APPENDICES
REGULATORY IMPACT ANALYSIS FOR PROPOSED
TECHNICAL STANDARDS FOR UNDERGROUND STORAGE TANKS
March 30, 1987
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APPENDICES
APPENDIX
A:
SUMMARY OF THE UST MODEL
APPENDIX
B:
ZIP CODE ANALYSIS OF UST LOCATION AND POPULATION DENSITY
APPENDIX
C:
UST MODEL SPECIFICATIONS
APPENDIX
D:
ECONOMIC IMPACT ASSESSMENT METHODOLOGY
APPENDIX
E:
REGULATORY FLEXIBILITY ANALYSIS
APPENDIX
F:
METHODOLOGY FOR ESTIMATING RISK
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APPENDIX A
SUMMARY OF THE UST MODEL
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APPENDIX A
SUMMARY OF THE UST MODEL
INTRODUCTION
The underground storage tank (UST) failure model is a computerized Monte
Carlo model which simulates the failure of an underground facility and the
transport of any product released, as a result of the facility failure, through
the unsaturated zone. The major outputs of the model include release charac-
teristics, floating plume characteristics, and costs. Cost outputs include
facility installation and maintenance costs, facility replacement and repair
costs and remedial and corrective action costs.
Another major output of the model is a measure of the effectiveness of
leak detection and tank monitoring devices. The model is particularly useful
for comparing the effectiveness of different detection options for a particular
tank or for comparing the effectiveness of one detection option in combination
with several different tank types. Effectiveness may be measured in gallons of
product released (or gallons avoided), the number and area of plumes formed (or
avoided) and cost.
The model can simulate the life of a facility, or estimate the probability
of a facility failing over a specific period of time, for many different types
of underground tank facilities in many different environments. The model first
accepts tank type and design information and soil and hydrogeological informa-
tion as user inputs. The model feeds this information into several routines,
or "sub-models". These routines then estimate the probability of the facility
failing, determine the type and location of any failures, calculate the total
volume of product released to the environment, determine the area of the plume
that forms if the release meets the groundwater, and calculate the cost of
repairs, tank replacements and cleanup. The inputs that must be read into the
model include:
o Facility/tank type and tank design characteristics,
o Detection and/or monitoring devices and their sensitivity or detection
threshold,
o Frequency of monitor or detection devices,
o Product type (gasoline, diesel fuel or other chemical), and
o Soil type and hydro-geological characteristics.
The model has three major "sub-models" or routines: a failure routine, a
release routine and a transport routine. The first routine, the failure routine,
estimates the probability and the time of failure and determines the location
of the failure. Then the release routine calculates the time to detection of
the release, the total volume of product released, and the cost of replacing or
retiring the facility. The transport routine calculates the travel time of the
release volume in the unsaturated zone and determines the area of the floating
piume.
The following is a summary of each of the three major routines in the
model .N The reader may refer to the simple flowchart of the model presented
in Chapter 2 and reprinted here.
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A-2
SIMPLE FLOWCHART OF UST SIMULATION MODEL
no
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A-3
failure routine
Each facility!/ begins each year with the failure routine. If a tank
survives the year with no failures, it continues to the next year (returns to
the failure routine) without entering the release and transport routines.
The failure routine estimates the probability of a failure occuring at a
facility, and using this probability (in conjunction with a random number
generator) determines whether the failure occurs.£/ This routine also determines
the type of failure, the time of failure and the location of the failure (i.e.:
within the tank or within the piping). The types of failures simulated by the
the model include ruptures, equipment and structural deficiencies, and corrosion
leaks.
At the start of each year, the model determines the type of failures and
the number of failures that will occur at a facility in the current year for
every facility in the population. The model then chooses, or samples, a failure
time randomly from a distribution of possible failure times for each failure
that will occur in the year.
After the time of failure is determined, the model determines the location
of each failure. Rupture, corrosion and deficiency failures can be located in
the tank, fill pipe, piping connections or the discharge pipe. The only excep-
tions are that pipe welds cannot fail because of corrosion, and pipe gaskets
cannot fail due to rupture.
The model repeats the time to failure sampling, and then the location
sampling, at the beginning of each year for each tank (in the case of existing
tanks, for each remaining tank) until the end of the run. If a failure occurs
and product is released, the tank enters the release routine of the model. The
type, time and the location of each failure are outputs from the failure routine
and inputs to the release routine.
RELEASE ROUTINE
The release routine calculates the time to detection of the release, the
total volume of product released, and the cost of repairing or replacing the
faci1ity.
The inputs to the routine are the type of failure, the time of failure and
the location of the failure. All of these inputs are outputs determined by the
failure routine.
2/ A facility is defined as a single tank and its piping network. Facility
and tank are used interchangeably throughout the text.
