WSR 24-21-143

PROPOSED RULES

POLLUTION LIABILITY

INSURANCE AGENCY

[Filed October 22, 2024, 1:34 p.m.]

Original Notice.

Preproposal statement of inquiry was filed as WSR 17-16-145.

Title of Rule and Other Identifying Information: Chapter 374-90 WAC, Underground storage tank (UST) revolving loan and grant program (program).

Hearing Location(s): On November 25, 2024, at 1:00 - 2:30 p.m., virtual Zoom session; on December 2, 2024, at 6:00 - 7:30 p.m., virtual Zoom session; and on December 4, 2024, at 11:00 a.m. - 12:30 p.m., virtual Zoom session. Please submit written comments to rules@plia.wa.gov. See https://plia.wa.gov/public for more details and links to the Zoom sessions.

Date of Intended Adoption: December 20, 2024.

Submit Written Comments to: Phi V. Ly, P.O. Box 40930, Olympia, WA 98504-0930, email rules@plia.wa.gov, 800-822-3905, beginning November 6, 2024, 8:00 a.m., by December 13, 2024, 5:00 p.m.

Assistance for Persons with Disabilities: Contact Xyzlinda VanEvery, phone 360-407-0515, TTY 711 or 800-833-6388, email rules@plia.wa.gov, by December 13, 2024.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: This chapter establishes the UST program pursuant to chapter 70A.345 RCW and outlines the program requirements and processes. The purpose of the program is to assist owners or operators of petroleum UST systems to: Remediate past releases; upgrade, replace, or remove petroleum UST systems to prevent future releases; or install new infrastructure or retrofit existing infrastructure for dispensing or using renewable or alternative energy. The program also assists owners and operators of heating oil tanks to remediate past releases or prevent future releases by upgrading, replacing, decommissioning, or removing heating oil tank systems.

Reasons Supporting Proposal: The program will provide owners of petroleum USTs and of properties with petroleum releases or heating oil tanks with the financial means to clean up contamination and replace older fueling and heating infrastructure. The program will help ensure that petroleum releases that are harmful for human health and the environment are cleaned up to state cleanup standards and will allow the property to be safely used or upgraded.

Statutory Authority for Adoption: RCW 70A.345.030.

Statute Being Implemented: Chapter 70A.345 RCW, Underground storage tank revolving loan and grant program.

Rule is not necessitated by federal law, federal or state court decision.

Name of Agency Personnel Responsible for Drafting, Implementation, and Enforcement: Phi V. Ly, 500 Columbia Street N.W., #103, Olympia, WA 98501, 360-407-0520.

A school district fiscal impact statement is not required under RCW 28A.305.135.

A cost-benefit analysis is not required under RCW 34.05.328. The proposed rule does not meet the conditions of RCW 34.05.328 (5)(a) that mandate a cost-benefit analysis, and the pollution liability insurance agency (PLIA) is not choosing to voluntarily subject the rule to a cost-benefit analysis.

The proposed rule does impose more-than-minor costs on businesses.

Small Business Economic Impact Statement (SBEIS)

Executive Summary: As of April 2024, there were more than 8,000 operational petroleum USTs across more than 3,000 sites within the state of Washington. While the use of these tanks varies across several different industries, a significant number of them are owned and operated by small businesses, primarily small gas stations which keep their fuel stores in one or more UST. With the proposed implementation of a revolving loan and grant program for UST owners and operators, PLIA needs to determine how these policy changes may impact small businesses.

The authorization for the UST program was signed by the governor in April of 2016. PLIA has been operating the program since then under guidance documents. The program was created to serve the state's aging UST infrastructure. The vast majority of the state's operating USTs are between 20 and 40 years of age, which means they are approaching or at the end of their operational lifespan. As the tanks age, the risk of leakage increases, posing a potential environmental threat. Removing and replacing a UST is expensive, as is spill cleanup. The program provides UST owners and operators with financial aid that can be used to address these issues. Though the program has already been operating for years under interpretive guidance, the proposed rule will formally adopt this program, and provide a framework for both the UST and heating oil tank programs.

