a standby trust
  in accordance with the provisions of 40 CFR
  280.108, in an amount not to exceed the
  coverage limits specified above.
   If [owner or operator] fails to satisfy a
  judgment or.award based on a determination
  of liability for bodily injury or property
  damage to third parties caused by ["sudden"
  and/or "nonsudden"] accidental releases
  arising from the operation of the above-
  identified tank(s),1 or fails to pay an amount
  agreed to in settlement of a claim arising
  from or alleged to arise from such injury or
  damage, the guarantor, upon written
  instructions from the [Director], shall fund a
  standby trust in accordance with the
  provisions of 40 CFR 280.108 to satisfy such
  judgment(s), award(s), or settlement
  agreement(s) up to the limits of coverage
  specified above.  [
   (4) Guarantor agrees that if, at the end of
  any fiscal year before cancellation of this
  guarantee, the guarantor fails to meet the
  financial test criteria of 40 CFR 280.95 (b) or
  (c) and (d), guarantor shall send within 120
  days of such failure, by certified mail, notice
  to [owner or operator]. The guarantee will
  terminate 120 days from the date of receipt of
  the notice by [owner or operator], as
  evidenced by the return receipt.
   (5) Guarantor agrees to notify [owner or
  operator] by certified mail of a voluntary or
  involuntary proceeding under Title 11
.  (Bankruptcy), U.S.! Code naming guarantor as
  debtor, within 10 days after commencement
  of the proceeding, j
   (6) Guarantor agrees to remain bound
  under this guarantee notwithstanding any
  modification or alteration of any obligation of
  [owner or operator] pursuant to 40 CFR Part
  280.
   (7) Guarantor agrees to remain bound
  under this guarantee for so long as [owner or
  operator] must comply with the applicable
  financial responsibility requirements of 40
  CFR Part 280, Subpart H for the above-
  identified tank(s), except that guarantor may
  cancel this guarantee by sending notice by
  certified mail to [owner or operator], such
  cancellation to become effective no earlier
  than 120 days after receipt of such notice by
  [owner or operator], as evidenced by the
 return receipt.    '
   (8) The guarantor's obligation does not
 apply to any of th^ following:
   (a) Any obligation of [insert owner or
 operator] under a Corkers' compensation,
 disability benefits; or unemployment
 compensation lawjor other similar law;
   (b) Bodily injury! to an employee of [insert
 owner or operator] arising from, and in the
 course  of, employment by [insert owner or
 operator];       j
   (c) Bodily injury [or property damage arising
 from the ownership, maintenance, use, or
 entrustment to others of any aircraft, motor
 vehicle, or watercraft;
   (d) Property damage to any property
 owned, rented, loaded to, in the care,
 custody, or control1 of, or occupied by [insert
 owner or operator]! that is not the direct result
 of a  release from a petroleum underground
 storage tank;     !
   (e) Bodily damage or property damage for
 which [insert owner or operator] is obligated

-------
          .Federal RegUteg j/ ypL $3.  Ne. 207 ./- Wednesday, ©dtobet 26, 1988 /  Rifles: ahd Regulatfans   43375
to ,pa.y damages by reason of the assumption
of liability in a contract or agreement other -
than a contract or agreement entered into to
meet the requirement? of .40, CER 280.83.   ,
  (9) Guarantor expressly waives jieljice of
acceptance of this guarantee by [the-   ....
'impleirhjsnting agency], by any or all Ihirji  .
parties, or1 by [owner or operator],   :..  ' •
•  Thereby certify that the wording of this
guarantee is identical to the wording"
specified in 40"CFR 280.96(c)  as such
regulation's were constituted  on the effective
date shown immediately below.
Effective date: ——	<	
 [Name of guarantor]
 [Authorized signature for guarantor]
 [Name of person signing]
 [Title of person signing]
 Signature of witness or notary;

   (d) An owner or operator who uses a
 guarantee to satisfy, the requirements »f
 § 280.93 must establish a standby trust
 fund when the guarantee is obtained.
 Under the terms of the guarantee, all
 amounts paid by the guarantor .under the
 guarantee will be deposited directly into
; the standby trust fund hi accordance
 with instructions from the Director of
 the implementing agency under
 § 280.108. This standby  trust fund must
 me'et the requirements specifte
-------
43376   Federal Register /  Vol. 53,  No.  207  /Wednesday, October  26i  1988 / Rules  and Regulations
Indicate the amount of coverage for each type
of coverage and/or for each underground
storage tank or location], exclusive of legal
defense costs. This coverage is provided
under [policy number]. The effective date of
said'policy Is [date].
  2. The ["Insurer" or "Group"] further
certifies the following with respect to the
insurance described in Paragraph 1:
  a. Bankruptcy or insolvency of the insured
shall not relieve the ["Insurer1* or "Group"] of
its obligations under the policy to which this
certificate applies.
  b. The ["Insurer" or "Group"] is liable for
the payment of amounts within any
deductible applicable to the policy to the
provider of corrective action or a damaged
third-party, with a right of reimbursement by
the insured for any such payment made by
the ("Insurer" or "Group"]. This provision
does not apply with respect to that amount of
any deductible for which coverage is
demonstrated under another mechanism or
combination of mechanisms as specified in 40
CFR 280.95-280.102.
  c. Whenever requested by [a Director of an
implementing agency], the ["Insurer" or
"Group"] agrees to furnish to [the Director] a
signed duplicate original of the policy and all
endorsements.
  d. Cancellation  or any other termination of
the insurance by the ["Insurer" or "Group"]
will be effective only upon written notice and
only after the expiration of 60 days after a
copy of such written notice is received by the
insured.
  [Insert for claims-made policies:
  e. The insurance covers claims for any
occurrence that commenced during the term
of the policy that is discovered and reported
to the ["Insurer" or "Group"] within six
months of the effective date of the
cancellation or other termination of the
policy.]
  I hereby certify that the wording of this
instrument is identical to the wording in 40
CFR 280.97(b)(2] and that the ["Insurer" or
"Group"] is ["licensed to transact the
business of insurance, or eligible to provide
insurance as  an excess or surplus lines
insurer, in one or more states"].
[Signature of authorized representative of
  Insurer]
[Type name]
[Title], Authorized Representative of [name
  of Insurer or Risk Retention Group]
[Address of Representative]

  (c) Each insurance policy must be
issued by an insurer or a risk retention
group that, at a minimum, is licensed to
transact the business of insurance or
eligible to provide insurance as an
excess or surplus lines insurer in one  or
more states.

