EPA-450/3-76-042
November 1976
ECONOMIC IMPACT
OF STAGE II VAPOR
RECOVERY REGULATIONS:
WORKING MEMORANDA
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Air and Waste Management
Office of Air Quality Planning and Standards
Research Triangle Park, North Carolina 27711
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EPA-450/3-76-042
ECONOMIC IMPACT
OF STAGE II VAPOR
RECOVERY REGULATIONS:
WORKING MEMORANDA
by
P.E. Mawn
Arthur D. Little, Inc.
25 Acorn Park
Cambridge, Mass. 02140
Contract No. 68-02-1349
Project No. 11
EPA Project Officer: Kenneth H. Lloyd
Prepared for
ENVIRONMENTAL PROTECTION AGENCY
Office of Air and Waste Management
Office of Air Quality Planning and Standards
Research Triangle Park, North Carolina 27711
November 1976
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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) , 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 Environmental Protection Agency by
Arthur D. Little, Inc. , 25 Acorn Park, Cambridge, Mass. 02140, in fulfill-
ment of Contract No. 68-02-1349, Project No. 11. The contents of this
report are reproduced herein as received from Arthur D. Little, Inc.
The opinions, findings, and conclusions 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
by the Environmental Protection Agency.
Publication No. EPA-450/3-76-042
11
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TABLE OF CONTENTS
Section Page No.
List of Tables iv
List of Figures vi
List of Appendices vii
Executive Summary 1
A Service Station Market Audit 17
B Non-Service Station Market Audit 38
C Total Gasoline Dispensing Audit 52
D Pro Forma Service Station Economics 69
E Capital Availability . 91
F Dynamics of Retail Gasoline Competition 116
G Economic Impact Analysis 141
H Equipment Availability 200
iii
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LIST OF TABLES
Table No. Page No.
1 Estimated Total Facilities Audit 5
2 Cut Off Analysis 6
3 Cost of Complying with Stage 11 7
4 Net Margins by Type Operation 9
4A Net Vapor Recovery Costs - Vapor Balance System ll
5 Net Vapor Recovery Potential Closure Analysis 13
5A Estimated Service Station Closure Outlook 15
6 Equipment Supply Constraints Summary 16
A-l 1976 Service Station Market Audit (# outlets) 18
A-2 U.S.A. Service Station Outlets 19
A-3 Service Station Population Forecast 19
A-4 EPA Stage II Outlet Summary 20
A-5 Service Station Throughput Summary 21
A-6 Service Station Supplier/Operational Profile 24
A-7 Service Station "Ownership" Profile - Total population 24
A-8 Service Station "Ownership" Profile - Stage II outlets 25
B-l Gas Dispensing Facilities Marketing Audit 41
B-2 Non-Service Station Volume Profile 42
B-3 Non-Service Station Volume Frequency Profile 43
C-l Total Gas Dispensing Facilities 53
C-2 Estimated Total Gas Facilities Audit 54
C-3 Cut Off Analysis Summary 54
C-4 1973/74 Region III Gas Dispensing Facilities Audit ' 56
C-5 1975/76 ADL Total Gas Dispensing Facilities Audit 57
C-6 Region III/ADL Reconciliation 59
C-7 Region III Adjusted Throughput Profile 59
C-8 ADL/Md. BACQ Throughput Cut-Off Analysis Reconciliation 61
D-l Service Station Economic Prototypes 72
D-2 "Non-Gasoline" Sales Gross Margin CO/LD Service
Station - 74
D-3 . Dealer "Draw" Estimates 75
D-4 Cix/Ld Service Station Prototype Pro Forma Income Statement 78
D-5 Co/Ld Prototype - Average Expense Elements 80
D-6 Co/Ld Service Station Gasoline Cost Components 80
iv
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Table No. Page No.
D-7 Co/Co Service Station Prototype Pro Forma
Income Statement 82
D-8 Do/Do Service Station Prototype Pro Forma
Income Statement 85
D-9 "C" Store Service Station Prototype Pro Forma
Income Statement 89
E-l Alternative Sources of Investment Capital to Different
Categories of Gasoline Retailer 95
E-2 Cost of Complying with Stage II by Industry Sector 96
E-3 Vapor Recovery Equipment Capital Cost 98
E-4 Capital Requirement by Service Station Categories 98
F-l Revised Schedule for Additional Small Refiner Entitle
ments Benefits ( 124
F-2 U.S.A. Gasoline Sales Outlets 134
F-3 Self-Service Retail Outlets 136
G-l Vapor Recovery Investment Requirements 144
G-2 Service Station Prototype Throughput Levels 146
G-3 Prototype Financial Assumptions 147
G-4 Net Vapor Recovery Expenses 147
G-5 Co/Co Pre/Post Vapor Recovery Net Margins - BFIT 154
G-6 Co/Ld Pre/Post Vapor Recovery Net Margins - BFIT 157
G-7 Do/Do Pre/Post Vapor Recovery Net Margins - BFIT 161
G-8 "C" Store Pre/Post Vapor Recovery Net Margins - BFIT 164
G-9 "Break Even" Point 168
G-10 Throughput Break Even Point 169
G-ll 1975 Service Station Operational Throughput Matrix 170
G-12 Net Vapor Recovery Potential Closure Analysis 171
G-13 Net Vapor Recovery Potential Closures by Supplier 172
G-14 Net Vapor Recovery Potential Closure Impact 173
G-15 Vapor Recovery Supplier Profile Changes 174
H-l Equipment Supply Constraints Summary 201
H-2 Estimated Requirements for Vapor Recovery Hose, 1 year
Installation Requirements 203
H-3 Estimated Requirements for Vapor Recovery Nozzles,
1 year Installation Requirements 204
H-4 Estimated Vapor Recovery Return Line Piping Require-
ments 1 yr. Installation Requirements 206
H-5 Vacuum Assist and Miscellaneous Equipment Requirement 208
H-6 Estimated Number of Required Work Crews for Installation
of Vapor Recovery Equipment 210
v
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LIST OF FIGURES
Figure No. Page No.
C-l Throughput Analysis - All Stage II AQCR's Total Gas
Dispensing Facilities 55
C-2 Baltimore AQCR (Region III) ADL/Md. BAQC Reconciliation 60
D-l Service Station Prototypes Total Marketing Expense
Summary 70
D-2 Co/Ld Prototype Service Station Economics 79
D-3 Co/Co Prototype Service Station Economics 83
D-4 Do/Do Prototype Service Station Economics 86
D-5 "C" Store Prototype Service Station Economics 90
G-l Co/Co Prototype Net Vapor Recovery Cost 149
G-2 Co/Ld Prototype Net Vapor Recovery Cost 150
G3 Do/Do Prototype Net Vapor Recovery Cost 151
G-4 "C" Store Prototype Net Vapor Recovery Cost 152
G-5 Co/Co Prototype Pre/Post Vapor Recovery Net Margin .
(No Passthrough) 155
G6 Co/Co Prototype Pre/Post Vapor Recovery Net Margin
(Passthrough) , 156
G-7 Co/Ld Prototype Pre/Post Vapor Recovery Net Margin
(No Passthrough) 158
G-8 Co/Ld Prototype Pre/Post Vapor Recovery Net Margin
(Passthrough) 159
G-9 Do/Do Prototype Pre/Post Vapor Recovery Net Margin
(No Passthrough) 162
G-10 Do/Do Prototype Pre/Post Vapor Recovery Net Margin
(Passthrough) 163
G-ll "C" Store Prototype Pre/Post Vapor Recovery Net Margin
(No Passthrough) 165
G-12 "C" Store Prototype Pre/Post Vapor Recovery Net Margin
(Passthrough) 166
vi
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LIST OF APPENDICES
Appendix
A
B
G-I
G-II
H-l
H-2
H-3
H-4
H-5
H-6
EPA Stage II Vapor Recovery Impact - Service
Station Audit - by AQCR (Tables 1-12)
Non-Service Station Gasoline Outlet/Volume Frequency
Profile - by AQCR (Tables 1-8)
EPA Stage II Vapor Recovery Impact - Total Gasoline
Dispensing Facilities Audit - by AQCR (Tables 1-7)
EPA Vapor Recovery Costs
Letter to K. Lloyd from P. Mawn
Tables I - III
Recovery Credit
Service Station Prototypes Vapor Recovery Costs
(Tables I - Xlla)
Survey of Original Equipment Manufacturers
Installation Requirement by AQCR - Balance System -
1 yr. compliance schedule (Tables 1-11)
Installation Requirement by AQCR - Vacuum Assist -
1 yr. compliance schedule (Tables 1-11)
Equipment Requirement Summary - 5 yr. compliance
schedule (Tables 1-3)
Installation Requirement by AQCR - Balance System -
5 yr. compliance schedule (Tables 1-11)
Installation Requirement by AQCR - Vacuum Assist -
5 yr. compliance schedule (Tables 1-11)
Page No.
26-37
44-51
62-68
178
1794181.
182
183-197
221-214
215-225
226-236
237-239
240-250
251-256
vii
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EXECUTIVE SUMMARY
A. INTRODUCTION
Stage II gasoline vapor recovery regulations, initially proposed in the
October 9, 1975 Federal Register, are being re-evaluated by the Environmental
Protection Agency (EPA) for re-issuance in the fall of 1976. Stage II
regulations cover the final step in the gasoline distribution chain, the
filling of the vehicle tank. The proposed regulations are expected to
exempt facilities dispensing less than 120,000 gallons/year (10,000
gallons/month), and require a 90% recovery of hydrocarbons vaporized during
tank filling. Compliance is likely to be phased in over a period of several
years. In ascending order of costs, three systems have been assigned to
meet Stage II vapor recovery:, the balance system, hybrid, and vacuum assist. At this
writing, final certification has not been given to any system but it appears
that the prospect for the balance system looks favorable.
B. SUMMARY '
In the 11 affected AQCR's, Stage II regulations will require gasoline
vapor recovery compliance at almost 28,500 service stations and 2600
non-retail gasoline dispensing facilities. The retail outlets represent
approximately 15% of the total U.S. service station population. In this
service station sector alone, the capital cost for the vapor balance system
is almost $160 million to which must be added an estimated financing cost
of $80 million (the total vapor recovery cost to the oil industry of $240 MM).
Over a 30 month period, the total annual expenditure for vapor recovery
required by major oil companies would be equal to almost 8% of the total
1975 marketing capital budget. If the vacuum assist system were required,
the capital investment requirement by the industry would more than double.
The ability to raise this required capital investment for vapor
recovery will most severely impact small jobbers and dealer owner/operators
which are generally highly leveraged operations.
The bankability of each segment of the industry is quite company specific
depending upon factors such as:
credit history with lending institutions
ability to service debt
reputation of applicant
outlook for the firm
financial performance
Based upon discussions with the banking industry, it has been estimated
that at least 1900 service stations would be closed as a result of their
inability to raise the necessary capital for a balanced vapor recovery system.
This represents over 6% of the total number of retail service station outlets.
Presumably a mandate for twice as much investment for vacuum assist vapor
recovery systems would only add to the number of "non-bankable" station
closures.
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The net vapor recovery cost per gallon depends upon the following
factors:
type of service station operation
type of vapor recovery system
gasoline sales volume
The total net cost for the vapor balance system ranges from $.0006/
gallon for the high volume convenience store up to $.0119/gallon for the
low volume, dealer owned/dealer operated outlets. The impact of these
added expenses on service station closures is a function of the dealer's
ability to pass through these costs to the customer without affecting his
sales volume. With a pass through of vapor recovery costs limited to the
market segment price leader, it is estimated that a minimum of 470 stations
will close. Without a pass through for vapor balance systems, almost
800 service stations will be closed as a result of negative net margins
compared to a positive cash flow in a pre-compliance analysis of the same
stations. In either pass through case, the closures resulting.from .
negative net margins would be less than and included in the 1900 "non-
bankable" induced closures.
If vacuum assist systems were required, almost 6000 "negative margin"
induced closures would result without a competitive cost pass through. This
adds almost 4000closures to the 1900 "non-bankable" base.
The service station industry is undergoing a significant evolutionary
attrition in the number of retail outlets as a result of changes in petroleum
economics over the last few years. Conventional service stations reached
a peak population of 225,000 in 1972 and now number approximately 189,000
outlets. A shake out of the low volume and labor intensive facilities will
continue through 1980 when an estimated 150,000 service stations will survive
to retail gasoline. Approximately half of these remaining outlets will
be total self service facilities. Thus, stations will be phased out with
or without the added burden of Stage II vapor recovery controls and the
prime effect of the vapor recovery regulations may be to accelerate the rate
of the closures. The surviving stations will have a higher average throughput
with lower operating costs per gallon (in constant $) than the current service
station population. Thus, almost 40,000 conventional service stations will
be closing in the U.S. as a result of economic driving forces not related
to vapor recovery. On a proportional basis, economic attrition of outlets
is equal to approximately 6300 stations in the Stage II AQCR's which either
will not meet corporate DCF return criteria or can not successfully compete
in the market place. 1400 out of the 1900 "non-bankable" vapor recovery
closures would be included in the 6300 outlets succumbing to the changing
economics of petroleum marketing. Thus, approximately 500 stations consisting
primarily of Do/Do stations with a few jobber outlets might have continued
to operate on a relative sub-economic marginal basis with vapor recovery.
Without the capital burden of vapor recovery, these dealers may have
elected to continue the struggle for survival in a Darwinian market
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The-availability of vapor recovery nozzles represents the critical equipment
and construction supply linkage for the installation of all vapor recovery
systems. Assuming some market stability after the official promulgation of
the new regulations, it is estimated that a minimum of 18 months would be
required for this period to provide all of the vapor recovery nozzles in
the 11 AQCR's. For the vacuum assist systems, a minimum of two years would
be required to produce the necessary components for all 11 Stage II AQCR's.
C. OBJECTIVES AND SCOPE OF THIS STUDY .
To assist in this re-evaluation, the EPA contracted Arthur D. Little,
Inc. (ADL) to study the economic impact of proposed Stage II regulations
on gasoline dispensing facilities in the U.S. in a series of working
memoranda. The geographic regions affected by the Stage II re-proposal
included the following eleven Air Quality Control Regions (AQCR's):
Boston, Mass.
New York City (northern N.J. section only)
Philadelphia (southwest N.J. section only)
Baltimore, Md.
Washington, D.C.
Houston/Galveston, Tex.
Dallas/Fort Worth, Tex.
Denver, Colo.
Los Angeles, Cal.
San Joaquin, Cal.
Sacramento, Cal.
Four general subjects are addressed in the seven tasks (A-H) which compose
the impact study:
Subject Tasks
I Audit of locations and types of A, B, C
businesses dispensing gasoline,
II Economic affordability of vapor recovery D, F, G
equipment investment,
III Capital availability for vapor recovery E
equipment investment,
IV Vapor recovery equipment availability. H
The first subject addresses the number and characteristics of locations
affected by Stage II regulations. Task A presents a numerical audit of
service stations (including convenience stores) and details gasoline
throughput and ownership patterns in the eleven AQCR's. Task B extends
this audit to the wide range of "non-service stations," that is, those
outlets which derive a minor portion of their income from gasoline sales or
which dispense gasoline for use by their private vehicle fleets. Due to
budgetary and time limitations, the EPA requested that the non-service
station audit be performed for only four AQCR's (Boston, Baltimore, Denver,
and Los Angeles) and be extrapolated for the remaining eight. Task C
combines Tasks A and B into a total gasoline dispensing audit for all
eleven AQCR's.
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The second and third topics, economic affordability and capital availability,
focus on service stations as the sector most severely impacted by Stage II
regulations. Task D describes the operational and financial characteristics
of four principal types of service station operations. This analysis in-
cluded a construction of "typical" pro forma income statement which were
utilized in the economic impact analysis. Task E discusses the sources
of capital available to gasoline retailers and segments outlets
with capital access according to their degree of upstream integration.
Task F describes the dynamics of retail gasoline marketing and factors which
influence a retailer's ability to pass-through the increased marketing costs
due to vapor recovery requirements. Task G analyzes pre-compliance and
post-compliance economics for the prototype operations defined in Task D.
Investment requirements and total annualized costs for alternative vapor
recovery control systems were supplied by the EPA.
The final topic, equipment availability, investigates the potential compliance
constraints imposed by the physical requirements and lead times for equipment
and labor in the eleven AQCR's. Equipment and labor requirements are
summarized by AQCR in Task H for both a one-year compliance and a five-year
compliance schedule.
D. STUDY CONCLUSIONS
I . Facilities Audit (Tasks A,B,C)
Gasoline is dispensed at approximately 54,000 locations 30,000
(56%) service stations and 24,000 (44%) non-service stations in the eleven
Stage II AQCR's. However, gasoline volume is highly skewed toward the
service station sector which pumps 14.1 million gallons (92%) of the area's
total annual demand of 15.3 million gallons. Only 1.2 million gallons (8%)
of this annual demand are dispensed annually through non-service station
outlets, indicating that this sector is populated by numerous small volume
locations. In fact, the average monthly volume at non-service station
outlets is 5,000 gallons compared to 39,000 gallons at service stations.
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TABLE 1
ESTIMATED TOTAL FACILITIES AUDIT
Service Stations
"Non-Service Stations"
Total
Service Stations
(>10,000 gallons/mo.)
"Non-Service Stations"
(>10,000 gallons/mo.)
Total
(>10,000 gallons/mo.)
Eleven AQCR's
Outlets
30123
is" 23565
53688
>,) 28470
is"
..) 2621
rmo.) 31091
% Total
Outlets
56%
44%
100%
53%
5%
58%
Annual Gaso-
line Volume
(million gal)
14081
1245
15326
13983
656
14639
% Total Volume
92%
8%
100%
91%
5%
96%
An exemption of all locations dispensing less than 10,000 gallons/month,
as suggested by the EPA, would be an efficient means of capturing the
maximum gasoline volume (96%) while still exempting a large proportion of
total outlets (42%). This cut-off analysis for other throughput exemption
levels is shown in Table 2.
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TABLE 2
CUT OFF ANALYSIS
Throughput Cut off
OOP Gallons/Month
5
10
15
20
24
% Outlets Exempted
28%
42%
50%
57%
61%
% Volume Exempted
12%
16%
Operational profiles of service stations in the eleven AQCR's reveal that
26% of total stations are owned and operated by the outlet's direct supplier.
Forty-four percent of stations are owned by the supplier and leased to an
independent dealer, and 30% are owned and operated by an independent dealer.
Ownership patterns indicate that 46% of total service stations whose
monthly volumes are greater than or equal to 10,000 gallons/month (Stage II
outlets) are "owned," or rather controlled, by major oil companies. Thus,
almost one-half of the total service stations to be impacted by Stage II
regulations will be the responsibility of the major oil companies. One-fifth
of Stage II stations are controlled by large integrated marketers and
regional refiners, and one-third are the responsibility of small businessmen
(jobbers and onsite dealer/owners).
Most impacted non-service station outlets fall into two general industry
categories, trucking (62%) and public agencies (20%). Trucking includes
such industries as agriculture, local delivery and services and construction.
Public agencies encompass both governmental agencies and public utilities.
II. Capital Availability (Task E)
*
Capital requirements for compliance with Stage II regulations
in the eleven AQCR's totals approximately $160 million for the vapor
balance systems and $330 million for the vacuum assist systems. As
illustrated in Table 3, adding probable debt servicing charges to these
capital costs yields a total financing cost to gasoline retailers of
$240 million (vapor balance) and up to $497 million for vacuum assist.
(10,000 gallon/month exemption)
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TABLE 3
COST OF COMPLYING WITH STAGE II
Eleven AQCR's
($ millions)
Total Cost Debt Service
Industry Sector Capital Requirement (including financing) as % Capital
System Balance Vacuum Balance Vacuum Requirement
Major Oil Companies $85.7 $178.0 $130.6 $271.2 54.2
Regional Refiner/
Marketers 16.0 33.3 24.5 50.7 54.2
Independent Whole-
salers/Marketers 19.2 40.0 30.7 63.7 59.3
Jobbers 13.6 28.3 21.6 45.1 59.3
Dealers/owners 25.2 50.3 33.1 66.3 31.7
TOTAL ' $159.7 $329.9 $240.5 $497.0
Outlets controlled by highly-integrated suppliers (major oil companies,
regional refiners or independent wholesalers/marketers) will, inmost cases,
have access to investment from internal generation of funds or from the
capital market. In general, however, jobbers and onsite dealer/owners
will have to rely on more expens.ive outside sources of funds, such as
banks or private investors.
The probability of dealer/owners obtaining a favorable loan from a bank
is slight, both because the current cash flow from these operations is
low and also because the level of required investment would range from
5% to 23% of the Do/Do's net worth depending upon the type of recovery
system mandated. Small jobbers ( 6 stations) would also find themselves
unbankable due to low profitability. The Small Business Administration
(SBA) would generally be considered a source of capital for these small
retailers. However, the SBA has a limited budget of about $100 million per
year for a variety of economic injury programs. If only one year is
allowed for Stage II vapor recovery installation, it would be highly unlikely
that the SBA would be able to meet the $25MM - 50 MM which would be the
capital required for compliance by dealer/owners. In these circumstances,
some fraction of dealers will be absolutely unable to raise the capital
required for vapor recovery. An exhaustive survey of the financial status
of all dealer owned stations was beyond the scope of this analysis. However,
it is estimated that as many as one-third of the dealer owners in the
11-24,000 gallons/month throughput range could face bankability problems in
today's market. If vapor recovery-induced closures resulted, this would
affect approximately 15% of the current dealer owned population in the
Stage II AQCR's (i.e., around 1200 potential closures). While many of these
affected dealers would not have been able to survive in any event, some
of them, on the order of one-quarter to one-third, will close due to
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financing problems exclusively. Thus, approximately 4% of Do/Do stations
will be closed by Stage II regulations.
Jobbers tend to have better financial standing than dealers, but their
resources have to cover several stations (e.g., 6 stations for most
jobbers; 100-200 for large jobbers). The costs of vapor recovery equipment
and installation for 100 stations could run as high as $1 million. In
present market conditions, banks will in many cases not finance such an
amount, and jobbers of this magnitude will be above the SBA size limits.
It is estimated that up to 20% of the jobber outlets (i.e., 670 stations)
could be closed as a result of limited financing available for vapor
recovery requirements. This estimate is based on highly leveraged jobbers
representing 25% of the estimated small jobbers (i.e., 6 stations) in the
11 AQCR's. Small jobbers ( 6 stations), like dealer/owners, will seriously
be affected by the affordability problem. Even though a number of their
stations would be viable after the vapor recovery installation, these
jobbers may have difficulty raising the investment capital.
Pollution control bonds could possibly provide a source of capital for
vapor recovery requirements. However, economies of scale and default
risk factors tend to favor use of this mechanism by large marketers
(especially major oil companies). Furthermore, the high administrative
and interest cost would further tend to discourage jobbers and dealer
owners from tapping this unlikely source of capital.
.III. Economic Affordability (Tasks D,F,G)
Regionally composite pro forma service station economics were
developed for the following four key types of retail service station operations;
Company "Owned"/Leased Dealer (Co/Ld)
Company "Owned"/Company Operated (Co/Co)
Dealer "Owned"/Dealer Operated (Do/Do)
Convenience Store ("C" Store)
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Gasoline marketing Is marked by high fixed costs, and thus all types of
oper&ions benefit from substantial economies of scale. However, operations
do vary by their labor intensity. Conventional service stations (service
bay with mechanics-on-duty, non-gasoline automotive items available) are
highly labor-intensive with employee expenses accounting for up to 2/3 of
onsite expenses. The current marketing drive towards self-serve and tie-in
operations such as convenience stores minimizes labor expense (associated
with gasoline sales) and maximizes economies of scale. Marketing expenses
between the two extremes of Co/Ld and "C" Stores can vary as much as
$.16/gallon at a throughput level of 30,000 gallons/month. By 1985, the
self-serve stations (primarily Co/Co and "C" Store operations) are expected
to represent 50% of total retail outlets at the direct expense of smaller
scale Co/Ld and Do/Do. The smallest Do/Do stations (10,000 gallons/month)
are presently marginal and would generate zero cash flow based upon the
dealer salary and TEA contribution assumptions in the prototype model.
Net margins of typical low, medium and high volume sites in each operational
category are presented below and reflect today's weak market for gasoline
retailers.
TABLE 4
NET MARGINS BY TYPE OPERATION
Segment
Type Low Volume Medium Volume High Volume
Operation (000 gallons/mo) $/G (000 gallons/mo) $/G (000 gallons/mo) $G
Co/Co 50 $.011 100 $.008 200 $.008
Co/Ld 20 .011 35 .007 80 .006
Do/Do 10 .000 25 .024 40 .011
"C" Store 10 .000 25 .021 40 .026
This is the depressed market into which vapor recovery costs enter. The
ability of a retailer to pass on increased costs due to vapor recovery
investment to his customers is a function of the retailer's position in
a dynamic, competitive market. Some important considerations include:
the market in which the retailer operates, what type of
outlet is "pacesetter" for the market and what potential
competitors are likely to enter the market,
The retailer's competitive position vis^-a-vis the pacesetter
and where the retailer stands on the economies of scale curve
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Customer sensitivity to price differentials within the
market and their tendency to switch to high-volume
low-price outlets as vapor recovery costs increase this
differential,
The retailer's ability to control costs (especially labor and
rent) and the operation of government regulations (crude oil
entitlements) and rack pricing policies as they affect the
retailer's cost of gasoline,
The effect of marketing strategies of various suppliers
(major vs. independents) on the retailer.
A quantitative estimate of the number of stations that will close due to
inability to pass on a sufficient level of vapor recovery costs to remain
profitable is discussed in Task G. For purposes of this analysis, ADL
required a basis for estimating the amount of vapor recovery costs that
could be passed through to customers by each type of service station.
The extreme assumptions would be:
full pass-through,
no pass-through,
and an intermediate assumption would be:
least-cost or competitive pass-through.
The full pass-through assumption fails to recognize that vapor recovery
costs per gall-on will differ from station to station with a tendency for
higher costs to fall on stations which already have higher costs per
gallon and have higher prices per gallon. Higher-cost outlets are going
to have greater difficulty than lower-cost outlets in passing on their
costs. The degree of pass-through will depend on the competitive situation
facing the higher-cost outlets. Because the market will certainly be
characterized by price competition in the next few years, high-cost
stations will not be able to pass-through all of their costs. The error
in the no pass-through case is the assumption that margins and prices of
a service station's competitors are unchanged after vapor recovery. On the
contrary, when a cost is experienced by an entire industry, the basic
cost structure shifts and some changes in price can be expected. Thus,
the best assumption is the competitive pass-through in which each station
will be able to pass through that level of costs corresponding to the
least cost of control in its competitive market segment. The basis of
this level of pass-through is that market forces have effectively determined
the differentials within each segment. Additional costs can be passed-
through provided they are equal for all outlets. But further costs for
outlets which already have higher costs will not be recoverable, i.e.,
excess costs over the least-cost-of-control level.
Therefore, the basic assumptions included in the closure analysis
contained in Task G include:
10
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stations operate as individual profit centers and must
generate a positive cash flow even in today's depressed
market,
in any given demand area, there broadly exists a high and
low volume segment of the market, each with characteristic
types of operations and separate price pacesetters,
vapor recovery cost impact is assessed both with and without
cost passthrough. The passthrough potential is not total for all
operations but limited to the most efficient price setter in each
market segment.
The net;cost of vapor recovery system per gallon has marked economies of
scale as shown in Table 4A.
TABLE 4A
NET VAPOR RECOVERY COSTS - VAPOR BALANCE SYSTEM
Low
.0027*
*
.0040
.0119*
.0041*
9/oaxj.on
Medium
.0013+
1 *1
I iQ?26. J
.0045*
.0013*
High
.0007+
.0013+
.0034+
|_ .J)006*"J
Type Operation
Volume Range
Co/Co
Co/Ld
Do/Do
"C" Store
*
Low volume market sector
+High volume market sector
tlU Sector price pacesetter
The above costs were calculated for the various
prototype volume ranges based upon the investment, operating expenses
and recovery credits provided by the EPA. Vacuum assist system costs
for the above segments ranged from $.0022 to $.0274/gallon.
For illustrative purposes, the retail gasoline market has high and low
sectors which generally cater to different market segments. The low
volume segments generally describes the conventional neighborhood
garage station with the medium volume company owned/leasee dealer
having the least unit cost for vapor recovery. The high volume sector
11
-------
caters to the major highway driving public and generally only sells
gasoline on via self-service operations or convenience stores. In this
group, the least cost of vapor recovery is faced by the high volume
convenience store. In a competitive passthrough scenario, these two
operations were considered to be the competitive price setters which
can fully pass their costs along. The vapor recovery cost passthrough
of other facilities 1s assumed to be limited by the price setters
passthrough. In this case, the small volume dealer owner station
(Do/Do) will still have to absorb nearly $.01/gallon with vapor balance
system. With vacuum assist, the low volume Do/Do outlet still has
the highest vapor recovery costs/gallon which is almost $.02/gallon
more than the low volume sector pacesetter.
As expected, the highest closure impact occurs when the market or government
regulations will not permit a competitive passthrough of vapor recovery
costs. With an exemption for stations less than 10,000 gallons/month,
negative margins resulting from the cost of the balance vapor recovery system
would be responsible for closing almost 3% of the 1975 base station popula-
tion. On the other hand, a mandate for vacuum assist systems would "close"
almost 19% of the stations (Table 5).
The ability to passthrough vapor recovery costs equal to that of the most
efficient marketer would greatly mitigate the economic impact of vapor
recovery. A competitive passthrough of at least the pacesetters' vapor
recovery costs at all outlets would result in negative margin closures
at .1.5% of stations in the Stage II AQCR's. On the other extreme, al-
most 4.0% of the outlets would close with vacuum assist systems. However,
under today's marketing conditions, there is only a limited opportunity for
retailers to competitively passthrough these costs completely (as a result
of FEA regulations and the gasoline supply picture).
12
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TABLE 5
NET VAPOR RECOVERY POTENTIAL CLOSURE ANALYSIS*
Vapor- - TYPE, OPERATION
Recovery Competitive % Total
System Passthrough Co/Ld Co/Co Do/Do "C" Store Total 1975 Base*
Balance No - - 664 134 798 2.6%
Hybrid No - 995 269 1264 4.2%
Vacuum Assist No 3152 7 1679 807 5645 18.7%
Balance Yes - - 332 134 466 1.5%
Hybrid Yes - - 332 269 601 2.0%
Vacuum Assist Yes - - 664 403 1067 3.7%
Assumed 10,000 gallons/month exemption
Base year number of stations = 30123.
It should further be noted that the national trend in the service station
industry is for a 21% reduction in outlets over the next 5 years regardless
of vapor recovery. Thus, it is reasonable to assume that most stations
"closed" by the added burden of vapor recovery costs would have been phased
out anyway in the long run (i.e., next 5 years). While the absolute number
of closed stations may not be increased by vapor recovery requirements, the
capital burden of these regulations may tend to shift the overall owner-
ship profile of stations towards a higher percentage of "bankable" major
oil and regional refiner stations and away from Do/Do facilities and Co/Co
outlets of highly-leveraged jobbers.
With today's market conditions, there are a number of small volume Do/Do
and jobber stations that are operating on a basis which would not meet the
minimum economic standards of return required by most companies. In many
cases, these dealers cannot perceive any alternative employment options
or realize an opportunity cost for closintg their station. Thus,
a limited number of these dealers may be able to struggle through the
current changes in the market place by lowering their own personal
remuneration and attempt to "wait it out" for conditions to improve.
However, these sub-marginal operators would not be in a position to
13
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raise the capital for vapor recovery and would be forced to capitulate
to the economic driving forces in the retail service stations market.
If the Stage II AQCR's have market induced closures proportional to
national trends, over 6300 service stations would close with or without
vapor recovery. An estimated allocation of these closures is shown in
Table 5A based upon critical estimated minimum volume jrequirBments for
various segments (e.g., Do/Do = 10M GPM; Co/Co = 60MGPM; "Co/Ld = 25M GPM etc.)
IV. Equipment Availability (Task H)
As summarized in Table 6, the minimum time in which Stage II
regulations could be implemented with a balance system is 18 months. The
critical linkage here is the initial production capability of the nozzle
manufactures. Generally, there is sufficient in-place capacity to provide
the quantity of hoses, piping and installation labor to install the balance
system over a 12 month installation period. On the other extreme, the
most sensitive element for vacuum assist installations is the production
capacity of the specialized vacuum equipment manufacturers. Without any
added delays resulting from UL approval requirements and local fire codes,
a minimum of 2 years and a high degree of market certainty would be necessary
to provide sufficient vacuum assist equipment to meet the needs of only
those service stations located in the 11 Stage II AQCR's. UL approval
delays and the added requirement for "non service stations" would increase
the period of time required to provide vacuum assist systems to the
Stage II AQCR's to at least 5 years.
14
-------
TABLE 5A
ESTIMATED SERVICE STATION CLOSURE OUTLOOK
Supplier
All
Jobber
I
!Major
I
{Regional Refiner
Major/Reg. Refiner
TOTAL %
TOTAL OUTLETS
Type 1975
Operation & Outlets
Do/Do 29%
it
Co/Co , Co/Ld 8%
*
Co/Co 6%
*
Co/Co 17%
Co/Ld 40%
100%
30123
STAGE II AQCR's
1981
Cumulative
Market Driven
Closures
Without
Vapor Recovery**
828
600
50
700
4122
6300
_
1981
Cumulative
Closures with
Vapor Recovery
1200
670
50
700
4122
6742
_
1981
% Outlets
without
Vapor Recovery
33%
18%
34%
100%
23823
1981
% Outlets
with
Vapor Recovery
31%
7%
8%
18%
36%
100%
23381
* Includes convenience stores.
**Assumes national trend in Stage II AQCR's
In summary, vapor recovery requirements are not going to significantly add to the stations which will
close anyway. The proportion of jobbers and dealer owners which survive the next 5 years may be
a few percentage points lower with vapor recovery controls.
-------
TABLE 6
EQUIPMENT SUPPLY CONSTRAINTS SUMMARY
Estimated Peak Year
1-Year Annual Requirements
_____ Compliance Industry for 5 Year
Remaining Production Phase in
Supply Factor Units System* Requirements Capacity Program
Rubber Hose 000 feet B,H,VA 2,325 4,500 1,758
**
Nozzles 000 nozzles B.H.VA 166 750 62
Piping 000 feet B.H.VA 7,896 25,306 2,982
Vaccum
Assist
Equipment 000 units VA 28 11 9
Labor Work crews/
Year B 481 729 177
Labor Work crews/
Year VA 774 729 262
*Key System
B Balance
H Hybrid
VA Vacuum Assist
Total of all new plus rebuilt nozzles. Currently vapor recovery
nozzles represent approximately 5-10% of total nozzle production.
16
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MEMORANDUM
TO: Environmental Protection Agency
Strategies and Air
Standards Division
Durham, North Carolina
FROM: Arthur D. Little, Inc.
CASE: Economic Impact of Stage II
Vapor Recovery Regulations
SUBJ: Task A - Service Station
Market Audit
Date: July 15, 1976
INTRODUCTION
Air quality regulations mandating the recovery of hydrocarbon emissions
at gasoline dispensing facilities are in the process of being reproposed
for nine Air Quality Control Regions (AQCR1s) and portions of two other
AQCR's in the United States. The most significant sector impacted by these
regulations to recapture gasoline vapor is the service station industry.
The purpose of this memo is to assess the number of service station outlets
in the eleven distinct gasoline markets covered by the proposed Federal
EPA Vapor Recovery Stage II requirements. In addition, an analysis was
made of the following characteristics of the service station markets in
each AQCR:
Gasoline throughput profile
Operational profile of retail service stations
Ownership patterns.
AUDIT SUMMARY
The details for each of the AQCR's are attached in the Appendices to this
memo. As summarized in Table A-l there are over 30,000 retail service stations
within all of the AQCR's proposed for Federal EPA Stage II controls. This
includes conventional "Mainline" service stations as well as total self-
serve outlets and various "tie in" operations such as convenience stores
and car wash facilities. Excluded from the analysis in this Task are
miscellaneous "non-service station" gasoline facilities such as: marinas,
general aviation facilities, commercial and industrial gasoline consumers,
and non-quantifiable rural "Mom & Pop" operations with gas pumps.
17
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TABLE A-l
1976 SERVICE STATION MARKET AUDIT (// of Outlets)
State
California
Texas
New Jersey
Miscellaneous
// Outlets
11150
6947
5213
6813
Total
30123
% Outlets
37%
23%
17%
23%
100%
Annual
Gasoline Sales
(Billion Gals.)
5.7
2.7
2.4
3.2
14.0
Volume
41%
19%
17%
23%
100%
AQCR's
Los. Angeles
San Joaquin
Sacramento
Houston/Calveston
Dallas/Ft. Worth
N.Y.C. (Northeast
N.J.)
Philadelphia
(Southwest N.J.)
Boston, Mass.
Baltimore, Md.
Washington D.C.
Denver, Col.
There is a rough proportional relationship between the total number of
outlets and the annual throughput in each region. California has a
higher geographical density of demand which results in a higher throughput
per station than the other regions. Texas, on the other hand, has a
more highly dispersed gasoline demand pattern. As shown in Table A-l, over
77% of the service stations covered by Stage II regulations are in the
three states of California, Texas, and New Jersey.
TOTAL U.S. SERVICE STATION MARKET
In 1975, gasoljLne consumption in the United States was approximately 6.6
million barrels/day (i.e., 102 billion gallons per year) which represented 2%
growth over 1974. Approximately 80% of this volume was sold at retail
service stations. The balance of the gasoline demand was dispensed at
government, commercial and industrial consumers of motor gasoline. As
shown on Table A-2, the number of coventlonal retail service stations reached
a peak in 1972.
18
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TABLE A-.2
U.S.A. SERVICE STATION OUTLETS
Year No?of Retail Service Stations
1972 226 M
T974T " 196 Jt
1976 1^9 M
1980 (Est.) 150 M (Low Estimate 110M)
In addition to the above conventional service stations, there are approximately
100 thousand non-conventional retail outlets selling small volumes of gasoline
and often located in rural areas. For example, these outlets include parking
lots, garages, "Mom & Pop" stores and other facilities for whom gasoline is
not a prime source of income. An estimate of the total service stations
in the United States by various supplier segment is shown in Table A-3.
TABLE A-3
SERVICE STATION POPULATION FORECAST
(000 Units)
.. > 1975 No. of ,
Category*/Direct Supplier Service Stations (OOP) % of Total
Do/Do All 42.3 21%
Co/Ld All 112.4 56%
Co/Co Major
Co/Co Ind. Mktr.
Jo/Jo Direct 7.9 4%
Total "Mainline" Service Stations 189.6 95%
Convenience :
Stores All 10.0
Total Key Gasoline ~
Retail Outlets 199.6
*Key
Do/Do Dealer "Owned"/Dealer Operated
Co/Ld Company "Owned"/Leased Dealer
Co/Co Company "Owned"/Company Operated
Jo/Jo Jobber "Owned"/Jobber Operated
19
-------
Thus, the outlets covered by Stage II regulations encompass 14% of the
outlets and 17% of the retail gasoline volume in the U.S.A. as summarized
in Table A-4.
TABLE A-4
EPA STAGE II OUTLET SUMMARY
Factor
*f "- ''
Total Outlets (000)
1975 Total Annual
Volume (million gallons) 81600
Average Outlet Gasoline
Throughput (000 gallons/
month) 34
Total U.S.A.
199.6
81600
Stage II
AQCR's
30.1
14081
Stage II
Outlets
>10M GPM
Throughput
28.5
13983
39
41
Affected
Outlets(>10M GPM)
as % of
Total U.S.A.
14%
17%
120%
At this writing, the EPA has contemplated the retention of a 10,000 gallon
per month throughput exemption from the Stage II regulations. As shown in
Table A-5, this action will benefit approximately 5% of the total outlets in
the Stage II AQCR's (i.e., 11 AQCR's listed in Table A-l) which sell approxi-
mately 1% of the annual gasoline volume consumed in these areas.
The throughput analysis of Table A-5 has been segmented into 3 groups on a
direct supplier basis. The jobber segment includes outlets supplied by both
branded and unbranded jobbers, and the regional marketer group includes conven-
ience stores. Over one-half of major-supplied outlets fall into the 25-59 thous-
and gallons per month category. The average sales of this group is approximately
30,000 gallons per month. About one-half of the regional Refiner/marketer sta-
tiotis pump more than 59,000 gallons per month. This category is oriented toward
self-service operations and, with the exception of convenience stores which average
20,000 gallons per month, is characterized by high volume "gas-n-go" outlets.
Jobber outlets are evenly split between the three lowest volume ranges. In this
group there is a dichotomy between high volume company-"owned" outlets and low
volume dealer "owned" outlets.
20
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TABLE A-5
Service Station Throughput Summary
(by direct supplier and operation type )
inrougnput Lieveo.
(000 Gallons/Month)
Supplier/Operation Type
Major
Co/Co
Co/Ld
Do/Do
Total Major
Regional Marketer
Go/Coa
Co/Ld
Do /Do
Total Regional Marketer
Jobber
Co/Co
Co/Ld
Do /Do
Total Jobber
% Total Outlets
Total Outlets
% Total Annual Volume
iio
1.3
1.3
1.2
0.1
1.3
0.1
2.7
2.8
5.4%
1,653
1%
11-24 25-59
1.4
5.5
11.8
19.7
3.7
0.4
0.9
5.0
0.9
0.6
1.6
3.1
26.8%
8,095
11%
0.8
27.8
9.3
37.9
2.0
2.2
0.6
4.8
0.4
3.1
3.5
46.2%
13,882
40%
60-99
2.6
2.1
1.2
5.9
5.7
0.1
0.2
6.0
1.6
0.2
1.8
13.7%
4,144
24%
iioo
1.5
0.8
0.2
2.5
4.1
0.1
0.1
4.3
0.9
0.2
1.1
7.9%
2,349
24%
/» 0.0 tax
Outlets
6.3
37.5
22.5
66.3
16.7
2.9
1.8
21.4
3.8
4.2
4.3
12.3
100.0%
100%
locaj.
Outlets
1,888
11,294
6,786
5,018
884
547
1,151
1,245
1.310
30,123
Total Annual Volume
(million gallons) 98 1,505 5,630 3,419 3,429 14,082
d.
Includes convenience stores
21
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SERVICE STATION OWNERSHIP PATTERNS
As shown in Appendix A, Table 1, there are essentially three key types of
service station operations:
Company "Owned"/Company Operated (Co/Co)
Company "Owned"/Leased Dealer (Co/Ld)
Dealer "Owned"/Dealer Operated (Do/Do)
These three types of service station operations are used in varying degrees
by all suppliers of gasoline in the retail market. Outlets supplied directly
by majors include those Deceiving from the top 21 integrated oil companies
which operate in at least 20 states. Regional marketer suppliers are defined
as independent refiners and marketer/wholesalers which may operate in multi-
state areas but only in specific regions. This grouping also includes
the large convenience store chains. Jobbers generally buy products from major
oil refiner/marketers and resell petroleum through their own outlets or to
direct customers.
The word "owned" is in quotes in all three types of service station operations
since the supplying company may or may not actually own title to the real estate
and the fixed assets of the service station site. A private financial investor
could possibly own the property and lease it to the supplier on a long term basis
as a real estate investment. Both in this latter situation and in direct ownership
of the land, the company, in effect, controls or "owns" the site in the .short to
medium term (i.e., a ten to fifteen year planning period). A Company "Owned"/
Company Operated outlet describes the station which is both "owned" by the
gasoline supplier and operated by direct oil company employees. For major oil
companies, this is typical of many high volume highway sites, large ,
investment "tie in" operations (e.g., diagnostic car care centers or large car
wash operations), as well as leased dealer sites in transition between leasee
dealers. There is a growing tendency towards this type of operation where the
retail market requires huge investments and will generate large throughputs per
facility. However, as shown in Table A-6 this only represents roughly 9% of
the major outlets in the Stage II AQCR's or 6%of the total number of service
stations. On a national basis, the proportion of major oil company Co/Co outlets
is somewhat less. On the other hand, almost 80% of the regional marketers are
22
-------
run directly as Co/Co operations (i.e., 16% of the total service stations in
the Stage II AQCR's).
