United States Environmental Protection Agency Solid Waste and Emergency Response (OS-420 WF) EPA510-F-93-002 April 1993 oEPA UST Program Facts Financial Responsibility Purpose of financial responsibility requirements Under Subtitle I of the Resource Conservation and Recovery Act (RCRA), Congress directed the U.S. Environmental Protection Agency (EPA) to develop financial responsibility regulations. The regulations: arc designed to make sure owners and operators of underground storage tanks (USTs) can pay to address the repercussions of a leak, spill, or overfill; require owners of USTs to show that they have the financial resources to clean up the site, correct environmental damage, and compensate third parties for injury to their property or themselves; and • set standards both for the minimum amount that must be available in case of a single release and on an annual basis in the event of multiple releases. Amount of coverage required Under the Superfund Amendments and Reauthorization Act (SARA) which amended Subtitle I, Congress directed EPA to set the required amount of per occurrence coverage at $500,000 to $1 million, depending on the type and size of the business. (See illustration.) How can owners and operators demonstrate financial responsibility? Owners and operators must obtain commercial environmental impairment liability insurance; demonstrate self- insurance; obtain guarantees, surety bonds, or letters of credit; place the required amount into a trust fund administered by a third party; or rely on coverage provided by a state financial assurance fund. State financial assurance funds States arc developing financial assurance funds to reduce the economic hardship of compliance with financial responsibility requirements and to help cover the costs of cleanups. State financial assurance fund programs, which supplement or substitute for private insurance, have been especially useful for small-to- medium sized petroleum marketers. Other characteristics of the funds: • Financial assurance funds are created by state legislation and must be approved by EPA before they can be used as compliance mechanisms. ------- In most cases, states generate money for the funds with tank registration and petroleum fees. Legislatures delegate authority for the fund to a state agency addressing health, environmental, or insurance issues. State assurance funds typically incorporate eligibility requirements, such as demonstrations that facilities are in compliance with technical requirements and evidence of satisfactory inventory control and recordkeeping. • Most state funds contain some deductible that the owner or operator is responsible for paying. Details on the funds are specific to each state. State financial assurance funds also provide money to pay for corrective action. Number of state financial assurance funds As of June 1, 1992, 29 states had state financial assurance fund plans approved by EPA. Seven had submitted fund plans for approval and seven had plans Requirements and Deadlines for Financial Responsibility Deadlines for Compliance Jan. 1989 Petroleum Marketers with 1 ,000 Tanks April 1991 Petroleum Marketers with 13-99 Tanks Oct. 1989 Petroleum Marketers with 1 00-999 Tanks Dec. 1993 Petroleum Marketers with 1-1 2 Tanks Jan. 1989 Non-Marketers with Net Worth of $20 Million Dec. 1993 Non-Marketers with Net Worth of Less Than $20 Million Estimated Early 1994* Local Governments Throughput of Facility Per Occurrence Coverage 10,000 Gallons or Less Monthly More than 10,000 Gallons Monthly Aggregate Coverage $1 Million if You Have 100 or Fewer Tanks OR $2 Million if You Have More Than 100 Tanks 'Deadline will be one year following publication of the final rule on additional mechanisms for local governments, still under EPA review as of January 1, 1993. ------- that they had not submitted for approval. Seven states and the District of Columbia had no program. Deadlines to comply with financial responsibility requirements EPA adopted a phase-in schedule that requires larger owners and operators - with relatively greater financial resources - to comply with requirements before smaller businesses. The schedule has been adjusted twice to respond to smaller businesses' concerns about the availability of assurance mechanisms. The deadline for Group 4, which represents the smallest owners and operators, for example, has been extended to December 31, 1993. (See chart.) Level of compliance with financial responsibility regulations EPA estimates almost all Group 1 firms are in compliance because they generally have sufficient net worth to self insure. After surveying gasoline marketers, a trade association estimated that about 85 percent of owners and operators in Groups 2 and 3 are in compliance. Cost of demonstrating financial responsibility EPA acknowledges that the cost of complying with the technical and financial responsibility requirements will be a burden to some owners and operators, especially those with older tanks. The cost of complying with the regulations may have exacerbated an existing trend for retail petroleum marketers - especially small, rural marketers - to close. • Because underwriting criteria for most private insurance and eligibility requirements for some state assurance funds require that tanks be in compliance with federal or state technical standards, many owners and operators are faced with the costs of meeting technical requirements at the same time they meet financial responsibility costs. • The cost of meeting technical requirements generally accounts for the majority of regulatory compliance costs incurred by UST owners and operators. • In terms of the costs for meeting financial responsibility requirements, insurance premiums for a facility with three to five upgraded tanks usually run about $3,000 per year. Owners and operators who participate in a state, financial assurance fund generally pay annual tank fees of from $100 to $250 per tank. In developing the regulations, EPA has made an effort to be sensitive to the financial impact of the regulations on small business. EPA phased in compliance deadlines, allowing the smallest businesses the longest time to comply. It has since responded to business owners' concerns by delaying compliance dates for the smallest owners and operators. EPA also has worked with states to develop state financial assurance funds and grant and loan programs. Financial Responsibility is one in a series of fact sheets about underground storage tanks (USTs) and leaking USTs. The series is designed to help EPA, other federal officials, and stale authorities answer the most frequently asked questions about USTs with consistent, accurate information in language the layperson can understand. Keep the fact sheets handy as a resource. This fact sheet addresses federal regulations. You may need to refer to applicable state or local regulations, as well. For more information on UST publications, call the RCRAISuperfund Hotline at 800 424-9346. ------- |