§ 280.98 Surety bond.
  (a) An owner or operator may satisfy
the requirements of § 280.93 by
obtaining a surety bond that conforms to
the requirements of this section. The
surety company issuing the bond must
be among those listed as, acceptable
sureties on federal bonds in the latest
Circular 570 of the U.S. Department of
the Treasury.-
  (b) The surety bond must be worded
as follows, except that instructions in
brackets must be replaced with the
relevant information and the brackets
deleted:
Performance Bond  ,
Date bond executed: 	:	
Period of coverage: -
Principal: [legal name and business address
of owner or operator]

Type of organization: [insert "individual,"
"joint ve'nture," "partnership," or
"corporation"]

State of incorporation (if applicable):

Surety[ies): [name(s) and business
address(es)]

Scope of Coverage: [List the number of tanks
at each facility and the name(s) and
address(es) of the facility(ies) where the
tanks are located. If more than one
instrument is used to assure different tanks at
any one facility, for each tank covered by this
instrument, list the tank identification
number provided in the notification
submitted pursuant to 40 CFR 280.22, or the
corresponding state requirement, and the
name and address of the facility. List the
coverage guaranteed by the bond: "taking
corrective action" and/or "compensating
third parties for bodily injury and property
damage caused by" either "sudden accidental
releases" or "nonsudden accidental releases"
or "accidental releases" "arising from
operating the underground storage tank"].
Penal sums of bond:
Per occurrence $	
Annual aggregate $	—	
Surety's bond number:  	—-.	
  Know All Persons by These Presents, that
we, the Principaland Surety(ies), hereto are
firmly bound to [the implementing agency], in
the above penal sums for the payment of
which we bind ourselves, our heirs,
executors, administrators, successors, and
assigns jointly and severally; provided that,
where the Surety(ies) are corporations acting
as co-sureties, we, the Sureties, bind
ourselves in such sums jointly and severally
only for the purpose of allowing a joint action
or actions against any or all of us, and for all
other purposes each Surety binds itself,
jointly and severally with the Principal, for
the payment of such sums only as is set forth
opposite the name of such Surety, but if no
limit of liability is indicated, the limit of
liability shall be-the full amount of the penal
sums.
  Whereas said Principal is required under
Subtitle I of the Resource Conservation and
Recovery Act (RCRA), as amended, to
provide financial assurance for [insert:
"taking corrective action" and/or
"compensating third parties for bodily injury
and property damage caused by" either
"sudden accidental releases" or "nonsudden
accidental releases" or "accidental releases";
if coverage is different for different tanks or
locations,  indicate the type of coverage
applicable to each tank, or location] arising
 from operating the underground storage tanks
 identified above, and
   Whereas said Principal shall establish a
 standby trust fund as is' Tequired when a   '.
 surety bond is used to provide such financial
 assurance;     j                   '   .
   Now, therefore, the conditions of the
 obligation are such that if the Principal shall
 faithfully ["takei corrective action, in
 accordance with 40 CFR Part 280, Subpart F
 and the Director of the state implementing
 agency's instructions for," and/or
 "compensate injured third parties for bodily
 injury and property damage caused by"
 either "sudden"ior "nonsudden" or "sudden
 and nonsudden"] accidental releases arising
 from operating the tank(s) indentified above,
 or if the Principal shall provide alternate  •
 financial assurance,  as specified in 40 CFR
 Part 280, Subpart H,  within  120,days after the
 date the notice pf cancellation is received by
 the Principal from the Surety(ies), then this
 obligation shall jbe null and void;, otherwise it
 is to remain in fjill force arid effect.
   Such obligation does not  apply to any of
 the following:
   (a) Any obligation of [insert owner or
 operator] underj a workers'  compensation,
 disability benefits, or unemployment
' compensation law or other  similar .law;
 • (b) Bodily injury to an employee  of [insert
 owner or Operator] arising from, and in the
 course of, employment by [insert owner or
 operator];     :
   (c) Bodily injury or property damage arising
 from the ownership, maintenance, use, or
 entrustment to others of any aircraft, motor
 vehicle, or watercraft;
   (d) Property damage to any property
 owned, rented, loaned to, in the care,
 custody, or control of, or occupied by [insert
 owner or operator] that is not the direct result
 of a release froip a petroleum underground
 storage tank;   |
   fe) Bodily injury or property damage for
 which [insert owner or operator] is obligated
 to pay damages!by reasqn.of the assumption
 of liability in a contract or agreement other
 than a contract pr agreement entered into to
 meet the requirements of 40 CFR 280.93.
   The Surety(iei3) shall become liable on this
 bond obligation only when the Principal has
 failed to fulfill the conditions described
 above.         !
   Upon notification  by [the Director of the
 implementing agency] that  the Principal has
 failed to ["take corrective action, in
 accordance with 40 CFR Part 280, Subpart F
 and the Director's instructions," and/or
 "compensate injured third parties"] as
 guaranteed by this bond, the'Surety(ies) shall
 either perform [''corrective  action in
 accordance with 40 CFR Part 280 and the
 Director's instnictions," and/or "third-party
 liability compensation"] or place funds in an
 amount up to the annual aggregate penal sum
 into the standby trust fund  as directed by [the
 Regional Admiriistrator or the Director] under
 40 CFR 280.108.1
   Upon notification  by [the Director] that the
 Principal has failed to provide alternate
 financial assurance within 60 days after the
 date the notice of cancellation is received by
 the Principal front the!Surety(ies) and:that
 [the Director] has determined or suspects that

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          FederalRegister.-/ Vol. .53,  No.  207/ Wedriesday. October 2ft 1988 /Rules  and Regulations   43377
a, release has occurred,, the Suretyfjes).shall.
place funds in an amount not exceeding, the
annual aggregate penal sum into the standby
trust fund as directed by'[the Director] under
40 CFR 280.108.
  The Surety(ies) hereby waive(s)
notification of amendments to applicable  •
laws, statutes, rules, and, regulations and
agrees that no such amendment shall in any
way alleviate its (their) obligation on this
bond.                          .
  The liability of the Surety(ies) shall not be
discharged by any payment or succession of
payments hereunder, unless and until such
payment or payments shall amount in the
annual aggregate to the penal sum shown on
the face of the bond, but in no event shall the
obligation of the Surety(ies) hereunder
exceed the amount of said annual aggregate
penal sum.
 . The Surety(ies) may cancel the bond by
sending notice of cancellation by certified
mail to the Principal, provided, however, that
cancellation shall not occur during the 120
days beginning on the date of receipt of the
notice of cancellation by the Principal, as
evidenced by the return receipt
  The Principal may terminate this bond by
sending written notice to the Sureties).
  In Witness Thereof, the Principal and
Surety[ies) have executed this Bond arid have
affixed their seals on the date set forth
above.
  The persons whose signatures appear
below hereby certify that they are authorized
to execute this surety bond on behalf of the
Principal and Surety(ies) and that the
wording of this surety bond is identical to the
wording specified in 40 CFR 280.98[b) as such
regulations were constituted on the date this
bond was executed.

Principal
[Signature(s)]
[Names(s)]
[Title(s)]
[Corporate seal]

Corporate Surety(ies)
[Name and address]
 [State of Incorporation: -	
 [Liability limit: $_	-
 [Signature(s)]
 [Names(s) and title(s)]
 [Corporate seal]
   [For every co-surety, provide signature(s),
 corporate seal, and other information in the.
 same manner as for Surety above.]
Bond premium: $	.	.

