EPA-450/3-78-029
       The  Economic Impact
of Vapor Recovery Regulations
on  the  Service Station Industry
                       by

                   Paul E. Mawn

                  Arthur D. Little, Inc.
                   25 Acorn Park
                Cambridge, Massachusetts
              DOL Contract No. J-9-F-6-0233
             EPA Project Officer: Kenneth H. Lloyd
                    Prepared for

                DEPARTMENT OF LABOR
      OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION
              ,,,. 200 Constitution Avenue
               % Washington, D.C. 20210

                      and

           ENVIRONMENTAL PROTECTION AGENCY
            Office of Air and Waste Management
          Office of Air Quality Planning and Standards
      -.    Research Triangle Park, North Carolina 27711

                    July 1978

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This report is issued by the Environmental Protection Agency to report
technical data of interest to a limited number of readers.  Copies are
available free of charge to Federal employees,  current contractors and
grantees,  and nonprofit organizations - in limited quantities - from the
Library Services Office (MD-35), U.S. Environmental Protection Agency,
Research Triangle Park,  North Carolina 27711; or, for a fee, from the
National Technical Information Service, 5285 Port Royal Road, Springfield,
Virginia 22161.
This report was furnished to the Occupational Safety and Health Adminis-
tration and the Environmental Protection Agency by Arthur D.  Little, Inc.,
25 Acorn Park, Cambridge,  Massachusetts, in fulfillment of DOL Contract
No. J-9-F-6-0233.  The contents of this report are reproduced herein as
received from Arthur D. Little, Inc.  The opinions, findings, and conclu-
sions expressed are those of the author and not  necessarily those of the
Environmental Protection Agency.  Mention of company or  product names
is not to be considered as an endorsement Jby the Environmental Protection
Agency.
                     Publication No.  EPA-450/3-78-029
                                   ii

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                       TABLE OF CONTENTS
List of Figures
List of Tables
        INTRODUCTION
I.       EXECUTIVE SUMMARY
        A.    INTRODUCTION AND BACKGROUND
        B.    SERVICE STATION MARKET AUDIT
        C.    "PRIVATE" GASOLINE OUTLET
        D.    THE ECONOMIC IMPACT OF VAPOR-RECOVERY
             SYSTEMS
II.      NATIONAL AUDIT OF SERVICE STATIONS
        A.    PURPOSE
        B.    AUDIT SUMMARY
        C.    METHODOLOGY
        D.    TOTAL U. S. SERVICE STATION MARKET
        E.    U.S. SERVICE STATION OWNERSHIP PATTERNS
III.      AUDIT OF "PRIVATE" GASOLINE-DISPENSING
        FACILITIES (1977)
        A.    SUMMARY
        B.    METHODOLOGY
        C.    REGIONAL DISTRIBUTION
        D.    PRIVATE GASOLINE-DISPENSING SEGMENTS
IV,,      RETAIL GASOLINE MARKETING ECONOMICS AND
        TRENDS
        A.    INTRODUCTION
        B.    GASOLINE MARKETING DYNAMICS
        C.    RETAIL GASOLINE SUPPLY LOGISTICS
Page
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 vii
 1
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25
25
25
29
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51
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51
53
                                iii

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                  TABLE OF CONTENTS (Continued)
V.
VI.
D.   RETAIL GASOLINE MARKETING SEGMENTS
E.   CURRENT SERVICE STATION ECONOMICS
F.   SERVICE STATION POPULATION OUTLOOK WITHOUT
     VAPOR RECOVERY
VAPOR-RECOVERY INVESTMENT REQUIREMENTS
A.   INTRODUCTION AND SUMMARY
     TOTAL COSTS OF VAPOR RECOVERY
       B.
       C.

       D.

       E.
     VAPOR RECOVERY INVESTMENT-INTEGRATED
     OIL COMPANIES
     VAPOR-RECOVERY INVESTMENT-INDEPENDENT
     MARKETERS
     ILLUSTRATIVE INDEPENDENT MARKETER
     PROTOTYPES
IMPACT OF VAPOR-RECOVERY CAPITAL INVESTMENT
REQUIREMENTS ON INDEPENDENT MARKETERS
A.   INTRODUCTION
B.   IMPACT OF VAPOR RECOVERY INVESTMENTS ON
     PROTOTYPE FINANCIAL CONDITIONS
       C.

       D.
       E.

       F.
     FINANCIAL CLIMATE FOR VAPOR-RECOVERY
     LOANS
     BALANCE SHEET CRITERIA USED BY LENDERS
     INSTITUTION SOURCES OF CAPITAL FOR VAPOR
     RECOVERY LOANS
 57
 57

 70
 75
 75
 78

 80

 84

 85

 91
 91

 91

 93
 97

103
     CONCLUSIONS AS TO THE ABILITY OF INDEPENDENT
     MARKETERS TO OBTAIN VAPOR-RECOVERY
     FINANCING                                      106
                              iv

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 4.2.2.2.1.4
                  TABLE OF CONTENTS (Continued)
VII.   VAPOR-RECOVERY IMPACT ON SERVICE STATION
      PROFITABILITY

      A.    FINANCIAL ASSUMPTIONS

      B.    VAPOR RECOVERY COST IMPACT ON RETAIL
            GASOLINE MARGINS

      C.    VAPOR-RECOVERY IMPACT ON SERVICE
            STATIONS PROTOTYPES

      D.    SUMMARY

VIII.   VAPOR-RECOVERY IMPACT ON THE SERVICE STATION
      POPULATION

      A.    CLOSURES INDUCED BY THE COSTS OF VAPOR
            RECOVERY

      B.    SERVICE STATION POPULATION FORECAST -
            AFTER VAPOR RECOVERY

      C.    TOTAL VAPOR-RECOVERY COST FOR THE
            ADJUSTED SERVICE STATION POPULATION'
111
111

114

117
125


127

127


130

132

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Figure No.
    1  1
    2  2
    3  3
    4  4
    5  5
              LIST OF FIGURES

Petroleum Administration for Defense (PAD) Districts
U.S. Service Station Decline (1972 - 1980)
Gasoline Distribution Network
Service Station Operating Expenses
Break-Even Volumes for Typical Prototype Stations
26
54
56
61
72
                                   vi

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Table No.

     1

     2

     3

     4

      5
       8

       9

      10


      11


       12

       13


       14


       15

       16

       17

       18
               LIST OF TABLES



Service Station Population (1977)

"Private" Gasoline Outlets (1977)

Vapor-Recovery Costs for "Private" Outlets

 Total Vapor-Recovery Costs

 Vapor-Recovery Impact Upon Independent Marketers

 Retail Service Station Prototypes

 Service Station Closure Forecast - Before Vapor
 Recovery (1977-1981)

 Net Vapor Recovery Costs

 Break-Even Point Volumes - After Vapor Recovery

  Potential Profitability-Induced Closures After
  Vapor-Recovery

  Service Station Closures (1977-1978) with Vapor
  Recovery

  Service Station Forecast (1981)

  U.S. Service Station Population Summary by Direct
  Supplier Mid-Year 1977

  U.S. Service Stations Throughput Summary
  Mid-Year 1977

   Summary of Service Station Audit

   U. S.  Service Station Control by Type Operation

   Audit of  "Private" Gasoline Outlets

   Audit of  "Private" Gasoline Outlets - Six AQCR'S
Page

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'  7

  8

  9

  11

  13


  14

  16

  18


   19


   21

   22


   28


    29

    32

    35

    42

     44
                                       vii

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                      LIST OF TABLES (Continued)
Table No.

    19      Total Gasoline Facilities by PADD

    20      Estimated U. S. Gasoline Consumption (1977)

    21      U. S. Service Station

    22      Comparison of Retail Dealer Gross Margin for
            Regular Gasoline to the Consumer Price Index (CPI)

    23      Banked Cost for Top 30 Refiners

    24      Service Station Prototype Throughput Ranges

    25      Total Service Station Gross Margin

    26      Illustrative Non-Gasoline Sales Contribution Margin

    27      Service Station Operating Expenses

    28      Service Station Prototypes Net Margin Summary

     29      Break-Even Volumes of Service Station Prototypes

     30       Potential Service Station Closures  Based on Outlets
            Now Operating Below the Prototype Break-Even
             Point

     31       Estimated Impact of Service Station Attrition

     32      Retail Outlet "Control" Audit

     33      National Vapor-Recovery Capital Requirements

     34      Service Station Population Vapor-Recovery
             Costs (1977)

     35      Total Vapor-Recovery Costs

     36      Integrated Company Capital Requirement for Vapor
             Recovery
Page

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 47

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 60

 63

 66

 67

 68

 69

 70

 71



 73

 74

 76

  77


  79

  80


  82
                                   viii

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                      LIST OF TABLES (Continued)
Table No.

    37      Vapor-Recovery Impact on Current Environmental
            Capital Budget of Integrated Gil Companies

    38      Summary of Independent Marketer Prototypes

    39      Open Dealer Audit

    40      Prototype Financial Summary

    41      Vapor-Recovery Impact on Independent Marketer

    42      Gasoline Service Station Returns

    43      Financial Summary of PMEF Jobber

    44      Vapor-Recovery Debt Requirements of Independent
            Marketer Prototype

    45      Insurance Industry Debt Index

    46      Proforma Cash Flow

     47      Estimated Closures of Small Jobbers/Open Dealer
            Outlets Due to Inability to Raise Capital for Vapor
            Recovery

     48       Potential Closures of Independent Outlets Due to
             Lack of Capital for Vapor Recovery

     49       Capital Charges for Vapor-Recovery Financing

     50       Costs of Vapor-Recovery Compliance in High-Volume
             Sector

     51      Costs of Compliance in Low-Volume Sector

     52      Economic Impact in Service Stations: Change in
             Break-Even Throughput Volume Assuming Competi-
             tive Passthrough of Costs

     53      Economic Impact on Lessee Dealer Prototype Station
Page


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 89

 92

 94

 95

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 98

 102

 102



 108


 110

 112


 115

 116



 118

 120
                                   IX

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                      LIST OF TABLES (Continued)
Table No.

    54      Economic Impact on Direct Operation (Major Oil
            Company) Self-Service Prototype Station

    55      Economic Impact on Open Dealer Full-Service
            Prototype Station

    56      Economic Impact on Direct Operation (Independent)
            Self-Service Prototype Station

    57      Economic Impact on Convenience Store Self-Service
            Prototype Station

    58      Marginal Stations Below Prototype Break-Even
            Point Volumes Before Vapor Recovery Costs

    59      Potential Vapor Recovery-Induced Closures ~
            Break-Even Point Method

    60      Forecast of 1981 Service Station Population After
            Vapor Recovery

     61      Service Station Population Outlook

     62       Total Vapor-Recovery Costs for the 1981 Population
            of Service  Stations

     63       Stage I Capital Constraints

     64      Stage I-Induced Closures Due to Insufficient Profit-
             ability
Page


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124


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129


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 134

 136


 137
                                    x

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                     TABLE OF CONTENTS
APPENDIX A -
APPENDIX B -
APPENDK C -

APPENDIX D •

APPENDIX E

APPENDDC F

 APPENDK G
 APPENDIX H
• rREFINER/MARKETER LIST
- SERVICE STATION THROUGHPUT MATRIX
- SERVICE STATION SUPPLIER/OPERATIONAL
 PROFILES
- "PRIVATE" GASOLINE DISPENSING OUTLETS
 6 SAMPLE AQCR'S
- "PRIVATE" GASOLINE DISPENSING OUTLETS
 TOTAL U.S.A. AUDIT
- OUTLOOK FOR THE SERVICE STATION
 POPULATION: SELECTED PRESS
 REFERENCES
- SUMMARY OF GASOLINE BANKED COSTS
- VAPOR RECOVERY COSTS PROVIDED BY THE
 EPA
 APPENDIX I •

 APPENDIX J

 APPENDK K

 APPENDK L

  APPENDDC M-
  APPENDLK N

  APPENDIX O-
  APPENDIX P
          1
  APPENDK. Q
 . THE IMPACT OF VAPOR RECOVERY CREDIT
  ON SERVICE STATION ECONOMICS
 . SERVICE STATION PROTOTYPES OPERATIONAL
  AND ECONOMIC PROFILES
 - VAPOR RECOVERY CAPITAL INVESTMENT BY
  RETAIL GASOLINE MARKETING SEGMENT
 -INDEPENDENT MARKETER PROTOTYPE
  COMPANIES OPERATIONAL AND FINANCIAL
  PROFILES
  CORPORATE PROTOTYPE FINANCIAL RATIOS
  PRO FORMA ANALYSIS OF CASH FLOW AVAIL-
  ABLE TO, SERVICE ANNUAL DEBT AFTER
  VAPOR RECOVERY
  . ECONOMIC IMPACT WORKSHEETS
  • VAPOR RECOVERY INVESTMENT FOR ESTI-
  MATED 1981 SERVICE STATION POPULATION
  - STAGE I VAPOR RECOVERY WORKSHEETS
Page,
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                             INTRODUCTION
     e         to control bensene emissions on a national basis are currentty
being evaluated by OSHA and the EPA.   One control strategy to effect ซMs
objelve wouldbe *, oap*re and recover benzene as .ell as other hydrocarbons
at filling station islands with on-site vapor-recovery systems.   The purpose of
this analysis is to address the following ***** -lated to such a vapor-
 recovery program:
         WHO

         WHAT  ...

         WHERE ...

          HOW
would be economically affected by vapor-recovery
programs (i.e., retailers, the public, etc.)?
would be the total additional cost of vapor  recovery
to each of the various segments of the retail market?
would the capital for vapor-recovery be obtained by
the independent marketers ?
would the added financial costs of vapor recovery
 affect the retail service station market?
      TO assess the economic impact of a national vapor-recovery program, a
  market audit of *e various segments of gasoline retailing was undertaken.
  1 purpose of *is initial *sk was to define *e current number of retail outtets
  in various throughput ranges as well as by direct supplier and type of operation.
  The total amount of bensene emitted from gasoline as it is being unloaded or
  pumped into vehicles is the sum of vapors at both service stations and "private
  gasoline dispensing outlet (e.g., commercial/industrial gasoUne pumps)
   As revested by OSHA and the EPA. a second market audit was also made to
   determine the number of these "private" facilities tat dispense gasoUne on
   country.
        The economic implications of a National vapor  recovery program were
   evaluated only for retail service stations.  This assessment included an analysis
   of bofl> the capital recrements for vapor-recovery as well as its impact on

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service station profitability.  The financial hurdles faced by independent
marketers in obtaining vapor-recovery capital were then reviewed.  Based upon
comments from both gasoline retailers and financial institutions, a subjective
estimate of potential service station closures due to unavailability of capital
for vapor-recovery investments was made by the Arthur D. Little case team.
     The net cost of vapor-recovery systems at "typical" prototype service
stations was used as an illustrative tool to evaluate  the changes in outlet
profitability brought about by various cost pass-through assumptions for vapor
recovery.  Based upon current service station economics, the number of
marginal retail outlets operating below break-even point volumes was evaluated
before and after vapor-recovery costs were added.  Potential closures due to
vapor recovery were assumed to result from either the non-availability of added
capital for vapor-recovery investments or unsatisfactory profitability after the
absorption of some level of added vapor recovery expenses.
     In  summary, the organization of this analysis of the impact of vapor-
recovery systems to control benzene emissions follows:
 Chapter Title
                                                                Chapter No.
 Executive Summary	ซ	
 National Audit of Retail Service Stations (1977)	
 Audit of "Private" Gasoline-Dispensing Facilities (1977)	
 Retail Gasoline Marketing Economics and Trends  .	
 Vapor-Recovery Investment Requirements  .	
 Impact of Vapor-Recovery Capital Investment Requirements on
   Independent Marketers
 Vapor-Recovery Impact on Service Station Profitability	    VII
 Vapor-Recovery Impact on Service Station Population	   VIII
 I
 II
III
 IV
 V
VI

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                        I.   EXECUTIVE SUMMARY

A. JTMTgnnTTCTION AND BACKGROUND
    The purpose of this report is to assess the likely economic impact of a
national vapor-recovery program to control benzene emissions from gasoline
at service stations.  The initial task in this effort was to define which gasoline
marketers would be affected and by how much.  To address these questions,  a
marketing audit of the current service station population had to be made.
Vapor-recovery cost information provided by the EPA was then applied to the
outlet population for various segments of the industry to define the following:
     .   Total cost of vapor-recovery investment,  financing, and operating
         expenses;
     .   Estimated number of potential closures due to an inability to obtain
         vapor-recovery capital; and
     .    Potential closures due to insufficient profitability as a result of
          vapor-recovery costs.
     in addition to an analysis of the service station population, an audit of all
  other gasoline-dispensing facilities was  made at the request of EPA/OSHA.
  An economic impact assessment of vapor- recovery on the wide variety of
  direct gasoline consumers is not within  the scope of this report.  One purpose
  of fee "private" gasoline dispenser audit was to understand the role of retail
  outlets within the total population of gasoline-dispensing facilities.  From this
  information, the total emission of benzene from gasoline-dispensing operations
  could be estimated by the EPA.
       At  the present time, the petroleum industry  is undergoing dynamic
  structural changes. In the past,  crude production was the most profitable
  activity of integrated oil companies with refining and marketing strategies
  designed to maximize the flow of oil from the wellhead.  However, "stand-alone"

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economics is now the dictum in the oil industry, and each functional area must
meet the corporate return on investment criteria.   This recent change in
business philosophy has produced a dramatic evolution in petroleum marketing
strategy  The service station industry has been particularly impacted,
resulting in a market rationalization process which is significantly reducing
the number of retail outlets and changing the historic control/operational
patterns of  retail gasoline marketing.

 B.  SERVICE STATION MARKET AUDIT  i
     in the summer of 1977, there were approximately 178,000 gasoline
 stations in  the United States.  More than 48,000 of these service stations have
 closed since the population peak of 226,000 stations to 1972.  This attrition
 is expected to continue at least through the early  1980's to a leveling-off point
 of anywhere from 125,000 to 150,000 outlets.  The economies of scale of high-
 volume scions and the shift to self-service operations are prime factors m
 shrinking retail margins.  Consequently,  the closure of outlets due to market
 rationalization processes will be most severe for those outlets which have
  relatively  low sales volume coupled with high unit expenses.
      The data base for a national analysis of the service station industry by
  throughput and type of operation is not publically available.  A detailed survey
  of service station facilities was undertaken by Arthur D. Little with both major
  and independent  oil companies.  The results of tMs audit were combined with
  our in-house knowledge and publicly available information to derive the
  following:
       •   Outlets by throughput range,
       •   Outlet  control profile,  and
       •   Market share by direct supplier.

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    Major oil companies and regional refiner marketers supplied more than
half of the retail service stations in the country with the remaining 43% supplied
by independent marketers. All petroleum marketers retail their gasoline
through one  of the following types of operations:
    •   Direct salary operation-supplier-"controlled"/supplier-operated,
    •   Lessee dealer-supplier-"controlled"/lessee dealer-operated,
    •   Open dealer-dealer-"controlledn/dealer-operated,  or
    •   Convenience store with separate gasoline profit center located at a
        relatively new food/convenience store.
    The traditional retail marketing strategy of major oil companies has been
to operate through lessee dealers.  These lessee outlets still represent
approximately 66% of the major oil company stations and almost 50% of all
stations in the country. It is presumed that suppliers would have to provide
the investment capital to have their lessee dealers implement a national vapor-
recovery program.
    The second largest group of outlets are known as open dealers.  In these
operations,  the on-site dealer actually owns or controls the investment in his
station where he is physically employed.  Open dealers represent more than
33% of the retail outlets in the United States.  They are generally branded* and
supplied either directly by a major oil company or a branded jobber.  Direct
salary operations and convenience stores are low-expense, low-margin
operations which account for less than 25% of the total population of gasoline
retailers.  A summary of the service station market segments reviewed in this
audit is presented in  Table 1.
 *That is, a station operating under the brand identification of a major oil
  company; unbranded stations use local and/or independent brands.

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           TABLE 1.  SERVICE STATION POPULATION (1977)
——————

Supplier
Major
Regional Refiner
Independent Marketer/
Wholesaler-"Super
Jobber"
Small Jobber
Total
% Total 1977 Outlets**
Type of Operation

Direct
3.6
2.3
9.3


2.3
18.0

Lessee
28.2
5.3
2.5


10.9
47.0
Open
Dealer
15.6
1.1
0.6


12.3
30.0

"C" Store*
0.4
0.1
4.3


0.6
5.0


Total
47.8
8.8
16.7


26.7
100.0
     Convenience 'Store
    **Approximately 178,000 outlets
C.  "PRIVATE" GASOLINE OUTLET
    in addition to conducting an audit of current service stations, the EPA/OSHA
requested that Arthur D. Little estimate the total number of gasoline-dispensing
facilities in the country. However, an economic impact analysis of this highly
diversified mix of commercial and industrial gasoline consumers was not
deemed practical within the current scope of work,
    A market audit of the number of these "private" gasoline-dispensing
facilities in the United States is also not publicly available.  This data base was
then developed by Arthur D. Little on a national basis from a variety of
U.S.  Government statistical sources  (e.g., the Bureau of Census,  Departments
 of Transportation, Defense, and Agriculture and the FEA).  Gasoline outlet and
 consumption estimates for a few segments were based upon extensive surveys
 with trade groups and private gasoline consumers (e.g.,  taxis, buses, etc.).

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    To understand the nature of "private" gasoline demand in concentrated
metropolitan areas, the EPA requested that this "private" gasoline audit also
be carried out in six specific air quality control regions (AQCR's).
    We estimated that approximately 243,000 outlets dispense gasoline in
addition to the conventional retail service stations (see Table 2).   Approximately
40% of these "private" gasoline pumping outlets are utilized by some public
service organization  (e.g., miscellaneous government agencies and/or
various types of utilities). Slightly more than 20% of the outlets provide fuel
to miscellaneous short-haul trucks (including agriculture applications).
However, the gasoline demand pattern in the metropolitan areas of the sample
AQCR's shows a much higher population of short-haul truck outlets (66% of the
total)  than public service outlets (21%).

             TABLE 2.   "PRIVATE" GASOLINE OUTLETS (1977)
                               (National Basis)
Sector
Trucking/Agriculture
Utilities/Government
Other
Total
Gasoline Outlets
54,500
95,010
93,420
242,930
Total Outlets (%)
23
39
38
100
      There are far more "private" gasoline facilities than retail service
  stations in the United States.  However,  only 1% of these "private" facilities
  have a throughput greater than 20,000 gallons per month.   "Private" pump
  sites represent  58% of the gasoline-dispensing outlets, but they dispense only
  23% of the total  gasoline volume in the country. On average,  service stattion
  throughput volumes are more than  4-1/2 times larger than those of tiie average
  "private" gasoline  pumping facility.

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    If all of the "private" gasoline outlets had to add vapor-recovery systems,
the total vapor-recovery cost for these types of facilities would range from
$1.6 to  $3.8 billion, as shown in Table 3.  This would increase the unit costs
of dispensing gasoline at these "private" outlets from $0.0060 to $0.0138/
gallon.

     TABLE 3.  VAPOR-RECOVERY COSTS FOR "PRIVATE" OUTLETS*
                                  ($Million)

Investment
Financing Cost
10 Years - Operating Exp.
Total Cost
Unit Cost**
Type Vapor-Recovery System
Balance
1,045
311
291
1,647
0. 0060
Vacuum Assist
2,113
630
1.032
3,775
0.0138
      *Two nozzles per outlet assumed.
     **Unit costs are based upon a volume divisor of 273.8 billion gallons
       over a 10-year period (i. e., 1.8% growth rate).

 D.  THE ECONOMIC IMPACT OF VAPOR-RECOVERY SYSTEMS
     An underlying purpose of this economic impact analysis is to estimate the
 potential number of gasoline retailers which might be driven out of business by
 vapor-recovery regulations. In addition to service station closures due to
 current market rationalization factors, retail gasoline outlets may be closed as
 a result of a national vapor-recovery program for the following two reasons:
      ซ   Inability to raise the required capital for vapor-recovery investments;
          and
      •   Having raised the capital, the added absorbed expense of vapor
          recovery may not provide an adequate level of profitability.

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1.  Capital Requirements of a National Vapor-Recovery Program
    Depending on the type system, the total cost of vapor-recovery for the
current population of 178,000 service stations would range from $2.8 to
$4,0 billion.  As shown in Table 4, the initial investment for the vapor-
recovery installations would equal approximately 50% of the total cost for a
national vapor-recovery program. The balance of the total cost would cover
the financing charge and operating expenses.  Over a 10-year life for vapor-
recovery systems, the added cost for such a program would range from
$0., 0030 to $0. 0043 per gallon of retail gasoline sold.

               TABLE 4.  TOTAL VAPOR-RECOVERY COSTS
Cost
Capital Investment
Financing
10 Years' Cumulative Operating
Expenses*
Total Cost
Total Cost ($MM)
Unit Cost ($/gal)**
Type System
Balance
50%
17%
33%
100%
2763
0. 0030
Vacuum Assist
52%
18%
30%
100%
4029
0. 0043
     ^Representing the assumed project life for vapor-recovery systems,
      according to :the EPA.
    **Volume divisor = 932 billion gallons over 10 years (1.8%, P. A. ,
      growth rate in gasoline demand).
    The cost of vapor-recovery for each retail gasoline segment would be
roughly proportional to the total number of outlets controlled by that segment
(i. e.,  direct investment or long-term leases).  The integrated refiner/
ma.rketers (i. e., majors plus regional refiners) control 40% of the total number

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of stations in the country and would be required to spend approximately 40% of
the total capital outlay for vapor-recovery (i.e., $545 to $842 MM).  For a
vapor-recovery program phased over three years, this level of investment
would roughly double the current capital expenditure for environmental
controls by the integrated refiner/marketers.  Depending upon the type system,
vapor-recovery would then absorb from 12% to 23% of the current annual
marketing capital budget for this segment of the industry.  However, it is
unlikely that any major/regional refiner stations would close exclusively due
to an inability to acquire the necessary capital for vapor-recovery systems.
Service stations closures by these two groups of refiners will be primarily
driven by market forces when the sites provide marginal returns relative to the
supplier's alternative use value for these facilities.
    If all of the current service station population required vapor-recovery
systems, independent marketers collectively would be responsible for
approximately 60% of the investment cost for this program (i. e.,  $828 MM to
$1273 MM).  The ability of the various types of independent marketers to obtain
the capital necessary for vapor-recovery has been seriously questioned.  Since
there are more than 62,000 different independent gasoline-retailing organiza-
tions in the United States, corporate pro forma summaries were developed as
a tool to assess the factors which impact upon the ability of the "typical"
independent marketer to acquire the necessary funds for vapor-recovery.
As shown in Table 5, vapor-recovery systems would represent investments
equal to from  13% to 36% of the total net worth of four key types of independent
gasoline retailers.
                                    10

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                 TABLE 5. VAPOR-RECOVERY IMPACT
                    UPON INDEPENDENT MARKETERS
Independent Marketer
Prototype
Independent Marketer/
Wholesaler
Super Jobber
Small Jobber
Open Dealer
Vapor Recovery Investments as a
Percent of Net Worth
Balance System
19
15
22
13
Vacuum Assist System
29
22
36
21
    Commercial bankers will generally be the only source of vapor-recovery
capital for eligible independent marketers.
    The ability of each company to obtain vapor-recovery financing is quite
company specific and a function of the historical relationship of the loan
applicant with his banker and the attractiveness of his current balance sheet.
Independent marketers applying for vapor-recovery loans will generally have
to overcome a negative reaction of bankers to the following factors:
    •    Downward trend in gasoline retailing margins,
    •    Unattractive nature of vapor-recovery systems as collateral
         (i. e., limited use and discounted auction value);
    a    Questionable debt service ability after vapor-recovery, especially
         with  already highly leveraged independents; and
    ซ    Continued uncertainty associated with various federal price controls.
     The nature of vapor-recovery collateral and the financial characteristics
 of most independent marketers tend to rule out other sources of vapor-
 recovery capital (i.e., insurance and finance companies, Small Business
                                     \
 Administration, etc.).
                                     11

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    The number of service stations assumed closed by an inability to acquire
capital required for vapor-recovery was estimated, based upon the following
factors:
    •   The trend of current service station closures,
    •   Estimates of marketers to whom loans would not be granted by
        contacts in various financial institutions,
    •   Comments elicited from lending officers relating to a _Ero_forma
        loan application of the prototype independent marketers for vapor-
        recovery financing, and
    •   Discussions with large and small independent marketers  regarding
        their implementation strategy for a national vapor-recovery program.
    It is estimated that approximately 29,000  service stations would have to
 close because of the inability of independent marketers to obtain vapor-recovery
 financing.   This number of closures represents 25% of the current population.
 However, it is reasoned that at least 66% of these stations would be closed by
 normal market forces with or without vapor-recovery.  Thus, the net long-term
 impact of capital constraints for vapor-recovery, it is estimated, would induce
 only 6,000 additional closures (i. e., 8% of the current population).

 2. Vapor-Recovery Impact on Profitability
     After the investment has been made, vapor-recovery systems will impact
 the profitability  of service stations to varying degrees, depending upon the
 following:
     •   Type of service station operation (see Table 6),
     •   Throughput of the particular retail outlet,
     •   Type of vapor-recovery system utilized, and
     •   Competitive  constraints in passing through the added costs of
         vapor-recovery.
                                      12

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    The economic and operational profiles of various types of retail gasoline
outlets were developed to assess net margins before and after the addition of
vapor-recovery costs (see  Table 6).

            TABLE 6.  RETAIL SERVICE STATION PROTOTYPES
Type Station
Lessee
Direct Operation
Direct Operation
Open Dealer
"C" Store
Direct
Supplier
Any
Major
Independent
Any
Any
Throughput
Low
20
50
100
10
10
Medium
35
100
150
30
20
High
80
150
200
50
35
     Even without vapor-recovery costs, all the low-volume service station
 prototypes shown in Table 6 have negative net margins,* except for the
 convenience stores.  Typical income statements developed for these prototypes
 are based upon average margins from industry trade journals and actual
 operating data from industry contacts.  The break-even point volume for the
 various service  station prototypes before vapor-recovery is shown in
 Table 7. Based upon the 1977 service  station  population, approximately 78,000
 (i. e.,  44% of the total population), outlets theoretically fall below the break-
 even volume for the five service station prototypes as a result of the highly
 competitive market for retail gasoline. However, many of these stations will
 continue to remain open, despite negative accounting margins based upon a
 positive cash flow from depreciation and/or a reduction of dealer's take-home
 pay.
  *mcluding depreciation and a dealer salary as expenses, but before
   federal income tax (BFIT).
                                      13

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    Based upon discussions with industry representatives and various articles
in trade publications, it is estimated that approximately 40,000 stations in the
current population will be closed as a result of market rationalization factors,
even before the added burden of vapor-recovery costs.  However, it is
expected that some additional convenience stores will be added over the next
few years so that the total number of net service stations in 1981 will be
approximately 84% of the current population, excluding impact of any vapor-
recovery requirements.
    For structural simplicity of the impact analysis, two retail gasoline
marketing environments have been defined (i. e., high-volume and/or low-cost
operations and a segment consisting mainly of low-volume/high-cost outlets).
It is further assumed that the ability to passthrough the  cost of vapor recovery
by all operators is limited to the net cost of the most efficient marketer in each
of the above two sectors.  Based upon installation costs provided by the EPA,
the actual net cost per gallon for vapor recovery systems is greatly dependent
upon the throughput  of the station as shown in Table 8.  The high-volume,
direct-salary, major oil company facility is the most efficient operator in the
high-volume/low-cost sector with a net cost of $0.0008/gallon for  the bala-nce
vapor-recovery system and $0.0012/gallon for vacuum  assist.  In the low-
volume/high-cost sector, the high-volume open dealer would have the lowest
net vapor-recovery  cost (i. e., $0.0033 - balanced and $0.0055/gallon - vacuum
 assist).  The high fixed-cost component of vapor recovery for the  most part
 will reinforce the existing economies of scale prevalent in retail gasoline
 mairketing.
                                      15

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              TABLE 8.  NET VAPOR RECOVERY COSTS
                               ($/gal)
                      Low-Volume Range
— in   •'     —	
 High-Volume Range
,.,
Balance
	
0.0060*
0.0030
0.0019
0.0075
0.0130*
... 	 	 — 	 	 	
Vacuum Assist Balance
	 	 	 	 • 	
T
0.0150* 0.0015
0.0045
0. 0029
0.0175
0. 0250*
_ 	 	 — 	 	
0.0008
0.0007
0.0018
0. 0033*
. 	
Vacuum As si
— __— — — — —
0.0025
0.0012
0.0013
0.0046
0.0055*
___ — — — ——
Type Station
.__.
Lessee
Direct Salary
  (major)
Direct Salary
 (independent)
 Convenience Store
 Open Dealer
 *Low-volume/high-cost market sector.  All other operations are assumed
  to be in the Mgh-volume/low-cost segment.
                                     16

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3.0  POTENTIAL "PROFITABILITY" - INDUCED CLOSURES OF SERVICE
     STATIONS AFTER VAPOR RECOVERY
     After the closure of stations due to a failure to raise capital, the second
impact of vapor recovery will be to raise the break-even threshold volume for
different types  of service stations from the current levels to a higher volume.
With all other investments being equal, the increased volume required to cover
added vapor-recovery costs is a function of the degree to which these added
costs can be competitively passed on to the public as well as tiie type of vapor-
recovery systems employed.  The number of stations which fall above the
break-even point, based upon current economics, but below the break-even
volume after vapor-recovery costs are assumed to represent the number of
potential station;closures as a result of vapor-recovery. However, it is
unlikely that all of these stations will actually be closed, just as all of the
stations currently operating below the accounting break-even point will not be
closed.  The revised break-even volume after vapor-recovery for various pass-
through scenarios are shown in Table 9.   Based on the Arthur D. Little  service
station audit, the number of outlets operating between the break-even volumes
before and after vapor-recovery are shown in Table 10.
     This number of stations put into a marginal operating condition (i. e.,
below break-even volume) by vapor recovery could range from 13,000 to
 43,000 service stations.  The greatest number of potential closures will be
 open dealers as this group has the largest number of stations operating be-
 tween the break-even volumes before and after vapor-recovery.
     By 1981, the net 1977 service station population will be decreased by
 closures due to "normal" market rationalization processes without vapor-
 recovery less net new station construction.  If a national vapor-recovery
 program is implemented, additional closures could  result  from:
                                     17

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    •   An inability to obtain the necessary capital for vapor-recovery
        investments; and
    •   Stations making vapor-recovery investments whose profitability
        is then impaired by the ability to pass through all vapor-
        recovery costs.
    It is reasoned that vapor recovery-induced closures due to the inability
to raise capital will first be made at the stations which would have been closed
due to market rationalization forces.  As illustrated for the balance system
case in Table 11, the net closure impact of vapor-recovery is equal to the
additional stations closed in each sector over and above the expected attrition
rate without vapor-recovery.
    With a competitive cost pass-through of the balance system, a net addi-
tional 10,546 stations would be closed after vapor-recovery which represents
6% of the 1977 service station population. As shown in Table 12, the service
station population in 1981 will range from 127,000 to 139,000 after attrition
from market rationalization factors as  well as both "capital" and "profitability"
closures resulting from vapor-recovery. Vapor-recovery  costs would then
induce from  10,000 to 22,000 additional closures over and above the " normal"
market attrition processes which are now underway.
     The prime structural  change in ownership patterns resulting from vapor-
recovery will be a proportional as  well as absolute reduction in the number of
open dealers. Open dealers will bear the biggest impact of a vapor-recovery
program as  a result of their generally  low gasoline volumes to cover the rel-
atively high  fixed costs of vappr-recovery and their inability to pass through
much of these costs.  Few lessee dealers supplied by majors would be closed
 only as a result of the added burden of  vapor-recovery costs.  The direct sal-
 ary outlets of independents,  closed after a national vapor-recovery program,
 would be primarily due to constraints in obtaining the capital for vapor-re-
 covery investments.  The impact of vapor-recovery on convenience stores
 would be relatively minor.
                                      20

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    Depending upon ft. *pe Astern and me cost pass-mrough ability, the
total cost* of vapor-recovery for the stations surviving in 1981 would range
from $2.0 to $3.1 billion.  M. level of cost represents 75% to 78% of the
toW cost of vapor-recovery which would have been retired to ea^P ^en-
tire !977  service station population. Over an assumed 10-year project We,
the average cost to *e economy for a national vapor-recovery program to
eontro! benzene emissions in gasoline would ton range from $. 0022/gallon
for balance systems to $. 0033/gallon for a vacuum assist program.
     A Stage I only control program is not expected to have a significant impact
 upon incremental service station closures above those closed by .'normal-
 market factors without vapor recovery.
   *-rotal cost = investment plus financing plus 10 years of operating expenses.
                                      23

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               H. NATIONAL AUDIT OF SERVICE STATIONS

A.  PURPOSE
    OSHA and the EPA are considering regulations which would limit benzene
emissions at gasoline-dispensing facilities by use of vapor-recovery technology.
in this analysis, it has been assumed that benzene emission control would be
a nationally mandated program with no exceptions allowed. To assess the
economic impact of these regulations on the service station industry,  this
section identifies the population of retail gasoline outlets in each PAD District
 (Figure 1) in the United States by the following operational characteristics:

     •   Retail gasoline throughput,
     o   Type of retail gasoline operations,  and
     •   "Ownership" or outlet control.

