New EPA Rules Scare Owners of Gas Stations : High Cost of Insurance for Storage Tanks May Drive Many Out of Business

Ron White and his wife, Betty, started their Upland gasoline business in 1963 with the idea of building up a little equity for their retirement and a legacy to pass on to their children. That was before their nest egg turned into a financial time bomb.

White, 60, built a successful chain of 10 “Gas Up” service stations in Glendora, West Covina, Azusa and other outlying areas, plus a healthy commercial and wholesale business.

Then in 1983, California passed a strict law regulating underground storage tanks that could leak and pollute ground water. White found himself facing costs as high as $35,000 per location to install new equipment and upgrade his 57 tanks.

In December, 1988, with only a few more years to retirement, White faced more expenses: The Environmental Protection Agency issued regulations requiring tank owners or operators to buy pollution insurance or show financial responsibility to cover future cleanups and liability.

White has until next year to find $1 million in pollution insurance--at an annual premium of at least $1,000 per tank--or face possible fines of $10,000 per day.

Like Thousands of Others

Without help, White says he will have to shut down his business and salvage what he can. “Our retirement plans kind of changed,” he said. “We were looking about five years down the road, but now five years won’t get us out of this. We’re taking it a month at a time.”

According to trade groups, White is like thousands of other small gasoline distributors and sellers who face financial ruin under the new EPA regulations.

No one disputes the need to deal with the nation’s aging underground tanks, most of which are made of untreated steel. Of the estimated 2 million tanks the EPA regulates, one in four could have leaks in tank walls or piping, said Ronald Brand, director of the EPA’s office of underground storage tanks. In California, a Times survey last summer found that only half of the estimated 142,000 underground tanks had been tested for leaks.

But groups of gasoline marketers argue that the regulations unduly burden small businesses such as White’s, hastening the trend away from independent marketers, threatening to cut off rural and outlying areas where they operate and giving a further advantage to major oil companies and their retail chains.

“If our people go out, who does it leave? It leaves the major oil companies,” said Jim Gigoux, executive vice president of the California Independent Oil Marketers Assn., a Sacramento-based trade group representing about 360 marketers and distributors.

Companies with sufficient net worth--$10 million to $20 million--can insure themselves, the EPA said. But smaller tank owners or operators must buy insurance, which is both costly and difficult to find, industry officials said.

“The dealer faced with 10-year-old tanks and soil contamination problems and who can’t get the insurance, he’s basically out of business,” said Jim Campbell, executive director of the California Service Station & Automotive Repair Assn., a trade group based in Concord, Calif.

Industry groups are lobbying heavily for a proposed state law that would assess a fee of $200 on each underground storage tank to create a trust fund to help tank owners and operators meet EPA financial responsibility requirements. More than 30 other states have already created such funds.

Gov. George Deukmejian vetoed a similar measure last year. A new version of the law sponsored by Sen. Barry Keene (D-Benecia) has already passed the state Senate. Last week, a heavily amended version of the bill moved out of the Assembly’s environmental and toxics committee. After the summer recess, it goes to the Assembly Ways and Means Committee, said Paul Donahue, a legislative aide to Keene. A similar Assembly bill is on hold.

The governor has not reviewed the latest version of the bill and has not made up his mind about supporting it, said Kevin Brett, the governor’s press secretary.

No one has a good measure of how many independent marketers may be hurt by the EPA regulations, and the main trade group has backed down on initial estimates that as many as 27,000 of the service stations owned by independent marketers in the country--or about 18% of the nation’s estimated 150,000 retail gasoline stations--would close.

That projection, drawn from a survey by the Petroleum Marketers Assn. of America, garnered a lot of attention when it was released in January. Since then, “stations are closing, but maybe not at the magnitude we were projecting,” especially since many states have created trust funds, said Philip R. Chisholm, executive vice president of the PMAA, which represents about 50,000 gas stations.

Requires More Proof

Still, he said, “it’s an absolute nightmare for the entire industry.”

California’s pioneering underground storage tank law, passed in 1983, provided the model for the EPA’s technical regulations. State law, which is more stringent than EPA regulations in some areas, requires permits for underground tanks, regular monitoring of tank systems for leaks, upgrading of faulty equipment and cleanup of spills.