   (c) Under the terms of the bond, the
 surety will .become liable on the bond
 obligation when the owner or operator
 fails to perform as guaranteed by the
 bond. In all cases; the surety's liability is
 limited to the pef-occurrence and annual
 aggregate penal sums.  "
   (d) The owner or operator Who uses a
 surety bond to satisfy the requirements
 of § 280.93 must establish a standby
. trust fund when the surety bond is   .
 acquiied. Under the.terms of. the'bond,^
 all ampunts-paid by the swirety.'under the
 bond will be-deposited directly into the
.standby trust fund inaccordance'with
instructions .from the Director, under
§ 280.108. This standby trust fund must
meet the requirements specified in
§280.103,

§ 280.99  Letter of credit
  (a) An owner or operator may satisfy
the requirements of § 280.93 by
obtaining an irrevocable standby letter
of credit that conforms to the
requirements of this section. The issuing
institution must be an entity that has the
authority to issue letters of credit in
each state where us'ed and whose letter-
of-credit operations are regulated and
examined by a federal or state agency.
  (h) The letter of credit must be
worded as follows, except that
instructions in brackets are to be
replaced with the relevant information
and the brackets deleted:

Irrevocable Standby Letter of Credit
[Name and address of issuing institution]
[Name and address of Director(s) of state
  implementing agency(ies)]
  Dear Sir or Madam: We hereby establish
our Irrevocable Standby Letter of Credit No.
	in your favor,  at the request and for the
account of [owner or operator name] of
[address] up to the aggregate amountof [in
words] U.S. dollars ($[insert dollar amount]),
available upon presentation [insert, if more
than one Director of a state implementing .
agency is a beneficiary, "by any one of you"]
of
  (1) your sight draft, bearing reference to
this letter of credit, No. -—r, and
  (2) your signed statement reading as
follows: "I certify that the amount of the draft
is payable persiiant to regulations Issued
under authority of Subtitle I of the-Resource
Conservation and Recovery Act of 1976, as
amended."
  This letter of credit may be drawn on to
cover [insert: "taking corrective action" .and/
or "compensating: third parties for bodily
injury  and property damage caused by"
either "sudden accidental releases" or
"nonsudden accidental releases" or
"accidental releases"] arising from operating
the underground storage tank(s) identified
below in the amount of [in words] $[insert
dollar amount] per occurrence and [in words]
$[msert dollar amount] annual aggregate:
   [List the number of tanks at each facility-
and the.name(s) and address(es) of the
facility(ies) where the tanks are located. If
more than one instrument is used  to assure
different tanks at any one facility, for each
tank covered by this instrument, list the tank
identification number pro.vided in the
notification submitted pursuant to 40 GFR
280.22, or the corresponding state
requirement* arid the name and address of
the facility.]
   The letter of credit may not be drawn on to
cover any of the following:
   (a) Any obligation of [insert owner or
operator] under a workers' compensation,
disability benefits, or unemployment
 compettsatipn-tew or other similar lawi
   (b) Bjodily injury to an employee of [insert
 owner or;operator] arising from; aiiif-in" the:
course of, employment by [insert owner-pr
operator];
  (c) Bodily injury or property damage arising
from the ownership, maintenance, use, or
.entrustment to others of any aircraft, motor.
vehicle, or watercraft;
  (d) Property damage to any property
owned, rented, loaned'to, in the care,
custody, or control of, or occupied by [insert
owner or operator] that is not the direct result
of a release from a petroleum underground-
Storage .tank;
  (e) Bodily injury or property damage for
which [insert'owner or operator] is obligated
to pay damages by reason of the assumption
of liability in a contract or agreement other
than a contract or agreement entered into to
meet the requirements of 40 CFR 280.93.
  This letter of. credit is effective'-as of [date]
arid shall expire on [date], but such
expiration date shall be automatically
extended for a period of [at least the length of
the original term] on [expiration date] and on
each successive expiration date, unless, at
least 120 days before the eurent,expiration
date, we notify [owner or operator] by
certified mail that we .have decided not to
extend this letter of credit beyond the current
expiration date. In the event that [owner or
operator] is so notified, any unused portion of
the credit shall be available upon
presentation of your sight draft for 120 days
after the date of receipt by [owner or
operator], as shown on the signed return
receipt.
   Whenever this letter of credit is drawn on
under and in compliance with the terms of
 this credit, we shall duly honor such draft
 upon presentation to us, and we shall deposit
 the amount.of the draft directly into the
 standby trust fund of [owner or operator] in
 accordance with your instructions.
   We certify that the wording of this letter of
 credit is identical to the wording specified in
 40 CFR 280.99(b) as such regulations were.
 constituted on the date shown immediately
 below.
 [Signaturefs) and title(s) of officials) of
 issuing institution]
 [Date]
   This credit is subject to [insert "the most
 recent edition of the Uniform Customs and
 Practice for Documentary. Credits, published
 by the International Chamber of Commerce,"
 or "the Uniform Commercial Code"].

   (c] An owner or operator who uses a
 letter of credit to satisfy the
 requirements of § 280.93 must also
 establish .a standby trust fund when the
 letter of credit is acquired. Under the
 terms of the letter of credit,  all amounts
 paid pursuant to a draft by the Director
 of the implementing agency, will be
 deposited by the issuing institution
 directly into the standby trust fund hi .,
.accordance with instructions from the
 Director under § 280.108. This standby
 trust fund must meet the requirements
 specified in 1:280.103-
   (d) The letter ,of credit muatbe
 irrevocable witfca.ieFm spiSeified fey the
 issuing ihStitutidrt.>The1etter6feredit-

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43378
Federal Register / Vol. 53, No. 207 / Wednesday, October 26, 1988  /  Rules arid Regulations
must provide that credit be
automatically renewed for the same
term as the original term, unless, at least
120 days before the current expiration
date, the issuing institution notifies the
owner or operator by certified mail of its
decision not to renew the letter of -credit.
Under the terms of the letter of credit,
the 120 days will begin on the date when
the owner or operator receives the
notice, as evidenced by the return
receipt.
§ 200.100  Use of state-required
mechanism.
  (a) For underground storage tanks
located in a state that does not have an
approved program, and where the state
requires owners or operators- of
underground storage tanks to
demonstrate financial responsibility for
taking corrective action and/or for
compensating third parties for bodily
injury and property damage, an owner
or operator may use a state-required
financial mechanism to meet .the '
requirements of § 280.93 if the Regional
Administrator determines .that the state
mechanism: is at least equivalent to the
financial mechanisms specified in this
subpart.
  (b) The Regional Administrator will
evaluate the equivalency of a state-
required mechanism principally in terms
of: certainty of the availability of funds
for 'taking corrective action and/or for
compensating third parties; the amount
of funds that will be made available;  ,
and the types bf costs covered. The
Regional Administrator may also
consider other factors as is necessary.
  (c) The state, an owner or operator, or
any other interested party may submit
to the Regional Administrator a written
petition requesting that one or more of
the state-required mechanisms be .
considered acceptable for meeting the
requirements of § 280.93. The ; ,
submission must include copies  of the
appropriate state statutory and
regulatory requirements and must show
the amount of funds for- corrective -action
and/or for compensating:fcird parties
assured by the mechanismfs). The'
Regional Administrator may require the
petition to submit additional information
as is deemed necessary to make this
determination.                ,  ,
  (dj Any petition under this section
may foe submitted on behalf of al! of the
state's underground storage tank owners
and operators.
  {e) The Regional Administrator wiH
notify the petitioner ofJiis determination
regarding the mechanism's acceptability
in this subpast Pendrng-this-
determination, tfae owners and operators
using such mecharisms. will be deemed
                               to be in compliance with the
                               requirements of § 280.93 for
                               underground storage tanks located in
                               the state for the amounts and types of
                               costs covered by such mechanisms.