  B.   AUDIT SUMMARY
      Over the last five years, the service station industry has undergone a
  period of market rationalization during which time a large number of older
  and less profitable outlets have closed. The result has been a 21% drop in
  the service station population from a high of 226,000 in 1972 to 178,000 today.
      During the same period, new methods of gasoline retailing have evolved
  in direct competition with conventional "mainline" service stations.  These
  new competitors include:  total self-service outlets, high-volume gas-n-go
  "filling stations",  and "tie-in" operations,  such as convenience stores  and
  car washes.  Some of the newer modes of retailing gasoline,  such as con-
  venience stores,  may derive less than 50% of their income from gasoline
   sales. However,  these outlets are included in an expanded definition of the
   service  station population since they compete for volume with conventional
                                     25

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(incl. Alaska  '
and Hawaii)  ^   Nev.
                                                                   N.Y. Vu'Mass.

                                                                  "- I*5*
                                                                      t-f\   R.I
                                                                 Pa.   \ \ Conn.
     Figure 1.  Petroleum Administration for Defense (PAD) Districts
                                        26

-------
service stations.  The following gasoline-dispensing facilities are not
included in this service station audit, but are reviewed in Task H of this
report: farms, c^mercial/industrial operations,  governmental or public
utility garages, and miscellaneous retail outlets, such as marinas, general
aviation facilities,  and numerous rural general retailers with small  gasoline
sales volume (i. e., often called "Mom and Pop''' stores).
     As shown in  Table  13, more than two-thirds (68%) of U. S.  service stations
are located in PAD Districts I and n,  and approximately half (48%) of all
outlets are supplied directly by major oil companies.  Other classes of direct
supplies include:  regional refiners,  large independent marketer/wholesalers
 (including the super jobbers),  and small jobbers.  PAD Districts HI and V,
with concentrated refining centers,  have the highest percent of major  supplied
 outlets.  For example, 59% of outlets in PADD V (the West Coast) are supplied
 directly by majors, but only 34% of service stations are supplied directly by
 majors in PADD IV (Rocky Mountain States).
      The average sales volume per outlet also varies by region with a low of
 36,000 gal/mo for a typical service station in PADD HI (a highly dispersed
 and rural market area) and a high of 46,000 gal/mo for a typical outlet In
 PADD V (an area of intense competition and a high degree of urbanization).
 (See Table 14.)
      The penetration of self-serve outlets also varies by PAD District.   Thirty-
  eight percent of total U.S. gasoline volume is  currently pumped through self-
  serve pumps at total self-serve outlets or split-island operations (i.e., one
  pump island with self-serve  sales and the other with attended Ml service).
  The average station throughputs in PADD's I and n are approximately equal to
  the national average, but less than a third of the volume is moved by self-serve
                                     27

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     TABLE 14. U.S.  SERVICE STATIONS THROUGHPUT SUMMARY
                            MID-YEAR 1977
                                          Average
                                          Monthly
                                         Throughput
                                         Per Outlet
                                           Percent
                                           Throughput
                                          Dispensed by
Total Annual
 Throughput
           Number of
             Outlets
                          27,510.8
                          29,219.2
59,840
61,070
26,900
 6,370
24,210
                            2,904.6
                           13,324.8
 Total USA
lource: FEA, Industry contacts,  Lunberg Letter, and; Arthur D. Little  '
         estimates.
 pumps. PAD Districts IE and IV  have high self-serve penetration-but the   '
 average station throughput is less than fee national average due to the low
 population density.  PADD V has  the highest self-serve penetration and a high
 density of demand resulting in an average outlet throughput which is well above
 the national average.                ......                         ,

  C.,  METHODOLOGY
      The service station audit developed in this task is a synthesis of publicly
  available data from trade journals and government data,  as well as proprietary
  formation from various petroleum industry contacts and in-house knowledge
  at Arthur D.  Little.  Actual 1977 data on average volume,  type of operation,
 . and method of supply by state were obtained for approximately  60% of the
                                     29

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major-supplied, major-br anded outlets.  The total number of jobbers* by
state was obtained from NOJC** which was supplemented by sample surveys
of state jobber associations to determine average jobber volumes and oper-
ational profiles.  Private branded outlet data were provided by interviews
with the majority of independent marketer/wholesalers and "super jobbers".
An analysis of the convenience store industry was also based on  oil industry
contacts,  convenience store trade publications and conversations with
convenience store trade groups.  All of these industry inputs were then
folded into our audit which was checked by public data on total outlets (e.g.,
NPN Fact Book and Census of Retail Trade).
     The penetration of the self-serve mode of retailing into gasoline marketing
was  evaluated, based upon recent industry studies as well as data from
industry trade publications.

D.   TOTAL U. S. SERVICE STATION MARKET
     By mid-year of 1977, gasoline consumption in the United States was
approximately 7.3 million bbl/day (i.e., 109 billion  gal/yr) which represents
a 2.5% growth over the same period in  1976.  Approximately 75% of this
volume moved through retail service stations with the balance sold to govern-
mental, industrial, and commercial consumers, or to small  "non-
conventional"  retail outlets (e.g., marinas, "Mom and Pop"  stores, etc.).
In addition to the 178,000 service stations in the United States, there are
approximately 243,000 "non-service station" dispensing locations,  as
discussed in Chapter Hi.
 *National Oil Jobbers Council - A Jobber Trade Association.
**A jobber is a petroleum distributor who purchases refined product from a
  refiner or terminal operator for the purpose of reselling to retail outlets
  and commercial accounts or reselling through his own retail outlets.
                                    30

-------
     Direct gasoline suppliers to retail service stations can be divided into
 four groups:
     ป   major oil companies,
     •   regional refiner/marketers,
     •   independent marketer/wholesalers - "super jobbers",  and
     0   small jobbers.
     In this analysis, the 17 largest oil companies are defined as majors,
 which are fully-integrated* and market gasoline in 21 or more states  (see
 Appendix I, Table I).  The next 21 largest oil companies are considered to
 be regional refiner/marketers which tend to be partially integrated, but
 operate at least one refinery and generally market gasoline in less than
 21 states (see Appendix I, Table 2).  The independent marketer/wholesaler
 group, including gasoline-oriented "super jobbers", are also multi-state
 retailers but lack their own refining capability.  These companies tend to
 market under their own private brand, but may also be involved as branded
 jobbers.  Approximately 270 gasoline "super jobbers" and independent marketer/
 wholesalers operate in the United States with an average of 80 service stations
 in their directly controlled retail chain. Also included in this large independent
 category are approximately 25  large-chain convenience store retailers with
 gasoline operations.  The last direct supplier category is the small jobber
 which generally markets gasoline under major oil company brands through
 6 to 1-2 service stations within a single  state.  There are approximately 9, 000
 small gasoline jobbers in the United States which deliver to almost 48, 000
: service stations. !
     A summary of the U. S.  service station population by direct supplier and
 type of operation in various throughput ranges is presented in Table 15.

 *Engaged in  all phases of the oil business  (viz., exploration, production,
  refining, supply and transportation, and marketing).
                                     31

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                                         32

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Details of this audit are presented by PADD in Appendix B (Throughput
Analysis) and Appendix C (Control/Operations Profile).  Almost 75% of
retail gasoline outlets have throughputs of less than 50,000 gal/mo with the
national average volume equal to approximately 39,000 gal/mo. Eighty-
four percent of major-supplied outlets have sales of less than 50,000 gal/mo
and half of these major outlets are in the 11,000- 24,000 gal/mo group.
    In total, stations with sales less than 24,000 gal/mo represent 45% of
the outlets, but only 23% of the volume.  Conversely, high-volume stations
pumping more than 100,000 gal/mo equal only 10% of the total outlets, but
account for 14% of the retail gasoline volume.
    Two-thirds of the regional refiner/marketer outlets pump from 25, 000-
99,000 gal/mo with an average of 56,000 gal/mo. Independent marketer/
wholesaler "super jobber" stations include convenience stores in the
11,000-24,000-gal/mo category (averaging 22,000 gal/mo) and high-volume
pumpers averaging 90, 000 gal/mo.  The high-volume outlets are mostly
direct operations which are controlled and operated by the supplier. Small
jobber-supplied stations fall mostly into the 25,000-49, 000 gal/mo range.
Over a third of the small jobber-supplied outlets pump less than 25,000 gal/mo
and contain many low-volume, lessee dealer outlets. Small jobbers also
supply almost as many open dealer outlets as the major oil companies.

E.  U. S  SERVICE STATION OWNERSHIP PATTERNS
    Service stations in the United States can broadly be classified into the
following four operational groups:
    •    Direct outlets (supplier-"controlled"/supplier-operated),
    •    Convenience stores ("C" stores),
    •    Lessee dealers (supplier-"controlled"/lessee dealer), and
    •    Open dealers (dealer-"controlled"/dealer-operated).
                                  33

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    The word "controlled" is used to describe the above service station
operations because the supplying company or dealer may, or may not, actually
have title to the real estate and the fixed assets at the service station site.
A private financial investor may own the property as a real estate investment
and lease it to the supplier or dealer on a long-term contract.  Both in this
situation and in the case of direct ownership of the land, the supplier or dealer,
in effect,  controls the site in the long to medium term (i. e., a  10- to 15-year
period).  Direct outlets are controlled by the gasoline supplier and operated
by direct  oil  company employees (including commission arrangements).  For
major oil companies, direct operations include high-volume sites and large
investment "tie in" operations (e. g., diagnostic car care centers or large car
wash operations) as well as new total self-serve  outlets.  As shown in Table 15,
almost all outlets pumping greater than 100,000 gal/mo are direct supplier
operations,  60% of which are run by "super jobbers"*.  Currently, direct
outlets represent 32,000 service stations or 18 percent of total U. S.  outlets.
The proportion of direct outlets is expected to grow in the future at the expense
of lessee dealer and open dealer outlets.  More than half of the independent
marketer/wholesaler-super jobber outlets are directly operated.  Direct
salary operations represent 26% of the regional refiner outlets, but only 7%
of stations directly supplied by major oil companies (see Table 16).
     Convenieijce stores pumping gasoline are controlled and operated by either
large convenience store chains, major oil companies, regional refiners, or
"super jobbers".  Many small jobber-supplied "C" store operations are a
hybrid arrangement  of a direct operation a.nd an open dealer.  An independent
food retailer runs the inside operation (i. e.,  food, etc.)  and receives a fixed
commission for all gasoline sales to compensate for labor and services.
Convenience stores have grown rapidly in the last few years and represent
 *Including independent marketer/wholesalers.
                                    34

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   TABLE 16.  US SEBVICE STATION CONTROL BY TYPE OPERATION
Direct Supplier
Major Oil Company
Regional Refiner
Independent
Marketer/1 'Super
Jobber"
Small Jobber
Total All Suppliers
Total Number of
Outlets
% of Total Outlets
Direct
Outlets*
7
26
56
11
18%

32070
Convenience
Stores
1
1
25
2
•5%'

9600
Lessee
Dealer**
59
60
15
41
47%

83690
Open
Dealer*t
33
13
4
46
30%

53030
 *Company "controlled"/company operated
**Company "controlled"/lessee dealer
 t Dealer "controlled"/dealer operated
Source: FEA, industry contacts, "Progressive Grocers, " and Arthur D.
        Little estimates.
aggressive gasoline competitors.  There are approximately 30, 000 "C" stores
in the nation, with almost 33% now marketing gasoline (i. e., 9, 600).  Large
"C" store chains run 71% of the gasoline-selling convenience stores.  Other
current "C"  store operators include:
            Marketer
    •   Majors/Regional Refiner
    •   "Super jobbers"
    •   Small jobbers
Percent of Total "C" Stores
           11
            8
           11
                                  35

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    The "C" store population marketing gasoline is expected to grow to more
than 20,000 locations by 1980.  Despite their low average gallonage (22,000
gal/mo), self-serve "C" stores can price gasoline at a level competitive with
high-volume, self-serve pumpers as a result of very low labor and overhead
costs.  Lessee dealer stations  are run by an "independent" deMer who n
"rents" the facility from his gasoline supplier who has the long-term con-
trolling interest in the station.  The dealer is not an oil company employee
and is responsible for his own investment, expenses, and profitability.  Such
stations are typically two- or three-bay facilities where more than one half
of the dealers'  sales realization is derived from products and services other
than gasoline (e.g.,  tires, batteries, accessories, inside mechanical work,
etc.).  Lessee  dealer stations represent 47% of total retail gasoline outlets
in the United States (840, 000 stations).  Major oil companies control almost
60% of total lessee dealer operations.  Other lessee dealer suppliers
include:
           Supplier
         Small jobbers
         Regional refiners
         Super jobbers - IM/W*
   Percent
Lessee Dealers
      23
      11
      5
    An open dealer station is an operation where the on-site dealer is also
the "owner"  of the facilities.  The open operator is not permanently tied to any
particular brand, but "flies the flag" of the supplier from which he can extract
the best deal.  Outlets involved in an arrangement known as lease/lea,seback are
also included in this group.  This variation of an open dealer describes a
situation where the dealer controls the site, but leases it to a supplier for a
given rent per gallon (e. g., $0.0200/gal) and leases it back from the same
supplier for  a lesser amount (e. g.,  $0.150/gal).  This, in effect, is a way of
*Independent marketer/wholesalers
                                      36

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increasing the cash flow of the open operator.  Very few of these types of
arrangements have survived over the last few years.   Compared to the other
types of service station operations, open dealer outlets tend to be older and
more depreciated.  Open-dealer sites represent 30%  of the total stations in the
country, but have less than the national average sales volume per outlet.
The direct source of supply to open dealers includes:
        Supplier
    ฎ,  Majors
    •   Small jobbers
    0   Regional refiner
    ฎ   Super jobber - IM/W*
 Percent
Open Dealers
     53
     41
      4
      2
    As shown above, the majority of open dealers tend to operate with a
major oil company brand.  The vast majority of open dealers operate neighbor-
hood service stations in rural and/or suburban areas.
^Independent marketer/wholesalers.
                                   37

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   HI.  AUDIT OF "PRIVATE" GASOLINE-DISPENSING FACILITIES (1977)

 A.  SUMMARY
     The purpose of the audit of the "private" gasoline-dispensing facilities
 was to identify the total number of facilities other than conventional service
 stations which dispense gasoline.  These outlets could be liable for vapor-
 recovery controls both to reduce the potential toxic exposure of benzene to
 employees and to  lower overall hydrocarbon emissions.
     The number and geographical distribution of "private station" gasoline
 facilities in the United States closely follows the pattern of service stations.
 "Private" gasoline-dispensing facilities are maintained by governmental,
 commercial, or industrial consumers for their own fleet operations.  Mis-
 cellaneous retail outlets not classified as service stations include marinas,
 parking garages, and rural "Mom and Pop" businesses which sell gasoline
 as a convenience to their customers rather than as a major source of income.
 As of June 1977, there were approximately 243,000 "private" locations in
 the country.  However,  only 1% of these facilities dispense more  than
 20,000 gal/mo.  The number of retail service stations in the United States is
 approximately 178,000. The largest concentration of both private and retell
 gasoline outlets is located on the East Coast and in the Midwest with a
propoportional amount of both types of facilities in each Petroleum
Administration for Defense District (PADD).  "Private" gasoline  outlets
represent 58% of the total gasoline outlets in the country, but only 23% of
national gasoline volume dispensed.
    As a benchmark for the EPA,  an analysis was made of the non-retail
gasoline-dispensing facilities in six sample Air Quality Control Regions
                                   39

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 (AQCR)*.  The AQCR's with the largest population and associated service
 industries naturally have the largest number of total gasoline-dispensing
 outlets. This work updates gasoline-dispensing data for four AQCR's pre-
 viously obtained by Arthur D. Little for the EPA.  The objective of the AQCR's
 segregated analysis was to highlight the gasoline-dispensing mix in key
 metropolitan areas which may proportionately differ from regional  and
 national statistics.
 B. METHODOLOGY
     The prime data source for the trucking and private service industry was
 the 1972 Bureau of Census "truck use inventory" computer tape.  Gasoline-
 powered trucks were aggregated by fleet size, which is the relevant variable
 for the identification of dispensing outlets.  This survey was updated by
 Arthur D.  Little estimates to match the 1977 consumption of gasoline by these
 truck sectors.  Public service and utility vehicles in the truck tape were
 segregated and assigned to a separate user category.  Agricultural outlets
 were estimated from the 1977 gasoline consumption per acre by state,  and fleet
 size information was derived from the Bureau of Census truck tape.
    Federal Government gasoline consumption data were obtained from high-
 way statistical data of the Department of Transportation and an FEA survey
 of federal agency gasoline consumption.  Military gasoline consumption data
 by location were obtained directly from the Department of Defense.  The
 number of  outlets and consumption levels for the state, county, and municipal
 fleets were obtained initially from a survey of public vehicle registrations,  as
well as from gasoline consumption estimates by state.  This number was then
further reviewed through telephone surveys with various local government
agencies and municipal transportation publications. The number of gasoline
outlets and total gasoline consumption of the utility industry were  derived from
*Boston, Baltimore, Denver, Los Angeles, Dallas, and Chicago
                                    40

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the truck tape and allocated according to the county business patterns of the
U. S.  Bureau of Census and electric utility trade statistics.
    Estimates for taxi cabs, school and city buses, and rental agencies camp
from  industry sources and trade publications.  The number of miscellaneous
retail outlets — marinas, "Mom and Pop" stores, etc. —were estimated both
from  the Department of Transportation 1977 estimate of off-highway fuel
consumption, by U.S. Bureau of Census statistics of retail units,  and by
in-house data.  At AQCR and PADD levels, the distribution of dispensing
facilities used was derived from county business patterns of the U.-S, Bureau
of Census.

C.  REGIONAL DISTRIBUTION
    In this analysis, the number of private gasoline locations was divided
into two groups: (1)  Facilities with throughput equal to or greater than
20,000 gal/mo, and (2) those outlets dispensing less than 20,000 gal/mo.
This division was used to highlight the very high-volume, gasoline-consuming
segments of industry, commerce,  and the Government.
    A geographical analysis was made on a PADD basis for the United States.
As  a benchmark, the four sample AQCR's reviewed in our previous Stage II
analysis  for the EPA were updated (viz.,  Baltimore, Boston,  Denver, and
Los Angeles), and the "private" gasoline  outlets in two additional sample
AQCR's (viz., Dallas and Chicago) were evaluated to yield at least one sample
AQCR in each of the PADD areas.  The largest number of these gasoline
outlets are operated by the Government and various utilities.  As shown in
Table 17, these sectors contain 39% of the total number of "privatej? jgasoline-
dispensing facilities.  The largest gasoline-consuming outlets are: military
installations, followed by the postal service, large Government fleets, and
major utilities (particularly  telephone/communication companies which teiid
to utilize twice the gasoline volume of gas and electric utilities with a similar
                                    41

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        TABLE 17.  AUDIT OF "PRIVATE" GASOLINE OUTLETS
                 (gal/mo gasoline — Total United States)
Sector
(Trucking/
Agriculture
PAD I
PAD II
PAD in
PADIV
PAD V
Sub-total
Number of Locations
<20M gal/mo
10,470
16,550
16,280
2,890
7,990 ,
54,180
Utilities/Government
(including Military)
PAD I
PAD II
PAD IH
PADIV
PADV
Sub-total
Other*
PAD I
PAD II
PAD IE
PADIV
PADV
Sub-total
TOTAL
37,070
29,380
9,740
1,960
15,170
93,320

32, 220
29,140
14, 200
5,170
11,960
92,690
240,190
>20M gal/mo
40
100
110
20
50
320

680
500
180
40
290
1690

260
170
100
60
140
730
2,740
Total
Outlets
10,510
16,650
16,390
2,910
8,040
54, 500

37,750
29,880
9,920
2,000
15,460
95,010

32,480
29,310
14,300
5,230
12,100
93,420
242,930
>20M gal/mo
Outlets
as % of Total
0.3%
1%
1%
1%
1%
1%

2%
2%
2%
2%
2%
2%

1%
1%
1%
1%
1%
1%
1.1%
% Total
"Private"
Gasoline
Outlets





23%






39%






38%
100%
*Buses, taxis,  rental cars, new car dealers, and miscellaneous fleet vehicles, and
 miscellaneous retail outlets.
Source: FEA; Federal Highway Administration "Highway Statistics"; Department
        of Agriculture,  Economic Research Service; Department of Defense,
        Automotive Fleet Fact Book.
                                        42

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 number of employees).  These sectors are large in absolute terms and include
 a multitude of Government outlets at the municipal, county, state, and federal
 levels, as well as both private and public utilities.
     In the sample AQCR's, the trucking and service sectors typically have
 the largest absolute number of outlets and the greatest number of facilities
 dispensing greater than 20,000 gal/mo (see Table 18). The metropolitan
 areas have relatively fewer Government/utility outlets, since fueling require-
 ments of these sectors are often pooled into central garages in such areas.
 These urban areas also have proportionately fewer miscellaneous retail
 outlets than in the national  audit,  since the "Mom and Pop" stores are pre-
 dominantly a rural phenomenon.   The trucking sector encompasses a wide
 variety of private service and delivery vehicles which tend to have a greater
 concentration in the metropolitan areas.  Thus, the proportion of outlets in
 various sectors differs in the total United States and in the sample AQCR
 audits. On a nation-wide basis,  the absolute number of large gasoline volume
 facilities  in the trucking group is smaller than the total in either of the other
 two categories,  since few farm accounts dispense more than 20,000 gal/mo.
  i   Based on this survey,  it is estimated that only 1% of the "private"
 gasoline facilities dispense  more than 20,000 gal/mo (i.e., approximately
 2,700 locations).  The distribution of these outlets in the metropolitan AQCR's
 ranges from 1% of total facilities in Denver to almost 6% in the Boston region
 (see Appendix D for sample AQCR details).  Large-volume "private" outlets
in Chicago, Los Angeles, and Baltimore represent approximately 3% of the
total gasoline-dispensing facilities in these AQCR's.  In Dallas/Fort Worth,
2% of the total non-retail outlets are in the large consumer group.
                                    43

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 TABLE 18.  AUDIT OF "PRIVATE" GASOLINE OUTLETS r SIX AQCR' S
      (Baltimore, Boston, Denver, Chicago, Dallas,  Los Angeles)
Average
Monthly Volume
Trucking/
Agriculture
Utilities/Government
Other*
Total
Number of Outlets
<20, 000 >20, 000 Total Outlets
8,990
3,000
2,210
14, 200
190 9,180
110 3,110
150 2,360
450 14, 650
*Buses, taxis, rental cars, new car dealers, miscellaneous
TOTAL






% of Total
Outlets
63%
21%
16%
100%
fleet vehicles.
NON-SERVICE STATION OUTLETS
Los Angeles
Denver
Boston
Baltimore
Dallas
Chicago
Total
6,080
1,710
1,240
1,120
1,950
2,550
14, 650






Source:  Federal Highway Administration:  Highway Statistics; County
        Business Patterns; Department of Commerce, Bureau of Census;
        Local and State Agencies.
                                 44

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     The large gasoline-dispensing facilities are thus concentrated in the
following key consuming segments:
     •   utilities,
     o   large Government facilities,
     •   large metropolitan gasoline-fueled,  short-haul fleets (e. g.,
         newspaper delivery, etc.),
     •   taxicabs, and
     •   large automobile rental agencies.
The results of this volumetric segmentation implies that the enforcement
problem may be simplified by concentrating only on the 20, 000-gal/mo
segments,  if vapor-recovery systems are required. It would be exceedingly
difficult to identify and monitor compliance by the myriad of the smaller
volume gasoline consumers  (i.e.,  those using less than 20,000 gal/mo),
should vapor recovery be chosen as the control strategy for this group.
     As shown in Table 19, there are approximately 243,000 "private"
gasoline-dispensing outlets in the country which is one and one-third times
the number of conventional service stations.  The dispersion of both retail
and non-retail outlets are proportional in each PADD.  These non-service
station outlets represent 58% of the gasoline facilities, but dispense only 23%
of the gasoline volume sold in the United States (see Table 20).  Thus, retail
service stations, on average, will have more than four times the throughput
of the non-service station gasoline outlets.

D.   PRIVATE GASOLINE-DISPENSING SEGMENTS
1.   Trucking/Service/Agricultural Sectors
    The trucking sector includes all non-Government gasoline-powered
vehicles used in wholesale/retail delivery operations, as well as miscellaneous
services,  construction, manufacturing, and extractive industries.  This
segment consumes approximately 8% of the total gasoline in the country as
shown in Table 20.  Typically,  companies in this group with larger truck
fleets will have their own on-site dispensing facilities. Approximately 75% of
                                    45

-------

O
EH
ti.
^
"o
1
jj-j
•rt
CQ
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% of Total
"Private"
^.
1
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PH
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3
o
EH

CO
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i
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3
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0
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9
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03
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53
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03
Stations
CQ
1
6
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m
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 1
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ft EH





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00



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d _
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p -^ i i <;
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3 ฐ .ซง
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                                                                                     0
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                                                                                     02
                                                   46

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   TABLE 20.   ESTIMATED U.S. GASOLINE CONSUMPTION (1977)
End-Use Sector
Agriculture
Trucking and
local service
Government
- Federal
- Military
- Other*
Taxis
School Busses
Mis cellaneous * *
Total Non-Service
Station Segment
Retail Service
Station Segment
All Segments —
Number of
"Private" Gasoline-
Dispensing Outlets
32, 600
21,900
85,450
5,380
3,070
94, 530
242,930
178,390
421, 320
Annual Gasoline
Consumption
(Million Gal)
3,801.3
5,241.6
227.6
174.1
2,266.4
882.1
144. 7
12,497.2
25,235.0
84,412.0
109,647.0
% Total U. S.
Private
Gasoline
Volume
15%
21%
11%
0.:
0.
9.
3%
1%
49%
100%


% Total U.S.
Gasoline
Volume
3%
5%
2%
)%
8%
0% . .
0. 8%
.0.1%
11%
23%
77%
100%
 Source: Arthur D. Little estimates based on data from the following:
        U.S. Department of Agriculture; Economic Research Service;
        Department of Defense, FEA, Automotive Fleet Fact Book.

 *State and municipal governments.

**Auto rental, utilities, and other.
                                           47

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  the truck population is used primarily for intracity travel, and 86% of these
  vehicles are fueled by gasoline.  Conversely, 87% of the travel outside of
  metropolitan areas is made by heavy-duty,  dies el-powered trucks.  There is
  a trend toward greater diesel use in even lighter and medium weight trucks.
  However, a dramatic fuel shift would require a phasing of up to five years for
  most fleets.  A concentrated use of gasoline-powered trucks will most likely
  continue for intracity deliveries in the metropolitan areas.  As shown in
  Table 18, more than 63% of the total non-retail gasoline facilities in the sample
 AQCR's are utilized for general trucking/service/agricultural fleet operations.
 However, only 2% of these outlets would use more than 20,000 gal/mo,
 despite the high total volume  of gasoline used by this segment.
     Individual companies, such as United Parcel Service (UPS), will more
 likely be affected by vapor-recovery controls to a greater degree than the
 total trucking industry.  UPS, in particular,  has approximately 1,078 gasoline
 facilities in the country and 7% of these locations  consume more than
 20,000 gal/mo.  The breakdown of the trucking/agriculture sector are  shown
 by PADD in Appendix E, Table 1.
     Almost 75% of gasoline consumption by the agricultural sector is used
 in PADD H and HI.  In the total United States, approximately one-fourth of
 the non-retail gasoline consumption is used by agriculture.  Gasoline, in turn,
 represents over 33% of the total fuel requirements of this crucial  sector of the
 economy.  The estimate of 36, 000 outlets nationwide for agriculture represents
 those outlets which have relatively large size tanks (>1,000-gallon capacity)
 on the farm, and an average of three to five trucks per farm. This would
 include all major farms and irrigation sites, nurseries,  and landscaping firms.
Approximately 2.7 million farms in the United States are not included in this
estimate as they would typically have small,  above-ground tanks (e.g.,
275-500 gallons) and would have a. higher proportion of diesel-fired vehicles
than of gasoline-powered equipment.  In general, all agriculture outlets would
use less than 10,000 gallons per month.
                                     48

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2. Government/Utilities Sector
    Utilities have approximately 9, 580 gasoline-dispensing facilities to service
almost 640,000 trucks. The distribution of utility outlets is directly related
to the service requirements of the surrounding population with the highest
concentration in PADD's I and E.  In the total trucking industry, the utility
sector represents approximately 37% of the national'gasoline-powered truck
population.  Utilities typically maintain central garages in the metropolitan
areas with support facilities for suburban service vehicles.  Roughly 1 peircent
of the utility gasoline facilities have consumptions exceeding 20,000 gallons
per month.
    Government agencies with central garages are typically regional locations
for the  postal service, Federal Government agencies, and state and county
organizations.  The central facilities typically dispense more than 10, 000 gal-
lons per month.  Municipal outlets tend to have a greater degree of decentraliza-
tion and throughputs of less than 10,000 gallons per month (e. g., fire, police
stations, etc.).  The consumption of gasoline at  military bases is directly
related to the size of the installation.   In general, most of the major military
facilities consume more than 20,000 gallons per month.

3.  Other Miscellaneous Facilities
     Approximately 90% of the taxi companies in  the United States dispense
their own gasoline (i. e.,  approximately 5,400 companies).  The average
throughput of these taxi facilities is a function of:
     e   the fleet size, and
     •   the average mileage per vehicle.
     Two-hundred and ninety-five companies have fleets with more  than 100
 cabs which results in a gasoline consumption of  approximately 20, 000 gallons
 per month.  In addition, 700 taxi companies consume between 10,000 and
                                      49

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 20,000 gallons per month; 4,700 cab companies use less than the
 10,000 gallons per month.  The smallest cab companies (viz.,  those with a
 fleet of less than 10 vehicles) tend to have cooperative gasoline-dispensing
 arrangements, or have their cabs pick up fuel at a local service station.
     Most school buses tend to be gasoline-powered.  Approximately 4% of
 the 3,060 private school bus companies have their own gasoline pumps with
 consumption greater than 20,000 gallons of gasoline per month. In many
 cases,  public school buses pick up their gasoline at a local municipal garage or
 at service stations. As in the case of taxi cab companies,  school bus opera-
 tions with greater than 10 buses would tend to have their own gasoline pumps.
 City and intercity buses for metropolitan transportation are predominantly
 diesel-powered.  However, the service vehicles for these operations do use
 gasoline.  Most of these transportation bus companies would generally con-
 sume less than 20,000 gallons of gasoline per month.
    Of the 373,000 cars in fleets rented on a daily basis, about 25% are
 controlled by the three major rental agencies.  The industry is gasoline-
 intensive, with the  largest units in major cities and airports having volumes
 greater than 20,000 gallons per month.   The truck rental sector was included
 in the trucking survey; typically, daily truck rental agencies do not dispense
 gasoline, but rely on service stations for supply.
    Miscellaneous fleets - predominantly corporate fleets - are composed
 of 460,000 cars in fleets of more than 25 vehicles with complete or partial
maintenance.  An additional 1,318, 000 cars are leased directly and 357,000
are salesman-owned.  Approximately 288,000 locations have their own fleet
pumps; less than 2% of these pump more than 20,000 gallons per month.
                                     50

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     IV.  RETAIL GASOLINE MARKETING ECONOMICS AND TRENDS

A.  INTRODUCTION
    The purpose of this chapter is to briefly define the current nature of the
retail gasoline market,  so that the base operational and economic conditions
which will be impacted by vapor-recovery controls can be better understood.
    This review of the retail gasoline industry includes a discussion of the
following marketing elements:
    9   Retail gasoline marketing dynamics,
    &   Gasoline supply logistics,
    •   Gasoline retailer segments, and
    ซ   Current pro forma service station economics.
    In addition,  an assessment of the service station population outlook with-
out vapor recovery has been made based upon trends in the market and discus-
sions with various industry contacts.

