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Legislative Annual Report 1995
California Environmental Protection Agency
State Water Resources Control Board
Division of Clean Water Programs
Underground Storage Tank Cleanup Fund (USTCF)
Prepared For:
The Honorable Members of the California Legislature
By:
State Water Resources Control Board
Division of Clean Water Programs
Underground Storage Tank Cleanup Fund
September 1995 (Revised April 1996)
95 3CWP
TABLE OF CONTENTS
- History
- Funding
- Eligibility Requirements
- Claim Priority System
- Letters of Commitment
- Reimbursements
- Financial Responsibility
- Level I Storage Fee/Duration of Program
- Level II Annual Appropriation
- Level III Letters of Commitment (Encumbrances)
- Level IV Payments (Liquidation)
- Blythe Environmental Remediation Demonstration Project
- Commingled Plume Issue
- Double Payment/Settlements
- Cost Guidelines
- Financial Responsibility Reduction
- Pre-approval of Cost Estimates
- Increase in Storage Fee
- Proposed Regulatory Action
Executive Summary
Pursuant to Chapter 6.75, Article 9, Section 25299.81(d) of
the Health and Safety Code (H&SC), the State Water Resources
Control Board (SWRCB) has prepared this Annual Report to the Legislature
describing the status of the Underground Storage Tank Cleanup
Fund Program (Fund) and setting forth recommendations for legislative
changes to improve the efficiency of the program, with special
emphasis on expediting environmental cleanup and the distribution
of money from the Fund, including alternative methods for the
distribution of that money.
Program Achievements &
Issues
The Fund was faced with several program issues this past year.
The following is a synopsis of those issues:
Blythe
Environmental Remediation Demonstration Project
Approximately 22 plumes have been classified as "commingled"
in the City of Blythe, designated as the demonstration area for
this project pursuant to SB 108 (Chapter 296, 1994, Kelley). The
City will benefit from a cost-effective cooperative cleanup of
these plumes. Current discussions between the Fund, the City of
Blythe, and the County of Riverside include attempting to arrange
with the regulatory agencies to have one lead responsible party,
one cleanup plan, and one closure per commingled plume. A detailed
discussion of the findings of this demonstration project is contained
on Page 24 of this report.
Commingled Plumes
SB 108 (Chapter 296, 1994, Kelley) directed the SWRCB to address
the issue of groundwater plumes contaminated with petroleum from
several responsible parties. Commingled groundwater contamination
represents a special problem to California's groundwater protection
efforts because it generally represents a more serious water quality
impact, involves parties that disagree as to shared liability,
and includes cleanups which continue to be stalled or handled
in a haphazard manner. The Fund may seek authority to establish
a separate account within the Fund to be used exclusively for
commingled plumes. Under this plan, parties would file a single
claim to cover the entire commingled plume. The critical element
in this approach will be the responsible parties agreement to
cooperate. More details on this project are found on Page 22 of
this report.
Double Payment/Settlement
Issue
Approximately six percent, or one out of every 16 claims received
by the Fund involve situations where the claimant has received
compensation from others on account of an unauthorized release.
Each case must be individually analyzed to determine whether such
compensation constitutes potential double payment for costs covered
by the Fund. Fund staff reviewed and issued decisions on 276 claims
in Fiscal Year 1994-95. Further discussion of this issue is located
on Page 25 of this report.
Cost Guidelines
Pursuant to SB 1764 (Chapter 1191, 1994, Thompson), the SWRCB
was tasked to develop a summary of expected costs for common remedial
actions that could be used by claimants as a guide in the selection
and supervision of consultants and contractors. This summary of
expected costs for common remedial actions is currently being
finalized, and it is anticipated that these guidelines will be
available to the public by July 1996. More about these guidelines
can be found on Page 29 of this report.
Pre-approval of Costs
SB 1764 (Chapter 1191, 1994, Thompson) directed the Fund to provide
increased technical assistance to claimants. Technical assistance
includes helping the claimant through the process of obtaining
and evaluating bids or estimates and reviewing and approving costs
prior to work being performed. For a review of this issue, see
Page 30 of this report.
Storage Fee
Over the next three years, the per gallon storage fee, paid by
owners of a petroleum underground storage tank to the Fund will
increase as directed by SB 1764 (Chapter 1191, 1994, Thomspon).
The fee was increased to seven mills ($0.007) on January 1, 1995;
to nine mills ($0.009) on January 1, 1996; and will again increase
to twelve mills ($0.012) on January 1, 1997.
Financial Responsibility
Pursuant to SB 1764 (Chapter 1191, 1994, Thompson), and effective
July 1, 1995, the level of financial responsibility (deductible)
was reduced, and the maximum amount of funding increased to $1
million per occurrence, less the deductible amount. A complete
discussion of financial responsibility begins on Page 10 of this
report.
Program
Status & Goals
The best measures of effectiveness for this program are the number
of claimants served and the number of claims paid . As of March
31, 1996:
- The Fund had issued 3,252 Letters of Commitment (LOCs) in the amount of $351 million. The potential long term obligation of the 3,252 LOCs issued is estimated at $488 million.
- $123 million has been appropriated for Fiscal Year 1995-96 for the award of new or increases in existing LOCs.
- 9,300 claims have been accepted. Based on an estimated average cost per claim of $150,000, existing claims represent an estimated long term demand of approximately $1.39 billion.