                               § 280.101  State fund or ether state
                               assurance.
                                 (a) An owner or operator may satisfy
                               the requirements of § 280.93 for
                               underground storage tanks located in a
                               state, where EPA is administering the
                               requirements of-this subpart, which
                               assures that monies will be available
                               from a state fund or state assurance
                               program to cover costs up to the limits
                               specified in § 280.93 or otherwise
                               assures that such costs will be paid if
                               the Regional Administrator determines •
                               that the state's assurance is at least
                               equivalent to the financial mechanisms
                               specified in this subpart.
                                 (b) The Regional Administrator will
                               evaluate the equivalency of a state fund
                               or other state assurance principally in
                               terms of: Certainty of the availability of
                               funds for taking corrective action and/or
                               for compensating third parties; the
                               amount of funds that will be made
                               available; and the types of costs
                               covered. The Regional Administrator
                               may also consider other factors as is
                               necessary.                         .
                                . (c) The state must submit to the
                               Regional Administrator a description-of
                               the state fund orxrther state assurance
                               to be supplied as financial assurance,
                               along with a list of the classes of
                               underground storage tanks to which the
                               funds may be applied. The Regional
                               Administrator may require the state to
                               submit additional information as is
                               deemed necessary to make a
                               determination regarding the
                               acceptability of the state fund or other
                               state assurance. Pending the
                               determination-by the Regional
                               Administrator, the owner or operator of
                               a covered class of USTs will be deemed
                               to be in compliance with the   •
                              ,requirements of § 280.93 for;the amounts
                               and types of costs covered by the state.
                               fund or other state assurance,
                                , (d) The Regional Administrator will
                               notify the state of his determination
                               regarding the acceptability of the state's
                               fttnd or other assurance in lieu of
                               .financial mechanisms specified in this
                               snbpart. Within 60 days after the
                               Regional Administrator-notifies a state
                               that a state fund OF other state
                               assurance, is acceptable, the state must
                               provide'to each owner or operator for
                               whichdt is assumiiigJBnancLal
                               responsibility a letter or certificate
                               describing the .nature of fee-state's;
                               assumption pi responsibility. The letter
                               or certificate from the-state mast
                               ixidndev arisave attached to it, the  •
 following information: the facility's
 name and address and the amount of
 funds for corrective action and/or for
 compensating third parties that is
 assured by the jstate. The owner or
 operator must maintain this letter or
 certificate on file as proof of financial
 responsibility in accordance with
 § 280.107(b)(5).|

 §280.102  Trust fund.
   (a) An owner or operator may satisfy
 the requirements of § 280.93 by
 establishing a trust fund.that conforms
 to the requirements of this section. The
 trustee must bej an entity that has the
 authority to act as a trustee and whose
 trust operations are regulated and
 examined by a jfederal agency or an
 agency of the state in which the fund is
 established.   '
   (b) The wording of the trust agreement
 must be identical to the wording
 specified in § 280.103(b)(l), and must be
 accompanied by a formal certification of
 acknowledgement as specified in
 § 280.103(b){2).
   (c) The trust fund, when established,
 must be funded for the full required
 amount of coverage, or funded for part
 of the required iamount of coverage and
 used in combination with other
 mechanism(s) t!hat provide the
 remaining required coverage.
   (d) If the value of the trust fund is
 greater than the required amount af
 coverage, the oVvner or operator may
 submit a written request to the Director
 of the implementing agency .for release
 of the excess, i
   (e) If other financial assurance as •
 specified in this subpart is substituted'
 for all or part ojf the rrustfuhd, the
. owner or operator may submit a written
 request to the.Director of the
 implementing agency for release of the
 excess.       i
 .  (f) Within 60 jdays after receiving a
 request from the owner or operator for
 release of funds as specified in
 paragraph'(d) or (ejt>f this section, the
 Director of the implementing agency will
 instfuct.the trustee to release to the
 owner or operator such Juhds..as,the
 Director specifies in writing.

 § 260. toa  Standby trust fund.
  : (a) An owner or operator using any
 one of the mechanisms authorized by
 §§280.98, 280.9J8,,or 280.99 must
 establish astandby trust fund when the
 inechaTOSTB is acquired. The trustee of
 the slandby trust fund most be an entity
 that has the auihoTity to act as & teustee
 •ami whose trust operations are
 regulated and examined by a Federal •
 agency or an agency of the state in
 which-tlae fund-is established,-

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          Federal  Register J Vol. 53, JNo- 207  / Wednesday. October 2fr.  198& /Hades  afid :Eegafa&SMS   43379
  (b)(l) The standby trust agreement
must be worded as foBows, except ihat
instructions in brackets are tote
replaced with the relevant information
and the brackets deleted:

Trust Agreement
  Trust agreement, the "Agreement," entered
into as of [date] by and-between [name of die
owner or operator J, a [name of state] [insert
"corporation," "partnership," "association,"
or ^'proprietorship'^, the "Grantor," and
(name of corporate trustee], [insert
"Incorporated In the state of	" or "a
national bank"], the "Trustee."
  [Whereas, the United States Environmental
Protection Agency, "EPA," an agency of the
United States Government, has established
certain regulations applicable to fee Grantor,
requiring that an owner or operator of an
underground storage tank shall provide
assurance that funds will be available when
needed for corrective action and third-party
compensation for bodily injury and property
damage caused by sudden and nonsudden
accidental releases arising from the operation
of the underground storage tank [This
paragraph is only applicable to the standby
trust agreement.)];
  [Whereas, the Grantor has elected to
establish [insert either "a guarantee," "surety
bond," or "letter of credit"] to provide all or
part of such financial assurance for the
underground storage tanks identified herein
and is required to establish a standby trust
fund able to accept payments from the
instrument {This paragraph is only applicable
to the standby trust agreement.)];
   [Whereas, the Grantor, acting through its
 duly authorized officers,-has selected the
 Trustee .to be the trustee under this
 agreement, and the Trustee is willing to act
 as trustee;
  How, therefore,:the Grantor and the Trustee
 agree as follows:

 Section 1. Definitions
   As used in this Agreement:
   (a) The term "Grantor" means the owner or
 operator who enters into this Agreement and
 any successors or assigns of the Grantor.
   (b) The term "Trustee" means the Trustee
 who enters into this Agreement and any
 successor Trustee.
 Section 2. Identification of the Financial
 Assurance Mechanism.
   This Agreement pertains to the [identify
 the financial assurance mechanism, either a
 guarantee, surety bond, or letter'of credit,
 from which the standby trust fund is
 established to receive payments (This
 paragraph  is only applicable to the standby
 trust agreement.)].