B.  GASOLINE MARKETING  DYNAMICS
    For more than a quarter of a century until about 1970,  the production of
both domestic and foreign crude oil contributed the most significant portion of
total corporate profits to integrated oil companies.  Defined roughly, the func-
tion of marketing was to create outlets to draw more barrels of crude oil and
profits out of the ground.  This volume-oriented philosophy tended to dis-
courage innovative changes and efficiencies in petroleum marketing by the
major oil companies.  During this  same period,  consumer-oriented retailing
changed dramatically  to meet the needs of a growing mobile, suburban popu-
lation.  The neighborhood variety store was replaced by supermarket chains
in the late 1950's, and this development was followed by the mushrooming of
                                    51

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suburban shopping malls.  During the 1960's,  some dynamic independent
gasoline marketers did attempt to attract the price-conscious buyers through
high-volume/low-margin operations.  Most of their sites were direct salary-
operated stations which gradually evolved into self-service. However, most
other petroleum marketers were slow to respond to these innovations. Over
the last 30 years,  great technological strides were made in exploration and
production (e.g., offshore and deep wells), refining (e.g., larger, more com-
plex refineries), and transportation (e.g., very large crude carriers, etc.).
However, the marketing  strategy of the majors remained relatively static dur-
ing the 1960's,  resulting in a gasoline retailing system by the early 1970's
that had changed little in 20 years.
    For almost 30 years the "name of the game" for petroleum marketing
managers was sales volume with market share generally proportional to the
share of retail outlets.   Thus, the surest way to increase refinery runs and
therefore upstream profits was to build or subsidize the construction of more
branded retail outlets. The greater exposure of a given brand to the motorist,
the more likely the chance for a sale, which is similar to the race for shelf
space at supermarkets by food retailers. This market strategy in the oil
industry, driven by production goals, resulted in a proliferation of service
stations on seemingly every street corner with a high traffic count. The total
number of  service stations in the United States reached a peak in 1972 with
more than  226,000 conventional outlets  (excluding "Mom and Pop" retailers).
    Gasoline marketing economics and resulting strategy began to change by
the early 1970's and the changes were accelerated by the events preceding
and surrounding the Arab Oil Embargo of 1973.  Major changes in the
environment included:
                                    52

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    e   Elimination of the crude oil depletion allowance;
    •   Increasing OPEC control of crude oil supplies and prices;
    •   The myriad of Government regulatory controls;
    •   Changes in the import quota system;
    •   A surplus of gasoline supply as demand growth rate fell
        dramatically;
    0   Increasing retail operating expenses and potential to realize
        economies of scale in gasoline marketing;
    •   Increased price competition from independent marketers who
        were able to realize economies of scale.
    Integrated oil companies were then forced to view their marketing and/or
refining operations  as separate profit centers to be judged on "stand-alone"
economics. No longer would marketing operations be subsidized by upstream
profits.  Many companies now even define individual outlets as separate profit
centers whose economic justification must be self-sustaining.   Such post-
embargo strategies have directly or indirectly resulted in a closure of approx-
imately 48,000 service stations in the last five years (i. e.,  21% of the total
1972 service station population). The market rationalization process continues
as a result of past petroleum marketing strategy when too many service sta-
tions were builti  The service station population is expected to continue to
decline by most industry sources down to a level of between 110, 000 and
150,000 outlets by the early 1980's (see Figure 2 and Appendix F).

C,,  RETAIL GASOLINE SUPPLY LOGISTICS
    The marketing  of gasoline in the United States is quite complex.  Virtually
all of the gasoline consumed in the country is  supplied by domestic refiners
(viz.,  majors, regional refiner/marketers, and small independent refiners
with no marketing activities).
                                    53

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I
I
200,000
150,000
100,000
                       226,200
                                                       178,000
                                                                          150,000
                                                                          (high estimate)
                                                                          110,000
                                                                          (low estimate)
                  1972
                                                   1977

                                                   Year
                                                                      1980
                                                                                 Source: See Appendix F
                Figure 2.   U. S.  Service Station Decline (1972 - 1980)
                                                 54

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    Gasoline is shipped from refineries by various modes of transportation
to primary terminals operated by the refiners, large independent marketer/
wholesalers, or independent liquid terminal operators.  The distribution net-
work and relevant pricing points are illustrated schematically in Figure 3.
The product is sold at the terminal loading rack to one of the following classes
of trade:
    ซ   Direct Sales -  i.e., commercial/industrial accounts,  retail outlets
         serviced directly or by consignees;
    •   Wholesale - i. e., large independent marketer/wholesalers (including
         "super jobbers") and small jobbers; these resellers may buy on
         either a branded or unbranded basis (i. e., for private brand resale)
         or both;
    9   Exchange - volumetric swap of product with another marketer who
         must provide an equal volume of product to the supplying company
         at another facility; no actual sales transaction is generally recorded.
    Wholesale gasoline sales on a branded and unbranded basis  are made
effectively at the loading rack to both independent resellers (i. e., jobbers)
and secondary brand subsidiary profit centers of a refiner/marketer.  In some
cases, arrangements are made for the fleet of the prime marketers (i. e.,
refiners or independent marketer/wholesalers) to  deliver product to jobber
outlets for a negotiated tariff.  Both the prime marketers and jobbers then
sell gasoline to commercial/industrial consumers as well as to  various types
of retail outlets.   In some cases, especially in rural markets, a refiner may
operate through a consignee who, in effect, is a commission agent paid for
a distribution service on the basis of throughput.   In such arrangements, title
to the inventory and direct customer billing/receivables is retained by the
prime marketer.  All marketers  (prime  and jobbers) sell gasoline through one
of the following four principal classes of branded or unbranded retail outlets:
                                    55

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56

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         Direct salary operations - supplier investment/supplier-operated
         with direct or commission employees;
         Lessee dealer - supplier investment/operated by a "independent"
         dealer who "rents" the facility and is  contractually tied to the
         gasoline supplier;
         Open dealer - the investment at the outlet is "owned" by the onsite
         dealer operator;
         Convenience store - direct or open-account situation in which the
         gasoline operation is viewed as a separate profit center from
         other on-site retail activities.(i.e, store f9od sales, etc.).
D.  RETAIL GASOLINE MARKETING SEGMENTS
    As identified in the Arthur D. Little service station audit, approximately
83% of the conventional retail outlets in the United States operate under a
major and/or regional refiner brand (see Table 21).  However, only 57% of
the total is directly supplied by the refiners, and the balance are served by
branded jobbers.  Lessee dealers operating under various brands represent
slightly under half of the total service stations in the country.  Open dealers
represent approximately one third of the total outlets,  and are almost equally
supplied by small jobbers and major oil companies.  Direct salary operations
represent 18% of the total service stations. More than half of the direct
salary stations are operated by the large independent marketer/wholesalers
and super jobbers.

E.  CURRENT  SERVICE STATION ECONOMICS
    Continued closures of service stations are being driven by the contraction
of retail margins fostered by economies of scale enjoyed by high-volume out-
lets and the  labor-saving efficiencies of self-service/"C" store operations.
In the long run,  integrated marketers will require an adequate return on in-
i
vestment by individual service stations viewed as separate profit centers.
The surviving gasoline retailers will generally be required to operate within
                                    57

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                   TABLE 21. U. S. SERVICE STATION
                         (% Total U.S. Outlets)

Direct Supplier
Major Oil Company
Regional Refiner
Independent
Marketer /"Super
Jobber"
Small Jobber
%Total Outlets
Total Number of
Outlets
.% OF TOTAL OUTLETS

Direct
Outlets *
3.5
2.3
9.3
2.9
18. 0%

32,070

Convenience
Stores
0.4
0.1
4.3
0.6
5.4%

9,600

Leasee
Dealer**
28.2
5.3
2.5
10.9
46.9%

83,690

Open
Dealert
15.7
1.1
0.6
12.3
29.7%

53,030
Total
Directly
Supplied
47.8%
8. 8%
16. 7%
26. 7%
100. 0%

178,390
     * Company "investment"/company operated
   ** Company "investment"/leasee dealer
     t Dealer "investmenf'/dealer operated
Source: Arthur D. Little Estimates (Table 3)
                                   58

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a gasoline gross margin* spread from $0.025 to $0.050 per gallon, which is
the current range of most high-volume stations. The gasoline margin at con-
ventional service stations of lessee and open dealers will be forced to operate
with gasoline gross margins of $. 05 to $. 06 per gallon.  Thus, these neighbor-
hood outlets must earn added revenue from TEA** sales in order to cover
their total station expenses and make  a profit.   As shown in Table 22, the
retail dealer gross margin has risen 22% since 1968, while the consumer
price index increased 73%, an effective decrease of 26% iri the real dealer
gross margin.  The FEA has estimated that "in order for the total margin to
keep up with inflation,  a price rise of 5.0 cents per gallon would be needed
based upon market conditions of  April 1977. "f to the near term, it is unlikely
that this level of price increase will take place in today's highly competitive
market.  As shown in Figure 4,  high-volume stations with significant econo-
mies of scale will continue to be a prime competitive driving force of gasoline
pump prices.  Furthermore,  the wholesale gasoline prices are relatively de-
pressed at the present time due to excess refinery gasoline capacity with an
estimated production of 7.2 million barrels per day ft to meet a demand of
only 6.9 million barrelsttt per day.
 #:N
   The gross margin is equal to the difference between the composite pump
   price and the delivered price paid by retailers (i. e., the dealer tank
   wagon price)
   TEA - tires, batteries and accessories plus other miscellaneous "non-
   gasoline" sales.
  tFEA, "Preliminary Findings and Views Concerning the Exemption of Motor
   Gasoline from the Mandatory Allocation and Price Regulations," August
   1977.
 ttpetroleum Marketers Handbook, published by Oil Buyers Guide,  1977,
   pp. 76-99.
tttFEA Monthly Energy Review, September 1977, p. 10.
                                     59

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     TABLE 22.  COMPARISON OF RETAIL DEALER GROSS MARGIN
   FOR REGULAR GASOLINE TO THE CONSUMER PRICE INDEX (CPI)
Year
1968
1969
1970
1971
1972
1973
1974
1975
1976
Jan.
Feb.
Mar.
Apr.
May
Retail Dealer
Margin 1976
(f/gal*)
6.5
6.7
6.7
7.1
6.7
7.4
9.7
8.4
7.8
7.9
7.9
7.8
8.1
7.9
H<*
CPI
104.2
109.8
116.3
121.3
125.3
133.1
147.7
161.2
170.3
175.3
177.1
178.2
179.6
180.6
CPI Deflated
Margin in 1968
(
-------
ClB9/$) sasuadxg BuuejadQ uoi
                   61

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     In the last 12 months, wholesale gasoline rack prices have dropped from
 $0.01 to $0.015 per gallon, but retail prices have fallen $0.02 to $0. 03 per
 gallon, in spite of increasing operating expenses.  Higher costs of operation
 cannot be directly added to the pump posting without losing volume, if compet-
 ing outlets enjoy lower costs or refrain from passing through cost  increases.
     The highly competitive nature of the current gasoline market is somewhat
 reflected in the level of "banked costs"* of the largest 30 refiners.  These
 costs represent added gasoline expenses which could have been legally recov-
 ered from the consumer under FEA price controls, but have not been passed
 on due to competitive constraints.  As shown in Table 23,  banked costs in
 1977 have been in excess of $1 billion which is equal to approximately $. 01
 per gallon.
     In summary, the retail gasoline market at the present time is  a highly
 competitive business in a phase of long-term rationalization with shrinking
 net margins resulting in fewer outlets and operators.  Thus, service stations
 will undoubtedly continue to close with or without the added burden  of vapor-
 recovery investment.
     Without a complete pass-through of vapor-recovery costs by all stations,
 a national vapor-recovery program will cut into the profitability of a highly
 competitive industry.  A key consideration of the impact of vapor-recovery
 requirements is the degree to which these added absorbed costs will reduce
 gasoline margins below acceptable levels,  precipitating additional station
 closures.
    As a tool in assessing the impact of vapor-recovery costs,  various
types of service station prototype operations were constructed as separate
*See Appendix G for a description of "banked costs".
                                    62

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      TABLE 23.  BANKED COST FOR TOP 30 REFINERS
                          ($ million)

1976
Jan.
Feb.
Mar.
Apr.
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
1977
Jan.
Feb.
Mar.
, ##
Apr.
No. 2
Distillate

336
279
263
237
N/A
N/A
N/A
N/A
N/A
N/A
N/A

N/A
N/A
N/A
N/A
Motor
Gasoline

242
336
316
398
628
587
679
619
733
796
723

901
1,038
956
1,017
Aviation
Jet
Fuel*

131
145
163
180
135
129
125
134
151
168
139

166
187
180
202
Other
Products

515
456
456
424
349
384
352
340
372
368
317

325
303
287
305
Total

1,224
1,216
1,198
1,239
1,112
1,100
1,156
1,093
1,256
1,332
1,179

1,392
1,528
1,423
1,524
  N/A = not available since middle distillates were decontrolled
        on July 1, 1976.
   * Prior to January 1976,  refiners were not required to main-
     tain separate banks for aviation jet fuel.
  ** Preliminary Figures

Source:  FEA, "Preliminary Findings and Views Concerning the
        Exemption of Motor Gasoline from the Mandatory
        Allocation and price regulations," August 1977.
                               63

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profit centers.  Current margins for these prototype stations were based on

the following assumptions:

    •   Gasoline gross margins were developed from data in industry trade
        journals in the summer of 1977 (e.g.,  Platt's Oilgram,  Oil Buyer's
        Guide, Lundberg Letter, etc.).  Average national composite prices
        for three grades of gasoline were either taken directly or developed
        for the following:  (1) average pump posting (ex-tax);  (2) dealer
        tank wagon prices; and (3) average wholesale rack price to resellers.
    •   Non-gasoline contribution margins and station operating costs were
        obtained from industry contacts and national service station account-
        ing data from the first half of 1977.

    0   The pump postings of the service station prototypes attempt to reflect
        relative differentials between types of operations and volumes.  How-
        ever, all station prototypes are not necessarily assumed to be direct-
        ly competing with  each other. For example, a lease or open dealer
        in a rural or suburban neighborhood would mostly cater to the motor-
        ing needs of local  residents. Such a station is most likely not in
        direct competition with a high-volume direct outlet in a dense traffic
        location with mostly transient, price-conscious customers.

    Net margins for the various prototypes after vapor recovery were then

determined based upon the  following:

    •   The investment and operating expenses for the various vapor-recovery
        systems were provided by the EPA (as shown in Appendix H).
    •   The ability of any  station to pass through vapor-recovery costs to
        the customers in the long run was limited to 100% of the vapor-
        recovery costs of  the most efficient marketers in a given competitive
        environment.  For simplicity, high-volume/low-cost and low-volume/
        high-cost segments were assumed.
    •   As agreed with the EPA, the cost impact of the aspirator-assist
        vapor-recovery system was not calculated,  but was assumed to be
        somewhere between the cost of the balance and the vacuum-assist
        systems.
    •   A credit to to the service station profit center,  for vapors recovered,
        returned to the gasoline storage tank and sold was supplied by the
        EPA (see Appendix I).
                                   64

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     It is recognized that illustrative prototype operations cannot reflect all
retail gasoline outlets in the country.  Factors which introduce distinct region-

al variations from the illustrative national composite profiles include:

     •   The premium ratio differentials — i. e.,  the proportional volume of
         premium,  unleaded,  and regular gasoline which varies in different
         parts of the country.  Premium gasoline, of course, provides the
         highest gross margin to the dealer.  For instance, premium gasoline
         represents roughly 40% of the throughput in California but only 20%
         on the Gulf Coast.

     •   The tires, batteries, and accessories (TEA) ratios also vary by
         region,  affecting the non-gasoline contribution margin.  Some mar-
         kets may have a relatively limited TEA contribution as a result of
         competitive conditions from large mass merchandisers,  such as
         national tire companies and discount chains.  The sales of TEA per
         1,000 gallons of gasoline may range from $250 in Denver to only
         $100 in Corpus Christi.  These ratios are quite market specific,, but
         generally higher in the Rocky Mountain and Midwest states and lower
         on the West and Gulf Coasts.

     •   Utility costs also vary between the Sunbelt and Northern states (e. g.,
         $0.005 per gallon in Southern California and $0.0140 per gallon in
         Illinois for a 35,00.0 gallon per month station).

     •   The distance from both the refinery and terminal sources will affect
         the bridging and transportation costs and, as a result, the laid-in
         cost of gasoline.  The movement of gasoline from the Gulf Coast; to
         the Northeastern States by tanker in the fall of 1977 cost approximately
         $. 023 per gallon versus $. 013 per gallon by pipeline.  However, not
         all shipments can be sent by the pipelines which are capacity  con-
         strained at this time.

     •   Refinery gate prices for gasoline may differ Widely among companies
         for a variety of reasons,  such as average crude costs, processing
         units, FEA regulations, refinery operating capacity, etc. Some
         industry contacts have indicated that this  differential for gasoline
         among various refiners could be approximately $. 03 per  gallon.

     Five types of prototype service stations were  developed for this analysis,

as shown in Table 24.  A range of throughput volumes was  estimated to show

both reasonable upper and lower limit for the specific type of operation, as
well as the average volume for the particular prototype.  Supporting details for
each prototype are provided in Appendix J.
                                    65

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               TABLE 24.  SERVICE STATION PROTOTYPE
                         THROUGHPUT RANGES


Type Station
Leasee Dealer
Direct Operation
Direct Operation
Open Dealer
"C" Store

Direct Gasoline
Supplier
Any Marketer
Major
Unbranded Independent
Any Marketer
Any Marketer
Throughput Level
(000 gal/mo. )
Low
20
50*
100*
10
10*
Medium
20 .
100*
150*
30
20*
High
80t
150*
200*
50
35*
      t Split Island
      * Self Service
      Unmarked - Full Service
      Source: Appendix J

    Each service station is viewed as a separate profit center, and the total
gross margins vary dramatically depending on the type of operation (Table 25).
At the local neighborhood garage (e.g.,  a lessee or open dealer), typically
half of the total gross margin of the station would come from sale of products
and services other than gasoline.  At self-service or high-volume outlets,
gasoline essentially provides the only source of revenue.  In our illustrative
prototypes,  gasoline also provides the only sales realization at "C" stores
since the "inside" sales are considered to be part of a separate food operation
profit center.
                                     66

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       TABLE 25.  TOTAL SERVICE STATION GROSS MARGIN ($/gal)


Type Station*
Lessee Dealer
Direct Operation
•- Major
Open Dealer
Direct Operation
•- Independent
"C" Store
- Gasoline Only
Gross Margin ($/gal)
Gasoline Contribution
To Total Gross Margin
Throughput Level*
Low
0. 1881

0.0531
0.1831

0.0410

0.0370
Medium
0.1601

0.0521
0.1851

0.0390

0.0370
High
0.1115

0.0511
0. 1311

0.0380

0.0370
Low
47%

91%
56%

90%

100%
Medium
49% .

92%
59%

95%

100%
High
50%

94%
54%

97%

100%
Source: Appendix J
    For the direct, independent, and "C" store operations, the cost of gasoline
is based upon a rack price plus a truck transportation tariff (e. g., $0.4100 per
gallon* plus $0. 0075 per gallon freight).  For all other stations, the laid-in
cost of gasoline is tied to a destination-zone pricing system (i. e., a dealer
tank wagon price* with a class of trade discount for the open dealer).  The non-
gasoline contribution margins (shown in the tables of Appendix G) represent
the gross margin from the sales of tires, batteries, accessories, vending
machine sales, etc.  These TEA ratios represent averages based upon data
from national statistics of a service station accounting firm.  The elements
of the TEA contribution margin are illustrated for a 35,000-gallon per month
leasee dealer in Table 26.
*Excluding tax.
                                    67

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             TABLE 26.  ILLUSTRATIVE NON-GASOLINE SALES
                          CONTRIBUTION MARGIN
             Item
         TEA Ratio
($ sales/1000 gal of gasoline)
       Tires
       Oil
       Batteries
       Accessories
       Lubes
       Miscellaneous
       Total Sales Realization
       Total TEA Gross Margin (35%)
       Labor* Contribution Margin
       Total Non-Gasoline
       Contribution
      Total $ for 35,000-gallon per
      month outlet
      Unit Contribution Margin per
      Gallon of Gasoline Sold
    15.73
    17.34
     5.07
    53.08
     3.51
    12.26
   106. 99
    37.44
    44. 56

    82.00
           $2870/month

           $0.0820
 *Revenue from "inside" mechanical work (e.g. , tune ups, tire changes, etc.)
 Source: Industry contracts and Arthur D.  Little estimates.
    The total onsite expenses of the prototype service stations are also a
function of the type of operation (see Figure 4).
    As shown in Table 27, service station operations are highly labor-intensive,
especially for the conventional neighborhood garage operations typified by the
open and lessee dealer prototypes.  Self-service operations significantly reduce
the absolute and per gallon labor operating expenses.  With a high level of fixed

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           TABLE 27.  SERVICE STATION OPERATING EXPENSES
Type Station/
' Throughput Level
Lessee Dealer
Direct - Major
Open Dealer
Direct - Inde-
pendent
"C" Store
Total Expense* ($/gal. )
Low
0. 2086
0.0733
0.1999
0. 0443
0. 0290
Medium
0. 1553
0. 0499
0. 1436
0. 0318
0. 0220
High
0. 1050
0.0371
0. 1134
0. 0294
0. 0137
Labor* as a % of
Total Expenses
Low
60%
45%
69%
41%
12%
Medium
54%
40%
58%
38%
16%
High
50%
36%
57%
37%
26%
*Includes allocation for dealer salary, plus employee expenses.
Source:  Appendix J

costs, economies of scale are significant with higher throughput volumes.  The
only exception to this is the labor portion of "C" store gasoline operation
which is assumed to pay a constant commission per gallon to the food operation
profit center.  For the same volume of 35,000 gallons per month, the "C"
store labor cost is equal to only 4% of the total labor cost of the lessee dealer.
Also "C" store expenses  represent only 9% of the total cost of the lessee
dealer for the same illustrative volume.
     The net margin for illustrative prototypes is equal to the difference
between the  gross margin (Table 25)  and the operating expenses  (Table 27).
     In all of the prototypes except for the "C" store, the low-volume case
results in a  negative net margin after including depreciation and a dealer
salary as expenses,  but before income taxes (see Table 28).
                                    69

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         TABLE 28.  SERVICE STATION PROTOTYPES NET MARGIN
                             SUMMARY ($/gal)
Type Station
Throughput Level
Lessee
Direct - Major
Open Dealer
Direct - Independent
"C" Store
Low
(0. 0205)
(0.0202)*
(0. 0165)
(0.0033)*
0.0080*
Medium
0. 0048
0.0022*
0. 0145
0.0072*
0.0150*
High
0. 0065+
0. 0140*
0.0177
0.0086*
0.0233*
I *Split Island
 *Self Service
 Source:  Appendix J

 F.  SERVICE STATION POPULATION OUTLOOK WITHOUT VAPOR
     RECOVERY
     The break-even volumes for the "typical" prototype stations are shown
 in Table 29. These were extrapolated from the volume/margin curves of
 Figure 5.  Lessee and open dealers below the break-even point may, in fact,
 continue to operate in hopes of better times in the future.  The net result of
 this action would be to effectively lower the take-home pay of a dealer who has
 little desire or opportunity for alternative employment. In the long run,
 direct supplier outlets operating at a loss or providing less than the corporate
 rate of return on investment or  equity would be targets for closure, depending
 upon the alternative value of the site.  Those sites remaining open would also
 be banking upon improved returns, based on a combination of higher throughputs
 in the future and possibly some  improvements in margins due to changing market
 conditions for their own individual stations.
                                     70

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        TABLE 29.  BREAK-EVEN VOLUMES OF SERVICE STATION
                               PROTOTYPES
              Type Operation
Break-Even Volume
  (000 gal/month)
           Leasee Dealer
           Direct - Major
           Open Dealer
           Direct - Independent
           "C" Store
        28
        92
        15
       108
         6
Source: Figure 5

    It is assumed that stations operating below the current break-even volume
will, in the future, either remain open or be closed due to factors other than
vapor-recovery investment requirements.  Based upon the service station
audit, there are more than 77,000 conventional service  stations falling into the
volume groups below the illustrative prototype break-even points  (see Table 30).
However, not all of these outlets will necessarily close  since closure decisions
will often be made based on a marginal cash flow analysis (i.e., depreciation
and the dealer's own labor cost are not treated as expenses in a strict accounting
sense).  With a positive cash flow, many stations will remain open if the alter-
native use value of the site is relatively low.
    Based upon discussions with industry contacts and trends noted in Appen-
dix D, a subjective Arthur D.  Little estimate of closures in various segments
has been assumed which would result in a service station population of approxi-
mately 149,000 outlets in 1981 without a national vapor-recovery program
(see Table 30). It is further assumed that a higher proportion of lessee and
open dealer stations below break-even volumes will close than those having
direct salary operations, due to the relative inability of the former to attract
high-volume sales.
                                    71

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                                               73

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    As stations are closed, the throughput of the surviving outlets will on
average increase.  As shown in Table 31, the total average throughput for
conventional stations in the country could grow approximately 33% from 1977
to 1981, assuming a 1.8%* gasoline growth rate  per year.  If this volumetric
increase were applied equally to all stations, the surviving lessee and open
dealer stations, which do not operate at below break-even point volumes,
would cross the threshhold level for survival.  However, it is most likely
that direct salary stations would capture a disproportionately higher share
of incremental  gallonage as a result of superior  positioning.

    TABLE 31.  ESTIMATED IMPACT OF SERVICE STATION ATTRITION

Year
1977
1981
Annual
Gasoline
Volume
(MM gal)
84,412
90,656
No. of
Service
Station
Outlets
178,390
149,264

Average
Throughput
(000 gal/month)
39
51
Source: Table 30 and Arthur D. Little estimates, based on FEA data.
*Per the FEA's Gasoline Decontrol Preliminary Report, August 1977.
                                     74

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          V.  VAPOR-RECOVERY INVESTMENT REQUIREMENTS

A.  INTRODUCTION AND SUMMARY
    The purpose of this chapter is to define the level of capital expenditure
required by retail marketers for vapor recovery, based on the current service
station population.  In addition, the various segments of gasoline suppliers to
retail outlets are described.  If no exemptions were allowed, vapor recovery
for the control of benzene emissions would be required at over 178,000 service
stations in the United States. As  shown in Table 32, 60% of these outlets are
controlled by independent marketers.  Assuming no closures from the 1977
station population, the total investment for vapor recovery would range from
$1.4 to  $2.1 billion* (see Table 33). Details of this required expenditure by
segment are shown in Appendix K, Tables.I - V.
    In general, both vapor-recovery operating expenses and investment are
roughly proportional to the total number of service stations owned or
controlled by each segment.  The proportion of the total vapor-recovery
investment is slightly higher than the percentage of outlets for the ."super
jobbers", since these companies tend to have more nozzles per station than
most of the other groups. Conversely,  open dealers tend to have smaller
stations with fewer nozzles than most other types of outlets.  The capital
required for the balance vapor-recovery system is roughly 66% of the cost for
the vacuum assist alternative.  The aspirator-assist vapor-recovery system
represents an intermediate cost alternative which is bounded by the balance
and vacuum-assist systems. As agreed with the EPA, the calculations for the
aspirator-assist vapor-recovery alternative have not been made,  but are
assumed to fall between the other two options.
*Based on EPA cost estimates for Stage I (Tank Truck Offloading) plus Stage H
 (Vehicle Filling) vapor recovery.
                                     75

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          TABLE 32. RETAIL OUTLET "CONTROL" AUDIT*
Sector
"Controlling"*
Outlets
Major oil
company
Regional
refiner
Marketer/
Wholesaler-
"super jobber"
Small jobber
Percent
Suppliei
Open dealer
Direct Outlets
as a Percent
of Total
Sector Outlets
11%
29%
58%
20%
by
: Major
53%
Lessee Outlets
as a Percent
of Total
Sector Outlets
88%
69%
26%
76%
Regional Refiner
4%
"C" Store Outlets
as a Percent
of Total
Sector Outlets
1%
2%
16%
4%
"Super Small
Jobber" Jobber
2% 41%
Total
Outlets
57,380
13,630
28,700
25,650
53,030
178,390
Source:  Table 15




*By either direct investment or long-term lease.
                                 76

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     The total operating expenses for vapor recovery over 10 years for all
current outlets would range from $92 to $119 million.  Stage I systems would
only capture vapors generated during the tank truck unloading operation. The
total investment for Stage I would be only $225 million for all current outlets
with virtually no associated on-site operating  expenses.

B.  TOTAL COSTS OF VAPOR RECOVERY
     In addition to the original investment for the equipment and installation,
the total annual cost for vapor recovery at service stations would also
include the annual operating expenses over a 10-year life for the system,
plus the financing cost for the required investment.  The financing costs for
capital from outside sources would differ for various segments of the industry
and, in general, would be lower than an internal investment hurdle raise
utilized by many integrated companies which have the lowest borrowing costs.
External financing terms typically available to marketers able to obtain
bank loans are shown in Table 34.
    Assuming all current outlets were able to obtain bank loans, the total
financing cost of vapor recovery with no closures would range from $473 million
to $726 million (see Table 34).
    Over the 10-year project life for vapor-recovery systems defined by the
EPA, the total cost of vapor recovery to the economy ranges from
$2.8 billion for the balance system and $4.0 billion for vacuum assist, as shown
in Table  35.  The unit cost of vapor recovery for the current service station
population would range from $0.0030 to $0.0043 per gallon.  A decreased
number of outlets and/or increasing  sales volume will lower these pre-
liminary unit cost estimates (see Chapter vm).
                                    78

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           TABLE 35.  TOTAL VAPOR-RECOVERY COSTS**
Type System
Investment
Financing Cost
Cumulative Operating Expenses
(10 years)
Total Costs
Unit Cost* ($/gal)
($000)
Balance
1,373,385
473,289
916,960
2,763,634
$0. 0030
Vacuum Assist
2,114,841
725,668
1,188,950
4,029,454
0. 0043
 *Volume divisor = 932 billion gallons over 10 years
**Excludes system testing costs
Source:  Table 34
C.  VAPOR RECOVERY INVESTMENT — INTEGRATED OIL COMPANIES
    Major oil companies and regional refiners are the two marketing seg-
ments with the largest total corporate asset base. The scope of this report
does not encompass an assessment of the capital acquisition ability of these
two integrated sectors of the oil industry.  The large integrated companies
control  40% of the total retail outlets in the country through direct, lessee,
and "C" store locations.  According to the Economics Department of
McGraw Hill Publishing Company, capital expenditure for the major oil
companies and regional refiners is expected to be almost $30 billion in 1977,
which represents a 2% increase over the previous year. *  Almost 50% of this
investment was consumed in the "upstream" end of the oil business in
exploration and production.  Only 4% of the total petroleum capital budget
was used in the "downstream", marketing activities  (i.e.,  $1.2 billion).
*1977 NPN Fact Book, page 38.
                                   80

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    Depending on the system, the capital required to comply with Stages I and
II of the vapor-recovery program at existing outlets would range from 45% to
69% of the entire 1977 capital budget allocated for marketing activities.  This
level of investment represent 2% to 3% of the entire integrated petroleum
industry capital budget for 1977.  As shown in Table 36, a three-year,
phase-in period for vapor recovery would lower the annual investment
required for these systems to approximately 12% to 23% of the 1977 marketing
capital expenditures.  However, this level of investment may be somewhat
overstated, since it is based on vapor-recovery installations in all current
major controlled stations.  As discussed in Chapter IV, some of these
stations may close before any vapor-recovery decision is made.
    As a further benchmark of vapor-recovery expenditure required by the
major oil companies, the total capital investment by all phases of the oil
industry for environmental effluent abatement was $803 million in 1977.
Based upon API data, * it is estimated that the marketing portion of this
environmental capital expenditure would be approximately $120 million.  Thus,
over a three-year period, vapor-recovery investments at existing stations
would roughly double the total marketing capital expenditure for environmental
controls by majors and regional refiners (see Table 37).
Source: *API publication No. 4259, Environmental Expenditures of the
         U. S.  Petroleum Industry.
                                   81

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D.  VAPOR-RECOVERY INVESTMENT - INDEPENDENT MARKETERS
    Independent marketers control approximately 60% of the current service
stations.  If all of these outlets had vapor-recovery systems installed,  this
would require a capital outlay ranging from $828 to $1273 million.
    Even with an eventual cost pass-through, independent marketers have
told the EPA in recent submissions that many independents would not be able
to obtain the necessary capital for vapor-recovery implementation.  However,
the affordability of vapor recovery and the credit worthiness of independent
marketers are highly subjective issues and quite company specific.  There are
are some independents who are operating on a marginal basis, or even under
a bankruptcy receivership.  Such companies, in effect, may be stuck with an
existing chain of outlets without a viable disinvestment option.  The  selling
price for  some outlets might not even cover the existing mortgages.  In
such cases, there would be few alternative uses for these sites.  These
marginal marketers may currently be stretched to the limit of their
borrowing ability with all of their existing assets tied up as collateral on
their current debt.  Additional debt for vapor recovery could not generally
be available without added liquid collateral.  Vapor-recovery systems
contain very few transferable tangible assets, and  represent very poor
collateral to most lenders (e.g., asphalt repavement, underground tank
connections,  etc.).
    There are other independent marketers with a sufficient line of  credit
or retained earnings to meet the burden of vapor-recovery compliance.  If
necessary for corporate survival, a large chain operator might be forced
to sell some outlets to obtain capital for vapor recovery at remaining sites.
Depending on the location, some sites would have to be sold at a substantial
discount from the current book value and/or mortgage balance. A number
of independent marketers are wholly owned subsidiaries of corporations with
assets and revenues from miscellaneous non-petroleum activities.  These
                                    84

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"independent" oil marketing subsidiaries could call upon the financial strength
of the parent to meet their capital budget requirements.  Some of the smaller
independent marketers, such as open-dealers and small jobbers, could gain
access to capital with personal loans from local banks.  This would be
ejqpecially true if the retailers have good banking records and long-standing
reputations in the community.  Furthermore, some small independents might
be fortunate enough to be operating in a relatively protected market as a
result of local restrictive zoning regulations which may limit the opening of
new service stations, including high-volume competitors and self-service
outlets.  Such an applicant would represent a much better risk than most
retailers.                                             .