A Company "Owned"/Leased Dealer station is also "owned" by the supplier but
run by "independent" dealer who "rents" the facility from his oil company
supplier. The dealer is not an oil company employee and is responsible for
his own investment, expensesi arid "profitability"." This type "of opera'tibn
has historically been the principal marketing strategy of the major oil
companies. Such stations are typically two or three bay facilities where
over 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.).
A Dealer "Owned"/Dealer Operated station is an operation where the onsite
dealer is also the "owner" of the facilities. Thus, the Do/Do operator
is not permanently tied to any particular brand in the long run. Depending
upon both market conditions and contractual commitments, this type of dealer
can negotiate with several suppliers to "fly the flag" of the supplier from
which he can extract the best deal. An arrangement known as lease/leaseback
facilities are also included in this group. This describes a situation where
the dealer "owns" the site but leases it to a supplier for a given cost per
gallon (e.g., $.02/gallon) and then, ,in turn, releases it from the same
supplier for a lesser amount (e.g., $.015/gallon). This, in effect, is a
way of increasing the cash flow for the Do/Do operator with sufficient attractive-
ness to his major oil company supplier. Compared to the other two types of
service station operations, Dealer "Owned"/Dealer Operated outlets tend to be
older (more highly depreciated), rural or possibly suburban, lower throughput
and geared more towards a "neighborhood garage" concept of operation.
The ownership profile of all of the service station outlets in the EPA Stage
II AQCR's is summarized in Table A-6.
23
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TABLE A-
SERVICE STATION SUPPLIER/OPERATIONAL PROFILE
Type Operation
Direct Supplier
Major
Regional Marketer
Jobber
Total
Co/Co
16%
4%
26%
% All Outlets
Co/Ld
37%
3%
4%
itj.ets
Do /Do
23%
2%
5%
30%
% Total
66%
21%
13%
100%
Total Outlets
19968
6449
3706
30123
EPA has expressed an interest in staggering the Stage II compliance schedule
for various "ownership" segments of the service station industry. This would
include three principal groups:
Major oil companies - Co/Co plus Co/Ld outlets
Regional marketers - Co/Co plus Co/Id outlets
Other - All jobber and dealer "owned" outlets
A regrouping of the operational profile by "ownership" is shown in Table A-7.
TABLE A^7
SERVICE STATION "OWNERSHIP" PROFILE - TOTAL POPULATION
"Owner"
Major
Regional Mi
Other**
Total
*independent marketer, regional refiner, convenience stores
**Jobber, Dealer "Owned"/Dealer Operated - branded and unbranded
# Outlets
13182
rketer* 5902
11039
30123
% Total
43%
19%
38%
100%
Type Operations
Co/Co, Co/Ld
Co /Co, Co/Ld
Co/Co, Co/Ld, Do/Do
24
-------
As indicated previously, approximately 5% of the total,service station outlets
V
would be exempted from the Stage II regulations based upon a 10,000 gallon per month
cut off exemption. It is reasonable to assume that the majority, if not all,
of these low volume outlets are not Company "Owned"/Company Operated or
Company "Owned"/Leased Dealer operations. Thus, all of the exempted outlets
are defined as being in the "Other" ownership category. The ownership
profile for stations requiring Stage II controls is thus shown in Table A-8.
TABLE A-8
"Owner'
Major
Region;
Other
Total
SERVICE STATION OWNERSHIP
# Outlets
13182
keter 5902
9386
28470
PROFILE - STAGE II OUTLETS
% Total Tvi
46% Co,
21% Co,
33% Co,
100%
Type Operation
Co/Co, Co/Ld
Co/Co, Co/Ld
Co/Co, Co/Ld, Do/Do
Thus, almost one half of the total Stage II service station outlets will be
the responsibility of the major oil companies to comply at both their direct
operations and at leasee dealers. The question of responsibility for the
physical compliance does not at all address or,prohibit the unanswered
question of passing costs directly through to the leasee dealer or indirectly
to the motoring public if permitted by marketing and regulatory conditions.
In any case, one third of the affected outlets would be operated by small
businessmen jobbers or directly run by the onsite "owner"/operators (i.e.,
Do/Do. Approximately one fifth of the service station outlets requiring
Stage II Vapor Recovery would be unbranded independent marketers and regional
refiner service stations.
25
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I.
APPENDIX A-
Table 1
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR Total EPA Stage II Areas
Throughput Analysis
Gasoline Sales (000 Gal/Mth) f 10
Brand
Major Outlets 1367
Other Outlets 286
Total Outlets 1653
% Total Outlets 5%
Total Annual Volume 98201
(000 Gallons)
% Total Volume 1%
Ownership Profile (// of outlets)
11-24 25-59
5671 12639
2424 1243
8095 13882
27% 46%
1505023 5630474
11% 40%
Type Operation Company "owned"/ Company "owned"/
Company operated Leased dealer '
Direct Supplier
Major 1888
11294
Regional Marketer* 5018 884
Jobber 1151 1245
Total 8057 13423
% Total I 27% 44%
i
i
\ i
*Includes independent marketers, regional refiners, and c
60-99 - 100
3052 642
1092 1707
4144 2349
14% 8%
3419237 3428904
24% 24%
Dealer "owned"
Dealer operated
6786
547
1310
8643
29%
onvenience store
Total
19968
6449
3706
30123
100%
chain
Total
23371
6752
30123
100%
14081839
100%
%
Total
66%
21%
13%
100
3.
Source: State Tax Records, NPN, FEA, Trade Associations, Industry Contacts,
ADL Estimates.
26
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APPENDIX A
Table 2
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR Boston
I. Throughput Analysis
Gasoline Sales (000 Gal/Mth)
Brand
Major Outlets
Other- Outlets
Total Outlets
% Total Outlets
Total Annual Volume
(000 Gallons)
% Total Volume
± 10
97
22
119
5%
8493
0.8%
11-24
249
141
390
15%
66,311
6%
25-59
1,494
157
1,651
65%
696,268
63%
60-99
190
110
300
12%
243,141
22%
- 100
25
50
75
3%
99,467
9%
Total
2,055
480
2,535
100%
1,113,680
100%
Ownership Profile (// of outlets)
Operation
Direct Supplier
Major
Regional Marketer*
Jobber
Total
% Total
Company "owned"/
Company operated
280
366
89
' 735
29%
i
Company "owned"/
Leased dealer
993
95
82
1170
46%
i
i
i
*Independent wholesaler/marketers - generally unbranded
Dealer "owned"
Dealer operated
468
19
143
630
25%
jmultistate opera
1
Total
1741
480
314
2535
100%
tions.
Total
69%
19%
12%
100%
Source: Mass. Dept. of Corporations and Taxation, FEA, Industry Contacts,
Trade Associations, ADL Estimates.
27.
-------
APPENDIX A
Table 3
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR New York City
(Northern New Jersey Section Only)
I. Throughput Analysis
Gasoline Sales (000 Gal/Mth)
Brand
Major Outlets
Other- Outlets
Total Outlets
% Total Outlets
Total Annual Volume
(000 Gallons)
% Total Volume
i 10
265
25
290
7%
14625
1%
11-24
965
100
1065
26%
206304
11%
25-59
1695
154
1849
45%
768953
40%
60-99
445
158
603
15%
506383
27%
- 100
71
213
284
7%
393854
21%
Total
3441
650
4091
100%
1890119
100%
Ownership Profile (// of outlets)
Type Operation
Direct Supplier
Major
Regional Marketer*
Jobber
Total
% Total
Company "owned"/
Company operated
359
513
423
i 1295
; 32%
Company "owned"/
Leased dealer
1640
82
I 254
i 1976
t
48%
Dealer "owned"
Dealer operated
563
55
202
820
20%
i
i
Total
2562
650
879
4091
100%
%
Total
63%
16%
21%
100%
*Includes regional refiners and independent marketers/wholesalers and
convenience store chains.
Source: New Jersey Excise Tax Records, NPN, FEA, Trade Associations, Industry
Contacts, ADL Estimates.
28
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I. Throughput Analysis
Gasoline Sales (000 Gal/Mth)
Brand
Major Outlets
Other- Outlets
Total Outlets
% Total Outlets
Total Annual Volume
(000 Gallons)
% Total Volume
Ownership Profile (// of outlets)
Type Operation
Direct Supplier
Major
Regional Marketer*
Jobber
Total
% Total
APPENDIX A
Table 4
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR Philadelphia
[South Western New Jersey Section Only)
/Mth) * 10
60
14
74
7%
urne 5012
1.0%
11-24 25-59
145 599
39 55
184 654
16% 58%
35189 271460
7% 53%
60-99
143
21
164
15%
135730
27%
- 100
15
31
46
4%
60324
12%
Total
962
160
1122
100%
507715
100%
outlets)
Company "owned"/ Company "owned"/
Company operated Leased dealer -
100 494
65 55
43 56
208 605
19% 54%
i
t
Dealer "owned"
Dealer operated
167
40
102
309
27%
Total
761
160
201
1122
100%
%
Total
68%
14%
18%
100%
*Includes regional refiners and independent marketers/wholesalers and convenience
store chains.
Source: New Jersey Tax Records, NPN, FEA, Trade Associations, Industry Contacts,
ADL Estimates.
29
-------
APPENDIX A
Table 5
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR Baltimore
I. Throughput Analysis
Gasoline Sales (000 Gal/Mth)
Brand
Major Outlets
Other- Outlets
: Total Outlets
% Total Outlets
Total Annual Volume
(000 Gallons)
% Total Volume
± 10
93
_
93
7%
4457
1%
11-24
334
57
391
31%
75985
12%
25-59
481
30
511
41%
234012
37%
60-99
109
58
167
13%.
145467
23%
- 100
20
85
105
8%
172543
27%
Total
1037
230
1267
100%
632464
100%
Ownership Profile (// of outlets)
Type Operation
Direct Supplier
Major
Regional Marketer*
Jobber
Total
% Total
Company "owned"/
Company operated
60
196
; 35
; 291 .
23%
.
Company "owned"/
Leased dealer
488
22
144
654
52%
\
Dealer "owned"
Dealer operated
222
12
88
322
25%
1
f
Total
770
230
267
1267
100%
%
Total
61%
18%
21%
100%
*Independent wholesaler/marketer - generally unbranded multistate operations.
Source: Md. Dept. of Taxation, FEA, NPN, Industry Contacts,
Trade Associations, ADL Estimates.
30
-------
APPENDIX A
Table 6
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR Washington D.C.
I. Throughput Analysis
Gasoline Sales (000 Gal/Mth)
Brand
Major Outlets
Other- Outlets
Total Outlets
% Total Outlets
Total Annual Volume
(000 Gallons)
% Total Volume
f 10
80
12
92
5%
3965
0.4%
11-24
110
10
120
7%
19902
2%
25-59
653
25
678
41%
238826
24%
60-99
517
10
527
32%
398043
40%
- 100
154
94
248
15%
338336
34%
Total
1514
151
1665
100%
999072
100%
Ownership Profile (// of outlets)
Type Operation
Direct Supplier
Major
Regional Marketer*
Jobber
Total
% Total
Company "owned"/
Company operated
115
82
38
235
14%
Company "owned"/
Leased dealer
600
22
103
725
| 44%
1
i
!
I
Dealer "owned"
Dealer operated
585
5
115
705
42%
Total
1300
109
256
1665
100%
%
Total
78%
7%
15%
100%
*Independent wholesaler/marketers - generally unbranded multlstate operations.
Source: Federal Tax Records, NPN, FEA, Trade Associations, Industry Contacts,
ADL Estimates.
31
-------
Table 7
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR Houston/Galveston
I. Throughput Analysis
Gasoline Sales (000 Gal/Mth)
Brand
Major Outlets
Other- Outlets
Total Outlets
% Total Outlets ~
Total Annual Volume
(000 Gallons)
% Total Volume
i 10
178
28
206
6%
12360
1%
11-24
683
841
1524
44%
263191
20%
25-59
921
138
1059
31%
355309
26%
60-99
280
73
353
10%
263191
20%
- 100
130
198
328
9%
434265
33%
Total
2192
1278
3470
100%
1328316
100%
Ownership Profile (// of outlets)
Type Operation
Direct Supplier
Major
Regional Marketer*
Jobber
Total
% Total
Company "owned"/
Company operated
246
1028
! 50
| 1324
i
| 38%
*
Company "owned"/
Leased dealer j
661
157
1 135
| 953
! 28%
i
i
Dealer "owned"
Dealer operated
907
93
193
1193
34%
Total
1814
1278
378
3470
100%
1
%
Total
52%
37%
11%
100%
*Includes regional refiners and independent marketers/wholesalers and convenience
store chains.
Source: Texas Division of Weights and Measures, NPN, FEA, Trade Associations,
Industry.Contacts, ADL Estimates.
32
-------
I. Throughput Analysis
Gasoline Sales (000 Gal/Mth)
Brand
Major Outlets
Other- Outlets
Total Outlets
% Total Outlets
Total Annual Volume
(000 Gallons)
% Total Volume
Ownership Profile (# of outlets)
Type Operation
Direct Supplier
Major
Regional Marketer*
Jobber
Total
% Total
APPENDIX A
Table 8
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR Dallas /Ft. Worth
ftlth) * 10
120
130
250
7%
urne 16583
1%
11-24 25-59
625 1312
272 331
897 1643
26% 47%
136033 516924
10% 37%
60-99 - 100
144 40
203 300
347 340
10% 10%
258463 448909
19% 33%
Total
2241
1236
3477
100%
1376912
100%
outlets)
Company "owned"/ Company "owned"/
Company operated Leased dealer
73 810
787 110
264 j 78
1124 1 998
! 1
32% I 29%
|
i i
l
i
Dealer "owned"
Dealer operated Total
1092 1975
78 1236
185 266
1355 3477
39% 100%
1
%
Total
57%
35%
8%
100%
*Includes regional refiners and independent marketers/wholesalers and convenience
store chains.
Source: Texas Division of Weights and Measures, NPN, FEA, Trade Associations,
Industry,Contacts, ADL Estimates.
33
-------
Table 9
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR Denver
Throughput Analysis
Gasoline Sales (000 Gal/Mth)
Brand
Major Outlets
Other- Outlets
Total Outlets
% Total Outlets
Total Annual Volume
(000 Gallons)
% Total Volume
f 10
20
30
50
4%
3960
1%
11-24
406
95
501
37%
107886
22%
25-59
463
129
592
44%
210868
42%
60-99
92
84
176
13%
137309
28%
-- 100
6
21
27
2%
34327
7%
Total
987
359
1346
100%
494350
100%
Ownership Profile (// of outlets)
Type Operation
Direct Supplier
Major
Regional Marketer*
Jobber
Total
% Total
Company "owned"/
Company operated
34
269
35
338
25%
Company "owned"/
Leased dealer
522
35
60
617
I 46%
Dealer "owned"
Dealer operated
286
55
50
391
29%
Total
842
359
145
1346
100%
%
Total
63%
26%
11%
100%
*Includes regional refiners and independent marketers/wholesalers and
convenience store chains.
Source: State Tax Records, NPN, FEA, Trade Associations, Industry Contacts
and ADL Estimates.
34
-------
APPENDIX A
Table 1-0
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR Los Angeles
Throughput Analysis
Gasoline Sales (000 Gal/Mth)
Brand
Major Outlets
Other Outlets
' Total Outlets
% Total Outlets
Total Annual Volume
(000 Gallons)
% Total Volume
± 10
349
_
349
4%
20946
0.5%
11-24
1629
719
2348
30%
493080
11%
25-59
3545
82
3627
46%
1828008
42%
60-99
695
250
945
12%
901530
21%
- 100
117
500
617
8%
1110600
26%
Total
6335
1551
7886
100%
4354164
100%
Ownership Profile (// of outlets)
Type Operation
Direct Supplier
Major
Regional Marketer*
Jobber
Total
% Total
Company "owned"/
Company operated
474
1237
80
' 1791
23%
!
i
Company "owned"/
Leased dealer "
3681
205
200
4086
52%
|
Dealer "owned"
Dealer operated
1780
109
120
2009
25%
Total
5935
1551
400
7886
100%
%
Total
75%
20%
5%
100%
*Includes regional refiners and independent marketers/wholesalers and convenience
store chains.
Source: California Board of Equalization, NPN, FEA, Trade Associations,
Industry Contacts, ADL Estimates.
35
-------
APPENDIX A
Table 11
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR San Joaquln
Throughput Analysis
Gasoline Sales (000 Gal/Mth)
Brand
Major Outlets
Other Outlets
Total Outlets
% Total Outlets
Total Annual Volume
(000 Gallons)
% Total Volume
± 10
80
17
97
5%
5820
1%
11-24
316
50
366
17%
56044
6%
25-59
968_.
80
1048
49%
326923
35%
60-99
363
80
443
21%
339784
36%
- 100
44
127
171
8%
205494
22%
Total
1771
354
2125
100%
934065
100%
Ownership Profile (// of outlets)
Type Operation
Direct Supplier
Major
Regional Marketer*
Jobber
Total
% Total
Company "owned"/
Company operated
126
248
56
430
| 20%
j
Company "owned"/
Leased dealer '
980
71
43
1094
52%
i
i
i ;
i
t
i
Dealer "owned"
Dealer operated
476
35
90
601
28%
Total
1582
354
189
2125
100%
%
Total
74%
17%
9%
100%
*Includes regional refiners and independent marketers/wholesalers and convenience
store chains.
Source: California Board of Equalization, NPN, FEA, Trade Associations, Industry
Contacts., ADL Estimates.
36
-------
I. Throughput Analysis
Gasoline Sales (000 Gal/Mth)
Brand
Major Outlets
Other Outlets
Total Outlets
% Total Outlets
Total Annual Volume
(000 Gallons)
% Total Volume
Ownership Profile (// of outlets)
Type Operation
Direct Supplier
Major
Regional Marketer*
Jobber
Total
% Total
APPENDIX A
Table 12
EPA STAGE II VAPOR RECOVERY IMPACT
SERVICE STATION AUDIT
AQCR Sacramento
/Mth) f 10
25
8
33
3%
ume 1980
0.4%
11-24
209
100
309
27%
45098
10%
25-59
508
62
570
50%
182923
41%
60-99
74
45
119
10%
90196
20%
- 100
20
88
108
10%
130785
29%
Total
836
303
1139
100%
450982
100%
outlets)
Company "owned"/
Company operated
21
227
38
286
25%
Company "owned"/
Leased dealer "
425
30
90
545
48%
1
Dealer "owned"
Dealer operated
240
46
22
308
27%
Total
.686
303
150
1139
100%
Total
60%
27%
13%
100%
^includes regional refiners and Independent marketers/wholesalers and convenience
store chains.
Source: California Board of Equalization, NPN, FEA, Trade Associations, Industry
Contacts, ADI^Estimates.
37
-------
MEMORANDUM
TO: Enyirqimental^Protection Agency
Strategies and Air
Standards Division
.North Carolina
FROM: Arthur D. Little, Inc.
CASE: Economic Impact of Stage II
Vapor Recovery Regulations
SUBJ: Task B - Non-Service Station
Market Audit
DATE: July 21, 1976
AUDIT SUMMARY
Within the four AQCR's studied (Boston, Baltimore, Denver, Los Angeles) there are
10,138 "non-service station" gasoline dispensing facilities, or approximately
three fourths of the number of retail service stations. These outlets include
both facilities maintained by governmental, commercial or industrial consumers
for private fleet fueling and miscellaneous facilities retailing gasoline.
Marinas, parking garages, general aviation facilities, and the so-called
"Mom-and-Pop" stores are included under the latter heading.
As shown in Table B^l,the geographic concentration of non-service stations, in
general, parallels the concentration of service stations, especially when low-
volume agricultural accounts are ignored. Los Angeles accounts for 60% of both
total non-service station and total service station outlets in the subject
AQCR'sjwhile Denver and Baltimore account for slightly higher percentages of
non-service stations than service statidns and Boston a slightly lower percentage.
Omitting Denver's 900 agricultural accounts, that area's percentage of total
non-service station facilities more closely approaches its percentage of total
service stations. Details of non-service station dispensing facilities are
contained in this memo's Appendix.
VOLUME PROFILE
Only 11% (1128) of non-service station outlets in the four AQCR's dispense more
than 10,000 gallons/month of gasoline and thus would be affected by the proposed
regulations. Most of the impacted outlets (798) fall into the 11,000-24,000
gallons/month range. Only seven known locations six taxi cab companies
and one automotive assembly plant are in the highest volume range, pumping
more than 100,000 gallons/month.
As illustrated in Table Bv2, two thirds of the impacted outlets fall into the
trucking (413) and public agencies (318) sectors. The remaining one third are
associated with transportation (89), automotive (194), and industrial business (29) ,
or miscellaneous retail outlets (85). These business sectors vary in their
dependence upon gasoline for fuel needs and the number of impacted outlets per
firm. Following is a brief discussion of the characteristics of each sector.
The transportation sector is divided into taxi cab companies, school bus operators
and public transportation. The first two businesses are totally dependent upon
gasoline, while the last is split between private bus lines "which "useT'diese'l fuel"
exclusively and publically-operated urban transit systems which use gasoline for
38
-------
an average of 10% of their buses and all of their maintenance vehicles. Taxi
cab and school bus companies usually have one central garage from which they
dispatch their vehicles. Small operators (less than 10 cabs/company or 15
buses/company) may have a purchasing arrangement with a local service station or,
as in the case of the Independent Taxi Cab Operators Association in Boston,
pool their gasoline needs to buy in bulk. Public transportation buses are
usually fueled from one central garage.
Approximately 25% of new car dealers have gasoline pumps, all of which fall
into the unregulated volume category. Automobile rental agencies are
gasoline oriented and will be impacted at virtually all (97%) of their
gasoline dispensing locations. The three largest companies are responsible
for approximately 25% of the impacted outlets.
Agricultural businesses, including farms, nurseries and landscapes, typically
have a small (250-500 gallon) above-ground tank for off-highway vehicle use.
Gasoline represents one third of total fuel gallonage requirements. _Average _
gasoline consumption figures for a dairy"or "suburban truck farm ranee from
WO-llOO "gallons/month'.
Most (approximately 80-90%) of all moving companies are 1-3 truck operations
which contract loads from local agents of national moving firms. The truck
owner is responsible for his own fuel which he purchases at local service
stations or en route at truck stops. A majority of all moving trucks and
90% of all interstate vehicles are diesel powered. Approximately 15% of
moving companies maintain their own fueling facilities which average 4-5,000
gallons/month for a large (15 tractor) operation.
Common carriers use gasoline for less than 20% of total vehicles (including
bobtail local delivery vans) and average less than 2,000 gallons/month. Each
company usually maintains one central garage per region from which all trucks
are dispatched. Only 5% of total locations house more than the minimum 75
vehicles required to push gasoline usage above the 10,000 gallon/month mark.
Local delivery and service industries include wholesalers and retailers of goods,
real estate management firms, newspapers, garbage disposal companies, etc.
Their intensity of gasoline usage is high, yet less than 5% of all firms have
their own gasoline fueling facilities. The minimum number of vehicles per
location which raises gasoline consumption above 10,000 gallons/month ranges from
50-100. United Parcel Service, a freight forwarder, is one of the most
severely affected companies in this sector. Of its 1078 national fuel locations,
68 are within the eleven AQCR's covered by proposed regulations and 30% (19)
of these locations pump more than 10,000 galIons/month.
Construction companies are split between diesel-oriented heavy construction and
gasoline-intensive subcontractors (e.g. plumbers and electricians). Of this
latter category more than 90% patronize local service stations. The average
monthly volume of those who do maintain their own pumps is 2,000 gallons.
The public agencies sector includes local, state and federal governmental
institutions and gas, electric, telephone and water public utilties. All
governmental agencies purchase their own fuel, yet only 10% of such outlets
-PuiP. more than 10,000 gallons/month. Central fueling facilities of the U.S.
postal system, state highway and police departments and local police departments
often lie above the cut-off volume. Numerous garages of small municipalities,
39
-------
local fire departments and school districts are among the excluded outlets.
Public utilities usually maintain one central garage with satellite facilities
to handle suburban service trucks. The number of electric utilities per AQCR
ranges from 1 (Boston) to 5 (Los Angeles). The number of gas and telephone
utilities are similar. Water supply is more decentralized and ranges from
3 companies in Boston to 158 in Los Angeles. Gasoline usage is greatest for
the telephone utilities, averaging twice that of an equal size gas utility.
Miscellaneous retail outlets are difficult to quantify and, with the exception
of high demand areas such as Los Angeles, tend to pump less than 10,000
gallons/month.
Industrial outlets include manufacturing companies which pump gasoline for
company cars and automotive or truck assembly plants which utilize large volumes
of gasoline for "topping-off" new vehicle tanks. Only 5% of the former category
is above the cut-off volume. In the four AQCR's, five assembly plants average
60,000 gallons/month and one averages 100,000 gallons/month. Twelve other
such plants utilizing an additional 8.7 million gallons/year operate in the
eleven AQCR's affected by the proposed regulations.
METHODOLOGY
Major data sources utilized for the non-service station audit were industry
trade groups, large individual companies within particular industry sectors,
government agencies, and government fuel purchasing departments.
Usage figures for Sectors I (Transportation) and IV (Public Agencies) are
derived from telephone or mail surveys, and public records of governmental fuel
purchasing. Industry contacts, private surveys conducted by trade groups or
industry consultants assisted in generating figures for Sectors II (Automotive),
III (Trucking) and VI (Industrial). The number of outlets in Sector V (Miscel-
laneous Retail Outlets) was established in each AQCR by comparing state data
on total number of gasoline pump or storage locations with the subtotal in each
AQCR which had been assigned to Sectors I-IV and V.
40
-------
TABLE B-l
GASOLINE DISPENSING FACILITIES MARKETING AUDIT
(# Outlets)
Boston, Baltimore, Denver and Los Angeles AQCR's
# Non-Service # Non-S/S Service
AQCR Station Outlets % Minus Agricultural % Stations %
Los Angeles 607? 60% 5737 65% 7886 61%
Denver 1710 17% 810 9% 1346 10%
Boston 1233 12% 1201 14% 2535 19%
Baltimore 1118 11% 1028 12% 1267 10%
TOTAL 10138 100% 8777 100% 13034 100%
41
-------
TABLE B-2
NON-SERVICE STATION VOLUME PROFILE
Boston, Baltimore, Denver and Los Angeles AQCR's
Average Monthly
Volume (OOP Gallons)
Outlets
%
Annual Volume
(Million Gallons)
%
£10
9010
89%
280.9
47%
11-24
798
8%
139.9
23%
25-59 60-99
268 55
3%
116.8 46.6
20% 8%
>100
7
9.8
2%
Total
10,138
100%
594.0
100%
Average Monthly Volume
(000 Gallons/Month)
2.6
14.6
36.3
86.2
116.7
4.9
42
-------
TABLE B-3
NON-SERVICE STATION VOLUME FREQUENCY PROFILE (By Type of Business)
Boston, Baltimore, Denver and Los Angeles
AQCR's
Average Monthly
Volume (OOP Gallons)
Type of Business i 10 >10 %
I.
II.
III.
X
IV.
V.
VI.
TOTAL
0
1
Transportation
Taxi
School Buses
Public Transportation
Total Sector
Automotive
Automobile Dealers
Rental Agencies
Total Sector
Trucking
Agricultural
Rental Agencies
Moving Companies
Common Carriers
Local Deliveries & Services
Construction
Total Sector
Public Agencies
Government
Utilities
Total Sector
Misc. Retail Outlets
Industrial
OUTLETS
I
TOTAL VOLUME
(Million Gallons)
69
150
29
248
405
5
410
1362
100
100
647
2321
1353
5883
1443
275
1718
222
529
9010
89%
280.9
47%
38
45
6
89
0
194
194
0
132
5
32
241
3
413
193
125
318
85
29
1128
11%
313.0
53%
3
4
1
8%
17
17%
12
3
21
36%
17
11
28%
8%
3%
100%
lotax
Outlets
107
195
35
337
405
199
604
1362
232
105
679
2562
1356
6296
1636
400
2036
307
558
10138
100%
594.0
100%
%
1
2 .
3%
4
2
6%
14
2
1
7
25
13
62%
16
4
20%
3%
6%
100%
43
-------
APPENDIX B
TABLE 1
NON-SERVICE STATION GASOLINE OUTLET VOLUME FREQUENCY PROFILE
BOSTON AQCR 1975
. Average Consumption/Sales
(M Gallons/Month) __.,
I.
II.
III.
IV.
V.
VI.
Transportation
Taxi
School Buses
Public Transportation
Total .Sector
Automotive
Automobile Dealers
Rental Agencies
Total Sector
Trucking
Agricultural
Rental Agencies
Moving Companies
Common Carriers /Long Haul
Local Deliveries & Services
Construction
Total Sector
Public Agencies
Government
Utilities
Total Sector
Miscellaneous Retail Outlets
-
Industrial
TOTAL
%
<10 ;
30
40
10
80
75
75
32
30
80
230
200
572
200
70
270
20
60
1077
87.4%
11-24
20
20
10
10
20
30
50
8
6
14
0
- ' --
0
94
7.6%
25--S9 '
0
16
16
12
5
17
2
4
6
0
0
39
3. 2*
60- ft 9 >100
3
\
0 3
6 0
6 0
8 0
5
13 0
0 0
0 0
1 0
20 3
1.6% °-2%
Outlets
33
60
10
103
75
32
107
32
40
30
80
270
200
652
210
80
290
20
61
1233
100.0%
Total
Annual
(M Gallons)
6390
7350
350
14090
620
13140
13760
1400
13200
1620
3700
19820
4800
44540
12250
5650
17500
i
1440
2620
94350
-------
Ul
APPENDIX B
TABLE 2
i
NON-SERVICE STATION GASOLINE OUTLET THROUGHPUT
BOSTON AQCR 1975
Average Consumption/Sales
(M Gallons/Month)
I.
II.
III.
IV.
V.
VI.
Transportation
Taxi
School Buses
Public Transportation
Total Sector
Automotive
Automobile Dealers
Rental Agencies
Total Sector
Trucking
Agricultural
Rental Agencies
Moving Companies
Common Carriers /Long Haul
Local Deliveries & Services
Construction
Total Sector
Public Agencies
Government
Utilities
Total Sector
Miscellaneous Retail Outlets
Industrial
TOTAL
<10
2430
4200
350
6980
620
620
1400
1620
3700
8280
4800
19800
10400
3200
13600
1440
1900
44340
4770%:
11-24
3150
3150
1760
1760
3600
5040
8640
1050
1050
2100
0
0
15650
16.6%
25-59 60-99
0 0
6120 5260
6120 5260
3400 6200
1500 5000
4900 11200
800
1400
2200 0
0 0
0 720
13220 17180
14.0% 18.2%
PROFILE
>100
3960
3960
0
0
0
0
0
0
0
3960
4.2%
Total
Annual
(M Gallons)
6390
7350
350
14090
620
13140
13760
1400
13200
1620
3700
19820
4800
44540
12250
5650
17900
1440
2620
94350
100.0%
«
14.9%
14.6% '
47 . 2%
19.0%
1.5%
2.8%
100.0%
-------
APPENDIX B
TAI
JLE 3
NON-SERVICE STATION GASOLINE OUTLET VOLUME FREQUENCY PROFILE
BALTIMORE AQCR 1975
Average Consumption/Sales Total
(M Gallons/Month) _, TAnnual
<10 u_24
I. Transportation 1
Taxi 8
School Buses 19 12
Public Transportation 10
Total Sector 37 12
II. Automotive
Automobile Dealers 55
Rental Agencies 18
Total Sector 55 18
III. Trucking
Agricultural 90
Rental Agencies 10 24
Moving Companies 12 1
Common Carriers /Long Haul 54
Local Deliveries & Services 213 13
Construction 168 2
Total Sector 547 40
IV. Public Agencies
Government 191 30
Utilities 10 15
Total Sector 201 45
V. Miscellaneous Retail Outlets 42 15
VI. Industrial 45 Q
. \
TOTAL 927 130
Z 82.9% 11.6%
25-59 60-99 >100 Outlets (M Gallons)
8 16 4,350
31 3,660
1 11 1,140
9 0 0 58 9,150
55 480
14 32 7,880
14 00 87 8,360
90 2,340
34 6,300
2 15 1,410
54 1,440
2 4 232 14,970
1 171 5,000
54 o 596 31,460
7 228 15,920
20 45 11,300
27 0 0 273 29,200
f
00 0 57 5,160
0 2 0 47 . 2,800
55 6 0 1,118 86,150
4.9% 0.6% 0.0% 100.0%
-------
APPENDIX B
TABLE 4
. . . NON-SERVICE STATION GASOLINE OUTLET THROUGHPUT PROFILE
. BALTIMORE AQCR 1975
Average Consumption/Sales
(M Gallons /Month)
I.
II.
HI.
IV.
V.
VI.
Transportation
Taxi
School Buses
Public Transportation
Total Sector
Automotive
Automobile Dealers
Rental Agencies
Total Sector
Trucking
Agricultural
Rental Agencies
Moving Companies
Common Carriers /Long Haul
Local Deliveries & Services
Construction
Total Sector
Public Agencies
Government
Utilities
Total Sector
Miscellaneous Retail Outlets
Industrial
TOTAL
£10
630 .
990
700
2,320
480
480
2,340
850
150
1,440
7,890
4,200
16,870
5,520
1,140
6,660
3,000
1,400
30,730
35.7%
11-24
2670
2670
2190
2190
5450
220
2650
300
8620
5500
3150
8650
2160
0
24290
28.2%
25-59 60-99 >100
3720
440
4160 0 0
5690
5690 0 0
1040
1200 3230
500
2740 3230 0
4900
9010
13910 0 0
0.0 0
0 1400 0
26500 4630 0
30.8% 5.3% 0.0%
Total
Annual
Volume
; (M Gallons) %
4,350 :
3,660 ;
1,140
9,150 10.6%
480
7,880
8,360 9.7%
2,340
6,300
1,410
1,440
14,970
5,000
31,460 36.5%
15,920
11,300
29,220 33.9%
5,160 6.0%
2,800 3.3%
86,150 100.0%'
100.0%
-------
oo
T£
NON-SERVICE STATION GASOLINE
DENVER
Aver a
(1
<10 11-2*
I. Transportation
Taxi 112
School Buses 21 5
Public Transportation 4 i
Total Sector 26 7
II. Automotive
Automobile Dealers 75
Rental Agencies 5 6
Total Sector 80 j 6
III. Trucking
Agricultural 900
Rental Agencies 8 5
Moving Companies 8 1
Common Carriers /Long Haul 70
Local Deliveries & Services 185 8
Construction 155
Total Sector 1326 : 14
IV. Public Agencies
Government 90 17
Utilities 30 i 20
Total Sector 120 38
V. Miscellaneous Retail Outlets 20 i 10
i
VI. Industrial 40 1 0
1
TOTAL 1612 , 75
% 94.3% 4I.4%
iBLE 5
OUTLET"" VOLUME FREQUENCY PROFILE
AQCR 1975
ge Consumption/Sales
4 Gallons /Month) Total
i 25-59 60-99 >100 i Outlets
1 4
3 ~ 29
4
3 0 1 37
75
4 15
4 0 0 90
900
13
1 10
. 70
2 5 200
155
3 5 0 1348
3 110
5 55
- 8 0 0 165
0 0 0 30
0 0 0 40
17 5 1 1710
1.0% 0.3% - 100. 0%
Total
Annual
(M Gallons)
2300
4370
250
6920
270
3450
3720
2700
2000
700
2900
14500
4260
27060
7690
5350
13040
1
2880
1300
54920
-------
vo
APPENDIX
TABLE 6
B
NON-SERVICE STATION GASOLINE OUTLET THROUGHPUT PROFILE
DENVER AQCR 1975
Average Consumption/Sales
tM Gallons/Month)
I.
II.
III.
IV.
V.
VI.
Transportation
Taxi
School Buses
Public Transportation
Total Sector
Automotive
Automobile Dealers
Rental Agencies
Total Sector
Trucking
Agricultural
Rental Agencies
Moving Companies
Common Carriers/Long Haul
Local Deliveries & Services
Construction
Total Sector
Public Agencies
Government
Utilities
Total Sector
Miscellaneous Retail Outlets
Industrial
TOTAL
1
1
70
1740
250
2060
270
700
970
2700
880
100
2900
8780
4260
19620
2820
1440
4260
1440
1300
29650
54. .0%
11-24
490
480
970
1050
1050
1120
150
1440
2710
3240
1880
5120
1440
0
11290
20.6%
25-59 60-99 >100
1740
2150
2150 0 1740
1700 0 6
1700 0 0
450
580 3700
1030 3700 0
1630 0 0
2030
3660 0 0
0 0 0
00 0
8540 3700 1740
15.5% 6.7% 3.2%
Total .
Annual
Volume
CM Gallons) %
2300
4370
250
6920 12. '6%
270
3450
3720 6.8%
2700
2000
700
2900
14500
4260
27060 49.3%
7690
5350
13040 .. 23.7%
2880 5.2%
1300 2.4%
54920 100.0%
100.0%
-------
TABLE 7
NON-SERVICE STATION GASOLINE OUTLET VOLUME FREQUENCY I
LOS ANGELES AQCR 1975
Average Consumption/Sales
(M Gallons/Month)
I.
II.
£10
11-24
25-59 60-99
ROFILE
Total
>100 Outlets
Total
Annual
Volume
(M Gallons)
Transportation
Taxi
School
Public
Total
Buses
Transportation
Sector
30
70
5
105
Automotive
Automobile Dealers
III.
Rental
Total
Agencies
Sector
200
200
22
5
3
30
40
40
2
2 0
58 22
58 22
2 54
75
10
2 139
200
120
0 320
8500
6800
1600
16900
1870
52600
54470
Trucking
Agricultural
Rental
Moving
Common
Agencies
Companies
Carriers/Long Haul
Local Deliveries & Services
Construction
IV.
Total
Public
Sector
Agencies
Government
Utilities
Total Sector
V.
VI.
Miscellaneous Retail Outlets
Industrial
TOTAL
% i
340
82
50
443
1693
830
3438
962
165
1127
140
384
5394
88.8%
60
25
117
202
114
30
144
60
23
499
8.2%
3
7
50
60 0
12
25
37 0
0 0
0 2
157 24
2.6% 0,4%
340
145
50
475
1860
830
0 3700
1088
220
0 1308
0 200
1 410
3 6077
- 100.0%
3000
17800
1350
14900
105000
19200
161,250
50530
27000
77530
t
22100
26290
358540
-------
APPENDIX B
TABLE 8
NON-SERVICE STATION GASOLINE OUTLET THROUGHPUT PROFILE
LOS ANGELES AQCR 1975
Average Consumption/Sales
(M Gallons/Month)
I.
II.
III.
IV.
V.
VI.
Transportation
Taxi
School Buses
Public Transportation
Total Sector
Automotive
Automobile Dealers
Rental Agencies
Total Sector
Trucking
Agricultural
Rental Agencies
Moving Companies
Common Carriers /Long Haul
Local Deliveries & Services
Construction
Total Sector
Public Agencies
Government
Utilities
Total Sector
Miscellaneous Retail Outlets
Industrial
TOTAL
<10
2370
6000
400
8770
1879
1870
3000
4700
1350
9920
61000
19200
99170
23610
9800
33410
13440
19550
176210
49.2%
11-24
3130
800
400
1 4330
j
9800
9800
12100
3200
20000
35300
20230
6100
26330
8660
4200
88620
24.7%
25-59 60-99 >100
3000
800
800 0 3000
23200 19600
23200 19600 0
1000
1780
24000
26780 0 0
6690
11100
17790 0 0
0 00
0 1440 1100
68570 21040 4100
19.1% 5.9% 1.1%
Total
Annual
Volume
1 (M Gallons)
8500
6800
1600
16900
1870
52600
' 54470
3000
17800
1350
14900
105000
19200
161250
50530
27000
77530
22100
26290
358540
100.0%
«
4.7%
15.2%
45.0%
21.6%
6.2%
7.3%
100.0%
-------
MEMORANDUM
TO: Environmental Protection Agency CASE: Economic Impact Stage II
Strategies and Air Standards Division Vapor Recovery Regulations
Research Triangle Park
North Carolina SUBJECT: Task C - Total Gasoline
Dispensing Audit
FROM: Arthur D. Little, Inc. (Region 3 Reconciliation)
DATE: July 20, 1976
INTRODUCTION
The purpose of the EPA Stage II regulations is to reduce the total hydrocarbon
emissions in the designated Air Quality Control Regions (AQCR1s). Vapor loss
from vehicle filling occurs primarily at service stations but also at other
gasoline dispensing facilities such as commercial and industrial locations.
Task A of this work program assessed the number and volume of service station
outlets which will be impacted by the Stage II requirements in all 11 affected
AQCR's. At EPA's request, Task B called for a sampling of the facility popula-
tion and gasoline throughput in "non-service stations" in only 4 AQCR's. Time
and budgetary considerations limited this analysis to the following AQCR's:
Boston, Baltimore, Denver and Los Angeles.
"Cut-off Analysis"
The summary of the total gasoline dispensing facilities for both service
stations and "non-service stations" for the sample areas is shown in the
attached Appendix C, Table 1. If EPA elects to retain a throughput cut off
equal or less than 10,000 gallons per month, an average of 41% of the total
gasoline dispensing facilities would not be required to install Stage II
vapor recovery equipment. This exempt group handles approximately 4% of the
total gasoline volume in the sample areas . The vast majority of these exempt
locations are industrial and commercial gasoline consumers. Only 5% of the
total service station outlets would be in the exempt group and only 0.6%
of the total retail gasoline volume would be involved. Raising the "cut off"
to 24,000 gallons per month would exempt 57% of the total facilities and
12% of the gasoline throughput. The summary of the total gasoline facilities
in the four AQCR1s are shown below in Table Q-l, Details for each AQCR are
contained in Appendix C, Tables 4-7.
As shown in Table C-l^the Los Angeles AQCR represents almost two-thirds of both
the total gasoline outlets and total volume in the four sample areas. The
four sample areas, in turn, represent almost half of the total outlets and
total gasoline volume in the 11 AQCR's which require Stage II controls.
Ninety-two percent of the total gasoline volume in the sample area is dis-
pensed through service stations (including convenience stores) or 56% of the
total outlets. This average proportion of service station volumes and out-
lets was used to extrapolate non-service station outlets and volume in the
"non-sample" AQCR's. As shown in Appendix C, Table 2, the service station
audit summary for the non-sample AQCR's was extracted from Task A. The
52
-------
FACTOR
% Service Station
Outlets in
Sample Areas
TABLE C-l
TOTAL GASOLINE DISPENSING FACILITIES
SAMPLE %
£!££ TOTAL OF TOTAL
BOSTON BALTIMORE DENVER LOS ANGELES SAMPLE AREA STAGE II AQCR's
% "Other"* Gaso-
line Volume in
Sample Areas
% Volume Exempted
at 10 M CPM cut-
off
19%
% "Other"* Dis-
pensing Facilities
in Sample Areas 12%
% Service Station
Gasoline Volume in
Sample Areas 17%
16%
% Outlets Exempted
at 10 M GPM cut-
off 32%
10%
11%
10%
15%
43%
10%
17%
4%
54%
6%
61% 13034 outlets
60% 10138 outlets
66% 6595 MM gal
60% 594 MM gal
41% 41%
43%
NA
47%
NA
NA
NA
*0ther = "non-service station" facilities
"non-service stations" were then assumed to represent 8% of the total volume and
44% of the total outlets in the non-sample areas. This total volume was then
distributed among the various throughput ranges to achieve a distribution pro-
portional to that contained in the sample AQCR summary (Appendix C, Table 2).