 Section 3. Establishment of Fond.
    The Grantor and the Trustee hereby
 establish a trust fund, the'TPund," for the
 benefit of [implementing agency). The
 Grantor and the Trustee intend that no third
 party have access to the Fund except as
 herein provided. [The Fund is established
 initially as a standby to receive payments
 and shall not consist of any property.]
 Payments made by the,provider of financial
 assurance pursuant to [the Director of the
implementing agency's] instruction are •
transferred to the Trustee and are referred to
as the Fund, together with alLearnings and
profits thereon, less any payments or
distributions made toy the Trustee:pursuant to
this Agreement The Fund shall he -held by
the Trustee, IN TRUST, as hereinafter
provided. The Trustee shall not be
responsible nor shall it undertake any
responsibility for the amount «r adequacy of,
nor any duty to collect from the Grantor as
provider of financial assurance, any
payments necessary to discharge any liability
of the Grantor established by [the.state
implementing agency],
Section 4. Payment for ["Corrective Action"
and/or Third-Party Liability Claims"],
   The Trustee shall make, payments from the
Fund as [the Director of the implementing
agency] shall direct, in writing, to provide for
the payment of the .costs of [insert: "taking
corrective action" and/or compensating third
parties for bodily injury and property damage
caused by" either "sudden accidental
releases" or "nonsudden accidental releases"
or "accidental releases"] arising from
operating the tanks covered by the financial
assurance mechanism identified in this
Agreement.
   The Fund may not be drawn upon to cover
any of the following:
   (a) Any obligation of [insert owner or
operator] under a workers' compensation,
disability benefits, or unemployment
 compensation law or other similar law;
   (b) Bodily injury to an employee  of [insert
 owner or operator] arising from, and in the
 course of employment by [insert owner or
 operator];-
   (c) Bodily injury or property damage arising
 from the ownership, maintenance, use, or
 entrustment to others of any aircraft, motor
 vehicle, or watercraft;
   (d) Property damage to any property
 owned, rented, loaned to, in the care,
 custody, or control of, or occupied by [insert
 owner or operator] that is not the direct result
 of a release from a petroleum underground
 storage tank;
   {e) Bodily injury or property damage for
 which [insert owner or operator] is obligated
 •to pay damages by reason of the assumption
 of liability in a contract or agreement other
 than a contract or agreement entered into to
 meet the requirements of 40 CFR 280.93.  .
    The Trustee shall reimburse the Grantor, or
 other persons as specified by {the Director],
 from the Fund for corrective action
 expenditures and/or third-party liability
 claims in such amounts as [the.Director] shall
 direct in writing. In addition, the Trustee
 shall refund to the Grantor such amounts as
 [the Director] specifies in writing. Upon
 refund, such funds shall no longer constitute
 part of the Fund as defined herein.

 Section 5. Payments Comprising the Fund
    Payments made to the Trustee for  the Fund
  shall consist of cash and securities
  acceptable to the Trustee.

 Section 6, Trustee Management.
    The Trustee shall invest and reinvest the
  principal and income of the Fund and keep
  the Fund invested as a single fund, without
  distinction between principal and income, in
accordance with general .investment policies
and guidelines .which the Grantor may •
communicate in writing to the Trustee from
time to lime, subject, however, to the >
provisions of this Section.:In investing.
reinvesting, exchanging, selling, and
managing the F.uhd, the trustee shall
discharge lis duties with respect to the toast
fund solely in the interest of the beneficiaries
and with the care, skill, prudence, and
diligence under the circumstances then
prevailing which persons of prudence, acting
in alike capacity and familiar with such
matters, would use in fee conduct of an
enterprise of a-like character and with.like
aims; except feat
   (i) Securities,or other obligations;of the
Grantor, or any other owner .or operator of
the tanks, or any of their affiliates as defined
in fee Investment Company Act  of 1940, as
amended, 15 U.S.C. 80a-2[a), shall not be
acquired or held, .unless they, are securities or
other obligations of the federal or ,a state
government;
   (ii) The Trustee is authorized to invest the
Fund in time or demand deposits of the
Trustee, to fee extent insured by an.agency of
the federal or state government; and
   (iii) The Trustee is authorized to hold cash
awaiting investment or distribution
uninvested for a reasonable time and without
liability for the payment-of interest thereon.

Section 7. Commingling and Investment
   The Trustee is expressly authorized in its
discretion:
   [a) To transfer from time to time any or aH
of the assets of the Fund to any  common,
 commingled, or collective trust fund created
by the Trustee in which the Fund is eligible to
participate, subject to afl of the provisions
 thereof, to be commingled with the assets of
 other trusts participating therein; and
   (b) To purchase shares in any investment
•company.registered under the Investment
 Company Act of 1940,15 U.S.C. 80a-l et seq.,
 including one which may be created,
managed, underwritten, or to which
 investment advice is. rendered or fee shares
 of which are sold by the Trustee. The Trustee
 may vote such shares in its discretion.

 Section 8. Express Powers of Trustee
   Without in any way limiting the powers
 and discretions conferred upon fee Trustee
 by the other provisions of this Agreement or
 by law, fee Trustee is expressly authorized
 and empowered:
   (a) To sell, exchange, convey, transfer, or
 otherwise dispose of any property held by it,.
 by public or private sale. No person dealing
 with the Trustee shall be bound to see to fee
 application of the purchase money or to
 inquire into the validity or expediency of any
 such sale or'other disposition;
   [b) To make, execute, acknowledge, and
 deliver any and all documents of transfer and
 conveyance and any and all other
 instruments feat maybe necessary or
 appropriate to carry out the powers herein
 granted;
   (c) To register any securities  held in the
 Fund in its own name or in fee  name of a
 nominee and to hold any security in bearer
 form or in book entry, or to combine
 'certificates'representing suehsecurnies with

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 -33380   Federal Register  / VpL 53. No. 207 / Wednesday. October 20,  1968 /Rules  ariid Regulations
 certificates of the same issue held by the
 Trustee in other fiduciary capacities, or to
 deposit or arrange for the deposit of such
 securities in a qualified central depository
 even though, when so deposited, such    •
 securities may be merged and held in bulk in
 the name of the nominee of such depository
 with other securities deposited therein by
 another person, or to deposit or arrange for
 the deposit of any'securities  issued by the
 United States Government, or any agency or
 instrumentality thereof, with a Federal
 Reserve bank, but the books and records of
 the Trustee shall at all times show that all
 such securities are part of the Fund;
   (d) To deposit any cash in  the Fund in
 interest-bearing accounts maintained or
 savings certificates issued by the Trustee, in
 its separate corporate capacity, or in any
 other banking institution affiliated with the
 Trustee, to the extent insured by an agency of
 the federal or state government; and
   (e] To compromise or otherwise adjust all
 claims in favor of or against the Fund.

 Section 9. Taxes and Expenses
   All taxes of any kind that may be assessed
 or levied against or in respect of the Fund
 and all brokerage commissions incurred by
 the Fund shall be paid from the Fund. All
 other expenses incurred by the Trustee in
 connection with the administration of this
 Trust, including fees for legal services
 rendered to the Trustee,  the compensation of
 the Trustee to the extent not paid directly by
 the Grantor, and all other proper charges and
 disbursements of the Trustee shall be paid
 from the Fund.