£/ The probability of failure in conjunction with a random number generator
determines when the failure actually occurs. For example, the failure routine
may assign a ten percent chance of failure. A routine known as a random number
generator then selects randomly a number between 0 and 1. If this number is
less than the probability, then the failure is considered to have occured. If
this process is repeated many times, the failure would occur approximately ten
percent of the time.
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A-4
The release routine first determines what type of failure has entered the
routine, and when the release began. If the failure is a catastrophic failure,
the release is detected immediately. For catastrophic releases, the routine
samples, or chooses from a distribution of possible volumes, the volume of
product released. Whenever a failure is detected in the tank (as is the case
for a catastrophic failure), the tank is replaced or retired. If the run is a
run of new facilities, the routine computes the replacement cost for the fac-
ility. If the run consists of existing tanks, the facility is retired and the
run ends for that facility. The release volume then continues as an input to
the transport routine.
If the failure type is not catastrophic, it may not be detected immediately.
A release is detected when the cumulative volume from all leaks at the facility
is great enough to surpass the detection threshold of the monitoring, or leak
detection device. The amount of product which accumulates over a period of
time, and therefore the detection time, will depend upon the leak rate.
In the case of a rupture or a deficiency, the leak rate is constant for the
duration of the leak. In the case of corrosion leaks, the leak rate is dependent
upon the initial hole size and the rate of corrosion. The initial hole size of
a corrosion leak is randomly selected from a distribution containing the range
of" possible values for the parameter. The rate of corrosion is calculated
independent of the hole size. The recalculation of the size of the hole, which
grows linearly, is performed monthly (the size of the hole remains constant for
any one particular month). The leak rate changes monthly when the diameter of
the hole changes. The release volume is calculated by multiplying the leak
rate by the time since the leak began.
Whenever the total release volume from all leaks at a single facility
becomes greater than the volume threshold of the detection option, or whenever
enough volume accumulates so that the sensitivity of the monitoring device is
surpassed, the release is detected.
If the release is detected, the model records the time to detection,
computes the repair or replacement cost of the facility, and calculates the
discounted cost of the product lost. The tank is retired or replaced only if
the tank itself has failed; if the failure is in the piping, the pipes are
repaired and the facility remains in the run. The release volume is an input
to the transport routine.
When the model has identified all failures which occur in a particular
month and has calculated the total release volume for that month for each tank,
the model moves on to the next month. The release volume which has not been
detected at the end of the month is carried into the next month. The model
continues to calculate the volume released from all leaks at a facility in each
month until the calculated volume reaches a detection threshold. After a
release is detected, or at the end of the run, the total volume released from
each tank enters the transport routine. The transport routine will calculate
2/ The time to detection is also dependent upon the distance from the
location of the leak to the detection or monitoring device and/or the amount
of product accumulation needed to surpass the threshold of the device.
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A-5
the travel time of the plume through the unsaturated zone and compute the area
of the floating plume if the release reaches the ground water.
TRANSPORT ROUTINE
After the released product leaks from the facility it travels through the
unsaturated zone to the groundwater. If the release is not detected before it
penetrates the unsaturated zone, the release intercepts the groundwater and a
plume is formed.
The transport routine uses the release characteristics determined in the
release routine and traces the release through the unsaturated zone. This
routine determines the travel time of the release from the facility to its
point of detection or the groundwater. The transport routine calculates the
area of the floating plume which results if the release reaches the groundwater
and computes the discounted cost of any remedial or corrective action that is
necessary to clean up the release and the plume.
Any release which has not been detected by the end of the run is assumed
to be detected, is cleaned up and the discounted cost of remedial and corrective
action is calculated.
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APPENDIX B
ZIP CODE ANALYSIS OF UST
LOCATION AND POPULATION DENSITY
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APPENDIX B
ZIP CODE ANALYSIS OF UST AND WELL LOCATIONS AND POPULATION DENSITY
A. General Approach
To make accurate estimates of the risks presented by leaking USTs, and to
measure the effectiveness of various proposed policies, we need to have a way
to estimate the distribution of wells near USTs on a nationwide basis.
The crudest approach might be to assume that all private and public wells
are spread evenly across the country. This would yield approximately 15 million
private wells and 48,000 public systems in the 3 million square miles of the
U.S., or one private well per 130 acres and one public system per 40,000 acres.
This approach would probably be wide of the mark. It ignores the fact that
most USTs are concentrated into the small areas of the country that are densely
populated; the well densities in these areas are more representative of density
in the vicinity of the typical UST than is the well density nationwide.