- 162 "A" claimants, 2,085 "B" Claimants, 764 "C" claimants, and 241 "D" claimants had received LOCs.
- The Fund had received 6,981 reimbursement requests, 5,822 of which had been paid, for a total of $235 million.
- It is the Fund's goal to issue approximately 1,000 new LOCs during Fiscal Year 1995-96.
- Twenty sites have been approved to receive funds for direct cleanup by the regulatory agency (Emergency, Abandoned, Recalcitrant Account): six emergency sites, four prompt action sites, two abandoned sites, and eight recalcitrant sites. Approximately $780,000 has been expended.
- To date, 195 claims to the Circle K Settlement Trust Fund have been received, with 191 claims accepted. The 191 accepted have been paid with approximately $1.15 million expended.
- As of March 31, 1996, 110 applications have been submitted to the RUST Loan Program for an amount of $22.4 million.
The Program
Underground storage tanks (USTs) are a major threat to groundwater
in the United States. As of June 1995, 28,051 underground storage
tank (UST) leak cases were reported with less than 27 percent
of these sites having been remediated and closed.
Federal and state laws require every owner and operator of a UST
to maintain financial responsibility for any damages arising from
their tank operations. The Barry Keene Underground Storage Tank
cleanup Fund Act of 1989 was created by the California Legislature
due to the inability of tank owners and operators to obtain insurance
for their tanks and pay for cleanup when a leak was discovered.
The Fund is administered by the California State Water Resources
Control Board (SWRCB).
The Act was created to achieve two goals. First, to provide affordable
environmental impairment insurance to eligible UST owners and
operators enabling them to meet federal and state financial responsibility
requirements. Second, to provide financial assistance for eligible
cleanup costs and damages awarded to third parties injured by
petroleum releases.
The Underground Storage Tank Cleanup Fund Program (Fund) was established
to administer the Act in February 1991. Regulations for administration
were approved and became effective on December 2, 1991. In December,
more than 10,000 claim applications were mailed to potential claimants
and by January 17, 1992, 6,300 claim applications had been received.
A preliminary review of all 6,300 applications was completed by
April 16, 1992 and claimants were notified. The first Priority
List, adopted on July 16, 1992, contained 3,583 claims.
On June 9, 1993, the United States Environmental Protection Agency
approved California's Fund as a mechanism for meeting the federal
financial responsibility requirements for underground storage
tanks containing petroleum.
Funding
Established by SB 299 in 1989, modified by SB 2004 in 1990, and
other subsequent legislation, the Fund requires every owner of
a petroleum underground storage tank which is subject to regulation
under the Health and Safety Code (H&SC) to pay a per gallon
storage fee to the Fund. This fee began on January 1, 1991 at
six mills ($0.006) per gallon and, with the implementation of
SB 1764 (Thompson) signed by the Governor September 1994, was
increased to seven mills ($0.007) per gallon on January 1, 1995
and to nine mills ($0.009) on January 1, 1996. It will increase
to twelve mills ($0.012) on January 1, 1997. The program is scheduled
to sunset on January 1, 2005 at which time the collection of the
fee will end.
Eligibility
Requirements
To be eligible to file a claim with the Fund, the claimant must
be a current or past owner or operator of the UST from which an
unauthorized release of petroleum has occurred, and be required
to undertake corrective action by the regulatory agency. Other
eligibility conditions include compliance with applicable state
UST permitting requirements and regulatory agency cleanup orders.
In addition to USTs subject to state regulation, owners of small
home heating oil tanks which have an unauthorized release of petroleum
are also eligible. The maximum reimbursement per occurrence is
$1 million, less the deductible. The deductible varies from $0
to $20,000 depending upon the claimant's priority classification
and compliance with the requirement to have permitted the USTs.
(See "Financial Responsibility").
Claim
Priority System
The implementing legislation sets forth a claim priority system
which is based on claimant characteristics. The highest priority,
Class A, is given to residential tank owners; the second priority,
Class B, is given to small California businesses, governmental
agencies and nonprofit organizations with gross receipts below
a specified maximum; the third priority, Class C, is given to
California businesses, governmental agencies and nonprofit organizations
having fewer than 500 employees; and the fourth priority, Class
D, is given to all other claimants.
Under statute, the Priority List must be updated at least once
a year to include new claims. Since Fall 1993, the Fund has been
updating the list monthly. Claims from previous updates retain
their relative ranking within their priority class with new claims
ranked in their appropriate class below those carried over from
the previous list. New claims in a higher priority class must
be processed before older claims in a lower priority class.
There is one major exception to the priority system. Legislation
(AB 1061, Chapter 432) passed in 1993 requires the Fund to award
approximately 15 percent of its funds annually to any lower priority
classes that would not otherwise be funded (i.e., "C"
and "D" claimants each receive at least 15 percent of
the annual funding).
As of June 30, 1995, the Fund has received 296 Priority "A"
applications, 3,736 Priority "B" applications, 1,853
Priority "C" applications, and 5,668 Priority "D"
applications, for a total of 11,553 applications.
Letters
of Commitment
When a claim is activated from the Priority List, the eligibility
requirements are verified with the appropriate regulatory agency,
and a Letter of Commitment (LOC) is issued. The LOC is the mechanism
by which the program awards or encumbers funds for reimbursement
of cleanup costs. A claim is removed from the Priority List when
the claimant is issued a LOC. Initial LOCs are issued in an amount
adequate to cover the actual eligible costs incurred to date plus
additional "seed" money to allow the cleanup to proceed
on schedule. However, for the purposes of projecting long term
obligations, the Fund uses the median claim amount of $150,000.