 Section 10. -Advice of Counsel
   The Trustee may from time to time consult
 with counsel, who may be counsel to the
 Grantor, with respect to any questions  arising
 as to the construction of this Agreement or
 any action to be taken hereunder. The  "
 Trustee shall be fully protected, to the extent
 permitted by law, in acting upon the advice of
 counsel.

 Section 11. Trustee Compensation
   The Trustee shall be entitled to reasonable
 compensation for its services as agreed upon
 in writing from time to time with the Grantor.

 Section 12. Successor Trustee
   The Trustee may-resign or the Grantor may
 replace the Trustee, but such-resignation or
 replacement shall not be effective until the
 Grantor has appointed a successor trustee
 and  this successor accepts the appointment.
The  successor trustee shall have the same
powers and duties as those conferred upon
 the Trustee hereunder. Upon the'successor
 trustee's acceptance of the appointment, the
Trustee shall assign, transfer, and pay over to
 the successor trustee  the funds and properties
then constituting the Fund. If for any  reason
the Grantor cannot or does not act in the
event of the resignation of the Trustee, the
Trustee may apply to a court  of competent
jurisdiction for the appointment of a
successor trustee or for instructions. The
successor trustee shall specify the date on
which it assumes administration of the  trust
in writing sent to the Grantor and the present
Trustee by certified mail 10 days before such
change becomes effective. Any expenses
 incurred by the Trustee as a result of any of
•the acts contemplated by this Section shall be
 paid as provided in Section 9.
 Section 13. Instructions to the Trustee.
   All orders, requests, and instructions by
 the Grantor to the Trustee shall be in writing,
 signed by such persons as are designated in
 the attached Schedule B or such other
 designees as the Grantor may designate by
 amendment to Schedule B. The Trustee shall
 be fully protected in acting without inquiry in
 accordance with the Grantor's orders,
 requests, and instructions. All orders,
 requests,' and instructions by [the Director of
 the implementing agency] to the Trustee shall
 be in writing, signed by [the,Director], and
 the Trustee shall act and shall be fully
 protected in acting in accordance with such
 orders, requests, and instructions. The
 Trustee shall have the right to assume, in the
 absence of written notice to the contrary, that
 no event constituting a change 'or a
 termination of the authority of any person to
 act on behalf of the Grantor or [the director]
 hereunder has occurred. The Trustee shall
 have no duty to act in the absence of such
 orders, requests, and instructions from the
 Grantor and/or [the Director], except as
 provided for herein.
 Section 14. Amendment of Agreement
   This Agreement may be amended by an
 instrument in writing executed by the
 Grantor and the Trustee, or by the Trustee
 and [the Director of the implementing agency]
 if the Grantor ceases to exist.
 Section 15. Irrevocability and Termination
   Subject to the right of the parties to amend
 this Agreement as provided in Section 14, this
 Trust shall'be irrevocable and shall continue
 until terminated at the written direction of
 the Grantor and the Trustee, or by the
 Trustee and [the Director of the implementing
 agency], if the Grantor ceases to exist. Upon
 termination of the Trust, all remaining trust
 property, less final trust administration
 expenses, shall be delivered to the Grantor.
Section  16. Immunity and Indemnification
   The Trustee shall not incur personal
liability of any nature in connection with any
 act or omission, made in good faith, in the
administration of this Trust, or in  carrying out
any directions by the Grantor or [the Director
of the implementing agency] issued in
accordance with this Agreement. The Trustee
shall be indemnified and saved harmless by
the Grantor, from and against any personal
liability to which the Trustee may be
subjected by reason of any act or  conduct in
its official capacity, including all expenses
reasonably incurred in its defense in the
event the Grantor fails io provide  such
defense.       t                •
Section 17. Choice of Law
  This Agreement shall be administered,
construed, and enforced according to the
laws of the state of [insert name of state], or
the Comptroller of the Currency in the case pf
National Association banks.
Section 18. Interpretation
  As used in this Agreement, words in the
singular include the plural and words in the
plural include the singular. The descriptive
 headings for each section of this Agreement
 shall not affect the interpretation or the legal
 efficacy of this Agreement.
   In Witness whereof the parties have
 caused this Agreement to be executed by
 their respective officers duly authorized and
 their corporate sejals (if applicable) to be
 hereunto affixed knd attested as of the date
 first above written. The parties below certify
 that the wording of this Agreement is
 identical to the wording specified in 40 CFR
 28Q.103(b)(l) as such regulations were
 constituted on the date written  above.
 [Signature of Grantor]
 [Name of the Grantor]
 [Title]          |
 Attest:      .    J
   [Signature of Trustee]
   Name of the Trustee]
   Title]        !                     ...
   Seal]        j
   Signature of Witness]
   Name of the V^itness]
   Title]        j
   Seal]        !
   (2) The  standby trust agreement must
 be accompanied by  a formal
 certification of acknowledgment similar
 to the following!. State requirements may
 differ on the  proper content of this
 acknowledgment.

 State of	1	:	
 County of	1	~
   On this [date], before me personally c'ame
 [owner  or operator] to  me known, who, being
 by me duly'sworri, did depose and  say that  •
 she/he resides at'[address], that she/he is
 [title] of [corporation], the corporation
 described in and which executed the above
 instrument; that she/he knows the  seal of
 said corporation; that the seal affixed to such
 instrument is such corporate seal; that it was
 so affixed by order of the Board of  Directors
 of said corporation; and that she/he signed
 her/his, name thereto by like order.
 [Signature of Notary Public]
   [Name of Notary Public]

   (c) The Director of the implementing
 agency will instruct  the trustee  to refund
 the balance of die standby trust fund to
 the provider of financial assurance if the
 Director determines  that no additional
 corrective action costs or third-party
 liability claims will occur as a result of a
 release covered! by the financial
 assurance mechanism for which the
 standby trust fu^id was established.
   (d) An owner |or operator may
 establish one trust fund as the
 depository mechanism for all funds
 assured in compliance with this rule.
 §280.104   Substitution of financial
 assurance mechanisms by owner or
 operator.        '
   (a) Ah owner lor operator may
 substitute  any alternate financial
 assurance mechanisms as specified in
 this siibpart, provided that at all times
he maintains an! effective financial
assurance mechanism or combination of

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         Federal Register / Vol. 5S, No. 207 /  Wednesday, October 26,  1988 / Rules and Regulations   43881
mechanisms that satisfies the
requirements of | 280,93.
  (b) After obtaining alternate financial
assurance'as'-specified in this subpart,
an-owner or operator may cancel a
financial assurance .mechanism by
providing notice to the provider of
financial assurance.

