 Chapter 14
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Chapter 15
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538. Letter to researcher from Ted Gamble Clause, Deputy Attorney
General, August 31, 1995, at 2.
539. Letter from John Tantlinger, Ed.D., Energy Planner,
Department of Business, Economic Development, and Tourism,
to Wendell K. Kimura, Director, Legislative Reference
Bureau, September 1, 1995, at 2.
540. Letter to researcher from Richard C. Botti, Hawaii
Automotive and Retail Gasoline Dealers Association, Sept. 1,
1995, at 1.
541. Letter to researcher from Alec McBarnet, Jr., Vice
President, Hawaii Petroleum Marketers Association, dated
Sept. 7, 1995, at 1-2.
542. Letter to researcher from Jennifer A. Aquino, Administrative
Manager, Aloha Petroleum, Ltd., dated September 21, 1995, at
9-10.
543. Letter to researcher from R. A. Broderick, Western Region
Business Manger, Shell Oil Products Co., dated August 31,
1995, at 2.
544. Letter from Susan A. Kusunoki, BHP Hawaii, to Wendell K.
Kimura, Director, Legislative Reference Bureau, dated
September 8, 1995, at 1-2.
545. Letter from J. W. McElroy, Regional Manager, Chevron U.S.A.
Products Co., to Wendell K. Kimura, Director, Legislative
Reference Bureau, dated August 7, 1995, at 9.
546. See generally Sanford Inouye, Small Business: Current
Problems and Opportunities, Report No. 4 (Honolulu:
Legislative Reference Bureau, 1988); Thomas Kaser, "Hawaii
Firms Moving to Cheaper Pastures," The Honolulu Advertiser,
August 4, 1995, p. B1; see also Belden Daniels, Nancy Barbe,
and Harry Lirtzman, "Small Business and State Economic
Development," in Expanding the Opportunity to Produce:
Revitalizing the American Economy Through New Enterprise
Development, ed. Robert Friedman and William Schweke
(Washington, DC: The Corporation for Enterprise
Development, 1981); Steven Holtzman, Alternative State
Policies in Aid of Small Business (Columbus: Ohio
Legislative Services Commission, July 1991); Richard J. Judd
and Barbra K. Sanders, "Regulation, Small Business, and
Economic Development: A Historical Perspective on
Regulation of Business," in Small Business in a Regulated
Economy: Issues and Policy Implications, ed. Richard J.
Judd, William T. Greenwood, and Fred W. Becker (New York:
Quorum Books, 1988); and Roger J. Vaughan, Small and New
Business Development: An Action Guide for State Governments
(Prepared for the Coalition of Northeastern Governors Policy
Research Center, Washington, DC: May 1983).
547. California, Office of Economic Policy, Planning and
Research, State Regulation and Economic Development
(Sacramento: 1982) at 15-17:
A great deal of the recent political opposition
to regulations of all kinds has come from small
business organizations. In general, small firms
assert that regulations which require equal results
from firms of all sizes impose extra burdens on
smaller firms due to economies of scale in equipment
or other changes required, and in the maintenance of
specialized staff required to monitor regulations and
select the most efficient method of response. Thus,
it is argued, the unit cost of response is higher for
small firms than large firms. This has led to calls
for "two-tiered regulation" in which small firms are
exempted from regulation or face less stringent
requirements. The increased interest in the effects
of regulation on small business coincides with
research findings which argue that smaller firms are
the source of a majority of net new job creation.
These research findings are now frequently mentioned
in regulatory proceedings by small business advocates
as a reason to reduce regulation.
See also Paul Sommers and Roland J. Cole, "The Costs of
Complying with Government Requirements: Are Small Firms
Disproportionately Impacted?" in Small Business in a
Regulated Economy: Issues and Policy Implications, ed.
Richard J. Judd, William T. Greenwood, and Fred W. Becker
(New York: Quorum Books, 1988).
548. Walter Miklius and Sumner J. LaCroix, Divorcement
Legislation and the Impact on Gasoline Retailing in the
United States and Hawaii (Honolulu: University of Hawaii,
Jan. 20, 1993) at 31 (footnote omitted).
549. Specifically, all USTs must be single-walled, corrosion-
protected, equipped with leak detection monitors, and
contain spill-and-overfill catch basins, while all new tank
installations must be epoxy-coated with cathodially
protected steel, fiberglass-reinforced plastic, or
fiberglass-coated steel. Existing tanks may be upgraded by
adding cathodially-protected systems, installing interior
lining, or both. Since UST piping is the most common source
of leaks, upgrading of piping systems is required to meet
corrosion requirements. EPA cost estimates for a leak
detection system range from $3,000 to $8,000 for a station
with three 5,000-gallon tanks; retrofitting existing tanks
with cathodic protection range costs from $10,000 to
$40,000; and three new 10,000 gallon single wall tanks cost
between $76,000 and $100,000. Id.
