The state Department of Environmental Quality is failing to ensure that owners of underground storage tanks have insurance or other coverage, leaving taxpayers on the hook if and when they leak, a new report states.
Auditor General Debbie Davenport said Tuesday staffers from her agency found there was no evidence of financial responsibility by the owners of more than one out of every three sites with tanks that store gasoline and other petroleum products. That includes more than 700 places, some with multiple tanks, where insurance coverage has lapsed — and 145 cases where auditors were unable to find any evidence that there ever was insurance in the first place.
And Davenport said it appears that DEQ actually has allowed owners to register their tanks, as required by law, without actual proof of financial responsibility which is part of that same law.
The issue is more than academic: Davenport said when one of these tanks leaks — and many do, as they get older — the lack of insurance means the burden falls on the state.
She said it costs about $103,000 to clean up after the typical leak. But Davenport also cited one case involving an unnamed Tempe gasoline station where pollutants had contaminated both the soil and groundwater and costs could hit $1.5 million.
For the moment, these costs are being financed by a penny-a-gallon levy on all gasoline sold in the state. DEQ already has spent $335 million to clean up more than 2,600 sites; most of that is in reimbursing tank owners who say they just can't afford the costs. It also includes $60 million where the owners just can't be found and the state itself has to do the work.
But state legislators have agreed to let that tax — and the money it raises — expire at the end of 2015.
Davenport stressed this isn't a new problem.
She cited a 1998 report which found more than half of tank owners had not shown financial responsibility. That decreased to 38 percent in 2004, virtually equal to what the latest report found.
DEQ Director Henry Darwin acknowledged the problem and said a staffer has been assigned the specific task of working with tank owners to ensure they get the insurance or other coverage.
But Darwin said there may be very little his agency can do to increase compliance.
“It used to be that every corner gas station was owned by a big oil company,” he said. Now, Darwin said, they want to avoid all of the liabilities, including for the damages caused by the aging underground tanks.
“They've sold them off to small mom-and-pop type operators,” Darwin said, essentially leaving Circle K — and lots of individually owned stations. And he said many simply cannot afford the cost of the insurance.
Davenport, however, said the risk to taxpayers is increasing.
She said the lifespan of a typical underground tank is 30 years. But more than half of the tanks in the state were installed longer ago than that, with 13 percent already 30 years or older.
“It's a definite problem,” Darwin acknowledged. But getting compliance, he said, is no simple matter.
“I could send out a thousand letters tomorrow,” he said. “But that's not going to do us any good because they're going to get the letter, they're going to look at it and they're probably going to tear it up and throw it in the garbage.”
And the only “hammer” Darwin said he has over tank owners is financial. But Darwin said if owners don't have the money to buy the insurance they need, a fine isn't going to make any difference.
That insurance requirement is extensive.
It requires tank owners to purchase coverage to clean up not only the spills but also any damages the leaks cause to others. Policies must cover $1 million per leak for ask stations and other petroleum marketing facilities.
And simply having station owners shut down operations does not resolve the problem.
Davenport's auditors found one company that owns gasoline stations had not provided any proof of financial responsibility for its 17 facilities since its most recent coverage expired more than six years ago. She said while the company closed all of its stations, it still had tanks at each location that had not been removed or formally closed.
“Even if tanks are no longer operating, they still post a risk because liquid may still it in the tank,” Davenport said. “The owner is required to continue to submit evidence of financial responsibility until the tank is properly closed or removed.”
Rather than send threatening letters or impose fines, Darwin said DEQ is trying to work with tank owners to find lower-cost coverage “that would meet our requirements but still allow them to make a living.”
Darwin said his agency has taken no position on the scheduled 2015 expiration of the penny-a-gallon tax for cleanup operations. He noted the Legislature has formed a study committee to look at the issue.