E.  ILLUSTRATIVE INDEPENDENT MARKETER PROTOTYPES
    The only sure method of determining the ability of independent
marketers to obtain the necessary capital for vapor recovery would entail
an exhaustive analysis of the private financial status of each independent
marketer.  In addition, an assessment of the off-balance sheet personal
factors used by financing institutions for loan approvals (e.g., reputation
of borrower, bank history, etc.) would have to be made.   Since this level
of effort is not realistic, corporate financial prototypes were developed to
depict "typical operational profiles and pro forma financial statements for
the following independent gasoline marketing segments:
    0   Independent marketer/wholesalers,
    •   "Super jobbers",
    e   Small branded jobbers, and
    ซ   Open dealers.
                                    85

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 The purpose of these corporate prototypes is to:
     1.   Develop specific pro forma cases to test the ability of "typical"
         independent marketers to obtain the necessary capital for
         required vapor-recovery investments;
     2.   Indicate anticipated cost of capital and credit terms for financing
         vapor recovery investments by the various independent marketing
         segments; and
     3.   Illustrate a "typical" corporate marketing balance sheet and income
         statement before and after investment in vapor recovery.
An operational and financial summary of each of the four marketing prototypes
is shown in Table 38 with supporting details in Appendix L (Tables 1 - 9).
     The "typical" marketer prototypes basically describe four discrete
levels of independent gasoline retailers.  The largest prototype, large
marketer/wholesalers, generally sell multiple product lines on both a
direct and wholesale basis in several states. These organizations are
generally integrated upstream into terminal and transportation operations.
Furthermore, the large independent marketer/wholesaler sells both private
and major brand gasoline to various types of service station operations.
These marketer /wholesalers are generally regional in nature  (i. e.,  within one
PADD), with total sales volumes exceeding 10 MBD. It is estimated there
are approximately 75 of these large independent marketer/wholesalers
(e.g., Northeast Petroleum, Gibbs Oil, etc.).  Most of these  large
marketers would belong to one or several of the following trade organizations:
     •    Society of Independent Gasoline Marketers of America (SIGMA),
     •    National Oil Jobbers Council (NOJC),
     •    Independent Fuel Oil Terminal Operators (IFOTO),
     ซ    Independent Liquid  Terminal Association (ILTA), and
    •    Miscellaneous State or Regional Trade Groups  (e.g.,  The New
         England Fuel Oil Institute, etc.).
                                   86

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     "Super-jobbers", the next level of independent marketers, are basically
large-chain gasoline  retailers with outlets in several states.  The "super-
jobber" retail outlets tends to be self-service and/or high-volume/low-
margin operations.  These companies essentially are rack buyers* with
directly operated service stations representing most of their fixed assets.
The majority of "super-jobbers" market gasoline under private brands, but
may also  operate some branded outlets.  The average company in this second
tier of independent gasoline retailers would typically control around 80 stations
and would be a SIGMA member.  There are approximately 200 of these
gasoline-oriented "super-jobbers" in the United States (e.g., autotronics,
checker,  power test, etc.)
     The third prototype attempts to simulate the operational and financial
profile of a "typical"  NOJC member.   Such small jobbers tend to be branded
marketers supplying  6 to 12 outlets which would include a few direct
operations, open dealers,  and lessee dealers.  Small jobbers tend to operate
outside of the large metropolitan markets and would be concentrated in a
three- or four-county marketing area.  These typically family-owned
businesses may operate a. small rural bulk plant and market gasoline and
distillates to agricultural,  retail, and commercial customers. However,
jobbers would tend to specialize in either distillates or gasoline sales in the
northern states.  There are roughly 9,000 gasoline-oriented jobbers in the
country.
     Open dealer stations are also shown as dealer-owned/dealer-operated
outlets.  In these operations, an independent businessman owns or controls
the assets of the service station and physically works on the site.  Such a
dealer would "fly the flag" of a supplier who has provided him with the best
contractual arrangement.  As shown in Table 39, open dealers are supplied
primarily by major oil companies and small branded jobbers.
*i. e,  gasoline purchased under the loading rack into trucks at a
 supplier's terminal.
                                    88

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        TABLE 39.  OPEN DEALER AUDIT
Open Dealer
Gasoline Supplier
Major Oil Companies
Regional Refiners
"Super" Jobbers, etc.
Small Jobbers
Total Open Dealers
Total U. S.
No. of Open
Dealer Outlets
27,890
2,030
1,100
22,010
53,030
Percent of Total
Open Dealers
53%
4%
2%
41%
100%
Source:  Table 3 of Appendix C
                         89

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       VI. IMPACT OF VAPOR-RECOVERY CAPITAL INVESTMENT
            REQUIREMENTS ON INDEPENDENT MARKETERS

A.  INTRODUCTION
    The objective of this chapter is to define the financial hurdles faced by
independent marketers who attempt to obtain capital for vapor-recovery
investments.  As discussed in Chapter V, independent marketer prototype
companies were developed and then used as a basis of discussion with various
lending institutions.  An assessment was then made of the ability of various
types of independent marketers to borrow the necessary capital recovery
funds.  Based on industry trends and comments from  lenders, an estimate
of potential closures of retail outlets as a result of the inability to raise the
capital vapor-recovery investments was made.

B.  IMPACT OF VAPOR RECOVERY INVESTMENTS  ON PROTOTYPE
    FINANCIAL CONDITIONS
    The corporate prototype income statements and balance sheets before
vapor recovery are summarized in Table 40. These  data were adjusted to
reflect the acquisition cost of vapor recovery equipment with the related
term debt.  Comments were then elicited from a sample of prospective
lenders regarding the ability of the various independent marketer prototypes
to borrow the necessary capital for vapor recovery.
    Based upon capital and operating expenses provided by the EPA, *  the
investment requirements for  Stage 1, plus Stage II vapor-recovery systems,
range from 13% to 36% of the total corporate net worth for the prototype
independent marketers.
 *See Appendix H
                                    91

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         TABLE 40. PROTOTYPE FINANCIAL SUMMARY*

No. Service Stations
Supplied
No. "Controlled"
Retail Outlets
Annual Sales ($000)
Gross Margin ($000)
Net Profit, Pre-Tax
($000)
Pre-Tax Profit as
Percent of Sales
Pre-Tax Return
on Equity
Pre-Tax Return on
Total Assets
Depreciation
Expense ($000)
Profit after Federal
Taxes** ($000)
Estimated Cash Flow
($000)
Large
Independent
Marketer/
Wholesaler
160
130
$106,000
10, 100
1,500
1.41%
28.4%
7.1%
866.6
750.0
$1,616.6
"Super"
Jobber
85
85
$69,967
6,426
918
1.31%
17. 1%
5.8%
720.0
459.0
$1,179.0
Branded
Jobber
8
7
$1,134
90
44
3. 88%
21. 5%
9.1%
27.2
22.0
$49.2
Open
Dealer
-
1
$144. 3
39.3
7.6
5.30%
15.2%
7.8%
5.3
3.8
$9.1
Source:  Appendix M
 *Assuming 15-year depreciation schedule
**Assume 50% tax rate.
                               92

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    As shown in Table 41,  the overall cost of vacuum -assist systems for
these independent marketer prototypes ranges from 40% to 70% higher than for
the balance vapor-recovery system.   However, vacuum-assist vapor recovery
would.only decrease the return on equity from 6% to 9% in the worst case of
a complete marketer absorption of the vapor-recovery cost from what would
have been the case without  a vapor-recovery program.  All four retailer
segments would consider themselves severely impacted by vapor-recovery
regulations.  However, vapor-recovery investments as a percentage of total
net worth are highest with the small jobbers.  Furthermore, this group would
also have the largest decrease in return on equity in a worse-case absorption
of all vapor-recovery costs (i. e., a 9%  decrease).

C.  FINANCIAL CLIMATE FOR VAPOR-RECOVERY  LOANS
     The four prototype independent marketers will have a difficult time
obtaining financing as a result of relatively high debt,  current low earnings,
and attrition in the industry,  all of which have created a poor climate for
initial loan discussions.
     Loan decisions are not made in a vacuum.  The loan officer will consider
the general health of the applicant's industry in addition to applying the
traditional four C's of credit (character, collateral, capacity, and capital).
With applications from gasoline retailers, three factors will impact on the
judgment of the potential lender:
     1.   price  controls on  gasoline, which may be removed,
     2.   the fact that the retail end of the oil industry has traditionally
         had low profit margins and currently is subject to intense
         competition,  and
     3.   the unattractive nature of the collateral.
                                    93

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 TABLE 41. VAPOR-RECOVERY IMPACT ON INDEPENDENT MARKETER
Prototype
Marketer
• Total Investment
Stage I + II
• Balance ($000)
• Vacuum Assist ($000)
• Vacuum- Assist Percent
Increase over
Balance
• Net Worth Ratio
• Balance Investment as
Percent of Net Worth
• Vacuum-Assist Investment
Percent of Net Worth
* Worst Case — No Passthrough
• "No Control" Return on
Equity (ROE)
• Balance - ROE
• Vacuum Assist - ROE
• Percent Decrease ROE
Vacuum Assist vs.
"No Control"
Independent
Marketer/
Wholesalers

1027
1508


47%

19.4%

28. 5%

28.4%
27.1%
26. 8%


6%
Super
Jobber

816
1156


, 42%

15.2%

21.5%

17.1%
15.9%
15.8%


8%
Small
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44
74


68%

22. 0%

36. 0%

21.5%
20. 2%
19.6%


9%
Open
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6
11


68%

12.6%

21.2%

15.2%
14.5%
14. 1%


7%
Source:  Appendix L
                                94

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    Price controls in any industry make a lender nervous because they
represent conditions beyond the control of his borrower.  The lender is consider-
ing a term exposure wherein his debt will be repaid from earnings to be
generated in future time periods.  Price controls may preempt his applicant's
ability to realize such earnings.
    By general lender standards, all of the prototype companies currently show
an unattractive level of profit.  The pre-tax range of profit to sales is  from 1.3%
to 5, 3%.   The applicant's financial condition will be analyzed for the current
market and an attempt will be made to forecast future earnings. In searching
for trends for this projection, the loan officer will be negatively influenced by a
decreasing trend in gasoline retailing profitability.
    One financial guide widely used in the banking industry is the Annual
Statement Studies, compiled and published by Robert  Morris Associates (the
national association bfebank loan and credit officers).  The relatively low pretax
profit-to-sales ratio of the independent marketer prototypes is generally
validated by the limited samples of this banking ratio guide (see Table 42).

             TABLE 42.  GASOLINE SERVICE STATION RETURNS
Year
1970
1971
1972
1973
1974
1975
1976
Pretax Profit
to Sales
3.8%
3.7%
2. 8%
5.2%
5. 6%
2. 5%
1.5%
No. of Stations
in Sample
34
32
50
53
59
71
91
 Source:  Robert Morris Associates' annual statement summaries.
                                      95

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     Similar relatively low profit rates were depicted from jobber samples in a
Financial Characteristics analysis sponsored by the Petroleum Marketing
Education Foundation, PMEF (Table 43). !,

            TABLE 43.  FINANCIAL SUMMARY OF PMEF JOBBER
Year
1974
1975
1976
Jobber Net
Profit to Sales
2. 2%
1. 8%
1.0%
Source:  PMEF "Financial Characteristics of Petroleum Marketers, 1977"

    The level of pretax'return on equity - roughly 20% - is quite different.
In most industries, the owner enhances the return on his investment by leverage
- i. e., increasing the amount of debt the capital base is supporting.  This
situation creates conflicting positions for the owner and the lender.  The owner
will have a bias for debt expansion to preserve the  return on equity that he
cannot achieve from his profit on sales.  The lender1 s bias will be to limit the
expansion of debt to that point which he feels is a reasonable debt level for the
specific company.
    The resale value by either private sale or public  auction of the collateral
to be pledged is a prime consideration in the loan.  For example, there is an
active market for standard machinery equipment with established dealers and an
easily ascertained price structure.   Collateral support  for loans is also a factor
in various Small Business Administration (SBA) programs.  The SBA applica-
tions must be supported with an  appraisal of the pledged fixed assets, and
indicated auction values  must be sufficient to provide for full loan repayment.
                                     96

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    However, vapor-recovery equipment would be considered "special -
purpose" collateral with resale opportunities limited to the retail gasoline
industry (i. e., the next dealer at the site).  If an appraiser is employed to
estimate the "auction value" of this equipment, he will deduct a significant
discount to allow for the limited number of prospective buyers.  Additionally,
a high proportion of the costs  to be financed are "non-recoverable" in that they
represent an installation expense of no independent value.  Therefore, a vapor-
recovery installation at a service station represents very poor collateral to a
lender, since its only value is for retail marketing at a specific site.

D.  BALANCE SHEET CRITERIA USED BY LENDERS
    The financial criteria used to evaluate a loan application for vapor recovery
would be similar for all four prototype marketers. However, the magnitude of
the required investments  and  the resulting level of debt of the two largest
independent segments are significantly higher than those of the small jobber
and open dealer (see Table 44).
    The size of the projected debt for vapor recovery prohibits the two
smaller companies from approaching the insurance industry,  which has a
minimum application size of at least $1 million.  The two larger companies
are precluded from consideration by the SBA which has an upper debt limit of
$500,000 on its guarantee program and a $400,000 net profit'maximum in
defining eligible concerns.
    In any approach to the commercial banking industry, the two smaller
prototype companies will essentially have to rely upon their existing banking
arrangements, with the strength of that relationship being the key to a
successful loan application for vapor-recovery investment.
                                      97

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    The two larger companies will have greater freedom to seek out an
interested lender. However,  their past credit record will be an important
factor and their application will receive more detailed financial ratio analysis.
    During a loan application  analysis, the following common criteria would
be used for reviewing all four prototype applications.

1.  Cash Flow
    The ratio of cash-to-current liabilities for potential loan applicants must
be acceptable.  This means that the borrowers 1 have the potential to be good
deposit accounts at their commercial banks.  Such a factor strengthens the
relationship with the bank and enhances the attractiveness of the loan
applicant to the banker.  All four independent marketer prototypes would
successfully pass this test.

2.  Debt/Equity Ratio
    There is no fixed ratio of total debt to total equity which must be met for
a company to qualify for a loan.  Of course,  a ratio greater than 1 indicates
that the creditors have more at risk in the situation than does the owner and
causes the banker to intensify Ms analysis.
    In a rapid growth and/or high-profit situation, a banker may be willing
to work with ratios ranging up to $3 of debt to $1 of equity in the following
cases:
    a)    where he feels that this degree of leverage is temporary;
    b)    where the predictability of future equity growth from retained
          earnings is high;
    c)    where the quality of assets is good; and
    d)    where the collateral available to cover his exposure has  secure
          marketability.
                                     99

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    However, the banker will generally look for ratios below $1. 00 of debt
for $1.00 of equity in industries like gasoline retailing which seem to portray
the following characteristics:
    a)    low profit margins,
    b)    limited future prospects, and
    c)    special-purpose collateral value (i. e., limited alternative use for
          the collateral).
    The higher debt/equity ratios of the prototypes will not - of and by them-
selves - negate the borrowing request, but they will make the lender cautious
in considering his ultimate i exposure.
    The ratio of total indebtedness to  total equity is currently relatively
high for gasoline retailers and will increase as additional debt is incurred for
vapor-recovery equipment capital.  The present ratios range from 1.2 to 2.9.

3.  Current Ratio
    A potential commercial borrower must show an acceptable current  ratio
(i. e., current assets to current liabilities) which is an indication of its  ability
to handle their short-term liabilities.   Trends in the industry, however, may
well begin to put pressure on current ratios.  When suppliers were  selling on
30-day terms, the combination of rapid inventory turnover and cash sales
created an opportunity for the buyer to use his supplier credit as permanent
capital, and invest it in non-current assets.  Increasing crude prices have
impacted the balance sheets of all links in the distribution chain with a
resultant shortening of credit terms.  A switch in terms from net 30-days
to 1% discount for payment within 10-days strips the buyer of a form of
financing previously available.  Additionally, major sellers have improved
their  billing practices  with real-time computer invoicing which starts their
billing clock when a  load is taken at the rack.  The old systems normally
yielded a three- or four-day slippage in the billing process.   The current
                                    100

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ratio of the prototype loan applicants would be within a generally acceptable
range.

4.  Debt Service Ability
      There is some term debt presently outstanding in each prototype
company. Most likely this debt is secured by trucks and equipment,  since
lenders have a strong proclivity for taking as much collateral as possible to
support their exposure.  The broadest form of collateral pledge under the
Uniform Commercial Code is the execution of a financing statement covering
"all fixed assets now owned or hereafter acquired." Such language assures
the prime lender of control  of debt repayment in that any subsequent lender
must accept an unsecured position, negotiate for a partial release of collateral,
or accept a secondary position on the specific collateral he has financed.
      The single, most critical tests applied to all applicants will be their
indicated ability to service (repay) their total term debt.  A ratio analysis is
generally used to relate annual net earnings to the required annual principal
payments.
      The severest ratio test will be that applied by the insurance industry
which normally has higher quality selectivity in private placement activities
than the commercial banking industry.  A normal insurance industry require-
ment is that the total term debt to be serviced (including capitalized leases)
will not exceed 5 to 6 times the average net profit realized over the last five
years.  When we apply such a standard to our applicants, all the prototype
companies are close to or have exceeded their theoretical capacity for debt
before the question of vapor equipment financing is even raised (see Table 45).
                                     101

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              TABLE 45.  INSURANCE INDUSTRY DEBT INDEX
Independent Marketer
Large Independent
"Super" Jobber
Branded Jobber
Open Dealer
NetiEarnings*
Index ($000)
$750x6 =
459 x 6 =
22x6 =
5.7x6 =
Total Debt
Capacity ($000)
$4, 500
2, 754
132
34.2
Present Debt
($000)
$8,134
5,172
109
45.2
  *50% effective tax rate for all prototypes, except the open dealer, who
   pays an effective personal income tax of 25%.
Source: Appendix N
      Commercial banks and equipment finance companies generally make
allowance for depreciation as a non-cash expense and look at the cash flow
available to service term debt.  This more liberal analysis, of course, will
provide a more favorable determination for the independent marketer prototypes.
      A 10-year repayment period has been assumed for term debt presently
on the balance sheets and a five-year repayment period is used for the vapor-
recovery equipment financing. In this case,  the cash flow available to
service total term debt is presented in Table 46 for the independent marketer
prototypes.
                    TABLE 46.  PROFORMA CASH FLOW
Independent Marketer
Large Independent
"Supers jobber
Branded Jobber
Dealer Owned/
Operated
Estimated
Annual
Cash-Flow
$1,712,000
1,254,700
53,300
11,400
Estimated
Annual Debt
Service
(After Vapor Recovery)
$1,018,000
680,400
19,700
5,700
Ratio Debt/
Cash Flow
61%
56
38
52
Source: Appendix N
                                    102

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      There is no definite debt/cash flow ratio hurdle which would apply to all
companies.  However, for ratios in excess of 50%, the banker would question
how the cash drain represented by debt service would impact upon the
following:
      ฉ   overall financial health of the corporate borrower,
      •   sales growth rate, and
      e   the banker's "cushion" for projection errors.

E.  INSTITUTIONAL SOURCES OF CAPITAL FOR VAPOR RECOVERY LOANS
      The size of loans and stringent loan criteria would most likely cut off
the insurance industry as a eapital source for vapor recovery.  This leaves
essentially three other external commercial alternatives for independent
marketers to apply for the required funds associated with vapor recovery:;
      1.  Commercial banks,
      2.  Small Business Administration, and
      3.  Finance companies.

1.  Commercial Banks
      Based on Arthur D. Little's contacts with financial institutions, the
"independent" nature of petroleum marketers is not really  clear to the banking
industry.  Few banking policies or practices have been developed to service
and finance independent marketers.  The volume of financial transactions by
banks with independent marketers has not been large enough for industry
specialists to have developed.  To most bankers, the major oil companies
still appear to overshadow the whole industry economically. A typical
reaction to the need for vapor-recovery capital by independents initially
seemed to be: "Oh, we don't do that; that's not our problem; those people
can get the money required from the majors. "  Where bankers are aware of
independent marketers, a loan decision for vapor recovery would be made on a
"case-by-case" basis.
                                    103

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      Furthermore,  the pattern of financing by many independents cast a
generally negative pall on this segment for many bankers.  It is perceived that
many independents have typically used "helter-skelter" financing for their
growth (e.g., approaching different local! thrift .institutions for mortgage
financing on each specific location being acquired).  Frequently the property
would be placed in a separate corporation whose debt would then be guaranteed
by the parent corporation.  This approach to financing growth has been
advantageous to the borrower who is able to avoid the discipline inherent in a
single lender relationship.  However,  when faced with a significant borrowing
requirement, a company with this type of unconsolidated financing has two key
disadvantages in competing for capital:
      •   No historical experience in presenting consolidated financial
          information in the required format; and
      •   The complex financing base created is difficult for the typical
          lender to analyze and understand.
      At this time, the banking industry is coming out of a period of high loan
losses and is concentrating on the quality of its credits. The lender will
certainly consider whether the possibility of some temporary business
conditions might create a default on his loan which could negatively impact on
his own career.  Then the income derived from this loan will hardly compensate
for the expense of a bad debt collection process or a loss.  Therefore, the
banking industry will be highly selective in approving the required loan
applications for vapor recovery investments.  However, a loan applicant
could possibly convince the lender of the merits of assuming a high debt level
in a shrinking industry with low profit margins.  Based on the marketer's track
record,  the banker may be persuaded to view the loan for vapor recovery as an
entrepreneurial gamble required for survival until high competitive casualty
rates result in a larger market share  by the applicant. At this point,
higher throughputs spread over a relatively fixed-cost base will bring an
improved return on sales and investment. However, the smart lender
                                     104

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certainly wonders if his judgment is keen enough to distinguish the few winners
from the potential losers.
 2.  Small Business Administration
      In May 1977, the SBA issued a new definition of a small business concern
 for the purpose of pollution control guarantee assistance under Public Law
 94-305, which is as follows:
      •   a company where its affiliates are independently owned and operated,
          and not dominant in its field of operation,
      •   assets do not exceed $9 million,
      •   net worth less than $4 million,
      •   an average net income, after federal income taxes, for two
          prededing years less than $400,000,  and
      •   average net income computed without benefit of any carry-over loss.
 To be eligible for SBA direct or participation financing, a company must meet
; all of the above criteria.  Generally only the small branded jobbers and open
 dealers would qualify for SBA assistance.
      As indicated in Arthur D. Little's previous Stage n report, * SBA funds
 through the Direct Loan Program and/or the Economic Injury Program are
 limited with competition for those funds from various industries each containing
 many small businesses.  The SBA Guarantee Program is a more likely source
 of assistance.  In this case, the SBA ensures the loan risk taken by a commercial
 bank which takes the trouble to accept the loan application. In many banking
 circles, the application process and paper work associated with  these SBA loans
 are considered too cumbersome to be worthwhile when relatively small amounts
 of money are  involved.  Thus, it is quite unlikely that the SBA will be a
 significant source of capital funds to the independent marketers for vapor-
 recovery investments.
 *Economic Impact of Stage n Vapor Recovery Regulation, November 1976, page
  105.
                                    105

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 3.  Commercial Finance Companies
      Commercial finance companies typically extend credit to borrowers who
 have been declined by banks as a result of marginal capitalization and earnings.
 However, the prototype independent marketers cannot expect much  support
 from this financing source based on the following:
      a.  Inventory and equipment financing is clearly supplemental to the
          "bread and butter" business of the commercial finance industry, viz.,
          accounts receivable financing.  The prototype companies are
          essentially cash, or cash equivalent, operations with little accounts
          receivable created.  Gasoline retailing thus falls outside the normal
          scope of interest of the commercial finance industry.
      b.  The unattractive nature of the. collateral has a particular impact.
          The justification of a finance company in assuming a higher risk
          than a banker is that the investment being financed has a good
          resale value.  Since the collateral here has limited liquidity,
          marginal gasoline retailers cannot expect the level of support by
          finance  companies which might be available to companies in
          industries utilizing fixed assets with better resaleability.

 F.  CONCLUSIONS AS TO THE ABILITY OF INDEPENDENT MARKETERS TO
    OBTAIN VAPOR-RECOVERY FINANCING
 1.  Small Branded Jobbers and Open Dealers
      Loan decisions for open dealers and small jobbers will be made by
their local banks based almost entirely on the quality of their existing
relationships. The standard review process of these banks will easily detect
the low profit levels and the unattractive nature of the collateral. To overcome
this initial handicap,  a small jobber or open dealer will have to have a strong
balance sheet and make an effective presentation to the lender.  Small jobbers
and open dealers will experience  significant problems in obtaining the necessary
capital for vapor-recovery investment from banks and various financial
institutions.  The unenthusiastic response to a loan application arises from a
composite of the following factors:
                                    106

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      9   A perception of a single-purpose loan exposure by banks (i. e.,
          little alternative use for vapor-recovery investment, except by other
          gasoline retailers using the same site),  and
      9   A significant number of small gasoline retailers will not have the
          sophistication required to present a coherent,  persuasive loan
          application.
      The SBA is not viewed as an important financing alternative for vapor-
recovery capital by small retailers, since its own funds are tight and the total
capital pool is quite limited.  Under the SBA loan guarantee program,  the
banker is provided with insurance protection on his credit risk.  However,, the
SBA application and administration  process is regarded as cumbersome and the
necessary collateral appraisal presents a further problem.
      Assuming a normal  supply of  lendable funds  on the part of the banking
industry, financial lenders contacted subjectively have estimated up to 60% of
the open dealers/small jobbers would fail to pass  a formal loan application test
based upon the criteria discussed above.  This hurdle would cover 47,000 out-
lets which generally represents the number of open dealers/small jobber
stations operating below the national average station throughput of 39,000
gallons per month.  However, personal factors and long-term banking
relationships will override a potential rejection based on strict loan criteria
with a number of small retailer applicants.  This would be especially true for
small jobbers with stations operating above the average lessee dealer break-
even throughput of 27,000 gallons per month.  As shown in Table 47, 9400
small independent stations are operating at a level of between 27,000 and
39,000 gallons per month.
      However, a large onmber will seek financing from friends, relatives,
private money lenders, and the non-institutional sources which recognizes the
cash nature of the business.
      Without financing for vapor recovery,  the alternative for both the small
jobber and open dealer will be a loss of his business and economic independence.
                                    107

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Additionally, suitable alternative employment may not be readily available in
the local community or anywhere else within reason.  Rather than close the
business, it has been assumed that open dealers operating above an average
15,000 gallons per month break-even volume would most likely be able to get
non-conventional financing (i.e., friends, relatives, etc.).  This leaves
approximately 23,000 stations operating below 15, 000 gallons per month which
would be unable to obtain vapor-recovery capital and be forced to close
(see Table 47).  However,  it is fair to assume that, in the long run, other
marketing factors and conditions would eventually have brought about the
demise of most of these outlets. Vapor recovery would accelerate the
closure decision,  especially at the marginal, low-volume outlet.

 TABLE 47.  ESTIMATED CLOSURES OF SMALL JOBBERS/OPEN DEALER
 OUTLETS DUE TO INABILITY TO RAISE CAPITAL FOR VAPOR RECOVERY

Base
Less
Plus
Plus
Total
Segment
Total Small Jobber /Open Dealer
Outlets (1977)
No. Open Dealers/Small Jobbers
Failing Loan Application Test
No. Open Dealers/Small Jobbers
Failing Loan Tests That Get Bank
Loans Based Upon Personal Assets/
Established Ties
No. Open Dealers/Small Jobbers
Failing Loan Test and Obtaining
Non-Standard Financing
No. Open Dealers/Small Jobbers
Unable to Obtain Capital for
Vapor-Recovery Investment
No. Outlets
78, 680
(47,000)
9,400
15, 040
22,560
Cumulative
Surviving
Outlets
78,680
-

56, 120
56,120
                                  108

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2.    Large Independent Marketer/Wholesaler and "Super" Jobbers
      The two large marketer prototypes are not eligible for SBA assistance and
do not meet the high-quality criteria of the insurance companies.  However,
most have some level of borrowing history with the commercial banking industry.
A loan request will be evaluated within the framework of the overall guidelines
which have been established in an existing bilateral relationship between the
large independent and the bank.  Some larger national banks and regional banks
in oil-producing areas have specialty Petroleum Divisions, but these units tend
to be staffed with specialists focusing on exploration, production,  and refining.
The relationship with independent marketers is normally not assigned to such
industry specialists, but assigned on a strictly commercial basis consistent
with the organizational style of a particular bank.
      The major financial impact of vapor recovery on large independents will
be the forced realignment of internal priorities to cope with the investment
requirement for vapor recovery.  Based upon managerial borrowing limits,
established capital programs will have to be eliminated or postponed. In
addition,  added capital might also have to come from a dilution of ownership
or asset disposition programs (i. e., some retail outlets may have to be sold
and/or  closed).  Based on discussions with industry contacts, it is estimated
that up  to 10% of the large marketers could be forced to shut down all their
stations without a buyer which would close approximately 1400 outlets.  If the
surviving large  marketers .could not justify capital outlays in direct salary
outlets  pumping less than 50, 000 gallons per month, another 5000 outlets
would be  closed.

3.  "Capital"  Closure Summary
      Under today's market conditions, the inability of independent marketers
to obtain the required capital for vapor recovery investments could potentially
result in the accelerated closing of up to 29,000 independent outlets (Table 48).
                                     109

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However, most of these outlets would have eventually had to close as a result
of the continuing competitive rationalization of gasoline retailing discussed in
Chapter IV.
 TABLE 48.  POTENTIAL CLOSURES OF INDEPENDENT OUTLETS DUE TO
               LACK OF CAPITAL FOR VAPOR RECOVERY
Sectors
Open Dealers/Small
Jobbers
Independent Marketer/
Wholesaler "Super
Jobbers"
Total Independents
Total
Outlets
(1977)
78,680
28,700
107,380
Potential
Capital
Access
Closures
22,560
'6,400
28,960
Potential
Closure as Percent
Total 1977
Population
29%
23%
27%
                                  110

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                     VII.  VAPOR-RECOVERY IMPACT
                 ON SERVICE STATION PROFITABILITY
      The purpose of this chapter is to assess the economic consequences of
investment in vapor-recovery systems at service stations.  For a given level
of station investment, the major impact of this program will be to raise the
break-even volume threshold from current levels to higher volumes as vapor
recovery adds another fixed cost at fc. given station.  Some service stations
may be put into a marginal status (i.e., below a break-even volume) by vapor-
recovery costs alone.  The total number of these outlets made marginal after
the absorption of vapor-recovery costs is assumed to approximate the number
of potential closures resulting from insufficient profitability after vapor
recovery.  However,  not all of these potential closures will necessarily take
place for the same reasons that not all prevapor-recovery stations will actually
close (as discussed in Chapter IV).

A.  FINANCIAL ASSUMPTIONS
      In the economic analysis of the prototype service stations, assumptions
were made regarding the long-term minimum rates of return acceptable to the
owners.  However, if these rates of return are not realized in the short term,
the owner may not necessarily close down the station.  As discussed,  current
margins are severely depressed with many owners receiving lower rates of
return than would normally be acceptable.  However, many stations continue
to operate with expectations of better conditions in the future and some dealers
may not have attractive job alternatives.   Furthermore, many dealers do not
distinguish clearly between the return on capital and the earnings from their
own labor as station managers.  So long as they can survive financially, even
working longer hours,  many will continue in business on the expectation of ,
a future financial turnaround.
                                    Ill

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       Station owners may also accept apparently low rates of return, since the
 sales value of the site for alternative uses is low in many cases.  On the other
 hand, since many sites may also be highly depreciated, the apparent low rate
 of return on capital is partly attributable to a high valuation of the asset base.
       The financial assumptions shown in Table 49 reflect the assumed internal
 financial charges of the various prototype stations applicable for added invest-
 ment such as vapor recovery.  For this illustrative  exercise, the capital charge
 developed is equal  to the  cash flow required to cover the debt for a given
 interest rate and financial life  of vapor-recovery equipment.
      The interest  rate for lessee dealers, direct (major),  and "C" stores
 reflect a minimum internal hurdle rate and system project life which typically
 would be used by integrated oil companies.  The interest rate and life of the
 open dealer and direct independent prototype are more of a  reflection of a
 composite of financial terms which might be available from commercial banks
 (see Table 34).
    TABLE 49.  CAPITAL CHARGES FOR VAPOR-RECOVERY FINANCING
Service Station Segment
Lessee Dealer
Direct Operations (Major)
Open Dealer
Direct Operations (Indep. )
"C" Store Gasoline Operations
Interest
Rate (%)
16%
16%
12%
12%
16%
Recovery*
Period
10
10
5
5
10
Capital
Recovery
Factor
.207
.207
.277
.277
.207
* Assume zero salvage value for vapor-recovery systems
Source: Industry contacts and Arthur D. Little estimates
                                   112

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     The impact of vapor recovery capital charges and operating expenses

on current service station economics was tested on two alternative assumptions:

     •   A competitive pass-through of vapor-recovery cpsts; in this case,
         the vapor-recovery cost-per-gallon of the most efficient type of
         station in each competitive segment of the market can be passed on
         bysall stations.  Thus, the most efficient station will have no margin
         reduction from vapor recovery. Other less efficient stations must
         absorb the difference between their cost per gallon for vapor
         recovery and the vapor recovery cost per gallon of the most efficient
         station.
     •   No pass-through of Vapor recovery cost for any station.

