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MAP TO PROSPERITY: Performance bonds could help regulate tanks

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Construction companies, coal companies, drillers of gas wells — even mortgage brokers — are all required in West Virginia to post performance bonds. 

Although federal law calls for the bonding of petroleum storage tanks as "warehouses," there aren't any state or federal laws requiring owners of above-ground storage tanks to post a bond if they store chemicals like those Freedom Industries stored along the Elk River.

Following the Jan. 9 chemical leak from Freedom's tank and the subsequent nine-county water emergency, Gov. Earl Ray Tomblin and Sen. John Unger, D-Berkeley, both proposed legislation to regulate above-ground tanks.

Tomblin's bill would authorize the West Virginia Department of Environmental Protection to collect an annual tank registration fee for a new "Industrial Aboveground Storage Tank Administrative Fund" and to collect a fee for a new "Leaking Industrial Above-ground Storage Tank Response Fund."

The bill also would allow the secretary of the DEP to require above-ground tank owners or operators to post performance bonds. Specifically, the bill directs the secretary to write rules requiring above-ground storage tank owners and operators to provide satisfactory evidence of adequate financial resources "to undertake reasonable corrective action" for spills.

"The means of demonstrating adequate financial responsibility may include, but not be limited to, providing evidence of current insurance, guarantee, surety bond, letter of credit, proof of assets, trust fund or qualification as a self-insurer," the bill reads.

Surety bonds, also known as performance bonds, are routinely required of many businesses. The bonds protect the recipient from loss if the terms of a contract are not fulfilled. The bond issuer — usually an insurance company — assumes liability for nonperformance.

Bonding does have its limitations, a knowledgeable source told The State Journal.

"A bond would be a relatively small amount," the source said. "It's got to be low enough for a business to afford to operate. You can't make it $20 million."

Bonding, therefore, has limited value.

"The problem (in a case like the spill in the Elk River) is the damage that's done is not in removing the tank or sealing it," the source said. "It is the spill, which is a liability insurance risk."

When it issues a liability insurance policy, an insurer shares the risk with all of the insurer's other policy holders.

But bonds could help.

In a situation like the Elk River spill, where Freedom has declared bankruptcy, "the DEP wouldn't have to go to a bankrupt Freedom," the source said. "It could just go to the insurance company and get the $100,000."

Construction companies often are required to post bonds as well. An example in that kind of situation would be a contractor building a federal courthouse would post a performance bond that guarantees the contractor will complete the project. If it doesn't, the federal government would have the bond money to go hire another contractor to finish the job.