As of March 31, 1996, the Fund had issued 3,252 LOCs in the amount
of $351 million. The potential long term obligation of the 3,252
LOCs issued is estimated at $488 million.
$123 million has been appropriated for Fiscal Year 1995-96 for
the award of LOCs. With the large number of active LOCs, a substantial
part of the annual appropriation must be used to amend (increase)
existing LOCs. The Fund estimates that as much as $50 million
must be set aside for amendments to ensure that funding is available
when needed to provide reimbursements. It is the Fund's goal to
issue approximately 1,000 new LOCs during Fiscal Year 1995-96.
As of March 31, 1996, 162 "A" claimants, 2,085 "B"
claimants, 764 "C" claimants, and 241 "D"
claimants had received LOCs.
Reimbursements
Once an LOC is issued, claimants may submit requests for reimbursement
of the eligible costs that they have incurred. Eligible costs
include reasonable and necessary corrective action costs incurred
after January 1, 1988, and certain third party compensation costs
awarded to parties injured by the claimant's petroleum release.
As of March 31, 1996, the Fund had paid 5,822 reimbursement requests
for a total of $235 million. The average in-house processing time,
from receipt of the initial reimbursement requests to payment
approval, varies from 30 to 45 days. The average payment has been
approximately $40,000. Since April 1, 1995, monthly payment volume
has averaged approximately $10.5 million.
Financial
Responsibility
Federal EPA regulations (40 CFR, Section 280.90, Subpart H, Financial
Responsibility) published October 26, 1988, requires owners and
operators of USTs to demonstrate through insurance coverage or
other acceptable mechanisms that they can pay for cleanup and
third party damages resulting from leaks that may occur from their
petroleum USTs. The following are the approved mechanisms:
- Financial Test of Self-Insurance
- Guarantee
- Insurance and Risk Retention Group
- Surety Bond
- Letter of Credit
- Trust Fund
- State UST Cleanup Fund
Mechanisms that may be used in conjunction with the UST Cleanup Fund:
- Letter from Chief Financial Officer
- Certificate of Deposit
Mechanisms that may be used by local governments:
- Bond Rating Test
- Financial Test
- Guarantee
- Government Fund
On June 9, 1993, the United States Environmental Protection
Agency (EPA) approved California's Fund as a mechanism for meeting
the federal financial responsibility requirements for underground
storage tanks containing petroleum. The Fund covered up to a maximum
of $990,000 per occurrence and annual aggregate with the tank
owner and/or operator demonstrating the remaining $10,000 of required
coverage.
SB 1764 (Chapter 1191, 1994) amended the Funds coverage limits
effective July 1, 1995. The Fund may be used as an alternative
to or in conjunction with the other mechanisms authorized by the
Federal Act. In order to use the Fund as a basis for demonstration
of financial responsibility, an owner or operator must at all
times:
1. Demonstrate financial responsibility of at least the following
amount per occurrence and per annual aggregate coverage exclusive
of the Fund:
PRIORITY CLASS | FINANCIAL RESPONSIBILITY AMOUNT
- Priority Class A | $ -0-
- Priority Class B | $ 5,000
- Priority Class C | $ 5,000
- Priority Class D | $10,000
If a waiver is granted pursuant to CCR Section 2811(a)(2)(B),
demonstrate financial responsibility of at least twice the above
amounts per occurrence and per annual aggregate coverage, exclusive
of the Fund.
2. Demonstrate financial responsibility for any required amount
above $1 million exclusive of the Fund for those owners and operators
required to comply with the provisions of CCR Section 2807(d);
and
3. Maintain eligibility to participate in the Fund.
As an alternate to the mechanisms authorized in the Federal Act,
the SWRCB approved two mechanisms that may be used in conjunction
with the Fund. The "Letter from Chief Financial Officer"
requires that the owner or operator demonstrate a tangible net
worth of ten times the required minimum applicable annual aggregate
coverage as required.
The other alternate mechanism is a Certificate of Deposit which
the owner or operator secures at their banking institution. The
Certificate of Deposit is made payable to the State Water Resources
Control Board for the required minimum applicable annual aggregate
coverage.
The Fund submitted a report to the Legislature as part of a long
term study, required by Chapter 6.75, Article 8, Section 25299.80
of the H&SC, which assessed the availability of private insurance
coverage for unauthorized releases from petroleum USTs. The study
showed that private insurance coverage is available but not widely
used by tank owners and operators. This was attributed to several
factors, some of which are listed below:
1. Qualifying factors associated with insurance coverage.
a. Tank age.
b. Soil sampling required by some insurance companies prior to
acceptance.
2. Premium levels remain high.
3. Not all insurance companies offer pollution liability coverage.
4. Availability of the Underground Storage Tank Cleanup Fund as
a mechanism.
a. Mandatory storage fee already paid by UST owners.
b. The Fund meets the minimum financial responsibility requirements.
A recently revised edition of the Fund's Financial Responsibility Guide was distributed to UST owners, operators and local regulators informing them of the changes affecting financial responsibility.
Current Fund Status
Please refer to Table 1 for a summary of the Fund's current status.
Underground Storage Tank Cleanup Fund
STATUS REPORT
CASH BALANCE (March 31, 1996)
Does not include minor adjustments due to fines, penalties, or interest.