     The market was divided into two segments with competition assumed

within each segment but not between segments.  Stations in each volume sector

generally would be operated in similar environments and competing for the

same type of customer. However, outlets in the low-volume sector  would tend

to be in more rural and/or protected markets.  Thus, the rural open dealer

is not necessarily bound by the  competitive actions of a direct salary, high-
volume  station in a major metropolitan area. The minimum vapor-recovery

cost per gallon is set by the most efficient type of outlet, and this is assumed
to be passed on by all retailers in the following two broad market segments:

      •    High-Volume/Low-Cost Sector - consisting of all direct operations
          (majors and independents); the high-volume* lessee dealer outlets;
          and all the convenience fetore outlets because of the low operating
          expenses of this type of operation.
      ซ    Low-Volume/High-Cost Sector - encompassing open dealer Outlets;
          and low- and medium-volume lessee dealer stations.
 *80,000 gallons per month or more
                                    113

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 B.  VAPOR RECOVERY CQST IMPACT ON RETAIL GASOLINE MARGINS
                         •ป:>-"
     The impact of vapor recovery has been evaluated under four sets of
 conditions, as shown in Appendix K:
     1.   competitive pass-through of balance system costs,
     2.   competitive pass-through of vacuum-assist costs,
     3.   no pass-through of balance system costs, and
     4.   no pass-through of vacuum-assist costs.
     In the case of competitive cost pass-through, the most efficient stations
 are  able to recoup all their vapor-recovery costs, while the margins at other
                               s"
 stations are reduced to the extent that their unit costs of vapor recovery are
 higher than the most efficient outlets.  In the case of no pass-through,  all
 outlet margins are reduced, but the less-efficient stations are, of course,
 still differentially affected as a result of economies of scale resulting in
 higher unit costs than for higher volume stations.
     Since vacuum-assist systems are more expensive, their economic
 impact is greater than that of vapor balance systems,  except for those
 efficient stations which were able to pass  on 100 percent of their costs.
     In the high-volume/low-cost sector of the market, the lowest cost is
 $0.0008 per gallon for vapor balance, and $0.0012 per gallon for vacuum
 assist for the  150,000 gallon per month direct major operation (see Table 50).
 The  low-volume outlets, particularly the convenience stores, have the  highest
 cost per gallon in this sector.
     In the low-volume/high-cost segment, the open dealer operation, with
 a throughput of 50,000 gallons per month, has the lowest vapor-recovery cost
per gallon — $0.0033 for vapor balance and $0.0055 for vacuum assist
 (see Table 51).                          .      '
                                     114

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       TABLE 50.  COSTS OF VAPOR-RECOVERY COMPLIANCE

                    IN HIGH-VOLUME SECTOR
   Throughput
 Low
Volume
Medium
Volume
                                                             High
                                                            Volume
   Lessee Dealer Operation

   •  Vapor Balance

   •  Vacuum Assist

   Direct Operation (Major)

   •  Vapor Balance

   •  Vacuum Assist

   Direct Operation (Independent)

   e  Vapor Balance

   •  Vacuum Assist

   Convenience Store Station

   •  Vapor Balance

   •  Vaccum Assist
 Low
Sector
Outlet
0.0030

0.0045



0.0019

0.0029



0.0075

0.0175
 Low
Sector
Outlet
0.0014

0.0021



0.0013

0.0019



0.0034

0.0084
0.0015

0.0025
0.0008

0.0012



0.0009

0.0013



0.0018

0.0046
    Least Cost of Compliance

    •   Vapor Balance =

    •   Vacuum Assist =
    Highest Cost of Compliance

    0  Vapor Balance =


    e  Vacuum Assist =
 0.0008  High-Volume, Direct (Major)
        Operation
 0.0012  High-Volume, Direct (Major)
        Operation
 0.0075 Low-Volume Convenience
        Store
 0.0175 Low-Volume Convenience
        Store
Source:  Appendix O
                                  115

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        TABLE 51. COSTS OF COMPLIANCE IN LOW-VOLUME SECTOR
    Throughput
  Low
Volume
Medium
Volume
 High
Volume
     Lessee Dealer Operation
     •  -Vapor Balance
     •  Vacuum Assist

     Open Dealer Operation
     •  Vapor Balance
     •  Vacuum Assist
0.0060
0.0150
0.0130
0.0250
0.0041
0.0063
0. 0049
0.0088
 High
Sector
Outlet
0.0033
0.0055
    Least Cost of Compliance
    •  Vapor Balance =

    •  Vacuum Assist =

    Highest Cost of Compliance
    •  Vapor Balance =
    •  Vacuum Assist =
0.0033 High-Volume,, ,Bpen Dealer
       Operation
0.0055 ;High-Volume, Open Dealer
       Operation
0.0130 Low-Volume, Open Dealer
0.0250 Low-Volume, Open Dealer
Source:  Appendix O 1
                                   116

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    It is clear that vapor-recovery costs per gallon decline as the station
throughput increases as a result of the following:
    •   The high fixed-cost component for vapor-recovery represented by
        the capital cost is  two to four times higher than the operating cost,
        depending upon both the type of vapor recovery and station throughput.
    •   Capital costs per nozzle are estimated to be higher for small outlets
        than for large.  For a three-nozzle outlet, the vapor recovery cost
        per nozzle is approximately $1,500 for  the balance system and
        $3,000 for vacuum assist. At a 15-nozzle outlet,  the cost per
        nozzle is approximately $750 for vapor  balance and $1,000 for
        vacuum assist (see Appendix H).
    •   As  directed by the EPA, we have allowed a credit for the recovery of
        gasoline as a result of vapor recovery.   This credit is directly
        proportioned to volume, and in high-volume operations can exceed
        annual operating expense of the vapor recovery systems  (see
        Appendix I).
    The direct economic effect of vapor recovery is therefore to  reinforce the
existing economies of scale in gasoline marketing. With a competitive pass-
through of costs, the economics of the high-volume outlets will not be signifi-
cantly affected, and their competitive position may be strengthened.
C.  VAPOR-RECOVERY IMPACT ON SERVICE  STATIONS PROTOTYPES
    The impact of vapor recovery on the margins of the five prototype stations
is detailed in the cost worksheets of Appendix O. The breakeven  volume after
vapor recovery is the measure of economic "viability" used in this analysis.
    The competitive passthrough of vapor-recovery costs shown in this
analysis is limited only to the full cost passthrough of the most efficient
marketers in each of the two market segments.  The break even volumes for
the  various  service station prototypes, both before and after vapor recovery,
are shown in Table 52.  These volumes were interpolated from the impact
cost data for each segment in Tables 53 - 57.  However, many dealers will
stay in business as long as they  can cover their  salaries and expenses, even
though this results in a zero cash flow from the point of view of getting a
                                    117

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       TABLE 52. ECONOMIC IMPACT IN SERVICE STATIONS:
           CHANGE IN BREAKEVEN THROUGHPUT VOLUME
          ASSUMING COMPETITIVE PASSTHROUGH OF COSTS*
                            (gal/month)
Operation
Lessee Dealer Operation

Direct Operation (Major)

Open Dealer Operation

Direct Operation (Independent)

Convenience Store

Breakeven Volume
Pre-
Compliance
27,500

91,700

15,400

108,300

5,800

Vapor
Balance
28,300
(34, 200)
95,000
(98,300)
17,900
(19,600)
111,200
(113,300)
9,600
(10,000)
Vacuum-
Assisted
28,300
(48,300)
95,800
(100, 000)
20,000
(23,300)
112,500
(115,400)
13,700
(15,000)
*Figures in parentheses reflect no passthrough assumption
SOURCE:  Tables 53-57
                                118

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return on their capital investment. The outlets that earn minimum target
breakeven volume while market conditions are depressed are highly likely
to survive the present market attrition and pick up added volume from stations
that are closed.
1.  Lessee Dealer/Full Service Operation
     The low- and medium-volume prototype outlets — 20, 000 and 35, 000 '.! ,
gallons per month -- are full-service, neighborhood outlets with competition
from other relatively low-volumeAigh-cost outlets.  Relative to most other
types of stations, the lessee dealers in this segment should be able tojpass-
through most of the costs  of vapor recovery (see Table 53).
     The high-volume lessee outlet with a throughput of 80, 000 gallons  per
month is assumed to be competing in the high-volume/low-margin sector of
the market.  The ability of this lessee dealer to passthrough additional costs
of vapor recovery will be limited by the vapor-recovery cost of the most
efficient high-volume marketer (i.e., high-volume, direct major station).
                                    119

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            TABLE 53. ECONOMIC IMPACT* ON LESSEE DEALER
                          PROTOTYPE STATION
Throughput Level
Monthly Volume (000 gal)
Contribution to Capital Costs**
Pre- Vapor Recovery
With Vapor Recovery:
Competitive Passthrough
Vapor Balance
Vacuum Assist
No Passthrough
Vapor Balance
Vacuum Assist
1977$
Low
Volume
20
(4, 920)


(5,562)
(6,114)
(6,354)
(7,434)
Medium
Volume
35
2,016


1,683
1,701
297
( 294)
High
Volume
80
6,240


5,565
5,025
4,797
3,873
>• *After dealer's salary and depreciation but BFIT
>**Stage I plus Stage n vapor-recovery impact
Source: Appendix O
                                  120

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2.  Direct Operation (Major Oil Company)
    The economic impact of vapor recovery on these self-service outlets is
relatively small, assuming a competitive passthrough of costs.  The reason is
that the high-volume outlet (with a throughput of 150, 000 gallons per month)
is the lowest-cost operation among all the prototype stations, with vapor-
recovery cost per gallon of $0.0008 for vapor balance systems and $0. 0012
for vacuum assist.  Even the relatively low-volume outlet (with a throughput
of 50,000 'gallons per month) has vapor-recovery cost per gallon of less than
half of one cent ~ $0.0030 for vapor balance and $0.0045 for vacuum assist.
The changes in the contribution to capital cost before and after vapor recovery
for major direct salary outlets is shown in Table 54.
  TABLE 54.  ECONOMIC IMPACT* ON DIRECT OPERATION (MAJOR OIL
            COMPANY) SELF-SERVICE PROTOTYPE STATION
Throughput Level
Monthly Volume (000 gal)
Contribution to Capital Costs**
Pre- Vapor Recovery
With Vapor Recovery:
Competitive Passthrough
Vapor Balance
Vacuum Assist
No Passthrough
Vapor Balance
Vacuum Assist
,1977$
Low
Volume
50
(12,120)
(13,418)
(14,102)
(13,898)
(14, 822)
Medium
Volume
100
2,640
1,973
1,595
1,013
155
High
Volume
150
25,200
25,200
25,200
23, 744
22,988
 * i. e., net margin, BFIT, under various vapor recovery scenarios
 **i. e., of Stage I plus Stage H vapor recovery
 Source:  Appendix O
                                    121

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 3. Open Dealer Operation
     The throughputs of open dealer prototype stations  are 10$ 000/30, OOO/
 50,000 gallons per month. All these operations are assumed to be in the
 relatively low-volume/high-cost sector of the market.
     The impact of vapor recovery on this type of station is strongly influenced
 by volume; the open dealer 50,000 gal/month outlet has the lowest cost-per-
 gallon in the low-volumeAigh-cost sector of the market (i. e., $0.0033 for
 vapor balance and $0.0055 for vacuum assist).  At the other end of the size
 range,  however, the lowest volume open dealer outlet has vapor-recovery
 cost per gallon of $0.0130 for vapor balance and $0.0250 for vacuum assist.
 The economic impact of vapor recovery on the contribution to capital costs
 is shown in Table 55.  It is clear that the difference between the passthrough
 and  no passthrough situations is very significant, because the level of costs
 passed through is quite high.
 TABLE 55.   ECONOMIC IMPACT* ON OPEN DEALER FULL-SERVICE
                       PROTOTYPE  STATION
Throughput Level
Monthly Volume (000 gal)
Contribution to Capital Costs**
Pre- Vapor Recovery
With Vapor Recovery:
Competitive Passthrough
Vapor Balance
Vacuum Assist
No Passthrough
Vapor Balance
Vacuum Assist
,1977$
Low
Volume
10
(2,016)

(3,180)
(4, 358)
(3,576)
(5,018)
Medium
Volume
30
5,220

4,639
4,050
3,451
2,070
High
Volume
50
10,620

10,620
10, 620
8,642
7,339
, *After dealer's salary and depreciation but BFIT
**i.e.,  for Stage I plus Stage H vapor recovery
Source: Appendix O
                                   122

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4.  Direct Operation (Unbranded Independent)
    The economic impact on this kind of operation (Table 56) is similar
to that on the major oil company direct operation described above.  Both
types of stations are generally high-volume, low-margin operations.  Some
differences are caused by the different financing assumptions used.  It is
assumed that the direct major station has internal corporate funds for vapor
recovery, while the independent goes outside to a bank for financing.
TABLE 56.  ECONOMIC  IMPACT* ON DIRECT OPERATION (INDEPENDENT)
                    SELF-SERVICE  PROTOTYPE STATION
Throughput Level
Monthly Volume (000 gal)
Contribution to Capital Costs**
Pre- Vapor Recovery
With Vapor Recovery:
Competitive Passthrough
Vapor Balance
Vacuum Assist
No Passthrough
Vapor Balance
Vacuum Assist
1977$
Low
Volume
100
(3,960)


(5,323)
(5,981)
(6,283)
(7,421)
Medium
Volume
150
12,960


12,104
11,772
10,664
9,612
High
Volume
200
20, 640


20,439
20,431
18,519
17,551
 * i. e., net margin, BFIT, for various vapor-recovery scenarios
** i. e., for Stage I plus Stage n vapor recovery
Source: Appendix O
                                    123

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 5.  Convenience Store Station
     This type of operation has poor vapor-recovery economics to the extent
 that it is a relatively low-volume,  low-margin  type of outlet, competing with
 relatively high-volume, low-margin operations.  The cost of vapor recovery
 tends to be high, and not much of it can be passed through on a competitive
 passthrough basis. The economic impact of vapor recovery on the gasoline
 operations of "C"  stores is shown in Table 57.
 TABLE 57.   ECONOMIC IMPACT* ON CONVENIENCE STORE SELF-SERVICE
                            PROTOTYPE STATION
Throughput Level
Monthly Volume (000 gal)
Contribution to Capital Costs**
Pre-Vapor Recovery
With Vapor Recovery:
Competitive Passthrough
Vapor Balance
Vacuum Assist
No Passthrough
Vapor Balance
Vacuum Assist
1977$
Low
Volume
10
960


154
(1,014)
58
(1,158)
Medium
Volume
20
3,600


2,986
1,866
2,794
1,578
High
Volume
35
9,786


9,370
8,348
9,034
7,844
 *Net margin, before federal income tax, under various vapor recovery •
  scenarios
**i. e., for Stage I plus Stage n vapor recovery
Source:  Appendix O
                                   124

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D.  SUMMARY
    Once vapor-recovery investments have been made, the margins of high-
volume retailers,  direct salary stations will not be significantly affected as
a result of the added fixed-cost of vapor recovery.  Leasee dealers are only
significantly impacted when a competitive cost passthrough of the most efficient
marketer is prohibited.  However, open dealers and convenience stores will
face significant margin reductions as a result of their relatively low through-
puts both with and without a competitive passthrough of vapor recovery costs.
                                    125

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VIE.  VAPOR-RECOVERY IMPACT ON THE SERVICE 'STATION POPULATION

A.  CLOSURES INDUCED BY THE COSTS OF VAPOR RECOVERY
    One of the objectives of the economic analysis of vapor-recovery require-
ments is to assess the potential number of retail outlets driven out of business
by vapor recovery alone. As stated previously, there are many factors in
the retail service station market which have resulted in a shrinking service
station population. Chapter VI discussed the closures to be expected from the
inability of some marketers to raise the necessary capital for vapor recovery.
Many of these stations would have closed whether or not vapor-recovery
investment were  required.   This chapter examines the potential additional
closures to be expected among stations that do make the vapor-recovery
investment.  As a tool in defining these additional vapor-recovery-induced
closures, the prototype break-even analysis was applied to the service station
population described in Chapter H.  At the present time,  approximately 44%
of the total service stations are operating below the prototype break-even
volumes (see Table 58).
    The largest number of potential closures from the group of marginal
outlets will be in  the lessee dealer group and low-volume, direct-salary
operations. The  open dealers generally have older and more highly depreciated
stations than direct and lessee outlets.  Furthermore, the open dealer may
have no employment alternative and would be willing to operate at a marginal
level of profitability.  On the other hand, the number of convenience stores
with gasoline operations is  expected to increase.
    While almost 78,000 outlets are currently operating below the prototype
breakeven volumes, the service station closure rate is not expected to be that
severe.  As shown in Table 31, the 1981 service station population without
vapor recovery is expected to fall to approximately 149, 000 outlets.  This
                                    127

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    TABLE 58.  MARGINAL STATIONS BELOW PROTOTYPE BREAKEVEN
            POINT VOLUMES BEFORE VAPOR RECOVERY COSTS
Type Operation
Lessee
Direct - Major
Direct - Independent
Open Dealer
"C" Store
Total
Marginal
Outlets
Below
Break-Even
Volume
44,957
7,710
17,301
7,804
—
77,772
Marginal
Outlets
as Percent of
1977
Audit
54%
74%
80%
15%
0%
44%
      Source: Table 27

 implies that approximately 29,000 service stations will close due to market
 rationalization factors by 1981.  The potential incremental closures due to
 vapor recovery are assumed to be equal to the number of facilities currently
 above the break-even point which fall below that point as a result of vapor
 recovery.  Table 59 shows the number of outlets directly put into a marginal
 status by vapor recovery under various scenarios.  The surviving facilities
 should be able to operate at economic levels greater than breakeven,  since
 only 66% of the 1977 service station population would remain to service a
 higher gasoline demand in 1981.
    With a competitive cost passthrough, vapor recovery costs will raise the
breakeven volume for all but the most efficient outlets in the two  market
 segments.  Some stations that were operating at or above the breakeven point
will then fall below the higher breakeven volume resulting from vapor recovery.
It is estimated that 7% to 11% of the 1977 population of service stations could
be placed into this marginal category, even with a competitive cost passthrough
                                   128

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 TABLE 59.  POTENTIAL VAPOR RECOVERY-INDUCED CLOSURES —
                   BREAKEVEN POINT METHOD
Type Station
Type Vapor-Recovery
System
Lessee
Direct - Major
Open Dealer
Open Dealer
"C" Stores
Total
Breakeven Method
Competitive
Cost
Passthrough
yes
n
ii
M
n
n
% of 1977 Service Station Population
Lessee
Direct - Major
Direct - Independent
Open Dealer
"C" Store
Total
no
n
n
n
11
n
% of 1977 Service Station Population
No. of Outlets Made Marginal
by Vapor Recovery
Balance
305
97
61
12,225
233
12,921
7%
6,473
149
111
16,017
366
23,116
13%
Vacuum
Assist
305
114
84
17,573
1,648
19,724
11%
1.8,794
187
164
21,368
2,562
42,875
24%
Source: Arthur D.  Little estimates
                               129

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 of a vapor-recovery program (Table 59).  Depending on the type of vapor-
 recovery system, this means that from almost 13,000 to 20,000 stations
 would potentially be closed.  With a complete absorption of vapor-recovery
 costs by the station operator (i.e., no competitive passthrough), potential
 closures would range from 13% to 24% of the current service station popula-
 tion (i. e., 23000 to 43000 outlets).
     The actual severity of potential closures due to vapor recovery is a
 function of:
     •   the type of vapor recovery system used (balance, aspirator
         assist,  vacuum assist);
     •   the degree and nature of a competitive passthrough of vapor
         recovery costs (from a complete operator absorption to an
         unrealistic complete passthrough for all stations), and
     •   the cost of capital:
B.  SERVICE STATION POPULATION FORECAST — AFTEK VAPOR
    RECOVERY
     The vapor-recovery-adjusted service station population forecast for
1981 is presented in Table 60.  The population of 1977 was used as a base
from which closures due to each of the following factors were subtracted:
     •    closures due to current market rationalization factors,
     •    closures resulting from an inability to raise capital for
         vapor- recovery,
     •    closures resulting from adequate profitability after a passthrough
         level of vapor recovery costs limited to that of the most efficient
         competitive retailers.
     Four alternative scenarios for the 1981 service station population were
assessed, depending upon the type vapor recovery system and the amount of
a vapor-recovery cost passthrough.
                                   130

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      The net result of the total closures resulting from both vapor recovery
  and other market factors will be a reduction of 12% to 29% of the 1977 popula-
  tion of retail gasoline facilities by 1981 (Table 60).
      This level of closures is 6% to 13% greater than might otherwise be the
  case without a national vapor-recovery program.  Vapor-recovery investment
  will add to the fixed station operating costs and thus increase the opportunities
  to realize economies of scale in unit costs at high-volume outlets. This will
  penalize lessee and open dealers. As shown in Table 61, both the propor-
  tional and absolute numbers of open dealers will decline under the various
  vapor-recovery alternatives.  The absolute number of other types of outlets
 will also decline, except for convenience store outlets which will increase in
 any case.
 C'  TOTAL VAPOR-RECOVERY COST FOR THE ADJUSTED SERVICE
     STATION POPULATION     "                     ~~	
     Depending apon the type, of vapor-recovery system and the degree of cost
 passthrough, the 1981 service station population could range from 127,000
 to 138,000 outlets after attrition due to both vapor-recovery and other
 marketing factors (as detailed in Appendix P).  The vapor-recovery invest-
 ment cost* for this estimated 1981 service station population would range
 from $957 million to  $1,538 million.  The lowest vapor-recovery cost total
 would be for the balance system with no passthrough of costs.  The balance
 systems with a cost passthrough would have fewer closures and thus greater
 total costs.  Similarly, the vacuum-assist case with a passthrough of costs
 would be the  most expensive system.
    As shown in Table 62, the total cost** of vapor recovery over a 10-year
life would range from $2.0 to $3.1 billion which includes investment,
 *Investment for equipment and installation only.
**Total cost is equal to the investment plus financing charge and 10 years of
  operating expenses.
                                   132

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financing cost, and 10 years of operating expenses.  This represents only
approximately 75% of the total cost for vapor recovery which would be
required to equip the entire current 1977 service station population. The
unit cost impact of vapor recovery to the economy for the expected 1981
population would range from $0.0022 to $0.0033 per gallon, depending upon
the type system adopted and the extent to which station operators can pass
through their costs.
    As an alternative to Stage I plus Stage n vapor recovery at service
stations, some reduction of hydrocarbon vapors (including benzene) can be
made with just Stage I controls. Based upon costs provided by the EPA
(Appendix H, Table 3), the total investment for this program for the 1977
service station population is approximately $225 million which represents 19%
of the cost for Stage I plus Stage n vapor recovery systems (see Table 21),,
The average cost for Stage I alone is approximately $1500 per service station
with the coaxial tube system alternative equalling approximately 30% of the
Stage I balance cost.  As shown in Table 63, it is highly unlikely that capital
constraints for Stage I will result in a significant number of stations closing
over and above those which are most likely to  close due to market ration-
alization pressures.
    Similar to the Stage I plus Stage n analysis, the estimated incremental
closures due to decreased profitability by Stage I alone were derived from
the estimated  number of marginal outlets induced by Stage I investments
(i.e.,  the number of outlets currently operating between the pre- and the
post-Stage I breakeven point volumes — see Appendix Q - Figures Q-l and
Q-2).  Assuming a competitive passthrough of costs, the unit cost impact of
Stage I alone for various service station prototypes are shown in Appendix Q,
Tables Q-2 through Q-6).   It is estimated that approximately 500 service
stations could  be closed from Stage I controls  over and above those expecting
to close due to market rationalization (see Table 64).
                                    135

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-------
    Stage I induced closures thus represent approximately 0.4% of the total
estimated 1981 population of service stations without any vapor-recovery
controls.  The most significant impact of Stage I alone controls would be
borne by the low-volume open dealers. It is reasoned that with the Stage I
only program, most open dealers would opt for the less expensive coaxial
Stage I system.  As illustrated in Appendix Q-Table Q-7,  this step would
even further reduce closures from the Stage I program by more than 50%.
                                  138

-------
     APPENDIX A
REFINER/MARKETER LIST
          A-l

-------
                             TABLE A-l

                       MAJOR OIL COMPANIES3 ^
  Major Oil Companies
Total Number of
States Where Gasoline
Brand is Marketed
  American Petrofina of Texas
  Amoco Oil Co.  (Standard Oil of Indiana)
  Atlantic Richfield Co.  (Arco)
  Chevron U.S.A. Inc.  (Standard Oil of California)
  Cities Service Oil Co.  (Citgo)
  Continental Oil Co.  (Conoco)
  Exxon Co. U.S.A.
  Getty Refining and Marketing Co.
  Gulf Oil Co., U.S.A.
  Mobil  Oil Corp.
  Phillips Petroleum Co.
  Shell Oil Co.
  Standard Oil Co.  of Ohio (Sohio)
  Sun Oil  Co.  (Sunoco)
  Tenneco  Oil  Co.
  Texaco Inc.
  Union Oil Co.  of  California
       29
       48
       37
       40
       27
       29
       45
       28
       31
       48
       37
       40
       N/A
       N/A
       21
       51
       45
  a fully-integrated company  (i.e. active in all phases of the
  oil business - exploration, production, refining, supply,
  transportation and marketing) which markets in at least 21 states,

Source: 1977 NPN Factbook
                                   A-2

-------
                             TABLE A-2
                        REGIONAL REFINERS
                                         a)
Regional Refiners
Amerada Hess
Apco Oil Corp.
Ashland Petroleum Co.
Champlin Petroleum Co.
Crown Central
Clark Oil and Refinery Co.
Coastal States  (Derby)
Diamond Shamrock Oil and Gas Co.
Douglas
Kerr-McGee Corp.
Lion Oil Co.
Marathon Oil Co.
Murphy Oil Corp.
Derby Refining  Co.
Husky Oil Ltd.
Koch Marketing  Co.
Naph-Sol Refining Co.
Quaker State Oil Refining Corp.
Total Petroleum, Inc.
United Refining Co.
Vickers Petroleum Corp.
Total Number of
States Where Gasoline
Brand is Marketed	
    NA
    14
    10
    18
    NA
    13
    19
     9
    NA
    19
    14
     6
    15
    14
    17
    30
     5
     4
     2
     5
    15
  a  semiintegrated company with at  least one  refinery  and generally
  marketing  in  less  than  21  states.
 Source:  1977 NPN Factbook
                                   A-3

-------

-------
            APPENDIX B
SERVICE STATION THROUGHPUT MATRIX
                    B-l

-------










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-------
                 APPENDIX C
SERVICE STATION SUPPLIER/OPERATIONAL PROFILES
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-------
             APPENDIX D






"PRIVATE" GASOLINE DISPENSING OUTLETS




           6 SAMPLE AQCR'S
                    D-l

-------
                                TABLE D-l

                  "PRIVATE" GASOLINE DISPENSING OUTLETS

                              BALTIMORE AQCR
Sector/Throughput (GAL/MTH)
Trucking/Agriculture
Services
Utilities/Government
Other
	 ฃM
<20M
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246
247
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12 OM
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2
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273
249
% of Total
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25%
22%
TOTAL
1,080
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1,118
                                 100%
Source:  County  Business  Patterns;  Local  and  State  Agencies;
         Department  of  Commerce,  Bureau of  the  Census.
                                     D-2

-------
TABLE D-2
"PRIVATE" GASOLINE DISPENSING OUTLETS
BOSTON AQCR
	 Number of Outlets 	
Sector/Throughput (GAL/MTH) <20M i*OM JTotal_
Tr"'~kinq/Aciri culture
Services
n+Tl it-ies /Government
Other
TOTAL
632 30 652
294 6 300
258 33 291
1,184 69 1*243
                                of Total
                                Outlets
                                  52%


                                  24%


                                  24%


                                  100%
        D-3

-------
                              TABLE D-3

                "PRIVATE" GASOLINE DISPENSING OUTLETS

                              CHICAGO AQCR
TOTAL'
                                    umber of Outlets	
                                        L20M       Total
                               2,463
88
2,551
                    % of Total
                     Outlets
Sector/ in rougnput vu^^/i-nn; ~*.Vn ___. 	 _
Trucking/Agriculture 1 g23
Services 1,754
Ut i 1 i ties/Government 357 14 -5
Other ' 352 5 357
71%

15%
14%
                                                                   100%
Source:  County Business Patterns;  Local  and  State  Agencies;
         Department of  Commerce,  Bureau of  the  Census.
                                       D-4

-------
                                TABLE  D-4
                                DALLAS AQCR

Sector/Thr_ou<5hput_
Trucking/Agriculture
    Services


Utilities/Government



Other


TOTAL
                               -20M
                                    Jumber of Outlets—
                                         -20M      Total
1,034


  682


  184


 1,900
                                           15


                                           15


                                           15
                                           45
1/049


  697


  199
 1,945
           % of Total
             Outlets
54%


36%


10%
                                                                100%
                                        D-5

-------
                                 TABLE  D-5

                  "PRIVATE" GASOLINE DISPENSING OUTLETS
                                DENVER AQCR
Sector/Throughput (GAL/MTH)
Trucking/Agriculture
Services
Utilities/Government
Other
	 Number of
<20M :120M
1,340
157
189
8
8
8
Outlets —
Total
1,348
165
197
% of Total
Outlets
79%
9%
12%
TOTAL
1,686
                                          24
1,710
                               100%
Source:  County Business  Patterns;  Local  and  State Agencies;
         Department  of  Commerce,  Bureau of  the Census.
                                      r>-6

-------
                                TABLE D-6

                  "PRIVATE" GASOLINE  DISPENSING OUTLETS

                             LOS ANGELES AQCR


                              	Number of Outlets—
                              <20M    ^20M      Total
Trucking/Agriculture
     Services
utilities/Government.
Other
TOTAL
3,640


1,271


  982
60


37


87
                               5,893    184
3,700


1,308


1,069


6,077
                            % of Total
                              Outlets
61%


22%


17%
                                                              100%
                                       D-7

-------

-------
             APPENDIX E







"PRIVATE" GASOLINE DISPENSING OUTLETS




         TOTAL  U.S.A. AUDIT
                 E-l

-------
                             TABLE E-l
PAD I
Service
Trucking:
   Construction
   For Hire
   Forestry
   Mining
   Manufacturing
   Wholesale/Retail

Agriculture
      PAD 1 TOTAL:
PAD II
Service
Trucking:
   Construction
   For Hire
   Forestry
   Mining
   Manufacturing
   Wholesale/Retail

Agriculture
      PAD II TOTAL:
iICULTURE/SECT(
Number of
<20 Gal/mth
. 651
2474
389
36
114
553
4623
8840
1628
10468
226
1593
251
5
44
212
2817
5148
11404
16552
DR GASOLINE OUT:
Locatj ons
>20 gal Art h
8
2
11
-
-
7
10
38
v
38
~""SZ
20
' ' 10
15
-
-
20
39
104
-
104
 Total
Outlets
  659

 2476
  400
   36
  114
  560
 4633
 8878
 1628
10506
  245

 1603
  266
    5
   44
  232
 2.856
 5252
11404
16656
   Source:  U.S. Bureau of Census, U.S. Dept. of Agriculture

                                 E-2

-------
                             TABLE  E-1A
           TRUCKING/AGRICULTURE/SECTOR GASOLINE  OUTLETS
                                  of Locations
                       <20 Gal/mth      >20 Gal/mth
PAD III  ,
Service
Trucking:
   Construction
   For Hire
   Forestry
   Mining
   'Manufacturing
   Wholesale/Retail

 Agriculture
       PAD III TOTAL;
                           560
                                              17
                                                           Outlets
                                                            577
829
75
110
124
787
1 A 1 ฃ,
jL*i J-D
3900
12382
1 K9R7
15
12
3
-
20
24

91
"19
110
844
87
113
124
807
1439

3991
12401
16392
PAD IV
Service
Trucking:
   Construction
   For Hire.
   Forestry
   Mining
   Manufacturing
   Wholesale/Retail

 Agriculture
       PAD  IV TOTAL:
                             125
                                                               125
65
24
23
23
348
608
2281
2889
3
-
-
3
8
18
3
21
68
24
23
26
356
„ — i in —
626
2284
2|1Q
    Source:  U.S. Bureau of Census, U.S.  Dept.  of Agriculture
                                E-3

-------
                            TABLE E-1B
          TRUCKING/AGRICULTURE/SECTOR  GASOLINE OUTLETS
                            Number of Locations
                        <20 Gal/mth      >20 Gal/mth
PAD V
Service
Trucking:
   Construction
   For Hire
   Forestry
   Mining
   Manufacturing
   Wholesale/Retail

Agriculture
      PAD V TOTAL:
 853

 162
 179
  27
  29
 186
1668
3104
4888
7992
10

 4
 5
 4
19
42
 3
45
 Total
Outlets

  863

  166
  184
   27
   29
  190
 1687
 3146
 4891
 8037
 Source:  U.S. Bureau of Census, U.S. Dept. of Agriculture
                               E-4

-------
                              TABLE E-2
             TRUCKING/AGRICULTURE/SECTION GASOLINE OUTLETS
   PAD I
     Utilities
     Government
     Military
<20 Gal/mth

   3021
  33866
    187
                              37074
>20 Gal/mth

      44
     572
      62
                      678
                                                               Total
                                                              Outlets
 30.65
34438
  249
37752
   PAD II
     Utilities
     Government
     Military
   3694
  25606
     84
  29384
      15
     432
      56
     503
 3709
26038
  140
29887
   PAD  III
     Utilities
     Government
     Military
1446
8260
39
17
139
26
1463
8399
65
                               9745
                      is:
                    9927
    PAD IV
      Utilities
      Government
      Military
286
1652
19
7
28
	 5_
293
1680
24
                               157
                                     I7
    PAP V
      Utilities
      Government
      Military
    1026
   14042
     102
   15170
      28
     237
      26
     291
 1054
14279
  128
15461
Source:  U.S.  Dept.  of Defense,  FEA,  ADL estimates,  U.S.  Bureau of Census
                                  E-5

-------
                             TABLE E-3
   PAD I
     Taxicabs
     Schoolbuses
     City Bus
     Rental/Misc.
   PAD II
     Taxicabs
     Schoolbuses
     City Bus
     Rental/Misc,
   PAD III
     Taxicabs
     Schoolbuses
     City Bus
     Rental/Misc.
   PAD IV
     Taxicabs
     Schoolbuses
     City Bus
     Rental/Misc
   PAD V
     Taxicabs
     Schoolbuses
     City Bus
     Rental/Misc.
Source:   Industry contacts
GASOLINE OUTLETS
<20 Gal/mth
3102
1469
348
27303
32222
1229
859
207
26847
29142
360
415
151
13222
14198
51
75
68
4973
5167
352
123
168
11321
11961
tacts. ADL estimates.
E-6
>20 Gal/mth
139
61
3
53
2||
85
36
2
51
174
20
17
1
58
II
3
3
-
57
|3
48
5
2
83
138