The gasoline facilities audit for all 11 AQCR's and for the four sample AQCR's
along with estimates for the seven non-sample AQCR's are summarized below in
Table C-2. Details are contained in Appendix C, Table 3.
Thus, the 10,000 gallon throughput exemption will still require Stage II Vapor
Recovery controls at an estimated 58% of the total gasoline dispensing facili-
ties and will cover 96% of the gasoline throughput. Figure 1 plots the rela-
tionship between throughput and the total number of outlets for all 11 Stage II
AQCR's. If a throughput exemption were lowered to 5,000 gallons per month, an
estimated 28% of the outlets with 2% of the gasoline volume would not require
Stage II controls. (See Table C-3.)
53
-------
TABLE C-2
ESTIMATED TOTAL GASOLINE FACILITIES AUDIT
ALL STAGE II AQCR's
Annual Gaso-
% Total line Volume
Outlets Outlets (million gal)
Service Stations 30123 56%~ 14081
"Non-Service Stations" 23565 44% 1245
Total 53688 100% 15326
Service Stations
(>10m GPM) 28470 53% 13983
"Non-Service Stations"
(>10m GPM) 2621 5% 656
Total (>10m GPM) 31091 58% 14639
TABLE C-3
CUT OFF ANALYSIS SUMMARY
Throughput Cut Off
(000 GPM) % Outlets % Volume
5 28% 2%
10 42% 4%
15 50% 8%
20 57% 12%
24 61% 16%
% Total Volume
92%
8%
100%
91%
5%
96%
Source: Figure C-l.
54
-------
100% -
In
Ln
Q>
_3
I
CO
*J
o
60% -
20%
Total Gasoline Facilities
20
40 60
Average Throughput (000 Gal./Mth)
80
FIGURE C-l THROUGHPUT ANALYSIS - ALL STAGE II AQCR'S
TOTAL GASOLINE DISPENSING FACILITIES
-------
Region III Reconciliation
A summary of Region III (Baltimore AQCR) data for a total gasoline dispensing
facility is provided below in Table C-4.
TABLE C-4
1973/1974 REGION III GASOLINE DISPENSING FACILITY AUDIT
Baltimore AQCR
A. Region III Audit
Throughput
(OOP GPM)
# Outlets
Annual Volume
(000 gals)
Average Throughput/
outlet (000 GPM)
% Total Outlets
% Total Gasoline
Volume
<20
21-50
>50
Total
677
83390
823
300560
338
385520
1838
769470
10.3
37%
11%
30.4
45%
39%
95.0
50%
34.8
100%
100%
B. Region III Cut-off Analysis
Throughput
(OOP GPM)
<20
21-50
Exemptions
Outlets
37%
11%
% Volume
11%
50%
Source: Md. BAQC
The EPA specifically requested that ADL review and reconcile its latest gasoline
facilities dispensing audit with the Region III analysis data compiled by the
Maryland Bureau of Air Quality Control (Md. BAQC). This in-house study was
prepared from submissions made by most major petroleum companies marketing in
the Baltimore AQCR. Only three throughput categories were requested as shown
in Table VI. The ADL summary of total gasoline dispensing facilities in
the same area was regrouped as close as possible to conform with the Region III
format as shown in Table C-5.
56
-------
TABLE C-5
1975/1976 ADL TOTAL GASOLINE DISPENSING FACILITIES AUDIT
Baltimore AQCR
A. ADL Audit
Throughput
# Outlets
% of Md. BACQ Data
Annual Volume (000 gals)
% of Md. BAQC Outlet Data
1541
223%
135462
162%
25-59
566
69%
260512
87%
>60
Total
278 2385
82% 130%
322640 718614
84% 93%
Average Monthly Throughput
per Outlet 7.3
% of Md. BAQC Average
Throughput Data 71%
% of Outlets 65%
% of Gasoline Volume 19%
38.3
126%
24%
96.7
25.1
102% 72%
11% 100%
45% 100%
B. ADL Cut-off Analysis
Throughput Analysis
(OOP GPM)
-20
21-50
% Outlets
63%
82%
% Volume
15%
50%
Reconciliation of the Md. BAQC and the ADL Data Sources
Handicaps:
1. Different base periods - the ADL data was derived from the latest
facility population information (i.e., late 1975 - early 1976).
The study conducted by the Md. BAQC was based upon submissions
utilizing 1973 and early 1974 data.
2. Different throughput ranges - the Md. AQC data had only three monthly
throughput categories which do not have the same cut off as the ADL
analysis.
3. Different information sources - essentially the Md. BAQC audit was
57
-------
most interested In gasoline facilities that had storage tanks
greater than 2,000 gallons and had to comply with Stage I regu-
lations. This audit was primarily derived from information pro-
vided by key petroleum suppliers in the Baltimore AQCR. The
ADL data not only utilized supply data and state tax information
but also contacted and evaluated consumption by end use segments
(especially in the non-service sector). The 1973 Md. BAQC audit
had a total population of 1838 gasoline dispensing facilities in
the Baltimore AQCR. In 1976 the ADL survey shows 2385 gasoline
dispensing facilities. The reasons for this discrepancy in the
total population of the two studies are: ,
the Md. BACQ analysis excluded all agricultural dispensing
facilities;
the Md. BAQC also excluded facilities utilizing gasoline
for non-highway use which did not have to:>pay state excise
taxes (e.g. most of the construction sector);
the Md. AQC information did not capture the commercial
and industrial accounts of many small jobbers;
deliveries of gasoline to small consumers from out of
state terminals were excluded in the Maryland survey
(e.g. deliveries from terminals in Delaware and Penn-
sylvania into Carroll, Harford and Baltimore counties,
Maryland). In Maryland, the excise tax is paid and con-
trolled at the primary terminal level and not at consuming
facilities, retail outlets or jobber levels.
in March 1974, there were 1386 service stations in the
Baltimore AQCR according to state tax records. If all
of the service stations were reflected in the Md. BAQC
survey, this would leave only 450 non-service station gas
facilities in that audit (i.e. 1838 less 1386). The 1976
ADL analysis shows 1118 non-service station gasoline dispensing
facilities of which 95% are in the equal or less than 10,000
gallon per month category. If all of these non-service station
facilities were operable in 1973/1974, this leaves 606 "non-
service station" gasoline facilities which were left out of
the Md. BAQC 1973 survey. It is reasonable to assume that
virtually all of these outlets are in the 10,000 gallon per
month or less category. An estimation of these "missing"
outlets from the Md. BAQC survey is shown in Table C-6.
An adjustment to the Md. BAQC data is made in Table G- 7 to reflect the addition
of the estimated "missing" outlets in this survey. With this adjustment, the
ADL and the Md. BAQC audit are roughly proportional as shown in Figure C-2.
Reconciliation Summary
The 1973 analysis of the Maryland Bureau of Air Quality Control (Md. BAQC) and
the 1976 ADL analysis of the Baltimore AQCR are mutually complimentary. Slight
58
-------
Missing "sector"
Agriculture
Construction
Misc.*
Total
TABLE C-6
REGION III/ADL RECONCILIATION
# Outlets
90
170
346
606
Annual Gasoline Volume
(OOP gals)
2340
4500
6686
13,526
*Includes the following: non-reporting jobbers, misc. non-highway use
(e.g. construction, etc.), deliveries made by jobbers from out of state
terminals.
TABLE C-7
REGION III ADJUSTED THROUGHPUT PROFILE
A. Adjusted Md. BAQC Audit
Throughput (000 GPM)
Outlets
"Missing" Outlets
Total Adjusted Outlets
% Adjusted Outlets
-20
677
606
1283
50%
21-50
823
-
823
34%
>50
338
-
338
14%
Annual Gasoline Volume
(000 gals)
83390
"Missing" Volume (000 gals) 13,526
96916
12%
Total Adjusted Volume
(000 gals)
% Adjusted gasoline
Volume
300560
300560
38%
385500
385520
50%
Total
1838
606
2444
100%
769470
13,526
782996
100%
B. Adjusted Region III/ADL Cut -off Analysis Comparison
Throughput (OOP GPM) % Outlets % Volume
<20
21-50
Source: ADL Tables C-4, C-5,. C-6.
52%
86%
13%
51%
59
-------
0\
o
Adjusted Region III Outlets
Adjusted Region III Volume
40 60
Monthly Throughput (000 Gals)
80
FIGURE C-2 BALTIMORE AQCR (REGION III) ADL/MD.BAQC RECONCILIATION
-------
differences shown in the summary of Table' C-8 are a function of the different
data bases (i.e. different time periods of analysis, extent of coverage and
throughput classifications). Recent discussions between ADL, EPA and the
Maryland Bureau of Air Quality Control confirm this compatibility.
TABLE C-8
ADL/Md. BACQ THROUGHPUT CUT-OFF ANALYSIS RECONCILIATION
Throughput Cut off <
(OOP GPM) -20
ADL % Outlets 63%*
Adjusted Md. BAQC % of
Outlets 52% 86%
ADL % of Gasoline Volume 15% 50%
Adjusted Md. BAQC % of
Gasoline Volume 13% 51%
*ADL captured a much greater % of small volume gasoline facilities than the
Md. BAQC survey which was based upon oil company submissions of the tax paid
gallons at key gasoline delivery locations.
61
-------
EHA STAGE II VAPOR RECOVERY IMPACT
TOTAL GASOLINE DISPENSING FACILITIES AUDIT
AQCR Sample Area Summary
(Boston, Baltimore, Denver, Los Angeles)
I. Facilities Analysis
Throughput (000 Gal/Mth)
Outlets
Service Stations
Non-Service Stations
Total
10 11-24 25-59 60-99
611 3,630 6,381 1,588
9.010 798 268 55
9,621 4,428 6,649 1,643
ilOO
831
Total Tofal
824 13,034
7 10,138
56%
44%
23,172 100%
Gasoline Annual Volume
(OOP Gallons)
Service Stations
Non-Service Stations
Total
37,856 743,262 2,969,156 1,427,447 1,416,937 6,594,658 92%
280.930 139,850 116.830 46.550 9.800 593.960 8%
318,786 883,112 3,085,986 1,473,997 1,426,737 7,188,618 100%
% Total Outlets
7. Total Volume
41%
4%
19%
12%
29%
43%
7%
21%
4%
20%
100%
100%
II. Volumetric Cut Off Analysis
Throughput Cut Off
(OOP Gal/Mth)
10
24
59
% Outlets
Exempted
4J%
60%
89%
% Volume
Exempted
4%
16%
59%
62
-------
APPENDIX C
TABLE 2
EPA STAGE II VAPOR RECOVERY IMPACT
TOTAL GASOLINE DISPENSING FACILITIES AUDIT
AQCR Non-Sample Area Summary
(New York City, Philadelphia, Washington D.C., Houston/Galveston,
Dallas/Ft. Worth, San Joaquin, Sacramento)
I. Facilities Analysis
Throughput (000 Gal/Mth)
Outlets
Service Stations
Non-Service Stations
Total
< 10
11-24
25-59
60-99
>IOO Total Toral
1,042
11,934
4,465
1,057
7,501
355
2,556
73
1,525
8
17,089
13,427
56%
44%
12,976 5,522 7,856 2,629 1,533 30,516 100%
Gasoline Annual Volume
(OOP Gallons)
Service Stations
Non-Service Stations
Total
60,345 761,761 2,661,318 1,991,790 2,011,967 7,487,181 92%
307.951 153.650 128.259 50.782 10.417 651.059 8%
368,296 915,411 2,789,577 2,042,572 2,022,384 8,138,240 100%
% Total Outlets
% Total Volume
42%
5%
18%
11%
26%
34%
9%
25%
5%
25%
100%
100%
II. Volumetric Cut Off Analysis
Throughput Cut Off
(OOP Gal/Mth)
10
24
59
% Outlets
Exempted
42%
60%
86%
% Volume
Exempted
5%
16%
50%
63
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TABLE 3
EPA STAGE II VAPOR RECOVERY IMPACT
TOTAL GASOLINE DISPENSING FACILITIES AUDIT
AQCR Total EPA Stage II Areas
I. Facilities Analysis
Throughput (000 Gal/Mth)
Outlets
Service Stations
Non-Service Stations
Total
± 10
1,653
20,944
11-24
25-59
60-99
>IOO
Total Total -
8,095 13,882 4,144 2,349 30,123 56%
1,855 623 128 15 23,565 44%
22,597 9,950 14,505 4,272 2,364 53,688 100%
Gasoline Annual Volume
(OOP Gallons)
Service Stations
Non-Service Stations
Total
98,201 1,505,023 5,630,474 3,419,237 3,428,904 14,081,839 92%
588.881 293.500 245.089 97,332 20,217 1,245.019 8%
687,082 1,798,523 5,875,563 3,516,569 3,449,121 15,326,858 100%
Total Outlets
Total Volume
42%
4%
19%
12%
27%
23%
4%
23%
100%
100%
II. Volumetric Cut Off Analysis
Throughput Cut Off
(OOP Gal/Mth)
10
24
59
% Outlets
Exempted
42%
61%
% Volume
Exempted
4%
16%
54%
64
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APPENDIX C
TABLE 4
EPA STAGE II VAPOR RECOVERY IMPACT
TOTAL GASOLINE DISPENSING FACILITIES AUDIT
AQCR
Boston
I. Facilities Analysis
Throughput (000 Gal/Mth)
Outlets
Service Stations
Non-Service Stations
Total
1 10 11-24 25-59 60-99
119 390 1,651 300
1,077 94 39 20
1,196 484 1,690 320
>100
75
3
Total Total
2,535 67%
1.233 33%
78 3,768
100%
Gasoline Annual Volume
(OOP Gallons)
Service Stations
Non-Service Stations
Total
8,493 66,311 696,268 243,141 99,4671,113,680 92%
44.340 15.650 13.220 17.180 3.960 94.350 8%
52,833 81,961 709,488 260,321 103,427 1,208,030 100%
% Total Outlets
% Total Volume
32%
4%
13%
7%
45%
59%
2%
22%
100%
100%
II. Volumetric Cut Off Analysis
Throughput Cut Off
(OOP Gal/Mth)
10
24
59
% Outlets
Exempted
32%
45%
90%
% Volume
Exempted
11%
70%
Source: Mass. Dept. of Corporations and Taxation, FEA, NPN, Industry Contacts,
Trade Associations, ADL Estimates.
65
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TABLE 5
EPA STAGE II VAPOR RECOVERY IMPACT
TOTAL GASOLINE DISPENSING FACILITIES AUDIT
AQCR Baltimore
I. Facilities Analysis
/o
Throughput (000 Gal/Mth) 1 10 11-24 25-59 60-99 HOP Total Total
Outlets
Service Stations 93 391 511 167 105 1,267 53%
Non-Service Stations 927 130 55_ 6_ 0_ 1,118 47%
Total 1,020 521 566 173 105 2,385 100%
Gasoline Annual Volume
(OOP Gallons)
Service Stations 4,457 75,985 234,012 145,467 172,543 632,464 88%
Non-Service Stations 30.730 24,290 26.500 4.630 __j^__ 86,150 12%
Total 35,187 100,275 260,512 150,097 172,543 718,614 100%
% Total Outlets 43% 22% 24% 7% 4% 100%
% Total Volume 5% 14% 36% 21% 24% 100%
II. Volumetric Cut Off Analysis
Throughput Cut Off % Outlets % Volume
(OOP Gal/Mth) Exempted Exempted
10 43% 5%
24 65% 19%
59 89% 55%
Source: Md. Dept. of Taxation, FEA, NPN, Industry Contacts, Trade Associations,
ADL Estimates.
66
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APPENDIX C
TABLE 6
EPA STAGE II VAPOR RECOVERY IMPACT
TOTAL GASOLINE DISPENSING FACILITIES AUDIT
AQCR
Denver
I. Facilities Analysis
Throughput (000 Gal/Mth) ± 10 11-24
Outlets
Service Stations
Non-Service Stations
Total 1,662 576
25-59 60-99
>IOO
Total Total
50
612
501
75
592
17
176
5
27
1
1,346
1,710
44%
56%
609 181
28
3,056 100%
Gasoline Annual Volume
(OOP Gallons)
Service Stations
Non-Service Stations
Total
3,960 107,886 210,868 137,309 34,327 494,350 90%
29.650 11.290 8.540 3.700 1,740 54.920 10%
33,610 119,176 219,408 141,009 36,067 549,270 100%
% Total Outlets
% Total Volume
54%
6%
19%
22%
20%
40%
26%
1%
100%
100%
II. Volumetric Cut Off Analysis
Throughput Cut Off
(OOP Gal/Mth)
10
24
59
% Outlets
Exempted
54%
73%
93%
% Volume
Exempted
6%
28%
68%
Source: FEA, State Tax Records, NPN, Industry Contacts, Misc. Trade Associations,
ADL Estimates.
67
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349
5,394
2,348
499
3,627
157
945
24
617
3
7,886
6.077
56%
44%
TABLE 7
EPA STAGE II VAPOR RECOVERY IMPACT
TOTAL GASOLINE DISPENSING FACILITIES AUDIT
AQCR Los Angeles
I. Facilities Analysis
Throughput (000 Gal/Mth) 1 10 11-24 25-59 60-99 2J.QQ Total Total
Outlets
Service Stations
Non-Service Stations
Total 5,743 2,847 3,784 969 620 13,963 100%
Gasoline Annual Volume
(OOP Gallons)
Service Stations 20,946 493,080 1,828,008 901,530 1,110,600 4,354,164 92%
Non-Service Stations 176.210 88,620 68,570 21.040 4,100 358.540 8%
Total 197,156 581,700 1,896,578 922,570 1,114,700 4,712,704 100%
% Total Outlets 41% 20% 27% 7% 5% 100%
% Total Volume 4% 12% 40% 20% 24% 100%
II. Volumetric Cut Off Analysis
Throughput Cut Off % Outlets % Volume
(OOP Gal/Mth) Exempted Exempted
10 41% 4%
24 61% 16%
59 ' 88% 56%
Source: California Board of Equalization, FEA, NPN, Industry Contacts, Trade
Associations, ADL Estimates.
68
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TO: The Environmental Protection Agency CASE: Economic Impact - Vapor
Strategies & Air Standards Division Recovery - Stage II
Research Triangle Park
North Carolina 27711 SUBJ: Task D - Pro Forma Service
Station Economics
FROM: Arthur D. Little, Inc. DATE: August 23, 1976
I. INTRODUCTION
In order to assess the impact of Stage II vapor recovery costs, EPA has requested
assistance from ADL in developing the economic profile of "typical" service stations.
This requirement has been done on a pro forma basis for the following types of re-
tail service station operations:
Company "Owned"/Leased Dealer (Co/Ld)
Company "Owned"/Company Operated (Co/Co)
Dealer "Owned"/Dealer Operated (Do/Do)
Convenience Stores ("C" Store)
The operational and financial characteristics for the above market segments were
developed on a prototype basis for various gasoline throughput ranges. Along
with vapor recovery costs supplied by the EPA, this data provided the economic
framework for the economic impact analysis which is described in Task G.
II. SUMMARY
There are four key types of service station operations each of which has distinct
operating characteristics, expense profile, and market niche. As summarized in
Figure D-l, the Co/Ld service stations have the highest expenses per gallon of
gasoline sold. "Tie-in" operations such as convenience stores have the lowest
total operating costs per gallon. Among the four prototypes, the difference in
the total marketing expense between these two extremes (i.e., Co/Ld and "C" stores)
is almost $.16/gallon at a throughput level of 30M gallons/month.
The net margins (BFIT) shown in the illustrative prototypes range from a high of
$.0110/gallon for the low volume, Co/Ld station to a breakeven situation of zero
net margin for the low volume, Do/Do outlet. The implicit assumptions built into
these prices are a reflection of today's relatively weak market for gasoline retailers.
Several market factors are evolving which are bringing about a significant contraction
of retail gasoline margins. Conventional service stations have historically been
very labor intensive with employee costs representing over 2/3 of total onsite
expenses. The current prime driving force in the market is a dramatic shift towards
self-service and "tie-in" operations as marketers attempt to reduce labor costs and
attract greater economies of scale with higher sales volumes.
69
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.22
20 40 60 80
Monthly Throughput (000 Gal)
FIGURE D-l SERVICE STATION PROTOTYPES
TOTAL MARKETING EXPENSE SUMMARY
70
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There are three broad segments of the current retail gasoline market:
The high volume sector with the lowest pump prices (e.g., 80M GPM).
The neighborhood garage stations with medium sales volume (e.g., 25M
to 79M GPM).
The rural low volume sector (equal or less than 24M GPM).
Each type of gasoline supplier (majors, regional marketers, jobbers) has a mix
of all three types of service station operations as discussed in the market
audit report (Task A). As can be deduced in Figure D-l, conventional full-service
and split-island service stations cannot attempt to successfully compete in the
same market as self-service Co/Co and convenience stores. Low volume Do/Do out-
lets are often in segregated rural areas which are somewhat isolated from other
competitive pressures. However, medium and high volume Do/Do stations will quite
often be competing with low and medium volume Co/Ld stations (i.e., in the medium
volume market niche). Do/Do stations above 60M gallons/month would be very rare
in most markets. The high volume Co/Ld stations (i.e., greater or equal to 80M
GPM) most likely would compete with the Co/Co total self-service outlets and have
defensively resorted to the use of split-island marketing (i.e., one pump island offering
full-service and the other island offering self-service with a $.02 to $.03 per
gallon "discount"). "C" stores are in the unique position to compete with all three
types of service station operations. A "C" store may be surrounded by high volume
total self-service stations on a major road and still successfully compete. On
the other extreme, the low volume required to achieve economies of scale in a "C"
store would also be achieved in a rural or suburban community which was formerly
being serviced only by Do/Do and low volume Co/Ld stations.
Over the next five years, there will be a continued evolution in the proportional
mix of each segment of the service station industry. The marginal service station
population will continue to decline which, for the most part, will be drawn from
the Co/Ld and Do/Do segments. Self-service outlets and convenience stores will
continue to increase in number until a market saturation point is reached. By 1980,
it is estimated by industry sources that 50% of the remaining service station outlets
will be total self-service stations which, for the most part, will be Company "Owned"/
Company Operated facilities. Included in this number will be approximately 20M "C"
stores selling gasoline (i.e., 13% of the total 1980 retail gasoline outlets).
Conventional stations providing "neighborhood garage" services will not disappear
but will loose their position of preeminence that has characterized retail gasoline
marketing over the last two decades. A Darwinian survival of the fittest contest is
now taking place as a result of a variety of competitive pressures. However, it is
possible and probable that each of the four service station species can survive if
it is able to adapt and find its own particular ecological niche in an evolving
market place.
71
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III. BACKGROUND
Operational profiles and pro forma income statements were developed for the
service station prototypes shown in Table
TABLE D-l
SERVICE STATION ECONOMIC PROTOTYPES
T e Gasoline Throughput (OOP GPM)
Operation Abbreviation Low Medium High
Company "Owned"/Lease Dealer Co/Ld 20 35 80
Company "Owned"/Compahy Operated Co/Co 50 100 200
Dealer "Owned"/Dealer Operated Do/Do 10 25 40
Convenience Store "C" Store 10 25 40
In all cases, the company or dealer "ownership" of a service station, in effect,
describes the control interest of that facility by either the oil supplier or the
onsite dealer. This control may or may not involve the actual title assignment
of the property to the controlling party (i.e., the company or the dealer). Control
of the site may be gained either by direct ownership of the land or by a leasing
arrangment for the land and/or building from a third party investor on a long or
short term basis.
There are regional differences in "typical" service station net margins at various
types of service stations as a result of the following variables.
Regional premium gasoline ratio (i.e., the percentage of regular,
premium, and unleaded gasoline sold).
Tires, batteries, and accessories (TEA) ratio (i.e., sale of "non-gasoline"
products and services as a function of gasoline sales - usually expressed
in dollars per thousand gallons of gasoline sold per month.
Penetration of total self-service operations.
Market share of independent retailers.
Local labor rates.
Utility requirements and costs (especially for heating).
Local regional supply and demand balance for gasoline.
Concentration of gasoline demand and upstream marketing costs.
Level of competitive activity.
Price control regulations.
Total dealer direct remuneration (i.e., take home pay).
Since countless iterations of the above factors could be reviewed for each distinct
market area, pro forma economic statements representing a reasonable composite of
all AQCR's were constructed.
72
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IV. PROTOTYPE PROFILES
Elements of both the station gross margin and operating expenses were constructed
for each of the four types of service station operations as follows:
1. Service Station Gross Margin
The gasoline gross margin for each prototype, is based upon the typical posted
pump and dealer tank wagon prices in various regions, as reported by Oil
Daily on July 22, 1976. A composite for all the AQCR's was made by prorating
the gasoline volume in each AQCR and the average premium sales ratio supplied
by industry contacts. For instance, premium gasoline sales represented approximately
40% of the retail gasoline sales volume in California but only 21% of the other
AQCR's. Information from industry contacts and field observations of the case
team were utilized to assess the typical price relationships between the various
types of service station operations and throughput levels. The "laid-in" gasoline
costs for the Company "Owned"/Company Operated service station prototypes
(Delta and Golf) were based upon the average rack postings in various AQCR's as
shown in Platts Oilgram Price Service of 7/28/76 plus an average freight rate of
$.0090/gallon.
2. "Non-Gasoline" Sales Gross Margin
The "non-gasoiine" sales gross margin was estimated from regional industry accounting
statistics typifying a modified income statement for a relatively viable service
station operation. This "non-gasoline" contribution to the margin of the overall
station operation is expressed as a function of monthly gasoline volume. An
illustrative description of the elements of the "non-gasoline" gross margin for a
Company "Owned"/Leased Dealer operation is shown in Table II.
In a full service operation, the contribution from "non-gasoline" sales is
absolutely vital for the economic survival of the service station. Company "Owned"/
Company Operated self-service outlets receive very little, if any, contribution
from the sales of products other than gasoline. The Delta Company "Owned"/Company
Operated prototype shows a slight contribution from "non-gasoline" sales which
primarily consists of vending machine sales, cigarettes and make-up motor oil.
3. Labor
In the two dealer operated prototypes (Echo and Foxtrot), the labor cost includes
both a targeted expense allocated for the dealer's salary (dealer "draw") and
employee expenses (including wages, benefits, and social security). It has been
assumed that at least one employee would fall within the wage scale paid to
an automotive mechanic at full service and split-island stations with a gasoline
throughput exceeding 35,000 gallons per month. Other employees generally are paid
the minimum wage with an allowance for approximately 5 additional hours of overtime
per week. Assumptions for the application of expenses to the dealer "draw" account
is summarized in Table D-3.
73
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TABLE D..-2
" ' ' ~" 1T"" i
"NON-GASOLINE" SALES GROSS MARGIN
CO/LD SERVICE STATION - ECHO PROTOTYPE
(Throughput - 35M GPM)
Sales Realization per
Item Sold ' OOP GPM of Gasoline Sold
Tires $49.58
Batteries 37.28
Accessories 63.07
Oil/ATF 14.68
Vending Machines 1.58
Lube Oil and Grease 1.18
Miscellaneous 8.96
Total Sales Realization $143.91
Average Gross Margin 21%
Total Gross Margin 30.22
Labor Gross Margin (Labor costs all allocated 37.87
to gasoline labor expense)
Total "Non-Gasoline" Gross Margin $68.09
"Non-Gasoline" Gross Margin/Gallon of Gasoline Sold $.0681
74
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TABLE t)-3
DEALER "DRAW"* ESTIMATES
($000/Year)
Type of Operation Throughput (OOP GPM) 10 20 25 35 40 80
Co/Ld - $12 - $20 - $25
Do/Do $10 - $20 - $25
Co/Co NA NA NA NA NA NA
"C" Store NA NA NA NA NA NA
*
Includes Benefits and FICA.
The actual take home pay to the individual entreprenurial dealer would, in fact,
be a combination of the above dealer "draw" account and the bottom line annual
net margin. For instance, for the 35,000 GPM Co/Ld dealer, this combination
would be ftqualto almost $23,000 (i.e., $20M plus $2.8M). Of course, part of
this remuneration is, in fact, a partial recovery of the dealer's investment
in his operation (i.e., investment in inventory, miscellaneous equipment,
possibly a tow truck, etc.). An increase or decrease in the net margin will
in fact change the dealer's level of earnings. For instance, if the net margin
in this example is reduced to a loss of $.01/gallon, this results in a total
annual loss of $4.2M which in effect results in the dealer take home pay of $15.8M.
This reduced income could result from any number of circumstances such as:
Reduced contribution from "non-gasoline" sales (i.e., TBA, labor, etc.).
Greater competitive pressures at the pump reducing the gasoline gross
margin.
Higher expenses (e.g., labor, rent, etc.).
It should be stressed that most dealers and service station accounting firms
(e.g., E.K. Williams, Marcoin, etc.) do not delineate a dealer "draw" account
as a specific operating expense. Furthermore, they do not use the standard
cost accounting income statement such as those profiling the financial operation
of the various prototypes.
There is no dealer expense in the two Company "Owned"/Company Operated prototypes.
Direct allocated costs of company service station management have been allocated
in the miscellaneous expenses on the basis of one supervisor to eleven stations.
The labor component of the convenience store prototype is quite distinct and
reflects a fixed fee/gallon commission paid from the gasoline profit center to
the "C" store operations.
75
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The employee manning level of Co/Ld and Do/Do operations is based upon an industry
average of one employee (including the dealer) per 8,000 gallons per month of
gasoline sold. This ratio increases with high volumes and greater economies of
scale. For the Co/Co self-service stations, the manning level ratio is approximately
one employee per 20M gallons per month sold (i.e., 110 gallons per man hour).
4. Utilities and Services
This expense category will vary with both throughput and location. Generally,
the sunbelt areas of California and the south have lower utilities costs. Other
costs in this group include:
Outside services such as E.K. Williams and Marcoin accounting
services, cleaning, etc.
Laundry and uniforms.
Sales promotion and operating supplies (e.g., rags, etc.).
5. Rent
The Company "Owned"/Leased Dealer operations are also charged a semi-fixed fee
per gallon of gasoline which is described as rent. However, this charge is not
an economic rent in the true sense of the word. An oil company could not obtain
an adequate return on its investment in the service station site from the rent
charge alone at the current rental rates which range from $.015/gallon to $.025/
gallon. In fact, in some depressed markets, the competitive situation has
dictated a rent rebate to the dealer for a volume in excess of an agree upon
target (e.g., 75M GPM). It has been estimated by some industry contacts that
rents would have to be raised to a level of $.05 to $.06/gallon before the rent
alone could provide a satisfactory return to the oil company's investment in
service station fixed assets. Historically, rents are negotiated with new dealers
to roughly approximate from 15% to 20% of the anticipated total gross revenues
(including "non-gasoline" sales). As stated previously, the capital recovery
to the company for its retail operations is obtained both from rent as well as
non-product costs built into the delivered price of gasoline (i.e., rent and
freight equalization subsidies pooled into the dealer tank wagon price). As
the marketing departments of major oil companies have increasingly become more
profit center oriented, it is anticipated that there will be continued evolution
towards economic rent policies for lessee dealers after the FEA decontrol of gasoline
price and allocation programs. This marketing tactic will be accompanied by a
greater emphasis towards rack pricing. Along with the compression of margins
driven by self-service, these two measures will provide a greater incentive for
the continued attrition of marginal service station outlets.
76
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6. Miscellaneous Expenses
Expenses captured in this category included:
Maintenance and repairs (including nozzle replacements).
Insurance
Miscellaneous fees (e.g., retail license fee, realty taxes for
Co/Co and Do/Do operations, etc.).
Depreciation - for Co/Ld sites, depreciation is for miscellaneous
tools and testing equipment, tow truck, etc. For the Co/Co and
Do/Do stations, depreciation also includes the appropriate major
fixed assets (e.g., buildings, etc.).
V. PRO FORMA INCOME STATEMENTS
1. Company "Owned"/Leased Dealer Prototype (Co/Ld)
A profile of the revenues (ex. tax) and the operating expenses for a "typical"
Co/Ld service station is shown in Table D-4 for a high, medium and low through-
put level of operation. It should be reemphasized that net margins shown for
each throughput is dependent upon the assumptions of market conditions made in
the construction of the particular prototype. The purpose of this exercise is
to dissact and illustrate the interrelationship of various components of a
standard income statement for various types of service stations viewed as
separate profit centers. As can be seen in Figure D-2 a "typical" Co/Ld
operation is highly labor intensive. On average, almost 2/3 of the total
operating expenses for a Co/Ld station consists of personnel costs including
an allocated amount for a dealer "draw" account. These manpower expenses are
inversely proportional to the gasoline sales volume and to a lesser extent,
the TBA ratio (i.e., the higher the volume of gasoline, the lower the unit
labor cost for a given level of operating efficiency). Generally speaking,
utilities and services as well as the miscellaneous expenses are more fixed
in nature than the other elements of cost. Rent, on the other hand, is directly
variable with the throughput of gasoline but on a step function basis which would
be adjusted to compensate for anticipated large changes in volume on a periodic
basis (e.g., every 1 to 3 years).
Table D-5summarizes an average of various expense elements for Co/Ld operations
as a function of total operating costs.
77
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TABLE D-4
CO/LD SERVICE
STATION PROTOTYPE
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 (Incl.
Dealer and Mechanic)
Number of Mechanics
Dealer Investment ($000)
ii. NET REVENUE"*"
($ /Gallon)
Composite Pump Price (Ex. Tax)
Composite Dealer Tank Wagon (Ex
Gasoline Gross Margin
TBA Gross Margin
Total Station Gross Margin
III. OPERATING EXPENSES"1"
Labor
Dealer Draw
Employees
Utilities and Services
Rent
Miscellaneous
Total Expenses
Net Margin (BFIT)
Dealer ROI (BFIT)
20
Co/Ld
Full Service
$145
1966
6
3.5
0
$10
$.4996
. Tax) .4021
$.0975
.0864
$.1839
$.0500
.0614
.0168
.0275
.0169
$.1726
$.0113
27%
35
Co/Ld
Full Service
$165
1966
8
4.5
1
$15
$.4996
.4021
$.0975
.0681
$.1656
$.0357
.0644
.0230
.0200
.0158
$.1589
$.0067
19%
80
Co/Ld
Split Island
$250
1969
10
8
1
$20
$.4696
.4021
$.0675
.0498
$.1173
$.0208
.0496
.0143
.0175
.0094
$.1116
$.0057
27%
Onsite only with the individual station viewed as a separate profit center.
78
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.22
Station Gross Margin
Total Marketing Expenses
.06
.02
20 40 60 80
Monthly Throughput (000 Gal)
FIGURE D-2 CO/LD PROTOTYPE SERVICE STATION ECONOMICS
(COMPANY OWNED/LESSEE DEALER)
79
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Expense Item
TABLE D-5
CO/LD PROTOTYPE - AVERAGE EXPENSE ELEMENTS
% of Total Operating Expense
Labor
Utilities and Services
Rent
Miscellaneous
Total
63%
12%
15%
10%
100%
The average components of a price of a gallon of gasoline in the 11 AQCR's
is shown in Table D-6.
CO/LD SERVICE
Average Throughput (000 GPM)
TABLE Dr£
STATION GASOLINE COST
20
Composite Average Pump Price 100%
Average Federal/State Excise Taxes 18%
Composite Pump Price (Ex. Tax)
Composite DTW
Gasoline Gross Margin
"Non-Gasoline" Gross Margin
Total Station Gross Margin
Expenses
Labor
Utilities, Services
Rent
Miscellaneous Expenses
Total Expenses
82%
66%
16%
14%
30%
18%
3%
4%
3%
28%
COMPONENTS
35_
100%
. 18%
82%
66%
16%
11%
27%
16%
4%
3%
3%
26%
80_
100%
19%
81%
69%
12%
8%
20%
12%
2%
3%
2%
19%
Net Margin (BFIT)
2%
1%
1%
80
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The average Federal plus State excise tax also represents a composite figure prorated
on a volumetric basis. Since the excise tax is levied as a fixed rate per gallon,
this tax levy represents a higher proportion of the total pump price for discounted
gasoline. The gasoline gross margins range from 12% to 15% of the total composite
pump price for gasoline (including the excise taxes). Since the total expenses
for a conventional full-service station range from 19% to 28% of the pump price
(with tax), the contribution margin from "non-gasoline" sales is absolutely
essential for a viable operation. "Non-gasoline" sales such as TEA and mechanical
labor provide 41% to 47% of the total station gross margin. A reduced level of TBA
sales relative to gallonage will further degrade the overall financial situation
of a particular station.
2. Company "Owned"/Company Operated Prototype (Co/Co)
A financial profile of a high volume Co/Co station is shown in Table D-7 (Co/Co
prototype). Typically, these facilities are total self-service operations with
little or no contribution margin from "non-gasoline" sales. As discussed in
the service station market audit, these outlets typically are operated by dynamic,
independent marketers with gasoline sales volumes usually in excess of 100,000
gallons per month.
As shown in the Co/Co prototype, the composite pump posting of this segment is
generally from $.05 to $.06/gallon below the posting of conventional neighbor-
hood service stations. In order to obtain high volumes, Co/Co self-service
stations must operate with lower costs and gross margins which will attract the
growing price buying segment of the market. As discussed previously, the "laid-
in" cost of gasoline is the price delivered into the storage tanks of the Co/Co
station (i.e., consisting of the rack price, plus freight). As shown in Figure
D-3, the labor component of the Co/Co expense profile is nearly fixed which
provides a significant financial incentive for the economies of scale associated
with higher throughput volumes. The key to success in this highly competitive
market is to lower the pump postings to the optimum point which maximizes the
return on investment at a higher throughput volume despite the lowering of gasoline
gross margins. The labor costs at Co/Co facilities essentially consist of an
onsite cashier who is generally paid at the minimum wage level. Supervisory
costs have been built into the miscellaneous expense category at the rate of one
supervisor per eleven Co/Co facilities. The Co/Co self-service stations generally
do not have repair bays and have significantly lower utility costs than conventional
stations. This advantage is somewhat offset by the longer hours of operation and
significantly greater use of display lighting at the newer facilities (e.g., new
canopy designs and identification signs).
It should be reemphasized that the relatively low return on investment (in this
case a negative return on a DCF basis) shown in the Co/Co and other prototypes
is a reflection of the currently depressed gasoline market. Levels of return
exhibited in these examples would not be acceptable to a rational investor over the
long term. As discussed in the marketing dynamics task, the key factors driving
these relatively low gross margins are:
81
-------
TABLE D-7
CO/CO SERVICE STATION PROTOTYPE
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 Day
50
Co/Co
Total Self Serve
$170
1970
10
2.3
12
100
Co/Co
Total Self Serve
$200
1974
12
4.0
16
200
Co/Co
Total Self Serve
$250
1974
16
5.5
24
II. NET REVENUES ($/Gallon)
Composite Pump Price (Ex. Tax)
Laid-in Gasoline Costs (Ex. Tax) .3815
Gasoline Gross Margin
Non-Gasoline Sales Gross Margin
Total Onsite Gross Margin
III.OPERATING EXPENSES"1"
Labor
Utilities & Services
Miscellaneous
Total Expenses
Net Margin (BFIT)
Station"*" ROI (BFIT)
$.4696
:) . 3815
.0881
i . 0020
$.0901
$.0229
.0160
.0403
$.0792
$.0109
4%
$.4396
. 3815
.0581
. 0010
$.0591
$.0200
.0080
.0227
$.0507
$.0084
5%
$.4196
.3815
.0381
.0005
$.0386
$.0135
.0040
.0134
$.0309
$.0077
7%
Onsite only with the individual station viewed as a separate profit center.
82
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oo
I*) !
o
tt
Total Marketing Expense
.02 -
200
Monthly Throughput (000 Gal)
FIGURE EK3 CO/CO PROTOTYPE SERVICE STATION ECONOMICS
(COMPANY OWNED/COMPANY OPERATED)
Arthur Dlittle Inc
-------
Gasoline and refinery capacity supply/demand picture (i.e., which
is currently long).
FEA gasoline price and allocation programs.
Economies of scale and labor savings of the total self-service operations.
.The total return to the individual Co/Co marketer is obtained from both the
onsite retail operations and the distribution/wholesaling function. The $.3815
"laid-in" gasoline costs which is illustrated in Table VII assumes a full allocation
of the operational and delivery expenses as well as a capital recovery of the
marketing investment from the primary terminal to the service station fill pipe.
The level of net margin for these wholesale marketing operations could be in the
range of $.02 to $.04/gallon. The most significant financial factor to the Co/Co
marketer/wholesaler is its actual refinery gate price for gasoline. Currently,
FEA regulations have resulted in a gasoline price spread of up to $.05/gallon
for individual marketers at the refinery gate. The actual gasoline cost position
of a given marketer is a function of many factors specific to the refiner source
of supply (e.g., base period prices, entitlements, etc.). Thus, the marketer/
wholesaler would most likely enjoy a_return on investment for their total inte-
grated retail gasoline operation greater than 4% to 7% shown in the retail Co/Co
prototype (Delta). In good times, a DCF return on investment in the range of
25% to 30% BFIT has actually been achieved by efficient and aggressive independent
marketers for their total retail gasoline marketing operations.
3. Dealer "Owned"/Dealer Operated Prototype (Do/Do)
The operational and financial profile of the Do/Do prototype is shown in Table
VIII. These operators, also known as open dealers, are generally "neighborhood
garage" conventional stations which are quite similar to the Company "Owned"/
Leased Dealer stations in their physical operations. Like the Co/Ld operation,
the Do/Do station must achieve a significant contribution margin from "non-gasoline"
sales (i.e., TBA, etc.). However, the following key differences are noted:
The onsite dealer of the Do/Do site actually owns and/or controls
the facility and "flys" the gasoline brand of the supplier who has
provided him with the best financial arrangements.
The Do/Do dealer has a significantly higher level of investment
in the business than the Co/Ld since the Do/Do fixed assets are either
directly held or the responsibility of the dealer.
Do/Do stations tend to be located in rural or older, established
suburban locations. The newer metropolitan sites with higher traffic
densities are generally beyond the financial capability of Do/Do operators.
Compared with the average Co/Ld stations, Do/Do facilities are generally:
older, smaller (e.g., 1 to 2 bays), and less expensive with lower monthly
gasoline sales (e.g., 25M gallons/month average for Do/Do stations vs.
40M gallons/month for a typical Co/Ld outlet).