Funds Received:
Mill Storage Fee Collected $441,274,358
Net from Previous Fees 8,591,052
Net Interest Earned 17,751,839
Total Funds Received: $467,617,249
Funds Expended & Committed:
Program Administration $22,227,859
Local Oversight Program $28,498,362
Trade & Commerce Loan Program $26,500,000
Board of Equalization $4,642,999
Claims Reimbursement $354,865,091
Total Funds Expended & Committed: $436,734,311
Available Balance: $30,882,938
APPLICATIONS (As of March 31, 1996)
A B C D Total
Received 296 3736 1853 5668 11553
Approved 190 2570 1989 4551 9300
Rejected 53 597 240 994 1884
Pending 6 136 42 185 369
LETTERS OF COMMITMENT (LOCs)
A B C D Total
Issued 162 2085 764 241 3252
Amount $6 M $192 M $107M $46 M $351 M
PAYMENTS
A B C D Total
Issued 230 4343 982 267 5822
Amount $4 M $135 M $72 M $24 M $235 M
Fund
Subaccounts
Section 25299.50 of the H&SC provides the SWRCB the statutory
authority to modify or create accounts in the Fund, which the
SWRCB determines are appropriate or necessary for proper administration
of the Fund. Two accounts have been created: (1) the Emergency,
Abandoned, Recalcitrant (EAR) Account; and (2) the Circle K Settlement
Trust Fund Account.
EAR Account
Sections 25299.36 and 25299.37(f) of the H&SC authorizes State
Regional Water Quality Control Boards (RWQCB) or a local agency
to undertake or contract for corrective action at petroleum underground
storage tank sites. The Petroleum Underground Storage Tank Emergency,
Abandoned, Recalcitrant (EAR) Account was established in 1991
to provide funding. The EAR Account may be used to take corrective
action at petroleum UST sites which have had an unauthorized release
and which require either: (1) immediate or prompt action to protect
human health, safety and the environment (emergency or prompt
action sites); or (2) where a responsible party cannot be identified
or located (abandoned sites); or (3) the responsible party is
either unable or unwilling to take the required corrective action
(recalcitrant sites). All costs incurred are subject to cost recovery
from the responsible party.
The SWRCB manages the EAR Account which is funded by an annual
Budget Act appropriation of $5 million from the Petroleum UST
Cleanup Fund.
As of March 31, 1996, 20 sites have been approved to receive EAR
Account funding: six emergency sites, four prompt action sites,
two abandoned sites, and eight recalcitrant sites. Approximately
$780,000 has been expended. Currently, nine sites are included
on the Fiscal Year 1995-96 EAR Account Annual Site List for a
total approved funding amount of $1.34 million. In addition, 3
sites have been approved for emergency response work with a total
of $175,000 approved for the 3 sites. Site investigations or site
remediation is being actively conducted at five of these sites.
Circle
K Settlement Trust Fund
Through bankruptcy proceedings, Circle K Corporation has abandoned
numerous petroleum UST sites in California. The California Circle
K Settlement Trust Fund was created based on the authority granted
by a July 26, 1993 court-approved settlement agreement, executed
between the SWRCB and Circle K Corporation, and Section 25299.50
of Article 6 of Chapter 6.75, Division 20, H&SC.
California was awarded approximately $3.9 million to be provided
in annual payments over a seven year period be used to pay for
tank removal and preliminary site assessment costs, up to $15,000,
and a portion of corrective action costs (22%), up to $200,000
per designated site. Eligible claimants can recover the remaining
portion of eligible corrective action costs from the Fund.
Ninety-nine claims were submitted prior to February 15, 1994,
the final filing date for inclusion on the Initial Priority List.
As of March 31, 1996, 195 claims have been received with 191 claims
accepted. The 191 claims have been paid with approximately $1.15
million expended. New claims will be processed once the SWRCB
receives the next annual payment in the amount of $463,000. An
updated Priority List, including all unpaid claims and those claims
received after the initial filing date, was approved by the SWRCB
on October 26, 1995.
Rust Loan Program
Chapter 8.5 (commencing with Section 15399.10) of Part 6.7,
Division 3, Title 2, of the California Government Code created
a loan program, to be administered by the California Trade and
Commerce Agency, to assist small businesses in upgrading, replacing,
or removing tanks to meet applicable local, state or federal standards.
Each fiscal year, $4 million is appropriated from the Underground
Storage Tank Cleanup Fund for this loan program, known as the
Repair/Replace Underground Storage Tank (RUST) Loan Program.
RUST is designed to assist small "Mom and Pop" gas station
businesses in adhering to new tank regulations. The loan can be
used to repair, remove or replace USTs to meet the regulatory
requirements.
The terms are a low fixed interest rate, guided by the State Surplus
Money Investment Fund (SMIF) currently at 5¾ percent, with
a 2 percent loan fee, and a 10 to 20 year repayment term. The
loans range from $10,000 as a minimum to $350,000 as a maximum
with eligible project costs 100 percent financed. As of March
31, 1996, 65 loans were processed accounting for $13.1 million
encumbered.
RUST loan application volume continues to increase as owners and
operators of single walled USTs are approaching the December 28,
1998 deadline to bring their tanks into compliance with the new
regulations. As of March 31, 1996, applications have been submitted
for 110 loans for an amount of $22.4 million. An average of 125
inquiries on the RUST Program are received monthly.