550. The Hawaii Department of Health (1990) reported that the
majority of tanks in Hawaii (seventy-three percent) are made
of steel; only twelve percent of these have cathodic
protection or an internal lining. The piping for forty-one
percent of all UST systems is made from galvanized steel,
while 11 percent of the piping uses bare steel.
Approximately ninety-seven percent of the piping does not
have cathodic protection. EPA technical standards require
that all tanks and piping be upgraded by December, 1998, to
include cathodic protection and spill and overflow devices,
or be replaced and to have leak detection equipment.
Moreover, the average age of tanks in Hawaii is eighteen
years, which is somewhat older than the average age for
tanks nationwide, and more than seventy-five percent are
older than nine years. Because most older tanks are
constructed of bare steel, they are less likely to have
corrosion protection or leak detection devices than new
tanks, making them more likely to leak. See Hawaii,
Department of Health, On Act 317, Session Laws of Hawaii,
1990 Requesting a Study on the Development of a State
Financial Assurance Fund Program for Owners and Operators of
Underground Storage Tanks (Honolulu: Dec. 27, 1990) at ES-2
(hereinafter, "DOH (1990)").
551. The Department also found that seven major oil companies own
approximately 30 percent of USTs, while federal, state, and
local government entities own about 16 percent of USTs.
Although the average tank capacity of tanks in the State is
about 60,000 gallons, about 40 percent have a capacity of
less than 1,100 gallons. DOH (1990) at ES-3.
552. DOH (1990) at ES-3 to ES-4; see also John S. Conniff and
Charles G. Gavigan, "Preserving Rural Gas Stations: State
Financial Assistance for Underground Petroleum Storage
Tanks," 15 U. Puget Sound L. Rev. 71 (Fall, 1991).
553. DOH (1990) at ES-3:
The geology of Hawaii is drastically different
from that of the contiguous states with widely varying
conditions among the islands. ...
Hawaii is highly dependent on ground water (over
95 percent of Hawaii's drinking water comes from
ground water). In Honolulu, where approximately two-
thirds of the USTs in Hawaii are located, depth to
ground water is between 5 and 20 feet.
The soil types in Oahu and the other islands are
highly permeable. The soil in Oahu is a combination
of alluvial deposits and coral fills. It resembles
sand in permeability. The soil on the younger islands
(i.e. Maui and the island of Hawaii) is largely
volcanic. The permeability of these basaltic soils
exceeds that of most other soil-types. A large
percentage of the remaining one-third of the USTs in
Hawaii (i.e. USTs not located in Honolulu) are located
on these younger islands. In these soils, releases
move rapidly toward the ground water, creating more
contamination and increasing cleanup costs.
Overall, Hawaii has a high ground-water table,
and highly permeable soil in the areas where most USTs
are located. Because of these hydrogeological
conditions, an UST release poses a greater risk to
human health and the environment than it would in
areas with a deeper ground-water table.
554. Id. The Department noted that "[g]roundwater wells and
drinking wells are typically installed inland and not along
the coast. Because development is mostly along the coastal
regions of the islands, contamination from development and
UST releases may have a reduced effect on drinking water
wells." Id. at ES-3 n. 6.
555. Miklius and LaCroix (1993) at 32, citing United States v.
Fleet Factors Corp., 724 F.Supp. 955 (S.D. Ga. 1988), aff'd
and remanded, 901 F.2d 1550 (11th Cir. 1990).
556. Miklius and LaCroix (1993) at 32-33. Anecdotal evidence in
Hawaii also suggests that EPA regulations concerning UST
requirements and clean-up necessitated the closure of many
service stations:
... A station in Hilo was suddenly closed at the end
of the lease because the owner did not want the risk
of having to clean up the property in case it became
polluted. Developers in Kakaako are finding out that
the clean-up from the pollution caused by small repair
shops and gas tanks is extremely costly in terms of
cleaning the sites and construction delays.
Of the twenty-three stations interviewed on the
Big Island, eight have closed gas operations or plan
to because of the new regulations concerning tank
replacement costs and insurance. Three on Maui have
stopped pumping gasoline or plan to, one has pulled
his tanks on Kauai and on Oahu only two dealers
indicated that they would be stopping gas sales, all
based on this problem.
Julia E. Schoen, The Consumer and Gasoline Marketing in
Hawaii: The Impact of Direct Retailing of Motor Fuel by
Refiners and Distributors on the Consumer (Honolulu:
Department of Commerce and Consumer Affairs, 1992) at 5.