The graphical relationship of the various components of a pro forma income statement
for the Do/Do operation is illustrated in Figure D-4. The anomaly in the labor
curve between the 25M to 40M gallons per month shows the dramatic impact of
adding one mechanic to the station's personnel costs. Since the dealer owns or
directly leases his own facilities, he is not burdened with a "rent" surcharge
on his gasoline sales from the supplier. Do/Do facilities also include some
-------
TABLE D-8
I. OPERATIONAL PROFILE
Throughput (000 G
Type of Operation
Type of Service
Supplier Investment ($000)
Dealer Investment ($000)
Number of Nozzles
Total Employment
Mechanics)
Number of Mechanics
II. NET REVENUE
'($/Gal)
Composite DTW (Ex. Tax)
Average Gross Margin
Non-Gasoline Gross Margin
Total Site Gross Margin
III. OBERATING EXPENSES
'($/Gallon)
Labor
Dealer
Employees
Utilities and Services
Rent
Miscellaneous
Total Expenses
Net Margin (BFIT)
Dealer ROI (BFIT)
BA/PO. SERVICE STATION PROTOTYPE
PRO FORMA INCOME STATEMENT
ons/Mo) 10
Do /Do
Full
($000) $2
000) $40
4
ic. Dealer and 1.5
nics 0
ng (Ex. Tax) $.4996
'ax) .3971
i .1025
largin .0900
gin $.1925
$.1000
.0245
:es .0280
.0400
$.1925
$.0000
0%
25
Do /Do
Full
$2
$65
4
3.0
0
$.4996
.;3971
.1025
.0700
$.1725
$.0666
.0393
.0188
.0236
$.1483
$.0242
11%
40
Do /Do
Split
$3
$120
6
5.0
1
$.4996
.3971
.1025
.0600
$.1625
$.0520
.0649
.0162
.0183
$.1514
$.0111
4%
85
-------
.22
.20
.18
.14 1
O
.10
.06
.02
LaborS/::
Miscellaneous Expenses
20
40
60
80
100
Monthly Throughput (000 Gal)
FIGURE D-4 DO/DO PROTOTYPE SERVICE STATION ECONOMICS
(DEALER OWNED/DEALER OPERATED)
86
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stations operating under a lease/leaseback arrangement. In this situation, the
dealer owner is able to increase his own cash flow by leasing the station to a
supplier at one price and then "re-renting" it back for a lower price. This is
one method that a supplier may use to "sweeten the pot" to attract a desirable
Do/Do operator as a customer.
While not burdened with real rent, the Do/Do station does have higher depreciation
costs which is reflected in the miscellaneous expense category.
4. Convenience Store Prototype ("C" Store)
Convenience stores have grown significantly in both numbers and sales revenue
since their introduction in late 1950's. There are approximately 28,000
convenience stores in the United States of which roughly 12,000 outlets have a
"tie-in" gasoline dispensing operation (i.e., 40%). By 1980, the number of
convenience stores is expected to grow to approximately 40,000 with an estimated
20,000 "C" stores selling gasoline.
Typically, "C" stores are quite distinct from the rural "Mom & Pop" operations
which occasionally also may have a gasoline pump. "Mom & Pop" stores are typically
an old time family owned business which are quite often located in the center
of a residential neighborhood or a small rural community and is protected by
zoning. These "home town" proprietors have long established distinct personalities
with local patronage of customers who use the store out of habit or tradition.
Other general characteristics of "Mom & Pop" operations include:
Generally old buildings
Low sales volumes
Poor lighting
Lack of cleanliness
Poor or outdated product mix
Lack of sophisticated merchandising techniques
Generally high costs
Lack of a dedicated parking lot
Poor to fair traffic count locations
A convenience store, on the other hand, is professionally run, clean and adequately
lit as well as sufficiently stacked with well defined, specific.items. :.In addition,
successful "C" stores have been placed in a location with a good traffic
pattern with provisions made for easily accessible parking. The total investment
in a modern convenience store is typically over $100,000 (including inventory
and other working capital). Convenience stores are operated by specialized
chains such as Southland Corp. (e.g., Seven-Eleven stores), subsidiaries of
supermarkets or other discount stores and now even by oil companies (notably
Citgo, Arco, Amoco and Tenneco).
According to industry statistics, 85% of the convenience store customers drive
into the facilities for a quick purchase of one or two staple items (e.g.,
milk, tobacco, etc.). The average customer time in a "C" store is only four
minutes. The typical inside operation of the convenience store normally
operates with gross margins of approximately 28% (compared to 21% for most super-
markets) and a net margin of 2% to 5% (BFIT). A "C" store will average three
employees working on shifts which provide coverage seven days per week, fifteen
to twenty hours per day. The average total sales in a modern convenience store
is approximately $230,000 per year.
87
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The typical gasoline volume at "C" stores is 18,000 gallons per month. The pro
forma profile of only the gasoline profit center portion of the "C" store operation
is shown in Table D-9. The supplier investment of $18.5 includes approximately
$17,000 to convert an existing "C" store for gasoline operations plus approximately
$1,500 of gasoline inventory.
Most "C" stores will only carry two grades of gasoline. In addition to regular,
stations with throughputs exceeding 16.6M gallons/month are required to provide
unleaded gasoline. Otherwise, a "C" store will have premium gasoline which will
provide a slightly higher gross margin to the operator. Few "C" stores will invest
in the inventory or dispensing facilities required to sell three grades of gasoline.
In either case, regular gasoline represents approximately 75% of the total gasoline
sales volume in the typical "C" store.
As stated previously, there are no employees dedicated to the gasoline operation
at a "C" store. Typically, the "inside" cashier will handle gasoline sales
receipts for which the "inside" store profit center will then be generally
credited with a fixed fee per gallon similar to a commission arrangement. Generally,
no other automotive services or accessory products are available on the island
for the motorist at a "C" store location.
The self-service operation and a low unit cost feature of "C" stores permits
a gasoline pricing policy which is competitive even with the high volume, total
self-service stations in spite of the significantly lower "C" store gasoline
throughput. There is no additional rent charged for the gasoline dispensing
facilities since this expense is considered captured in the fixed fee "commission"
to the store operator. The miscellaneous expense category is the most significant
cost factor in the operation of a "C" store because of the relatively low
gasoline volume over which the fixed costs must be spread. Miscellaneous expenses
include the retail gasoline license, maintenance repairs as well as depreciation.
A graphical summary of the gasoline economics at the "C" store prototype is
illustrated in Figure D-5. Gasoline sales volumes at "C" stores greater than
50M gallons/month would be extremely rare. The manpower, equipment and facilities
of "C" stores are not designed for this higher level of gasoline sales activity.
88
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TABLE D-9
I.
II.
III.
"C" Store/' SERVICE
PRO FORMA
OPERATIONAL PROFILE
Throughput (000 Gallons/Mo.)
Type of Operation
Type of Service
Supplier Investment ($000)
Year of "C" Store Conversion
Number of Nozzles
Number of Employees
NET REVENUE (Gasoline Only)+
($ /Gallon)
Composite Pump Posting (Ex. Tax)
"Laid-in" Gasoline Cost (Ex. Tax)
Gasoline Gross Margin
Non-Gasoline Gross Margin
Total Gasoline Gross Margin
OPERATING EXPENSES"1"
($ /Gallon)
Labor*
Utilities and Services
Rent
Miscellaneous
Total Expenses
Net Margin (BFIT)
Gasoline ROI (BFIT)+
STATIONS PROTOTYPE
INCOME STATEMENT
10
"C" Store**
Self Serve
$18.5
1975
2
NA
$.4196
. 3815
$.0381
NA
$.0381
$.0025
.0030
-
.0324
$.0379
$.0002
0%
25
"C" Store
Self Serve
$18.5
1975
2
NA
$.4196
.3815
$.0381
NA
$.0381
$.0025
.0020
-
.0129
$.0174
$.0207
34%
40
"C" Store
Self Serve
$18.5
1975
2
NA
$.4196
. 3815
$.0381
NA
$.0381
$.0025
.0013
- .
.0081
$.0119
$.0262
68%
*Fixed fee/gallon commission paid to store for dual use of store clerk
to handle gasoline payments.
Convenience Store
Onsite only with the individual station viewed as a separate profit center.
89
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Total Marketing Expenses
Labor
Utilities
20 40 60
Monthly Throughput (000 Gal)
FIGURE D-5 "C" STORE SERVICE STATION ECONOMICS
(CONVENIENCE STORE)
90
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MEMORANDUM
TO: Environmental Protection Agency CASE: Economic Impact Stage II
Strategies and Air Standards Division Vapor Recovery Regulations
Research Triangle Park
North Carolina SUBJECT: Task E - Capital Availability
DATE: August 6, 1976
I. INTRODUCTION
This subtask covers the availability and affordability of capital to gasoline
retailers for purposes of complying with Stage II vapor recovery requirements.
According to the EPA's draft regulations, this is the responsibility of the
owner of the dispensing equipment.
For purposes of our evaluation we have separated gasoline retailers into
five categories on the basis of their degree of upstream integration into
the major activities of the petroleum industry: (1) major oil companies
(2) regional refiner/marketers (3) independent wholesale/marketers (4)
jobbers, and (5) dealer owners. We have also in terms of our practical
treatment of these categories separated them into two groups on the basis
of an important difference, their ability to raise capital without recourse
to banks or other lending institutions.
Major oil companies, regional refiners and independent wholesale/marketers,
by reason of their greater scale of operations, larger financial resources
and consequent greater credit worthiness, are in most cases able to raise
investment from internal generation or from the capital market. Some may
be able to raise it more easily and cheaply than others and some in practice
may choose not to raise it in these ways at all, but in general, they have a
greater access to capital than other sectors.
In general, jobbers and Dealer/Owners do not have the financial resources or
credit worthiness required to raise substantial amounts of capital through
internal generation or from the capital market. Therefore, these operators
must turn to the banks, other lending institutions, or private investors.
In many instances, their Stage II capital requirement will be equivalent to
a substantial proportion of the operator's net worth, and raising .such sums
may be a difficult, costly, and uncertain process.
If gasoline retailers in this group are not able to raise the capital needed
for Stage II they will be faced with the options of either failing to comply or go
out of business. This second group of retailers, therefore, represents an area of far
greater sensitivity than the first group in terms of the probable impact of Stage II.
This task is not intended to specifically analyze the impact of Stage II on
the profitability of retail gasoline sellers. Any uneconomic investment, to
the extent that its costs are not recovered from consumers, causes a drain on
precious cash resources. Stage II will be no exception.
The issues covered in this task are:
What alternative sources of investment capital are available to gasoline
retailers?
Are these sources adequate to meet the needs of Stage II?
91
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SUMMARY
A very important factor In determining the extent of closures of small
jobbers and independent gasoline owner/operators as a consequence of proposed
vapor recovery legislation is a development that is completely separate
in its origins from this legislation. This is the prevailing economic and
competitive climate for gasoline retailers.
Since 1974, price regulation and competitive pressures resulting from the
policies of rationalization in terms of station size, and conversion from
full service to self-service gas stations pursued by the larger retailers,
including the major oil companies, have created a harsh economic and
competitive climate for smaller volume gasoline retailers. A large number of
closures has resulted. It has been forecast that this trend will continue
for the rest of the decade, and it is projected that as a result, the number .
of gas stations in operation will decline to about 150,000 by 1980 according
to several industry sources.
It can be surmised that while this climate continues and for as long as this
trend is underway, a large proportion of small
jobbers and dealer owner/operators will not earn an adequate return on their
capital in terms of their opportunity cost. The investment of additional
capital in non-profit making vapor recovery equipment will cause a further
decline in their profitability, i.e., as a result of the cost of servicing
additional debt and the cost of operating and maintaining the vapor recovery
equipment.
This is significant because many of the marginal small jobber and dealer/
owner operators would not have been bankable for a loan of the size needed
for vapor recovery equipment in the favorable climate that existed prior
to 1974. Thus, very few of them can be expected to be bankable for this
purpose today, if they have to rely exclusively on the profit and loss
statements of their gasoline retailing operations.
There are two broad conclusions to be drawn from this.
First, it is probable that a large proportion of small
jobbers and dealer owner/operators will continue to be unbankable until such
time as the economic and competitive climate of gasoline retailing area
improves. This could result from two factors:
(a) the ending of price regulation so that gas station retailing
margins improve
(b) the slow-down or completion of the processes of "rationalization"
and conversion to self-service stations being pursued by the
larger retailers.
Second, for so long as this unfavorable climate exists it can be assumed
that marginal jobbers and dealer owner/operators will continue to
close down. It can further be assumed that any need for a major commitment
of new capital will increase this number simply because many are unbankable
and unable to raise this capital.
92
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The broad conclusion, therefore, is that the capital requirement of meeting
the EPA's vapor recovery regulations will force the closure of small jobbers
and dealer owner/operators who are marginally profitable in the present harsh
competitive climate, since they will be unable to raise more capital and
will be forced to end operations by reason of their non-compliance.
If the unfavorable competitive climate were to change, the profitability and
the bankability of many of these small jobbers and dealer owner/operators
would obviously improve. However, over the next 5 years the general
compression of retail gasoline margins is most likely to continue which
puts an ever increasing premium on the economics of scale achieved by high
volume outlets.
The proposed phasing of compliance will tend to ease the immediate capital
availability and liquidity problems of retailers. As a consequence, some
small jobbers and dealer owner/operators with outlets of above average
profitability may be able to self-finance through internal generation and
thus avoid the need to borrow the necessary capital from financing institu-
tions.
Deferment of Stage II compliance will improve the liquidity of retail gas
station owners and improve the bankability of some marginal station
operators. However, banks will not be overly impressed by this situation.
The improvement in liquidity does not improve the underlying profitability
of the business which is the major determinent of the borrower's ability
to repay a loan. Secondly, the loan criteria generally applied by banks
in the evaluation of loan applications are sufficiently stringent to insure
that only profitable and financially sound applicants have any probability
of getting loans on any terms at all. A marginal, short-term improvement
in liquidity as a result of the proposed deferall will not enhance the loan
prospects of an applicant without a fundamental improvement in ability
to repay. A more significant and permanent change in the underlying
profitability of the business will be required to do this.
The general economic and competitive climate of the gasoline retailing area
is a far greater factor in a station operator's bankability. A major
improvement in this would have the effect of improving the cash flow of
some marginally profitable retail outlets to the point where their owners
would become bankable.
93
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CONCLUSIONS
Our conclusions on these issues are summarized below and on Table E-l.
1. All gasoline retailers with a positive cash flow after deduction of all
operating costs have some capacity to generate investment (or replacement) capital
internally. 'However, under the present tight margin conditions, only major oil
companies, regional refiner/marketers and a few of the larger independent whole-
saler/marketers are_.able_to _ generate a significant proportion of the capital
needed for Stage II. in this way.
2. Major Oil Companies, Regional Refiner/Marketers and most independent Wholesalers/
Marketers also have the alternative of raising the capital needed for Stage II on
the capital market. On the other hand, most jobbers and dealer operators, are
too small and lack the inherent financial strength and credit worthiness required
for successful entry into the capital market. They will, therefore, have to
look for loan capital from other sources such as banks and the Small Business Ad-
ministration.
3. In the past, some jobbers and Dealer/Operators have been able to draw on
their suppliers for direct loans or for loan guarantees with commercial banks.
In general, this type of financial support has not been available for the last
few years.
4. The need to comply with Stage II will not hamper the ability of Major Oil
Companies, Regional Refiner/Marketers and the larger Independent Wholesaler/
Marketers to raise capital. Although the amounts involved are large, when phased
over three or four years will represent only a small proportion of the companies'
total capital expenditures. Significant disruption of company capital expen-
diture plans should not occur.
5. The case for the small Independent Wholesaler/Marketers, jobbers and Dealer/
Owners will be different. Jobbers with small margins in the market today have
already experienced difficulty in raising investment capital. In addition, in-
vestments in non-revenue producing equipment required by the EPA has, in.a
number of instances, severely taxed their debt raising capacity. The ability
of the jobbers to raise Stage II capital from normal commercial sources must,
therefore, be questioned. To some extent the smaller Independent Wholesaler/
Marketers will suffer the same circumstances.
Similarly nany Dealer/Owners are experiencing heavy pressure on their profit margins
and have drawn heavily on their available sources of capital to meet earlier EPA
requirements. A significant number of Dealer/Owners are no longer bankable for
purposes of the loans needed to comply with Stage II.
6. The Small Business Administration represents a potentially large source of
investment capital for jobbers and Dealer/Owners who cannot meet the loan
criteria of the commercial loan institutions but can satisfy the SBA's size
requirements. However, SBA loan criteria, although less stringent than those
of the commercial lending institutions, still require an assurance of payback.
A number of jobbers and Dealer/Owners who are already only marginally profitable
may not be able to meet the SBA's loan requirements.
94
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TABLE E-l
Alternative Sources of Investment Capital to Different Categories of Gasoline Retailer
Category of
Operator
Suppliers- Other Small
Internal Major Debt/ Private Loan & Loan Business
Generation Equity Financing Placement Guarantee Banks Institutions Administration
Major Oil Companies
Regional Refiners
and Marketers
Independent Marketers/
Wholesalers
Jobbers
Cn
U
U
U
U
>erators
Prospect
Capital
A P
A P or U
P N
of securing investment
from this Source
A
P
P
U .
A
A
G
G to A
P
P
P
N
U
A
G
or U
E. Excellent
G. Good
A. Average
P. Poor
N. None
U. Unsuitable
-------
Table E-2
Cost of Complying with Stage II by Industry Sector
Industry Sector
Major Oil Companies
Regional Refiner/
Marketers
Independent Whole-
saler/Marketers
Jobbers
Dealer Owners
Total
Number of Stage II ^ Debt Average Total Financing
Effected Service Capital Requirements Interest Duration of Cost to Retailers
Stations Balanced Vacuum Rates Loan Balanced .Vacuum Assist
$000 Assist %
:S 13,182
2,682
3,220
2,396
6,990
28,470
85.683
16,038
19,255
13,580
25,164
$159,720
177,957 8.5 to 10.5(2)
33,310 8.5 to 11.0(2)
39,992 9.5 to 12.5(2)
28,301 9.5 to 12.5
50,328 12.0 to 15.0(4)
$329.888
Years $000
10 (3) 130,587
10 (3) 24,443
3 to 10(3) 30,667
3 to 10 21,628
3 to 4 33,139
$240.464
271,220
50,767
63,694
45,074
66,278
$497.033
(1) Cost estimates supplied by the EPA
(2) Based on an assumed prime interest
rate of 7.5%
(3) Assumed to be 10 years
(4) This excludes the possibility of
SBA Loans.
-------
7. Supplier loans or loan guarantees are not in general likely to be available, even
for the largest and more profitable retail outlets. If they are available they
ably only be granted to jobbers and Dealer/Owners who are already able to
satisfy most of the loan criteria of the lending institutions. Suppliers will
almost certainly not be a source of investment capital for jobbers or Dealer/
Operators that are already experiencing difficulty in staying in business.
8. As a benchmark,, minimum financing costs for effected gasoline retailers are
estimated in order of magnitude terms at $240 million if the balanced system is
used, $497 million if the vacuum assist system is used. These estimates assume
that debt financing only will be used and that minimum interest rates and maxi-
mum loan durations will be allowed to each industry sector. The details of this
projection are summarized on TableE-2. Actual costs are like to be somewhat
higher, depending on the actual cost of capital, including access to equity
funds and other debt terms experienced by the industry.
9. For the reasons discussed above, Stage II costs alone will not have:a serious
impact on the profitability of the Major Oil Companies, Regional Refiner/Marketers,
and the larger Independent Wholesaler/Marketers. These are generally large com-
panies diversified into upstream investments which yield cash flow in addition to
that generated by retail marketing operations. Diversification assures these
companies some degree of protection from adverse effects on overall profitabil-
ity as a consequence of complying with Stage II.
The smaller Independents, jobbers and Dealer/Owners, with smaller total
resources and a larger proportion of their investment in retail outlets, are
exposed to adverse effects on their profitability of a higher order of magnitude
as a consequence of complying with Stage II. The costs of financing Stage II
and the associated operating costs will cause a number of them to become sub-
marginal in terms of profitability.
10. In the longer term, the costs of complying with Stage II will be passed on
to the consumer in the form of higher prices, through the workings of the market
place. This process may be delayed in the short to medium term by governmental
price regulations, marketing conditions related to product supply and demand
picture and the short term effects of a proposed phasing for compliance with
State II.
Once this has happened the structure of the gasoline retailing industry
will tend to stablize. Subject to the broader constraints of the overall
supply and demand of investment capital levels of profitability will tend to
return to the levels that prevailed previously, or to levels consistent with
the role of-gasoline retailer's in the context of the overall profitability of
U.S. industry.
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III. CAPITAL REQUIREMENTS FOR CONVERSION TO MEET STAGE II
For purposes of our evaluation, we have assumed that investment of the f ol
lowing orders of magnitude will be required to comply with Stage II, using
either the proposed vapor balance system or the proposed vacuum recovery
system.
Table E-3
Vapor Recovery Equipment Capital Cost
Number of Vapor Vacuum
Nozzles Balance Assist
2 $3,000 $7,000
4 4,500 9,000
6 5,500 12,000
8 6,500 13,000
10 7,500 15,000
12 8,500 16,500
On the basis of these estimates, we have projected the following ranges of
total capital requirements for the five categories of gasoline retailers in
the AQCR's affected.
Table E-4
Capital Requirement by Service Station Categories
Number of Percent of
Effected Total Service
Type of Operation Service Stations Stations Effected $ Millions
%
Major Oil Companies 13,182 46 85.7
Regional Refiner /Marketers 2,682 9 16.0
Independent Wholesaler/
Marketers 3,220 11
Jobbers 2,396 9
Dealer/Owners 6.990 25
Total Service Stations 28,470 100
" >
It can be seen from Table E-4 that the two categories of retailer that we con
sider most vulnerable, jobbers and dealer Owner/Operators, will be res
ponsible for the conversion of approximately 34% of the retail outlets in
the AQCR's effected, requiring an estimated outlay of; approximately $38.74
million dollars.
The factors that are likely to influence the ability of each of the five
categories of gasoline retailer to raise the amounts of capital needed are
examined below.
98.
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IV. ALTERNATIVE SOURCES OF INVESTMENT CAPITAL
For purposes of our analysis we have identified 7 alternative ways in
which the different categories of gasoline retailer might raise investment
capital:
(1) Internal generation
(2) The capital market
(3) Suppliers
(4) Banks
(5) Other loan institutions
(6) Small Business Administration
(7) Pollution Control Bonds
The financially strongest and most credit-worthy companies will have access
to the widest range of these options. In the case of the companies with
the highest credit ratings, the key issues for purposes of Stage II invest-
ment are which of these cources of capital are most flexible and most cost
effective. For other categories of gasoline retailer, the available alter-
natives will decrease and the cost of raising capital will increase more or
less proportionally with reductions in the retailer's relative financial
strength and credit worthiness. Under present circumstances the bankability
of the smaller gasoline retailers such as jobbers and Dealer/Owners is ques-
tionable at most lending institutions.
I. INTERNAL GENERATION
The five categories of gasoline retailer identified earlier all have the
potential to generate some part of the investment capital they need from
on-going operations. This ability is a function of the retailer's size
and overall profitability relative to their total marketing investment
base. For this reason, the ability of gasoline retailers to generate the
volumes of capital required to comply with Stage II will largely be a
function of the scale of their operations and available cash flow.
All the Major Oil Companies are fully integrated and involved in all of
these functions. They are, therefore, the best equipped of the five cate-
gories to generate internally the capital required to comply with Stage II.
The ability of the other categories to generate the required capital will
diminish with reductions in their size and degree of integration. Jobbers
and Dealer/Owners operate with minimal or zero integration and on such'small
scale that there is little chance that many of them will be able to raise
a significant proportion of the capital they need through internal generation.
Internal generation will only be a significant source of the investment capi-
tal for the Major Oil Companies and the Regional Refiners. This capital
source may be of importance to some Independent Wholesalers/Marketers but
will make only minor contributions to the needs of jobbers and Dealer/
Owners.
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2. THE CAPITAL MARKET
There are several capital market alternatives for large credit-worthy
corporations that wish to raise large amounts of capital. These sources
include the sale of bonds or stock to the general public and private
placements with investors.
The options of raising debt or equity finance through public or private
placements are theoretically available to any company that can meet the
requirements of the capital market. Although we have not undertaken fi-
nancial analysis of individual companies, all the major oil companies, the
Regional Refiner/Marketers and some of the larger independent Karketer/
Vtiolesalers would under normal circumstances be able to avail themselves
of these capital sources for Stage II requirements.
3. SUPPLIERS
Historically, some Major Oil Companies have acted as loan guarantors for or
made direct loans to their more important Jobbers and Dealer/Owners. How-
ever, such loans have been generally unavailable since the early 1970's.
These alternatives are discussed further in Section V on capital afford-
ability.
4. BANK LOANS
Commercial banks in the Boston and Houston areas have indicated that they
are not in general in favor of making to loans to independent gas station
operators or Jobbers for Stage II equipment installation unless they
have been previous customers of the bank and have maintained a good
credit record. This attitude has been confirmed by representatives of
industry trade associations. A loan applicant without a previous relation-
ship with a bank has always experienced difficulty in securing a commercial
loan. If this loan is for a non-income generating investment, such as
Stage II equipment, the bank's reluctance is magnified.
Although evaluation criteria used by banks in their loan making decisions
tend to vary geographically and by institution, some common rules are ap-
plied in all cases.
(a) Cash Flow
The applicant must show that his business has a high probability of generat-
ing sufficient cash flow to support him and provide an assurance that repayments will
be made on time. For example, sufficient cash flow for a Dealer/Owner would in-
clude a minimum draw of $15,000 a year as dealer income and income after
taxes equivalent to twice the amount of the repayment installments on the
loan. In the case of the Jobber or an Independent Marketer/Wholesaler,
cash flow after meeting normal routine operating costs should be equivalent
to twice loan repayment installments.
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(b) Management Record
The reputation and management record of a loan applicant are very important.
In all our conversations with banks, it was apparent that given adequate
levels of profitability, reputation and management record are the most de-
cisive factors in determining whether or not a loan applicant is considered
a good credit risk. The best source of this information is a successful
credit history of the applicant with the lending institution.
(c) Collateral
Banks attempt to maximize loan security by requiring the applicant to pledge
all his assets and by seeking supplementary personal guarantees whenever
reasonable.
In the case of a Dealer/Owner, a bank will generally require that he pledge
not only all his business assets but also, whenever legal, his personal
assets such as his house. In situations where a bank considers an appli-
cants ability to satisfy cash flow and management criteria marginal, the
presence of adequate collateral can be decisive in a loan application. In
some states, (e.g., Texas) dwelling residences cannot be used to secure commercial
loans. Dealer/Owners in these states may find themselves..at._a disadvantage.when
required to secure their loans. Banks in Massachusetts .however, claimed that they
attached only limited value to secondary collateral such as a home because
the asset's value is costly to realize and the asset does not earn interest
if taken over. From the lending bank's point of view, cash, marketable
securities and inventories that can be readily liquidated and even equity
in a gas station's fixed facilities are all more attractive collateral.
It was interesting to note that some banks are prepared to grant loans
without 100% collaterallization if the applicant can reasonably assure high
profitability and sound management.
(d) Other Financial Criteria
In addition to these requirements, banks tend to look at some other specific
financial criteria in a loan applicant's business. These criteria increase
in importance with the size of an operation as the company increasingly
assumes the operating, management and financial characteristics of a viable
and well-managed business.
These criteria include:
i. Debt equity ratio. This is the ratio of debt (fixed interest fi-
nance) to equity common stock in a company's total capital structure.
Fixed interest creditors view a large proportion of debt in a com-
pany's balance sheet as an indication that a company
may be unable to fully oover all its interest obligations. Although
there appear to be wide variations in practice, the majority of
the banks surveyed consider a ratio of more than 1:1 unattractive.
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However, one bank did indicate a willingness to accept a ratio of
3:1 if the business had operated satisfactorily and profitably
with this ratio over a number of years. This same bank commented
that it has loans outstanding to a jobber with annual sales of
approximately $20 million, who has maintained a 3:1 debt equity
ratio for a number of years. This jobber is considered an at-
tractive customer because he is an excellent businessman and maintains
large cash balances with the bank. In the case of Dealer/Owners,
debt equity ratios are largely a function of the extent to which
they have repayed their mortgage on the fixed facilities of their
station"~~and is not therefore very meaningful.
ii. Current Ratio. This is the ratio of a company's current assets,
such as cash and inventories, to its current liabilities. A high
rather than a low current ratio indicates that a company has ample
resources to cover its short term obligations. Here the banks
generally look for a ratio of at least 1:1 and would generally
prefer a ratio of 2:1. Again, however, the point was made that
common sense dictat es that proven ability to operate satisfactorily
with a given financial make-up is more important than some arbi-
trary ratio.
Our contacts with commercial banks indicate that there are fairly wide
differences between loan terms granted to Dealer/Owners on the one hand
and jobbers on the other. In general, repayment periods for loans to
Dealer/Owners are limited to 3 or 4 years with interest at between 12 to
15%, depending upon their business record and the size of their cash bal-
ances with the bank. In the case of Jobbers, recognizing that they cover
a broader spectrum in terms of size and financial strength, repayment
periods can vary from 3 to 10 years or possibly include repayment on a re-
volving credit basis. Rates of interest charged to Jobbers vary from 1
point to as much as 6 points above the prime interest rate.
A similar range in loan terms would also be appropriate for loans granted
by large commercial banks to Independent Marketer/Wholesalers and Regional
Refiner/Marketers. However, these industry groups would be less likely to
turn to commercial banks for Stage II loans because they would probably be .
able to raise the necessary capital at a less expensive rate in the capital
market.
In addition to normal commercial loans, small businessmen can qualify for
bank loans under the guarantee of the Small Business Administration. In
such loans, the profitability criteria already discussed and the reputation
and management record of the applicant are still very important but the
bank often eases its collateral requirements because the loan carries an
SBA guarantee. Typical terms for a loan under SBA guarantee are an interest
rate of 10-1/2%, repayment over 3 to 4 years (although far longer periods
are theoretically permitted), and possible deferment of principal repayment
for 3 to 6 months. Of the total interest payable, 1% represents a guarantee
fee to the SBA.
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A jobber is generally a more attractive applicant than a Dealer/Owner for
an SBA guarantee-type loan, because a loan to the former is likely to be for a
larger amount and thus the paperwork and overhead costs of processing such
a loan will yield a better return on the bank's time and effort. Provided
he can demonstrate the minimum levels of profitability required for an ordi-
nary commercial loan, a Dealer/Owner may find this loan easier to obtain
from a bank than an SBA guaranteed loan. The costs of setting up an SBA
guarantee are sufficiently high to discourage commercial banks from using
the SBA route when granting small loans.
If a loan applicant is turned down by two commercial banks (or one, if there
is any one in his area) he can then make an approach for a direct loan
from the Small Business Administration. This is discussed in the subsequent
section on SBA loans.
5. OTHER LOAN INSTITUTIONS
Three types of institutions are classified under this heading:
(a) Personal Credit Institutions
(b) Savings and Loan Associations
(c) Insurance Companies
(a) Personal Credit Institutions
Institutions of this type, (e.g., Household Finance) make personal loans
with an upper limit of $3000. Repayment periods usually run from 36 to 48
months, and interest rates range from 12% to 18% per annum. The financial
criteria used by these institutions for collateral and debt repayment cover-
age are either similar to or more severe than those used by the commercial
banks.
Our inquiries indicate that personal credit institutions are not, in
principle, interested in loans to finance capital equipment for air pollu-
tion control. In some instances, such loans would be contrary to the stated
policies of these institutions and possibly to their charters of incorpora-
tion.
Personal credit institutions as part of the loan/credit industry are subject
to close regulation by the banking departments of the states in which they
operate. Although practice varies from state to state, these regulations
generally discourage the making of loans for purposes of purchasing capital
equipment for business operations.
Thus, personal credit institutions would be unattractive to gasoline retail-:
ers for the following reasons:
(a) Relatively low limits are set on the amount that can be borrowed -
$3000.
(b) High interest rates.
(c) Lack of interest on the part of the institutions in loans for
business capital.
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Further, a small businessman who is able to satisfy the financial criteria
of a personal credit institution could probably satisfy the criteria of a
bank for a commercial loan. Local banks would not only be more likely to
loan the full amount the retailer required but would also tend to offer
more favorable terms.
(b) Savings and Loan Institutions
Savings and loan institutions tend to make, and in some instances limit
themselves, to loans for investment in real estate. Loans of hundreds of
thousands of dollars are common although the amount.may exceed one million
dollars. Savings and Loans would not generally be interested in making
loans for purposes of financing the installation of Stage II Control Equip-
ment and thus are not a likely source of funds for gasoline retailers.
(c) Insurance Companies
Insurance companies generally limit commercial loans to a minimum size of
$1 million. This size limitation clearly excludes Do/Do's and the smaller
jobbers and would allow only the very large jobbers and the larger inde-
pendent Wholesaler/Marketers or Regional Refiners to qualify.
While admitting that they might be a potential source of funds for EPA
Stage II purposes, the insurance companies contacted indicated that due to
lack of experience with gasoline retailers, they would be very hesitant
over getting involved with Stage II loans. One company did agree, however,
that if an Independent Marketer or jobber had a sound long-term supply re-
lationship with a Major Oil Company and a useful number of tied outlets
providing an assurance of long-term profitability, the jobber might qualify
for a loan. If such a loan were approved, the following terms would be
typical:
Repayment period up to 10 years
Interest rate from 9 to 12%
The following financial criteria were identified as being typically used by
insurance companies when making loan decisions:
A debt equity ratio for the borrower of not more than 2:3.
Earnings equivalent to about 20% of total long-term liabilities
including sale and lease-back commitments. (In this instance,
earnings would be income after tax with interest charges and rents
added back.) The borrower should also be able to meet his short-
term obligations on a current basis; that is, they should not
represent a permanent financing need.
On this basis, the insurance companies can probably be considered a poten-
tial, though not very probable source, of capital to the larger jobbers
and Independent Wholesaler/Marketers and also to the Regional Refiners/
Marketers.
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6. SMALL BUSINESS ADMINISTRATION LOANS
The SBA can, in theory, provide two sorts of assistance for gasoline retail-
ers in addition to guaranteeing loans granted by commercial banks.
First, the SBA may provide ordinary SBA-type loans to small businessmen who
meet its requirements. For this purpose, the SBA has some cut-off points
for determining which businesses qualify oh the basis of size. Wholesale
operations, which would include the wholesale activities of jobbers and In-
dependent Marketer/Wholesalers must have annual sales of less than $9.5
million to qualify. Retailers (e.g., independent owner/operators) must
have annual sales of less than $2 million. In the case of businesses active
in both wholesaling and retailing, sales are analyzed and the two limit
values prorated over sales proportionately. This would appear to further
reduce the sales level that would be applied to jobbers who are active in
gasoline retailing as well as wholesaling.
In addition, to be eligible for direct SBA loans, potential borrowers must
establish an inability to secure loan funds from normal commercial sources.
This criteria, in practice, is defined as loan applications rejected by one
or more commercial banks. However, to obtain even an SBA loan, an applicant
must positively satisy the following investment criteria:
Sufficient profitability to assure loan repayment.
Sufficient collateral to secure the loan. Primary collateral would
be the assets of the business; secondary collateral may be the
personal net worth of the borrower.
A positive reputation and sound management record of the borrower.
Acceptable debt equity and current ratios. Generally the SBA does
not like debt equity ratios of more than 2:1 but has, in certain
situations, gone as high as 4:1.
The SBA is authorized to grant its routine loans for periods up to 10 years.
In practice, repayment periods are shorter. For example, repayment of an
ordinary SBA loan for the purchase of plant and equipment is usually re-
quired within 4 to 5 years. The current interest rate for loans of this
type is 6-5/8%.
Recent appropriations by Congress and current requests for funds by the SBA
for its guarantee program and for routine type loans have been:
1975 Actual: Guarantee Program $1.1 Billion
Direct Loans $140 Million
1976 Estimated: Guarantee Program $1.5 Billion
Direct Loans $112 Million
1977 Requested: Guarantee Program $1.5 to 2.0 Billion
Direct Loans $100 Million
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Since a large number of small businessmen drawn from many different indus-
tries compete for SBA funds, it is not really practicable to estimate what
proportion of qualifying gasoline retailers can expect to receive loans of
this type. Provided they can meet the SBA's financial criteria, the number
could be substantial.
Second, in addition to loans that could be paid out of ordinary SBA funds,
gasoline retailers that meet SBA size criteria can also qualify for loans
under the special SBA iconomic Injury program designed to help small busi-
nessmen meet air pollution control requirements when they are cited by the
EPA. These loans can be granted for periods up to 30 years, but the SBA
generally requires repayment over 8 to 10 years.
The SBA in Washington supplied the following figures for funds made avail-
able nationwide for its various economic injury programs:
1975 Actual $120 million
1976 Estimated $107 million
1977 Projected $80 million
However, these funds are drawn on by at least six programs, of which economic
injury resulting from the need to control air pollution are only one.
The Small Business Administration is a potential source of funds to Dealer/
Owners and small jobbers. However, in view of the other demands on SBA
resources, the current funding levels will probably not be adequate to meet
the needs of all qualifying gasoline retailers.
7.r POTENTIAL VALUE OF POLLUTION CONTROL BONDS TO GASOLINE RETAILERS
Tax-exampt pollution control bonds have been used by some major cor-
porations such as American Cyanamid, Dow Chemical and Union Carbide to
finance the construction of major pollution control projects. They are
a variation on the industrial revenue or development bond concept that
was widely used in the 1960's to encourage development of industry on a
regional basis. Bonds of this type are tax-exempt and have the effect
of allowing corporations to borrow at the municipal bond rate rather than
at the corporate bond rate. This results in an equivalent after tax sav-
ings of 1-1/2 to 2 percent.
Generally, the mechanism used in the 1960's was for a regional au-
thority such as municipalities to set up industrial development boards
which sold the bonds. The capital raised was then used to construct
facilities, and the development boards leased these to client corporations.
This had the effect of allowing the corporations access to tax-exempt
financing and was, therefore, a powerful incentive for persuading cor-
porations to set up operations in the regions involved. The regional
authorities were exposed to very little risk because the corporations
involved were generally profit-making and financially sound.
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These regional development authorities also played an important role for
a time in making long-term debt financing available to smaller corpora-
tions that could not normally gain access to the conventional bond mar-
ket because:
(a) they were too small to receive the necessary corporate credit
rating.
(b) the amounts involved were not large enough to make the promo-
tion of a single bond issue on their account cost effective.
These regional development authorities, therefore, helped to solve
the capital raising problems of smaller businesses by making lower cost,
long-term funds more readily available.
There are several conclusions to be drawn from this experience that
appear relevant to the question of pollution control bonds as a means of
making investment capital available to small jobbers and independent
owner/operators for purposes of meeting the EPA's vapor recovery re-
quirements.
In principle, capital costs associated with installing gasoline
vapor recovery equipment appear to qualify for funding by means of pollu-
tion control bonds since (a) the equipment being installed will not result
in any financial benefit to the investor, (b) the reasons for installation
arise exclusively from the need to protect the quality of the environment.
Although historic experience with industrial development bonds dem-
onstrates that bonds of this type can be used as a valuable additional
source of investment capital for smaller companies, it is unlikely that
they will be a practicable source of investment capital for operations
as small as the general run of jobbers or independent owner/operators
because:
(a) Although pollution control bonds could be marketed by an offi-
cial intermediary agency and then be made available to the
smaller jobbers and independent owner/operators, the adminis-
trative cost of first raising and then administering the funds
would probably be excessive. (It would presumably also be
passed on to the borrower.)
(b) The risk to be borne by the intermediary agencies would be
sufficiently high to require either very high interest rates
for the bonds or assumption by the intermediary agency of a
level of the risk that would probably be prohibitive because
there is little reason to expect that its default experience
would be favorable.
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Conclusion (a) above is consistent with historic experience with in-
dustrial development bonds. This also indicates that the firms most
likely to benefit from pollution control bonds would be larger firms and
that the use of these bonds, because of economies of scale would tend to
accentuate the differential impact of control costs on smaller companies
rather than to minimize them.
It can, therefore, be concluded that (a) although gasoline vapor re-
covery qualifies for funding through pollution control bonds and (b) inter-
mediary agencies could be set up to market the bonds, administer the funds
and provide guarantees against risk, it is difficult to see how capital
raised in this way could be used for reasons of cost to help jobbers and
independent owner/operators meet their vapor recovery financing needs.
V. CAPITAL AFFORDABILITY BY MAJOR CATEGORY OF DEALER
To further evaluate the availability of capital to different categories of
gasoline retailer, representative operators in each retailer category and
retail trade associations, such as the National Oil Jobbers Council (NOJC)
and SIGMA, were contacted. The major characteristics of each retailer
category and the different points of view of borrowers on the one hand and
lenders on the other hand were thus obtained.
Constraints of time and budget did not allow in-depth coverage of the full
range of variations and characteristics known to exist in each category of
retail gasoline seller.
In the cases of the jobber and Dealer/Owners, this limitation has special
significance. A wide spread of operators exists between the extremes of
operator profitability and financial strength and marginal operator profit-
ability and financial vulnerability.
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Difficulty is also encountered in associating a specific creditworthiness
or bankability with a specific retailer category. Most retail operations
are private corporations and not willing to reveal financial information
from their profit and loss statements or balance sheets.
Insofar as possible, these limitations have been minimized by incorporating
available financial and operating data into financial models. These models
were then used to measure the profit sensitivity of different categories
of gasoline retailers to the effects of complying with Stage II.
The comments that follow are largely, therefore, an examination of the fi-
nancial and operating characteristics of the different categories of gaso-
line retailers and of the factors that influence these characteristics.
1. MAJOR OIL COMPANIES
Major Oil Companies will be responsible for installing Stage II conversion
_ equipment inL 13,JL82_outlets, '(46% of the effected gas stations)of which 11,294 are
run by leasee dealers. Total cost will be approximately $86 million, or $28
million a year for three years, if the proposed phased approach is adopted.
Although $28 million represents less than .01% of the Major Oil companies'
planned 1976 capital expenditures (estimated at $29 billion), the amount
is 3.5% of their estimated $791 million marketing budget and 5.2% of their
planned $537 million outlays on retail outlets.
An amount of $28 million represents a 2.1% increase over this balance.
Whether this aan be provided by the majors through relatively-minor
reallocations of available capital budget funds or through small increases
in the amounts raised in the capital market is not certain. However, the
needs of meeting Stage II capital requirements nationwide will certainly
require some re-allocation of resources by the majors.
To the extent that reallocation is necessary, we believe it will be at the
expense of exploration and development. This is the largest single component
of the major oil companies capital expenditures and is generally the .area in.which
they have the greatest discretion to vary spending.
We also believe the additional costs of installing and operating Stage II recovery
equipment will have the effect of accelerating the phasing out of both marginal
dealer owned and marginal leasee dealer operated outlets since Stage II costs..
incurred by Major oil companies will be passed on to their leasees in the form
of higher rents.
We are not able to quantify the scale of such closings due to insufficient operating
data, uncertainties about the marketing policies of the major _qil_cpmp_an_ies__and
the unpredictability of the behavior of individual gas station operators.
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REGIONAL REFINER/MARKETERS
Regional Refiner/Marketers will be responsible for installing Stage II
conversion equipment in approximately 9% of the affected gas stations.
Capital expenditures of approximately $16.04 million will be required,
assuming that compliance be spread over a three-year period as currently
proposed, average annual expenditures by Regional Refiner/Marketers will
total about $5.35 million.
As with the major oil companies, it is not certain that the Regional
Refiners will- experience significant financing problems. Conclusions
about the impact of this burden on the gasoline retailing activities of
the Major Oil Companies apply broadly to similar activities of the Regional
Refiner/Marketers.
INDEPENDENT WHOLESALER/MARKETERS
Independent Wholesaler/Marketers will be responsible for the conversion of
about 11% of the affected retail gas outlets in the eleven AQCR's, at a
cost of $19.26 million over three years.
The bulk of the companies in the Independent Wholesaler/Marketer category
are significantly smaller and generally do not have the financial resources
and creditworthiness of the Major Oil Companies or the Regional Refiners/
Marketers. However, most Independents do have substantial sales and con-
siderable financial resources. Although the burden of complying with
Stage II will depend on the size of their cash flow and the extent of their
involvement in gas retailing, most Independents will be able to secure
Stage II capital without insurmountable financing problems or serious dis-
location in capital expenditure plans.
Commercial banks indicate that Independent Marketers with a successful
management record are viewed as attractive customers, not only because
the Independents are respected as competent businessmen but also because
they often maintain substantial cash balances. Bankers in the Boston and
Houston areas indicated that requests from Independents for purposes of
complying with Stage II will receive sympathetic treatment, provided they
could meet a bank's minimum financial criteria.