Fund Financial Management
Financial management of the Fund occurs at four levels:
Level I Storage
Fee/Duration of Program
The setting of the underground storage fee by the Legislature
is the first level of Fund management. The size of the fee ultimately
dictates how quickly money is generated and claims are paid. The
original fee was 6 mills/gallon stored which generated approximately
$66 million for claims payments annually. Due to the implementation
of SB 1764, the fee was increased on January 1, 1995 to $0.007
mills/gallon; to $0.009 mills/gallon on January 1, 1996; and will
again increase to $0.012 mills/gallon on January 1, 1997.
It is estimated that an additional 6,000 claims may be filed over
the life of the program. Existing claims plus future claims represent
a potential long term demand of about $2.08 billion. The current
fee structure is expected to generate approximately $1.9 billion
of which approximately $1.7 billion will be available for award
of LOCs.
Level II Annual
Appropriation
The second point of Fund financial management is the annual appropriation
of funds authorized in the Budget. The appropriation limits the
amount of money that can be encumbered during a budget year and
consequently regulates the number and amount of LOCs that can
be issued.
In requesting each year's appropriation, it has been the goal
of the SWRCB to have the appropriation set high enough to allow
for paying down any large outstanding balance in the Fund as quickly
as is reasonably possible, but not to request an appropriation
which exceeds actual funds collected and available during the
year. When the Fund first began issuing LOCs in August 1992, approximately
$100 million was already available for claims. Consequently, for
the first full three years of activity, an appropriation of about
$115 million was requested for LOCs, even though the annual rate
of collection for claims was only about $66 million. Fiscal Year
1995-96, the annual appropriate has been increased to $123 million.
Level III Letters
of Commitment (Encumbrances)
The third level of financial control for the Fund is in the issuance
of Letters of Commitment (LOCs). The SWRCB seeks to accomplish
four objectives in managing LOC activity:
1. Encumber all appropriated funds each year;
2. Activate as many claims as possible from Priority List;
3. Reserve sufficient funds to carry active cases through the
current fiscal year;
4. Comply with statutory requirements regarding priority of claims
(i.e., pay claims in priority order with exception to the requirement
that 15 percent of each year's appropriation must go to "C"
claims and 15 percent to "D" claims).
To successfully accomplish these objectives, the SWRCB must develop
an encumbrance plan at the start of each fiscal year and must
closely monitor the size of each LOC to ensure that funds are
only encumbered for 12 to 18 months before liquidation.
Level IV Payments
(Liquidation)
The fourth and final point of financial management is actual reimbursement
of claimants, or the liquidation of LOCs. Over the life of the
program, payments are expected to consume the most staff time,
but to a great degree, payments require the least management from
a larger financial perspective. Simply put, if the first three
levels of financial management are properly conducted, ample funds
should be available for actual payments. The SWRCB's basic objectives
for payments are:
1. Assist claimant with cost issues prior to the incurring
of such costs.
2. Process payments within 30 days of receipt;
3. Pay approved costs while questioned costs are decided (i.e.,
pay what we can immediately);
4. Balance thoroughness of review against duration of review
to ensure accountability and detection of fraud;
The greatest management issues related to payments include the determination of cost eligibility and assurance that no double payments occur.
Program Issues
Following are some of the major issues currently facing the Fund.
A brief discussion accompanies each issue.
Blythe Environmental Remediation Demonstration Project
Senate Bill 108 (Chapter 296, 1994, Kelley) added Section 25299.83
to the H&SC which directs the SWRCB to establish the Blythe
Environmental Remediation Demonstration Project (Demonstration
Project) in conjunction with the City of Blythe and County of
Riverside. That law also required the SWRCB to report to the Legislature
on the status of the Demonstration Project.
A contract was let to Holguin, Fahan, and Associates for the development
of a report on the field investigations and release identification
efforts for this demonstration project. At the time of the legislative
report, submitted May 1995, the SWRCB was still in the process
of reviewing the draft report from the contractor. The report
stated that the findings would be transmitted to the Legislature
with the submittal of this September 1995 UST Cleanup Fund Annual
Report to the Legislature. The following is a discussion of the
findings of the Demonstration Project.
The SWRCB has received the final report of the Blythe Environmental
Remediation Demonstration Project. The contractor performed background
research and conducted a limited soil and groundwater investigation
along the Hobson Way corridor located in Blythe. Based on the
final report, several locations of commingled petroleum underground
storage tank sites have been identified, cost estimates have been
developed, and cleanup strategies have been recommended.
Approximately one-half of the identified sites have been characterized
as "leaking tank sites" in a previous study conducted
by Metcalf & Eddy. A significant number of new releases have
been identified by Holguin, Fahan, and Associates.
Approximately 22 plumes have been classified as "commingled"
and would costeffectively benefit from a cooperative cleanup,
although none are currently under cooperative cleanup effort.
Current discussions include attempting to arrange with the regulatory
agencies to have one lead responsible party, one cleanup plan,
and one closure per commingled plume.
Commingled
Plume Issue
Senate Bill 108 (Chapter 296, 1994, Kelley) added Section 25299.83
to the H&SC which directs the SWRCB to address the issue of
groundwater plumes contaminated with petroleum that are commingled
from several responsible parties. This includes the development
of proposed regulations for cleanup and plume management procedures
and handling of claims involving multiple claimants.
Problem Statement
Commingled groundwater contamination represents a special problem
to California's groundwater protection efforts because it generally
represents a more serious water quality impact, involves parties
that disagree as to shared liability, and includes cleanups which
continue to be stalled or handled in a piecemeal, haphazard manner.