But the EPA regulations go beyond state law in requiring proof of the ability to pay for cleanups, contaminated ground water and any resulting damage to persons or property.

Owners of fewer than 13 underground tanks have until October, 1990, to show proof of at least $1 million in financial responsibility. The larger the number of tanks, the greater the required coverage limits and the sooner the deadline for coverage. Owners of 101 to 999 tanks must show $2 million in coverage by this October. Operators with 1,000 or more tanks were supposed to have shown such coverage by last January. The EPA regulations became effective in December.

David Atwater, who runs the gasoline distributing company founded by his grandfather in Stockton, said his insurance premiums climbed to $21,000 per site for each of his five fueling stations before he was forced to cancel the policies for lack of funds.

“If we kept the insurance, it would have put us in a major loss position,” he said, adding that his company’s margins are 1% to 2%. “We have spent every spare nickel we have already on the technical stuff, about $200,000,” including replacing six of his nine underground tanks and upgrading monitoring and other equipment, he said.

At a station in rural Lakeport, Calif., workers discovered that routine overspills of gasoline had resulted in soil contamination. Although tests turned up no evidence of contamination of the water table by the gasoline, it cost Atwater’s company, California Fuels, about $70,000 to remove 28 truckloads of soil and replace it with clean packed sand.

Can’t Use as Collateral

The problems are more serious at California Fuels’ Woodbridge station, which the company bought from a major oil company several years ago. Inspections revealed contamination consistent with a spill of several thousand gallons of gasoline, which could be found in soil down to the water table--about 40 feet deep, he said.

California Fuels cannot get bank loans to pay for cleanups or upgrades because banks won’t accept the land as collateral, for fear of being stuck with the cost of cleanups later on, he said. And because his business grosses $12 million to $15 million a year, he said he doesn’t qualify for a Small Business Administration loan either.

Without state help, Atwater said, “I might last awhile longer, but there will not be a fourth generation in our company.”

The EPA has been working with insurers and industry officials to find ways to ease the burden on small business, Brand said. But he added that it is unlikely the EPA would respond to industry demands to extend its deadlines. “We have stretched as far as we could on the law and phased in its requirements,” he said.

Major oil companies, whose stations have been supplanting independents over the years, nevertheless support efforts to bail out small businesses affected by the EPA regulations. “The major oil companies have always recognized there’s a definite niche for independent jobbers (distributors) and dealers and we don’t want to see them wiped out,” said James S. White, manager of environmental legislation and regulation for Arco Products Co. in Los Angeles and vice chairman of the storage tank task force of the American Petroleum Institute, the principal oil industry trade group.

A state fund could be too little, too late. “We don’t think a $200 fee alone at this point will be adequate to capitalize the program,” admitted Donahue.

Most Are Uninsured

The California state fund would start out with only $7 million, far below the amount needed for the expected flood of applications. An additional $3 million would go into a fund to provide loans for equipment upgrades. Tank owners would still have to find insurance to cover the first $50,000 of liability coverage on their own.

Meanwhile, preliminary results from a survey conducted by the PMAA in mid-June show that about 60% of the distributors queried remain uninsured, primarily because of the high cost of premiums, said PMAA spokesman David L. Morehead.

“It’s virtually unavailable and incredibly expensive,” said Jane Jachimczyk, senior vice president of Oilmen’s Insurance Plan, which writes pollution insurance, and former general counsel for the PMAA.

Only a handful of companies write the specialized pollution insurance. And few if any write policies that conform to EPA guidelines, Jachimczyk said. Moreover, insurance companies require tank owners to conduct initial screening, equipment upgrades and even cleanups, which can easily cost hundreds of thousands of dollars.

Other insurers insist that eventually more insurance companies will provide pollution insurance and that premiums will fall as competition increases and initial tank problems are uncovered and corrected.

“There will be enough to meet the need,” said Max Clay, president of the Planning Corp., which underwrites the Petroleum Marketers Mutual Insurance Co. or Petromark, a risk retention group in Reston, Va., that is one of the larger providers of tank pollution insurance.

That’s little consolation to Atwater. “At one point, you think you’re living comfortably in the middle of the middle class,” he said. “The next moment, you’re living on the edge of the ledge.”