To analyze the potential impacts of this proposed rule for an SBEIS, Greene Economics performed an analysis using a database provided by the department of ecology (DOE). The database contains information on all of the USTs in the state, both active and inactive, and dates back to the early 20th century. In addition, the team used data collected by PLIA over the initial years of the program. These data include all loans and grants distributed to both UST and heating oil owners and operators since the program's inception.

The projected compliance cost of this new program was determined to be zero because the program is entirely voluntary. In addition, there are no significant costs associated with the program application process. In fact, the program provides businesses with grant money and loans offered at prime rates that they would not be able to secure elsewhere. PLIA also has a priority ranking scheme that favors small business applicants. Therefore, there are no anticipated disproportionate impacts expected for small businesses under this new rule.

Section 1: Introduction: PLIA proposes a new rule to administer a State UST and heating oil tank program, providing owners and operators of USTs and heating oil tanks financial assistance to remediate past releases; upgrade, replace, or remove petroleum UST systems to prevent future releases; or install new infrastructure or retrofit existing infrastructure for dispensing or using renewable or alternative energy. The proposed rule defines criteria and procedures for a state-run program that was first established as a pilot in 2016 for UST owners and expanded to include heating oil tank owners in 2020. Since the proposed rule has the potential to impose more than minor costs on businesses, an SBEIS is required by law (RCW 19.85.030). This study has been developed to analyze the compliance costs of the proposed rule to small and large businesses to determine whether small businesses will bear a disproportionate share of these costs or experience any economic impacts from participating in the UST program.

Objective of the SBEIS: The objective of the SBEIS, as established in RCW 19.85.040, is to identify and evaluate the various requirements and costs that the rule might impose on businesses. In particular, the purpose is to determine whether a disproportionate impact of the compliance costs is borne by small businesses in the state. The legislative purpose of the Regulatory Fairness Act (chapter 19.85 RCW) is set out in RCW 19.85.011:

The specific purpose of the SBEIS is identified in RCW 19.85.040:

For purposes of the SBEIS, the terms "business," "small business," and "industry" are defined by RCW 19.85.020:

Summary of Proposed Rule: PLIA was authorized by the Washington state legislature to establish a UST program in 2016 (chapter 70A.345 RCW). With the state's aging UST infrastructure, this program is meant to provide owners and operators of USTs with financial assistance to remediate contamination, enhance UST systems to prevent future releases, and install new infrastructure for dispensing renewable or alternative energy. Though authorized to establish this program in 2016, PLIA was permitted to implement the UST program through interpretive guidance pending adoption of rules to prevent the delay of critical loan and grant awards (RCW 70A.345.100).

With this memorandum of agreement in place, PLIA has been administering the UST program under interpretive guidance since 2016, with the addition of the heating oil tank loan and grant program in 2020. This new proposed rule will replace the interpretive guidance and allow for the running of this program under an officially adopted rule. The proposed rule mirrors the existing interpretive guidance with a few minor changes.

Under the existing guidance and proposed rule, PLIA offers financial assistance for remediating past releases, upgrading, replacing, or removing petroleum UST systems to prevent future releases, and installing new infrastructure or retrofitting existing infrastructure for dispensing renewable or alternative energy. The program also provides financial assistance to heating oil tank owners and operators that need funding to remediate past releases or prevent future releases through upgrades, replacements, and decommissioning; the removal of heating oil tank systems; or the installation of new infrastructure to replace heating oil with another source for heating purposes.

To be eligible for this program, UST owners and operators must maintain compliance with UST requirements at the state or federal level and be registered with DOE or the federal equivalent if seeking financial assistance for an operational UST. For nonoperational UST systems, the site must not be under an agreed order or consent decree. Both UST and heating oil tank owners and operators must also be applying for funds to address issues as listed above to be considered eligible for assistance. A personal credit history report may be required for applicants applying for loan funding.