Qualified Independent Marketers can expect to receive loans at between
2%-5% above prime, depending on their actual creditworthiness and their
compensating balances, with repayment over three to ten years or possibly
on a revolving-credit basis. Thus, Independent Marketers with a good long-
term profit record and sound management will, in the absence of a per-
manently unfovorable trend in their business, be able to secure bank fi-
nancing.
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It Is also possible that the largest Independents may be able to borrow,
at more favorable rates of interest and with longer repayment periods, from
the loan departments of large insurance companies. Only a few Independent
Marketers are likely to be able to meet the fairly demanding financial
criteria of the insurance companies.
Significant hardship may be experienced by the smaller Independent Whole-
saler/Marketers who are proportionately more heavily involved in retail
outlets than the larger Independents. As the burden of complying with
Stage II becomes uncomfortable, these small Independents are expected to
phase out marginally profitable stations.
No single Independent Wholesaler/Marketer is expected to withdraw totally
from gasoline retailing solely as a result of Stage II capital require-
ments. Any withdrawals that do occur are likely to be either a deliberate
management decision not directly connected with Stage II or a reflection
on broader business trends that had previously decreased the profitability
of the company's gasoline retailing activities.
JOBBERS
Jobbers will be responsible for approximately 9% of the 28,000 stations in
these areas, and their total Stage II capital requirement will be approxi-
mately $13.58 million over three years.
Industry and trade associations, along with ADL's in-house knowledge of
the petroleum industry, indicate that .jobbers vary widely in size, profit-
ability and financial strength. Operations range from those claiming a few
hundred thousand gallons in annual gasoline sales and three or four retail
outlets to larger businesses with annual sales in excess of 100 million
gallons and a few hundred retail outlets.
Since most jobbers are privately incorporated companies and do not publish
annual financial reports, it is difficult to develop the financial informa-
tion required to estimate the probable impact of complying with Stage II.
The generalized data on the financial characteristics of the oil jobber in-
dustry secured from trade sources confirms that jobbers operate on narrow
margins. Their debt equity ratios, however, tend to be low, averaging
25:75. Their current ratios also indicate strong assets' positions, thus
confirming a view that was expressed by a number of bankers and jobbers
themselves that jobbers as a group, and specifically those who survive
for more than three or four years, operate well-managed businesses and
are conservative in their financial practices. However, the available
trade data, though useful, has an important limitation. Such information
ends in 1974, known to have been a relatively good year for jobbers, and
data for 1975 and 1976, known to have been relatively bad years for jobbers,
is not available. Both their profitability and the strength of their bal-
ance sheets are believed to have deteriorated since 1974.
Ill
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Nevertheless, professional competence as managers and conservative financial
practices, believed to be general characteristics of jobbers, are likely to
be important factors in determining their ability to raise the capital needed
to meet State II requirements.
DEALERS/OWNERS
Dealer/Owners are likely to be the category of gasoline retailer that will
be most vulnerable to the effects of the EPA's Stage II vapor recovery re-
quirements. However, meaningful financial information for this category
is very difficult to obtain.
Data on the financial condition and profitability of a small number of
gasoline retailers is available through one financial service. This source
represents summary information based on balance sheet and income statement
data collected by bank loan and credit officers who have evaluated potential
loans to gasoline,.retailers. The Dealer/Owners involved are either bankable
or close to being bankable. Thus, the material covers the more profitable
and financially sound of the gasoline retailers and incorporates a bias in
this direction.
This information indicates that Dealer/Owners experienced relatively high
profitability in the years 1971 to 1974 with median net income before tax
for the years 1971-72 exceeding 18% on net assets. In 1973, median net
income before taxes exceeded 40% and in 1974, with the exception of those
service stations with assets of more than $250,000, exceeded 50%. In 1974,
maximum profitability was experienced following the Arab oil embargo and
sharp increases in retail gasoline prices.
Since 1974, profitability has declined drastically as the result of the
combination of rising costs, price escalation and a highly competitive
market situation.
However, although the years 1973-74 were good years for gasoline retailers,
Dealer/Owner balance sheets were not, in general, strong. Debt equity
ratios, for example, generally exceeded 1.5:1 from 1972 onwards , debt
equity ratios for Dealer/Owners are largely a function of outstanding mortgage
obligations on their fixed facilities, and although as was explained earlier, such
ratios do have value as a broad indicator of an operation's overall financial
strength. A ratio of around 1:2 is normally considered desirable in a well-run business.
Assuming that this data is biased in favor of the financially stronger sta-
tions on the upper part of a wide spectrum of profitability among station
operators, it is evident that even in the good years of 1973-74 many sta-
tions must have been undercapitalized and financially vulnerable. The
large number of station closures that have occurred since 1974 reflect thi"
vulnerability.
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The trend of station closures supports the view that there has been a decline
in profitability and indicates that a process of sifting out the marginally .
profitable retail outlets is presently underway. At its present size and
with its present mix of station size and profitability, the retail gas in-
dustry includes substantial number of retailers who will experience diffi-
culty in supporting uneconomic investments such as those required by Stage
II. In fact, the financial viability of Dealer/Owners will determine
whether investment capital needed to pay for compliance will be forthcoming
at all.
Five of the eight potential sources of capital identified in Section IV
are examined below for their potential to meet the needs of Dealer/Owners.
These sources are:
(a) Internal Generation
(b) Supplier Loans
(c) Bank Loans
(d) Other Loan Institutions
(e) Small Business Administration
(a) Internal Generation
It is unlikely that many Dealer/Owners have the capability to provide the
capital needed to meet Stage II requirements from reserves or reserves
supplemented by current cash flow. Volumes of 100,000 gallons per month
are required in gas-only service stations for a dealer to rely on internal
generation for Stage II equipment. However, non-gasoline sales may yield
enough additional margin to allow full-service dealers to self-finance
Stage II capital.
(b) Supplier Loans
Historically, some Ifejor Oil Companies, regional Refiners/Marketers, Inde-
pendent Wholesalers/Marketers and even some larger jobbers have helped
Dealei/Owners meet their capital needs with loans or guarantees. This sup-
port was generally in the form of underwriting guarantees to banks that
actually made the 3^>ans, and in a few instances, took the form of direct
loans by suppliers. In order to qualify for either type of suport, the
Owner/Operator had to provide a good assurance of ability to repay out of
current cash flow.
In today's market, few suppliers are expected to be willing to support
station operators who are unable to raise the capital needed to comply
with Stage II. Any dealers that can negotiate financial support from
suppliers will be operating the larger and more profitable outlets hand-
ling high volumes.
(c) Bank Loans
Banks in the Boston and the Houston areas have indicated that they are not
normally willing to grant loans to Dealer/Owners who have not1 maintained
long-term relationships with them. They will, however, consider loan appli-
cations from Owner/Operators who have been long-term customers who have
established their integrity and management ability and who can meet the
bank's loan criteria. A large number of Owner/Operators will not be able
to meet bank criteria at all, and a few dealers will be able to meet them
only with great difficulty.
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(d) Other Financial Lending Institutions
Other lending institutions (including insurance companies, personal credit
and savings institutions) are not likely to be a significant source of in-
vestment capital for Dealer/Owners.
(e) Small Business Administration Loans
Small Business Administration loans can, in theory, be an important source
of capital to Dealer/Owners able to meet SBA loan criteria. The SBA was
set up to provide capital to small businesses that are not able to raise
capital through normal commercial channels. The SBA also operates a number
of special programs to relieve hardship imposed on small businesses as a
result of federally imposed environmental control regulations. Financially
solvent Dealer/Owners should be able to qualify for both types of assistance.
However, criteria to be met for SBA loans are very similar to those required
by the commercial banks, although SBA criteria may not be so rigorously ap-
plied. Often those dealers who are able to meet the SBA's financial re-
quirements will also have a good chance of meeting their local bank's loan
requirements. Because a condition of an SBA loan is the refusal of commer-
cial loans by one or more banks, such dealers may not be eligible for SBA
funds in the first place. Nevertheless, those Dealer/Owners who do secure
SBA funds will benefit from interest rates substantially below those charged
by commercial banks.
For those dealers able to win external financing or to rely on internal
generation for Stage II capital, the dealer's ability to subsequently boost
his margins may be crucial to his long-run survival. The main source of
additional margin is in non-gasoline sales such as tires, batteries,
accessories and inside mechanical work. The recent trend away from full-
service to self-service stations will, in the long run, benefit this
traditional "neighborhood station." While many motorists are doing their
own servicing and maintainance, the remaining motorists who seek profes-
sional mechanics will discover that few stations are able to undertake
automotive repair work. The demand for full service stations will con-
tinue, and those outlets which survive the recent massive closings of gas
stations will become increasingly profitable.
The Dealer/Owners interviewed stated that they will not go out of business
as a result of additional costs for installation of Stage II vapor recovery
equipment. However, this requirement will hurt their earnings badly.
Further, Dealer/Owners as a class are aware that they have a difficult two
or three year period of adjustment ahead as a consequence of the trends to
self-service and larger stations. Those dealers interviewed indicated
that they intend to sit this period out in anticipation of better days when
the "shake out" period has passed.
The Dealer/Owners interviewed indicated that they believe their overall operations will
continue to be sufficiently profitable to allow them either (a) to self-
finance, and/or (b) borrow capital from their banks. We believe that an
important underlying factor in their thinking is their belief that the
greater part of the additional costs resulting from Stage II will be passed
on to the consumer in the longer term so that what they are in fact faced
with is essentially a short-term or at the worst, a medium-term financing
problem.
114
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Translated to volume-size categories, the major impact of complying with
Stage II will be felt by the Dealer/Owners ranging in size from 120M to
600M gallons per year and not undertaking significant or profitable non-
gasoline activity. Dealer/Owners in this category will generally have more
of the characteristics of marginally profitable businesses than operators
with larger sales volumes, or substantial full service activity.
Volume, however, is not an absolute determinent. Many Dealer/Owners in
the 120M to 600M gallons per year category will survive, and operators
with sales in excess of 600,000 gallons a year may close down. Neverthe-
less, the greatest difficulty in raising investment capital for Stage II
and the greatest pressures for closing are expected to be felt by Dealer/
Operators selling 120,000 to 600,000 gallons per year.
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MEMORANDUM
TO: Environmental Protection Agency CASE: Economic Impact Stage II
Strategies and Air Standards Division Vapor Recovery Regulations
Research Triangle Park
North Carolina SUBJECT: Task F - Dynamics of Retail
Gasoline Competition
FROM: Arthur D. Little, Inc.
DATE: July 27, 1976
INTRODUCTION
The installation of vapor recovery equipment at gasoline retailing sites will
be an additional essentially fixed cost of gasoline marketing. This additional
marketing cost per gallon of gasoline sold will be a function of both the in-
vestment cost of the vapor recovery equipment and the volume of gasoline sales
at the retailing site. In the long run after gasoline deregulation, each retail-
ing site will attempt to pass on the cost of vapor recovery equipment to its
customers through higher gasoline prices. The ability of each retailer to" success-
fully pass on his vapor recovery costs and increase his margin will be dependent
upon his position in a dynamic, competitive market.
The most important determinants of the margin a gasoline retailer may set include:
Government regulations covering crude oil and gasoline pricing and market-
ing, including the crude oil allocation and entitlements programs;
The competitive structure of the retail gasoline market and the
strategies employed by its various segments, such as majors and
independents;
The cost structure and economics of gasoline retailing, including
the relationship between variable and fixed retailing costs and
economies of scale in gasoline marketing;
Gasoline supply and demand balances in each specific market.
The purpose of this memorandum will be to describe in general terms the
operation and impact of each of these factors. An understanding of the
dynamics and economics of competitive gasoline retailing will enable the
EPA to analyze specific areas or market segments in greater detail.
I. The Role of Government Regulations
Government regulations are a potentially important determinant of competitive
positions and marketing margins. However, while regulations are of paramount
importance in periods of product shortage, their impact is lessened as the
supply of product grows. Of course, this conclusion is eminently logical in
view of the fact that the current regulations were established in the period
of product shortage and were not intended to be applicable to periods of
product surplus as exist now. In fact, the Federal Energy Administration
116
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intends to press for a removal of regulations affecting marketing operations as
soon as practicable, commencing with the deregulation of residual fuel oil sales
from June 1, 1976. The most important regulations in regard to marketing opera-
tions relate to: establishing (i) supplier-customer relationships, (ii) product
allocations and (iii) price and margin controls. Also particularly relevant to
today's product surplus are the procedures for disposing of refinery surpluses.
Supplier-Customer Relationships
Supplier-purchaser relationships are in theory "frozen" as of December 1,
1973. Suppliers must supply their purchasers as of that time. New purchasers,
i.e., those who were not purchasing products in the December, 1973 base period,
are assigned a supplier by the FEA. In practice, new purchasers find their
own suppliers and have the relationship endorsed by FEA. The intention of
this regulations if to ensure that all purchasers have access to a supplier.
Freezing of supplier-purchaser relationships is perhaps the most significant
aspect of government regulations currently affecting marketing operations.
While suppliers are obligated to offer for sale, purchasers are not obligated
to buy supplies from their designated supplier. Even if a customer does not
purchase any product from his supplier, he does not lose his right to an
allocation. ,. However, to change designated suppliers requires a consent of
the purchaser and both suppliers and a completion of certain FEA forms. This
process is time consuming and requires a high degree of agreement. For example,
dealers of one oil company reportedly would like to change to another supplier
who markets a leaded regular gasoline. While these dealers, who own their own
stations, have agreements from the proposed suppliers, the dealers' previous
suppliers have refused to issue the necessary letters of release to their dealers,
Another example of the adverse effect of the freezing of supplier-purchaser
relationships is the inability of companies to withdraw from certain marketing
areas. Apparently Gulf was withdrawing from the Indianapolis market at the
time the regulations were implemented and has been forced to continue to
supply products in that market. Thus, the most significant impact of the
removal of government regulations affecting marketing would probably be an
increased fluidity in supplier-purchaser relationships.
This fluidity, however, would not be likely to have a significant impact on
prices and margins. The only factor that could appreciably increase margins
would be tighter supply. The withdrawal of some companies from certain markets
once allocation controls are removed could effectively reduce supply to these
markets. For example, in Indianapolis and other surrounding parts of PAD II,
it is rumored that Sun, Arco, Ashland and possible Mobil are following Gulf's
lead and are considering withdrawal from the branded dealer market. However,
it is not clear whether withdrawal from the branded dealer market would mean
actual withdrawal of supply or merely a switch to private brand sales in
these areas. Gulf and Sun private brand prices are currently the lowest in
the market.
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Product Allocations
In addition to the freezing of supplier-purchaser relationships, the allocation
regulations also contain the following major elements:
Various classes of purchasers are established and assigned an
allocation level, which may be either: a) their current require-
ments; or b) some percentage of their purchases in the "base period"
(calendar year, 1972).
A basic priority system is established in the legislation to ensure
that: a) defense uses and agricultural production uses are fully
provided for; b) all other uses bear a proportional share of any
shortage.
An allocation fraction is calculated to quantify the degree to which
a supplier's allocable supply is capable of meeting his supply obliga-
tions to purchasers in the non-priority, categories, and to guide his
deliveries to all purchasers.
A state set-aside is also established under control of state authorities
to meet emergency needs or hardships.
The allocation fraction is calculated as the quotient of total available fuel
(allocable supply) less priority requirements for agriculture, Department of
Defense, and state set-aside requirements, divided by the remaining require-
ments, based on allocation levels for the purchasers of these supplies. This
fraction is calculated for each individual supplier. If sufficient products
are available, the allocation fraction will be 1.0 or greater, i.e., 100% of
the purchasers' entitlements; if a shortage exists, the allocation fraction
will be less than 1.0 and available supplies will be distributed to the various
levels of purchasers at this fraction of their entitlements. When the alloca-
tion fraction is in excess of 1.0, the suppliers are required to report those
volumes that are surplus to their requirements to the FEA for redirection to
other suppliers, wholesale purchasers or end-users.
The procedure that refiners have to go through to sell "surplus" product is
as follows:
Any month in which they have an allocation fraction greater than
1.0, they must declare the excess to FEA as surplus.
FEA can assign them buyers within 10 days. Generally FEA have been
releasing back to them for sale 75% of the declared surplus and
holding back for 30 days the remaining 25% and then finally releasing
it as well. This is apparently a common practice.
The refiner can then sell the released surplus, but the sales have to
roughly follow his base period distribution pattern in terms of the
percentage sold to controlled vs. non-controlled customers.
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The sales to each class of customer must take place at prices no
higher than the ceiling prices fixed for each class of trade in the
regulations. Of course, the anti-price discrimination rules of the
Robinson-Patman Act always apply. In practice, refiners frequently
make use of brokers in order to dispose of surpluses.
Price and Margin Controls
Wholesale and retail selling prices of controlled petroleum products are
limited to the May 15, 1973, selling price plus a dollar for dollar pass-
through of increased product costs. By regulation amendment, on December 31,
1973, and April 1, 1974, the FEA granted wholesalers non-product cost increases
on a cents/gallon basis. The granted increase per gallon varies by fuels
and the volumes sold. In similar amendments, the FEA, on December 31, 1973,
and February 28, 1974, granted gasoline retailers a 1 cent and a 2 cent/gallon
increase in selling prices to cover non-product costs, i.e., a total of 3
cents/gallon. Rentals paid to companies for company-"owned" service stations
were also frozen at the May 15, 1973 level but were decontrolled in the spring
of 1976. However, many oil companies have used rental subsidies as a means to
disguise price competition support for dealers to increase their sales volumes
(e.g., rent rebate to the dealer for all gallonage in excess of an assigned
target).
The regulations permit the "banking" of costs that are allowable for pass-
throughs but that cannot be recovered in the market due to prevailing supply-
demand relationships. A complex series of regulations governing banking, the
allocation of banked costs to specific products, and the withdrawal and passing-
through of banked costs are further complicated by the deregulation of residual
oil and distillates. In general, the regulations permit a higher than volu-
metrically proportional pass-through of banked and other costs on gasoline sales,
for a variety of political and economic reasons.
In many cases, refiners with high allowable ceiling prices are not able to
sell product at those prices due to prevailing market conditions. Thus, they
recover only a portion of the maximum allowable pass-throughs. For example,
in the spring of 1976, gasoline pass-throughs in some parts of the country
ranged from 15 - 19 cent/gallon. By June, as summer gasoline demand developed
more strongly than expected, pass-throughs increase to the 20 - 22 cents/gallon
range. Even at this level, a large number of refiners had not exhausted their
banks allocable to gasoline. Theoretically, they could charge even higher
prices, yet were prevented from doing so by competition in the market. Pass-
throughs are reflected in dealer tank wagon prices. As noted above, service
station rental subsidies may be used to offset some of the pass-throughs in
an effort to increase volumes0
Dealer margins have also been reduced to levels significantly below those per-
mitted by regulations. Typical full service dealer margins have been as high
as 10.5 cents/gallon but now average 7.5 to 8.0 cents/gallon. Consequently, the
average earnings of dealers have declined considerably. According to E. K.
Williams, the average earning of a dealer operated major brand station in
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1975, was 15.4 thousand dollars, a 35% decline from 1974 Income levels. This
statistic illustrates the increasingly difficult competition between full
service conventional stations and high volume gasoline-only independent branded
stations.
Conclusions on Marketing Regulations
The removal of government regulations effecting marketing would not have an
immediate significant impact upon competitive positions, prices and margins.
This undoubtedly will be the argument of the FEA when it proposes gasoline
decontrol. Even with the summer tightening of the gasoline market, market
prices are generally below the ceilings that would be permitted by the regu-
lations, indicating an overall adequate supply of gasoline in the U.S. Gasoline
decontrol would have greatest impact in increasing the fluidity of customer-
supplier relationships as a number of bonds tieing customers to certain
suppliers are removed. In the longer term, of course, the removal of regu-
lations would permit some withdrawal of marketing operations from certain
areas by certain companies. In due course, this could lead to less supply and,
therefore, higher prices. However, at present, the supply/demand balance and
the strengths and weaknesses of competing companies are more important in deter-
mining margins than government marketing regulations.
The outlook for decontrol of marketing regulations is fairly good. Residual
oils were decontrolled and the crude oil entitlements program (see below) was
modified June 1 of this year. Decontrol of most distillate products was ap-
proved on July 1, 1976, and, assuming congressional support, the FEA will
probably propose decontrol of gasoline in the autumn of 1976.
Crude Oil Price Regulation and Entitlements
If marketing price and allocation controls are removed, the Government will
rely upon crude oil price controls to (i) keep costs and prices more or less
equitable between refiners and (ii) exercise a moderating influence on con-
sumer prices in accordance with the mandates of the Energy Policy and Conser-r
vation Act of 1975. This legislation required the FEA to set crude prices
at levels such that the weighted average price was $7.66 per barrel. In
effect, this rolled back upper tier oil prices from uncontrolled levels near
import parity to an $11.28 per barrel average as FEA maintained the "old oil"
price at $5.25 per barrel. The weighted average price of $7.66 per barrel is
allowed to be increased by a maximum of 10% per year (maximum 7% for inflation
plus 3% as an incentive for increased production). The FEA has some flexibility
as regards the application, of the 10% per year increase between upper and
lower tier oil. At present, FEA is applying these increases equally to upper
and lower tier oil, but this policy could change in the future if FEA decides
that a different pricing strategy will result in more crude oil production.
In November, 1974, when it was perceived that price controls on domestic crude
production resulted in significant differences in individual refiners' crude
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costs (and ultimately product prices) the FEA introduced the Entitlements
Program. The original purpose of the Entitlements Program - which has been
obscured by recent public debate - was to spread the economic advantage of
processing "old" or price controlled oil equitably among all U.S. refiners.
Under the original Entitlements Program each refiner was granted the right or
"entitlement" to run old crude in his refining operations at the same ratio
as the national average of "old" oil to total U.S. refinery runs. In cases
where a refiner did not have access to sufficient old domestic oil to bring
his old-crude-to-total-refinery-runs ratio up to the national average in any
given month, he was granted "entitlements" equivalent to the number of barrels
short he was of the national average. This refiner then sold his "entitlements"
to refiners who were running "old" oil in excess of the national ratio. Con-
versely, this second refiner was obliged to purchase "entitlements" from :
refiners lacking "old" oil supplies. The national average ratio of "old" oil
to total refinery runs, as well as the price at which the entitlements were
traded, was computed and published monthly by the FEA. It should be noted
that the Entitlements Program operates on the refiner level and the amount
of entitlements which a refiner must sell or buy is based on his average nation-
wide position with regard to "old" oil. The Entitlements Program does not .
involve a physical movement of crude supplies, but simply a monetary transaction
between refiners which has the effect of adjusting crude acquisition costs.
When there was only one classification of price-controlled oil ("old" oil),
the FEA price set for an entitlement was the difference between the national
weighted average costs to refiners of "old" oil and of new, released and imported
crude. In the period covered by this formula (November, 1974 - January, 1975) the
value of an entitlement ranged from $5.00 per barrel initially, up to a peak of
$8.94 per barrel in November, 1975 and back down to $8.09 in January, 1976.
However, when a two tier domestic price control system was adopted on February 1,
it was necessary to revise the operation of the Entitlements Program. The
March 29, 1976 amendments to the Entitlements Program (effective with February's
entitlement transactions) update the Program to include provision for lower and
upper tier entitlements. With regard to the two classes of price-controlled
domestic production, the revisions provide for the FEA to calculate national
average supply ratios for both lower tier ("old") and upper tier oil. Deficit
or surplus positions with regard to the national lower tier supply ratio will be
resolved by trading full entitlements, while inequities in the upper tier supplies
will be redressed with exchanges of partial entitlements. The full entitlement
value will be the difference between the average lower tier crude price and the
average cost of imported crude less 2l£ per barrel. The new provision for a
21c reduction off the previous full entitlement value was devised to create an
inherent advantage and incentive for domestic production. The fraction of a
full entitlement used in equalizing access to upper tier oil will be calculated
monthly as follows:
(Average Imported Crude Price Minus 21$) - (Average Upper Tier Crude Price)
(Average Imported) . - (Average Lower Tier)
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For example, if the national average prices are as follows: imported - $13.21/bbl.,
upper tier - $11.28/bbl., and lower tier - $5.25, then the calculation of the
national upper tier fraction would be as follows:
($13.21 - 0.21) - (11.28) _
7.25 ~
In practice the FEA rolls the calculation of the upper and lower crude entitle-
ments into one formula which computes the national domestic oil supply ratio
(or DOSR) in relation to total national crude runs. Thus, the DOSR =
1 2
(old oil runs) + (upper tier fraction X upper tier production) - Misc. exceptions
monthly volume of crude runs
Individual refiners then compare their monthly runs of lower and upper tier crude
with the number of barrels of domestic oil that they would have run using the
DOSR (i.e., the DOSR X monthly crude runs). As under the original program, re-
finers whose domestic crude runs exceed the national average are buyers of en-
titlements and refiners whose domestic runs are below the national average are
sellers of entitlements.
As a part of its program to decontrol the market price of residual fuel oil, FEA
selectively modified the entitlements program to narrow the price gap between
foreign and domestically produced residual fuel oil to the East Coast.-* Importers
of foreign-produced residual fuel oil are granted a 30% entitlement for the supplies
they import^ to the U.S. East Coast. Refiner/marketers of domestically-produced
residual fuel oil are penalized with a 50% reduction in entitlements for each
barrel of residual fuel oil over 5,000 per day marketed on the East Coast. This
special residual entitlements provision became effective retroactively to February 1,
and was reflected for the first time in the April entitlements transaction. By
law, all price adjustments resulting from changes in the entitlements position
caused by residual fuel oil entitlements provisions must be reflected in residual
oil prices and not in the prices of other products. The decontrol of residual
fuel oil prices to which this change in the operation of the Entitlements Program
was a prelude is scheduled for June 1, 1976.
As calculated above this would be .222.
\
The exceptions which reduce the domestic supply are the small refiner bias, the
East Coast residual entitlements and the exceptions granted in the Exceptions
and Appeals process.
The East Coast refers to the Bureau of Mines Refining District of that name
and encompasses all of P.A.D. District I except West Viriginia and the western
half of Pennsylvania and New York states.
Excludes imports from the Amerada-Hess refinery in the Virigin Islands, since
the Virgina Islands are technically a U.S. territory with a free trade zone
rather than a foreign country.
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Small Refiner Entitlements Benefits
In addition to the revisions in the Entitlements Program resulting from the
decontrol of residual fuel oil prices, there have been changes in the small
refiner bias in the Entitlements Program. The original Entitlements Program
contained provision for extra entitlements to be granted to refiners whose
refinery runs averaged less than 1,975,000 per day. The EPCA specifically
dictated that all refiner-buyers with runs less than 50,000 barrels per day
be exempt from the Program; refiner-buyers with runs less than 100,000 barrels
per day be proportionally exempt. Small refiner-sellers were to continue to
receive their normal sales rights, including the additional rights afforded by
the small refiner bias. FEA officials, who were not responsible for the small
refiner-buyer exemption provision in EPCA, took exception to the unfair economic
advantages afforded to small refiner-buyers by this blanket exemption. FEA
sought to remove the exemption via their rule-making authority. After FEA
and Congressional hearings, FEA officials succeeded on May 27 in eliminating the
exemption for small refiner-buyers, but agreed to increase the amount of the
small refiner bias in certain ranges of refinery runs. The revised schedule
for additional entitlements awarded to small refiners is shown in Table Fr-1.
The small refiner entitlements benefits is probably the most important aspect
of FEA regulations influencing a gasoline retailer's ability to recover the
cost of vapor recovery equipment. If a small refiner enjoys a lower crude oil
cost than his larger competitors due to the operation of the Entitlements Pro-
gram, he may pass this advantage along to his customers in the form of lower
refinery gate prices. In turn, these retailers may utilize their lower cost
of product to offer lower pump prices to the public and thus increase their sales.
Other competitors will be forced to match these prices as much as possible or
face the propsect of losing sales. The marginal economics of gasoline retailing
(Section III) provide a powerful incentive to increase sales or, conversely, to
fight a loss in sales. A retailer trying to pass on a cost increase, therefore
increasing his margin, will have a very difficult task if any of his competitors
have a lower delivered cost of product. Exxon Company, U.S.A., has stated in
testimony before Congress by Richard Lilly, General Manager of Marketing, that
the various small refiners' preferences create an advantage of 21
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TABLE"F-I \
REVISED SCHEDULE FOR ADDITIONAL SMALL REFINER
ENTITLEMENTS BENEFITS
Range of Throughput
(B/D)
100,000 - 175,000 A
Formula for Additional
Entitlements Per Day
(1258 per day) - (the
difference between
refiner's runs in MB/D
and 100)
Range of Additional
Entitlements (Daily Average)
Minimum Maximum
0
1258
50,000 - 100,000
(2079 per day) - [(the
difference between refiner's
daily runs in MB/D and 50) X
(16.42)]
1258
2079
30,000 - 50,000
(3123) - [(the difference
between refiner's daily runs
in MB/D and 30) X 52.2)]
2079
3123
10,000 - 30,000
(2288) + [(the difference
between refiner's runs in
MB/D and 10) X (41.75)]
2288
3123
Less than 10,000
228.8 entitlements for each
MB/D of runs
2288
No change over original schedule
With the exception of the 10,000 - 30,000 range, the minimum number of additional
entitlements is awarded tq_the refJLn^r_at the top of theL range. The reverse ls__
true in the 10,000 to 30,000 range.
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II. Competitive Structure and Marketing Strategies
While government regulations have some influence on marketing margins, the
competitive structure of the market and the strategies of the various
marketers are the key determinants of retail gasoline margins. In particular,
the balance between majors and independents in a market and the mix of
competing service station types (full service, self-service, etc.) will
impose a number of constraints on an individual station's ability to
recover the cost of vapor recovery equipment through higher margins.
Competitive Structure
In gasoline marketing, the relative market share of the majors versus
the independents is a key factor of marketing margins available in each
market. Nationwide, independents had about a 31% retail gasoline market
share in June, 1975, as compared to approximately 18% in 1965. In parallel
to this trend, the gasoline market share of independent refiners increased
from 19% in 1965 to 30% in 1975.
Sales by wholly-owned marketing subsidiaries of majors (as far as these
relationships were known) have been classified as sales by majors. In
general, the independents have higher market shares in the major urban
markets and lower shares in the rural areas than the statewide statistics
show. The strategy of the independents has been to focus on high-volume,
cut-price operations, and as such, they have concentrated their efforts in
the major urban areas. Also, the majors with their extensive distribution
networks tend to have a much larger relative share of non-retail gasoline
sales including the commercial and agricultural classes of trade.
During the 1950's and 1960's, the majors attempted to maintain a gasoline
pricing system calculated to yield an 8% to 10% after tax return on their
ever-growing investment base in service stations. However, many markets
were disturbed during this period by small refiners who dumped gasoline on
the markets from old, largely depreciated and generally low-cost refineries.
Another factor in the market during this period was distress cargoes from
the Gulf Coast. The pricing structure the majors created and fought to
maintain operated as a large price umbrella under which the independents
could find considerable room for growth. Eventually, the majors had to
reduce their prices in order to control the growth of the independents'
market share. One major oil company stated that in 1969 they shifted
their marketing operations from a volume to a profit maximization orientation.
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Another, factor in the growth of independents' market share since 1971 has
been various government regulations which have equalized refiners' feedstock
costs, and enhanced competitive position of small and independent refiners.
Several illustrative urban gasoline markets are briefly characterized below:
City A - The independents' market share has increased from 20%
in 1971 to about 32% in 1976. However, compared to other cities
it has been relatively more difficult for independents to acquire
new service station sites in "A" due to zoning restrictions and the
high cost of land. Thus, the spread between the majors' and
independents' prices is somewhat higher than in other markets.
City B - Independents per se have had a low market share but in
the late 1960's this was one of the most competitive markets.
During this period, as independents tried to increase their market
share, some major brand jobbers and dealers (without the support
of their suppliers) cut prices significantly in order to pre-empt
the independents. These price cutters, called "mavericks," succeeded
in gaining high volumes, and the majors were eventually forced to
respond by lowering the prices to their non-maverick dealers and
jobbers. Periodic price disturbances became a major factor in
the "B" market until product shortages developed in 1973. Although
some signs of price disturbances have been reappearing of late,
product supply availability to the mavericks appears to be tighter
today than in the 1960's. Independents never did gain a large
share of the "B" market, and relatively high margins make it one
of the more attractive markets.
City C - The market is characterized by a high independent market
share. Discount chain stores such as J. C. Penny and Sears have
been selling gasoline at low prices, possibly as a loss-leader.
Branded dealers have learned to survive in such a market on
relatively low margins by building non-gasoline sales income.
Recent statistics show dealer margins in "C" averaging 5.5 cents
per gallon versus 9.5 cents per gallon in City "A".
City D - This is also a highly competitive market. Barge cargoes
are often sold at 2 to 3 cents per gallon below prevailing wholesale
prices although it is unclear how much volume these cargoes may
represent. (Much of the gasoline for this market is refined in the
Gulf and shipped via barge or pipeline.) Some major jobbers are
integrating forward into salary-operated service station sales,
but the independents are resisting this move by lowering prices.
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City E - The independents have a very high market share here which
increased from 48% to 65% between 1971 and 1976. Under these
conditions it is very difficult for the majors to get any premium
at the pump for branded product.
In view of the fact that independents have captured a large share of the
market, it is no longer possible to have a very large spread between major
and independent gasoline pump prices. Most marketers agree that a 2 cents
per gallon spread between the major and independent brand prices is the
maximum that can be posted today without encouraging rapid growth in the
independents' market share. The strong implication of this situation is that
any marketer must be competitive with the independents in terms of marketing
style and economies of scale. The majors and other competitors are introducing
a number of strategic responses to the growth of the independents' high-volume,
gasoline oriented, generally salary-operated style of gasoline marketing.
The independents' marketing style is becoming a nationwide trend in the U.S.
The economies of scale of independent stations versus traditional, major-
branded, full service outlets are discussed elsewhere in this memorandum.
A final link in the competitive structure of gasoline retailing is the
farmers cooperatives which have achieved a significant penetration of the rural
areas in the less populated states. Many of these cooperatives have their own
refineries and, in addition, purchase some products from other refiners. They
see considerable expansion potential as the majors continue to retrench from
direct operation in rural areas. Often the service station facilities are
associated with the local cooperative headquarters.
Logistical Factors
Logistical factors can also be important determinants of competitive positions
and realizable marketing margins. Certain markets may have a "transporation
shield" around them permitting somewhat higher margins. In all markets,
those competitors with the most economical sources/costs of supply may have
the potential for higher margins than those competitors who derive their
product supplies from the most marginal source, i.e. , the source of the last
barrel required to meet product demand.
Markets serviced partially or totally by local refining versus "imports" by
barg^_pr pipeline^have a transportation shield_.around them. This means that
the local refiner can charge prices equivalent to the laid-in cost of product
from alternative sources. A local refiner may, theoretically, add the dif-
ference between his curde oil tansport cost (if any) and the cost of transport of
product from alternate sources to his margin. The cost of transport from the
most economical alternate source of product less his crude transport cost is the
value of the transportation shield. Logistical factors are especially important
in the marketing of distillate and residual, but also may be important in some
cases in gasoline marketing.
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Marketing Strategies and Efficiency
The type of retail outlets utilized to market gasoline is an important element
of gasoline marketing strategy and, in turn, of the potential marketing margin
available. The efficiency of marketing operations then determines competitive
viability and profit realization.
The current pacesetters in gasoline marketing are the high-volume, gasoline-
only, cut-price independent branded stations. These stations are almost
uniformly salary operated. It is this type of marketing operation which
effectively leads prices in most markets. For example, the price-setters
are generally the large, independent multi-state marketing companies, such
as Hudson, J. D. Street, Autotronics, Martin Oil, Sav Mor, etc. On the
West Coast and Midwest the presence of a relatively large number of independent
refiners has attracted and fostered the growth of these large multi-state
marketing companies. As noted above, the independents, held a market share of
31% nationwide in June of 1975.
In response to the independents' strategy, many majors have introduced split
island self-service/full service stations. No investment in self-service
facilities is necessary; the price is merely dropped. Recent price spreads
posted between the full and self-service islands have been up to 5 or 6 cents
per gallon. However, actual cost savings from self-service operations are
estimated at an average of 1 cent per gallon and certainly no more than 2 cents
per gallon. In the short-term, this use of self service on a split island
basis as a vehicle to cut price appears to be the majors' predominant response
to the independents.
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III. Economics of Gasoline Retailing
The cost structure of gasoline retailing is heavily weighted with fixed,
non volume-related costs. Thus, profitability is highly sensitive to
throughput sales volumes at each station. Economies of scale are very
important as each additional sales unit has a relatively low associated
variable sales cost. The overbuilding of the service station market in
the U.S. has resulted in relatively low average throughputs and concomitant
high margin requirements. However, the range of throughputs per station is
quite wide and the marginal economics of gasoline retailing provide a powerful
incentive to cut prices to move additional volumes and take advantage of
economies of scale in retailing. When ample product supplies are available,
the retail gasoline market is highly competitive.
Service Station Economics for the Dealer
A modern service station engages in a number of activities. Gasoline and oil
are sold on the pump island, while tires, batteries and accessories are sold
inside. Repairs are performed, ranging from simple tire repair to complex
electronic engine tune-ups. Some stations may sell non-automotive products,
such as candy, cigarettes, soft drinks and ice. Other facilities have tie-
in operations with car washing operations or convenience stores.
The provision of each of these products and services offers the dealer a
profit potential. An important determinant of profitability is the dealers'
skill in managing labor, both specialized and non-specialized, to increase
sales. The basic function of the station, the retailing of gasoline,, brings
a constant flow of traffic across the forecourt. Each automobile provides
the opportunity for non-gasoline sales if the dealer and his employees are
skillful in identifying the needs of the motorist and in selling him the
products and services he requires. A "balanced" operation for a modern
full-service station would derive roughly half the total gross margin from
the sale of gasoline and the other half from the sale of other products and
services. As these are generally performed inside the work and lubricating
bays, they are referred to as "inside business", as opposed to pump island
or forecourt business.
The major expenses incurred by the dealer are labor, materials and supplies,
utilities (such as lights and water) and rental of the site from his supplying
oil company. Labor costs are the largest single cost item. Employee wages
typically average 40% to 50% of gross profit, excluding the value of the
dealer's labor. Demand for gasoline is not spread evenly throughout the
day, in general peaking in the morning and evening. Thus, in order to avoid
potential labor waste, it is important for the dealer to (i) use some casual
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labor to cover peak demand periods and (ii) generate non-pump island work,
such as minor repairs and services, for full-time labor. Rentals are
generally established by the oil companies in relation to the income-generating
potential of the site with targets established in the range of 20% of gross
profit.
Even though lessee dealers do not have any real property investment in the
sites, and lease from their supplying oil companies, they do have to make a
significant investment in the business. Dealer investment covering equipment
and product inventory for a typical station requires a minimum capital invest-
ment of $8,000. Significantly higher investments are required for higher
volume outlets. Most dealers are undercapitalized, particularly those in
small marginal outlets, and often receive long-term loans from the supplying
oil company in order to enter the business. Naturally, a part of the earnings
from the outlet should be considered as a return on the dealer's capital.
The dealer will generally pay himself a certain fixed amount per week or month
to cover his living expenses. This is often called "dealer draw". The dealer's
final profitability will be a result of the interaction of all of the factors
described. After servicing his capital investmentj the amount of profit he
earns should be weighed against his long hours and the fact that self-employed
businessmen do not receive paid vacations, medical benefits, etc. In some
extreme cases, the companies will provide the dealer with profitability
assistance.
Service Station Economics for the Oil Company
The chain of branded retail outlets supplied by each oil company consists
basically of two groups of outlets, company-owned and dealer-owned. Dealer-
owned outlets are generally supplied under multi-year contracts. The dealer
generally receives a discount off the wholesale or dealer tankwagon price.
Currently, this discount is in the 4 cent per gallon range. In the past,
the dealer who owned his own outlet also received a number of other inducements
to sign a branded supply contract. Dispensing pumps and storage tanks may
be provided along with identification signs. He may receive a loan at
favorable rates of interest or a company contribution toward expansion or
maintenance of his station facilities. He may also be given advertising or
other allowances.
However, there is a degree of insecurity for the companies with dealer-owned
outlets as dealers may change suppliers at contract expiration dates. Further-
more, most of these outlets are not the modern, high volume outlets that the
companies seek, especially in urban areas. Thus, the companies have built
an additional chain of company "owned" stations. These stations include sites
where (i) the company owns the land and builds the facilities, (ii) the company
leases the land on a long-term basis, generally 15-20 years, and builds the
facilities and (iii) in a few cases where the company leases both the land
and the facilities.
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In selecting sites, especially for company-owned stations, a number of factors
Is considered by the company. For each potential site the company analyses
two components of traffic flow patterns: a local residential traffic flow,
especially important in providing a market for non-gasoline sales at the outlet,
and transient traffic flow. The size and nature of each of these markets
is analyzed, the accessibility and visibility of the site is weighed and
the competition in the immediate market from other stations is considered.
Out of the evaluation emerges an estimated gasoline sales volume for the site.
Based on the forecast volume and the company's estimate of the sales potential
for other products and services, the dealer income potential of the site is
evaluated. According to the companies, the ability for the site to generate
an acceptable dealer income is an important criterion in site selection.
The return to the company from its investment in a company-owned station is
derived from the sum of two streams of income to the company: rental paid by
the dealer and profits on the supply of petroleum products to the dealer. For
new sites, supply profit estimates are generally based on the marginal or
incremental cost to the company of product supply. The companies frankly
acknowledge that service station rentals received from lessee dealers are
not economic. Such rentals are based only on the investment or market value
of the site as would be the case in a straightforward real estate transaction.
There has been a trend toward more economic rentals, but this was interrupted
by service station rental freeze imposed by the FEA. Rentals vary considerably,
but 1.5
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Real estate costs - return on investment in land and improvements,
real estate taxes, -etc.;
Station labor costs (excluding the value of the dealer's labor);
Other retail expenses - utilities, supplies and services, depreciation,
bad debts and miscellaneous expenses;
Station manager's return on capital invested in inventory and equipment.
With the exception of delivery costs and some elements of other retail expenses,
most of these expense categories are not volume-related, except over wide
ranges of volumes. Thus, with a preponderence of relatively fixed costs,
cost-per-gallon sold decline dramatically as volumes at an individual station
increase. This phenomenon presents an opportunity to realize significant
economies of scale if station volumes can be increased.
As volumes increase, the cents per gallon margin required on gasoline for
station viability and profitability decreases rapidly. The income to the
station from non-gasoline sales and services reduces the required gasoline
margin. This non-gasoline income is generally reduced as gasoline volumes
increase. Low volume stations need a high percentage of TBA sales and repair
work to remain profitable. As volumes increase and the station becomes more
gasoline oriented, the ratio of these other sales to gasoline sales tends
to. fall off, although their absolute dollar volume may not decline. : :
Economies of scale are also relevant considerations in gasoline manufacturing.
When refiners have spare capacity, it may be utilized at low additional cost.
This enables the refiner to offer the products produced by expanding his
capacity utilization at relatively low prices. The pricing of such products
can be an important factor in retail price competition. Once a refinery is
put on stream, most of its costs are fixed (e.g., depreciation, interest, taxes,
wages, maintenance, etc.) and are not subject to variation resulting from decreased
or increased utilization of the manufacturing capacity. The only variable costs
involved in small increments of increased (or decreased) capacity utilization
are related to the higher (or lower) outlays for refinery fuel and additives.
