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What are the underground storage tank (UST) financial responsibility (FR) requirements?

The UST FR requirements are in Subchapter 2O, Title 15A of the North Carolina Administrative Code. The state rules are based on federal regulations requiring that persons responsible for USTs pay the environmental cleanup and third-party liability costs when an UST petroleum release occurs.

What do I have to do to comply with the FR requirements?

The following are the two fundamental things you need to do to comply with the FR requirements.

• Pay your mandatory annual tank operating fees into the North Carolina UST financial assurance fund (hereafter referred to as the “state fund”) as required by the state fund statutes.*
• Demonstrate that you can pay the state fund deductibles.**

**State fund deductibles for an upgraded UST (a UST that meets the 1998 standards for corrosion, spill, and overfill protection) are $20,000 for cleanup and $100,000 for third-party liability.

I know about paying tank fees, but how can I demonstrate that I can pay the state fund deductibles?

You demonstrate that you can pay the state fund deductibles by assuring a certain amount of money with certain financial mechanisms.

• Amount of Assurance  Add three numbers to determine the amount of money you need to assure for all your tanks in North Carolina.  These numbers are the state fund cleanup deductible for upgraded USTs ($20,000), the state fund third-party liability deductible ($100,000), and a number that is called the “scaling factor.”  The scaling factor is $600 per tank.  In determining the amount of money to assure, tanks manifolded together are considered separate tanks, and a compartment tank is considered one tank.*
•  Mechanisms  Use any one or combination of seven mechanisms to assure the required amount of money.  These mechanisms are self-insurance,** corporate guarantee,** insurance and risk retention group, surety bond, letter of credit, trust fund, and insurance pool.  Local governments have four additional mechanisms they may use.  These mechanisms are local government bond rating test, local government financial test, local government guarantee, and local government fund.

**Only incorporated businesses may use the self-insurance and corporate guarantee mechanisms. A business organized as a sole-proprietorship, partnership, or any way other than a corporation cannot use the self-insurance and corporate guarantee mechanisms.

What kinds of USTs must meet the FR requirements?

• Only regulated petroleum USTs must meet the requirements.
• Examples of USTs that must meet the requirements include those that store motor fuel for resale or business use, farm USTs greater than 1,100 gallons that store motor fuel, most emergency generator USTs, oil-water separator USTs that are not regulated under Clean Water Act, waste oil USTs, and USTs that store heating oil for resale or for use off the premises where stored.*

Who needs to meet the FR requirements?

• A tank owner or operator must meet the requirements.  It is up to the owner and operator to decide which of them will meet the requirements.
• Local government agencies must meet the requirements.  Federal and state government agencies do not have to meet the requirements.

• You must keep FR documents at your UST site or place of business.  The records need to be maintained until the UST is permanently closed (FR records must be maintained for temporarily closed tanks) and any corrective action, if required, is completed.  You must submit FR documents to the UST Section upon request by the UST Section, or within 30 days after discovering a release from the UST.
• Both mechanism-specific and general FR documents must be maintained.
• Mechanism-Specific Documents  Specific documents must be maintained for each of the financial mechanisms.  All the required documents for the mechanisms are in the North Carolina UST FR Manual.  (The North Carolina UST FR Manual is a 54-page, green-covered manual.)  As one example, if you use the self-insurance mechanism, your chief financial officer must write a letter to the North Carolina Department of Environment and Natural Resources (NCDENR) worded the same as the chief financial officer letter in Appendix C of the manual.  As another example, if you use the letter of credit mechanism, you must write a letter of credit worded the same as the letter of credit in Appendix G of the manual.  As a final example, if you use the local government fund mechanism, your chief financial officer must write a letter to the NCDENR worded the same as the chief financial officer letter in Appendix L of the manual.
• General Document  No matter which financial mechanism(s) you use, you must maintain, in addition to any mechanism-specific documents, a certification of financial responsibility worded the same as the certification of financial responsibility in Appendix M of the North Carolina UST FR Manual.

Yes.  The North Carolina requirements incorporate the federal requirements with some modifications.  Even considering the modifications, if you are in compliance with the federal requirements, you are also in compliance with the North Carolina requirements.

When do I have to comply with the FR requirements?

The FR requirements are not new.  They became effective July 1, 1992.  Comply with the requirements as soon as possible.  Submission of FR documentation will become part of the permitting process sometime in 2005.  At that time, the UST Section will send you a letter requesting that you submit to us your FR documents.

What FR information is available, and where can I get it?

FR information is available from both the North Carolina state government and the federal government.