Application for these programs occurs on a yearly cycle, with dates and applications available on PLIA's website. The application cycle may be suspended if the program receives a large applicant pool that exceeds PLIA's resources. The UST program was so popular in its first few years that PLIA closed the application cycle in 2020 to address the backlog of current program participants from 2017 through 2020.

In most instances, accepted applicants require a preliminary planning assessment (PPA) to determine the magnitude and cost of the proposed project. PLIA provides a PPA grant to cover these costs. It should be noted that the award of this grant does not guarantee further program funding. The grant pays up to $150,000 for the PPA and reduces an applicant's total funding award amount. PLIA's agency-contracted consultants conduct these assessments.

PLIA uses program ranking criteria to determine which projects are prioritized for funding. Projects that involve remediation are of high priority, especially those with significant contamination and that pose an immediate threat to public and environmental health. Other considerations include the age of the tank or tanks in question, insurance and financial need, and environmental justice2 concerns. The heating oil tank loan and grant funding similarly prioritizes applicants seeking remediation for oil spills. The ranking for these projects also considers whether the location of the project is in an area identified as a vulnerable population or overburdened community.

UST program funding is awarded via loan, grant, agency-led remediation, or some combination of these mechanisms with the total not exceeding $2 million (which includes the PPA grant funding).

Heating oil tank program funding is awarded via loan or grant and cannot exceed $75,000. The grant and loan funds have the same stipulations as those awarded via the UST program.

The new rule includes specific eligible and ineligible costs for the UST and heating oil tank programs. These eligibility requirements are the same as those listed in the current program guidance. The rule also lists scenarios through which PLIA may terminate a project. These scenarios include times when a participant fails to comply with program funding rules, there is a mutual agreement to suspend or terminate the project, funding becomes limited, the participant enters a Model Toxics Control Act "agree order" or "consent decree," or termination is necessary to protect the interests of the state.

History of Revolving Loan and Grant Program: The programs for both USTs and heating oil tanks have already provided financial aid to several entities over the past few years. Though the heating oil tank program was not initiated until 2020, PLIA has conducted PPAs for 25 applicants and has distributed loans to three entities.

The UST program has administered since 2016. In the first four years of its existence, PLIA received 89 applications.3 Due to the large volume of applicants, PLIA has not reopened its application cycle since the 2019-2020 award cycle and has been working on providing financial aid to the backlog of applicants. As highlighted in Table 2 below, PLIA has provided its applicants with over $7 million in PPA grants, $700 thousand in additional grant funding, over $360 thousand in remedial action funding, and over $2 million in loan funding.

Since the inception of the UST program, PLIA has completed 86 PPAs and distributed program funding to the eight entities listed in Table 3. The grants and loans have ranged from $150 thousand to over $1 million.

Table 2: UST Funding Details:

Industries Required to Comply with New Rule: UST owners and operators can be found in several different industries throughout Washington. The following analysis of Washington state UST operational sites by site type was conducted using an extensive database5 which contains all regulated tanks installed and documented in the state since 1900 and was made available through DOE's website.6 The database includes important information regarding the sites, tanks, and tank compartments. For example, the database lists each site name, region of the state, county, the number of tanks, date of installment, the material stored in each tank, and the material used to construct each tank. The database does not include information about tank conditions, nor the type of business using the tanks.

It should be noted that no industries must comply with this new rule. The program is completely voluntary for UST and heating oil tank owners and operators. Table 6 below is a summation of industries that may participate in the program.

The DOE UST database tells an interesting story about the USTs in the state. For instance, there are more operational tanks in western Washington compared to the eastern and central parts of the state. The northwest region is comprised of only seven counties, but these counties contain over 3,600 USTs. The central region also contains seven counties but houses less than 1,000 USTs. The southwest region (12 counties) and eastern region (13 counties) also contain a similar number of counties, but the southwest region has double the number of USTs. As seen in the graphic below, the northwestern region has the greatest number of USTs with triple the number of operational tanks compared to the central region and the eastern region (see Figure 1).

