TESTIMONY OF Arthur J DeBlois, May 8, 2002

TESTIMONY OF ARTHUR J. DeBLOIS, III

ON BEHALF OF

THE NATIONAL ASSOCIATION OF CONVENIENCE STORES

AND

THE SOCIETY OF INDEPENDENT GASOLINE MARKETERS OF AMERICA

S. 1850, THE “UNDERGROUND STORAGE TANK COMPLIANCE ACT”

BEFORE THE

SUBCOMMITTEE ON SUPERFUND, TOXICS, RISK AND WASTE MANAGEMENT

COMMITTEE ON ENVIRONMENT & PUBLIC WORKS

UNITED STATES SENATE

May 8, 2002

I. Introduction

Good morning, Madam Chairwoman and members of the subcommittee. My name is Arthur J. DeBlois. I am President and Chief Executive Officer of DB Companies, Inc., an independent motor fuels marketer headquartered in Providence, Rhode Island. Our company owns and operates 86 “DB Marts” in Rhode Island, Massachusetts, Connecticut and the Hudson Valley of New York. In addition, we have 84 franchisee-operated locations.

Thank you for inviting me to testify today on S. 1850 -- the “Underground Storage Tank Compliance Act.” I appear before the Subcommittee representing the National Association of Convenience Stores (“NACS”) and the Society of Independent Gasoline Marketers of America (“SIGMA”).

NACS is a national trade association of more than 2,000 companies that operate over 119,000 convenience stores nationwide and employ 1.4 million individuals. Over 75 percent of NACS’ member companies sell motor fuels, and the convenience store industry sold more than 115 billion gallons of motor fuels in 2001, accounting for approximately 70 percent of all motor fuel sold across the nation.

SIGMA is a national trade association of approximately 260 motor fuels marketers operating in all 50 states. SIGMA members supply over 28,000 motor fuel outlets and sell over 48 billion gallons of gasoline and diesel annually – or approximately 30 percent of all motor fuels sold in the nation.

II. NACS’ and SIGMA’s Core Objectives for Underground Storage Tank Regulation

NACS and SIGMA have been long-standing and vocal advocates for vigorous enforcement of federal and state underground storage tank (“UST”) regulations. With respect to federal and state regulation of petroleum USTs, NACS and SIGMA have three key policy objectives:

· Ensure that an adequate percentage of funds appropriated from Leaking Underground Storage Tank (“LUST”) Trust Fund is delivered to state UST programs for proper regulatory enforcement and remediation assistance.

· Ensure all UST owners and operators -- including governmental agencies, commercial operators, and Native American tribes -- are held to the same standards and comply with existing UST regulations.

· Facilitate prompt remediation of releases from USTs.

Some persons attending today’s hearing may wonder why petroleum and convenience store marketers support effective and comprehensive enforcement of the UST regulations. Let me explain our position.

First, it is the correct and environmentally sound position to make as responsible businesses. The motor fuels marketing industry has a responsibility to our customers and the communities we serve to assure that we conduct our business in an environmentally safe manner. If marketers are not complying with federal and state tank regulations and leaks occur, then our entire industry receives a “black eye” in the public’s perception.

Second, since EPA promulgated its UST requirements in 1988, NACS and SIGMA members have spent hundreds of millions of dollars complying with the tank standards. My company spent over $5 million to comply with the 1998 deadline to upgrade our tanks. Additionally, we spend approximately $250,000 annually to maintain our compliance with these regulations. Clearly, if my competitors and other tank owners have not undertaken similar investments, they have enjoyed, and will continue to enjoy, a competitive advantage over companies like ours.

Finally, many of our members, including both large companies and the smaller “mom-and-pop” retailers, have closed locations as a means of compliance with the 1998 tank deadline. I testified many years ago at a hearing held by the late Senator John Chafee that, with a 10-year phase-in of the requirements, there is absolutely no reason why any UST owner and operator should not be in compliance. Tanks that have not been upgraded by now, almost three and a half years after the 1998 deadline and 13 years after the deadline was announced, should be closed. It does not matter if these tanks are owned by a federal or local government agency or a private concern. A tank that has not been upgraded represents an unacceptable risk to our environment and must be closed.

This point was best articulated by the late Senator Chafee in a December 1998 letter to EPA. He stated that there is no justification for EPA or the states to distinguish between private- and publicly-owned tanks when it comes to protecting human health and environment. A leak from the local public works or fire department’s tank causes the same environmental harm as a release from a retail gasoline outlet’s UST.