• North Carolina State Government FR Information  The North Carolina state government FR information, other than this Frequently Asked Questions document, consists of laws, rules, and the North Carolina UST FR Manual.
• The laws are in the North Carolina General Statutes (Chapter 143, Article 21A, Part 2A, Section 143-215.94H) and can be obtained by either calling the North Carolina General Assembly (919-733-7928) or going to the North Carolina General Assembly website (www.ncga.state.nc.us).
• The rules are in Title 15A, Subchapter 2O of the North Carolina Administrative Code and can be obtained by calling the North Carolina UST Program (919-733-8486).
• The North Carolina UST FR Manual can be obtained by either going to the North Carolina UST Program website (http://wastenot.enr.state.nc.us) or calling the North Carolina UST Program. 
• Federal Government FR Information  The federal government FR information consists of laws, regulations, and the two guidance documents entitled “Financial Responsibility For Underground Storage Tanks: A Reference Manual” (EPA 510-B-00-003) and “Dollars And Sense: Financial Responsibility Requirements For Underground Storage Tanks” (EPA 510-K-95-004).
• The laws are in Subtitle I of the Resource Conservation and Recovery Act and can be obtained by either calling the U.S. Government Printing Office (888-293-6498) or going to the U.S. Government Printing Office website (www.gpoaccess.gov).
• The regulations are in the Code of Federal Regulations (Title 40, Chapter 1, Subchapter I, Part 280, Subpart H) and can be obtained by either calling the U.S. Government Printing Office, going to the U.S. Government Printing Office website, or going to the Environmental Protection Agency’s Office Of Underground Storage Tanks website (www.epa.gov/OUST/).
• The two guidance documents can be obtained by either calling the U.S. Government Printing Office, going to the U.S. Government Printing Office website, or going to the Environmental Protection Agency’s Office Of Underground Storage Tanks website (www.epa.gov/OUST/).

• A public school system is a local government agency. Therefore, a regulated petroleum UST owned by a public school system must meet the FR requirements.
• A public school system generally owns two types of USTs.  These two types are motor fuel USTs at school bus garages and heating oil USTs.  A motor fuel UST is a regulated petroleum UST and thus must meet the FR requirements.  A heating oil UST in which the heating oil is used on the premises where stored is not a regulated petroleum UST and thus does not need to meet the FR requirements. A heating oil UST in which the heating oil is not used on the premises where stored is a regulated petroleum UST and thus must meet the FR requirements.

The following are several tips to successfully executing the CFO letter.

• If in using the CFO letter, you use a compilation report, submit the report to the UST Section when you submit the CFO letter.  The compilation report must contain at least a balance sheet.
• Line 5 of the CFO letter asks for “tangible net worth.”  Tangible net worth is net worth (that is, total assets minus total liabilities) minus intangible assets such as goodwill and rights to patents and royalties.  Tangible net worth is obtained from your balance sheet.

Only incorporated businesses may use the self-insurance and corporate guarantee mechanisms. A business organized as a sole-proprietorship, partnership, or any way other than a corporation cannot use the self-insurance and corporate guarantee mechanisms.

What else do I need to know about FR?

The following are several other useful things to keep in mind about FR.

• Insurance  Contact your insurance agent to get UST pollution liability insurance.  Also, the North Carolina Petroleum Marketers Association (NCPMA) has a list of insurance companies, agents, and brokers on their website (www.ncpma.org).  This list is accessible on their website to both NCPMA members and nonmembers.
• Standby Trust Fund  The corporate guarantee, surety bond, and letter of credit mechanisms all utilize a “standby trust fund.”  A standby trust fund is not a mechanism in and of itself, but is instead only a part of each of these three mechanisms.  A standby trust fund is a trust fund that is not yet funded but is ready to accept money from a particular source, such as from a guarantor in the case of a corporate guarantee, a surety in the case of a surety bond, and a financial institution such as a bank in the case of a letter of credit.
• Amount of Assurance Versus Net Worth Required To Self-Insure Or Provide A Corporate Guarantee  Don’t confuse two numbers.  These two numbers are the amount of assurance required to demonstrate that you can pay the state fund deductibles, and the net worth required to self-insure or provide a corporate guarantee. Be careful.  It is a common mistake to confuse these two numbers. The amount of assurance required to demonstrate that you can pay the state fund deductibles is $120,000 plus $600 per tank.  The net worth required to self-insure or provide a corporate guarantee is total tangible assets minus total liabilities as determined in the worksheet of the CFO letter in Appendix C of the North Carolina UST FR Manual.
• Third-Party  “Third-party” is an important FR term.  If for example, your tank leaks and contaminates a neighbor’s water well, that neighbor is a third-party.  Similarly, and as another example, if your tank leaks and petroleum vapors get into a neighbor’s basement, that neighbor is a third-party.
• FR Scope  The scope of FR encompasses corrective action and third-party liability.  On-site and off-site corrective action is included.  Third-party liability includes on-site and off-site bodily injury and property damage.  Sudden and non-sudden accidental releases are included.
• FR Amount  “Per Occurrence” and “Annual Aggregate” are important FR terms.  The per occurrence amount of money you must assure is the amount of money that must be available to pay the costs of one occurrence of a leaking UST.  The annual aggregate amount of money you must assure is the amount of money that must be available to pay the costs of all occurrences of leaking USTs in one year.  In North Carolina, the per occurrence and annual aggregate amounts of money you must assure are equal to each other.  They are also equal to the amount of money you must assure to demonstrate that you can pay the state fund deductibles (that is, $120,000 plus $600 per tank).