Preserving Rural Gas Stations: State Financial Assistance for Underground Petroleum Storage Tanks

• Publication year: 1991

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 15, No. 1FALL 1991

CURRENT DEVELOPMENT IN THE LAW

Preserving Rural Gas Stations: State Financial Assistance for Underground Petroleum Storage Tanks

John S. Conniff(fn*)

Charles G. Gavigan(fn**)

I. Introduction

In 1989, the Washington State Legislature created the Pollution Liability Insurance Agency (PLIA) and directed the agency to develop a program that would assist owners and operators of underground petroleum storage tanks (USTs) in obtaining affordable pollution liability insurance.(fn1) By creating the program, the legislature responded to owner and operator concerns that state and federal financial responsibility requirements would force owners and operators to close their UST sites because of the scarcity and expense of pollution liability insurance.(fn2) The legislature, however, did not address similar concerns that costs of pollution clean-up(fn3) and required upgrades of USTs would drive small gas station owners and operators out of business.(fn4) To a great extent, owner and operator fears have been realized.

Since 1988, 357 Washington gas stations have closed as owners and operators have either removed their USTs or discontinued their use.(fn5) In Eastern Washington, forty-six percent of the total number of UST sites selling gasoline have closed since UST regulations went into effect in 1988.(fn6) Some gas station owners and operators cannot afford the capital improvements required by the regulations because their business volume is low(fn7) and because lending institutions may not grant an improvement loan if secured by a mortgage of the UST site.(fn8) Of course, many other owners and operators have upgraded their UST systems and still operate. Nevertheless, gas station closures continue to create substantial hardships in isolated rural communities where no other convenient source of petroleum products exists.(fn9)

For example, the only gas station in the town of Bickleton closed and the people of that community must now drive to either Mabton or Roosevelt for gasoline.(fn10) The distance between those two towns is forty-five to fifty miles. In the town of Grapeview, the local fire service district vehicles rely on the town's only gas station to supply fuel for fire trucks.(fn11) Without funds to comply with environmental regulations, gas stations must close.(fn12)

Local government entities and hospitals in rural areas also face problems finding sources of funds to upgrade their USTs and to clean up pollution at their UST sites.(fn13) Local governments maintain USTs to supply fuel for public utility vehicles, emergency vehicles, and school buses. Rural hospitals(fn14) maintain USTs to fuel emergency back-up power generators. These generators are mandated by a state law requiring hospitals to maintain an alternative emergency power source.(fn15) Both the government and the hospital USTs must be upgraded in accordance with environmental regulations, but owners and operators of these USTs often do not have sufficient funds to meet regulatory requirements.(fn16)

The 1991 legislature responded to these problems by directing PLIA to develop and administer a UST financial assistance program for small rural gas stations, local government entities, and rural hospitals.(fn17) This Article(fn18) briefly reviews environmental regulations requiring the upgrading of USTs, analyzes the development and implementation of the new financial assistance program, and considers the constitutionality of the program in light of state constitutional "lending of credit" prohibitions.(fn19)

II. UST Technical Regulations

In 1986, Congress directed the Environmental Protection Agency (EPA) to adopt and implement a comprehensive UST regulatory program for the detection, prevention, and correction of petroleum releases from USTs.(fn20) These regulations were adopted by the EPA in September of 1988.(fn21) Congress also permitted each state to adopt a UST regulatory program no less stringent than the federal program and to assume the EPA's role as primary regulator of USTs.(fn22)

In 1989, the Washington State Legislature directed the state Department of Ecology (DOE) to implement a state UST regulatory program consistent with the federal program.(fn23) The DOE adopted these rules in 1990.(fn24) Among the many rules governing USTs are rules addressing performance and operating standards.(fn25) Compliance with these and other UST rules determines whether a UST owner or operator can obtain fuel and therefore continue using the UST for its intended purpose.

Unless an owner or operator obtains a permit from the DOE each year, no one may supply petroleum products to the owner or operator.(fn26) To obtain the permit, the owner or operator must provide evidence of compliance with DOE rules by the annual permit renewal deadline.(fn27) In addition to complying with all rules, the owner or operator must certify that the UST is not known to be leaking and must pay all required fees.(fn28) If these conditions are met, the department will issue a permit that must be displayed on the gas pump, in the office, or in other locations designated by the department.(fn29)

In April 1991, the DOE published a thirty-page instruction guide to assist owners and operators in completing a one-page certification of compliance form.(fn30) For a moment, try to imagine the plight of the small, independent gas station owner receiving this guide: The guide explains the state UST regulations and the two-part certification process for financial responsibility and technical compliance to the owners or operators.(fn31) According to the guide, owners or operators of one to twelve USTs must comply with financial responsibility requirements by October 26, 1991. A few months later, the owners or operators receive a newsletter or hear a news report that the EPA has extended this deadline to December 31, 1992, the second time the EPA has extended the deadline. On the other hand, the guide states that local government officials must comply sometime in mid-1992.(fn32) If you were an owner, operator, or government official, what would you do?

In defense of the DOE, no agency can establish a comprehensive regulatory program when the EPA continues to adjust the rules. Extension of compliance deadlines for financial responsibility may be desirable because of their impact; however, the state's forms, brochures, and regulations become obsolete nearly as soon as they are printed because the DOE must amend its rules to avoid enforcement of rules more stringent than the EPA's regulations. The many extensions of the financial responsibility compliance deadline encourage owners and operators to wait until the last possible minute to comply in the event that the deadline is extended again.

The guide also advises owners and operators that an approved method of leak detection must be employed by a certain date to be determined in accordance with the age of the UST system.(fn33) Apart from this leak detection requirement, the guide notes that owners and operators who installed USTs before December 1988 need not upgrade their UST system until December 1998.(fn34) Theoretically, owners and operators have seven more years before they must incur the costs of replacing or upgrading their UST system. The seven-year period may be illusory, however, if the owner or operator must upgrade a UST for other reasons, such as when a leak is discovered during or after a tank tightness test.(fn35) Because the leak detection requirements are tied to the age, type, and use of a UST, the financial impact of regulations upon UST owners and operators varies.(fn36)

The short term costs for compliance with leak detection requirements are nominal when compared with long term costs for compliance with UST upgrade requirements. For example, the typical older rural gas station need not upgrade the UST system until 1998, and the station owner or operator can comply with the leak detection requirements by simply conducting an annual tank tightness test in conjunction with petroleum inventory control (the dipstick method).(fn37) Inventory control requires only employee labor, and a tightness test averages $500.(fn38) In contrast, the costs of installing a new system at a gas station with three USTs averages $82,000.(fn39) The costs for simply upgrading rather than replacing the same system averages $45,000.(fn4) Given the relatively low short term technical compliance costs, why did the legislature rush to develop a financial assistance program to help rural owners and operators, and why have so many rural gas stations decided to quit so soon?

The answer lies primarily with the financial responsibility requirements that present a relatively high ongoing cost tied to the type and quality of the UST system. Older and less technologically advanced UST systems are more likely to leak; therefore, they are more expensive to insure.(fn41) If the system is too old or technologically antiquated, insurance underwriting standards may preclude insurance of the system. Despite the favorable pollution liability insurance rates offered through the state insurance program, the difference in annual premiums between a new tank system and one that is over sixteen years old can equal $2,100.(fn42) If the tank is twenty-two years old the difference in annual premium amounts to $3,770, money that could have...