Accordingly, NACS and SIGMA support the key elements of S. 1850 – namely, expanding the allowable uses of the LUST Trust Fund monies for UST enforcement; requiring every UST to be inspected at regular intervals; directing EPA to publish guidelines for training operators in the proper operation and maintenance of USTs; requiring EPA and the states to publish strategies for ensuring compliance for USTs owned by governmental agencies at every level; and providing additional funding for the remediation of certain MTBE or high-priority UST releases.

III. Background on Federal UST Regulation

Congress recognized in the mid-1980s that leaking petroleum USTs posed a threat to the environment. To respond to this threat, Congress mandated that all petroleum USTs must be upgraded, replaced, or closed by December 22, 1998. Despite the fact that UST owners and operators, including federal, state, and local government agencies, knew about this deadline for over a decade, the Environmental Protection Agency recently estimated that as many as 17 percent of the nation’s USTs have not yet come into compliance.

To assist EPA and the states to implement the 1998 deadline, Congress in 1986 established the LUST Trust Fund and enacted a 0.1-cent per gallon federal tax on petroleum products -- the proceeds from which are directed to the LUST Trust Fund. Each year, Congress appropriates money from the Trust Fund to be used by EPA and the states to oversee UST corrective actions. EPA has generally allocated an average of 80 to 85 percent of each year’s Trust Fund appropriations to states under cooperative agreements.

IV. Current Status of Trust Fund

According to the Bush Administration’s FY 2003 budget, the LUST Trust Fund balance at the end of 2002 will be over $1.9 billion. Trust Fund tax collections in FY 2003 will be $193 million; and, the Trust Fund will earn $113 million in interest. Despite this huge fund balance, the Bush Administration has requested only that $73 million be appropriated from the Trust Fund for FY 2003 -- less than the amount of the interest the Trust Fund will earn during the year!

Given the media attention to UST leaks over the past five years, which has focused particularly on MTBE contamination of ground water, the low level of appropriations from the Trust Fund is inexplicable. These monies, which were collected from sales of gasoline and diesel fuel over the past 15 years, should be put to the use for which they were collected -- remediating releases from petroleum USTs.

NACS and SIGMA urge this Committee to use its influence to increase substantially the FY 2003 appropriations from the LUST Trust Fund.

V. Recent UST Legislation and 2001 GAO Report

This is not the first time that this Committee has considered UST reform legislation. This Committee passed narrower UST reform legislation during the 105th Congress, and the House of Representatives passed similar bills in both the 104th and 105th Congresses. Unfortunately, the full Senate never considered this Committee’s bill in 1998. As a result, these important legislative reforms have languished, until S. 1850 was introduced by Senator Chafee last year.

The U.S. General Accounting Office (“GAO”) released a report in May 2001 entitled “Improved Inspections and Enforcement Would Better Ensure the Safety of Underground Storage Tanks” (GAO-01-464). GAO concluded, in part, that EPA and the states have failed to enforce consistently the existing UST requirements. GAO estimated that, nearly three years after EPA’s deadline of the 10-year phase-in (December 22, 1998) for environmentally-protective tanks, only 89 percent of the regulated USTs had been replaced, upgraded or closed. GAO identified state and local governmental agencies and very small businesses as the primary categories of UST owners and operators who remain in non-compliance. GAO also indicated that rates for ongoing UST leak detection and compliance are lower than expected.

The GAO report contained the following recommendations to Congress:

· Increase the amount of funds Congress provides from the Trust Fund;

· Authorize states to spend a portion of these monies on training, inspection, and enforcement;

· Authorize EPA to establish a federal requirement for on-site inspections of all tanks on a periodic basis;

· Authorize EPA to prohibit the delivery of fuels to tanks that do not comply with federal requirements, and establish a federal requirement that states have the authority to prohibit fuel deliveries into non-complying tanks.

VI. S. 1850 Would Implement The GAO Recommendations

S. 1850, introduced by Senator Chafee and supported by a bi-partisan group of co-sponsors (including Senators Jeffords, Smith, Carper, Inhofe, Reed, and Warner), contains the following provisions to implement the GAO recommendations:

· Require a minimum of 80 percent of the funds appropriated from the Trust Fund be delivered to states;

· Permit states to use Trust Fund monies to enforce the 1998 UST deadline;

· Require all regulated USTs to be inspected every two years;

· Require states to develop UST operator training programs based on EPA guidelines;

· Require states and Federal agencies to submit to EPA a strategy to ensure that all tanks operated by federal, state, and local governments comply with existing regulations;

· Require EPA to issue regulations to authorize EPA or the states to prohibit the delivery of fuels into non-complying USTs;

· Authorize $200 million for remediation of MTBE releases; and,

· Authorize a total of $460 million in appropriations from the Trust Fund.