For example, assume that the manufacturing cost of a refinery operating at
70% capacity is $.50 per barrel of crude run. Further assume that $.40 per
barrel of this cost is fixed, including a return on the capital invested in
the refinery, and $.10 per barrel is variable. If the production were sold
at $.50 per barrel, all cost, including return on capital, would be recovered.
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If the rate of production was increased to 85% of capacity the added cost would
be only the $.10 per barrel variable cost. The price needed to recover the
added cost would be only $.10 per barrel on the volume of increased production;
that is, $.40 per barrel less than the price needed to recover all costs. If
the increased production could be sold at $.20 per barrel while the original
level of production is sold for $.50 per barrel, the refiner would actually
be increasing his overall profitability. Marginal cost pricing can be a
powerful tool. However, it is important that the refiner be able to segregate
his markets in order to recover his fixed costs on some sales and marginal costs ,
plus a small profit on others.
In regard to gasoline marketing, marginal cost pricing has generally been
applied to tender business, especially in the government and commercial classes
of trade. Precisely because of the fear of lowering overall gasoline sales
realizations to the retail class of trade, refiners make considerable efforts
to segregate any such sales into channels of trade, geographical areas, or
customer classifications that compete as little as possible with their
established branded retail trade. Nevertheless, because of the powerful
extra profit incentive, refiners may utilize surplus capacity through low-
priced slaes of gasoline to independent distributing companies. These
independent companies use this lower purchase price to subsidize pump price
competition and increase their retail sales. The other oil companies, upon
seeing their market shares diminish, may retaliate by subsidizing their
dealers or other independent oil companies or jobbers to engage in retail
pump price competiton.
Overbuilding of Service Stations
A large number of service stations were build, primarily by the oil companies,
from the early 1950's until about 1970. This overbuilding resulted in relatively
low average throughputs and the need for relatively high margins. These high
margins created an umbrella under which potentially high volume stations
could use price cutting to increase throughputs and profitability and realize
economies of scale.
The overbuilding of service stations reflected several factors:
Market share was highly correlated with a number of outlets;
Marketing and, to a lesser extent, refining were viewed as
activities necessary to secure controlled outlets for crude oil
production;
The bulk of profitability in integrated petroleum operations was in
crude oil production due to (i) favorable tax treatment, including
depletion allowances, and (ii) maintenance of high crude oil prices
by production pro-rationing by state authorities and controls on
lower-cost imports;
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The profits from crude oil production were therefore available to
subsidize downstream activities including gasoline marketing which
were not expected to be particularly profitable on their own.
In the early 1970's, several events occured which have resulted in a drastic
reorientation of oil company attitudes toward gasoline marketing. The
favorable U.S. tax treatment of domestic crude oil production has been
reduced significantly. This commenced with the Tax Reform Act of 1970
and culminated with the elimination of depletion allowances for large
producers. At the same time, U.S. crude oil production peaked, pro-rationing
was no longer necessary, U.S. crude oil production has been declining and
imports represent a growing percentage of total U.S. petroleum consumption.
At the same time, the profitability of foreign crude oil production has been
cut very significantly by the actions of the OPEC countries, especially since
Libya's move to increase production payments late in 1970. Simultaneously,
the oil companies have lost a considerable degree of control over their foreign
crude oil production operations.
Thus, crude profits evaporated considerably. Capital requirements have been
rising for the oil companies, especially for new investments in exploration
and production. The cost of capital itself has increased. For .all of these
reasons the companies are now increasingly viewing each stage of the integrated
chain of operations as a separate profit center which must become profitable
as a separate entity. Many companies have developed new organizational
structures to implement this change in business strategy. As a result, new
investment in service stations has been reduced and older, less profitable
stations are being closed as market forces make them uneconomic. Economies
of scale and an increasingly competitive market are squeezing out the smaller
volume, marginal outlets. There has been a significant reduction in the total
number of gasoline retailing outlets in the last several years and this
reduction should continue apace during the remainder of the decade. This :
rationalization of the U.S. gasoline distribution network is illustrated in
Table F-2 below:
TABLE F-2
U.S.A. Gasoline Sales Outlets
Number of Retail Service Stations
226,000
196,000
189,600
1980 Estimate
High 150,000
Low 110,000
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In addition to these retail service stations., 100,000 other outlets currently
sell small volumes of gasoline. Many of these are located in rural areas
at general stores (e.g., "Mom and Pop" operations). Other examples of outlets
in this category would be parking lots and garages.
Retail Price Competition
The combination of the factors described above creates an environment of retail
price competion. High margins necessitated by the overbuilding of service
stations create a price umbrella under which the efficient competitor can
significantly increase his volumes by cutting the pump price. The cost
structure of gasoline marketing consists mainly of relatively fixed sales.
Thus, marginal sales increments, even at reduced profit margin levels, can be
highly profitable as economies of scale are realized. Gasoline manufacturing
capacity is more than adequate to meet current demand, notwithstanding a
seasonal summer tightening of supply/demand balances in many areas. Indeed,
there has generally been a surplus of gasoline refining capacity. The
refiner's marginal economics give him a powerful incentive to increase his
plant utilization by selling cut-price gasoline, especially if he can segregate
these sales from his "regular price" business. Finally, a large number of
independent marketers stand ready to purchase cut-price product and market
it in a highly competitive fashion through selective, high-volume, gasoline-
oriented retail sites. To constrain their loss of market share, even the
major oil companies are increasingly being forced to emulate the marketing
style of the independents.
The value of a brand is quickly being eroded as motorists become more cost-
conscious. Thus, the majors are reducing brand differentiating activities
(advertising, promotions, tie-ins, credit cards) and focusing on self-service,
secondary brands and direct company operation of stations.
The industry is beginning to move tentatively toward the rack pricing concept
of gasoline pricing. While specific proposals and schemes in operation vary
considerably, the basic concept of rack pricing is that gasoline will be priced
at the refinery gate or primary terminal rack equally to all purchasers of
broadly similar quantities. There would then be a series of specifically
identified add-ons for other items, such as brand, credit card use, transport,
etc. Service station real estate costs would no longer be subsidized by high
dealer tankwagon prices and station rentals would increasingly have to become
economic real estate transactions. The cost of transport to remote outlets
in a delivery area would no longer be subsidized by averaging it in with the
cost of transport to outlets more proximate to the source of supply. The role
of the jobber could very well be diminished as he would increasingly have to
compete with common carriers.
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Gasoline retailing will increasingly become more segmented and less homogeneous.
The dominance of the full-service dealer-operated company owned or controlled
service station is over. While the conventional station will always service
a specific market segment, especially in middle and upper-income residential
areas, it will be supplanted in many markets by other, and frequently more
innovative, forms of gasoline retailing. The dramatic growth of self-
service is shown in Table F-3 below:
TABLE F-3
SELF-SERVICE RETAIL OUTLETS
Self Service Outlets Estimated Number of
Percentage of Total Total Self-Served
Year Service Stations Outlets*
1970 1.5% 4,500
December 1974 6 % 12,000
July 1975 14 % 27,000
January 1976 28 % 54,000
1980 Estimate 50 % 75,000
* Includes split-island stations offering
both full service and self-service
This retailing segment could grow to 50% of the market. Gasoline pumps will
be installed at convenience stores, supermarkets and tied into other forms
of retailing as the number of market segments that can satisfy specific
consumers' needs grows.
This is the environment in which any individual station will have to attempt
to pass-through the increased costs of vapor recovery equipment.
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Summary;
IV. Barriers to the Pass-Through of Vapor Recovery Costs
The numerous topics discussed in this memorandum may be summarized by
developing a check list for an individual station of the barriers to
successful pass-through of the increased costs of gasoline retailing due
to the installation of vapor recovery equipment.
First, determination of the market segment. All stations do not compete
with each other. A neighborhood full-service station competes only
marginally with the cut-price gas and go outlet on a main road in another
part of town. Thus, the ability to increase the gasoline margin depends
on a station's competitive position vis- a~vis the pacesetter serving the
market segment.
Second, the extent to which FEA regulations constrain supplier to a lower
cumulative pass-through than his competition. If gasoline is deregulated,
the amount to which a supplier will have to raise prices, if his are lower
than competition, is a question. This is not likely to be an important
factor in many markets
Third, the stations throughput volume versus its competition and where
the station stands on the economics of scale curve. Note
that the curve drops rapidly and then flattens out. Thus, a site with a
throughput of 25,000 gallons per month is worse off than the pacesetter
with 50,000 gallons per month. The relative throughput level is probably
the single most important determinant of the competitive ability to increase
margins to pass-through vapor recovery costs.
Fourth, the manner in which a station's cost structure compares with its most
efficient competitor. The ability of the station to control labor costs
(e.g., through complete or partial conversion to self-service) is important.
A leasee dealer must consider his rental rates, including any possible rent
subsidy granted by the supplier for increased volume. Finally, the Impact
of rack pricing must be weighed.
Fifth, the price at which a given station purchases gasoline must be
compared with the pacesetter. The kinds of stations competing in the same
market (major branded outlets, a minor branded or completely unbranded)
and the market share claimed by independents versus the majors sets the
framework for competition. The operation of the crude oil entitlements
program, especially in regard to small refiners, may give certain competitors
a lower refinery-gate price. Furthermore, logistical factors may favor or
disfavor some suppliers versus others in the same market.
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Finally, and more difficult to answer, is the question of whether new or
different types of competitors are likely to enter the market segment.
Market vulnerability to a discount retail store like Sears or J.C. Penney
entering as a loss-leader, to a major's conversion of an old station to a
price-cutting secondary brand, or to the introduction of self-service must
be analyzed. The number of competitors closing down due to low volumes is
important.
The answers to this checklist of questions in light of the economics, trends,
and considerations in gasoline retailing discussed in this memorandum, will
permit an evaluation of the ability of an individual station or group of
stations to pass-through and recover via higher margins the increased
gasoline marketing costs due to the installation of vapor recovery equipment.
The Basis for Quantitative Estimates of Pass-Through of Vapor Recovery Costs
For purposes of the closure analysis (see Task G, Economic Impact Analysis)
ADL required a basis for estimating the amounj; of vapor recoyery_ costs
that could be passed through to customers by each type of service station.
The extreme assumptions would be:
(1) Full pass-through ! '
(2) No pass-through
An intermediate assumption is:
(3) Least-cost or competitive pass-through.
Full Pass-Through Assumption
First, we consider the full pass-through assumption. The basis for this
assumption may be stated as follows: if the consumer is not highly sensi-
tive to the addition of an extra penny per gallon, while an extra penny
makes an enormous difference to service station economics, then why cannot
we assume that all stations will fully pass-through the costs.
Our research indicates that this argument is fallacious, since it fails to
recognize that vapor recovery costs per gallon will differ from station to
station with a tendency for higher costs to fall on stations which already
have higher costs per gallon and have higher prices per gallon. Our reasoning
is as follows.
Firstly, we accept that small across-the-board increases in gasoline prices
do not have a great impact on customers, i.e., gasoline demand is not highly
price elastic. This is clear from the fact that consumers have absorbed
price increases of approximately 20
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Secondly, however, the cost of gasoline has become more important in family
budgetstypically on the order of 3%, which is sufficiently large to in-
duce most consumers to pay attention to price differentials between service
stations.
Thirdly, from the analysis presented in this Task, we know that the
market currently and during the coming few years will be characterized by
price competition between various types of service stations. It is clear
that differentials will exist irrespective of vapor recovery. The differ-
entials will be great enough for many customers to switch to low-cost outlets,
for most of their purchases.
Fourthly, to the extent vapor recovery costs are not the same for all stations,
but add to the cost differential between stations, higher-cost outlets are
going to have greater difficulty than lower-cost outlets in passing on their
costs. The degree of pass-through will depend on the competitive situation
facing the higher-cost outlets. There is no good reason to assume that they
can pass-through all the costs.
No Pass-Through Assumption
Some marketers believe that the competitive situation is such that they will
simply be unable to pass on any new costs. This argument we also believe
to be fallacious. The error lies in each station owner's assumption that his
competitors' costs and margins, etc. are given. In fact, however, when a new
cost is faced by the entire industry, including all of his competitors, the
basic cost structure of the industry shifts,and all stations are affected to
greater or lesser extent.
As a base case in the closure analysis, we assume no pass-through, but we
expect in practice that some degree of pass-through will be achieved, depending
on competitive circumstances.
Competitive Pass-Through Assumption
Our best estimate is that each station will be able to pass through that level
of costs corresponding to the least cost of control in its competitive market
segments. This level of pass-through is what we call competitive pass-through.
The basis of this level of pass-through is that market forces have effectively
determined the differentials within each segment. Additional costs can be ,
passed-through provided they are equal for all outlets. But further costs f
for outlets which already have higher costs will not be recoverable* i.e.., excess
costs-, over the j^east-cost-of-cpntrpl levejL. /
Calculated on 10,000 miles at 14 miles per gallon, requires 700 gallons
at 60
-------
we recognize that there may be departures from this assumption in either
direction. However, we regard it as the best objective basis for predicting
pass-through.
In economic terminology, the experience of the last three years shows that
there is little price elasticity of demand for gasoline, i.e., consumers
have not significantly changed their total level of gasoline purchases
when the prices have changed. However, there has been significant cross-
elasticity of demand between service stations relative to prices charged
by competitors, i.e., consumers tend to buy the lowest pump posting
between competing service stations. The individual station cannot, there-
fore, increase his price to cover the extra cost of vapor recovery control
over his least cost of competitor without losing gasoline volume.
140
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TO: The Environmental Protection Agency CASE: Economic Impact
Strategies and Air Standards Division Vapor Recovery Stage II
Research Triangle Park
North Carolina 27711 SUBJ: Task G-Economic Impact Analysis
FROM: Arthur D. Little Inc. DATE: 30 August 1976
I. Dynamic Market Conditions
JRetail gasoline marketing defies rigorous economic analysis_at_the
present time. There is too much turbulence in the market since stable con-
ditions for an "equilibrium" analysis are absent. Margins are down, and an
earlier overbuilding of stations is being corrected by the rapid elimination
of marginal outlets. The number of stations in the U.S. peaked at 226,000 in
1972, by 1976 dropped 16% to an estimated 189,000, and is expected to drop at
least a further 21% from this level to 150,000 by 1980.
The continuing decline in the number of service stations is expected
by all observers. For example, the National Oil Jobbers Council
report, "Assessing the Impacts of Oil Industry Divestiture...", of Anril 1976
states, "In the past 3 years the number of retail gasoline stations,
excluding convenience-store outlets, has decreased from 226,000 to
about 190,000 stations. This decline should continue, with the number
dropping another 20-30 percent by 1980." The report associates this
decline with the increase in the number of high-volume outlets.
The continuing decline is a constant theme of petroleum industry
periodicals at the present time. For instance, the September, 1976,
issue of National Petroleum News reports: "A large-scale fallout of
service stations is either underway, or on the verge of happening, some
industry sources believe. A marketing research expert in the midcontinent
area says the eventual toll could be as high as 25%....If his 25% forecast
proves to be accurate, or even halfway correct, it would mean that the
service-station population will deteriorate to about 150,000 to 160,000
over the next year or two." In the same issue, Mr. Dan Lundberg of
Lundberg Surveys is reported as saying that the station population is
declining about 900 a month, most of them conventional service facilities.
These reports generally attribute the decline to a chain of events leading
from narrower margins and the new oil company emphasis on marketing as
a profit center (or even each station being a profit center), which implies
that low-cost high-volume outlets will continue to grow at the expense of
conventional full-service outlets.
During this period of attrition, margins will likely continue low. The cost
of vapor recovery systems will accelerate the closure of some outlets which
would have been closed in any event. An attempt must be made to distinguish
mere acceleration of service station closures from net losses due to vapor
recovery costs.
141
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II. Market Differentiation and Ownership Diversity
A second problem is the wide variety of kinds of operations, selling gasoline
in imperfectly competitive marketsthe product is differentiated by:
(1) brandbranded/unbranded;
(2) locationhighway sites/neighborhood sites;
(3) serviceself serve/split island/full service.
Moreover, station operations are differently affected by vapor recovery
according to their ownership/control/supply structure:
(a) company-owned/company operated (major, independent or jobber);
(b) company-owned/lessee dealer (major or independent or jobber);
(c) dealer-owned/dealer-operated (with various supplier types) ;
(d) convenience stores and other "tie-in" operations (with various
supplier types).
These operational differences reflect both cost structure and pump price
differentials and imply that the affordability of vapor recovery systems and
vapor recovery operating economics will differ widely by market segment.
Thus, in any attempt to forecast potential vapor recovery induced closures,
the following factors of the service station industry must be reemphasized:
(1) the dynamic market conditions and the corresponding difficulty
of isolating the impact of vapor recovery, and
(2) the problem of assessing the impact on various types of
operations in different market segments.
Notwithstanding these problems, the EPA's needs may be best served by
quantitative estimates of station closures, by type, as opposed to purely
qualitative statements of vapor recovery impacts. These estimates refer to
economic viability of service stations viewed as individual profit centers
requiring a positive cash flow even in today's depressed market. Stations that
will close as a result of an inability to raise the capital funds required
for vapor recovery are necessarily discussed in qualitative terms since the
bankability and access to capital of individual operators in various market
segments differ widely.
III. The First Hurdle; Financing Vapor Recovery
(See Task E: Capital Availability, ADL Memo dated August 6, 1976).
On the basis of EPA estimates of vapor recovery capital costs, the first
question that must be considered is: can service station owners raise the
capital to finance the purchase and installation of vapor recovery systems?
This will be the first hurdle that must be jumped if stations are to success-
fully operate under the new vapor recovery regime.
142
-------
Gasoline retailers have been broadly classified into two categories on the
basis of their degree of upstream integration. Those retailers who are owned
or financed by major oil companies, regional refiners or large independent
marketer/wholesalers will in most cases have access to investment from in-
ternal generation of funds or from the capital market. In general, however,
jobbers and dealer/owners will have to turn to outside sources of finance.
The investment and operating cost data for various vapor recovery systems was
based upon data supplied by the EPA which is shown in Appendix G-L The capital
investment required for various prototype stations described in Task E are
summarized below in TableG-lwith the details for each prototype shown in
Appendix G-2.
\
In addition to Company Owned/Company Operated outlets, this first bankability
group also includes the company owned/Lessee dealers of both majors and regional
marketers (i.e., regional refiners and large independent marketer/wholesalers).
It is anticipated that suppliers will pass vapor recovery costs to their
lessee dealers in the form of rent surcharges or increased DTW costs. The net
effect will be to increase Co/Ld expenses. However, lessee dealers generally
will not have to acquire the capital required for compliance. Furthermore,
the incremental vapor recovery expenses will reflect the relatively
favorable financial costs of these integrated companies.
An example of the relative ease of access to capital by this group,
one of the major oil companies has written to its dealers to advise
them that the financial cost of the vapor recovery investment will
be recouped by a surcharge on the dealer's rent, at a cost per gallon
calculated to add up to $170 per year on each $1,000 investment. This
is a very favorable arrangement for the dealer: it is equivalent to
a 10-year loan at 11% interest.
The companies in the first category will therefore all be able to overcome
the first hurdle if they believe the investment is economic. They may
in fact decide the investment is not worth it in certain circumstances.
However, this decision for disinvestment is a separate issue."'
Jobbers and dealers may have to raise significant amounts of capital to
finance vapor recovery depending on the size of station and the type
of system requiredvapor balance, vacuum assist or hybrid.
The investment requirement for vapor recovery on the order of $6,000 per station
for a vapor balance system and $14,000 for a vacuum assist system, will not
generally be available to jobbers and dealers from their suppliers.
In some cases, dealers will be able to draw on personal funds or family loans,
but probably in the majority of cases they will have to go to outside
sources such as banks. We characterize the prospects for loans from this
source as poor. This means that in some cases loans will be refused, and in other
cases, the interest and repayment terms will be onerous. In either case, the level
of additional investment for vapor recovery will range from 5% to 23% of a
Do/Do's net worth depending upon the type of recovery system mandated and the
current investment profile (see Table VII, Appendix
143
-------
TABLE G-l
Type
Operation
CO/LD
CO /CO
DO/DO
"C"
Store
VAPOR RECOVERY INVESTMENT
($000)
Vapor Recovery
System
Throughput (OOP gpm)
Balance
Hybrid
Vacuum Assist
Throughput (OOP gpm)
Balance
Hybrid
Vacuum Assist
Throughput (OOP gpm)
Balance
Hybrid
Vacuum Assist
Throughput (OOP gpm)
Balance
Hybrid
Vacuum Assist
REQUIREMENTS
High
20
$ 5.5
8.7
$12.0
50
$ 7.5
11.3
15.0
10
$ 4.5
6.8
9.0
10
$ 3.0
5.0
7.0
Throughput
Medium
35
$ 6.5
10.0
$13.5
100
$ 8.5
12.5
16.5
25
$ 4.5
6.8
9.0
$ 3.0
5.0
7.0
Low
80
$ 7.5
11.3
$15.0
2ML
$10.5
15.0
19.5
40
$ 5.5
8.8
12.0
40
$ 3.0
5.0
7.0
144
-------
If loans are simply not available from commercial sources, the dealer may have
to resort to the Small Business/Administration. However, he will still have
to meet financial criteria similar to bank loan criteria, which in
many cases cannot be met. Furthermore, if dealers turn to the SBA in
large numbers, they will place pressure on the agency's fairly small direct
loan resources, which are on the order of $100 million annually and are
stretched across all sectors. Do/Do stations with throughputs exceeding
10M GPM in the affected Stage II AQGR's will require almost $25MM in total
for the balanced system and over $50 MM investment for vacuum assist vapor
recovery.
Inthese circumstances, we expect that some fraction of dealers will be
absolutely unable to raise the capital required for vapor recovery.
The extent to which bankability is a problem, depends on the general
state of the petroleum marketing industry as well as the financial
status of the individual borrower. The prognosis for the industry is
for a continuation of narrow margins and attrition in the number of
outlets. This will make banks wary of commitments to borrowers unless
their credit standing is high. An exhaustive survey of the financial
status of Do/Do stations was beyond the scope of this analysis. How-
ever, it is estimated that as many as one third oi: the Do/Do's in the
11-24 GPM throughput range could face bankability problems in today's
market. If vapor recovery induced closures resulted, this would af-
fect approximately 15% of the current Do/Do population in the Stage II
AQCR's (i.e., around 1,200 potential closures).
Most of these affected dealers would not have been able to survive in
any event. However, some of them, on the order of one quarter to one
third, would in our opinion, have been able to survive, apart from the
inability to gain access to capital. In order-of-magnitude terms, 4%
of Do/Do stations will close due to the financing problem exclusively,
net of economic viability and market attrition issues.
Jobbers and independents tend to have better financial standing than
dealers, but their resources have to cover several stations. The
average jobber has 6-12 stations, and many large jobbers and indepen-
dents have 100 or more stations. The costs of vapor recovery equipment
and installation for 100 stations could run to $500,000 for a vapor
balance system. In present market conditions, banks will, in some
cases, not be willing to finance such an amount, and jobbers of this
magnitude will be above the SBA size limits.
It is estimated that up to 20% of the jobber outlets (i.e., 670 stations)
could be closed as a result of limited financing available for vapor
recovery requirements. This estimate is based on highly leveraged
jobbers representing 25% of the estimated small jobbers (i.e., <_ 6 stations)
in the 11 AQCR's. With regard to larger jobbers and independents, we
believe they will have a flexibility of response based upon their size
and their relatively high-volume orientation. Some have sufficient internal
funds. Some will be able to raise bank loans. And others will be able to
finance vapor recovery from the proceeds of selling off their marginal
outlets - which would have been closed sooner or later in any event. We
conclude that the number of net closures due to vapor recovery in the
large jobber-independent category will be relatively small, and no specific
estimate is included here.
145
-------
The conclusion is that smaller jobbers, like dealer-owners, will be a
hard hit segment of the industry from the affordability viewpoint.
A number of jobbers will have difficulty in raising finances, even in rela-
tion to stations that would be economically viable once vapor recovery
is financed.
This conclusion is based on the costs of vapor balance systems, as estimated
by EPA. If more expensive systems were required, the closure estimates
would be greater. We do not expect that the phasing of compliance over
several years will significantly affect this conclusion, for the reason
that the closures are due to a basic inability to raise capital. The
internal generation of funds will not be of assistance, since the industry's
margins are likely to remain so low during the next few years, that the
marginal firms will not be able to gradually build up reserves.
IV. The Second Hurdle: Economic Viability
* .. .v
We now consider the pre-compliance and post-compliance economics of
individual service station types. The analysis here assumes that
capital access has been achieved by all firms. However, the terms
vary between different types of firms. The financial terms and
sources of capital are given, and it will be seen that a substantial
feature of the relative economics is the ability or inability to
obtain easy terms.
In order to test the economics of vapor recovery, pro-forma service station
economics were developed for the following types of operation which serve
as benchmarks for this analysis:
Co/Co . . Company owned/Company-operated, total self-
service operation;
Co/Ld Company-owned/Lessee-dealer, full service
operation (split-island on large-volume profile);
Do/Do Dealer-owned/Dealer-operated, full
service operation;
"C" Store tie-in .operation (convenience store) with total self-service
For each of the four types of operations, three throughput volume levels
were used as shown in Table G-2.
TABLE G-2
SERVICE STATION PROTOTYPE THROUGHPUT LEVELS
Throughput
(OOP gallons/month)
Type Operation Low Medium High
Co/Co 50 100 200
Co/Ld 20 35 80
Do/Do 10 25 40
"C" Store 10 25 40
146
-------
Vapor recovery financial assumptions are summarized in Table G-3.
TABLE G-3
PROTOTYPE FINANCIAL ASSUMPTIONS
Debt Service
Requirement as
% Vapor
Type
Operation
Co/Co
Co/Ld
Do /Do
"C" Store
Financing
Source
Regional Marketers
Major
Bank
Major/Chain Stores
Interest
Rate
11 %
9.5%
15 %
9.5%
Loan Recovery
Period Investment
7 yrs
10 yrs
5 yrs
10 yrs
21%
16%
30%
16%
The resulting service station economics were tested on two alternative
assumptions:
no pass-through of vapor recovery cost
pass-through equal to the least cost of control in the market
segment, i.e., the lowest vapor recovery cost-per-gallon of
any of the categories of firms in the market.
The vapor recovery costs-per-gallon, based on the EPA investment and
operating costs data coupled with the financial assumptions listed above,
are shown in Table G-4.
TABLE G-4
NET VAPOR RECOVERY EXPENSES ($/GAL)
Type Vapor Recovery Low
Operation System Volume
Co/Co Balance .0027
Hybrid .0047
Vacuum Assist .0074
Co/Ld Balance .0040
Hybrid .0072
Vacuum Assist .0115
Do/Do Balance .0119
Hybrid .0189
Vacuum Assist .0274
"C" Store Balance .0041
Hybrid .0074
Vacuum Assist .0115
Medium
Volume
.0013
.0024
.0039
High
Volume
.0007'
.0013
.00221
.0026,
.0047,
.0077
.0045
.0072
.0106
.0013
.0027
.0042
.0011
.0022
.0036
.0034
.0039
.0090
.00061
.0015
.0024
Notes: 1
Least cost per gallon in high-volume segment of market
Least cost per gallon in low-volume segment of market
147
-------
The economies of scale associated with higher throughput stations are graphically
evident in Figures Gl-4 which depict the net vapor recovery costs (see Appendix
G-tlfor details). Both the difference between various vapor recovery systems
and the absolute costs per gallon decrease with increasing monthly throughput.
The market was divided into two segments within each of which competition
is assumed and the minimum vapor-recovery cost per gallon is set by the most
efficient type of outlet:
High volume/sector - consisting of company owned/company operated stations;
high volume company owned/lessee dealer operations; and medium and high
volume convenience stores.
Low volume/sector - consisting of all dealer owned/dealer operated
outlets; low and medium volume company owned/lessee dealer outlets;
and low volume convenience stores.
In the high volume segment, the company owned/company operated stations and
convenience store outlets are effectively equally efficient the former
marginally more efficient for vacuum assist systems; the latter marginally more
efficient for vapor balance systems owing to a large recovery credit (related
to throughput per nozzle) in relation to system cost.
In the low volume segment of the market, the medium volume company owned/lessee
dealer operations are more efficient than the dealer owned/dealer operated
outlets.
In the high volume segment, the costs of vapor recovery range from $.0006 to
$0076, i.e., in all cases less than one penny per gallon. Economies of scale
are marked: e.g., for vapor balance systems in company owned/company operated
stations, costs range from $.0007 to $.0027. Even with passthrough equivalent to
the most efficient operations, relatively low volume operations in this segment
will have to bear most of the cost out of profits.
In the low volume segment, vapor recovery_costs vary from $.0026 to as high as
$.0276 or 2.7 cents per gallon. Economies of scale are again marked with
the absolute amounts involved (i.e., cents per gallon) much higher than the
high volume segment. For vapor balance systems in dealer owned/dealer operated
stations, the costs will vary from $.0034 to $.0119, with the result that even
with passthrough, the smaller stations will have to absolve nearly one penny per
gallon in cost.
V. Comparison of Post-Compliance and Pre-Compliance Economics
Post compliance pro formas were developed for comparison with the pre-compliance
economics. The results show significant variations between prototype operations
and of course vary according to whether no passthrough or least cost passthrough
is assumed.
148
-------
.0120
VO
.0110
.0100
.0090
.0080
o
o
o
Q.
.0060
.0040
.0020
.0000
I
60 100 T50
Throughput (000 GPM)
PROTOTYPE (CO/CO) NET VAPOR RECOVERY COST
Figure G-l
200
-------
Ol
o
cc
o
a
CO
.0120
.0110 -
.0100 _
.0090 _
.0080 -
o .0070
x
.0060 -
.0050 -
.0040 -
.0030 -
.0020 -
.0010
.0000
60
100
140
Throughput (000 GPM)
PROTOTYPE (CO/Ld) NET VAPOR RECOVERY COSTS
Figure G-2
-------
.0280
.0200
0)
8
o>
CC
O
a
ra
4-1
a>
.0120
.0040
Balance
10
30
Throughput (000 GPM)
DO/DO PROTOTYPE
NET VAPOR RECOVERY COSTS
50
Figure G-3
151
-------
.0100
tt
(3
o
Q.
(O
4^» '
U>
.0060
.0020
Balance
10 30
Throughput (000 Gal/Mth)
50
PROTOTYPE (C STORE) NET VAPOR RECOVERY COST
Figure G-4
152
-------
! Co/Co Prototype
For company owned/company operated stations, the high volume operation is
only affected to the extent passthrough cannot be achieved. As shown
in Table V, the low volume operation's margin is reduced from $.0109
to between $.0088 and $.0057 depending on system, even with passthrough.
However, the net margin (BFIT) remains positive, and no closures
are expected in this type of operationi.e., self serve company outlets*
as a result of vapor recovery. The change in net margins from vapor
recovery systems for various throughput levels at Co/Co outlets is
illustrated in Figures G5 and G6.
2* Co/Ld Prototyoe
For company owned/lessee dealer operations, the Co/Ld prototypes indicate
that a medium volume outlet with pre-compliance margin of $.0067, is
more severely affected in the no passthrough case than either the low
or high volume, owing to the relatively narrow pre compliance margin
assumed. But with passthrough, the medium volume margin is unaffected
by vapor recovery since it is the most efficient operation in the
low volume segment of the market. The basis for its good economics,
despite vapor recovery, are:
(1) reasonably adequate throughput of 35,000 gallons/month,
(2) access to company sources of funds on good terms (indirectly)
(3) neighborhood/full service situation with good contribution
of TEA margin to gross margin.
The vapor recovery impact upon the net margins (BFIT) of the Co/Ld pro-
totype, (Echo)is detailed in Table G6. A negative cash flow with all
other operating assumptions remaining constant is only encountered
in the no passthrough case with a requirement for vacuum assist
systems at the low and medium throughput lessee dealer prototypes.
The graphical interpolation of the net margins in Figure G-7 indicates
a breakeven point throughput of 44M GPM. Stations below this sales
volume show a negative net margin if some portion of the vacuum
assist costs can not be passed to the public. Figure G-8 shows the
impact of vapor recovery systems when a competitive passthrough
is allowed. While margins are reduced, Co/Ld stations do not result
in a negative net margin. At worst with a competitive passthrough allowed,
approximately $1000 is taken from the dealer's pre-tax take home pay (in
the form of reduced net margin in the high and low throughput cases).
3« Do/Do Prototype
The dealer owned/dealer operated stations show considerable negative
impact. The low volume station at pre-compliance is operating on a
breakeven basis. In the medium volume range of 25,000, the margin drops
from $.0242 pre-compliance to between $.0223 and $.0136 according to
recovery system and the degree of passthrough allowed. Interpolating
between these station sizes, we find that the break-even volume rises
from 10,000 GPM to between 12,000 and 17,000 GPM without passthrough
depending on recovery system and to between 12,000 GPM and 14,000 GPM
with passthrough (see Figures G-9 and G-10).
153
-------
TABLE G-5
CO/CO PRE/POST VAPOR RECOVERY
NET MARGINS-BFIT ($/GAL)
CO/CO PROTOTYPE
Throughput (OOP GPM)
I. Net Margin Pre V/R
II. Net Margin Post V/R (no passthrough)
Balanced
Hybrid
Vacuum Assist
III. Net Margin Post V/R (competitive
passthrough)
Balanced
Hybrid
Vacuum Assist
50
.0109
.0082
.0062
.0035
100
.0084
.0071
.0060
.0045
200
.0077
.0070
.0064
.0055
.0088
.0075
.0057
.0077
.0073
.0067
.0076
.0077
.0077
154
-------
.02
.01
CO
o
CO
c
(-.01)
(-.02)
50
100
Throughput (000 G/Mth)
150
200
PROTOTYPE (CO/CO) PRE/POST VAPOR RECOVERY NET MARGIN (No Passthrough)
Figure G-5
-------
.02
.01
^Vacuum Assist
Pre-Vapor Recovery
Cn
00
c
'p
CO
(.01)
.02)
50
100
Throughput (000 GPM)
150
200
PROTOTYPE (CO/Ld) PRE/POST VAPOR RECOVERY NET MARGIN (PASS THROUGH)
Figure G-6
-------
TABLE G-6
CO/LD PRE/POST VAPOR RECOVERY
NET MARGINS-BFIT ($/GAL)
CO/LD PROTOTYPE
Throughput (000 GPM) 20 35
I. Net Margin Pre V/R .0113 .0067
II. Net Margin Post V/R (no passthrough)
Balance .0073 .0041
Hybrid .0041 .0020
Vacuum Assist (.0002) (.0010)
III. Net Margin Post V/R (competitive
passthrough)
Balance .0099 .0067
Hybrid .0088 .0067
Vacuum Assist .0075 .0067
80
.0057
.0046
.0035
.0021
.0052
.0048
.0043
157
-------
.0100 _
.0080 _
.0060
S
.0040
.0020 _
(.0010)
100
Throughput (000 GPM)
PROTOTYPE (CO/Ld) PRE/POST VAPOR RECOVERY NET MARGIN (NO PASS THROUGH)
Figure G-y
158
-------
.0100
= .0080
u.
CQ
c
'at
Oi
vo
.0060
.0040
.0020
Vacuum Assist
20
60
Throughput (000 GPM)
100
140
CO/IB" PROTOTYPE PRE/POST VAPOR RECOVERY NET MARGIN
(MARKET LEADER PASS THROUGH)
Figure G-8
-------
Table&7lists the pre and post net margins (BFIT) for the Do/Do
prototype, Foxtrot. Although economies of scale are achieved for
all systems with higher throughput levels (see Figure G-3) > the
higher volume Do/Do station shows a turn down in post compliance margins
for all systems as a result of pre-compliance operating assumptions
(i.e., higher labor costs, lower TEA rates etc.).
"C" Store Prototype
Based on assumptions in the pre compliance pro forma economics,
the low volume "C" store will show negative net margins for all
vapor recovery systems in all cases (see Table G-8 ). As shown in
Figures G-ll and 12, the minimum volume for a positive cash flow is
raised from 9 GPM in the pre-compliance up to 16M GPM in the vacuum
assist, no passthrough case. As the higher volumes, the "C" store
has the least differential between vapor recovery systems resulting
from the relatively small number of nozzles per facility and constant
fixed costs at all throughput levels.
160
-------
TABLE G-7
DO/DO PRE/POST VAPOR RECOVERY
NET MARGINS-BFIT ($/GAL)
DO/DO PROTOTYPE
Throughput (000 GPM)
I. Net Margin Pre V/R
II. Net Margin Post V/R (no passthrough)
Balance
Hybrid
Vacuum Assist
III. Net Margin Post V/R (competitive
passthrough)
Balance
Hybrid
Vacuum Assist
10
.0000
(.0119)
(.0189)
(.0274)
25
.0242
.0197
.0170
.0136
40
.0111
.0077
.0052
.0021
(.0093)
(.0141)
(.0196)
.0223
.0217
.0213
.0103
.0099
.0098
161
-------
.03
.02 -
.01 -
OQ
c
(-.01) _
(-.02) -
(-.03)
Throughput (000 GPM)
PROTOTYPE (DO/DO) PRE/POST
VAPOR RECOVERY NET MARGIN (NO PASS THROUGH)
Figure G-9
162
-------
.02
.01
to
§
LL
00
C
(-.01) -
(-.02)
Throughput (000 GPM)
PROTOTYPE (DO/DO)
PRE/POST VAPOR RECOVERY NET MARGIN (PASS THROUGH)
Figure G-10
163
-------
TABLE G-8
"C" STORE PRE/POST VAPOR RECOVERY
NET MARGINS-BFIT ($/GAL)
"C" STORE PROTOTYPE
Throughput (000 GPM)
I. Net Margin Pre V/R
II. Net Margin Post V/R (no passthrough)
Balance
Hybrid
Vacuum Assist
III. Net Margin Post V/R (competitive
passthrough)
Balance
Hybrid
Vacuum Assist
10
.0002
(.0039)
(.0072)
(.0113)
25
.0207
.0194
. 0180
.0165
40
.0262
.0256
.0247
.0238
(.0013)
(.0025)
(.0036)
.0199
.0193
.0187
.0262
.0260
.0259
164
-------
.02
.01
U.
ca
c
ff
CO
Balance
-(.01)
-(.02)
Hybrid
Vacuum Assist
20
40
60
Throughput (000 GPM)
PROTOTYPE ("C" STORE) PRE/POST VAPOR RECOVERY NET MARGIN - NO PASS THROUGH
Figure G-ll
165
-------
.03
.02
to
s
LL
CD
.01
CO
-.01
50
Throughput (000 GPM)
"C" STORE PRE/POST VAPOR RECOVERY NET MARGIN PASS THROUGH
Figure G-12
-------
Station Closure Impact
The "break even" volumes for various vapor recovery systems at service
stations are showin Tables G-9 aid G-lO.In the no passthrough case, Co/Co and
Co/Ld stations will only dip to negative margins with the introduction of
vacuum assist systems. The Do/Do and convenience store operations have
break even points ranging from 11 to 17M GPM both with and without cost
passthroughs.
Based upon the service station audit in Task A, a throughput matrix for the
various service station operations was constructed for the 1975 base year
(see TableG-11). It is assumed that even under today's depressed service
station market conditions, a rational operator would not sustain the operation
of a station producing a negative cash flow (i.e., below the "breakeven point").
The number of outlets falling below the breakeven point (i.e., less than a
positive net margin - (BFIT) is shown in Table G-12 based both upon Tables G-9, G-10
andG-11.
As expected, the highest closure impact occurs when the market or government
regulations will not permit a competitive passthrough of vapor recpyery costs.
With an exemption for stations less than 10M GPM, costs for the .balanced system
jvapor recovery would be responsible for closing 1.5% of the 1975 base station popu-.
lation. On the other hand, vacuum assist would "close" almost 19% of the stations(i.e.,
negative net margins). This represents an industry worst case which is where
over 5600 stations are closed as a result of vapor recovery regulations. The
ability to passthrough vapor recovery costs equal to that of the most efficient
marketer would greatly mitigate the economic impact of vapor recovery. However,
under today's marketing conditions, there is only a limited opportunity for
retailers to competitively passthrough these costs completely (as a result of
FEA regulations and the gasoline supply picture).
It should further be noted that the national trend in the service station industry
is for a 21% reduction in outlets over the next 5 years regardless of vapor
recovery. Thus, it is reasonable to assume that most stations "closed" by the
added burden of vapor recovery costs would have been phased out anyway in the
long run (i.e., next 5 years).
While vapor recovery costs may not affect the absolute number of stations
closed, they will certainly accelerate closures by providing an added negative
financial burden* As shown in Tables G-13 and G-14, vapor recovery induced closures
will also tend to shift the overall ownership profile of the existing facilities.
From an industry perspective>' the worst vapor recovery case (vacuum assist - no
passthrough) will close 19% of the 1975 base population. However, jobbers will
face a higher closure rate, especially for their Co/Co operators as a result
of their lower degree of bankability and higher financial costs. It is assumed
that dealer stations (Do/Do and Co/Ld) closed by each supplier will be
proportional to the total number of the type stations in the base year. Futhermore,
it is assumed that the closure of Co/Co and "C" store outlets will be first absorbed
by the more highly leveraged jobbers before regional marketers and majors.
Even in the competitive passthrough case, the jobbers will bear a higher per-
centage of closures than the other two supplier groups. Thus, jobber stations
will decrease from 13% of the base population to 10% in the worst jobber case
after vapor recovery (see Table ;G-15).
167
-------
TABLE G-9
"Break Even" Point (000 GPM)
(No Passthrough)
Operation Co/Ld Co/Co Do/Do "C" Store
V/R System
No V/R controls - - 9 10
Balance - - 12 12
Hybrid - 14 13
Vacuum Assist 47* 12 16 17
*
In subsequent tables, this break even volume is subjectively reduced to
29 M GPM. In a dynamic market, a significant closure of stations will
increase the throughput at existing stations assuming constant market
demand and shares of market.
168
-------
TABLE G-10
Throughput Break Even Point (OOP GPM)
(Competitive Passthrough)
Operation Co/Ld Co/Co Do/Do "C" Store
V/R System
No V/R controls - - 9 10
Balance - - 11 12
Hybrid - 11 13
Vacuum Assist - 12 14
169
-------
TABLE G-ll
1975 SERVICE STATION OPERATIONAL THROUGHPUT MATRIX
Type
Operation
Co/Ld
Co /Co
Do /Do
"0" Store
Total
(11
Throughput Range
(000 GPM)
Average Throughput
(000 GPM)
40
100
25
18
34
AQCR's)
£10
465
-
828
360
1653
. . , IVTirmVir
INUmDC
11-24
1981
50
4316
1748
8095
ir of Outl
25-59
9952
709
2981
240
13882
ets
60-99
739
2921
432
52
4144
2100
286
1977
86
_
2349
Total
13423
5657
8643
2400
30123
170
-------
TABLE G-12
NET VAPOR RECOVERY POTENTIAL CLOSURE ANALYSIS*
% Total
Vapor
Recovery
System
Balance
Hybrid
Competitive
Pass through
No
No
Type Operation Co/Ld Co/Co Do/Do "C" Store Total 1975 Base
Vacuum Assist No
Balance Yes
Hybrid Yes
Vacuum Assist Yes
3152
664
995
1679
332
332
664
134
269
807
134
269
403
798
1264
5645
466
601
1067
2.6%
4.2%
18.7%
1.5%
2.0%
3.7%
Assumed 10M GPM exemption
Base year number of stations = 30123.
171
-------
TABLE >G-13
NET VAPOR RECOVERY POTENTIAL CLOSURES BY SUPPLIER
Vapor Recovery Competitive
System Passthrough
Balance No
HybVid No
Vacuum Assist No
Balance Yes
Hybrid Yes
Vacuum Assist Yes
V UJ. UULJLeiS :
Jobbers Regional Marketers Majors
235
420
1361
184
319
504
42
63
314
21
21
42
521
781
3970
261
261
521
Total
798
1264
5645
466
601
1067
Stations with throughput of 10 M GPM exempted from vapor recovery.