557. See Miklius and LaCroix (1993) at 33. Hawaii's financial
responsibility law with respect to USTs, section 342L-36,
HRS, requires the Department of Health to adopt requirements
for maintaining evidence of financial responsibility for
taking response action and compensating third parties for
bodily injury and property damage caused by an accidental
release, and allows the Department to establish the amount
of required coverage for particular classes or categories of
underground storage tanks or tank systems containing
petroleum at not less than $1,000,000 for each occurrence.
558. United States, General Accounting Office, Underground
Petroleum Tanks: Owners' Ability to Comply with EPA's
Financial Responsibility Requirements (Washington: July
1990) (hereinafter, "GAO (1990)") at 9.
EPA regulations divide underground petroleum storage
tank owners into four categories based primarily on the
number of tanks that they own. Category 3 includes
owners of 13 to 99 tanks, while category 4 includes
owners of 1 to 12 tanks and most nonmarketers, i.e.,
owners who do not market petroleum products and have a
tangible net worth of less than $20,000,000. See GAO
(1990) at 1-2. The GAO's 1990 survey of category-3 and
-4 tank owners found that nearly one-third of state
officials indicated that more than half of the
category-3 firms would not be able to comply with the
EPA's financial responsibility deadlines by the April
1990 deadline, while over two-thirds of the officials
stated that more than half of the category-4 firms
would not be able to meet the October 1990 deadline,
usually citing the following reasons for inability to
comply: "(1) high trust fund deductibles (for states
with funds); (2) costly insurance; (3) old, high-risk
tanks; and (4) technical requirements such as those
necessitating costly tank improvements...." GAO (1990)
at 15.
A similar survey conducted by the Hawaii Department of
Health (1990) to assess the impact of the federal
financial responsibility requirements on owners and
operators of petroleum USTs in Hawaii found that
approximately half of the respondents had obtained the
required level of financial assurance. Although at the
time of the survey only two of the compliance deadlines
had passed, and owners and operators of fewer than one
hundred tanks did not have to comply, about one-quarter
of the respondents--mostly independent owners and
operators, some local government entities, and small
petroleum marketers and nonmarketers--expressed
difficulty in obtaining the required coverage due to
the general unavailability of private insurance.
Respondents cited such difficulties as the lack of
available insurance coverage for both corrective action
and third-party liability costs, high deductibles and
large premiums for policies offered, the unwillingness
of insurers to cover USTs, and the high cost of meeting
stringent underwriting requirements. See DOH (1990) at
ES-4.
559. Miklius and LaCroix (1993) at 33. As states have developed
trust funds, private insurance to cover USTs has
disappeared, and state funds themselves are running out of
money. See Allison R. Hayward, "Common Law Remedies and the
UST Regulations", 21 B.C. Envtl. Aff. L. Rev. 619, 665-666
(Summer 1994); see id. at 655-656 (footnotes omitted):
Most states have established funds to clean up
tank sites and compensate victims. These funds take
the place of the financial responsibility requirement
in federal law. Usually, the fund's budget is
supplied by a tax on fuel sales. In such a case, a
tension exists between cleaning up sites in cases
where no liable and financially capable party can be
assigned the costs, and keeping the fuel tax level.
In addition, clean-up contractors wary of their own
liability seek to provide expensive and extensive
remediation rather than control costs.
Some states seek to control fund expenditures by
placing deductibles on enterprises that are large
enough to be self-insured. Others place strict
guidelines on what permits a tank owner must acquire
before he can be reimbursed for site remediation.
Even so, state funds run out of money. In Michigan,
for example, the state receives $4 million every month
in fee revenue for its fund to cover payments of $15-
17 million in requests. At the end of fiscal year
1992, Florida's fund held a balance of $24 million,
but $139 million in claims had been filed against it.
Even in states with solvent fund programs, the state
is slow to reimburse claims. A recent study estimates
that these state funds have collected $900 million a
year in fees, but have paid out only $926 million, and
only 44,000 sites have been cleaned up, an estimated
ten percent of the total. EPA has yet to promulgate
regulations to address what happens when state funds
that replace private liability requirements under the
UST regulations become insolvent.
560. Miklius and LaCroix (1993) at 34.
561. See, e.g., Ellen Paris, "Out of Gas," in Hawaii Investor,
vol. 12, no. 9 (Sept. 1992) at 36 (noting that Unocal's
Kahala service station, at the corner of Waialae Avenue and
Hunakai Street in Honolulu, closed one year before its lease
expired to allow time for site cleanup).
562. Miklius and LaCroix (1993) at 34.
563. 1990 Haw. Sess. Laws, Act 317, §2, codified as Haw. Rev.