NACS and SIGMA strongly support S. 1850, with one suggested amendment, and urge this Committee to approve this important legislation at the earliest possible date.

VII. Suggested Amendment to S. 1850

There is one provision in S. 1850 that NACS and SIGMA would like to change. As introduced, S. 1850 limits the use of LUST Trust Fund monies by state UST reimbursement funds to situations where the UST owner or operator would face financial hardships but for the reimbursement. This provision encourages non-compliance by UST owners and operators. We believe that elimination of this limitation would expedite UST clean-ups and would leverage limited tank remediation funds at the state level.

Most UST cleanups are managed by responsible parties – that is, tank owners or operators – and are overseen by state UST implementing agencies. The UST corrective action program largely has worked extremely well. As the chart attached to my testimony outlines for the states represented by members of this Committee, UST clean-ups in your states are taking place at a consistent pace.

State UST reimbursement funds have expended more than $5 billion for UST clean-ups over the past decade. According to state data, most state UST reimbursement funds are solvent; however, some of these funds have been paying claims at a faster rate than the revenues they receive. A growing concern from NACS and SIGMA members is that some state legislatures, increasingly strapped for cash, might “borrow” or raid the cash balances in these state UST assurance funds. This occurred in my home state of Rhode Island during the state’s last budget “crunch.” Cash flow, therefore, remains critical to the success of the state UST reimbursement funds, and allowing a state to use some of its LUST Trust Fund monies from EPA for its UST reimbursement fund is one way to leverage limited clean-up resources.

There is also a misplaced perception that eliminating the limitation in S. 1850 would send millions of dollars back to the major oil companies. NACS and SIGMA do not believe that to be the case. Most major oil companies were the first to replace their tanks, and likely have received the bulk of any clean-up reimbursements they were owed under the state UST assurance funds.

UST owners and operators are more likely to initiate and complete tank clean-ups if they know that, after they pay the required “front end,” or deductible, amount, the state UST assurance fund will timely reimburse their clean-up expenses. Stated differently, if reimbursements become stretched out over a longer period of time, the UST owner or operator has an incentive to slow down the pace of their clean-ups. Thus, limiting the use of LUST Trust Fund monies by State UST reimbursement funds will do nothing to maintain the pace of corrective actions.

SIGMA and NACS also feel that removing the limitation also will assist with the clean-up of high-priority releases, such as MTBE contamination cases. If, for example, a small business can avoid significant legal expenses by assigning their clean-up costs to a state UST reimbursement fund, limited resources can be expended on clean-ups, rather than lawyers and consultants.

NACS and SIGMA urge this Committee to make this change to S. 1850 prior to reporting the bill to the full Senate. We stand ready to work with the Committee in crafting appropriate amendment language.

VIII. Conclusion

NACS and SIGMA appreciate this opportunity to present their views on USTs and S. 1850. We look forward to working with the Committee on UST legislation and urge the Committee to move this bill expeditiously.

I will be happy to answer any questions my testimony may have raised. Thank you.

ATTACHMENT TO TESTIMONY

SELECT STATE FINANCIAL ASSURANCE FUNDS

Design Characteristics, Funding, Level of Activity, and Current Status

State	Number of Tanks Covered	Corrective Action Covered?	Fund Coverage Deductible	Annual Tank Fee	Per-Gallon Petroleum Fee	Approximate Annual Revenues (Millions)	Total Approximate Current Balance (Millions)	Total Number of Sites	Number of Sites Where Claims Have Been Paid to Date	Average Cost Per Site at Completed Clean-up Sites	Current Status of Fund
California	180,000	Yes	Between $0 and $10,000	N/A	$0.012	$190	$215.3	28,000	8,400	$98,000	The fund is still receiving and processing new claims.
Colorado	12,532	Yes	$10,000 for clean-up $25,000 for third party	$35	$0.00 - $0.009375	$22.6	$4.9	7,934	1,332	unknown	The fund is stable and solvent.
Connecticut	N/A	Yes	$10,000	N/A	N/A	$11	$14.2	971	1,859	$1 million	N/A
Delaware	720	Partial	$2,500	$50 (not used for state fund)	$9 mils/ gallon	$1.35	$.488	115	115	$73,927	No new claims are currently being accepted.
Florida	n/a	Partial	From $500 up to 25% of all costs	$50 for UST initial	$0.02	$203	$152	18,460	10,000	$200,000	The fund is stable and solvent.