A systematic approach to commingled cases offers the potential
to significantly reduce costs and duplication of effort, to avoid
litigation between property owners with commingled plumes and
to more rapidly and efficiently address the technical aspects
of cleanup and achieve the desired water quality goals in a timely
manner.
Funding these cases under the Fund also poses difficulties. Currently,
the Fund does not have provisions to encourage responsible parties
involved in commingled cases to have joint access to the Fund
even though the Fund has long held the position of encouraging
coordinated cleanup efforts between eligible claimants having
commingled plumes because of the anticipated savings in corrective
action costs.
Definition
The Fund has developed a working definition of a commingled
plume:
"Commingled plume is defined as the condition that exists when petroleum groundwater contamination plumes, from two or more discrete UST unauthorized releases from two or more sites, have mixed or encroached upon one another to the extent that the investigation and cleanup of one plume will necessarily affect the other. The contributing USTs must be under the control of separate owners and operators. The term "commingled" does not apply to soil contamination cases. SB 108 is very specific in that it specifies that the "Board shall address the issue of groundwater plumes that are contaminated with petroleum that is commingled from several responsible parties ..."
Proposal
Under Consideration
A separate subaccount, the Commingled Plume Account,
is being evaluated as a means of facilitating cleanup of commingled
plumes. Reimbursement would be on a "first come first serve"
basis rather than on a priority class. Commingled plumes affect
a variety of responsible parties. Unlike the reimbursement scheme
applied to the Fund, administration of a "merit" scheme
would be administratively inefficient.
This alternative would provide concurrent funding to all sites
to encourage coordinated cleanups. This approach would require
a cooperative effort among most, if not all, of the parties involved.
In order for a commingled plume cleanup to be effective, all of
the contamination must be identified and the cleanup must be implemented
on the commingled plume as a whole and not on a piecemeal effort.
The commingled plume approach would require all parties to agree
to cooperate and join together on a cleanup effort. Realizing
that some responsible parties may be ineligible for reimbursement
and/or some may be unable to pay, it is still in the best interest
of the Fund, the eligible claimants, and the people and environment
of the State to perform a joint cleanup. This approach would also
require adequate site investigation to prove that the plumes are
commingled, and the regional board (or local agency) must work
with the responsible parties of the commingled plume to ensure
that there is no duplication of effort. It is anticipated that
there would be a savings in staff time for the regional boards:
one cleanup, one file, one lead responsible party, one investigation,
one cleanup plan, and one closure.
Double
Payment/Settlements
Many claims filed with the Fund involve circumstances where claimants
have or will receive funds from other sources (insurance, lawsuit,
agreement with other tank owners and operators, etc.) in consideration
of the unauthorized release. Section 25299.74(c) of the H&SC
provides that claimants transfer and assign to the State of California
any and all rights which the claimant may have to recover corrective
action costs from any person responsible or liable.
Section 2812.2(b) of the Fund's regulations provides that no claimant
is entitled to double payment on account of any corrective action
or third party compensation claim cost. Thus, a claimant is not
entitled to reimbursement from the Fund where the costs have been
reimbursed or paid by others as this would mean a double benefit
to the claimant.
Claimants are required to complete a "Non-Recovery From Other
Sources Disclosure Certification" under penalty of perjury
disclosing all compensation received, or to be received, from
any source and to identify all parties that may be involved in
litigation over the contamination of the site. Approximately six
percent, or one out of every 16 claims received by the Fund, involve
situations where the claimant disclosed having received compensation
from others on account of the release. Fund staff reviewed and
issued decisions on 276 claims in Fiscal Year 1994-95.
Most often, the documentation provided does not specify why the
money was paid. In such cases, the claimant argues that, although
the cause of action was the contamination discovered on the site,
the money received was not for cleanup. Often, at the same time,
the party paying money to the claimant states that they paid for
the costs of cleanup and wants reimbursement from the Fund.
These situations are contentious and are addressed on a case-by-case
basis. The Fund provides a mechanism for claimants to appeal decisions
that they disagree with.
The various double payment issues are reviewed on a case-by-case
basis. In the interest of making this issue easier to manage,
the Fund has recently implemented the following policy:
If any money or other form of compensation is received by a claimant
from another party, where the underlying complaint or other basis
for payment included a demand for the costs of cleanup, the Fund
shall presume that all compensation received from other parties
for costs related to an unauthorized release was received by the
claimant for costs that are eligible for reimbursement by the
Fund, and the Fund shall reduce the claimant's eligibility for
reimbursement by the amount of compensation received.
This presumption may be rebutted by the claimant by documentation
prepared in relation to, and prior to, the commitment to compensate
the claimant, that demonstrates the compensation was for costs
other than those eligible for reimbursement by the Fund. This
presumption may also be rebutted by written documentation prepared
by the party that compensated the claimant that demonstrates the
compensation was for costs other than those eligible for reimbursement
by the Fund.
If the Fund reduces a claimant's eligibility because of the compensation
the claimant received from others, a third party has paid costs
that otherwise would have been reimbursed by the Fund. Recognizing
this benefit, the Fund may subsequently apply a credit against
the compensation received thus reversing the reduction in eligibility,
provided that the Fund finds (1) the compensation received from
other parties is for payment of costs that otherwise would have
been reimbursed by the Fund; (2) the claimant's eligibility has
been correspondingly reduced; and (3) the party or parties that
paid the compensation are not eligible to, or waive their right
to, file a claim with the Fund for reimbursement of the costs.