Stat. §342L-36.5.
564. DOH (1990) at ES-4 to ES-5.
565. See, e.g., Wash. Rev. Code chapter 70.148 (1994); DOH (1980)
at 4-6. The purpose of Washington's program is "to provide
pollution liability reinsurance at a price that will
encourage a private insurance company or risk retention
group to sell pollution liability insurance ... to owners
and operators of underground petroleum storage tanks,
thereby allowing owners and operators to comply with the
financial responsibility regulations of the EPA." Wash.
Rev. Code §70.148.005(2) (1994). The program is funded by a
tax on petroleum products to be used to make payments on the
reinsurance contract. See Wash. Rev. Code chapter 82.23A
(1994). The pollution liability insurance agency, which was
simultaneously created to administer the program and
scheduled to sunset in 1995, was reauthorized and extended
to 2001 in the 1995 legislative session. See Wash. Rev.
Code §70.148.030 (1994); Council of State Governments,
Environments West (Spring 1995) at 11. The director of that
agency is authorized to expend up to $15,000,000 for the
financial assistance program. Wash. Rev. Code
§70.148.020(3) (1994).
Washington's trust fund also provides financial
assistance for corrective action in small communities,
both to prevent supply disruptions and to maintain the
economic viability of rural communities. Wash. Rev.
Code §70.148.120 (1994) provides in pertinent part:
[T]he state has enacted laws designed to limit and
prevent environmental damage and risk to public health
and safety caused by underground petroleum storage
tank leaks. Because of the costs associated with
compliance with such laws and the high costs
associated with correcting past environmental damage,
many owners and operators of underground petroleum
storage tanks have discontinued the use of or have
planned to discontinue the use of such tanks. As a
consequence, isolated communities face the loss of
their sources of motor fuel and face the risk that the
owner or operator will have insufficient funds to take
corrective action for pollution caused by past leaks
from the tanks. In particular, rural communities face
the risk that essential emergency, medical, fire and
police services may be disrupted through the
diminution or elimination of local sellers of
petroleum products and by the closure of underground
storage tanks owned by local government entities
serving those communities.
The legislature also recognizes as a fundamental
government purpose the need to preserve a minimum
level of economic viability in rural communities so
that public revenues generated from economic activity
are sufficient to sustain necessary governmental
functions. The closing of local service stations
adversely affects local economies by reducing or
eliminating reasonable access to fuel for
agricultural, commercial, and transportation needs.
To assist small communities, the legislature authorized
cities and counties to certify that a local private owner or
operator of an underground storage tank met a "vital local
government, public health or safety need", qualifying the
owner or operator for financial assistance. Wash. Rev. Code
§70.148.120(1) (1994). In addition, local government
entities may also obtain financial assistance for local
government USTs. Wash. Rev. Code §70.148.120(2) (1994).
566. DOH (1980) at 3-12 to 3-16.
567. Id. at 3-17 to 3-21.
568. 1991 Haw. Sess. Laws, Act 267, §2. Under the capital loan
program, the state Department of Business, Economic
Development, and Tourism may make direct loans to small
business concerns "for the financing of plant construction,
conversion, expansion, the acquisition of land for
expansion, the acquisition of equipment, machinery,
supplies, or materials, or for the supplying of working
capital." Haw. Rev. Stat. §210-6 (1994).
569. 1992 Haw. Sess. Laws, Act 259, §33.
570. Miklius and LaCroix (1993) at 28, 59; United States,
Department of Energy, Deregulated Gasoline Marketing:
Consequences for Competition, Competitors, and Consumers
(Washington, DC: March 1984) (hereinafter, "DOE (1984)") at
58-60.
571. See Miklius and LaCroix (1993) at 28-29, 59-60.
572. Id. at 28, citing DOE (1984) at 56-61. The DOE (1984) also
noted that greater consumer price awareness may have
contributed to pressures for rent increases:
With the increase in the price of gasoline, consumers
have become much more price conscious. They are more
willing to shop around for the best price. Added to
this willingness is the perception that gasoline is a
fungible commodity, that is, there are few differences
among major brands or between branded and unbranded
gasoline. As a result, refiners are less able to
maintain a wide price spread for similar grades of
gasoline among brands [or] between branded and
unbranded gasoline. Refiners cannot put large rent
increases into the DTW price [of] gasoline and expect
to remain competitive. DOE (1984) at 60-61.
573. DOE (1984) at iii; Miklius and LaCroix (1993) at 29.
574. Miklius and LaCroix (1993) at 29-31, 60.
575. Schoen (1992) at 5.
576. Paris (1992) at 34.
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Chapter 15
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