Total
Outlets
3241
1530
351
27356
32478
1314
895
209
26898
29316
380
432
152
13280
14|94
54
78
68
5030
5230
400
128
,170
11404
12102



-------
          APPENDIX  F
          OUTLOOK FOR




THE SERVICE  STATION POPULATION;




   SELECTED  PRESS REFERENCES
              F-l

-------
                                 Self  Service


                                 To   Continue


                                 Market  Gain

                                     By JIM DRUMMOND
                                   HOUSTON-The  petroleum
                                 marketing scenario for the next
                                 year or so again will be entitled
                                 "Living in the  Aftermath of the
                                 Arab Oil Embargo."
                                 . However, there will  be two
                                 significant new  subtitles: "How
                                 to Roll  with President Carter's
                                 Energy Program," and "What To
                                 Do  When Alaskan Oil  Comes."
                                  Although the  subtitles  suggest
                                 that complexities, uncertainties
                                 and nail-gnashing will increase,
                                 these things will  be for sure:
                                  •  Crude and  other costs  will
                                continue rising.
                                 .• Self-service will-continue con-
                                quering the retail gasoline  mar-
                                ket.  Predictions of help-yourself
                                volume by the end of 1977 range
                                as high as 70%, but most esti-
                                mates  are in the 307o to 40%
                                range.
                                 • Sharply thinner rack-to-retail
                                margins are here  to stay as the
                                major oil companies try to offset
                                the loss of upstream profits to
                                nationalization and the demise of
                                the  depletion allowance.
                                 According  to   the  experts,
                                margins which  in some  cases
                                nearly  have reached  the van-
                              _ ishing point are  one  of the big
                               legacies of the embargo.
                                 Jobber Paul Forbes of Franklin
                               Lake, N.J. thinks  rack-to-pump
                               spreads of 3.5 cents a gallon of
                               gasoline will be  common,  with
                               some ratios dropping even lower.
                               A Michigan dealer operating on
                               2.75 cents a gallon "scares  the
                               hell out of us," Forbes said in a
                               recent speech.
                                 Gabriel M. Gelb, president of
                               the Houston-based Gelb consult-
                                   (Continued on page 26)
Source:   Oil  Daily  7-25-55
                                            F-2

-------
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-------
.   year's volume. Many marketers,
)   including most independents, had
!   wanted  either hands-off  present
   rules  or  stipulations,  like  in-
   creased allocations from 1972 sup-
   pliers,  that  would prevent  re-
   finers from retaining more prod-
   uct.
     A number  of  fuel oil  jobbers
   ,:ave taken up  cudgels  against
   Carter  program  elements  they
   feel are pointed  at  them. They
   fault the program for forcing con-
   version from heating oils to coal,
   promoting  construction  of coal
   gasification plants, and  handing
   control of home insulation to state
   public   utility  commissions.
   PUC's are considered closely al-
   lied  to  public  utilities,  which
   many oil merchants have fought
   tooth  and nail.
     FAR AND AWAY marketing's
   biggest trend, the swing toward
   self-service,  is  accompanied by
   what  might  be  called the giant-
   ization of  service  stations.
   Today's  super-station  pumps
   200,000   gallons  of  gasoline  a
   month or .norc and costs $250,000
   to  $300,000.  Price  tags  have
   ranged as  high as $1 million, the
   outlay for a Las Vegas, Nev., unit
   said to be doing more than 500,000
   gallons of monthly business.
      How to get into  the  "Super"
   category is a  problem  money
   alone might not be able to solve.
   According to a  midwestern au-
   thority, converting a conventional
    station  usually is not  the way.
    Special driveway configurations
     not  necessarily  envisioned  by
     earlier planners are needed. In
     fact,  it  sometimes  may be  de-
     sirable to  raze  and  rebuild a
     successful "super" so it will  be-
     come  even  more successful.
      Self-service volumes also seem
     to be  affected to geography. A
     midwestern major  found, for in-
     stance, nearly half to three-quar-
     ters  of its Rooky Mountain cus-
     tomers helped thomselves. In  the
     wu1\vpsi, however, the proportion
    \vปปs only  UK  to ^'"v

      THE  "SELF SERVE" map is
   looking better and better. Latest
   states to lower the  bars to help-
   yourself selling are  Illinois and
   North Dakota.  Only  Oregon and
   New  Jersey still  hold  out.
      Low margins are the  bane  of
   independent  marketers  who are
   fighting for survival and may  be
   changing their opinions of other
   issues  facing the petroleum in-
   dustry.
  According to Forbes, the New
Jersey jobber, his current predic-
tion  that  supplier-to-street
gasoline  spreads of 3.5  cents  a
gallon will be common  was re-
vised downward from  nine cents
only two years ago.
  President Jack Griffity of Okla-
homa Oil Marketers Association
asserted recently  that resellers
are beginning  to fear- their sup-
pliers "more  than  they  fear bu-
reaucratic controls." He cited a
poll showing that'OOMA members
once  solidly in favor of decontrol
had swung to opposite viewpoints.
Some of their reasons, besides the
margin  situation  were  said  to
include "severe competition from
direct marketing by  refiner-sup-
pliers,  lower  than   tankwagon
prices at  supplier-operated  ser-
vice stations, and changes  in sup-
plier credit  terms and station
rentals.
   So-called "economic rents"  in
which suppliers hungry  for mar-
keting profits would recapture the
asserted true value of their out-
lets have raised hackles  in many,
but not all, areas. Dealers whose
profits are increasing do  not seem
to  mind as much as the others.
   MINOR TRENDS that may  or
may  not  point  to something big
include the reappearance of once-
ubiquitous trading stamps at a
number  of Southwestern service
stations.
   Do-it-yourself repair  services
at  retail products outlets appear
to  be prospering.  Naturally, the
number is increasing.
  State gasoline taxes are goinj
up. Increases have been  made  01
threatened recently in Nebraska,
Arkansas and  Louisiana.
  Marketing  acquisitions pro-
liferate. One of 1977's largest was
the purchase by Choker  Oil, 50%
owned by Marathon, of 213 former
Enco service  stations in Illinois,
Michigan, Indiana and Wisconsin
for some $15  million.  Exxon Co.
USA, which never penetrated re-
gional markets to  its liking, re-
portedly will  supply  its former
outlets with products  to be sold
under the Oklahoma flag.
  Over   the   whole   marketing
scene brood the twin  specters of
feast and famine. At the moment
U.S. gasoline  inventories, in  the
 words of an independent refiner-
 markeler, are "very adequate;"
 the retail market, "horribly slop-
 py,"  One popular explanation is
 over-enthusiastic forecasts of de-
 mand, which was supposed to leap
 5% to 7% this summer above like-
 date  figures for 1976.  A recent
 assessment of the actual increase
 is 2.6.

   SOME   SUPPLIERS  have
 marked down  gasoline lately. A
 Gulf  Oil Corp.  cut which, accord-
 ing to a spokesman, was in line
 with   cost   pass-through  regu-
 lations of FEA  sparked rumors
 some suppliers were running out
 of unrecovered, or banked costs,
 which may be added, while  they
last,   to  federally controlled
prices.

  Yet the latest FEA compilation
of the gasoline cost "bank," for
April,  showed  an  abnormally
large $1.085 billion pot still await-
ing distribution.

  Indirect results of the gasoline
pileup are heavier trading in dis-
tillates, filling  pipeline  gaps  left
by a decline in motor fuel trans-
actions, and a large surplus of
foreign crude oil  swinging at an-
chor off the U.S. coast or jam-
ming   transshipment terminals.
The desire for distillates seems to
have  something to do  with  last
winter's weather
                                                            F-4

-------
API  Report:  Fewer Stations  Are  Being  Closed
While the number of service stations
being deactivated by leading oil com-
panies  is still  running on the high
side—better than 5,000  a year—the
pace is slowing down significantly.
  Reports from 24 companies polled
by American Petroleum Institute's di-
vision  of  marketing  indicated they
eliminated 5,182 outlets in  1975. That
total,  however, is 44.5% below  1973's
peak of 9,342  shutdowns,  and  26.9%
below last year's 7,091.
  At the same  time, new construction
showed a slight improvement.
  Outlets built from the ground up in
 1975 totaled 212, up 17.7% from 1974's
 figure of 180. But that is far off from

 the 1,000 to 2,000 a year that had been
 maintained prior to the shortage  days
 of  1973.  That was  the  big  turning
 point in new construction—downward.
   API's Brice Cecil made it plain that
 the data in the division's  latest report
 is  ndt industrywide, they  are  only
 trends. He pointed  out  that replies
 were received from  24 companies in
  1975, not all of whom participated in
  past surveys. In 1974  and 1973,  23
 companies responded, and in the ear-
  lier  years, only 18 companies.  Thus
Service Station Gains and Losses in 1975*
                                                  Total since
                    1975    1974**      1973
                             7,091     9,342
                              180     1,177
                            -6.911     -8.165
                        5,182
                         212
                       -4,970
 1972     1968
 3,498   36.883
 1,689   11.574
-1,809  -25,309
Deactivations
New stations built
Net change
Definitions:
Deactivations: Stations where equipment and identification have been re-
moved and where reopening as a service station is no longer contemplated.
New construction: Stations built on vacant land and/or are new on the site.
Does not include complete rebuilds.
Service stations: Retail outlets  where more  than 50% of the dollar volume
comes from the sale of gasoline and related products.
•Reports received by API  from 24 companies in 1975; earlier years involved
from 23 to as few as  18 companies.
** 1974 figures were revised by API in the 1975 report.
were Texaco and Amerada Hess.
  Participants in 1975 were American
Pelrotina  of Texas, Amoco, Ashland
Petroleum, Atlantic Richfield, Cities
Service, Continental, Diamond Sham-
rock, Exxon USA, Getty, Gulf Oil-US,
Marathon,  Mobil, Murphy, Pasco
Marketing, Phillips Petroleum, Shell,
Skelly, Standard of California, Stan-
dard of Ohio, J.D. Streett & Co., Sun,
Tenneco Petroleum, Union Oil of Cal,
ifornia, and Vickers Petroleum.
  Since  1968, when API made its first
  there are many annual variables.    ^^report, participants in the studies have
    Notably absent from  the 1975 pofl    reported a grand total of 36.883 deac-
                               tivations  and  11,574 new stations.
                               That's better than a two to one ratio
                               for shutdowns.
                                  Deactivations hit their peak in 1973
                               when the Arab oil embargo  precipi-
                               tated product shortages and marginal
                               stations  were pruned vigorously  by
                               majors and independents alike.
                                  Current service station population is
                                istimated at 190,000, down 16% from
                                1972's record high of 226,000. Projec-
                               tions by many authorities indicate this
                               total will be decreased even further in
                               the years ahead, possibly to as low as
                                150,000 by 1980. "*	1T-V
 Source:   NPN  8/76
                                                   F-5

-------
 Is  Station

 Count  Falling

 Drastically?

 A large-scale fallout of service stations
 is either underway, or on the verge of
 happening, some industry sources be-
 lieve.
  A marketing research expert in the
 Midcontinent  area says the eventual
 toll could be as high as 25%.
  Another veteran marketing execu-
 tive, told about the forecast, expressed
 surprise  at the number.  But  he
 wouldn't say yes or no as to its prob-
 able accuracy.
  "What you  really have to deter-
 mine, if a fallout of such dimensions is
 underway, is whether the closings are
 temporary or permanent. That could
 make a big difference jn the long run."
  American Petroleum Institute's an-
 nual survey of  service-station deac-
 tivations, while still incomplete at this
 time, indicates the tides of closures are
 still  running strong.  API said, how-
 ever, that it has  not yet received suf-
 ficient replies in its current survey to
 cite specific numbers.
  Since 1968,  however— the first  year
 the API survey was  made— deactiva-
 lions  have  been averaging  around
 4,500 a year. Biggest year was in  1973
 when more  than 9,300 stations were
 eliminated by 23 companies from the
 scene.

 190,000 Stations
  A recent count of service stations by
 Lundberg Letter Inc. and NPN placed
 the number of outlets at 190,869 as of
 Dec. 31, 1975.
  This would be comparable with, al-
 beit a bit higher, than the figures used
 by  U.S. Department of  Commerce
 whose  "Franchising in the Economy,
 1974-76."  calculated the  total  at
 189,400.
  Looking ahead, Commerce  Depart-
 ment anticipates that this total will be
 decreased further, to  189,000  by  next
 Dec. 31.
  But  the  Midcontinent researcher
 who suggested that a  fallout is immi-
 ncnt or already underway says his best
 estimate right now is 181,000 stations.
  That's the lowest number  anyone
 has come up with yet.
  If his 25% forecast proves to be ac-
 curate. or  even  Tiaitwav correct1  it
wouiti  mean that the service-station
 population  will deteriorateto~ahmit
       or 160.000 over the next year
 190.000 was a reasonable count of sta-
 tions in business as of last Dec. 31 —
 that up to 9,000 outlets have fallen by
 the wayside in the first four months of
 the current year.

 Dollars Are  Up
  Even though the number of stations
 is declining sharply, gross sales dollars
 are not. To the contrary, they are mov-
 ing up rapidly per station and for the
 industry as a whole.
  Commerce  Department's  franchis-
 ing report estimates the average sta-
 tion took in $233.000 in 1975.  It be-
 lieves  this gross will  increase to
$255,000 per station in  1976.
  On the basis of the  1975 average, it
 Source:    NPN  6/76
would appear that the 190,869 stations
in the Lundberg/NPN count grossed
more than $44.3-billion in 1975.
  That is an increase of 32% over the
department's 1972 report which put
gross sales at $33.6-billion.
  Assuming that the 1976 average of
$255,000 per station happens that way,
and the number of stations drops no
lower than  189,000, the  1976  gross
would be about $48-billion.
  (NPN's 1975 Factbook Issue just off
the press gives a state-by-state break-
down  of  the  service-station  popu-
lation, based on the Lundberg/NPN
calculations.  It  also  provides  gross
sales estimates  based  on the  Com-
merce Department average.)
      — il t!.r ซ.ry tr.^m  njn-o

226,000.

  It would also mean— assuming that
                                                             F-6

-------
r
in
fe
S3
 8
5

Q
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O
ui
        Service  Station  Population  Decline
    Forecast by  Business  School Professor
  BLOOMINGTON, Ind. - Treat
your corner service station owner
kindly, he may not be around much
longer.
.  Dr. James M. Patterson, of the
I.U.  School of Business, said there
will be a radical decline in "station
population" in  the next few years
because of  major shifts in oil
marketing  strategies.
  Patterson spoke before a group of
two dozen  educators and marketing
authorities attending a two-day con-
ference on structure, strategy and
performance sponsored  by  the
E.W. Kelley Chair in the I.U.
School of  Business.

  ''From a high of 226,000 branded
retail stations in 1972, the  number
fell to 193,000 last year," Patterson
said.  "The total  number  ?hp,'ild
decline to between 150.000 and 160^
  T>y 198
     THE BASIC PROBLEM  faeing
    the oil companies now, Patterson
    said, is  how to develop new
    marketing strategies  which
    adequately  reflect the  realities of
    the new marketing structure. How
    are  profits  to  be generated in  a
    "near static market?"
  "As the profit generating role of
crude changes,  and with increases
in crude consumption generally op-
posed by  public policies, profit
growth must  increasingly come
from  refining  and  marketing —
from more efficient operations and
higher  prices  and  margins.
Marketing now  must make money
on its own,"  he said.
  "One  of  the  most  wasteful
aspects of  gasoline marketing has
been the  practice  of  over-
stationing,"  Patterson- explained.
."So long as gasoline marketing was
subservient  to profitable crude
sales, this was not terribly critical
— especially  if  high  retailing costs
were shares  by independent
dealers."
  Low volume stations are not only
a losing proposition in their own
right, Patterson said, but they are a
drag on all other stations. Many
would have been closed under any
circumstances,   but the  recent
period of  product shortages  and
allocations  meant  that stations
could be closed without dramatic
shifts in market shares.

  AS AVERAGE   STATION
volume increases, however, there
will be a re-thinking of4he  way
stations are operated.
  "When  gasoline retailing  was
treated as a break-even operation,
the heavy reliance on dealers made
good sense. Now serious questions
arise.  Many high volume  stations
are just too profitable for dealer
operations. The rewards  to  the
dealer are way out of line with his
contribution.  Increasingly, these
prime stations will be converted to
other forms of operation as the law
and circumstances permit."
  Patterson also predicted a radical
shift in the mix of retail operations.
  "There will be considerably less
emphasis on the traditional  full-
service  operations, and much
greater emphasis given to  the fast
serve, less-service and self-service
type of operation.
  "Tie-in operations with  con-
venience stores, dairy stores, car-
care centers, tire stores, car washes
and the like will also grow as new
forms of retailing are  sought to
justify  high priced  locations  and
quality management."
  Patterson  said food marketers,
general  merchandise firms  and
others will assume new roles in gas-
oline retailing.
                                               F-7

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U)
o>
CM
to
•o
c
o
5
O
UJ
X
I-
     VIEW PROM  THE MARKETING ARENA:
          Four Stations  at  Every  Corner:
          Good-Bye  and  Good Riddance!
                                    The net result is that in about five
                                   years the
                                   dcmand-mLELlhc same
                                   ~ Grade school arithmetic indicates
                                   that stations in the future will dou-
                                   ble the volume done in the past.

                                    Industry thinking appears to  be
                                   that, as use permits become more
                                   difficult to get, the future trend will
                                   be  toward larger stations, beauti-
                                   fication, high volume with less ser-
                   By JACK R. URICH PhD
                          President
                      UCO Oil Company
  THE OIL DAILY asked me for a short article on West Coast marketing
There are plenty of marketing men available to comment on price and
supply, so I decided to confine my remarks to a pheonmenon which sur-
faced in this industry after the oil embargo. To my knowledge no writer
has seen fit to examine this trend. 1 refer to the massive closing of service-
stations on the West Coast, and what appears to be the trend nationwide
  Knowledgeable  marketers have
pointed out for years that the ser-
vice station industry was overbuilt
— some said  by 30001.
  This state of affairs grew out of a
building  race fired by  the twin
fallacies  of "market  penetration"
and "market  position."
  Market  penetration is  a
philosophy which requires that a
branded  service station be within
sight  at  all  times  for  fear  the
customer may otherwise tear up his
credit card. Market position refers
to total gallons  solU by each major
and each's respective position on
the volume ladder.

  ANY  INDEPENDENT could
have  pointed  out  that neither
theory had any  validity. But it was
supply shortage,  not logic,  that
forced the closing of marginal units.
And as the crisis eased, marketers
learned  they  could  sell more
product through fewer stations at
higher profit  per gallon.
  Since all companies were in  the
same boat, the relative positions of
competitors  remained  approxi-
mately the same, with the result
that everyone made more money
with less overhead. As a matter of
fact,  most  companies  have  in-
creased not  only profit but total
sales while operating  fewer units
  The magic number for across-the-
board phase out appears to be 30ฐ'<.
There has been  no  rush  by in-
dependents to snap up padlocked
stations and accordingly the majori-
ty appear scheduled for demolition.
  This process is being speeded in
certain areas, particularly the San
Francisco Bay  Area,  where some
municipalities  have  ordinances
requiring  that  closed  stations be
demolished at the expense of the
owner after six  months or one year
as the case may be.

  THERE IS NO consensus  but
from  random  conversations  with
major companies the timetable for
these  spin-offs  appears to  be five
years.     _    _
vice, and that such location; will
have high value.
  One far-reaching effect will be an
overall drop in the value of prime
corners.  There will be more land
than McDonald's drive-ins and the
good Kentucky Colonel can absorb.
  From where I sit the service sta-
tion building race appears to be at
an  end.   Marketing people have
been taught a lesson. The dollar
quota has replaced market penetra-
tion and  marketing position as the
measuring rod  for  management.
The new philosophy makes sense
                                             F-8

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22
5
02

I
Uj
Q
O
Jobber-Retailers


At  Crossroads

Monterey conferees hear

advocates of aggressive

retailing  posture rebutted

by champion of wholesale

only tradition.

Jobbers who have been functioning
as jobber-retailers, and traditional
jobbers still bucking the crossover
into retailing, all had their business
appetites whetted at the 18th An-
nual Meeting of the California Au-
tomotive   Wholesalers  Assn.
(CAWA).
  "The  Jobber In The Future"
themed  the September meeting,
held this year in Monterey, Califor-
nia.
  The general session program was
a two-parter; the first, a series of"
addresses by key industry observ-
ers, followed by a three-hour panel
discussion with audience participa-
tion invited.
  Laying it squarely on the line for
the  packed audience, O. Temple
Sloan, Jr., president of General
Parts, Inc., a WD, claimed that as he
saw it, there is no such thing as a
traditional aftermarket.  "The only
thing traditional about it, is that it
will change," he said.
  Sketching the potential of the af-
termarket, Sloan projected a 150
million  vehicle population  (cars,
trucks, busses) by 1980, "a phenom-
enal growth in the light truck mar-
ket", and  introduction of over
30,000 new part numbers in the
next four vears.
  With 35% of all jobbers now be-
longing to one marketing program
or another, the speaker predicted
the jobbing establishment is in a
good position to compete with Sears,
Wards, K mart and other mer-
chandising giants.
  Sloan stated the mass merchan-
disers are limited to easy-to-install
consolidated  parts, and aren't  in-
terested in complex parts repair.
  "They don't want to hear the con-
sumer's complaint, and can't afford
the inventory investment," he said.
   Sloan told the gathered CAWA
members they must manage their
financial assets if they are to cope
with  the tremendous investment
required "to maintain our supreme
position."
   Another speaker, Don  Midgely,
 director of distributor sales, Cham-
 pion Spark Plug Co., while not  spe-
 cifically urging that the traditional-
 ists put out the welcome mat for re-
 tail trade, nonetheless threw down
 some juicy facts for doing so.
   Midgely noted that by 1983, 20.4
 million motorcycles will  be regis-
 tered, plus an additional 3.5 million
 off-road bikes.
   "These machines eat spark plugs
  like  little kids eat candy. It's  easy
  for a bike to use as many plugs as
  the family auto in a year," he said.
    Other spark plug and related
  merchandise potential mentioned,
  included the existing 45 million
  power lawn mowers, which will
  jump to more than 64 million units
  in seven years. Small garden trac-
  tors and tillers (presently number-
  ing 19 million units) will hit over 41
  million units by 1983.
    According to Midgely, that will
  mean "105 million sales opportuni-
   ties just lying around the house."
    The  afternoon panel  discussion
   was spirited as well as  enlighten-
   ing.                      .
    In his opening remarks, panelist
                                              F-9

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  Irving Krantzman, chairman of the
  board, Grand Auto, and president of
  Super G Warehouse, a sister WD
  operation,  chided  the jobbing
  fraternity for its lack of aggressive-
  ness.
    Krantzman's penchant for frank-
  ness opened some eyes wide. He said
  he is constantly looking for market
  places that will enable him to buy
  more, sell more and make money in
  between. And he doesn't care who
  he sells to do it.
    Does that mean he would sell re-
  tailer as well as jobber? "Yes! I'd sell
  those  guys. And if you think these
  big guys — these manufacturers —
  won't cheat, then you ought to come
  to  my buying office and see  them
  standing around." With that re-
  mark, Krantzman received the
  closest thing to a standing ovation.

   Panelist Jack Law, owner of
 Law's Auto Parts, predicted a great
 future  for the jobber, especially
 those in  suburban communities
 which he termed "the backbone of
 the  industry."
   Law  contended jobbers can per-
 form both wholesale and  retail
 functions. "It  all  depends on
 whether  you want to make the
 necessary  adjustments."
   Ten years ago Law's store rang up
 85% of its  business with wholesale,
 and 15% with retail. Now, 70% of
 the volume is walk-in retail trade.
   Our wholesale customers know it
 takes them and retail sales for us to
 make a go of it," said the jobber-
 retailer.
   Law felt jobbers must  be af-
 filiated with a buying group. "It's
 very difficult to be independent."

  Louis Parrillo, western  zone
manager, Dana Corp., emphasized
that only the jobbers would survive
who are aware of a rapidly changing
market, and who adapt to the needs
of that market.
  He placed total automotive repair
volume  in  the area of $60 billion,
and anticipated it would be $80 bil-
lion in four years.
  Parrillo  mentioned  changes
which will  affect jobbers major cus-
tomer groups.
  |p fmir years, he said, the number
nf jflfyipe  ^tations win decline an-
other 25%.  Traditionally, these cus-
tomers  nave  accounted for 25% of
jobbers sales  volume. The  figure
may drop to 15% howeverTby lฃ8j},
with งervice stations relying more
                   for parts needs.
as tune-up outlets, are increasing
dramatically, "in general they tend
to rely on their own internal distri-
bution system", and that, according
to Parrillo, could mean a dwindled
market for the jobber.
  Machine shops, he maintained,
are a key opportunity to recoup
losses, and are an entre into getting
service work from mass merchan-
disers. Every dollar spent in shop
labor generates  $3-$5 in related
parts sales, said the panelist.
  A marked dissenter on the panel
was Al Joseph, president, Hunter
Publishing Co., publishers of Job-
ber and Warehouse Executive mag-
azine. Joseph has  long been a
staunch opponent of the jobber-
retailer syndrome.
  He told the audience he has no
quarrel with anyone who wants to
become a retailer. "But what has
confused  this industry—and the
confusion starts right at the top
with manufacturers, and carefully
nurtured by some trade associa-
tions—is  that if you want to be a
retailer, be one, and if you want to
be a wholesaler, be one, too."
   Joseph called attention to the fact.
that for  years there  were some
15,000 jobbers, but the  number
spiraled about ten years ago, and
that the last census put it at 27,000.
"But we know tht many of these out-
lets aren't jobbers in the traditional
.sense."
   He minced no words, contending
the jobbing industry is "engaging in
a self-fulfilling prophecy, not of
doom.Jrut of chaos; to  which daily
opportunism contributes, from too
many factories on  down."
   Although repair specialists, such
                                                 F-10

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           APPENDIX G
SUMMARY OF  GASOLINE BANKED  COSTS
               G-l

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  Banked Costs  -  Gasoline    -  Source:   FEA  8/77*


       Under  current  FEA price  regulations,  the maximum

  allowable price which a  refiner  may  charge for  refined
             •

  products  is generally equal  to his May  1973 prices  plus

  increases in  his crude and purchased product costs  and

  certain allowable nonproduct  price increases.   If a

  refiner charges a price  lower than the  allowable maximum,

  he  can put  the  amount of unrecovered costs into a "bank."

—These oanked  costs  may be used  in subsequent months to

  maintain  or raise his selling price  up  to his legal maximum

 • if  the market place allows.   Certain limits have been placed

  on  the use  of the motor  gasoline banks.   Under  regulations

  adopted in  February 1976, to implement  certain  provisions

  of  the EPCA,  an individual refiner generally may not raise

  prices by more  than enough to reduce the  total  motor gasoline

  Dank in any one month by more than 10 percent of  the total

  amount of unrecouped increased  costs calculated for ell

  covered products as of January  31, 1976,  or any month

  thereafter.  The refiner may reallocate his banked  costs

  accumulated for the other covered products into the bank

  for motor gasoline.  During  July 1976,  additional  rule

  changes provided refiners greater motor gasoline  pricing

  flexibility by  permitting the equal  application rule to

 t be  applied  on a regional basis.


*Preliminary  findings and  views concerning the exemption
 of motor gasoline from the mandatory petroleum allocation
 and price  regulations - August 1977
                              G-2

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     Tne existence  of  banked  costs  for  refiners would

indicate generally  that  they  are  not  charging  as high  a

price as the regulations would permit.   Thus,  actual prices

would oe market-clearing prices where supply equals demand.

vvhen ceiling prices are  higher than the market prices, then

the elimination of  the pricing regulations which establishes

tne price ceilings  should have no effect on market prices,

since competitive forces are sufficient to keep them below

maximum lawful levels.  Of course, this does not mean

tnat no individual  sellers' price .would ever rise as

a consequence of decontrol, but only that weighted

average prices should not rise as a  result of  decontrol.

     Preliminary data indicate that  in April 1977,

the  total gasoline bank  for  the  top  30 refiners who

account for  85 percent  of domestic'gasoline sales,  was

$1,017  million.                This  figure  tends  to

understate  the extent to which market  prices  for  motor

gasoline  are below maximum allowable prices.for indivi-

dual refiners because refiners can reallocate product

 costs  increases  and  banked  costs from  other products
     i                                        :          '
 still  subject to price  control to motor  gasoline when

 computing maximum  allowable  gasoline prices.   The total
                            G-3

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                                  .
 top 30 refiners' bank for al;k; products was over  $1.5
          ^               -- ซ*.'•'%v '•. "                '          •
 Billion in April 1977.  Tp the  extent that tnese banks

 have not subsequently been used up, these costs

 represent another source for .allowable motor gasoline

                           -'V *, • ; ,': '    '
 price increases which have npt  been fully utilized

 by all refiners.                     .

                             "*.•'*
    'A potential or immediate "prpblem, however may

 exist for some of these refiners. ' A small number of

 large-refiners are currently being constrained by

 FEA's pricing regulations below levels of other


 large refiners.  Based on April data, three of the  top


 30 gasoline refiners were out of banks.  June survey

 data indicates that retail prices of the three constrained


 refiners had increased from January levels by 0.3 to


 0.5 cent per gallon less than the increases in the  prices
                            ? •

 of the unconstrained refiners.  If motor gasoline is

 decontrolled, tne three refiners can be expected to

 raise prices to the level oฃ prices for the unconstrained

 refiners.  The impact on the Average market price from


 these three refiners is estimated to be quite small

 (less than one half cent per galjon) since these three


 refiners account for less than one-fifth of the gasoline

•arket.
                           G-4

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     APPENDIX H
VAPOR RECOVERY COSTS
     PROVIDED BY
       THE EPA
         H-l

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           UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                      Office of Air'Quality Planning and Standards
                     Research Triangle Park, North Carolina 27?11
                          October  20,  1977
 Mr.  Paul  E. Mawn
 Arthur D.  Little, Inc.
 Acorn Park
 Cambridge, Massachusetts  02140

 Dear Paul:

      I  have enclosed a discussion and tables outlining  EPA's  estimates
 of costs for vapor control systems at service stations.  The  bases  for
 EPA  s estimates  are presented so one can determine what is  included in
 the  costs.   These estimates result from an analysis of  cost data
 furnished  by oil  companies, equipment vendors, and various  other  sources,
                                         Sincerely yours,
                                         Kenneth H. Llovx
                                     Economic Analysis E/anch
                              Strategies and Air Standards Division
Enclosure
                                  H-2

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  COSTS FOR ALTERNATIVE VAPOR CONTROL SYSTEMS AT SERVICE STATIONS

     Since vapor recovery systems for service stations are undergoing
continual development and refinement, it is difficult to predict exact
capital and operating costs for the systems once they are installed on
a wide-scale basis.  The costs for processing .units, which are now only
in prototype use, are uncertain and can only be estimated by vendors
based on expected production levels.  In addition, the installation costs
for the systems depend upon a variety of factors, including the number of
dispensers and islands, configuration of underground piping and types of
dispensers.  However, while the exact costs of  the systems will vary
depending upon local circumstances,  the relative costs of the systems
should remain consistent.
      Table H-l presents EPA's  estimates of installed  capital and annual
operating and maintenance  costs  for three  vapor recovery systems,  based on
the  number  of nozzles  per  station.   This analysis considers only the three
most advanced vapor control  systems—the vapor  balance system,  the aspirator
assist (hybrid)  system,  and  the  vacuum assist system with an  incinerator  as
the  processing  unit.  Furthermore,  the costs include control  of emissions
from filling underground storage -;anks (Stage I) and from vehicle  refueling
 (Stage II).                         _
      The bases  for the capital  cost estimates are presented in Table H-2.
 These estimates result from EPA's analysis of cost data furnished  by oil
 companies which have already installed the equipment in many localities,
 equipment vendors, and state agencies.  The piping costs include manifolded
                                    H-3

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  piping for the balance and vacuum assist systems and non-manifolded piping
  for the aspirator system since the latter requires separate return lines to
  each tank.  For the balance system, the nozzle cost reflects that for a no-
  seal/no-flow nozzle.  In addition, the balance system estimate includes the
  cost for a blockage sensor device.  While Federal  regulations do not require
  such a device, it is required under California regulations and may be
  mandated by other State or local  agencies.   Finally, the processing unit
  for the vacuum assist system is  estimated to cost  $4,000 with an installation
,,cost of $700.
       Table H-3 estimates the capital  costs for Stage I control  alone utilizing
  the balance  system.   These costs  will  vary depending upon how much  trenching,
  backfilling, and  paving  is required.   If  Stage I is  installed in conjunction
  with  Stage  II  piping,  the  costs allocable to Stage  I  include  essentially only
  the hardware costs  since the  trenching, backfilling  arid  paving is required
  for Stage  II in any  case.
       Finally,  the bases for the annual operating and maintenance costs  are
  presented in Table H-4.  Nozzle maintenance will vary among the  systems because
  of  the complexity of the nozzles.  The balance system will require more  nozzle
 maintenance because  of the many parts of  the no-seal/no-flow  nozzle, but this
 maintenance cost should be the only 0 & M cost associated with the system.
 The vacuum assist system, on the other hand, involves less nozzle maintenance
 but-requires maintenance of the processing unit and blowers as well as
 electrical  power to operate the system.
 . _To partially offset these costs,-the implementation of Stage I and II. .
 controls will  result in a net savings of gasoline for the service station
 owner.  Based on material  balance  calculations, 9.2 pounds of gasoline will
                                      H-4

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be recovered per 1000 gallons dispensed.   This  savings results from the
fact that Stage I and II create a closed  system which prevents working
losses from the underground tanks.  Vapors displaced to the underground
tank from the fueling of automobiles saturate the vapor space of the
tank, preventing the creation of vapors resulting from the filling and
drainage of the tanks.  This savings is directly attributable to the
service station owner since vapors created in the uncontrolled case remain
as liquid with Stage I and II controls.  On the other hand, the vapors
which are displaced from the automobile to the underground tanks are
eventually returned to the bulk terminal  by the balanced tank trucks.  These
recovered vapors, which amount to about eight pounds per 1000 gallons dis-
pensed, do not represent a direct savings for the station owner since the
bulk terminal processes the vapors.  Furthermore, no recovery-credit results
for the station owner from the installation of Stage I control alone since
recovered vapors are returned to  the bulk terminal.
                                   H-5

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                                   'TABLE H-l

                   COSTS FOR ALTERNATIVE VAPOR CONTROL  SYSTEMS
                                (Stages  I and  II)
Number
of
Nozzles
2
3
6
8
9
10
12
15
16
Balance
Capital
Cost1
$4,300
4,500
6,300
7,400
7,900
8,300
9,600
11,200
11,600
Annual
O&M2
$120
180
360
480
540
600
720
900
960
Aspirator Assist
Capital Annual
Cost1 O&M2
$5,800
6,100
8,300
9,600
10,100
10,700
12,200
14,000
14,600
$120
165
300
390
435
480
570
705
750
Vacuum
Capital
Cost1
$8,700
8,900
10,600
11,600
12,000
12,400
13,600
15,000
15,400
Assist
Annual
O&M2
$425
460
550
620
650
675
.750
840
875
 Does not include cost for testing since it is not known what type of test will
 be required.  Proposed EPA Stage II regulations require only a short test,
 which will cost about $50 per station.   A longer, more exhaustive test would
 cost around $1000 per station.
p
 'Does not include annualized capital charges,  which should  be based on a 10 year
 life and an appropriate  rate of interest.   Does not include credit for recovered
 vapors, which is 9.2 pounds per 1000 gallons  throughput.
                                         H-6

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                               TABLE  H-2

BASES FOR CAPITAL COST ESTIMATES FOR  ALTERNATIVE VAPOR CONTROL SYSTEMS
     '    • (Stages I'& II, 9 Dispensers, 3 Islands,  3 Tanks)
Piping

Installation (Trenching,
  paving, etc.)

