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
3
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4
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8
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53
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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
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19
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22
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35
42
44
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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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63
66
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74
76
77
79
80
82
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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
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95
96
98
102
102
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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
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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
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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
-------
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 $0.0055/gallon - vacuum
assist). The high fixed-cost component of vapor recovery for the most part
will reinforce the existing economies of scale prevalent in retail gasoline
mairketing.
15
-------
TABLE 8. NET VAPOR RECOVERY COSTS
($/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
-------
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
-------
-------
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
-------
(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
-------
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
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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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Total No. Outlets
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32
-------
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
-------
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
-------
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
-------
-------
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
-------
(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
-------
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
%
PH
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3
o
EH
CO
%
i
t>
3
'S
?H
0
"ง
9
^^
^4
03
a
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53
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1
M
1
s
rj
0
03
Stations
CQ
1
6
0
d
3
o
m
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o
1
g
o
1
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ft EH
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rH rH
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00
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'
i
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o T
^3 o
o ^ a g
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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
-------
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
-------
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
-------
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
$0.0820
*Revenue from "inside" mechanical work (e.g. , tune ups, tire changes, etc.)
Source: Industry contracts and Arthur D. Little estimates.
The total onsite expenses of the prototype service stations are also a
function of the type of operation (see Figure 4).
As shown in Table 27, service station operations are highly labor-intensive,
especially for the conventional neighborhood garage operations typified by the
open and lessee dealer prototypes. Self-service operations significantly reduce
the absolute and per gallon labor operating expenses. With a high level of fixed
-------
TABLE 27. SERVICE STATION OPERATING EXPENSES
Type Station/
' Throughput Level
Lessee Dealer
Direct - Major
Open Dealer
Direct - Inde-
pendent
"C" Store
Total Expense* ($/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
-------
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
-------
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 $0.0043 per gallon. A decreased
number of outlets and/or increasing sales volume will lower these pre-
liminary unit cost estimates (see Chapter vm).
78
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79
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TABLE 35. TOTAL VAPOR-RECOVERY COSTS**
Type System
Investment
Financing Cost
Cumulative Operating Expenses
(10 years)
Total Costs
Unit Cost* ($/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
Jobber
44
74
68%
22. 0%
36. 0%
21.5%
20. 2%
19.6%
9%
Open
Dealer
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
-------
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
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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
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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
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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
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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
-------
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
-------
-------
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
-------
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
-------
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
-------
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
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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
587
246
247
umoer 01 v.
12 OM
9
27
2
,ปuu. J-e i_ a
Total
596
273
249
% of Total
Outlets
53%
25%
22%
TOTAL
1,080
38
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
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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
sidebetter than 5,000 a yearthe
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 constructiondownward.
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
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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
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r
in
fe
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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
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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
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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 industryand the
confusion starts right at the top
with manufacturers, and carefully
nurtured by some trade associa-
tionsis 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
-------
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
-------
.
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.
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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 systemsthe 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
-------
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
-------
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
-------
'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
-------
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
-------
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
-------
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
-------
-------
APPENDIX I
THE IMPACT OF VAPOR RECOVERY CREDIT
ON
SERVICE STATION ECONOMICS
1-1
-------
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"ซป
. 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
-------
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
$5,300
900
630
360
6,610
1,653
4,957
6,200
11,157
52%
Source: ADL Estimates
N-5
-------
-------
APPENDIX 0
ECONOMIC IMPACT WORKSHEETS
O-l
-------
TABLE O-l
COMPANY INVESTMENT/LESSEE DEALER OPERATION
, .<$).
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 $.0008/.0012 per gallon for Vapor Balance/Vacuum Assisted
SOUKIE: ADL Estimates, EPA (Appendices H & I)
0-11
-------
-------
APPENDIX P
VAPOR RECOVERY INVESTMENT FOR
ESTIMATED 1981 SERVICE STATION POPULATION
P-l
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P-2
-------
APPENDIX Q
STAGE I VAPOR RECOVERY WORKSHEETS
Q-l
-------
TABLE Q-l
STAGE I CAPITAL CONSTRAINTS CLOSURE ESTIMATES
I LEASEE DEALERS
Marketer
Jobbers
Estimated Volume
Breakeven Cut-off
(1000 Gal/Mth)
27.5
Number of Oultets
Below Breakeven
9007
II OPEN DEALERS
Supplier
Major
Regional Refiner
Independent Mktr/Whols.
Jobber
TOTAL
Breakeven Cut-off
(1000 Gal/Mth)
15.4
15.4
15.4
15.4
# of Outlets
366
16
16
852
1250
III DIRECT-INDEPENDENTS
Supplier
Jobbers
Independent Mktrs.
TOTAL
Volume Cut-off
(1000 Gal/Mth)
50
50
# of Outlets
2776
2497
5173
Q-2
-------
TABLE Q-2
TYPE STATION - OPEN DEALER
Throughput Level
Monthly Volume (000 gal)
Average # Tanks/Station
Stage I Investment
Stage I O&M Expense -
Annualized Investment
(27.7% of Investment)
Total Stage I Annual Costs
Recovery Credit
Net Stage I Costs
iGE I FINANCIAL
Low
) 10
i 3
1 ,500
416
ists 416
IMPACT ($/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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