As of April 2024, there are 3,235 sites with at least one tank listed as "Operational." Tanks are given various different statuses, such as "Removed," "Closed In Place," "Closure In Progress," "Temporarily Closed," "Red Tag," and more. As seen in the table below, of the 15,078 total UST systems in the DOE UST database, 8,251 are labeled operational (see Table 4). There is an average of 2.6 operational tanks per site.

Of the operational tanks, the vast majority are between 25 and 40 years of age, nearing or at the end of their viable lifespan. The table below highlights this trend (see Table 5).

Small gas stations made up the largest portion of operational sites. A series of informed data refinements were employed to estimate the number of sites that qualify as small gas stations (including those with a convenience store attached), and the share of all operational tanks represented by this group. The first step in this process involved isolating the group of tanks with contents labeled under both "Motor Fuel for Vehicles" and "Unleaded Gasoline," as those are the classifications that at least one tank at every small gas station would adhere to. Following this, the hypermarkets of Costco, Safeway, Walmart, and Fred Meyer were filtered out, and a word search was employed to remove sites with naming conventions not likely to be used by small gas stations. For example, this method eliminated all police departments, fire departments, hospitals, Washington department of transportation fueling stations, and sites with "port of" or "city of" in their name. This analysis resulted in a final list of 2,360 sites, or approximately 73 percent of all operational sites.

Emergency generator tanks are the next most common type of UST held by a broad variety of business types. These represent just over nine percent, followed by large gas stations (hypermarkets such as Costco and Safeway) at 5.4 percent. The table below contains around 90 percent of the total 3,235 operational sites. The remaining 10 percent belong to a diverse array of groups from large automobile fleet owning companies like Microsoft to small businesses with niche UST needs. While the larger organizations might also apply to the proposed financial assurance program, identifying the specific type of business was not possible with the available data. However, the table below provides a general overview of the UST owners and operators potentially affected by the proposed financial assurance program (see Table 6).

In addition to these listed UST groups, it is also important to consider the owners and operators of heating oil tanks. Heating oil tanks are used almost exclusively to heat buildings, mainly households. Approximately 1.3 percent (40,000 homes) of all Washington households use fuel oil to heat their homes.7

Based on the information available from the DOE UST database, the following table lists the industrial codes (NAICS) for the sectors that will potentially be impacted by this new rule (see Table 7). UST owners and operators fall under a wide variety of industries, which makes it challenging to compile a complete NAICS list of industries potentially impacted by the new financial assurance program. Some of the potentially affected entities are in such broad industries that only the two-digit NAICS code is provided.

Methods of Analysis: This analysis compares the cost of compliance per one $100 of sales between large and small businesses that own USTs, in order to determine whether small businesses will bear a disproportionate share of these costs. Based on sales, the hypermarkets, or large gas stations, are considered the largest businesses in this analysis. Small businesses, most of which are smaller, independently-owned gas stations, are aggregated, and the total per $100 of sales cost is compared with that of the largest businesses to assess whether or not a disproportionate impact is expected for small businesses.

Section 2: Compliance Costs for Washington Businesses: As noted above, the UST and heating oil tank program is completely voluntary. Its purpose is to provide UST and heating oil tank owners and operators with a source of funding, in the form of financial assistance. Since the program is voluntary and actively provides UST and heating oil businesses with financial aid, there are no compliance costs associated with this proposed rule.

While there are no compliance costs, there are several eligibility considerations mentioned in the rule summary section above. These requirements include meeting UST requirements under chapter 173-360A WAC, being registered with DOE or an equivalent federal agency, and that the applicant must be seeking financial assistance for remediation and/or infrastructure upgrades. Nonoperational tank owners and operators must not be under an enforcement order or consent decree.