State

Number of Tanks Covered

Corrective Action Covered?

Fund Coverage Deductible

Annual Tank Fee

Per-Gallon Petroleum Fee

Approximate Annual Revenues (Millions)

Total Approximate Current Balance (Millions)

Total Number of Sites

Number of Sites Where Claims Have Been Paid to Date

Average Cost Per Site at Completed Clean-up Sites

Current Status of Fund

California

180,000

Yes

Between $0 and $10,000

N/A

$0.012

$190

$215.3

28,000

8,400

$98,000

The fund is still receiving and processing new claims.

Colorado

12,532

Yes

$10,000 for

clean-up

$25,000 for

third party

$35

$0.00 - $0.009375

$22.6

$4.9

7,934

1,332

unknown

The fund is stable and solvent.

Connecticut

N/A

Yes

$10,000

N/A

$11

$14.2

971

1,859

$1 million

N/A

Delaware

720

Partial

$2,500

$50 (not used for state fund)

$9 mils/

gallon

$1.35

$.488

115

$73,927

No new claims are currently being accepted.

Florida

n/a

Partial

From $500 up to 25% of all costs

$50 for UST initial

$0.02

$203

$152

18,460

10,000

$200,000

The fund is stable and solvent.

Idaho

3,917

Yes

$10,000 for

ASTs/USTs

$100 for

heating oil

$25 for

USTs/ASTs

$5 for heating oil

Fee suspended until surplus drops to $15 million

Fee temporarily suspended

$30

291

117

$129,917

The fund provides insurance coverage for losses from insured tanks that occurred during the policy period.

Missouri

40,000

yes

$10,000

None

$0.003125

$17.9

$40

3,914

1,068

$41,986

The fund insures owners/operators of USTs and ASTs containing petroleum, as long as compliance is demonstrated.

Montana

N/A

Partial

$17,500 per release

None

¾ cents per gallon

$6.4

$1.6

1,192

1,075

$11,780

The fund is currently reimbursing money at a rate faster than revenue is being collected.

Nevada

3,600

Partial

10% for regulated tanks

$100

$0.0075 $7.5 million

1,075

935

N/A

The fund is alive, well, and adding improvements.

New

Hampshire

n/a

Yes

Motor fuel:

$.014/gal UST

$.001/gal AST

$.014

$14.6

$12.9

1,843

1,398

$35,000

The fund is active in all project areas and continues to accept claims for historical and new releases.

New Jersey

30,000

Yes

None

n/a

$20

$8.7

900

600

The fund is open for businesses that submitted applications by 1/01/99.

New York

N/A

Yes

N/A

1100-2000 gallons:

$50 every 5 years

2001-4999 gallons:

$150 every 5 years

5000-399,999 gallons:

$250 every 5 years

$0.08 per barrel transferred by a MOSF

$35

$2.4

178

N/A

unknown

The fund is a non-reimbursement fund.

Ohio

23,575

Yes

$55,000 std

$11,000 rdc

$450/$550K deductible

$600/$11K deductible

n/a

$9.5

$43.4

unknown

2,116

$58,360

The fund will accept claims for releases occurring before and after 12/22/98.

Oklahoma

38,885

Yes

$5,000

n/a

$0.01

$27

$17.2

3,891

1,922

$77,000

The fund remains solvent.

Oregon

N/A

No, for State Remediation Only

Not Available to Private Parties

$85

N/A

Funded by State

for State

Remediation

Pennsylvania

34,940

Yes

$5,000

$.01

$0.0005

$335

3,000

2,950

n/a

The fund now pays 97% of all claims presented with a release date of 2/01/94 or later.

Rhode Island

1,817

Yes

$20,000

$0.01

$4.2

$1.3

300

138

$57,024

As of May 2001, the Board was having difficulty paying the quarterly disbursement due to a severe shortfall in funds. Government entities had taken the majority of the funds.

Vermont

4,181

Partial

$250 - $10,000

$200/tank

$0.01

$4.1

2,300

755

$24,776

The fund is still accepting claims for new and old releases.

Virginia

43,022

Partial

$10,000 - $200,000

n/a

$0.002 -0.006 for motor fuel, diesel, heating oil

$33.6

$1.9

16,038

3,760

$37,488

The fund is currently active covering all new releases with no sunset provisions.

All information is based on responses to a survey conducted by the Vermont Department of Environmental Conservation.

Updated May 2001.