§ 280.105  Cancellation or nonrenewal by a
provider of financial assurance.
  (a) Except as, otherwise provided, a
provider of financial assurance may
cancel or fail to renew an assurance
mechanism by sending a notice of
termination by certified mail to the
owner or operator.
  (!) Termination of a.guarantee,  a
surety bond, or a letter of credit may not
occur until 120 days after the date on
which the owner or operator receives
the notice of termination, as evidenced
by the return receipt
   (2) Termination of insurance, risk
retention group coverage, or state-
funded assurance may not occur until 60
days after the date on which the owner
or operator receives  the notice of
termination, as evidenced by the return
receipt.
   (b) If a provider of financial
responsibility cancels or fails to renew
for reasons other than incapacity of the
provider as specified in §280.106, the
owner or operator must obtain alternate
coverage as specified in this section
within 60 days after  receipt of. the notice
of termination. If the owner or operator
fails to obtain alternate coverage within
60 days after receipt of the notice of
termination, .the owner or operator must
notify the Director of the implementing
 agency of such failure and  submit
   (1) The name and  address of the
 provider of financial assurance;
   (2) The effective date of termination;
 and
   (3J The evidence of the financial
 assistance mechanism subject to the
 termination maintained hi  accordance
 with | 280.107(b).
 §280.106 Reporting by owner or operator.
   [a) An owner or operator must submit
 the appropriate forms listed in
  § 280.107{b) documenting current
 evidence of financial responsibility to
 the Director of the implementing agency:
   (1) Within 30 days after  the owner or
 operator identifies a release from'an
 underground storage tank required to-be'
 reported under § 280.53 or § 280.61;
   {2} If the  owner or operator fails to
  obtain alternate coverage  as required tiy
  this subpart, within 30 days after the
 ow&eror operator Tecefvea-nafiGe-ofc
   {i)-:C0mimeneHSHient «£a wotentarym
provider of financial assurance as-a
debtor,
  (ii) Suspension or revocation of the
authority of a provider.of financial
assurance to issue a financial assurance
mechanism,
  '(in) Failure of a guarantor to meet the
requirements of the financial test,
  (iv) Other incapacity of a provider of
financial assurance; or
  (3) As required by § 280.95(g) and
§ 280.105(b).
  (b)  An owner or operator must certify
compliance with the financial
responsibility requirements of this part
as specified in the new tank notification
form when notifying the appropriate
state  or local agency of die installation
of a new underground storage tank
under § 280.22.
  (c)  The Director of the Implementing
Agency may require an owner or
.operator to submit evidence of financial
assurance as described in 1280.107fb)
or other information relevant to
compliance with this subpart at any
time.
  (The information requirements in this
section have been approved by the Office of
Management and Budget and assigned OMB
control number 2050-0066.)'

§ 280.107  Recordkeaping.
   (a)  Owners or operators must
maintain evidence of all financial
assurance mechanisms used to
demonstrate financial responsibility
under this subpart for aa underground
storage tank until released from the
requirements of this subpart under
1208.109. An owner or operator must
maintain such evidence at the
underground storage tank site or the
owner's or operator's place of business.
Records maintained off-site must be
made available.upon request of the
 implementing agency.
   (b) An owner or operator must
maintain the following types of evidence
 of financial responsibility:
   (1) An owner or operator using an
 assurance mechanism specified hi
 §§ 280.95 through 280.100 or § 280.102
 must maintain a copy of the instrument
 worded as specified.
   (2) An owner or operator using a
 financial test or guarantee must
 maintain a copy of the chief financial
 officer's letter based on year-end
 financial statements for the mostrecent
 completed financial reporting year. Such
 evidence ittust be on MeTao later ihaa
 120 days afterthe dose of the financial
 reporting year.
   (33 An owner or operator sreing a
 gaar^s*ee;, siae^ bond's? tetter >®f
 credit, most maintaia a'.copy of the
and-copies of any amendments to the
agreement.
  (4) An- owner or operator'using an
insurance policy or risk retention group
coverage must maintain! a copy of the
signed insurance policy or risk retention
group coverage policy, with the
endorsement or certificate-of insurance
and any amendments to the agreements.
  (5) An owner or operator covered by a
state fund or other state assurance must
maintain on file a copy of any evidence
of coverage supplied by or required by
the State under § 280.101(d).
  (6) An owner or operator using an
assurance mechanism specified in
§§ 280.95 through 280.102 must maintain
an updated copy of a certification of
financial responsibility worded as
follows, except that instructions in
brackets are to be- replaced with the
relevant information and the brackets
deleted:
Certification of Financial Responsibility
  [Owner or pperator] hereby certifies that it
is in compliance with the rquirements of
Subpart H of 40 CFR Part 280.      -
  The'financial assurance mechanism[s] used
to demonstrate financial responsiblity under
Subpart H of 40 CFR Part 280 is [are] as
follows:
   [For each mechanism, list the type of
mechanism, name of issuer, mechanism
number (if applicable), amount of coverage,
effective period of coverage and whether the
mechanism covers "taking corrective action"
and/or "compensating third parties for bodily
injury and property damage caused by"
either "sudden accidental releases" or
"nonsudden accidental releases" or
"accidental releases."]
[Signature of owner or operator]  .
[Name of owner or operator]
[Title]
[Date]
[Signature of witness or notary]
[Name of witness or notary]
[Date]

The owner or operator must update this
certification whenever the financial
 assurance mechanism(s] used, to
demonstrate financial responsibility
change (s).
   (The information requirements in this
 section have been approved by the Office of
Management and Budget arid assigned OMB
 control number 2050-0066.)

 §280.108  Drawing on financial assurance
 mechanisms.
   (a) The Director of the implementing
 agency shall require the.guarantor,
 surety, • or institution issuing a leftes^of
 credit to place the amount of funds
 stipulated by foe Bdreetafc up to the limit
 of funds provided by- the financial
 assuEancemechaBism,, inia the standby
 tesstifc

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 43382   Federal Register / Vol.  53,.No. 207  / Wednesday,  October 26,  1988 / Rules and Regulations
   (l)(i) The owner or operator fails to
 establish alternate financial assurance
 within 60 days after receiving notice of
 cancellation of'the guarantee, surety
 bond, letter of credit, or, as .applicable,
 other financial assurance mechanism;
 and
   (ii) The Director determines or
 suspects that a release from an
 underground storage tank covered by
 the mechanism has occurred and so
 notifies the owner or operator or the
 owner or operator has notified the
 Director pursuant to Subparts E or F of a
 release from an underground storage
 tank covered by the mechanism; or
   (2) The conditions of paragraph (b)(l)
 or (b)(2Hi) or (ii) of this.section are
 satisfied.
   (b) The Director of the implementing
 agency may draw on a standby trust
 fund when:
   (1) The Director makes a final
 determination that a release has
 occurred and immediate or long-term
 corrective action for the release is
 needed, and  the owner or operator, after
 appropriate notice and opportunity to
 comply, has not conducted corrrective
 action as required under 40 CFR Part
 280, Subpart F; or
   (2) The Director has received either:
 '  (i) Certification from the owner or
 operator and the third-party liability
 claimant(s) and from attorneys-
 representing the owner or operator and
 the third-party liability claimant(s) that
 a third-party liability claim should be
 paid. The certification must be worded
 as follows, except that instructions in
 brackets are  to be replaced with the
 relevant information and the brackets
 deleted:
 Certification of Valid Claim
  The undersigned, as principals and as legal
 representatives of [insert owner or operator]
 and [insert name and address of third-party
 claimant], hereby certify that the claim of
 bodily injury [and/or] property damage
 caused by an accidental release arising from
 operating [owner's or operator's]
 underground storage tank should be paid in
 the amount of $[	].
 [Signatures]
  Owner or Operator
  Attorney for Owner or Operator
  (Notary)         Date
 [Signature(s)]
  Claimant(s)
  Attorney(s) for Claimant(s)
  (Notary)         Date