To allow for the uneven distribution of USTs and wells, we obtained 1980
Census data on well and tank populations at the smallest geographic level
available: the zip code. By examining a large representative set of zip codes
to calculate the number of private wells per square mile, and weighting the
results by the number of service stations in each zip code, we obtained a
nationwide average density of private wells in the vicinity of USTs. (Service
stations provide the most important single group of USTs, constituting 48% of
the tanks in the 0TS Survey and 75% of the release incidents in the Release
Incident Survey.) This data can also be used to show how USTs are distributed
across areas of differing private well densities—that is, how many are in
places where wells are likely to be close to USTs and how many are in places
where wells are very unlikely to be located.
The data on well and UST location can be used not only to estimate the
expected distance from a leaking tank to the nearest well, but also the expected
distance from a given well to the nearest UST facility. This makes it possible
to cross-check the predictions of the analysis with data on the proportion of
wells that have been contaminated. We estimated only the distance to the
nearest service station UST, then adjusted for the existence of other types
of USTs on the assumption they are distributed similarly to service stations.
B. The Sample
A random sample of 2000 of the approximately 35,000 zip codes was selected,
and data were obtained from Census tapes, EPA's FRDS data base on public water
supplies and other sources concerning the locations and areas of the zip codes;
their populations; the number of private and public water wells in each; and
the number of service stations and other UST-using establishments. The sample
size is large enough to ensure that sampling error is minimal for nationwide
statistics, and reasonably small even for regions. The ability to analyze the
data regionally allows cross-tabulation of regions of high hydrogeological
hazard (shallow, fast-flowing ground water, for example) with regions where
high well densities are common--that is, to find the extent to which these risk
factors are correlated. Of the sample of 2000 zip codes, 1185 zip codes had at
least one service station.
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B-2
C. Relationship of Population Densities to Service Station Densities
An initial examination of the data in Exhibit 1 confirms the expectation
that USTs are found where people are found: service stations are set up where
there are customers to serve. (In some instances, such as service areas along
heavily traveled highways, service stations are in areas of low resident popu-
lation densities.) The relationship is, in a statistical sense, very strong:
zip code populations explain over two-thirds of the variation in service station
populations. In a given zip code, there tends to be one service station (with
roughly three USTs) for each 2200 persons. Some of the most important excep-
tions to this relationship, as for the circled points on the graph, can be
explained by the "Manhattan" effect. Where urban densities are extremely high,
fewer stations are needed to serve the population adequately: gasoline usage
will be lower per person, and the distance to the nearest station will be small
in spite of the low ratio of stations to population.
Statistical tests show that higher population density is definitely re-
lated to lower ratios of stations per person, though this relationship explains
only a small degree of the variation in numbers of stations per zip code.
D. Relationship of Population Density and LIST Density to Well Locations
Population density is an important determinant not only of service sta-
tions, but also of private well usage. Exhibit 2 shows the distribution of
wells, population, and service stations across groups of zip codes with dis-
tinctly different population densities. The horizontal axis shows population
density classes in population per acre, while the vertical axis shows percent
of the total population, service stations, and private water wells in each
class out of the 1185 zip codes with service stations.
Most of the population and most of the service stations are concentrated
in regions of high population density. Their distributions track one another
closely, as would be expected on the basis of the close relationship noted
above between stations and population. The graph also shows a subtle but
persistent tendency for service stations to be less common relative to popula-
tion at high population densities, and more common relative to population at
low densities. This is more evidence of the "Manhattan" effect.
Private wel1s, however, are distributed very differently. The bulk of
private wells are found in regions of moderately low population density, with
a very small proportion found in the zip codes that have urban or suburban
population density. The best explanation for this is economic: once the
population of water users reaches a certain density, it becomes less costly to
connect them all to a single, centralized source of water than to invest in an
individual well for each household.
This can be seen more clearly in Exhibit 3, which displays the percentage
of households using private wells, according to the same density classes as in
the previous exhibit. The percentage starts extremely low, and rises steadily
over a very wide range of densities. It reaches a plateau at forty percent for
densities of fewer than one person per ten acres (60 persons per square mile).
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PLOT OF SERVICE STATIONS AND POPULATION
o o
0
o
Q
1 1 I I I I I
40 60 SO 10O
(Thousonds)
POPULATION OF ZIP CODES
NYC POINTS CIRCLED
1 I T"
O 20
REGRESSION LINE
Source: SCI estimate from 1980 census data.
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y
£L
2
<
V)
z
L.
O
K
DISTRIBUTION OF WELLS, STATIONS. POP.