This credit, made by the Fund in recognition of the claimant's
legal fees in obtaining the compensation from other parties, will
be limited to a reasonable credit and in no case will exceed actual
attorney fees and costs incurred to collect the compensation received.
Generally, a reasonable credit will equal no more than 30 percent
of the compensation received from other parties, which the Fund
shall apply toward costs eligible for reimbursement. In cases
where the compensation received was paid pursuant to a judgment
or verdict after trial, generally the credit will equal no more
than 40 percent of the compensation received from other parties.
Effects of SB 1764
Senate Bill 1764 (Thompson) was signed into law September 30,
1994 (Chapter 1191, 1994), making several changes to the Fund.
The following is a discussion on each of the major provisions.
Cost Guidelines
Pursuant to Section 25299.57(h) of the H&SC, the SWRCB was
tasked to develop a summary of expected costs for common remedial
actions that may be used by claimants as a guide in the selection
and supervision of consultants and contractors. This document
will provide guidance to Fund claimants for evaluating proposed
and incurred corrective action costs at sites covered by the Fund.
Specifically, these guidelines will help claimants identify reimbursable
goods and services, understand how the Fund evaluates activities
and costs, and estimate what costs are likely to be reimbursed.
Claimants will also be able to judge whether additional justification
will likely be required to support a given costs, or whether a
call for assistance from the Fund is in order.
The guidelines do not set prices for the listed items and activities,
and are not intended to remove the element of competition or freedom
of choice from the industry. The intention of these guidelines
is not to replace the three bid requirement.
The cost guidelines consist of three sections:
1. UNIT COSTS A unit of service, activity, or product is delivered
for a set cost. Examples include an analytical test from a laboratory
or an hourly rate for a consultant's staff person.
2. PROJECT COSTS A project cost may be an aggregate of unit
costs such as consultant billing hours, equipment rental, and
subcontractors, or it may be simply consultant labor. It describes
a level of effort required to perform certain tasks such as preparation
of a report or conducting a quarterly monitoring report. Tasks
and conditions will differ between sites and the Fund will review
each case individually.
3. POLICIES A description of various Fund policies, standard
practices, and statements on how the Fund addresses issues concerning
reimbursement. General information intended to be helpful, but
not necessarily directly tied to certain costs, is included in
this section.
The finalized guidelines will be available to the public in July
1996.
Financial Responsibility Reduction
Effective July 1, 1995, the level of financial responsibility
(deductible) was reduced. Class A claimants are no longer responsible
for a deductible of any amount. Class B and Class C claimants
have had their deductible reduced to $5,000. The deductible for
Class D claimants remains the same at $10,000.
The Fund evaluated all in-house claims and determined that all
eligible claims will receive the benefits of the reduced deductibles.
Pre-approval
of Cost Estimates
The Fund has been directed to provide increased technical assistance
to claimants. Technical assistance includes helping the claimant
through the process of obtaining and evaluating bids or estimates
and reviewing and approving costs prior to work being performed.
While the Fund had, for some time, been pre-reviewing costs and
advising claimants as to their reasonableness, formal pre-approval
connotes a greater commitment of the part of the Fund and the
claimant. Pre-approval requires that a set of assumptions and
conditions be established which, if met, would be cause for full
reimbursement.
The Fund has developed a pre-approval request form which instructs
the claimant on what documentation is required to review costs.
Standard documentation includes: a workplan approved by the regulatory
agency, copies of bids received, and a detailed project budget
from the selected contractor or consultant.
Increase
in Storage Fee
Before SB 1764 passed, the mill fee was $0.006 for each gallon
of petroleum placed in a UST. On January 1, 1995, the fee was
increased by 1 mill for a total of $0.007. On January 1, 1996,
the fee was increased by 2 mill for a total of $0.009, and on
January 1, 1997, the fee will again increase by another 3 mill
for a total of $0.012. The new fees, collected by the Board of
Equalization, are expected to increase the annual revenue collection
from approximately $85 million to $170 million.
Proposed
Regulatory Action
The SWRCB is in the process of proposing to amend Chapter 18,
Division 3, Title 23 of the California Code of Regulations (CCR),
the Underground Storage Tank (UST) Cleanup Fund Program. The proposed
amendments are being made to update the regulations for clarification
of legislative changes made pursuant to Chapter 1191, Statutes
of 1994 (Thompson) to Chapter 6.75 of the California Health and
Safety Code (H&SC).
In addition to the proposed changes having regulatory effect,
the SWRCB is proposing to make numerous editorial changes to the
regulations. Many regulations have been reworded for clarity,
and unnecessary, repetitive phrases have been removed wherever
possible to make the language less cumbersome.
A Notice of Proposed Rulemaking announcing the pending amendments
of regulations governing the Underground Storage Tank Cleanup
Fund Program was mailed to all interested parties on July 7, 1995,
and a public hearing will be scheduled prior to the SWRCB's adoption.
It is anticipated that the regulations will be effectively filed
with the Secretary of State's Office by July of 1996.
Legislation
The following is a summary of legislative changes that have affected the Fund since its inception:AB 1699 (Kelley) Signed by the Governor 10/14/91: Specifies the type of expenses that SWRCB can reimburse under third party claims, and redefines and clarifies the legislative intent for eligibility of residential tanks.