   Subtotal

Nozzles, hoses, fittings

Dispenser Components
   ITT valve, flame arrester,
   etc.
  Aspirator  (incl. installation
   and  auxiliaries)'
   Blockage sensor

 Processing Unit (incl.
   installation)
                      Balance

                       3500


                       2000

                       5500

                       1500
     TOTAL
 Sources:
                         900
                        7900
                                                 Aspirator
                                                  Assist

                                                   4000
2000

6000

1300
                                        2800
10,100
Vacuum Assist

    3500


    2000

    5500

     750



    1050
    4700

  12,000
Data supplied to EPA by oil  companies (ARCO,  Exxon, Gulf,  Mobil,
Shell, Sunmark), equipment vendors (Red Jacket, Hasstech), and
California Air Resources Board
                                       H-7

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                               TABLE H-3

         .  .  BASES FOR CAPITAL COST  ESTIMATES FOR STAGE I
                     VAPOR RECOVERY  BALANCE SYSTEM
Hardware (drop tubes, vent valves, etc.)
$200/tank
Installation (depends on how much pavement has
              to be removed and replaced)
$900/station
Sources:  Data supplied to EPA by oil companies and equipment vendors.
                                      H-8

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                             TABLE H-4

            BASES FOR ANNUAL OPERATING AND MAINTENANCE
            COSTS FOR ALTERNATIVE VAPOR CONTROL SYSTEMS
Nozzle Maintenance

   Replacement (rebuilt nozzle)

   Faceplate/Boot Repair
                                   Balance
$30/N

$30/N
              Aspirator
               Assist
$30/N

$15/N
               Vacuum Assist
$25/N
System Maintenance
             One annual ser-
             vice call @
             $30/call
               4.5% of process-
               ing unit invest-
               ment plus 6 ser-
               vice calls & $30/
               call.
Power
                                1.4 kwh/1000 gals.
                                throughput
Source:  EPA estimate based on data supplied by no;:zle manufacturers and
         equipment vendors.
                                     H-9

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            APPENDIX I






THE IMPACT OF VAPOR RECOVERY CREDIT




                 ON




     SERVICE STATION ECONOMICS
                  1-1

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                    GASOLINE VAPOR CREDIT WITH

                      VAPOR RECOVERY SYSTEMS
EPA requested that we apply a vapor recovery system credit to the
service station profit centers which is equivalent to 9.2 Ibs. of
gasoline per 1000 gallons of gasoline throughput.  The theoreti-
cal rationale for this credit is that saturated vapors in the
underground storage tank will reduce the rate of volatility of
gasoline by this amount when the tank is being emptied.  The
credit is therefore given to the amount of extra liquid gasoline
which can be sold by the dealer which would normally be vapor-
ized under current operating practices.  However, all of the
vapors generated while offloading the tank truck and those re-
turned to"underground storage from the pump island are taken
back to the supplier's terminal by the tank truck and are not
credited to-the service station.

If it is assumed that the average gasoline API gravity is equal
to 57, then 1.47 gallons of gasoline are retained by the dealer
with vapor  recovery systems for every 1000 gallons pumped.  As shown
in Attachment I, this is equal to a net credit of return vapors
of $.0009/gallon for all of the prototype cases.

With a total annual retail gasoline volume of 84.4 billion gallons,
vapor recovery systems will result in at least 124.3 million gal-
lons remaining as -liquid for sale by the dealer at service sta-
tions (i.e., 3 MBD).  Assuming an average pump posting of $.6200/
gallon  (including tax), this credit would have a value of $77 MM
per year which equals 65% to 84% of the annual vapor recovery cash
operating costs (i.e., depending on the system).  Additional credit
for- Vc-.por recovery would also be credited to the wholesale sup-
plier for gasoline vapors returned to their terminal which are
recondensed back to liquid.
Source:  EPA Petroleum Section CPB  9/30/77 - Recovery credits
         attributable to balance systems at service stations.
                               1-2

-------
                 VAPOR RECOVERY GASOLINE  CREDIT
                          ATTACHMENT  I
TYPE
STATION
FACTOR/VOLUME
LOW
MIDDLE
HIGH
Leasee Thruput (000 GPM)
Pump Posting Inc. Tax ($/Gal)
Annual Vapor Savings (Gals)
Monthly Vapor Credit ($)
Unit Vapor Credit ($/Gal)
Direct
Major Thruput (000 GPM)
. Posting ($/Gal)
Annual Savings (Gal)
Monthly Credit ($)
Unit Credit ($/Gal)
Direct
Indep. Thruput (000 GPM)
Posting ($/Gal)
Annual Savings (Gal)
Monthly Credit '$)
Unit ($/Gal)
Open . Thruput (000 GPM)
Posting ($/Gal)
Annual Savings (Gal)
Monthly Credit ($)
Unit ($/Gal)
"C" Store Thruput (000 GPM)
Posting ($/Gal)
Annual Savings (Gal)
Monthly Credit ($)
Unit ($/Gal)
20
.6507
353
19
.000958

50
.6107
884
45
.000899

100
.5994
1768
88
.000883
10
76"5lT7
177
10
.000944
10
.5793
176
9
.000853
35
.6407
618
33
.000944

100
.6107
1768
90
.000899

150
.5823
2651
128 '
.000858
30
.F415Y
530
28
.000844
20
.5793
353
17
.000853
80
.6187
1414
73
.000911

150
.6107
2651
135
.000899

200
.5793
3535
171
.000853
50
76T8~7
883
46
.000911
35
.5793
619
30
.000853
                                1-3

-------
1-4

-------
           APPENDIX  J
   SERVICE STATION  PROTOTYPES
OPERATIONAL AND ECONOMIC PROFILES
                J-l

-------
                         PRO FORMA INCOME STATEMENT
I .    OPERATING  PROFILE
       Throughput (000 i
       Type of  Operation
       Type of  Service
       Supplier Investment
       Year of Construction
       Number  of Nozzles
                           ($000)
      Number of Employees (Incl.
        Dealer 'and Mechanic)
        e  Number of Mechanics
       Dealer  Investment  ($000)
20
Lessee
Full
145
•1967
6
3
0
10
35
Leasee
Full
165
1967
o
4
1
20
                                                                            80
                                                                        Leasee
                                                                       Split Islan;
                                                                            225
                                                                           1972
                                                                             10

                                                                            5.5
                                                                              1
                                                                             35
IT.
      NET REVENUE_
      "($/Gallon)
        Composite Pump Price (Ex. Tax)
        Composite Dealer Tank Wagon (Ex. Taxi
        Gasoline. Gross Margin
        Non-gasoline  Contribution Margin
        Total Station Gross  Margin
        Labor
          ซ  Dealer Draw"*"4"
          a  Employees
        I1 ilities and Services
        Rent
        Miscellaneous
        Total  Expenses

         Net Margin (HPIT)
         Dealer KOI (BFIT)
5257
4376
.0881
.1000
.1881
.5157
.4376
.0781
. 0820
.1601
.4937
. 4376.
.0561
.0554
. 1115
                                                  (.0205)
                                                  Negative
                                                             .0048
                                                               10%
.0065
  18%
   -H- Effective Dealer  Annual Income
           Throughput (OOP  GPM)
                  20
                  35
                  80
                                                      $000
                                                              Total Take'Home
                                                                     7
                                                                    14
                                  DrawNet Margin
                                   12          (5)
                                   12           *                 ซ
Source:  ADL'estimates, industry  contacts, misc. trade publications
                                                                                 J-2

-------
                              TABLE J-2
COMPANY INVESTMENT /LEASEE DEALER SERVICE STATION PROTOTYPE (DIRECT OUTLET)
MAJOR OIL COMPANY
' ' • PRO FORMA INCOME STATEMENT
I. OPERATING PROFILE

' Throughput (000 Gallons/Mo)
Type of Operation
Type of Service
Supplier Investment (000)
Year of Construction

Number of Nozzles
Number of Employees

Hours Open per Bay
II. NET REVENUES""" (J?/Gallonl

Composite Pump Price (Ex. Tax)
Laid- in Gasoline Costs (Ex. Tax}^

Gasoline Gross Margin
Non-Gasoline Sales Gross Margin
Total Onsite Gross Margin
III. OPERATING EXPENSES"*"

Labor

Utilities & Service?
Miscellaneous

Total Expenses
•Net Margin (BFIT)
Station"*" ROI (BFIT)

CA
D\J
Direct
Self Serve
170
1974
JL ^ 1 ™
10
2.3

12
J.A.

.4857
.4376

0481
• VT \JJ-
.0050

.0531

.0331

.0102
.0300

.0733

(.0202)
Negative

100
Direct
Self Serve
200
1974

12
3.3

16


.4857
.4376

. 0481

.0040

.0521

.0198

. 0051
.0250

.0499

.0022
1%

150
Direct
. Self Serve
200
1974

14
3.3

16


.4857
.4376
.0481

•JttflLlD

.0511

ฅ.0133

.0047
.0191

-0371

.0140
13%
 Onsite  only with the  individual station viewed as a separate profit center.
Source: ADL estimates, industry contacts, misc.  trade publications.



                                    J-3

-------
                                     TABLE  J-3
II.
       COMPANY INVESTMENT/LEASES DEALER  SERVICE STATION PROTOTYPE'(OPEN DEALER)
                              PRO FORMA INCOME STATEMENT
OPKUATIONAL PROFILE_
   Throughput (000 Gallons/Mo)
   Type of Operation
   Type of Service
   Supplier Investment ($000)
   Dealer Investment ($000)
   Number of Nozzles
   Total Employment (Ir
     Mechanics)
     •  Number of Mechanics
NET REVENUE
($/Cal)
       Composite. DTW (Ex. Tax)
       Average Gross Margin
       Non-Gasoline Gross Margin
       Total Site Gross Margin

HI. OPERATING EXPENSES
    ($/Gallon)
       Labor
         • Dealer +
         • Employees
       Utilities and Services
       Rent
       Miscellaneous
       Total 'Expenses

       Net Margin  (BFIT)
       Dealer ROI  (BFIT)

+ Effective Dealer Annual Income
      Throughput (OOP GPM)
              10
              30
              50
/Mo)


00)
)

Dealer and
s
(Ex. Tax)

Un
I






f
10
Open
Full
2
40
4
1.5
0
.5257
.4226.
.1031
.0800
.1831
' .1000
.0374
.0425
.0200
.1999
(.0168)
Negative
30
Open
Full
2
65
6
3.0
0
.5157
.4226
.0931
.0650
.1581
.0333
.0498
.0142
.0463
.1436
.0145
7%
50
Open
Split Island
3
120
8
4.0
1
.4937
.4226
.0711
.0600
.1311
.0200
.0449
.0085
.0400
.1134
.0177
9%
$000
Draw
12
12
12
Net Margin
(2)
. '5 .
11 .
Total
10
17
23
       Source:  ADL estimates, industry contacts, misc, trade publications
                                           J-4

-------
C"~=— -=i
P 'V
-
-,-,_..-, ^,, ,r, ^,,,^,,ซ,. .. -• , ; i/;J „•.• „..-.„,.,,,. .,,-j .,..,.,
- --- -—TABLE-- J'^4 	 	 -" "~ -'~'~ — -- "••--•
erv.lPW IlWESTME-rr/LEAjSKE DEALER SERVICE 'ST>Sl6N;
UNmoNLM-n/JNitf:
PR) ฃUW-!A IN
I. OPERATIC prOF'ILt:
Throughput (000 Gallons/Mo)
Type: of O-peration
'iMiiwr mi<
•XTMF. STAn>

100
Co/Co
TAX? of JV.-rv.Lco Total
Self Service
Surplier Investment A ($000)
. Year of Gonstn.ict.ion
number of W^zzles;
Nuirfoer cf iiiployees
Hours Op2.n per Day
iiป NET REVENUES' ($/coiion)
Ccnposite l-\jn^ Price (Ex. Tux)
Laid-in Gasoline CosL:> (Ex. Tax)
Gasoline Gross Margin
Non-Gasolinp Sales Gross Riryir.
Total Cftisite Gross Margin
III. OPERAT1NT, C/"•::
Self Service -. S-TI!: Sซ,::^icv- .
141 ' 14?
j.974 307-i
•14 lii
3=3 4.0
] f > i !
$.4543 ,..45-lJ
.4173 . . ,/ir/ป
n •? 7 0 0 3 ' '"•
. 0020 .OOij
$.0390 $.0380
$. 0121 $..0110
.0047 , -U035
-0160 .0148
$,0318 $.0294
$.0072 $.0085
       Station   ROI (3FIT)                Negative           9%               14%
  + Onsite  on.ly witli tlin  individual station viev-^d  ns a so[xu-atc  profit cantor.
  * This  ii^-estjrr-nt n:fhK-ts  an osL.int>.fo of current iri.lepenuent nvsuhctiJi" direct
    outlete which consist of  the fo 11 
-------
                                    TABLE  J-5
"C" Stored*' SERVICE STATIONS PROTOTYPE
PRO FORMA INCOME STATEMENT
I. OPERATIONAL PROFILE
, Throughput (000 Gallons/Mo.)
Type of Operation
Type, of Service
Supplier Investment ($000)
Year of "C" Store Conversion
Number of Nozzles
Number of Employees
II, NET REVENUE (Gasoline Only)+
($ /Gallon)
Composite Pump Posting (Ex. Tax)
"Laid-in" Gasoline Cost (Ex. Tax)
Gasoline Gross Margin
Non-Gasoline Gross Margin
Total Gasoline Gross Margin
III. OPERATING EXPENSES"1"
($/Gallon)
Labor*
Utilities and Services
Rent
Miscellaneous
Total Expenses
Net Margin (BFIT)
Gasoline ROI (BFIT)+

10
"CVStore
Self Serve
19
1976
2
0.3


-. .4543
.4173
.0370
.0000
.0370 ,


.0035
.0050
-
.0205
.0290
.0080
• 5%

20
"C" Store
Self Serve
20
1975
2
0.3


.4543
.4173
.0370
.0000
.0370


.0035
.0025
-
.0160
.0220
.0150
18%

35
"C" Store
Self Serve
22
1976
3
0.3
1

.4543
.4173
.0370
.0000
.0370


.0035
.0010
-
.0092
.0137
.0233
44%
 *Fixed  fee/gallon commission paid to store for dual  use of store clerk
  to  hond'.e gasoline payments.
ft*
  Convenience Store

  Onsite only with the individual station viewed  as  a separate profit center.

   Source:  ADL estimates,  industry contacts, misc.  trade publications.


                                        J-6

-------
            APPENDIX K
VAPOR RECOVERY CAPITAL INVESTMENT
                 BY
 RETAIL GASOLINE MARKETING SEGMENT
                    K-l

-------
                              TABLE K-l







                  VAPOR  RECOVERY  CAPITAL REQUIREMENTS




                      SEGMENT - MAJOR  OIL COMPANIES
TYPE OUTLET



i of Service Station Outlets



# of Nozzles/"Typical" Stati



ฃ of Tanks/"Typical" Station



Stage I only Investment



Stage I + Stage II Cost





     Balance System  ($000)


utlets
Station
tation
t ($000)
DIRECT

6320
12
4
10744
LESSEE

50260
8
4
40208
"C"
STORE
800
3
3
1200
TOTAL
$000



52152
Investment
Operating Expenses
60672
4550
371924
24125
3600
144
436196
28819
     Vacuum Assist  ($0'00)



     Investment



     Operating Expenses
85952



 4740
583016



 31161
7120



 368
676088



 36269
Source:  EPA,  (Appendix H), ADL Estimates
                                  K-2

-------
                             TABLE K-2

               VAPOR RECOVERY CAPITAL REQUIREMENTS
TYPE
# of
# of
* of
Stage
Stage
-



SEGMENT -
OUTLET
Service Station Outlets
Nozzles /"Typical" Station
Tanks /"Typical" Station
I only Investment ($000)
I + Stage II Cost
Balance System ($000)
Investment
Operating Expenses
Vacuum Assist ($000)
Investment
Operating Expenses
REGIONAL
DIRECT
4010
12
4
6817

38496
2887
54526
3008
REFINERS
LESSEE
9420
8
4
16014

69708
4522
109272
5840
"C"
STORE
200
3
3
300

900
36
1780
92
                                                               TOTAL
                                                               $000

                                                               13630
                                                               23251
                                                              109104

                                                                7445
                                                              165588

                                                                8940
Source: EPA, (Appendix H), ADL Estimates
                                 K-3

-------
                                 TABLE K-3
                   VAPOR RECOVERY CAPITAL REQUIREMENTS
                SISGMENT  -  SUPER JOBBER/MARKETER-WHOLESALERS
TYPE OUTLET
ป of Service  Station Outlets
•? of Nozzles/"Typical"  Station
* of Tanks /"Typical" Station
Stage I only  investment ($000)  28271
Jihago I + Stage  II  Cost

                     ($ooo)
DIRECT

L6630
15
4
58271
LESSEE

7560
8
4
12852
"C "
STORE
4510
2
2
5863
TOTAL
$000
28700


46986
ivestmont.
jorating Expenses
187919
14967
55944
3629
19393
541
263256
19137
     Investment
     Operating Expenses
249450
13969
87696
4687
39237
5863
376383
24519
    Source: EPA,  (Appendix H), ADL Estimates
                                   K-4

-------
                             TABLE K-4
VAPOR RECOVERY CAPITAL
TYPE
f of
$ of
f of
Stage
Stage
•



SEGMENT -
OUTLET
Service Station Outlets
Nozzles/"Typical" Station
Tanks /"Typical" Station
I only Investment ($000)
I + Stage II Cost
Balance System ($000)
Investment
Operating Expenses
Vacuum Assist ($000)
Investment
Operating Expenses
REQUIREMENTS

SMALL JOBBERS
DIRECT
5110
12
4
8687

49056
3679
69436
3833
LESSEE
19500
8
4
33150
*
144300
9360
226200
12090
"C"
STORE
1040
2
2
1352

4472
125
9048
442
                                                               TOTAL
                                                               $000

                                                               25650
                                                               43189
                                                              197828

                                                               13614
                                                              304744

                                                               16365
Source:  EPA, (Appendix H), ADL Estimates
                                 K-5

-------
                                TABLE K-5




                   VAPQJLRECOVERY CAPITAL REQUIREMENTS



                       SEGMENT -  OPEN DEALERS
TYPE OUTLET



Jป of Service Station Outlets



if of Nozzles



3 of Tanks



Ot.acje I only fnvestrr



iStago I + Stage II Cost






     Balance Syr.te.rn  ($000)



     Investment-



    • Operating Expenses

utlets


t ($000)
MAJOR
27890
8
4
47413
REG.
REFINER
2030
8
4
3451
SUPER
JOBBER
1100
6
4
1870
SMALL
JOBBER
22010
6
4
37417
TOTAL
53030


90151
     Vacuum Assist  ($000)



     Investment



     Operating Expenses
206386      15022      6930   138663  367001




 13387        974       396     7924   22681









323524      23548     11660   233306  592038



 17292      1259       605    13646   32802
                                   K-6

-------
                APPENDIX L
INDEPENDENT MARKETER PROTOTYPE COMPANIES




  OPERATIONAL AND  FINANCIAL PROFILES
                  L-l

-------
                                   TABLE L-l
LARGE INDEPENDENT MARKETER,
I OPERATIONAL PROFILE
/WHOLESALER PROTOTYPE

.- Annual Sales - 249 M-i Gal (17 MBD)
Distillate
Product Mix Dxrecc
">i
KM Gal/Yr
Vihse .
10
Gasoline
Direct
131
wnse.
50
Residual
Oil
Whse.
31
Total
249
   Retail Operations
a) Service Stations
Company Investment Direct Salarv/
aomoanv Operated
ง Outlets 50
Average Throuchpat
(000/GPM 100
Ccnoany " Owned "/Leasee Dealer
80
35
Open
Dealer
30
20
                                                                                   Total


                                                                                    160
      b)   if Retail Oil Heat easterners -  15,000


 ซ Terminals - I Primary Terminal With 400 M BBL of Storage





 Truck Fleet - ^ Tank Wagons (4 M each),  12 Tank Trucks (8 M each)



 Market Area - 3 or 4 States
II  FINANCIAL Sl!WARY


    Annual Sales Realization


    Gross Margin


    Net  Income  (BFIT)
                              i



    Fixed Assets


    Working Capital


    Total Investment


     Net Worth



     nnturn on  InvostrtK-nt  (DFIT)


     Ho turn on  Ecjuity  (BFIT)
106.0


 10.1


 -1.5
  7.1%


 28.4%
                                     L-2

-------
                                  TABLE L-l (Contd.)
TYPE SYSTEM
VAPOR RECOVERY IMPACT ITEM
Average Nozzles/Station 3
Average Tanks/Station 4
Stage I and Stage II Investment Required
Post Vojxjr Rtx^avery Total Investment
Vapor Recovery Operating Expenses
Post Vapor Reocjvery Net Margin - (BFIT)
Post VaptiT Recovery Return on Investment
-•
Post \\ijjor I^.-co'AJry Rctuiii on Equity
BALANCE
RAT.T^NCE
$000

1027.2
22127.0
70.2
1429.8
6.5%
27.1%
•<
VACUUM
ASSIST
$000
*
1508
22608
80.6
1419.4
6.3%
26.8%
Vapor Recovery Investment as a %
 of ToUil  Investment

Vapor Recoverjr Investment as a %
 of Net \-forth
 4.9%
19.4%
7.1%
                   28.5%
    SOURCE: , ADL  Estimate^, Industry Contact, EPA  (Appendix H)
                                         L-3

-------
                                 TABLE L-2



                                BALANCE SHEET

                        INDEPENDENT MARKETER/WHOLESALER
 Current Assets

   Cash

   Inventory

   Accounts Receivable

      Total


 Fixed Assets


 Buildings

 Loading Racks

 Tankage, Piping

 Fleets
 Service Stations
 Land

      Total

   Total Assets
 $000

 3851

 1796

 2437
33824
  Current Liabilities

  Long Tern Debt

  Sh*rซ  Holders Equity (Net Worth)

      Total Net Worth - Liabilities
         8084
Gross
$000
600
400
2750
1430
20060
500
25740
Net
$000
500
360-
2062
953
8675
500
13050
21134
             ^7716

              8134

              5284

             21134
SOURCE:  ADL Estimates
                                   L-4

-------
                              TABLE  L-3

        INDEPENDENT MARKETER PROTOTYPE  ("SUPER JOBBER")
I  OPERATIONAL PROFILE

   Annual Sales -     153 MM Gal  (10 MBD)

 # Service Stations -  85
               v        ,
   Type of Operations -  Direct Salary "Investment"/  Supplier Operated
   .                     (Total Self Service)

   Average Volume/Station - 150 M Gal/Month

   I Terminals -   None (Rack Buyer)
                          •
   Truck Fleet -   None (Uses Common Carrier Contract Haulers)

   Market Area -  2 or 3 States
II  FINANCIAL
    Ann tal Sales Realization

    Gross Margin

    Net  Income (BFIT)
                           i

    Fixed Assets

    Working Capital

    Total Investment

    Net Worth


    Return on Invcstanrnt (DFIT)

    Itaturn on Exjuity (BFXT)
$000

 69,567

  6,426

    918


 10,800

  5,015

 15,815

  5,377


  5.8%

 17.1%
                               L-5

-------
. WPOR RECOVERY IMPACT p^vi
Average Nozzles/Station 12
Average Tanks/Station >,
Stage _ I and Stage II Investment
Required
Post Vapor Recovery Total Investment
Vapor Recovery Operating JEbqxinses ,
"
Post Vapor Recovery Net Margin - (BFIT)
Post* Vapor Recovery Return on Investment
Post Vapor Recovery Retoirn on Equity
( / ' ' ""•""•* ซซ"ซ™ป
. BALANCE
$000

' 	 ! 	 __, 	
816
16631

61.2
857


5.2%
15.9%

VACUUM
ASSIST
$000


	
1156
16971

63.8
854

5.
3 ^




-- —






0%
8%
Vapor Recovery Investnent as a %
 of Total Investment (Pre Vapor Recovery)

Vapor Recovery Investment as a %
 Of Equity
5.2%
                                                               15.2%
7.3%
               21.5%
                       Estimates,  Industry  Contacts, EPA
                                                                      H)
                                       L-6

-------
                           . TABLE L-4
                               BALANCE SHEET - "SUPER JOBBER"
              Cash
              Accounts Receivable
              Inventories
              Other Current Assets

              Total Current Assets

         Net Property, Plant,  and Equipment

         Total Assets
         Long-Term -Debrt

         Stockholders'  Equity

         Total Liability and Stockholders' Equity
                                                     Net Assets
                                                        $000
 $1,700
    595
  2,380
    3AO

  5,015

 .10.800
$ 5,266

  5,172

  5,377

$15.815
SOURCE:   ADL Estimates
                                 L-7

-------
                                TABLE L-5

                     "TOPICAL" BRANDED JOBBER PROTOTYPE
 I  OPERATIONAL PROFIIE

    Annual Sales -   2580 M Gal

  9 Service Stations -  8
   Type Service Operations -
                ggppany Investment
    f OutletsT
    Average volurc/Station - 50
             (OOO/
      Company      „• .
      '  "Investment" ./Leasee Dealer
                    5
                   35
                           Open Dealer
                                 1
                               .15
    Facilities - 1 bulk plant (40 M gallons of storage). A Rack buyer at supplier's
                 primary terminal.
    7*uck Fleet •, i tank truck (8 M Gal)  1 tank wagon (4 M gallons)

    Market Area - 1 state (3 or 4 counties)
JI  FINANCIAL SUWARY

    Annual Sales Realization (EX

    Gross Margin

    Net Inoone (BFIT)
                             i

    Fixed Assets

    Working Capital

    Total Investment

    Net Worth


    Return on Xnvostownt (DFIT)

    Return on Equity (BFIT)
Tax)
 $ 000

 1134

   90

   44


  408

   74

  482

  205


 9.1%

21.5Z
                                    L-8

-------
                                   TABLE L-5 (Contd.)
VAPOR RSCO/ERY IMPACT

Average Nozzles/Station

Average Tanks/Station
ITTM

  6

  A
Stage I and Stage II  (Branded) Investment
 Rtxjuired

 Post Vapor Hซxxjvery Total Investment

 Vapor Riiavc-uy Operating E>q)cnsesi

 Post Vapor JtoccA>ery Net Kirgin -  (BFIT)
 I'ost VuptiT Kncxwory Retiim on Investment

 I\>5t Vapor Recovery ReUiim on Eiquity
V.=3[-x-.>r Kocover/ Investment as a  %
 <:ฃ Twt.il Investment  (Pro Vapor Recovery)

Vnpor I^xปvory Investsiont as a  %
 dr Equity
BALANCE
$000
                                                        526

                                                          2.5
                                                                  20.2%
             9%


            21,5%
                                                                             VACUUM
                                                                             ASSIST
                                                                             $000
                          7A


                         556

                           3.9

                          40.1
                                 7.2%

                                19.6%
                                                                                       15%


                                                                                       36%
                                  '                             '   •   .   If
         SOUFCE:  ADL Estimates,'Industry Contacts, Petroleum Marketing 'EdiaglifetiorJ
                  Ebundation, NOJC,. EPA (Appendix H).                 ••  '.,-•^4:
                                           L-9

-------
                                  TABLE L-6
                       BALANCE SHEET - BRANDED JOBBER
Current Assets

Cash

Accounts Receivable

Inventory

  Total C/A


Fixed Assets



  Service Stations

  Trucks

  Bulk Plant"

   Total

 Total Assets
       $000

         57

         12

        	5_

         74
               *

       $000

Gross        Net

.630         348

  105          50

    25          10

  760         408

             482
Current Liabilities

Long Terra Debt

Stockholders Equity (Net Worth)

    Total Liability & Stockholder
     Equity
           $000
           168

           109

           2.05
                  482
  SOUECE:  ADL Estimates, Petroleum Marketing Education Foundation _

-------
          DEALER "OWNED"/
TABLE L-7

OPERATOR PROTOTYPE  (OPEN
I  OPERATIONAL PROFILE


   Annual Sales -'  300 M Gal


 * Service Stations -  1

   Type of Operations -  Full service  (Dealer "mvestment"/Dealer Operated



   Average Volume/Station -  25 M Gal/Month

   t  Terminals  -  None.  Beys on a delivered basis


   /Truck Fleet  -  None

   Market Area  - 1 location irost likely in a rural, or older suburban area
II  FINANCIAL
    Ann lal Sales Realization


    Gross Margin


    Net Income  (BFIT)
                             I


    Fixed Assets


    Working Capital


    Total Investment


    Net Worth



    Return on Investment (DFIT)


    Return on Eijuity (liFIT).
            $000


            144.3

             39.3


              7.6 .



             80.0


             23.7


            103.7


             50.0



              7.4%


             15.2%
                                    L-ll


-------
                                    TABLE L-7 (Contd.)
III. VAPOR KiXXK.'ERY IMPACT ITEM
ป '
• Average Nozzles/Station . 6
Avexage Tanks/Station • 4
Stage I and Stage II (Branded) Investarent
ResjuireU
Post Vapor Recovery Total Investnent
Vapor Roo.vc-.ry Operating liqjcnses
Post Vajxar Recovery Net Margin - (BFIT)
.Post Vapor Rt-ouvcxy Return on Investment
Post Vapor Rucovory Reliirn on Equity
e VACUUM
*3*vXjANCE >\ C? O T e~*rn
<;nnn ASSIST
• ?000
*
6.3 - 10.6 '
110.0 114.3
.36 .55
7.24 7.05
6% 6.2%
14.5% 14.1%
Vapor Hixxvery Investitent  as  a %
 of -total Investment  (Pre  Vapor Recovery)

Vapor RecTjvery investment  as  a %
 of tijuity
 6.1%


12.6%
10.2%


21.2%
        SOUBCE:  ADL Estimates, Industry Contacts
                                         '  L-12

-------
I.
II.
                                       TABLE L-8
                        OPEN DEALER SERVICE STATION  PROTOTYPE
                              PRO  FORMA  INCOME  STATEMENT
OPERATIONAL PROFILE
   Throughput (000 Gallons/Mo)
   Type of Operation
   Type of Service
"  Supplier Investment ($000)
   Dealer Investaent ($000)
   Nuaber of Mobiles
                                     ___25	
                                     Open Dealer
                                      0 full
                                      2
                                      104
       Total Employaent (Inc. Dealer and
         Mechanics)
         9  Number of Mechanics
        REVENUE
       Composite Pump Posting (Ex. Tax)
       Cosaposite DTW (Ex. Tax)
       Average Gross Margin
       Hon-Gasoline Gross Margin
       Total Site Gross Margin
                                         2.5
                                         0
                                       .4810
                                       .4210
                                       .0610
                                       .0700
                                       .1310
HI. OPERATING EXPENSES
    ($/Gallon)
       Labor
                          •V
         • Dealer
         • Employees
       Utilities and  Services
       Rent
       Hi s c e ]L 1 aneous
       Total. Expenses

       Net Margin  (BFIT)
       Dealer R01  (BFIT)
                                       .0400
                                       .0320
                                       .0200
                                       ,0135
                                       .1055

                                       ,0255
                                         7.4%
        SOUBCE:  ADL Estimates; Industry Contacts, Misc. trade publications
                                          L-13

-------
                          TABLE L-9
                    BALANCE SHEET - OPEN DEALER
Current  Assets

     Cash
    . Inventories
     Accounts Receivable
     Other

     Total Current Assets

Fixed Assets
     Land
     Equipment
     Improvements
                       $65,000
                       10,000
                       65,000
                                  $140,000
                                    60,000
     Total  Assets
     Less Depreciation

     Total  Fixed Assets

Total Assets

Curr.ent  Liabilities

     Accounts Payable
     Other

     Total  Current Liabilities

Long-Term Debt

Stockholders * Equity

Total Liabilities and Stockholders Equity
                                                    Net Assets


                                                    $ 9,500
                                                      10,700
                                                      -2,500
                                                      1.000

                                                    $ 23,700
                                                      80,000
                                                    $103,700
                                                    $  6,000
                                                       2,500

                                                    $  8,500

                                                      45,200

                                                      50,000


                                                    $103,700
 SOURCE:  ADL Estimates
                               L-14

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    APPENDIX  M
CORPORATE PROTOTYPE
 FINANCIAL RATIOS
         M-l

-------
  Current Assets
  Net- Fixed Assets
  Total  Assets

  Current  Liabilities
  Long Term  Debt
 Total  Debt
 Equity
 Total Liabilities
                                        TABLE M-l
                               TYPICAL  LARGE  INDEPENDENT
                                  MARKETER/WHOLESALER
  PRESENT ($000)
 $ 8,084
,13.050
$21,134

$ 7,716
  8.134    .
                                                                               POST  VAPOR
                                                           VAPOR RFCOVERY
                                                             ADJUSTMENTS/ tnnn)  PRO  FORMA
$15,850
  5.284
$21,134
    1,027
(+) 1,027
(+) 1,027
J14.077
 $22,161

 $ 7,716
  9,161
$16,877
  5,284
                                                                               $22.161
RATIOS.
Total Debt/Equity'
Net Fixed/Equity
Term Debt/Net Fixed
Current Ratio
  2.99
  2.46
   .62
  1.05
                    3.19
                    2.66
                     .65
                    1.05
          Annual Sales Realization
          Net profit pre-tax
$106,100
   1,500
          Adjustments - Post Vapor Recovery
          - 1st year interest at 10%
            on additional debt of
            $1,027,000
          - Added vapor recovery operating expenses


         Net Margin  (BFIT)  %    Total Sales      1.41
                         (-)  102
                         (ป)   70
                             1328
                             1.25
            installation cost of $7,900 per station x 130 stations.