Heating oil tank owners and operators must be seeking financial assistance to pay for remediation, a heating oil tank upgrade/removal, or an upgrade or installation of new infrastructure to replace the heating oil tank. UST and heating oil tank owners and operators should already meet these eligibility requirements as they are required by other rules, and if not, the cost to meet these requirements is negligible. Again, due to the voluntary nature of this program, there are no true compliance costs. Those applying for this program should expect a range from no cost to negligible cost to meet eligibility standards.

The application for the revolving loan program is available on PLIA's website along with important application cycle dates and deadlines. Alternative formats, such as language-translated applications, will also be offered if requested. Applications must include financial documents, business documents, and UST information. There are no major anticipated costs associated with the application.

Applicants that are offered a loan can expect the interest rate on their loan to match the prime rate that was in effect in March of the year they applied. This rate will likely be lower than what they could expect via a traditional loan through a bank. PLIA also works with recipients to identify and make use of all existing funding sources (insurance policies and other mechanisms) to maximize these private funding sources before expending loan and grant funds. In summation, this proposed program is voluntary, so there are no required compliance costs. For those who do choose to participate in the program, the application process imposes no to negligible cost to applicants, and for those who are offered a loan, the interest rate on said loan is at a low rate that reduces the financial burden for participatory Washington businesses.

Section 3: Analysis of Impact on Small Businesses: To determine if the proposed program will have a disproportionate impact on small businesses relative to large businesses, both small and large businesses were identified. As mentioned in Section 1, the top 10 percent of businesses are considered large businesses. For this analysis, hypermarkets, or large gas station corporations are considered large businesses. Additionally, hospitals and aviation fuel supply tanks are also considered large businesses. Though they make up just under eight percent of the DOE UST database, this is the only group of affected businesses that consistently fall in the top 10 percent of annual sales and have more than 50 employees, which is the demarcation for small businesses. The vast majority of USTs belong to small businesses, almost all of which are independently owned gas stations. The remaining small businesses with USTs come from other industries (e.g., construction, nonretail facilities) and are harder to identify. Therefore, small, independently owned gas stations represent small businesses for this analysis, while hypermarkets, hospitals, and airports represent large businesses (see Table 8).

As noted in Section 2, there are no anticipated costs associated with the proposed program. Therefore, there are no anticipated disproportionate impacts on small businesses. In fact, the site ranking criteria that determines which applicants are prioritized for funding favors small businesses. As highlighted in Table 9, applicants with high financial need, with insurance need, located in environmental justice communities, and/or providing community benefits are prioritized for funding. Small businesses are more likely to serve environmental justice communities and isolated communities than larger businesses. They may also struggle to secure finances and insurance compared to larger companies that have stronger financial support. So not only will small business program participants incur little to no cost to apply to this proposed program, but their projects will also have higher priority than that of a similar project requesting funding by a larger company, ensuring that small businesses are more likely to access grant and low interest rate loans than large businesses.

Table 8: Site Ranking for Revolving Loan and Grant Program9:

Involvement of Small Business in the Development of the Proposed Rule: As part of the rule-making process, PLIA held public, informational listening sessions on proposed loan and grant program rules. These sessions were held in May 2023 where several attendees provided comments and questions for the agency to consider in finalizing rule language.

Due to PLIA's 2023 legislative activities that included the establishment of a new agency program and appropriations request to add additional staffing and resources, the loan and grant rule making was pended until early 2024. The additional time allowed the agency to refine program processes, properly staff the program with dedicated staffing, and update program documents.

PLIA intends to conduct additional informational listening sessions in fall 2024 prior to adoption of the rule.

Actions Taken to Reduce the Impact of the Rule on Small Businesses: In general, the proposed program does not impact small businesses, particularly because the program is voluntary. For small businesses that do apply for financial aid, the applicant ranking scheme described in Section 3 includes several considerations that favor small businesses, improving their chances of receiving grant and loan funding.

A copy of the statement may be obtained by contacting Phi V. Ly, P.O. Box 40930, Olympia, WA 98504-0930, phone 360-407-0520.

October 22, 2024

Phi V. Ly

Legislative and Policy Manager

OTS-5919.1

Chapter 374-90 WAC