SB 1356 (Greene) Signed by the Governor 9/12/92: Exempts the multiple bid requirement for tanks owned or operated by a public agency if the prospective costs are for private professional services within the meaning of Chapter 10 (commencing with Section 4525) of Division 5 of Title 1 of the Government Code and those services are procured in accordance with the requirements of that chapter.
SB 3188 (Hauser) Signed by the Governor 9/30/92: Creates the "Barry Keene Underground Storage Tank Cleanup Trust Fund Act of 1989" and establishes the Fund in the State Treasury rather than the General Fund.
AB 1061 (Costa) Signed by the Governor 9/22/93: Amends the priority ranking for the Fund to include, in the second ranking, a city, county district, or nonprofit organization that has total annual revenues of less than $7 million, and includes in the third ranking, a city, county, district, or nonprofit organization that employs fewer than 500 full-time and part-time employees, and requires the SWRCB to allocate approximately 15 percent of the amount appropriated to Class C and Class D claimants. Also allows for claimants who meet specific criteria to request a waiver of the permit eligibility requirements.
AB 2303 (Richter) Signed by the Governor 7/11/94: Deletes the provision that tank owners or operators who had completed corrective action with regard to a release from a tank by October 2, 1989, are prohibited from filing a claim to the Fund.
SB 108 (Kelley) Signed by the Governor 7/20/94: Directs the SWRCB to develop cleanup procedures and proposed regulations applicable to unauthorized releases of petroleum from multiple responsible parties which are the result of commingled contamination of groundwater plumes. The Blythe Environmental Remediation Demonstration Project will be established and the City of Blythe is to be used as the demonstration project for this purpose.
SB 1764 (Thompson) Signed by the Governor 9/30/94: This bill has a major impact on the operations of the Fund. Refer to Page 28 of this report for a discussion of its provisions.
Recommended Legislation
Homeowners and small businesses are paid first under program regulations. But like most government programs, there are many complex and confusing requirements which stand between the people the program is designed to assist and the actual achievement of that assistance. Current statute places a requirement on small business owners and operators making a claim to the Fund that all of the officers of their business must be domiciled in California.
The Fund has encountered cases whereby a closely held California corporation has met all the Priority Class B requirements with the exception of domiciliary due to one shareholder/officer residing outside of California. In one case (J&B Fertilizer, Inc., Order No. WQ-93-16-UST) the corporation had two major shareholders with one residing and domiciled in California; the other resided in California up until October of 1988, when he purchased a home in Oregon. Although the shareholder spends three-fourths of his time in California for business purposes, his immediate family resided continually in Oregon. This claim was determined to be ineligible for Priority Class B.
In another case (Vollman/Clark Ranch Partnership), the owners of five-eighths of the partnership are domiciled in California while the owners of the remaining three-eighths of the partnership reside outside of California (the managing general partner resides in California). Since all partners were not domiciled in California, the Division determined that the claim was not eligible for Priority Class B and the claim was placed in Priority Class D.
Even though their financial ability to pay for the corrective action was similar to others that qualify for Class B, these particular claimants were rejected because of a portion of the owners/officers were not domiciled in California.
The Fund incorporates the definition of a small business from the Department of General Services, and this definition does not always coincide with the legislative intent for small business claimants to the Fund.
PROPOSED SOLUTION
The following language is being proposed for amending the California Health & Safety Code (H&SC) to allow for the lifting of the domiciliary requirement:Section 25299.52 (The text of the version that becomes operative on July 1, 1995)
(b) Except as provided in subdivision (c), in awarding claims pursuant to Section 25299.57 or 25299.58, the board shall pay claims in accordance with the following order of priority:
(1) Owners of tanks who are eligible to file a claim pursuant to subdivision (e) of Section 25299.54.
(2) Owners and operators of tanks which are either of the following:
(A) An owner or operator which is a , except for the requirement
that the officers of the business be domiciled in California, meets the
qualifications of a
small business , as defined
as providedin
subdivision (c) of Section 14837 of the Government Code.
(B) An owner or operator which is a city, county, district, or nonprofit organization that receives total annual revenues of not more than seven million dollars ($7,000,000). In determining the amount of a nonprofit organization's annual revenues, the board shall calculate only those revenues directly attributable to the particular site at which the tank or tanks for which the claim is submitted are located.
(3) Owners or operators of tanks which are either of the following:
(A) The owner or operator owns and operates a business which
employs fewer than 500 full-time and part-time employees, is
independently owned and operated, is not dominant in its field
of operation, and the principal office is located
in California, and all of the officers of the business
are domiciled in California.
(B) The owner or operator is a city, county, district, or nonprofit organization that employed fewer than 500 full-time and parttime employees. In determining the number of employees employed by a nonprofit organization, the board shall calculate only those employees employed at the particular site at which the tank or tanks for which the claim is submitted are located.
(4) All other tank owners and operators.
ESTIMATED FISCAL IMPACT
The Fund has determined that there would be no fiscal impact with this proposal.
ARGUMENTS (Pro/Con)
Pro: The Legislative intent of the Fund is to give financial
assistance for the cleanup of unauthorized releases of petroleum
from underground storage tanks first to homeowners and small business
owners and operators. This legislative proposal will amend those
statutes governing the priority class applicability to enable
the Legislative intent to be more fully realized.
Con: There could possibly be a further delay
in the processing of payments for those in lower priority classes.