172
-------
TABLE G-14
*
NET VAPOR RECOVERY POTENTIAL CLOSURE IMPACT
Vapor Recovery
System
Balance
Hybrid
Vacuum Assist
Balance
Hybrid
Vacuum Assist
Competitive
Passthrough Direct Supplier Jobbers
No 6%
No 11%
No 37%
Yes 5%
Yes 9%
Yes 14%
Regional Marketers Majors Total
*1% 3% 3%
1% 4% 4%
5% 20% 19%
^ 1% 1% 2%
*-!% 1% 2%
<1% 3% 4%
Assumed 10M GPM exemption
Base year number of stations = 30123.
173
-------
TABLE G-15
VAPOR RECOVERY SUPPLIER PROFILE CHANGES
% Outlets
Type Vapor
Recovery Passthrough Jobber Regional Marketer Major Total Outlets
None -
1975 Base
Period NA 13% 21% 66% 30123
Balance No 12% 22% 66% 29325
Hybrid No 11% 22% 67% 28859
Vacuum Assist No 10% 25% 65% 24478
Balance Yes 12% 22% 66% 29657
Hybrid Yes 11% 22% 67% 29522
Vacuum Assist Yes 11% 22% 67% 29056
174
-------
SUMMARY
From the foregoing analysis, the following broad conclusions seem evident:
(1) Most of the stations likely to close as a result of vapor
recovery cost are likely to close in any event sooner or later
owing to marginal economics associated with low volume throughput.
This assumes cost passthrough equal to the cost level of the
most efficient stations in each market segment.
(2) However, certain types of stations will be more seriously affected
by vapor recovery because their financial sources are unfavorable.
Dealer owned and jobber owned stations will suffer more severe attrition
than would result from market competition alone. Addtionally, some low
volume tie-in outlets will no longer be efficient.
(3) The impact of vapor recovery depends significantly on the purchase
and installation cost of the equipment. On the basis of the cost
figures developed by the EPA, vacuum assist systems will have
approximately twice the capital cost requirement of vapor balance
systems.
(4) Phasing of compliance can counteract some of the disadvantages
faced by dealers and jobbers, if they are given longer compliance
periods, and especially if vapor recovery equipment cost is reduced
over time as greater equipment market stability and production output is
achieved.
(5) With competitive cost passthrough, the net effect on closure will be
that 2% of stations will close if balance systems are required, 2% if
hybrid systems are required, and 4% if vacuum assist systems are
required. About two thirds of these closures would be dealer owned
or small jobber owned outlets. Leasee dealer and Co/Co stations
would only be put into a potential closure position from vapor
recovery with vacuum assist systems where a cost passthrough can not
be achieved.
175
-------
APPENDIX G-I
EPA VAPOR RECOVERY COSTS
177
-------
APPENDIX G-I
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
Office of Air Quality Planning and Standards
Research Triangle Park. North Carolina 27711
August 3, 1976
Mr. Paul E. Mawn
Arthur D. Little, Inc.
25 Acorn Park
Cambridge, Massachusetts 02140
Dear Paul:
Enclosed are three tables outlining the capital and annualized
costs for alternative vapor recovery control systems. These costs
are to be used in your economic impact analysis. I have also included
a page which calculates the recovery credit that should be subtracted
from the annualized costs once you have incorporated these costs into
your pro forma income statements.
If you have any questions or comments concerning the costs, please
call me.
Sincerely,
Kenneth H. Ll^/d ^
Cost Analysis Section
Standards and Cost Analysis Branch
Enclosure
cc: B. Hamilton, CAS
178
-------
Appendix G-I
TABLE I
VAPOR RECOVERY CONTROL COSTS
SYSTEM: VAPOR BALAMCI
Number
of
Nozzles
2
4
6
8
10
12
Installed
Capital
($)
3,000
4,500
5,500
6,500
7,500
8,500
0 & M.
Costs
($/Yr)
70
140
210
280
350
420
Capital
Charges
($/Yr)
530
795
975
1,150
1,325
1,505
Total Annual ized
Costs
($/Yr)
600
935
1,185
1,430
1,675
1,925
Assumes 10 year life and 12% interest..
179
-------
'--Appendix
' ' a/Pl" ~" T~~" "'"?'-''
x e-I %&^ J *
TABLE II
VAPOR RECOVERY CONTROL COSTS
SYSTEM: VACUUM ASSIST
Number
of
Nozzles .
2
4
6
8
10
12
Installed
Capital
($)
7,000
9 ,000
12,000
13,500
15,000
16,500
0 & M
Costs
($/Yr)
330
655
985
1,310
1,640
1 ,970
Capitala
Charges
($/Yr)
1 ,240
1,595
2,125
2,390
2,655
2,920
Total Annual ized
Costs
($/Yr)
1,570
2,250
3,110
3,700
4,295
4,890
Assumes 10 year life and 12% interest.
180
-------
Appendix G-I
TABLE III
VAPOR RECOVERY CONTROL COSTS
SYSTEM: "HYBRID"
Number
of
Nozzles
2
4
6
8
10
12
Installed
Capital
($)
5,000
6,750
8,750
10,000
11,250
12,500
0 & M
Costs
($/Yr)
150
300
450
600
750
.900
Capital a
Charges
($/Yr)
885
1,195
1,550
1,770
1,990
2,215
Total Annual ized
Costs
($/Yr)
1,035
1,495
2,000
2,370
2,740
3,115
Assumes 10 year life and 12% interest.
181
-------
RECOVERY CREDIT
BALANCE (90% Control)
ASSIST (90% Control)
182
-------
APPENDIX 6-II
SERVICE STATION PROTOTYPES
VAPOR RECOVERY COSTS
183
-------
APPENDIX G-II
TABLE I
(Company-Owned/Company-Operated, Total Self-Service Operation- Co/Co)
DATA
Company Investment
Sales Volume - 1 Year
Number of Nozzles
Composite Pump Price (ex. tax)
Laid-In Gas Costs
On-Site Gross Margin
Non-Gas Gross Margin
Total Station Gross Margin
Total Expenses/Gallon
Net Margin (BFIT)
Vapor Recovery Investment
Balance
Hybrid
Vacuum Assist
Vapor Recovery O&M Costs
Balance
Hybrid
Vacuum Assist
Recovery Credit ($/gal)
Balance
Hybrid
Vacuum Assist
Low
Volume
$170M
600M
10
.4696
.3815
.0881
.0020
.0901
.0792
.0109
7,500
11,250
15,000
350
750
1,640
.0005
.0005
.0006
Medium
Volume
$200M
1 . 1200M
12
.4396
.3815
.0581
.0010
.0591
.0507
.0084
8,500
12,500
16,500
420
900
1,970
.0005
.0005
.0006
High
Volume
$250M
2400M
16
.4196
.3815
.0381
.0005
.0386
. 0309
.0077
10,500
15,000
19,500
560
1,200
2,630
.0005
.0005
.0006
184
-------
Appendix G-II
TABLE II
CO/CO: COSTS OF COMPLIANCE
Annualized Investment Cost: 21% of Investment Cost
B 1575 1785 2205
H 2363 2625 3150
V 3150 3465 4095
Annual O&M Cost
B . 350 420 560
H 750 900 1200
. V 1640 1970 2630
Total Annual Cost
B 1925 2205 2765
H 3113 3525 4350
V 4790 5435 6725
Recovery Credit
B .300 600 1200
H 300 .600 . 1200
V 360 720 1440
Net Annual Vapor Recovery Cost
B 1625 1605 1565
H . 2813 2925 3150
V 4430 4715 "5280
Net Cost in Dollars Per Gallon
B .0027 .0013 .0007
H .0047 .0024 .00131
V .0074 .0039 .0022*
Least cost per gallon in high-volume segment of market,
185
-------
Appendix G-II
TABLE III
CO/CO
Low
Volume
Medium
Volume
High
Volume
PRE-COMPLIANCE ECONOMICS
Net Margin (BFIT)
Multiply by Gallonage
Total Contribution (BFIT)
Company Investment
Ratio of Contribution to
Investment
ROI (Assuming 15-year Horizon)
Required Contribution
(at 11% over 15 years = 14%).
Surplus (Deficit) of Total
Contribution Over Required
Contribution
COSTS OF .COMPLIANCE
Balance
Hybrid
Vacuum Assist
.0084
1200M
$10,080
$ 200M
5.0%
.0077
2400M
$18,480
$ 250M
7.4%
negative (or near-negative) in all cases
$23,800 $28,000 $35,000
($17,260)
1625
2813
4430
($17,920)
1605
2925
4715
PASSED ON COSTS (at .0006/.0013/.0022 per gallon)
Balance
Hybrid
. Vacuum Assist
NET CHANGE IN CONTRIBUTION
Balance
Hybrid
Vacuum Assist
360
780
1320
1265
2033
3110
720
1560
2640
885
1365
2075
($16,520)
1565
3150
5280
1440
3150
5280
125
0
0
186
-------
Appendix G-II
TABLE IIIA
'CO/CO?(Continued)
Low
Volume
Medium
Volume
High
Volume
POST-COMPLIANCE ECONOMICS
Total Contribution (BFIT)
B
H
V
Ratio of Contribution
B
H
V
5275
4507
3430
to Investment
3.1%
2.7%
2.0%
9195
, 8715
8005
4.6%
4.4%
4.0%
18,355
18,480
18,480
7.3%
7.4%
7.4%
ROI (Assuming 15-year Horizon)
B
H '
V
negative (or near-negative):.in all cases
187
-------
Appendix G-II
TABLE IV
(Company-Owned, Lease-Dealer; Full Service Operation - Co/Ld)
DATA
Company Investment
Dealer Investment
Sales Volume/Year
Number of Nozzles
Composite Pump Price (ex. tax)
Composite DTW
Avg. Mogas Gross Margin
TBA Gross Margin
Total Expenses/Gallon
Net Margin (BFIT)
Vapor Recovery Investment
! Balance
Hybrid
Vacuum Assist
Vapor Recovery O&M Costs
Balance
Hybrid
Vacuum Assist
Recovery Credit ($/gallon)
Balance
Hybrid
Vacuum Assist
Low
Volume
$145M
$ 10M
$240M
.6
.4996
.4021
.0975
.0864
.1839
.1726
.0113
5,500
8,750
12,000
210
450
985
.0005
.0005
.0006
Medium
Volume
$165M
$ 15M
$420M
8
.4996
.4021
.0975
.0681
.1656
.1589
.0067
6,500
10,000
13,500
280
600
1,310
.0005
.0005
.0006
High
Volume
$250M
$ 20M
$.960M
10
.4696
.4021
.0675
.0498
.1173
.1116
.0057
7,500
11,250
15,000
350
750
'.1,640
.0005
.0005
.0006
188
-------
Appendix G-II
TABLE V
CO/LD; COSTS OF COMPLIANCE
Annualized Investment Cost; 16% of Investment
B 880 1040 1200
H 1400 1600 1800
V 1920 2160 2400
Annual O&M Costs
B 210 280 350
H 450 600 750
V 985 1310 1640
Total Annual Cost
B 1090 1320 1550
H 1850 2200 2550
V 2905 3470 4040
Recovery Credit
B 120 210 480
H 120 210 480
V 144 252 576
Net Annual Vapor Recovery Cost
B 970 1110 1070
H 1730 1990 2070
V 2761 3218 3464
Net Cost in Dollars Per Gallon
B .0040 .0026 .0011
H .0072 .0047 .0022'
V .0115 .0077 .0036
189
-------
Appendix G-II
TABLE VI
CO/LD
PRE-COMPLIANCE.ECONOMICS
Net Margin (BFIT)
Multiply by Gallonage
Total Contribution (BFIT)
Dealer Investment
Ratio of Contribution to
Investment
ROI (15-year Horizon)
Required Contribution
(at 9.5% over 15 years = 13%)
Surplus of Total Contribution
over Required Contribution
COSTS OF COMPLIANCE
Balance^
Hybrid
Vacuum Assist
Low
Volume
.0113
240M
$2,712
10M
27%
26%
$1,300
$1,412
970
1730
2761
Medium
Volume
High
Volume
.0067
420M
$2,814
15M
19%
17%
$1,950
$ 864
.0057
960M
$5,472
20M
27%
26%
$2,600
$2,872
1110
1990
3218
1070
2070
3464
PASSED-ON COSTS (at .0026/.0047/.0077 per gallon for low and medium
.volume; .0006/.0013/.0022 per gallon for high-volume)
B
H
V
NET CHANGE IN CONTRIBUTION
B
H
V
POST-COMPLIANCE ECONOMICS
Total Contribution (BFIT)
B
H
V
624
1128
1848
346
602
913
1110
1990
3214
0
0
0
570
1235
2090
500
835
1374
2366
2110
1799
2814
2814
2814
4972
4637
4098
190
-------
Appendix G-II
TABLE VIA
CO/LD (Continued)
Low
Volume
Medium
Volume
High
Volume
Ratio of Contribution to
Investment .
B
H
V
ROI (Assuming 15 Year Horizon)
B
H
V
Required Contribution
24%
21%
18%
23%
20%
16%
$1,300
19%
19%
19%
17%
17%
17%
$1,950
25%
23%
20%
24%
22%
19%
$2,600
Surplus (Deficit) of Total Contribution Over Required Contribution
B
H
V
1066
810
499
864
864
864
2372
2037
1498
191
-------
Appendix G-II
TABLE VTI
(Dealer-Owned, Dealer-Operated; Full Self Service- Do/Do)
DATA
Dealer Investment
Supplier Investment
Sales Volume/Year
Number of Nozzles
Composite Pump Price (ex. tax)
Composite DTW
Avg. Mogas Gross Margin
Non-Gas Gross Margin
Total Station Gross Margin
Total Expenses/Gallon
Net Margin (BFIT)
Vapor Recovery Investment
Balance
Hybrid
' Vacuum Assist
Vapor Recovery O&M Costs
Balance
Hybrid
Vacuum Assist
Recovery Credit
Balance
Hybrid
Vacuum Assist
Low
Volume
$40M
' 2M
120M
4
.4996
.3971
.1025
.0900
.1925
.1925
.0000
4,500
6,750
9,000
140
300
655
.0005
.0005
.0006
Medium
Volume
$65M
2M
300M
4
.4996
.3971
.1025
.0700
.1725
.1483
.0242
4,500
6,750
9,000
140.
300
655
.0005
. .0005
.0006
High
Volume
$120M
3M
480M
6
.4996
.3971
.1025
.0600
.1625
.1514
.0111
5,500
8,750
12,000
. 210
450
985
.0005
.0005
.0006
192
-------
DO/DO
Appendix G-II
TABLE VIII
COSTS OF COMPLIANCE
Annualized Investment Costs: 30% of Investment
B
H
V
Annual O&M Costs
B
H
V
Total Annual Cost
B
H
V
Recovery Credit
B
' H
V
Net Annual Vapor Recovery Cost
1350
2025
2700
140
300
655
1490
2325
3355
1350
2025
2700
140
300
655
1490
2325
3355
1650
2625
3600
210
450
985
I860
3075
4585
60
60
72
150
150
180
240
240
288
B
H
V
1430
2265
3283
Net Cost in Dollars Per Gallon
B
H
V
.0119
.0189
.0274
1340
2175
3175
.0045
.0072
.0106
1620
2835
4297
.0034
.0059
.0090
193
-------
Appendix G-II
TABLE IX
DO/DO
Low
Volume
Medium
Volume
High
Volume
PRE-COMPLIANCE ECONOMICS
Net Margin (BFIT)
Multiply by Gallonage
Total Contribution (BFIT)
Dealer Investment
Ratio of .Contribution to
Investment
ROI (15-year Horizon)
COSTS OF COMPLIANCE
B
H
V
.0000
120M
0
$ 40M
0
.0242
300M
$7,260
$ 65M
11%
.0111
480M
$5,328
$ 120M
4%
negative
1430
2265
3283
PASSED-ON COSTS (at .0026/.0047/.0077 per gallon)
B
H
V
NET CHANGE IN CONTRIBUTION
B
H
V
POST-COMPLIANCE ECONOMICS
Total Contribution (BFIT)
B
H
V
312
564
924
1118
1701
2359
7%
1340
2175
3175
780
1410
2310
560
765
865
negative
1620
2835
4297
1248
2256
3696
372
579
601
(1118)
(1701)
(2359)
6700
6495
6395
4956
4749
4727
194
-------
Appendix G-II
TABLE IXA
Do/Do - SERVICE STATION (Continued)
Low Medium High
Volume Volume Volume
Ratio of Contribution to
Investment '
B 10% 4%
H 10% 4%
V ' 10% 4%
ROI (Assuming 15-year Horizon)
B negative 6% negative
H negative 6% negative
V negative 5% negative
195
-------
Appendix G-II
TABLE X
CONVENIENCE STORE - "C" STORE
(Convenience StoreGasoline Profit Center Only)
DATA
Supplier Investment
Sales Volume/Year
Number of Nozzles
Composite Pump Posting
Laid-In Mogas Cost
Mogas Gross Margin
Total Expenses/Gallon
Net Margin (BFIT)
Vapor Recovery Investment
Balance-i
-r- Hybrid
Vacuum Assist
Vapor Recovery O&M Costs
Balance
Hybrid
Vacuum Assist
Recovery Credit
Balance
Hybrid
Vacuum Assist
Low
Volume
18. 5M
120M
2
.4196
.3815
.0381
.037$
.0002
3,000
5,000
7,000
70
150
330
.0005
.0005
.0006
Medium
Volume
18. 5M
300M
2
.4196
' .3815
.0381
.0174
.0207
3,000
5,000
7,000
70
150
330
.0005
.0005
.0006
High
Volume
18. 5M
480M
2
.4196
.3815
.0381
.0119
.0262
3,000
5,000
7,000
70
150
330
.0005
.0005
.0006
196
-------
Appendix G-II
TABLE XI
"C" STORE: COSTS OF COMPLIANCE
Annualized Investment Cost: 16%
B
H
V
Annual O&M Cost
B
H
V
Total Annual Cost
B
H
V
Recovery Credit
B
H
V
Net Annual Vapor
B
H
V
480
800
1120
70
150
330
550
950
1450
60
60
72
Recovery Cost
490
890
1378
of Investment
480
800
1120
70
150
330
550
950
1450
150
150
180
400
800
1270
480
800
1120
70
150 '
330
550
950
1450
240
240
288
310
710
1162
Net Cost in Dollars Per Gallon
B
H
V
.0041
.0074
.0115
0013
0027
0042
.00061
.0015
.0024
..east cost per gallon in high-volume segment of market.
197
-------
Appendix U-li
TABLE XII
'C" STORE
PRE-COMPLIANCE ECONOMICS
Net Margin (BFIT)
Multiply by Gallonage
Total Contribution (BFIT)
Supplier Investment
Ratio of Contribution to
Investment
ROI (15-year Horizon)
COSTS OF COMPLIANCE
B
H
V
Low
Volume
.0002
120M
$ 24
$18,500
0%
negative
490
890
1378
Medium
Volume
.0207
300M
$ 6,210
$18,500
34%
33%
400
800
1270
High
Volume
.0262
480M
$12,576
$18,500
68%
68%
310
710
1162
PASSED-ON COSTS (at .0026/.OQ47/.0077 per gallon for low volume; and
.0006/.0013/.0022 per gallon for medium and high volumes)
B
.H
V
NET CHANGE IN CONTRIBUTION
B
H
V
POST-COMPLIANCE ECONOMICS
Total Contribution (BFIT)
B
H
V
312
564
924
178
326
454
180
390
660
220
410
610
310
624
1056
0
86
106
(154)
(302)
(430)
5,990
5,800
5,600
12,576
12,490
12,470
198
-------
Appendix G-II
TABLE XIIA
CONVENIENCE STORE (Continued)
Low
Volume
Medium
Volume
High
Volume
Ratio of Contribution to
Investment
B
H
V
ROI (15-year Horizon)
B
H
V
negative 32%
negative 31%
negative 30%
negative 32%
negative 31%
negative 30%
68%
68%
67%
68%
67%
199
-------
MEMORANDUM
TO: Environmental Protection Agency CASE: Economic Impact Stage II
Strategies and Air Standards Division Vapor Recovery Regulations
Research Triangle Park
SUBJECT: Task H - Equipment Avail-
FROM: Arthur D. Little, Inc. ability
DATE: August 2, 1976
I. INTRODUCTION
The purpose of Task H is to establish the physical requirements and lead times
for equipment and labor which potentially could constrain the timing and
implementation of a Stage II Vapor Recovery Program in the 11 designated
Air Quality Control Regions (AQCR's).
In Stage II AQCR's, the EPA has previously required the installation of Stage I
vapor recovery control equipment to limit the escape of hydrocarbon vapors
during tank truck deliveries to gasoline retail outlets. The EPA is now
considering regulations which will require retail gas outlets to install
Stage II vapor recovery systems which will limit the escape of hydrocarbon
vapors while refueling motor vehicles.
To determine time and equipment limitations of the Stage II vapor recovery
program at service stations, the demand for both equipment and skilled
labor was estimated in each AQCR and for both total balance systems and
total vacuum assist systems. It is assumed that miscellaneous new hybrid
systems now being developed will represent an intermediate case in not
only costs but also in contractor and equipment availability.
For illustrative purposes, two phasing schemes were reviewed prior to an official
EPA determination of the reproposed Stage II compliance schedule. The worst
case from an industry perspective is to have all gasoline outlets comply within
1 year. On the other extreme, a 5 year program was tested which had staggered
target compliance dates for different segments of the industry.
II. SUMMARY OF CONCLUSIONS
As summarized in Table H-l, the minimum time in which Stage II regulations
could be implemented with a balance system is 18 months. The critical
linkage here is the initial production capability of the nozzle manufactures.
Generally, there is sufficient in place capacity to provide the quantify of
hoses, piping and installation labor to install the balanced system over a
12 month installation period. On the other extreme, the most sensitive
element for vacuum assist installations is the production capacity of the
specialized vacuum assist equipment manufacturers. Without any added delays
resulting from UL approval requirements and local fire codes, a minimum
of 2 years and a high degree of market certainty would be necessary to
provide sufficient equipment to meet the needs of only those service
stations located in the 11 Stage II AQCR's. UL approval delays and the
added requirement for "non service stations" would increase the period.of
time required to provide vacuum assist systems to the Stage II AQCR's
to at least 5 years.
200
-------
TABLE H-l
EQUIPMENT SUPPLY CONSTRAINTS SUMMARY
Supply Factor
Rubber Hose
Nozzles
Piping
Vacuum
Assist
Equipment
Labor
Labor
Units
000 feet
000 nozzles
000 feet
000 units
Work crews/
Year
Work crews/
Year
System
B,H,VA
B,H,VA
B,H,VA
VA
B
VA
1-Year
Compliance
Remaining
Requirements
2,325
166
,7,896
28
481
774
Estimated
Annual
Industry
Production
Capacity
4,500
750**
25,306
11
729
729
Peak Year
Requirements
for 5 Year
Phase in
Program
1,758
62
2,982
9
177
262
*Key System
B Balance
H Hybrid
VA Vacuum Assist
**Total Production of all new plus rebuilt gasoline nozzles.
nozzles only represent 5-10% of current production.
III. STAGE II VAPOR RECOVERY SYSTEMS
Vapor recovery
Stage II vapor recovery systems are designed to control the escape of
hydrocarbon vapors while refueling of vehicles. Three distinct systems
are in various stages of development: balance , vacuum assist and the hybrid.
In a balance system, gasoline vapors in a vehicle's fuel tank are displaced
by the incoming volume of gasoline during the refueling operation. The
gasoline vapors move past a tight seal at the filler neck of the vehicle
fuel tank, through a vapor recovery hose connecting the gasoline dispensing
nozzle to underground piping and finally either to the original or to the
regular grade underground storage tank. The vapors are contained in the
interstitial spaces in the storage tanks as the gasoline inventory declines.
During resupply operations, Stage I vapor recovery equipment displaces the
gasoline vapors to the tank truck.
A vacuum assist system involves more complex equipment. Instead
of relying on the maintenance of a tight seal between the gas dispensing
nozzle and the filler neck of the vehicle's fuel tank, the vacuum assist
system creates a suction in the area of the nozzle/filler neck interface.
Because the vacuum assist system gathers a greater volume of air and
hydrocarbon vapors than the volumes of the interstitial storage space,
secondary processing equipment is required "to dispose of excess vapors
by incinderation or other means.
201
-------
The hybrid system is simplistically a technological and economic compromise
between the balanced and vacuum assist system. Here a modification is
made to a balanced system by connecting the vapor return hose with the vapor
return piping to the storage tank. Modulation valves are added to
reduce the pressure at the nozzle/filler neck interface which assists in
the collection of vapors. However, this system requires separate vapor
return lines to product storage and would require redoing the underground
piping work at stations with manifolded return lines.
IV. VAPOR RECOVERY EQUIPMENT INDUSTRY
During installation of Stage I equipment, the piping required by Stage II
balanced vapor recovery systems was completed at more than 10,000 service
stations, located primarily in California. To complete the installation
of balanced vapor recovery systems, "piped up" stations will require the
addition of vapor recovery nozzles, vapor return hoses and swivels connected
to the underground storage piping which is stubbed off at the base of the
pump island. The vacuum assist systems requires further components to be
installed which could entail redoing the balanced system piping between
the pump island and the storage, tank.
1. HOSE
The hose industry consists of a diversified group of suppliers each with
an extremely large production capacity. In general, the vapor recovery
hose which will be used in Stage II is a standard 3/4 inch to 1 inch
double braided hose, although a small portion of the market will be for
hard walled hose. It is possible that some vacuum assist systems may
require hard wall hose to prevent the collapse created by increased
suction at bends in the hose. The hard hose, although somewhat more
durable, is heavier and harder to handle because of its stiffness.
The suppliers of hose are confident of abundant industry hose capacity
and do not see serious constraints in their meeting the demand for vapor
recovery hose in a very short period of time (provided that no new speci-
fications or standards were to be imposed upon the type of hoses which
they have been producing). The industry sells to distributors the
appropriate kinds of hoses on 250 ft. spools. Gasoline retailers buy hose in
14 ft. lengths. The hose has a life span of 2-3 years. Estimates of the
hose industry productive capacity are 4-5 million ft. per year with
approximately 30-50,000 ft. of hose in inventory at the producers level.
It appears that vapor recovery hose which is used for the delivery of
gasoline to vehicle tanks (i'.e. is the gasoline dispensing hose and
the vapor recovery return hose) will be bound together to form twin hoses
from the butt of gas dispensing nozzles to the pump islands.
202
-------
Coaxial hose, a hose within a hose, causes problems in the determination
of the condition, leakage, etc. of the internal hose. The suggestion of a
clear outside hose has not been seen as a practical method for determining
the condition of the interior coaxial hose.
As shown in Table H-l, the production capacities of the manufacturers of
vapor recovery rubber hoses appear to be adequate to supply the approxi-
mately 2.3 million feet of hose needed for any type system during a one
year implementation at approximately 28,470 service stations. In estimating
that the adequacy of manufacturer capacity to meet a one year implementation
program, it was assumed that double braided gas dispensing hose will be
utilized to meet most of the demand for vapor recovery hose.
\
TABLE H-2
ESTIMATED REQUIREMENTS FOR VAPOR RECOVERY HOSE
' . 1 YEAR INSTALLATION REQUIREMENT
Service # of
Station Service Hose
Category Stations Feet/Station (1,000 Feet)
Major 13,182 88.3 1,164
Regional Wholesaler/
Marketer 5,902 103.0 621
Other 9.386 58.4 540
Totals 28,470 2,325
Lead Time Required 8-12 months
2. NOZZLES
The nozzle industry is characterized by a high degree of concentration.
The two principle nozzle manufacturers together claim approximately 85%
of the market. The current total industry production of gasolene dispensing
nozzle is approximately 750 M nozzles per year of which 75% are rebuilt from
existing cores. Until the recent requirements for vapor recovery nozzles
in San Francisco and San Diego, most dispensing nozzles were automatic
nozzles which sold for $28 to $40 (including core turn-in credit)... The
new vapor recovery nozzles range in price from $80 to $159 (excluding core
turn-in credit) depending upon the class of trade of the buver and the quantity sold.
As shown in Table H-3, an estimation of 234,000 nozzles will be required for
service stations in the Stage II AQCR's. This requirement exceeds current
annual production of new nozzles and is almost 1/3 of the total annual
203
-------
nozzles sold (including rebuilt). The minimum lead time for the
production of this requirement ranges from 18-24 months as a result of
current uncertainties in a vapor recovery system design standards and
the general reluctance to overproduce and bear the cost of potentially
obsolete nozzles in inventory. The number of nozzles required for
compliance would be the same for balanced, hybrid and vacuum assist
systems. However, greater nozzle lead time would be required for the
vacuum assist and hybrid systems as a result of added delays in obtaining
UL approval for both new and rebuilt nozzles for these systems. UL
approval is a requirement imposed by both many insurance policies in
force at service stations as well as by local fire codes.
Presently two manufacturers have new "no seal, no flow" vapor recovery
nozzles undergoing UL testing. Final UL approval on these nozzles could
take anywhere from 4-18 months. Only one manufacturer reportedly has a
rebuilt vapor recovery nozzle undergoing UL testing at this time.
TABLE H-3
ESTIMATED REQUIREMENTS FOR VAPOR RECOVERY NOZZLES
1 YEAR INSTALLATION REQUIREMENT
Service # of
Station Service // of
Category Stations Nozzle/Station Nozzles Required
Major 13,182 8.5 112,047
Regional Wholesaler/
Marketer 5,902 14.0 82,628
Other 9,386 4.2 39,421
Totals 28,470 234,096
204
-------
3. PIPING
Underground pipe used in service stations is either reinforced plastic
tubing or galvanized, metallic pipe. There are two large producers
of plastic pipe, but there are multiple suppliers of metallic pipe in
various regions of the U.S.
Plastic pipe is corrosion resistant and relatively easy to install.but
it is more costly than metallic pipe. However, reduced installation
costs of plastic tubing partially affect the cost difference between
plastic and metallic pipe.
In the warmer climates of the West Coast and Southern U.S., plastic
pipe supplies between 80% and 100% of the market. In the Northeastern
portion of the U.S., plastic pipe supplies approximately 50% of the
market.
Estimates of the productive capacity of the large producers of plastic
pipe indicate that it would be possible to manufacture sufficient tubing
to meet the plastic pipe component of demand and which would be created
by a one year Phase II installation program. Because of the diversity
of suppliers of metallic pipe, it is assumed that shortages would not
develop in meeting the requirements for metallic pipe.
Approximately 8,600 service stations in the Eastern U.S. and 9,450
stations in other AQCR's will require completion of underground piping
in order to install the balanced vapor recovery systems. More than 50?
of the East Coast requirements for underground piping will be met by
galvanized, metallic pipe. However, in other regions of the U.S., more
than 75% of the demand for underground piping will be met by reinforced
plastic pipe.
Metallic pipe dominates in the East because of freezing ground conditions
in the winter and less corrosive soils. In other areas of the U.S., plastic
pipe dominates the market because of the ease of laying and the existance
of highly corrosive soils. Manufacturers of plastic and metallic pipe
should be able to supply the approximately 8 million feet of additional
underground tubing which will be required to implement a one year Stage
II vapor recovery program utilizing balanced recovery systems (see
Table H-3 ) .
4. VACUUM ASSIST EQUIPMENT
The manufacturers of vacuum assist vapor recovery systems are small
organizations which utilize simple concepts and standard "off the shelf"
components to minimize capitalization and start-up requirements for
investment in plant and manufacturing facilities. Vacuum assist systems
now on the market are designed to facilitate assembly line production
operations.
205
-------
TABLE H-4.
I..
ESTIMATED VAPOR RECOVERY RETURN LINE
PIPING REQUIREMENTS
^ _ ___ -^ J. J.XJ-M. f mi * *J
1 YEAR INSTALLATION REQUIREMENTS
Service Station
Category
Major
Regional Wholesaler/
Marketer
Other(1)
Total
# of Service Stations
to be Completed
East Coast Other USA
Stage II Stage II
AQCR's AQCR's
4,424
3,406
1,299 2,580
2.909 3.467
8.632 9,453
Piping Requirements (OOP Feet)
East Coast Other Uȣ.
AQCR's AQCR's
1,769
1,601
520 1,213
1.164 1,629
3,453 4,443
Total Pipe Required (QQQ Feet)
3,370
1,733
2,793
7,896
(1) Includes Jobbers and Dealer owned and operated stations
(2) Assumptions for piping requirements in feet per station:
Area
Segment East Coast . : . Other U.S.
Feet
Piping/ 400 470
Station
-------
A major subsystem of vacuum assist vapor recovery systems is secondary
processing equipment. Hydrocarbon vapors which are captured by the
vacuum assist system are put through one of the three following secondary
processing operations:
incineration of the excess vapors,
absorbtion of the vapors in activated carbon canisters,
compression and refrigeration of the vapors back to a liquid
stage and return of liquids into one of the underground
gasoline storage tanks.
The original equipment manufacturers of carbon canisters and other
components of the secondary processing equipment are typically very
large corporations. There do not appear to be supply constraints
associated with activated carbon, carbon canisters, compressors or other
elements of secondary processing equipment.
However, at this time, due to uncertainties concerning emissions
standards, equipment performance standards, market size, and regulatory
implementation timing, the small vacuum assist assembly companies have
remained primarily in California and serve the California market only.
Vacuum assist companies typically expand by purchasing enough extra
footage to set up very simple assembly lines which do not require a
particularly highly skilled labor pool. Therefore, production increases
from each of the small manufacturing companies is fairly easy to accomplish.
However, at this point production capacities are very small and are just
sufficient to handle the California market. Several of these small vacuum
assist companies which have participated in the California market have
Centered bankruptcy.
Regulatory uncertainties, the lack of extensive field testing of systems
and the engineering difficulties encountered in achieving compatability
of hardware have seriously constrained production capacities of vacuum
assist systems. In addition the relatively small size of the existing
California market has limited the size of vacuum assist manufacturing.
These manufacturers could not produce sufficient systems to meet a one
year installation requirement at 28,470 service stations.
However, it does appear feasible for adequate numbers of manufacturers to
enter the market with a productive capacity sufficient to meet the demand
during the initial and each subsequent year of a 5 year phased installation
program (see Table H-3). It should be noted, however, that the projection
of industry's ability to produce vacuum assist and secondary processing
equipment is based on the assumption of several favorable market circum-
stances. These assumptions include fixed performance requirements and
minimal uncertainties regarding the size of the market and the timing of
a required installation program.
207
-------
TABLE H-5
VACUUM ASSIST AND MISCELLANEOUS EQUIPMENT REQUIREMENT
1 Year Installation 5 Year Installation Requirement
Requirement
28,470 Units
Year
1
2
3
4
5
Units Required
4,394
6,362
9,490
5,096
3,128
CUMULATIVE PRODUCTION CAPABILITY FOR
VACUUM ASSIST AND
SECONDARY PROCESSING
EQUIPMENT SYSTEMS
Months // of Systems
6 1,800-2,500
12 7,800-11,400
18 13,800-20,200
24 30,000-39,200
Source: Industry contacts
ADL estimates
208
-------
5. INSTALLATION LABOR
An adequately sized and skilled labor force exists in each AQCR (except
possibly Dallas/Ft. Worth) to meet the labor requirements of a one year
installation program of Stage II balanced vapor recovery systems. With
the declining of service station population and with some level of
completion of Stage I installation in most AQCR's, there are contractors
and work crews with excess labor capacity in most regions. In the
Dallas/Ft. Worth AQCR, virtually no Stage I installation work has been
done. As a result, an appropriately skilled labor force has not expanded
in response to the demands for Stage I installation work. Simultaneous
installation of both Stage I and Stage II equipment in Dallas/Ft. Worth
would strain the available contractors in the area and would probably
create an influx of labor from other Texas regions and Oklahoma.
Contractors and work crews with no previous experience with flammable
liquid piping would probably enter the labor market which could result
in quality problems and slow down the overall compliance schedule.
Although there is some idle capacity in the labor forces in several
AQCR's, most regions would experience detectable shortages of qualified
labor if only one year was allowed for vacuum assist systems. Installation
requirements for vacuum assist systems are more labor intensive than
for balance and hybrid systems. In order to install underground vacuum
assist equipment and secondary processing equipment, all of the completed
piping for Stage II balance systems at approximately 10,000 stations
would have to be re-excavated and refitted. In California, this would be
required at over 80% of the service stations in the 3 Stage II AQCR's.
The labor requirements for installation of vacuum assist systems and
refitting of the major portion of the service station population would
probably exceed the capacity of the skilled labor forces most noticably in
New Jersey, Dallas/Ft. Worth and Boston AQCR's. However, the available
labor forces would be adequate to meet the manpower requirements for the
installation of vacuum assist systems in all AQCR's if phased over 5 ,
years (see Table H-7.) .
209
-------
TABLE H-6
ESTIMATED NUMBER OF REQUIRED WORK CREWS FOR
NO
H-"
o
AQCR
Boston
New York City
(New Jersey Section)
Baltimore
Washington, D.C.
Philadelphia
(S.W. New Jersey Section)
Houston/Calveston
Dallas/Ft. Worth
Denver
Los Angeles
Sacramento
San Joaquin
TOTAL
*During year of maximum activity
Source: Industry contacts, ADL estimates.
INSTALLATION OF VAPOR RECOVERY EQUIPMENT
Estimated
Work Crews /Year
Available
60
90
30
32
30
60
45
32
310
16
24
729
Year
Balance
System
63
93
28
36
26
58
66
25
57
10
19
481
Compliance Program
Vacuum Assist
System
79
122
37
47
34
79
82
33
196
23
52
774
3Voar-
*Balance
System
22
33
11
12
10
20
22
7
27
4
9
177
Compliance Program
f *Vacuum Assist
System
26
41
13
16
11
27
26
11
65
9
17
262
-------
LIST OF APPENDICES
APPENDIX DESCRIPTION
H-l SURVEY OF ORIGINAL EQUIPMENT
H^2 INSTALLATION REQUIREMENT BY AQCR - BALANCE SYSTEM -
1 YEAR COMPLIANCE SCHEDULE (TABLES 1-11)
H-3 . INSTALLATION REQUIREMENT BY AQCR - VACUUM ASSIST -
1 YEAR COMPLIANCE SCHEDULE (TABLES 1-11)
ff-4* EQUIPMENT REQUIREMENT SUMMARY - 5 YEAR COMPLIANCE
SCHEDULE (TABLES 1-3)
H-5;_ INSTALLATION REQUIREMENTS BY AQCR - BALANCE SYSTEM
5 YEAR COMPLIANCE SCHEDULE (TABLES 1-11)
H-6 INSTALLATION REQUIREMENTS BY AQCR - VACUUM ASSIST
SYSTEM - 5 YEAR COMPLIANCE SCHEDULE (TABLES 1-11)
211
-------
APPENDIX H-
List of Companies Supplying Phase II Equipment, Components or Materials
1. Hoses
/ Swan Hose Division
Amerace Corporation
8929 Columbus Pike
P.O. Box 509
Worthington, Ohio 43085
Hewitt-Robins Inc.
240 Kenzington Ave.
Buffalo, N. Y. 14240
National Hose Division of
Dayco Corporation
Dover, New Jersey
/ Uniroyal Inc.
Oxford Management & Research Center
Middlebureh. Connecticut 06749
Gates Rubber Company
999 South Broadway
Denver, Colorado 80217
Gilbarco Inc.
Greensborough, North Carolina 27420
*Contact Code
Interviewed
212
-------
. Nozzles
/ Lynes Inc.
P.O. Box 12486
7042 Long Drive
Houston, Texas 77017
/ ACE/Cardinal
Cardinal Manufacturing Co.
6417 Manchester Ave.
St. Louis, Missouri 63139
/ Dresser-Wayne
Petroleum Equipment Division
College Avenue
Salisbury, Maryland 21801
The Red Jacket Division of
Wheil McLain Co., Inc.
Davenport, Iowa
OPW Division
Dover Corp.
2735 Colerain Ave.
Cincinnatti, Ohio 45225
/ A. Y. McDonald Manufacturing Co.
12th & Pine Streets
DuBuque, Iowa 52001
/ Emco Wheaton, Inc.
Chamberlain & Parrish Blvd.
Conneaut, Ohio 44030
» Automatic Systems
90 Park Ave.
Natick, Massachusetts 01760
/ Morrison Brothers
24th and Elm St.
Dubuque, Iowa 52001
3. Piping
/A. 0. Smith Inland Inc.
No address known
Pipe Systems Dept. of Ciba Geigy
No address known
Dupont
213
-------
4. Vacuum Assist/Secondary Processing Systems
/ Process Products Inc.
16921 South Western Ave.
Gardinier, California 90247
/ Oil & Gas Manufacturing Co.
8601 Boone Road
P.O. Box 36468
Houston, Texas 77036
Engironics
Out of business
/ Edwards Engineering Corp.
101 Alexander Ave.
Pompton Plains, New Jersey 07444
/ United Chemical Corp.
Out of business
/ Calgon Corp.
Box 1346
Pittsburgh, Pennsylvania 15230
/ Clean Air Engineering
2851 White Star Ave.
Anaheim, California 92806
/ Hazlett Enterprises
1089 Indian Village Road
Pebble Beach. California
93953
/Dresser Industries,
Petroleum Equipment Division
College Ave.
Salisbury, Maryland 21801
/ Energy Recovery Div. of Energy
Absorption Systems
(Previously called Inter-mark)
17931-F Sky Park Circle
Irvine, California 92714
/ Catalytic Products International, Inc.
3750 Industrial Ave.
Rolling Meadows, Illinois 60008
Eneron
No address known
/Air Products & Chemical Inc.
Chemicals Group
5 Executive Mall
Swedesford Rd.
Wayne, Pennsylvania 19087
214
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APPENDIX H*2
TABLE 1
INSTALLATION REQUIREMENTS
0 of
Service Percent
Category Stations Completed
Major 1,273
Regional
Marketer 461 >' ''.
i }
Other (1) 682
Total 2,416 10%
i
>- (1) Includes Jobbers and Dealer Owned
Ln
(2) Workday 'requirements per station
Category East Coast
Major & Regional
Marketers 8 days
Jobber 5 days
Piping
t Stations
Remaining to
be Completed
1,146
415
614
1 YEAR
Installation
BALANCED SYSTEM
BOSTON
INSTALLATION REQUIREMENT
Hose & Nozzle Installation
9 of Crew Days*2* 9 of Work Crews*3* t of
Required Required /Year . Stations
9,168
3,320
' 3,070
2,175 15,558
and Operated Stations.
for piping and stubbing of
West Coast
6
4
37 127
13. 46
12. 68
62. 241
vapor return lines at pumping islands.
t of (4) ' '
Work Crews/Year
*
Estimated Total
f of Work Crews
Required
64
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
NJ
APPENDIX E-2
''.':',. ' . TABLE 2
INSTALLATION REQUIREMENTS
BALANCEi SYSTEM
(NEW YORK CITY (New Jersey Section)
1 YEAR INSTALLATION REQUIREMENT
Piping Installation
Hose & Nozzle Installation
Category
Major
Regional
Marketer
Other
Total
(1)
// of
Service
Stations
1,999
595
3,801
Percent
Completed
S Stations
Remaining to 8 of Crew Days*- ' ff of Work Crews* ' // of
be Completed Required Required/Year Stations
1,699 13,592
It of
Work Crews/Year
Estimated Total
t of Work Crews
Required
15%
506
1,026
3,231
54 .
16.