     SOURCE:  ADL Estdjnates,  Industry Contacts
                                         M-2

-------
Current Assets
Net Fixed Assets
Total Assets
                                       TABLE  M-2
                                TYPICAL "SUPER" JOBBER
 PRESENT ($000)
$ 5,015
 10.800
$15,815
                                                        VAPOR RECOVERY
                                                        ADJUSTMENTS ($000)
(+)  $816
            (1)
                         ง000
                       POST VAPOR
                       RECOVERY
                       PRO-FORMA
 IJJJLLi
 $16,631
Current Liabilities
Long Term Debt
Total Debt
Equity
Total Liabilities
$ 5,266
  .5,172
$10,438
  5,377
$15,815
(+)  $816
(+)  $816
            (1)
$  5,266
   5,988
$ 11,254
   5,377
$ 16,631
RATIOS;
Total Debt/Equity
Net Fixed/Equity
Term Debt/Net Fixed
Current Ratio
   1.94
   2.01
    .48
    .95
                          2.09
                          2.09
                           .52
                           .95
          Jtaiual Sales Realization           $69,967
          Net profit pre-tax                     918
          Mjustrcents - Post Vapor Recovery
          - 1st year interest @ 10% on
            additional debt of $816,000
          - Added vapor recovery operating
            expenses
          Adjusted pre-tax profit
          Profit  (BFIT) %  Total Sales -  1.31%
                                     (-)  81.6
                                     (-)  61.2
                                        US.2
                                          1.10%
      (1)
        Vapor installation cost of $9,600 per station x 85 stations.
      SOURCE:  ADL Estimates, Industry Contacts
                                            M-3

-------
 Current Assets
 Net Fixed Assets
 Total Assets

 Current Liabilities
 Long Term Debt
 Total  Debt '
 Equity
 Total  Liabilities

 RATIOS;
 Total  Debt/Equity
Net "Fixed/Equity
Term Debt/Net Fixed
Current Ratio
                               TABLE M-3
                         TYPICAL BRANDED JOBBER

                                  ฃRESENT($000)
                                  $  74
                                  _408.      '
                                  $482

                                  $168
                                  • 109	
                                  $277
                                   205
                                                                $000
                                                                VAPOR
                                                              RECOVERY
                                                             ADJUSTMENTS
(+) 44
(1)
(+) 44
(+.) 44
                                  $482
                                 1.35
                                 1.99
                                  .27'-
                                 2.87
                  $000
                 POST VAPOR
                  RECOVERY
                  PRO FORMA
       $452_
       $526

       $168
       153
       $321
       205
       $526
                1.56
                2.20
                 .34
                2.87
     (1)
   Annual Sales Realization          $1,134
   Net profit pre-tax                    44

   Adjustments - Post Vapor Recovery
   - 1st year interest @ 10% on
     additional debt of $44,000
   - Added vapor recovery operating
     expenses
  Adjusted pre-tax profit - No pass through of
    vapor recovery costs
  Adjusted net profit (BPIT)  %    Total Sales  3.88%

Vapor installation cost of $6,300  per station x 8 stations.
                                                                  (-)   4.4

                                                                       2.5

                                                                     37.1
                                                                       3.27%
    SOURCE:  ADL Estimates, Industry Contacts

                                        M-4

-------
Current Assets
Net Fixed Assets
Total Assets

Current Liabilities
Long-Term Debt
Total Debt
Equity
Total Liabilities
                                    TABLE M-4
                          TYPICAL  DEALER OWNER/OPERATOR
                                         PRESENT
                                         $  23,700
                                           80/000
                                         $103,700
                                         $   8,500
                                          45., 200
                                         j 53,700
                                          50,000
                                         $103,700
                                                 VAPOR  RECOVERY
                                                    ADJUSTMENTS
                                                    (+)  6,300
                                                    (+)  6,300
                                                    (+)  6,300
POST VAPOR
RECOVERY
PRO FORMA
$ 86.300
 110,000
$  8,500
  51;500
$ 60,000
                                                                      110,000
RATIOS:
Total Debt/Equity
Net Fixed/Equity
Term Debt/Net Fixed
Current Ratio:
                                  1.07
                                  1,6
                                   .57
                                  2.78
  1.20
  1.7
   .60
  2.78
      (1)
   Annual Volume           $144,300
   Net profit pre-tax         7,600
   Adjustments - Post Vapor Recovery
   1st year interest @ 10%
   on additional debt of
   - Added vapor recovery
     operating expenses
   Adjusted pre-tax - no pass  through of
     vapor recovery costs
   Adjusted net profit (BFIT)  % Total Sales   5.3%

Vapor installation cost of  $6,300 per station.
                                                                 630

                                                                 360

                                                                6610
                                                                  4.6%
     SOURCE:  ADL Estimates,  Industry Contacts
                                         M-5

-------

-------
                      APPENDIX N
           PRO FORMA ANALYSIS  OF  CASH FLOW
AVAILABLE TO SERVICE ANNUAL  DEBT  AFTER VAPOR RECOVERY
                         N-l

-------
                          TABLE N-l
                     CASH FLOW WORKSHEET
B.  "Super"Jobber
   Present  term debt,
   New term debt,
      Total Debt
$5,172,000 ^ 10
   816,000 -  5
   Pre-tax Profit
   Adjustment for new debt of
   $816,000 ง 10%
   Less vapor recovery operating expenses
   Adjusted net  profit (BFIT)
   Tax @ 50%
   Adjusted Net  Profit (AFT)

   Present  Depreciation    $720,000
   New Equipment @ 7 yrs.   116,500
   Total Depreciation
  Estimated_Cash Flow
    Ratio of debt/cash flow
   $/yfear
 517,200
 163,200
 680,400

 918,000

 81,600  '
 61,200
775,200
387,600
387,600
                         836,500
                       1224.1
                                                           56%
 Source:  ADL Estimates
                          N-2

-------
                           TABLE  N-2
                     CASH  FLOW WORKSHEET
A.  Large Independent
    Present term debt,  $8.134
    New term debt,       1.027
       Total Debt
                           f 10*
                           i.  c
  $/year
 $813,400
  205,400
1,018,800
    Pre-tax Profit
    Adjustment for new debt of
    $1,027,000 @  10%
                                        1,500,000
                                          102,700
                                               70,200
Less vapor recovery operating expenses
Adjusted net profit (BFIT)              1,327,100
Tax @ 50%                                 663,550
Adjusted Net Profit (AFT)                 663,550
    Present Depreciation
    New Equipment @ 7 yrs.
    Total Depreciation
    Estimated Cash Flow
                         $866,600
                          147,000
1,013,600
                                        1,677,150
      Ratio of debt/cash .flow
                                                     61%
    *Estimate of debt on balance sheet
    Source:  ADL Estimates
                               N-3

-------
                          TABLE N-3
                     CASH FLOW WORKSHEET
C.  Branded Jobber

   Present term debt,  $109,000

   New term debt,

     Total Debt
         10

44,000 4  5
      ซ
   Pre-tax Profit

   Adjustment for new debt of

   $44,000  @  10%


   Less vapor recovery operating expenses

   Adjusted net profit (BFIT)

   Tax @ 50%

   Adjusted Net Profit (AFT)
  Present Depreciation

  New Equipment  @  7 yrs.

  Total Depreciation

  Estimated Cash Flow

    Ratio of debt/cash flow
         $27,200

           6,280
 $/y(par

 10,900

  8,800

 19,700


 44,000



 4,400'

 2,500

37,100

18,550

18,550
                          33,500

                          52,050
                                                             38%
  Source:   ADL Estimates
                           N-4

-------
                       TABLE N-4
D. Dealer Owned/ Operated
Present term debt, $45,200 4- 10 =
New term debt, 6,300 T 5 =
Total Debjfc
Pre-tax Profit
$/year
4,500
1,260
5,760
7,600
Adjustment  for new debt of
$6,300 @ 10%
Less  vapor  recovery operating expenses
Adjusted net profit  (BFIT)
Tax @ 50%
Adjusted Net Profit  (APT)
Present Depreciation
New Equipment @ 7 yrs.
Total Depreciation
Estimated Cash Flow
  Ratio of debt/cash flow
$5,300
   900
                        630
                        360
                      6,610
                      1,653
                      4,957
                      6,200
                     11,157
                                52%
Source:  ADL Estimates
                         N-5

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-------
       APPENDIX 0
ECONOMIC IMPACT WORKSHEETS
           O-l

-------
                                TABLE  O-l
                COMPANY INVESTMENT/LESSEE DEALER OPERATION
                             ,   .<$).
                                         Low
                                        Volume
            Medium
            Volume
             High
            Volume
 Vapor Recovery Investment^
  — Vapor Balance
  —— Vacuum Assist

 Vapor Recovery O&M Costs
  — Vapor Balance
  — Vacuum Assist
 6,300
10,600
   360
   550
 7,900
11,600
   480
   620
 8,300
12,400
   600
   675
 Annualized Investment Charge;  20.7% of Initial Investment  Costs
  — Vapor Balance                       1,304        1,635        1,718
  — Vacuum Assist                       2,194        2,401        2,567
 Total Annual Vapor Recovery Costs
 — Vapor Balance
 — 'Vacuum Assist

 Recovery  Credit
 — Vapor Balance
 1,664
 2,744
  230
 2,115
 3,021
                                                      396
 2,318.
 3,242
              875
Net Annual Vapor Recovery Cost
 — Vapor Balance
 -- Vacuum Assist
1,434
2,514.
Net Vapor Recovery Cost in Cents Per Gallon
 — Vapor Balance                       .0060
 —'Vacuum Assist                       .0105
1,719
2,625
            .0041
            .0063
1,443
2,367
            .0015
            .0025
 SOUECE:  ADL Estimates, EPA  (Appendices H & I)
                                  O-2

-------
                           TABLE O-l  (Contd.)
                                         Low
                                        Volume
            Medium
            Volume
             High
            Volume
PRE-VAPOR RECOVERY ECONOMICS
Nef Margin (BFIT)
Multiply by Annual Gallpnage
Total       :/ Contribution (BFIT)
Dealer Investment
Required Capital  Recovery
Surplus (Deficit) of Total
Contribution Over Required
Contribution
(.0205)
240,000
 (4,920)
$10,000
  1,080

 (6,000)
 .0048
420^000
  2,016
$20,000
  2,160

   (144)
 .0065
960,000
  6,240
$35,000
  3,780

  2,460
COSTS OF VAPOR RECOVERY
 — Vapor Balance
 — Vacuum Assist
  1,434
 -2,514
  1,719
  2,625
  1,443
  2,367
PASSED ON COSTS*
 — Vapor Balance
 — Vacuum Assist
    792
  1,320
  1,386
  2,310
    768
  1,152
NET CHANGE IN CONTRIBUTION
 — Vapor Balance
 — Vacuum Assist
   (ซ42)
 (1,194)
    (333)
   (315)
   (675)
 ( 1,215)
* At $0.0033/0.0055 per gallon for Vapor Balance/Vacuum Assisted in Low
  and Medium Volume operations  which are in Low Volume Sector of the
  market; and $.0008/.0012 for the High Volume operation which is in the
  High Volume Sector.
  SOUBCE:  ADL Estimates, EPA (Appendices H and I)..
                                 O-3

-------
                                 TABLE  0-2
                  DIRECT/MAJOR TOTAL SELF  SERVICE  OPERATION
                  (dollars)
                                          Low
                                         Volume
            Medium
            Volume
             High
            Volume
 Vapor Recovery  Investment
  — Vapor Balance
  — Vacuum Assist

 Vapor Recovery  O&M Costs
  — Vapor Balance
  — Vacuum Assist
 8,300
12,400
   600
   675
 9,600
13,600
   720
   750
10,800
14,600
   840
   810
 Annualized Investment Charge: 20.7% of Initial Investment Costs
  — Vapor Balance                        1,718       1,987       2,236
  — Vacuum Assist                        2,567       2,815       3,022
 Total Annual Vapor Recovery Costs
  ~ Vapor Balance
  -- Vacuum Assist

 Recovery Credit
  — Vapor Balance

 Net Annual Vapor Recovery Cost
 2,318
 3,242
  540
 2,707
 3,565
1,080
 3,076
 3,832
1,620
— Vapor Balance
— Vacuum Assist
Net Vapor Recovery Cost
— Vapor Balance
— — Vacuum Assist
1,778
2,702
in Cents Per Gallon
.0030
.0045
1,627
2,485

.0014
.0021
1,456
2,212

.0008
.0012
SOUECE:  ADL Estimates/ EPA  (Appendices H & I).
                                   0-4

-------
                          TABLE  0-2  (Contd.)
                                        Low
                                       Volume
             Medium
             Volume
            High
            Volume
PRE-VAPOR RECOVERY ECONOMICS
Net Margin (BFIT)
Multiply by Annual Gallonage
Total ,:-.ซ  .  > Contribution (BFIT)
Supplier Investment
Required Capital Jtecoyery
Surplus (Deficit) of Total
Contribution Over Required
Contribution
 (.0202)      .0022       .0140
 600.000   1,200.000   1,800.000
 (12,120)      2,640      25,200
$170,000    $200,000    $200,000
  23,800      28,000      28,000
 (35,920)
(25,360)     ( 2,800)
COSTS OF VAPOR RECOVERY
 — Vapor Balance
 — Vacuum Assist
   1,778
   2,702
  1,627
  2,485
1,456
2,212
PASSED ON COSTS*
 -- Vapor Balance
 — Vacuum Assist
     480
     720
    960
  1,440
1,456
2,212
NET CHANGE IN CONTRIBUTION
 — Vapor Balance
 — Vacuum Assist
   (1,298)
   U,982)
  .(667)
 (1,045)
    0
    0
 * At  $.0008/.0012 per gallon for Vapor Balance/Vacuum Assisted.
   SOUBCE:  ADL Estimates, EPA  (Appendices H & I) .
                                 O-5

-------
                                TABLE 0-3
                          OPEN DEALER OPERATION
                          (dollars)
                                          Low
                                         Volume
  Vapor Recovery Investment
   — Vapor Balance
   ~ Vacuum Assist

  Vapor Recovery O&M Costs
   — Vapor Balance
   — Vacuum Assist
 5,200
 9,500
  240
  490
            Medium
            Volume
 6,300
10,600
   360
   550
             High
            Volume
 7,400
11,600
   480
   620
 Annualized Investment Charge; 27.7% of Initial Investment Costs (During First Five Yrs
  — Vapor Balance                       1,440       1>745       2.Q50
  — Vacuum Assist                       2,632       2,236       3,213
 .Total Annual Vapor Recovery Costs*
  — Vapor Balance
  -- Vacuum Assist

 Recovery Credit
  — Vapor Balance

 _Net Annual Vapor Recovery Cost
1,680
3,122
  120
2,105
3,486
  336
2,530
3,833
                          552
— vapor Balance
— Vacuum Assist
Net Vapor Recovery Cost
— Vapor Balance
— Vacuum Assist
1,560
3,002
in Cents Per Gallon
.0130
.0250
1,769
3,150

.0049
.0088
1,978
3,281

.0033
.0055
*During first 5 years only.
     SOUKCE:  ADL Estimates, EPA  (Appendices H & I).
                                  0-6

-------
                          TABLE O-3  (Contd.)
                                       Low
                                      Volume
           Medium
           Volume
            High
           Volume
PRE-VAPOR RECOVERY  ECONOMICS
Net Margin  (BFIT)
Multiply by Annual  Gallonage
Total          Contribution  (BFIT)
Dealer Investment
Required Capital Contribution
Surplus (Deficit) of  Total
Contribution  Over Required
Contribution
.0168
120,000
(2,016)
$40,000
5,080
.0145
360,000
5,220
$65,000
8,255
.0177
600.000
10,620
$120,000
15,240
            (3,035)
            (4,620)
COSTS OF VAPOR -RECOVERY*
 — Vapor Balance
 — Vacuum Assist
1,560(120)   1,769(24)    l,978(+72)
3,002(370)   3,150(214)   3,281(68)
PASSED  ON COSTS**
 — Vapor Balance
 — Vacuum Assist
   396
   660
1,188
1,980
1,978
3,281
NET  CHANGE IN CONTRIBUTION
 —  Vapor Balance
 —  Vacuum Assist
d,164)
(2,342)
 (583)
(1,170)
    0
    0
* Second  5 years  in parentheses
•**f..t  $.00337.0055 per  gallon for  Vapor  Balance/Vacuum Assisted,  for the
  first filse  years of  operation only
    SOURCE:  ADL Estimates, EPA (Appendices H & I)
                                0-7

-------
                                  TABLE O-4
                  DIRECT/INDEPENDENT SELF SERVICE OPERATION
                  (dollars)   ~        ~   ~~	•
  Vapor Recovery Investment
   	Vapor Balance
   — Vacuum Assist

  Vapor Recovery O&M Costs
   — Vapor Balance
   — Vacuum Assist
                                          Low
                                         Volume
                                         9,600
                                        13,600
                                           720
                                           750
                                                    Medium
                                                    Volume
10,800
14,600
   840
   840
formalized Investment Charge; 27.7% of Initial Investment
 — Vapor Balance                       2,659       2,992
 — Vacuum Assist                       3,767       4,044
Total Annual Vapor Recovery Costs*
 — Vapor Balance
 — Vacuum Assist

Recovery Credit
 — Vapor Balance

Net. Annual Vapor Recovery Cost
 — Vapor Balance
 — Vacuum Assist
                                         3,379
                                         4,517
                                         1,056
                                         2,323
                                         3,461
Net Vapor Recovery Cost in Cents Per Gallon
 — Vapor Balance                       .0019
 —• Vacuum Assist                       .0029

* First 5 years only.
                                                    3,832
                                                    4,884
                                                    1,536
                                                   2,296
                                                   3,348
                                                   .0013
                                                   .0019
             High
            Volume
                                                                11,600
                                                                15,400
                                                                   960
                                                                   875
                                                                 3,213
                                                                 4,'266
            4,173
            5,141
                                                                 2,052
            2,121
            3,089
            .0009
            .0013
        SOURCE:  ADL Estijtiates, EPA (Appendices H &  I) .
                                0-8

-------
                         TABLE 0-4 (Contd.)
                                       Low        Medium       High
                                      Volume      Volume      Volume
PRE-VAPOR RECOVERY ECONOMICS
Neb Margin (BFIT)
Multiply by Annual Gallonage
Total         Contribution (BFIT)
Supplier Investment
Required Capital Contribution
Surplus (Deficit) of Total
Contribution Over Required
Contribution
  .(.0033)      .0072       .0086
1,200,000  1,800,000   2.400,000
   (3,960)    12,960      20,640
  136,000    141,000     147,000
   19,040     19,740      20,580

  (23,000)    (6,780)         60
COSTS OF VAPOR -RECOVERY
 — Vapor Balance
 -- Vacuum Assist
    2,323
    3,461
2,296
3,348
2,121
3,089
PASSED ON COSTS*
 — Vapor Balance
 — Vacuum Assist
      .960
    1,440
1,440
2,160
1,920
2,880
NET CHANGE IN CONTRIBUTION
 — Vapor Balance
 — Vacuum Assist
    (1,363)
    (2,021)
  (856)
(1,188)
 (201)
 (209)
* At $.0008/.0012 per gallon for Vapor Balance/Vacuum Assisted
   SOURCE:  ADL Estimates,  EPA (Appendices H & I) .

                                0-9

-------
                                TABLE  0-5
                  CONVENIENCE STORE,  SELF SERVICE  STATION
                  (dollars)        ~~~~
                                         Low
                                       Volume
            Medium
            Volume
             High
            Volume
 Vapor Recovery Investment
  — Vapor Balance
  — Vacuum Assist
4,300
8,700
4,300
8,700
4,500
8,900
Vapor  Recovery  O&M Costs
 —- Vapor Balance
 — Vacuum Assist
  120
  425
  120
  425
  180
  460
Annualized  Investment  Charge; 20.7% of Initial Investment Costs
 — Vapor Balance                         890         890         932
 — Vacuum  Assist                    .   1,801       1,801       1,842
Total Annual Vapor Recovery Costs
 — Vapor Balance
 — Vacuum Assist
1,010
2,226
1,010
2,226
1,112.
2,302
Recovery Credit
 — Vapor Balance
  108
  204
  360
Net '.Annual Vapor Recovery Cost
 — Vapor Balance
 ~ Vacuum Assist
  902
2,118
  806
2,022
  752
1,942
Net Vapor Recovery Cost in Cents Per Gallon
 — Vapor Balance                       .0075
 — Vacuum Assist                       .0177
            .0034
            .0084
            .0018
            .0046
     SOURCE:  ADL Estimates, EPA (Appendices H & I) .
                                 O-10

-------
                          TABLE O-5  (Contd.)
                                        Low
                                       Volume
            Medium
            Volume
             High
            Volume
PRE-VAPOR RECOVERY ECONOMICS
Net Margin (BFIT)                       .0080       .0150        .0233
Multiply by Annual Gallonage          120,000     240,000     420,000
Total        . Contribution (BFIT)         960       3S600        9,786
Supplier Investment                   $10,000     $20,000     $22,000
Required Capital Contribution           3,002       3,160        3,476
Surplus (Deficit) of Total
Contribution Over Required
Contribution                           (2,042)        440        6,310
COSTS OF VAPOR RECOVERY
 -- Vapor Balance
 — Vacuum Assist
   902
 2,118
   806
 2,022
   752
 1,942
PASSED ON COSTS*
 -- Vapor Balance
 — Vacuum Assist
   . 96
   144
   192
   288
   336
   504
NET CHANGE IN CONTRIBUTION
 — Vapor Balance
 — Vacuum Assist
   (80e))
f.1,974)
  (614)
(1,734)
  T416)
(1,438)
* At $.0008/.0012 per gallon for Vapor Balance/Vacuum Assisted
SOUKIE:  ADL Estimates, EPA (Appendices H & I)
                                0-11

-------

-------
                APPENDIX P
      VAPOR RECOVERY INVESTMENT FOR
ESTIMATED  1981 SERVICE STATION POPULATION
                   P-l

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-------
          APPENDIX Q
STAGE I VAPOR RECOVERY WORKSHEETS
               Q-l

-------
                                  TABLE Q-l
                 STAGE I CAPITAL CONSTRAINTS  CLOSURE  ESTIMATES
 I    LEASEE DEALERS
    Marketer
    Jobbers
Estimated Volume
Breakeven Cut-off
 (1000 Gal/Mth)
      27.5
Number of Oultets
 Below Breakeven
      9007
II  OPEN DEALERS
    Supplier
    Major
    Regional Refiner
    Independent Mktr/Whols.
    Jobber
    TOTAL
Breakeven Cut-off
 (1000 Gal/Mth)
      15.4
      15.4
      15.4
      15.4
   # of Outlets
       366
        16
        16
       852
                                                                   1250
III DIRECT-INDEPENDENTS

    Supplier
    Jobbers
    Independent Mktrs.
    TOTAL
 Volume Cut-off
 (1000 Gal/Mth)
      50
      50
  # of Outlets
     2776
     2497
                                                                  5173
                                     Q-2

-------
                                TABLE  Q-2
                       TYPE STATION - OPEN DEALER
Throughput Level
Monthly Volume (000 gal)
Average # Tanks/Station
Stage I Investment
Stage I O&M Expense -
Annualized Investment
 (27.7% of Investment)
Total Stage I Annual Costs
Recovery Credit
Net Stage I Costs
iGE I FINANCIAL
Low
) 10
i 3
1 ,500
416
ists 416
IMPACT ($/YEAI
Medi urn
30
3
1,500
416
416
416
416
 High
   50
    4
1,700


  471
  471

  471

Unit. Stage I Costs 0.0035
Competitive Cost Pass Through 0.0007
Net Stage I Absorbed Costs 0.0028
Net Margin (BFIT) Before Stg. 1(0. 0168)
Net Margin (BFIT) After Stg. I (0.0196)
$/Gallon
0.0012
0.0007
0.0005
0.0145
0.0100

0.0008
0.0007
0.0000
0.0177
0.0177
     Breakeven Volume Before Stage I
     Breakeven Volume After Stage I
     Estimated # Marginal Outlets Created
      by Stage I
     Estimated # of Added
      Closures Due to Stage I
          OOP Gal/Mth  # Outlets
            15.4
            18.4

                          781

                          312
                                  Q-3

-------
                                  TABLE 3
                TYPE STATION - DIRECT SALARY (INDEPENDENT}
                     STAGE I FINANCIAL IMPACT ($/YEARl
 Throughput Level                  LOW
 Monthly Volume (000 gal)           100
 Average # Tanks/Station             4
 Stage I Investment              1,700
 Stage I O&M Expense
 Annualized Investment
  (27.7% of Investment)             471
 Total  Stage I  Annual Costs         471
 Recovery Credit
 Net Stage I  Costs                  471
   Medi urn
     150
       5
   1,900
     526
     526

     526
  High
   200
     5
 1 ,900


   526
   526

   526
Unit Stage I Costs              0.0004
Competitive Cost Pass Through   0.0002
Net Stage I Absorbed Costs      0.0002
Net Margin (BFIT) Before Stg. 1(0.0033)
Net Margin (BFIT) After Stg. I (0.0035)
                                             $/Gallon
  0.0003
  0.0002
  0.0001
  0.0072
  0.0071
0.0002
0.0002
0.0000
0.0086
0.0086
     Breakeven Volume Before Stage  I
     Breakeven Volume After Stage  I
     Estimated # Marginal  Outlets  Created
      by Stage I
     Estimated # of Added
      Closures Due  to Stage I
OOP 6al/Mth  # Outlets
  108.3
  110.0
                  5

                  2
                                  Q-4

-------
                                TABLE Q-4
                  TYPE STATION - DIRECT SALARY (MAJOR)
                    STAGE I FINANCIAL IMPACT ($/YEAR)
Throughput Level
Monthly Volume (000 gal)
Average # Tanks/Station
Stage I Investment
Stage I O&M Expense
Annualized Investment
 (27,7% of Investment)
Total Stage I Annual Costs
Recovery Credit
Net Stage I Costs
Low
Medium
High
50
4
1,700
100
4
1,700
150
5
1,900
352
352

352
  352
  352

  352
     Estimated # Marginal Units Created
      by Stage I
     Estimated # of Added
      Closures Due to Stage I
 393
 393

 393

Unit Stage I Costs
Competitive Pass Through
Net Stage I Absorbed Costs
Net Margin (BFIT) Before Stg.
Net Margin (BFIT) After Stg.

Breakeven Volume Before
Breakeven Volume after S

0.0006
0.0002
0.0004
1(0.0205)
I (0.0209)

Stage I
tage I
$/6allon
0.0003
0.0002
0.0001
0.0048
0.0047
000 Gal/Mth
91.7
92.0

0.0002
0.0002
0.0000
0.0065
0.0065
# Outlets


                            80
                                  Q-5

-------
                                                       APPEHMX- Q
                                 TABLE Q-5
                       ,  TYPE STATION - "C" STORE
                     STAGE I FINANCIAL IMPACT ($ YEAR)
Monthly Volume  (000  Gal.)
Average No. of  Tank
Stage  I Investment
Stage  I O&M Expense
Annualized Investment
(20.7% of Investment)
Total  Stage I Annual Costs
Recovery Credit
Net Stage I Costs
Unit Stage I Costs
Net Stage I Absorbed Costs

Gal.)
/Station

t
)
Costs



3- Thro ugh
Costs
Fore Stage I
ter State I

Volume Before Stage
Volume After Stage
Low
10
2
1,300
269
269
269

.0022
.0002
.0020
.0080
.0060
000
I
I
Medium
20
2
1,300
269
269
269
^/fiallnn .
s>/ ud I I UN
.0011
.0002
.0009
.0150
.0141
Gal/Mth. #
5.8
7.5
High
35
3
1 ,500
3T1
311
311

.0007
.0002
.0005
.0233
.0228
Outlets
•ป
_
          Estimated No.  Marginal  Units
             Created by  Stage I
          Estimated No.  Added Closures
             Due  to Stage  I
60

 0

-------
                                                       APPENDIX Q
                               TABLE Q-6
                      TYPE STATION - LESSEE DEALER
                    STAGE I FINANCIAL IMPACT ($/YEAR)
                                         Low
         Medium
            MM.
Monthly Volume (000 Gal.)
Average No. of Tanks/Station
Stage I Investment
Stage I O&M Expense
Annualized Investment
(20.7% of Investment)
Total Stage I Annual Costs
Recovery Credit
Net Stage I Costs
20
3
1 ,500
35
4
1 ,700
80
4
1 ,700
311
311

311
311
311

311
352
352

352
Unit Stage I Costs

Competitive Cost Pass-Through
Net Stage I Absorbed Costs
Net Margin (BFIT) Before Stage  I
Net Margin (BFIT) After Stage I

.0013
.0007
.0006
(.0205)
( .021 1 )
• 4>/ uai i un ~
. 0007,
.0007
.0000
.0048
.0048

.0004
, .0002
.0002
.0065
.0065
          Break-Even Volume Before Stage  I
          Break-Even Volume After Stage  I
          Estimated No. Marginal Units
            Created by Stage  I
          Estimated No. Added Closures
            Due to Stage  I
 OOP Gal/Mth.  # Stations
     27.5
     27.8

                  312

                  206
                                  Q-7

-------
                                                       APPENDIX Q
                                TABLE Q-7
                       TYPE STATION - OPEN DEALER
                      STAGE COAXIAL SYSTEM ($ YEAR)
Monthly Volume (000 Gal.)
Average No. of Tanks/Station
Stage I Investment
Annualized Investment
(27.7% of Investment)
Unit Stage I Costs

                    V
Competitive Cost Pass-Through
Net Stage Absorbed Costs
Net Margin (BFIT) Before Stage I
Net Margin (BFIT) After Stage I
Low
10
3
450
125


.0010
.0002
.0007
(.0108)
.0175
Medium
30
3
450
125
"fe XT-il 1 nn
•p 1 bd IIUM
.0003
.0002
.0001
.0145
.0146
High
50
4
450
125


.0002
.0002
.0000
.0177
.0177
          Break-Even Volume Before Stage I
          Break-Even Volume After Stage I
          Estimated No.  Added Closures
            Due to Stage I
OOP Gal/Mth.    # Outlets
     15.4
     16.5

                   287
                                  Q-8

-------
Q-9

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                                   TECHNICAL REPORT DATA
                            (Please read Instructions on the reverse before completing)
 1. REPORT NO.

        EPA-450/3-78-029
                                                           3. RECIPIENT'S ACCESSIOI*NO.
 4. TITLE AND SUBTITLE
  The Economic  Impact of Vapor Recovery Regulations
  on the Service  Station Industry
                                 5. REPORT DATE

                                   July 1978
                                 6. PERFORMING ORGANIZATION CODE
 7. AUTHOR(S)
  P.E. Mawn
                                 8. PERFORMING ORGANIZATION REPORT NO,
9. PERFORMING ORGANIZATION NAME AND ADDRESS
  Arthur D. Little,  Inc.
  Acorn Park
  Cambridge, Massachusetts  02140
                                                            10. PROGRAM ELEMENT NO.
                                 11. CONTRACT/GRANT NO.

                                    DOL J-9-F-6-0233'
 12. SPONSORING AGENCY NAME AND ADDRESS
  Environmental Protection Agency
  Office of Air Quality Planning and Standards
  Research Triangle  Park,  N.C. 27711
                                 13. TYPE OF REPORT AND PERIOD COVERED
                                    Final
                                 14. SPONSORING AGENCY CODE
                                            200/04'    "
 15. SUPPLEMENTARY NOTES
  The report was a joint effort of the Occupational  Safety and Health Administration
  ef the Department of  Labor and the Environmental  Protection Agency
 16. ABSTRACT
       The report assesses the potential economic impact resulting from  EPA's Stage II
  vapor recovery regulations covering gasoline  refueling facilities  in specified
  Air Quality Control Regions.  Four general  subject areas are addressed in the seven
  tasks which compose fthe  impact study:  (1) Number,  throughput, and  ownership
  patterns of dispensing facilities in the AQCRs1;  (2) economic affordabifit^ of vapor
  recovery equipment investment; (3) capital  availability for vapor  recovery equipment
  investment for various types of ownership classes*
                 The report identifies the segments  of the retail gasoline  industry   ,
  that are likely to be impacted by the regulations.              .    .  , '    ,
 7.
                                KEY WORDS AND DOCUMENT ANALYSIS
                  DESCRIPTORS
                                              b.lDENTlFIERS/OPEN ENDED TERMS
                                              c.  COSATI Field/Group
  Fuel  Evaporation
  Oxidant Precursors
  Gasolines
  Automobiles
  Vapor Recovery Systems
  Socio-Economic Factors
California   Wash,DC
Los AngeJes   VA.
Colorado     Houstoi
Maryland
Massachusetts
New Jersey
Texas
Stage II vapor
recovery, service
stations
 8. DISTRIBUTION STATEMENT
    Release unlimited
                                              19. SECURITY CLASS (ThisReport)'
                                               Unclassified
                                               21. NO. OF PAGES

                                                    225
                    2O. SECURITY CLASS (Thispage)
                     Unclassified
                                                                         22. PRICE
EPA Form 2220-1 (9-73)
                                           R-l

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