 or (ii) A valid final court order
 establishing a judgment  against the
 owner or operator for bodily injury or
property damage caused by an
accidental release from an underground  '
storage tank covered by financial
assurance under this subpart and the
 Director determines .that the owner or
 operator has not satisfied the judgment.
   (c) If the Director pf the implementing
 agency determines,that th.e.amount of
 corrective action'costs and third-party
 liability claims eligible for payment
 under paragraph (b} of this section may
 exceed the balance of the standby trust
 fund and the obligation of. the provider
 of financial assurance,  the first priority
 for payment shall be corrective action
 costs necessary to protect human health
 and the environment". The Director, shall
 pay third-party liability claims in the
 order in which the Director receives
 certifications under paragraph (b)(2](i) of
 this section, and valid court orders under
 paragraph (b)(2)(ii) of this-section.
 §280.109 > Release from the requirements.
   An owner or operator is no longer
 required to maintain financial
 responsibility under this subpart for an
 underground storage tank after the tank,
 has been properly closed or, if
 corrective action is required, after
 corrective action has been completed
 and the tank has-been properly closed
 as required by 40 CFR Part 280, Subpart
 G.

 § J280.110  Bankruptcy or other incapacity
 of owner or operator or provider of
 financial assurance.
   (a) Within 10 days after
 commencement of a voluntary or
 involuntary proceeding under Title 11
 (Bankruptcy), U.S. Code, naming an
 owner or operator as debtor, the owner
 or operator must notify the Director of
 the implementing agency by certified
 mail of such commencement and submit
 the appropriate forms listed in
 §280.107(b) documenting current
 financial responsibility.
   (b) Within 10 days after
 commencement of a voluntary or
 involuntary proceeding under Title 11
 (Bankruptcy), U.S. Code, naming a
 guarantor providing financial assurance
 as debtor, such guarantor must notify
 the owner or operator by certified mail
 of such commencement as required
 under the terms of the guarantee
.specified in § 280.96.
   (c) An owner or operator who obtains
 financial assurance by a mechanism
 other than the financial test of self-
 insurance will be deemed to be without
 the required financial assurance in the
 event of a bankruptcy or incapacity of
 its provider of financial assurance, or a
 suspension or revocation of the
 authority of the provider of financial
 assurance to issue a guarantee,
 insurance policy, risk retention group
 coverage policy, surety bond, letter of
 credit, or state-required mechanism. The
owner or operator must obtain alternate
 financial assurance as specified-in this
 subpart within 30 days after receiving
 notice ofsuch £n .event,: If the .owner or
 operator, does .hot obtain alternate
 coverage within 30 days after such
 notification, he must notify the Director
 of the implementing agency.
   (d) Within 3(|) days after receipt of
 notification that a state fund or other
 state assurance has become incapable
 of paying for assured corrective action
 or third-party compensation costs, the
 owner or operator must obtain alternate
 financial assurance.

 § 280.111I  Replenishment of guarantees,
 letters Of credit,1 or surety bonds.
   (a) If at any time after a standby trust
 is funded upon; the instruction of the
 Director of the jimplementing agency
 with funds drawn from a guarantee,
 letter of credit,! or surety bond, and the
 amount in the standby trust is reduced
 below the full amount of coverage
 required, the owner or operator shall by
 the anniversary date of the financial
 mechanism from which the funds were
 drawn:
   (1) Replenish the Value of financial
 assurance to equal the full amount of
 coverage required, or
   (2) Acquire another financial
 assurance mechanism for the amount by
 which funds in|the standby trust have
 been reduced.
   (b) For purposes of this section, the
 full amount of coverage required is the
 amount of coverage to be provided by
 § 280.93 of this 'subpart. If a combination
 of mechanisms! was used to provide the
 assurance fund|s which were drawn
 upon, replenishment shall occur by the
 earliest anniversary date among the
 mechanisms,  j

 § 280.112  Suspension of enforcement
 [Reserved]    ;

 PART 281— APPROVAL OF STATE
 UNDERGROUND STORAGE TANK
 PROGRAMS

  4. The authority citation for Part 281
 continues to read as follows:
  Authority: Sees. 2002,9004, 9005,0006 of
 the Solid Waste Disposal Act as amended by
 the Resource Conservation and Recovery Act
 of 1976, as amended (42 U.S.C. 6912, 6991 (c),
 (dMe)).        ;
  5.40 CFR Part 281 is amended to add
 § 281.37 as folloWs:

 §281.37 Financial responsibility for UST
 systems containing petroleum.
  (a) In order to be considered no less
 stringent than die federal requirements
for financial responsibility for UST
systems containing petroleum, the state
requirements for financial responsibility
                                                                   *U.S.  GOVERNMENT PRINTING [OFFICE: 1990—720-136/06378

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         Federal Register / Vol. 53, No, 207 / Wednesday, October 26. 1988 / Rules  and Regulations   433B3
for petroleum UST systems must ensure
that:
  (1) Owners and operators have $1
•million per occurrence for corrective ,  ,
action and third-party claims in a timely
manner to protect human health and the
environment;
  (2) Owners and operators not engaged
in petroleum production, refining, and
marketing and who handle a throughput
of 10,000 gallons ,of petroleum per month
or less have $500,000 per occurrence for
cbrrective action arid third-party claims
in a timely manner to protect human
health and the environment;
   (3) Owners and operators of 1 to 100
petroleum USTs must have an annual
aggregate of $1 million; and
  (4) Owners and operators of 101 or
more petroleum USTs must have an
annual aggregate of $2 million.
  (b) Phase-in of requirements.
Financial responsibility requirements for
petroleum UST systems must, at a
minimum; be scheduled to be applied at
all UST systems on an orderly schedule
that completes a phase-in of the
financial responsibility requirements
within 18 months after the effective date
of the federal regulations.
  [c) States may allow the use of a wide
variety of financial assurance
mechanisms to meet this requirement.
Each financial mechanism must meet
the following criteria in order to be no ,
less stringent than the federal .
requirements. The mechanism must: Be
valid and enforceable; be issued by a
provider that is qualified or licensed in
the state; not permit cancellation
without allowing the state to draw
funds; ensure that funds will Only find
directly be used for corrective action
and third party liability costs; and
require that the provider notify the
Owner or operator of any circumstances
that would impair or suspend coverage,
  (d) States must .require owners and
operators to maintain records that
demonstrate compliance with the state
financial responsibility requirements,
and these records must be made readily
available when requested by the
implementing agency.
[FR Doc. 88-34395 Filed 10-25-88; 8:45 am]
BILLING CODE 6560-50-M

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SEPA
    OS-420
    United States
    Environmental Protection
    Agency
    Washington, DC 20460


    Official Business.
    Penalty for Private Use
   ""$"300"

-------