A state-administered fund for cleaning up leaks from underground petroleum tanks is at risk of insolvency because of its "one-size-fits-all" premium schedule, according to recent legislative testimony.
Service stations with safer, new tanks, typically made of double-walled fiberglass, have pulled out of the Petroleum Storage Tank Fund, leaving the fund on the hook for mostly older, corrodible steel tanks.
This situation is what actuaries call "adverse selection," and the Legislature needs to do something about it, according to Rep. Steve Eliason, R-Sandy.
His HB138, now awaiting action on the House floor, would adjust the premiums participants pay so that fees reflect the risks their tanks actually pose. The bill is endorsed by the industries participating in the fund.
"This is incentivizing good behaviors. If you are a good operator with good controls, this is going to reduce the fees you are charged. That’s the way a private market ought to work," Dave Davis, president of the Utah Food Industry Association, told the House Natural Resources Committee last week.
The fund has been tapped hundreds of times to clean up gas station leaks. The worst was a Gunnison convenience store that sent a hydrocarbon plume, detected in 2007, under downtown and infiltrated homes and businesses. Six other leaks have required cleanups that exceeded the $1 million limit on fund payouts. That cap was doubled to $2 million in response to the Gunnison catastrophe.
An analysis commissioned by the Utah Department of Environmental Quality (DEQ) has found the tank fund faces a $15 million "negative equity balance." This means its current $12 million balance is insufficient to cover the $27 million in payouts the fund is expected to face. Meanwhile, improper payouts have helped deplete the fund, according to lawsuits the state filed against major gasoline retailers.
The state established the fund in 1989 to help gas stations and other tank operators meet federal financial requirements. It is sustained by a half-cent fee levied on every gallon of fuel passing through the tanks.
Since participation became voluntary in 1997, one-fourth of the state’s 3,700 tanks opted to pursue private coverage, according to the DEQ study.
Eliason’s bill would correct the adverse selection by increasing the per-gallon fee slightly and rebating some of this revenue to the less-risky tank operators. It would also impose an additional fee on tanks that distribute a low number of gallons.
These fee hikes would bolster revenue by about $2 million, most of which would be rebated, according to a fiscal note.
To fix the equity imbalance, HB138 would transfer the $6 million balance of a loan fund set up to help operators upgrade their tanks to the cleanup fund. It would also expand the Division of Environmental Response and Remediation’s authority to file liens against offending properties and charge companies for the cost of managing a cleanup that has dragged on too long.
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