21
91
300
89
181
570
3
(1) Includes Jobbers and Dealer Owned and Operated Stations
(2) Workday requirements per station for piping and stubbing of vapor lines at pumping islands.
Category East Coast West Coast
Major & Regional
Marketers
8 days 6
Jobber 5 days 4
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
APPENDIX 1H-2
TABLE 3
INSTALLATION REQUIREMENTS
BALANCE SYSTEM
BALTIMORE
1 YEAR INSTALLATION REQUIREMENT
Piping Installation
Hose & Nozzle Installation
Category
Major
Regional
Marketer
Other(1)
Total
(1) Includes
(2) Workday
Category
// of
Service
Stations
548
218
408
1,174 .
Jobbers and
requirements
Percent
Completed
Dealer Owned
per station
East Coast
Major & Regional
Marketers
Jobbers
8 days
5 days
0 Stations
Remaining to
be Completed
466
185
347
998
and Operated
for piping and
9 of. Crew Days
Required
3,728
1,480
1.735
6.943
Stations
stubbing of vapor
(2) ff of Work Crews(3) t of
Required/Year Stations
15 82
6 33
7 61
28 . 176
lines at pumping islands.
f of (4)
Work Crews /Year
gj
West Coast
6
4
Estimated Total
H of Work Crews
Required
(3) 250 work days per year
(4) One work day required for Installation of hose and nozzle.
29
-------
APPENDIX H-2
TABLE 4
INSTALLATION REQUIREMENTS
BALANCE SYSTEM
WASHINGTON, D.C.
1 YEAR INSTALLATION REQUIREMENT
Piping Installation
Hose & Nozzle Installation
Category
Major
Regional
Marketer
Qther(1>
Total
f.of
Service
Stations
715
104
754
1,523
t Stations
Percent Remaining to
Completed be" Completed
608
88
641
15% ^M
9 of Crew Days*2*
Required
4,864
704
3,205
8,773
9 of Work Crews*3'
Required /Year
.20.
3
13
36
a of a of *4)
Stations Work Crews/Year
107
16
113
236 * 1
Estimated Total
9 of Work Crews
Required
36
(1) Includes Jobbers and Dealer Owned and Operated Stations
(2) Workday .'requirements per station for piping and stubbing of vapor lines at pumping Islands.
Category East Coast West Coast
Major & Regional
Marketers
8 days 6
Jobbers 5 days 4
(3) 250 work days per year
(4) One work day required for Installation of hose and nozzle.
-------
vo
APPENDIX H-.2
TABLE 5
INSTALLATION REQUIREMENTS
V
Category
Major
Regional
Marketer
Other'1'
Total
(1) Includes
(2) Workday.
9 of
Service
Stations
594
120
334
1,048
Jobbers and
requirements
Percent
Completed
. /
'15Z ,
Dealer Owned
per station
Category East Coast
Major & Regional
Marketers
Jobbers
8 days
5 days
BALANCE-T SYSTEM
PHILIDELPHIA (S.W. New Jersey Section)
I YEAR: INSTALLATION REQUIREMENT
Piping Installation Hose & Nozzle. Installation
0 Stations /-) /->\ *.>
Remaining to * of Crew Days ' 0 of Work Crews1 ' 6 of t or '
be Completed Required Required/Year Stations Work Crews/Year
505 4,040 16.: 89 ..".'
102 .816 3 18 .
284 1,420 6 50 -
891 6,276 25r 157 A 1
and Operated Stations
for piping and stubbing of vapor lines at pumping islands.
West Coast
6
4
Estimated Total
& of Work Crews
Required
26
^
9*
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
APPENDIX H-2
TABLE 6
INSTALLATION REQUIREMENTS
BALANCED SYSTEM
HOUSTON/GALVESTON
1 YEAR INSTALLATION REQUIREMENT
Piping Installation
Hose & Nozzle Installation
Category
Major
Regional
Marketer
Other(1)
Total
It of
Service
Stations
907
1,185
1,172
3,264
Percent
Completed
:20Z
8 Stations
Remaining to .8 of Crew Days^' t of Work Crews^) # of
be Completed Required Required/Year Stations^
726
4,356
948
938
2,612
17
.23
15.0
55. .
181
237
234
652
(1) Includes Jobbers and Dealer Owned and Operated Stations
(2) Workday .'requirements per station for piping and stubbing of vapor lines at pumping islands.
Category
Major & Regional
Marketers
East Coast
West Coast
8 days 6
Jobbers 5 days 4
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
I of C4)
Work Crews/Year
Estimated Total
t of Work Crews
Required
3 -
58
-------
APPENDIX H-2
i; TABLE 7
,i, .
INSTALLATION REQUIREMENTS
BALANCE: SYSTEM
DALLAS/FT. WORTH
1 YEAR INSTALLATION REQUIREMENT
Piping Installation
Hose & Nozzle Installation
Category
Major
Regional
Marketer
9 of
Service
Stations
883
897
9 Stations
Percent Remaining to
Completed be Completed
883
i 897
S of Crew Days
Required
5,298
5,382
# of Work Crews '*
Required /Year
21
22
l) » of t of (4)
Stations Work Crews/Year
0
Q
Estimated Total
0 of Work Crews
Required.
23
'Total
3,227
'0
3,227
16.468
66
(1) Includes Jobbers and Dealer Owned and Operated Stations
(2) Workday requirements per station for piping and stubbing of vapor lines at pumping islands.
Category East Coast West Coast
Major & Regional
Marketers 8 days 6
Jobbers 5 days . 4
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
Category
Major
Regional
Marketer
.Other (^
Total
# of
Service
Stations
556
304
436
1,296
APPENDIX Ji-2
,'.. . TABLE 8
INSTALLATION REQUIREMENTS
BALANCE 'SYSTEM
DENVER
1 YEAR INSTALLATION REQUIREMENT
Percent
Completed
'10%
Piping
0 Stations
Remaining to
be Completed
500
274
392
itl2!
Installation
9 of Crew Days1
Required
3,000
1,644
1,568
6.212
) II of Work Crews(3)
Required /Year
12
7 -
6
25
Hose &
Nozzle Installation
ff of II of<4)
Stations Work Crews/Year
56
30
44
130
; t* "
*i
Estimated Total
8 of Work Crews
Required
(1) Includes Jobbers and Dealer Owned and Operated Stations
(2) Workday requirements per station for piping and stubbing of vapor lines at pumping Islands..
Category
East Coast
Major & Regional
Marketers 8 days
West Coast
6
4
Jobbers 5 days
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
APPENDIX H-2
TABLE 9
INSTALLATION REQUIREMENTS
BALANCE SYSTEM
LOS ANGELES
1 YEAR INSTALLATION REQUIREMENT
Piping Installation
Hose & Nozrle Installation
Category
Major
Regional
Marketer
!
Other ' '
Total
ff of
Service
Stations
4,155
1,442
1,940
7,537
0 Stations
Percent Remaining to
Completed be Completed
831
288
388
80% 1^507
9 of Crew Days^
Required
4,986
1,728
1,552
8,266
9 of Work Crews^3*
Required /Year
20
7 .
6,
33^0
6 of
Stations
3,324
1,154
1,552
6,030
S of^
Work Crews /Year
13.
5
6.
24
Estimated Total
t of Work Crews
Required
57J '
(1) Includes Jobbers and Dealer Owned and Operated Stations
(2) Workday-requirements-per station for piping and stubbing of vapor lines at pumping islands.
Category East Coast West Coast
Major & Regional
Marketers
8 days 6
Jobbers 5 days 4
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
APPENDIX H-2
i. . TABLE 10
ti . , - - "-
INSTALLATION REQUIREMENTS
BALANCE '. SYSTEM
SACRAMENTO
1 YEAR INSTALLATION REQUIREMENT
Piping Installation
Hose & NoZzle Installation'
Category
Major
Regional
Marketer
Othec(i)
Total
ff of
Service
Stations
446
257
403
1,106
ii Stations
Percent Remaining to
Completed be Completed
134
77
121
70% 332
l? of Crew Days(2)
Required
804
462
484
1,750
t of Work CrewsP)
Required/Year
3
2
2_
7
ft of If of (4)
Stations Work Crews/Year
312
180
282
774 3.
Estimated Total
t of Work Crews
Required
10
(1) Includes Jobbers and Dealer Owned and Operated Stations
(2) Workday requirements per station for piping and stubbing of vapor lines at pumping Islands.
Category East Coast West Coast
Major & Regional
Marketers 8 days
Jobbers 5 days 4
(3) 250 work days per year :
(4) One work day required for Installation of hose and nozzle.
-------
APPENDIX H-2
ui
TABLE 11
INSTALLATION REQUIREMENTS
BALANCE
SYSTEM
SAN JOAQUIN ;
1 YEAR INSTALLATION REQUIREMENT
Piping Installation
Category
Major
Regional
Marketer
Other^1)
Total
9 of
Service
Stations
1,106
319
603
2^,028
1? Stations
Percent Remaining to
Completed be Completed
332
96
181
70% 609
f of Crew Days (2)
Required
1,992
. 576
724
3^292
9 of Work Crews (3)
Required/Year
8
2^ '
13 ->_'
Hose & Nozzle Installation
tl of (t of(*)
Stations Work Crews/Year
774
223
422
1,419 6 '
Estimated Total
0 of Work Crews
Required
__ 19
(1) Includes Jobbers and Dealer Owned and Operated Stations
(2) Workday 'requirements per station for piping and stubbing of vapor lines at .pumping islands.
'. Category East Coast West Coast
Major & Regional
Marketers
8 days 6
Jobbers 5 days 4
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
APPENDIX ff-3
TABLE 1
INSTALLATION' REQUIREMENTS
VACUUM'ASSIST SYSTEM
BOSTON
1 YEAR INSTALLATION REQUIREMENT
Installation of Piping, Vacuum
Assist and Miscellaneous Equipment
Service if of if of Crew // of Work
Station Service Days Crevs
Category ' Stations Required Required
Major 1,273 11,457 46
Regional Wholesaler/
Marketer
Other(1)
Totals
461
682
2,416
4,149
4,092
19,698
17
16
79
Includes jobber and dealer owned and operated stations.
226
-------
APPENDIXHK3
TABLE 2 .
INSTALLATION' REQUIREMENTS
VACUUM ASSIST SYSTEM
NEW YORK CITY (New Jersey Section)
1 YEAR INSTALLATION REQUIREMENT ,
Installation of Piping, Vacuum
Assist and Miscellaneous Equipment
Service . //of # of Crew # of Work
Station Service Days Crews
Category ' Stations Required Required
Major 1,999 17,991 . 72
Regional Wholesaler/
Marketer
Other*"
Totals
595
1,207
3,801
5,355
7,242
30,594
21
29
122
Includes jobber and dealer owned and operating stations.
227
-------
APPENDIX -H-3
TABLE 3
INSTALLATION REQUIREMENTS
VACUUM'ASS1ST SYSTEM
BALTIMORE
1 YEAR INSTALLATION REQUIREMENT
Installation of Piping, .Vacuum
Assist and Miscellaneous Equipment
Service
Station
Category
Major
Regional Wholesaler/
Marketer
Other
Totals
(1)
// of if of Crew $ of Work
Service Days Crews
Stations Required Required
548
4,932
20
218
408
1,174
1,962
2,448
.9,342
8
10
38
(1)
Includes jobber and dealer owned and operated stations.
228
-------
APPENDIX H-3
TABLE 4
INSTALLATION REQUIREMENTS
VACUUM ASSIST SYSTEM
WASHINGTON, D.C.
1 YEAR INSTALLATION REQUIREMENT
Installation of Piping, Vacuum
Assist and Miscellaneous Equipment
Service // of # of Crew # of Work
Station Service Days Crews
Category Stations Required Required
Major 715 6,435 26
Regional Wholesaler/
Marketer 104 936 4
Other(1) 754 4,524 18
Totals 1,573 11,895 48
(1)
Includes jobber and dealer owned and operated stations.
229
-------
APPENDIX H-3
TABLE 5
INSTALLATION REQUIREMENTS
VACUUM ASSIST SYSTEM
PHILADELPHIA
-------
APPENDIX H-3
TABLE 6
INSTALLATION REQUIREMENTS
VACUUM ASSIST SYSTEM
DALLAS/FT. WORTH
1 YEAR INSTALLATION REQUIREMENT
Installation of Piping, Vacuum
Assist and Miscellaneous Equipment
Service // of I1 of Crew // of Work
Station Service Days Crews
Category Stations Required Required
883 6,181 25
Regional Wholesaler/
Marketer 897 6,279 25
.Other_ 1,447 7,235 29
Totals , 3^227 19,695 . 79
' 'Includes jobber and dealer owned and operated stations.
231
-------
APPENDIX H.-3
TABLE 7
INSTALLATION REQUIREMENTS
VACUUM ASSIST SYSTEM
HOUSTON/GALVESTON
1 YEAR INSTALLATION REQUIREMENT
Installation of Piping, Vacuum
Assist and Miscellaneous Equipment
.Service.
Station
Category
Major
Regional Wholesaler/
Marketer
Other
Totals
9 of # of Crew if of Work
Service Days Crews
Stations Required Reauired
25
33
23.
81
907
1,185
1..172
3,264
6,349
8,295
5.860
10,504
(1)
Includes jobber and dealer owned and operated stations.
232
-------
APPENDIX H-3
TABLE 8
INSTALLATION REQUIREMENTS
VACUUM ASS'lST SYSTEM
DENVER
1 YEAR INSTALLATION REQUIREMENT
Installation of Piping, Vacuum
Assist and Miscellaneous Equipment
Service
Station
Category
Major
Regional Wholesaler/
Marketer
Totals
t of tf of Crew it of Work
Service Days Crews
Stations Required Required
556
3,892
16
304
436
1*296
2,128
2,180
8,200
9
9
34
includes jobber and dealer owned and operated stations,
233
-------
APPENDIX H-3
TABLE 9
INSTALLAT ION' R EQU I REGENTS
VACUUM ASSIST 'SYSTEM
LOS ANGELES
1 YEAR INSTALLATION REQUIREMENT
Installation of Piping, Vacuum
Assist and Miscellaneous Equipment
Service // of # of Crew # of Work
Station Service Days Crews
Category ' Stations Required Required
Major 4,155 29,085 116.
Regional Wholesaler/
Marketer 1,442 10,094 40
Other 1,940 9,700 39
Totals 7 ,-537 48,879 195.5
' 'Includes jobber and dealer owned and operated stations.
234
-------
APPENDIX H?3
TABLE 10
INSTALLATION REQUIREMENTS
VACUUM ASSIST SYSTEM
SACRAMENTO
1 YEAR INSTALLATION REQUIREMENT ,
Installation of Piping, Vacuum-
Assist and Miscellaneous Equipment
Service // of ft of Crew # of Work
Station Service Days Crews
Category ' Stations Required Required
Major 446 3,122 13
Regional Wholesaler/
Marketer . 257 1,799 7
Other 403 2,015 _8_
Totals . 1,106 6.936 28
Includes jobber and dealer owned and operated stations.
235
-------
APPENDIX H-3
TABLE 11
"ENSTALLAT ION1 REQUIREMENTS
VACUUM "ASSIST SYSTEM
SAN JOAQUIN
1 YEAR INSTALLATION REQUIREMENT »,
Installation of Piping, Vacuum
Assist and Miscellaneous Equipment
Service // of # of Crew '// of Work
Station Service Days Crews
Category Stations Required Required
Major 1,106 7,742 31
Regional Wholesaler/
Marketer 319 "2,233 , 9
Other (1) 603 3,015 12.
Totals 2,028 12,990 52
^'Includes jobber and dealer owned and operated stations.
236
-------
U>
APPENDIX H-4
TABLE 1
ESTIMATED VAPOR RECOVERY RETURN LINE PIPING REQUIREMENTS
Year
Major RWM Other(1)
5 Year
utner u.o
Major RWM
Installation Requirement
Other Major
(2)
RWM Other
Total
Pipe Required
(feet)
1,004
1,709
Required
298
544
781
528
657,280
1,050,670 367,360
501 1,127
1,128
1,257 1,018
1,710
TOTAL 4,424 1,299 2,909 3,406 2,580 3,476 3,370,820 1,732,200 2,793,090
(1) Includes Jobbers and Dealer owned and operated stations
(2) Assumptions for piping requirements in feet per station:
East Coast Other U.S.
Feet per
Station
657,280
1,418,030
1,712 500 654 2,081 795 739 1,662,870 573,650 608,930 2,845,450
791,190 929,260 1,720,450
1,254,900 1,254,900
7,896,110
400
470
-------
ESTIMATED ANNUAL REQUIREMENTS
5 YEAR PHASEI
Cumulative
if of Service Stations Population
, , , of Vapor
Year Major RWMV ' Other^ ' Recovery Nozzles
1 4394 37,332
2 4394 1967 102,202
3 4394 1967 3129 180,213
W 4 1968 3129 220,486
00
5 3129 233,627
Nozzles/Station 8.5 14.0 4.2
APPEND I." :.H-4
TABLE 2
FOR NEW AND REBUILT VAPOR
) INSTALLATION REQUIREMENT
Annual Loss of (3)
of Vapor Recovery
Nozzle Cores
3,733
10,220
18,021
22,049
RECOVERY NOZZLES
Estimated Demand for(4) Estimated Demand £or(^)
New Vapor Recovery Rebuilt Vapor
Nozzles Recovery Nozzles
37,332
68,603 33,599
88,231 91,982
' 58,294 162,192
35,190 198,437
(2)
(3)
Regional Wholesaler/Marketers
Includes Jobbers and Dealer ov.ied and operated stations
Estimated to be 10% of preceding year's vapor recovery nozzle population
Total of incremental service station demand and replacement for annual loss of nozzle cores
(5)
Estimated to be 90% of preceding year's vapor recovery nozzle population
-------
ro
to
vo
APPENDIX JI-4
TABLE 3
i
ESTIMATED GAS DISPENSING AXD VAPOR RECOVERY HOSE REQUIREMENTS
5 YEAR INSTALLATION REQUIREMNT
(1,000 Feet)
* X*
Xepj.aceir.ent Replacement . Replacement
Gas Total Gas Gas Total Gas Gas
New Dispensing Dispensing New Dispensing Dispensing New Dispensinj
Vapor and Vapor and Vapor Vapor and Vapor and Vapor Vapor and Vapor
? of. Recovery Recovery Recovery f of Recovery Recovery Recovery S of Recovery Recovery
Service Hose Kose Hose Service Hose Hose Hose Service Hose Hose
i- P;;i-:ons . Required Rp.ouired Required Stations Required Required Required Stations Required Required
1 ''i>'4 383 388
^ SV54 3SS 388 776 1967 207 207
3 -'.JS4 338 776 1164 1967 207 207 414 3129 180
4 776 776 1968 207 414 621 3129 180 180
3 776 776 414 414 3129 180 360
TOTAL
Total Gas
; Dispensing
and Vapor Total Tonal
Recovery Annual Annual Hose
Hose New Kose Requirement
Required Requirements for AQCR's
388 383
595 983
180 775 1753
360 387 1757
540 180 1730
Assumptions: 1) One-half of existing hose is newly installed and one-half is one year old.
2) Hose life span is 2 years.
3) Hose requirements in feet:
Without Vapor
recovery equipment
Other
57.4
176.4
210 114.8
With Vapor
recovery equipment
*Regional Wholesaler/Marketers
**Includes Jobbers; Dealer "owned"/Dealer Operated
-------
APPEND IX -9-5
TABLE 1
INSTALLATION REQUIREMENTS
BALANCE1 SYSTEM
BOSTON
5 YEAR PHASED INSTALLATION REQUIREMENT
Service Stations Affecting
Ownership Categories
Year Major
1 424
2 425
3 .425
K 4
° 5
Total 1,273
Regional
Wholesaler ,,,
Marketer Other1 ;
153
154 227
154 227
228
461 682
n<«
0 of Stations Remaining
to be Completed
Regional
Wholesaler
Major Marketer Other
297
424 . 110
425 154 159
154 227
228
1146 418 614
>ing Installat
9 of Crew^2
Days
Required
2,376
4,272
5,420
2, '367
1,140
ion
* (? of Work(3)
Crews
Required /Year
9.5
17.1
21.7
9.5
4.6
Hose & Nozzle Installation
0 of Stations
to be
Completed
127
46
68
0
0
241
t of Worfc<*> ..
Crews Required
Per Year
1
1
1
0
0
Estimated
Total t
Work
1 Crews
Required
Per Year
10
17
22
10
5
(1) Includes Jobbers and Dealer Owned and Operated Stations.
(2) Workday requirements per station for piping and stubbing of vapor return lines at pumping islands.
Category
Major & Regional
Marketers
East Coast
West Coast
8 days . 6
Jobber 5 days 4
(3) 250 work days per year
(4) One work day required for inatallation of hose and Nozzle.
-------
Service Stations Affecting
Ownership Categories
Year
1
2
3
4
10 e
-IN 5
Major
666
666
667
Total 1,999
(1)
(2)
Includes
Regional
Wholesaler .,
Marketer Other
198
198
199
595
Jobbers and
Workday requirements
Category
402
402
402
1,206
Dealer Owned
per station f
East Coast
APPENDIX Sff-S
TABLE 2
INSTALLATION REQUIREMENTS
BALANCED SYSTEM
NEW YORK CITY CNew Jersey Section)
5 YEAR PHASED INSTALLATION REQUIREMENT
Pipil
// of Stations Remaining
to be Completed
Regional
Wholesaler
Major Marketer Other
366
666 . 109
667 198 221
199 402
402
1699 506 1025
Operated Stations.
Lping and stubbing of vapor
West Coast
ng Installati(
9 of Crew(2)
Days
Required
2,928
6,200
8,025
3,602.
2,010
return lines
9 of Work(3)
Crews
Required/Year
11.7
24.8 .
32.1
14.4
8.0
Hose & Nozzle Installation
0 of Stations 0 of Work^
to be Crews Required
Completed Per Year
300 1.2
89 1
181 1
0 0
0 " 0
57.0 -
Estimated
Total 9
Work
Crews
Required
Per Year
13
25
33
14
8
at pumping islands.
Major & Regional
Marketers 8 days 6
Jobber 5 days 4
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
to
APPENDIX H-5
TABLE 3
INSTALLATION REQUIREMENTS
BALANCE:/! SYSTEM
5 YEAR PHASED 1
PA,
Service Stations Affecting t of Stations Remaining
Ownership Categories to be Completed
Year Major
! 182
2 183
3 183
A
5
Total 548
Regional Regional
Wholesaler ,.. Wholesaler
Marketer Other Major Marketer Other
100
72 183 39
73 136 183 73 75
73 136 - 73 136
136 ' - - 136
218 408 466 185 347
BALTIMORE
[INSTALLATION R
)ing Installat
t of Crew^2
Days
Required
800
1776
2423
1264
680
EQUIREMENT
ion
' 0 of Work'3'
Crews
Required /Year
3.2
7.1
9.7
5.1
2.7
Hose & Nozzle Installation
it of Stations
to be
Completed
82
33
61
-0-
-0- -
176
Estimated
Total it
Work
# of Work <4> Crevfc
Crews Required * Required
Per Year Per Year
< 1 4
£1 8
£i 11
-0- 5
-0- 3
(1) Includes Jobbers and Dealer Owned and Operated Stations.
(2) Workday requirements per station for piping and stubbing of vapor lines at pumping islands.
Category East Coast West Coast
Major & Regional
Marketers
8 days 6
Jobber 5 days 4
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
Service Stations Affecting
Ownership Categories
Regional
Wholesaler ....
Year Major Marketer Other1'
1 238
2 238 34
3 239 35 251
4 35 251
tsi
W 5 252
! Total 715 104 754
APPENDIX ^- 5
TABLE 4
INSTALLATION REQUIREMENTS
BALANCED SYSTEM
WASHINGTON, D.C.
5 YEAR PHASED INSTALLATION REQUIREMENT
Piping Installation Hose & Nozzle Installation
0 of Stations Remaining
to be Completed
Regional 9 of Crew^> 0 of Work<-») 0 of Stations if of Work(4)
Wholesaler Days Crews to be Crews Required
Major Marketer Other Required Required /Year Completed Per Year
131 1048 4.2 107 - X
238 18 2048 8.2 16 -1
239 35 138 2882 11.5 113 £ 1 '
35 251 .1535 6.1 -0- -0-
251 1255 5.0 -0- ' -0-
608 88 640 236
Estimated
Total 9
Work
Crews
Required
Per Year
5
9
12
6
5
i
L '
(1) Includes Jobbers and Dealer Owned and Operated Stations. ::."-"
i
! (2) Workday requirements per station for piping and stubbing of vapor lines at pumping islands.
Category East Coast West Coast
1: Major & Regional
| Marketers 8 days
fi
!! Jobbers 5 days
i
(3) 250 work days per year
6
4
(4) One work day required for installation of hose and nozzle.
-------
APPENDIX fl- 5
TABLE 5
INSTALLATION REQUIREMENTS
BALANCE?/ SYSTEM
(PHILIliELPHIA (S
W. NEW JERSEY SECTION)
5 YEAR PHASED INSTALLATION REQUIREMENT
P-lwfno Tno»-a1 1 atlnn
v Service Stations Affecting
Ownership Categories
Regional
Wholesaler
Year Major Marketer Other
1 198
2 I98 *0
3 198 40 111
, 4 40 111
5 112
M
-P-
(
* Total 594 120 334
9 of Stations Remaining
to be Completed
Regional
,-, Wholesaler
UJ Major Marketer Other
* 109
198 22
198 40 61
40 111
111
505 102 283
# of Crew(2) $ of Work<3)
Days Crews
Required Required /Year
872 3.5
1760 7.0
220S 8.8
875 3.5
555 2.2
1
Hose & Nozzle Installation
Estimated
Total //
Work
0 of Stations it of Work(4> .. Crews
to be Crews Required Required
Completed Per Year Per Year
89 i 4
18 1 8
50 1 10
-0- -0- 4
-0- ' -0- 2
' I
157
(1) Includes Jobbers and Dealer Owned and Operated Stations.
(2) Workday requirements per station
Category East Coast
Major & Regional
Marketers 8 days
Jobbers 5 days
for piping and stubbing of vapor
West Coast
6
4
lines at pumping islands.
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
Ul
APPENDIX ^H- 5
TABLE 6
INSTALLATION REQUIREMENTS -
BALANCED SYSTEM
HOUSTON GALVESTON
5 YEAR PHASED INSTALLATION REQUIREMENT
1
2
3
4
5
Service Stations Affecting
Ownership Categories
Regional
Wholesaler ,.*
302
302 395
303 395 390
395 391
391
Hose & Nozzle
Inst alia t ion
tf of Stations Remaining
Regional
Wholesaler
121
302 158
303 395 156
395 391
391
$ of Crew(2) 0 of Work(3)
Days Crews
Required Required/Year
726
2760
4812
3934
1564
2.9
11.0
19.3
15.7
6.3
It of Stations
to be
Completed
181
237
234
-0-
-0-
t of Work(4> .
Crews Required
Per Year
<1
£l
£l
-0-
-0-
Total 0
Work
. Crews
Required
Per Year
4
12
20
16
6
Total
907
1185
1172
726
948
938
(1) Includes Jobbers and Dealer Owned and Operated Stations.
(2) Workday requirements per station for piping and stubbing of vapor lines at pumping islands.
Category East Coast West Coast
Major & Regional
Marketers 8 days 6
Jobbers 5 days 4
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
652
-------
APPENDIX HZ 5
TA3LE 7
INSTALLATION REQUIREMENTS
BALANCEU SYSTEM
DALLAS/FT. WORTH
5 YEAR PHASED INSTALLATION REQUIREMENT
Year
1
2
3
4
otal
<
Service Stations Affecting
Ownership Categories
Regional
Wholesaler .-.
Major Marketer Other1 '
294
294 299
295 299 482
299 482
483
883 897 1447
PI i
* *!
// of Stations Remaining
to be Completed
Regional
Wholesaler
Major Marketer Other
294
294 299
295 299 482
299 482
483
883 897 1447
jing Installal
9 of Crew(;
Days
Required
1764
3558
5486
5486
1932
ion
2) 0 of WorkO)
Crews
Required/Year
7.1
14.2
21.9
21.9
7.7
I-
Hose & Nozzle Installation
it of Stations
to be
Completed
-0-
-0-
-0-
-0-
-0- -
0
9 of Work(4) ,
Crews Required
Per Year
-0-
-0-
-0-
-0-
-0-
Estimated
Total 9
Work
Crews
Required
Per Year
7
14
22
22
8
(1) Includes Jobbers and Dealer Owned and Operated Stations.
(2) Workday requirements per station for piping and stubbing of vapor lines at pumping islands.
Category East Coast West Coast
Major & Regional
Marketers
8 days 6
Jobbers 5 days 4
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
Year
1
2
3
4
5
Year
(1)
(2)
Service Stations Affecting
Ownership Categories
Regional
Wholesaler ,....
Major Marketer Other1 '
185
185 101
186 101 145
102 145
146
556 304 436
APPENDIX .;p_ 5
TABLE 8
INSTALLATION REQUIREMENTS
BALANCED SYSTEM
DENVER
5 YEAR PHASED INSTALLATION REQUIREMENT
Piping Installation Hose & Nozzle Installation
Estimated
9 of Stations Remaining ' Total tf
to be Completed Work
Regional t of Crew1-*' t of Work^0' 9 of Stations It of WorkVH' Crews
Wholesaler Days Crews to be Crews Required Required
Major Marketer Other Required Required/Year Completed Per Year Per Year
129 - - 774 3.1 56 £ 1 4
185 71 - 1536 6.1 30 £ 1 7
186 101 101 2126 2.8 44 £. 1 4
102 145 -1192 4.0 -0- -0- 4
- 146 . 584 2.3 -0- -0- 2
500 274 ^I92_ 130_
Includes Jobbers and Dealer Owned and Operated Stations.
Workday requirements per station for
Category East Coast
Major & Regional
Marketers 8 days
Jobbers 5 days
piping and stubbing of vapor lines at pumping islands.
West Coast
6
4
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle.
-------
Service Stations Affecting
Ownership Categories
Year
Major
1 1,385
2 1,385
3 1,385
5
Total 4,155
(1) Includes
(2) Workday
Category
Regional
Wholesaler ,...
Marketer Other '
480
481 646
481 647
647
1.442 1,940
1 '
Jobbers and Dealer Owned
requirements per station
East Coast
Major & Regional
Marketers 8
Jobbers 5
days
days
APPENDIX H-5
TABLE 9
INSTALLATION REQUIREMENTS
BALANCE SYSTEM
LOS ANGELES
5 YEAR PHASED INSTALLATION REQUIREMENT
: .
Estimated
# of Stations Remaining 9 of Stations Remaining Total ff
to be Completed to be Completed Work
Regional * of CrewU;(? of WorkUJ Regional » of Work<«> Crews
Wholesaler Days Crews Wholesaler Crews Required Required
Major Marketer Other Required Required/Yr Major Marketer Other Per Year Per Year
0 0 0 1,385 5.5 6
00 0 0 1,385 480 7.5 8
831 0 0 4,986 19.9 554 481 646 . 6.7 27
288 0 1,728 6.9 193 647 3.4 10
388 1,552 6.2 259 1 7
831 288 388- 3,324 1,154 1,552
and Operated Stations.
for piping and stubbing of vapor lines at pumping islands.
West Coast
6
4
(3) 250 work days per year
(4) One work day required for installation of hose and nozzle
-------
APPESD7X H-5
TABLE 10
INSTALLATION REQUIREMENTS
BALANCE' SYSTEM
SACRAMENTO
5 YEAR PHASED INSTALLATION REQUIREMENT
Service Stations Affecting
Ownership Categories
Year
1
2
3
. 4
5
Total
Major
148
149
149
446
Regional
Wholesaler
Marketer
85
86
86
257
ri
ff of Stations Remaining
to be Completed
Regional
pj-ug iiisi.aj.J.dUJ.uii
t of i
to be
9 of CrewC2)* of Work*3*
d\ Wholesaler
Other^1'
134
134
135
403
' Major
0
0
134
'
134
Marketer
0
0
77
77
Other
~
0
0
121
121
Days
Required
0
0
804
462
484
Crews
Required/Yr Major
0 148
0 149
3.2 15
1.8
1.9
312
1 ' HUbt
Stations Remaining
Completed
Regional
Wholesaler
Marketer
89
86
9
184
Other
134
134
14
282
0 of Work(4)
Estimated
Total 9
Work
: Crevs
Crews Required Required
Per Year
l
1
1
1
1
Per Year
1
1
4
3
4
(1) Includes Jobbers and Dealer Owned and Operated Stations.
(2) Workday requirements per station for piping and stubbing of vapor lines at pumping islands.
Category East Coast West Coast
Major & Regional
Marketers
8 days
Jobbers 5 days 4
(3) 250 work days per year
(4) One work day required for Installation of hoze and nozzle.
-------
Service Stations Affecting
Ownership Categories
Regional
Wholesaler ......
Year Major Marketer Other '
1 368
2 369 106
l^o 3 369 106 201
Ol
o
4 107 201
5 201
Total 1,106 319 603
(1) Includes Jobbers and Dealer Owned
(2) Workday requirements per station f
Category East Coast
Major & Regional
: Marketers 8 days
Jobbers 5 days
APPENDIX H-5
TABLE 11
INSTALLATION REQUIREMENTS
BALANCED SYSTEM
SAN JOAQUIN
5 YEAR PHASED INSTALLATION REQUIREMENT
1 '
Piping Installation Hose & Nozzle Installation
f of Stations Remaining 9 of Stations Remaining
to be Completed to be Completed
Regional * of Creww f of WorkW Regional * of Workw
Wholesaler Days Crews Wholesaler Crews Required
Major Marketer Other Required Required/Yr Major Marketer Other Per Year
0 0 0 368 1.5
000 0 369 106 1.9
332 0 0 1,992 8.0 37 106 201 . 1.4
96 0 576 2.3 11 201 1
181 724 2.9 20 1
332 96 181 774 223 422
and Operated Stations.
or piping and stubbing of vapor lines at pumping islands.
West Coast
6
4
Estimated
Total 9
Work
Crews
Required
Per Year
2
2
9
3
4
(3) 250 work days per year
(4) One work day required for installation of hoze and nozzle.
-------
APPENDIX H-6
Table 1.. INSTALLATION REQUIREMENTS, VACUUM ASSIST SYSTEM - BOSTON
5 YEAR PHASED INSTALLATION REQUIREMENT
Impacted Service
Stations by
Ownership Categories
Major
424
424
425
.273
Regional
Wholesaler/ *
Marketers Other
153
154 227
154 227
228
461 682
Installation of Piping, Vacuum
Assist and Miscellaneous
Equipment
# of
Crew Days
Required
3,816
5,193
*
6,573
2,748
1,368
19,698
// of Work
Crews
Required/Year
15.0
21.0
26.0
11
6.0
Year
1
2
3
4
5
Jobbers; Dealer "owned"/Dealer Operated
Table 2. INSTALLATION REQUIREMENTS, VACUUM ASSIST SYSTEM - NEW YORK CITY ( NEW
JERSEY SECTION)
5 YEAR PHASED INSTALLATION REQUIREMENT
Year
1
2
3
4
5
Impacted Service
Stations by
Ownership Categories
Regional
Wholesaler/ ^
Major Marketers Other
666
666 198
.667 198 402
199 402
402
1,999 595 1,206
Installation of Piping, Vacuum
Assist and Miscellaneous
Equipment
// of
Crew Days
Required
5,994
7,776
10,197
4,203
2,412
30,582
//of Work
Crews
Required/Year
24
31.0
41.0
17.0
10.0
*Jobbers; Dealer "owned'VDealer Operated
251
-------
APPENDIX H-6 . '
flable 3. INSTALLATION REQUIREMENTS, VACUUM ASSIST SYSTEM - WASHINGTON, D.C.
5 YEAR PHASED INSTALLATION REQUIREMENT
Year
1
2
3
4
5
Total
Impacted Service
Stations by
Ownership Categories
Regional
Wholesaler/
Major Marketers Other
238
238 34
239 35 251
35 251
. 252
715 104 754
Installation of Piping, Vacuum
Assist and Miscellaneous
Equipment
// of
Crew Days
Required
2,142
2,448
3,972
1,827
1,512
11,901
//of Work
Crews
Required/Year
9.0
- 10.0
16.0
7.0
6.0
^Jobbers; Dealer "owned"/Dealer Operated
4. INSTALLATION REQUIREMENTS, VACUUM ASSIST SYSTEM - BALTIMORE
5 YEAR PHASED INSTALLATION REQUIREMENT
Impacted Service
Stations by
Ownership Categories
Installation of Piping, Vacuum
Assist and Miscellaneous
Equipment
Year
1
2
3
4
5
Total
Ma j or
182
183
.183
548
Regional
Wholesaler/
Marketers
72
73
73
218
*
Other
136
136
136
408
9 of .
Crew Days
Required
1,638
2,295
*
3,120
1,473
816
9,342
/'of Work
Crews
Required/Year
7.0
9.0
13.0
6.0
3.0
Jobbers; Dealer "owned"/Dealer Operated
252
-------
APPENDIX H-6
'I
Table 5. INSTALLATION REQUIREMENTS,-VACUUM ASSIST SYSTEM - HOUSTON/GALVESTON
5 YEAR PHASED INSTALLATION REQUIREMENT
Year
1
2
3
4
5
Total
Impacted Service
Stations by
Ownership Cntepories
Regional
Wholesaler/ .
Major Marketers Other
302
302 395
.303 395 390
395 391
391
907 1,185 1,172
Installation of Piping, Vacuum
Assist and Miscellaneous
Equipment
f of
Crew Dnvs
Required
2,114
4,879
«
6,836
4,720
1,955
20,504
?v of Work
Crews
Required/Year
9.0
10.0
27.0
19.0
8.0
Jobbers; Dealer "owned"/Dealer Operated
Table 6. INSTALLATION REQUIREMENTS, VACUUM ASSIST SYSTEM - PHILADELPHIA
(SW NEW JERSEY SECTION)
5 YEAR PHASED INSTALLATION REQUIREMENT
Impacted Service
Stations by
Ownership Categories
Installation of Piping, Vacuum
Assist and Miscellaneous
Equipment
Year
1
2
3
4
5
Total
Major
198
198
.198
594
Regional
Wholesaler/
Marketers
40
40
40
120
*
Other
111
111
. 112
334
# of .
Crew Days
Required
1,782
2,142
2,808
1,026
672
8,430
/'of Work
Crews
Required/Year
7.0
9.0
11.0
4.0
3.0
*Jobbers; Dealer "owned"/Dealer Operated
253
-------
APPENDIX H-6
Table 7. INSTALLATION REQUIREMENTS, VACUUM ASSIST SYSTEM - DALLAS/FT. WORTH
5 YEAR PHASED INSTALLATION REQUIREMENT
Impacted Service
Stations bv
Ownership Categories
Regional
Wholesaler/
Year Major Marketers Other
1 294
2 294 299
3 .295 299 482
4 299 482
5 483
Total 883 897 1,447
Installation of Piping, Vacuum
Assist and Miscellaneous
Equipment
/J of . // of Work
Crew Davs Crews
Required Required/Year
2,058 8.0 I
4,151 17.0
6,568 26.0
4,503 18.0
2,415 10.0
19,695
* Jobbers; Dealer "owned"/Dealer
Operated
Table 8. INSTALLATION REQUIREMENTS, VACUUM ASSIST SYSTEM - LOS ANGELES
5 YEAR PHASED INSTALLATION REQUIREMENT
Impacted Service
Stations by
Ownership Categories
Regional
Installation of Piping, Vacuum
Assist and Miscellaneous
Equipment
/' of # of Work
Wholesaler/ >-. ^ Crew Davs Crews
Year Major Marketers
1 1,385
2 1,385 480
3 1,.385 481
4 481
5
Total 4,155 1,442
Other Required Required/Year
9,695 39.0
13,055 52.0
*
646 16,292 65.0
647 6,602 26.0
647 3,235 13.0
1,940 48,879
Jobbers; Dealer "owned"/Dealei- Operated
254
-------
APPENDIX H-6
Table 9. INSTALLATION REQUIREMENTS, VACUUM ASSIST SYSTEM - SACRAMENTO
5 YEAR PHASED INSTALLATION REQUIREMENT
Year
1
2
3
4
5
Total
Impacted Service
Stations by
Ownership Categories
Major
148
149
149
446
Regional
Wholesaler/
Marketers Other
85
86 134
86 134
135
257 403
Installation of Piping, Vacuum
Assist and Miscellaneous
Equipment
// of .
Crew Days
Required
1,036
1,638
«
2,315
1,272
675
6,936
# of Work
Crews
Required/Year
4.0
7.0
9.0
5.0
3.0
*Jobbers; Dealer "owned"/Dealer Operated
Table 10. INSTALLATION REQUIREMENTS, VACUUM ASSIST SYSTEM - SAN JOAQUIN
5 YEAR PHASED INSTALLATION REQUIREMENT
Year
1
2
3
4
5
Impacted Service
Stations by
Ownership Categories
Major
368
369
369
1,106
Regional
Wholesaler/
Marketers Other
106
106 201
106 201
201
319 603
Installation of Piping, Vacuum
Assist and Miscellaneous
Equipment
// of
Crexj Days
Required
2,576
3,325
4,330 .
1,747
1,005
12,983
// of Work
Crews
Required /Year
10.0
13.0
17.0
7.0
4.0
Jobbers; Dealer "owned"/Dealer Operated
255
-------
APPENDIX H-6
Table 11. INSTALLATION REQUIREMENTS, VACUUM ASSIST SYSTEM - DENVER
5 YEAR PHASED INSTALLATION REQUIREMENT
Year
I
2
3
4
5
Total
Impacted Service
Stations by
Ownership Categories
Regional
Wholesaler/
Major Marketers Other
185
185 101
.186 101 145
102 145
146
556 304 436
Installation
of Piping, Vacuum
Assist and Miscellaneous
Equipment
/' of .
Crew Davs
Required
1,295
2,002
*
2,734
1,439
730
8,200
//of Work
Crews
Required/Year
5.0
8.0
(
11.0
6.0
3.0
*Jobbers; Dealer "owned"/Dealer Operated
256
-------
TECHNICAL REPORT DATA
(Please read Instructions on the reverse before completing)
1. REPORT NO.
PA 450/3-76-042
2.
4. TITLE AND SUBTITLE
Economic Impact of Stage II Vapor Recovery
Regulations: Working Memoranda
3. RECIPIENT'S ACCESSION-NO.
5. RFIPOHT O/VTF
Uo.v.emhe.r.. 1.27.6.... _
6. PfcHFORMING 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.
68-02-1349, Task 11
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
15. SUPPLEMENTARY NOTES
16. ABSTRACT
The report assesses the potential economic impact resulting from EPA's Stage
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 the impact study: (1) Number, throughput, and ownership
patterns of dispensing facilities in the AQCRs';(2) economic affordability of vapor
recovery equipment investment; (3) capital availability for vapor recovery equipi-
ment investment for various types of ownership classes; and (4) vapor recovery
equipment availability. The report identifies the segments of the retail gasoline
industry that are likely to be impacted by the regulations.
II
17.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
b.lDENTIFIERS/OPEN ENDED TERMS C. COS AT I Field/Group
Fuel Evaporation
Oxidant Precursors
Gasolines
Automobiles
Vapor Recovery Systems
Socio-Economic Factors
California Wash,
Los Angeles Virgil
Colorado
Mary!and
Massachusetts
New Jersey
Texas
Houston
DC
n'a
Stage II
recovery^
stations
vapor
service
18. DISTRIBUTION STATEMENT
Release unlimited
19. SECURITY CLASS (This Report)
unclassified
21. NO. OF PAGES
270
20. SECURITY CLASS (Thispage)
unclassified
22. PRICE
EPA Form 2220-1 (9-73)
257
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