ACKOSS Af?LAS OI Dlt I LKH Ki POP OENSllT
o*
r-t-
ro
CO
I
4*
O 02
0.00
WELLS
populmiom/acke
SERVICE STAllONS
POPULATION
Source: SCI and PRA Estimates Using UST Model
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Exhibit 3
PRIVATE WELL USE BY POP/ACRE
PCP'Jl.*T10N/*CFE
Exhibit 4
PRIVATE WELL DENSITIES, BY POP/ACRE
populviion/acre
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B-6
One possible conclusion from this data, that UST problems will be more
severe at lower population densities because that is where higher proportions
of the residents use private wells, is overly simplistic. The likelihood
that a given plume will contaminate a well is a function not strictly of the
proportion of people using individual wells in the area, but of the density of
wells: this is influenced both by the fraction of the population using private
wells and by the population density. Combining these two influences yields
well density per acre, by population density group, as shown on Exhibit 4.
Private well densities may be seen to peak not at low population densities
where private wells are commonly used, nor at high population densities, but at
moderately low suburban densities. Well densities per acre average no higher
than one well per twenty acres for any group (though in individual zip codes,
the densities are occasionally much higher.) The mean density is about .025
wells per acre, or one well per forty acres, and it can be seen that a very
large portion of the population density groups are within a factor of two of
this mean.
Exhibit 5 displays the distribution of service stations across well
density classes. It shows that about thirty percent of service stations are in
areas where well densities are extremely low--one per 500 acres (just under a
square mile) or less. Toward the opposite extreme, only about fifteen percent
of service stations are in areas with densities as great as one well per eight
acres, and almost none show densities greater than one well per three acres.
E. Public Well Distributions
Densities of public wells are much lower than the densities of private
wells because each public well serves a large population. In the vicinity of
service stations, there is an average of one public well per three thousand
acres. This is on the order of one percent of the density of private wells.
F. Investigating our Assumption of a Random Distribution of Wells Relative
to USTs Within a Zip Code
Even though zip codes are small geographical units (the median area in the
sample was 20 square miles), we can expect that there will be clumping of
population, service stations, and private wells within most zip codes. That
is, there will be some parts of the area with greater-than-average concentrations
of wells, service stations, and population, and other parts with lower-than-
average densities. So long as we can assume that the clumps of service stations
have no tendency to coincide with the clumps of private wells, this will not
affect the average density of wells near service stations. There is no guaran-
tee, however, that the clumps of wells and service stations do not indeed
coincide to some extent. In a zip code with large tracts of uninhabited land
and a few towns, the only service stations and the only wells might be much
closer together than we would expect on the basis of average densities in the
entire zip code. (This is the same problem, of course, that we have with
looking at average densities nationwide, and which we have attacked by examining
the country in small units.) Of course, the clusters of service stations and
wells might also have some tendency to "avoid" one another, since service
stations will cluster along busy, commercial strips and wells will be found in
residential areas at least some distance away.
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DISTRIBUTION 01- SERVICE STATIONS
BY PRIVATE WELL ClAS^
0.0005 0.002
0.0065 0.015
wells/acre
G.G35
O 1 25
0 35
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B-8
We investigated this problem by selecting for analysis only the smallest
zip codes, averaging only about two square miles. Regions this small are
unlikely to contain much empty space (unless the remaining area is so densely
packed that private well use itself is unlikely). Analysis of small zip codes
does show well densities near service stations, for given population densities,
to be about 60% greater than for the whole sample of zip codes. We believe
this increase in average density to be an upper bound. Our assumption of a
random distribution of wells relative to USTs within a zip code appears to be
only slightly inaccurate.
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APPENDIX C
UST MODEL SPECIFICATIONS
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APPENDIX C
UST MODEL SPECIFICATIONS
This appendix contains an explanation of the UST model inputs specified
in order to simulate the base case and five regulatory options discussed in the
RIA. The discussion of each model parameter is followed by tables summarizing
the model inputs.
Population Characteristics
For each option we modeled a population of 500 tanks. Initially we ran
the model using the same run specifications for three tank populations. We
compared model runs of 2,000 tanks, 1,000 tanks, and 500 tanks. We found that
all three model runs produced very similar statistics. We therefore are confi-
dent that a population of 500 tanks can accurately reflect the range of vari-
ables in a given run.
We modeled the existing tank population as consisting of bare steel and
fiberglass tank types over a period of thirty years and modeled all replacement
tanks as cathodically protected tanks in accordance with the Interim Prohibition
(HSWA 9003(g)).
We ran the UST model using the DRI bare steel tank and fiberglass age
distributions for existing tanks.^/ Because fiberglass tanks were introduced
more recently than bare steel tanks, the age distributions are different. The
age distributions for bare steel and fiberglass tanks are given below.
Existing bare steel tanks are assumed to have a capacity of 4,000 gallons
and fiberglass and new tanks are assumed to have a capacity of 10,000 gallons.
This reflects the tank universe as we understand it through current data. We
assume that the yearly throughput or the cumulative volume of petroleum stored
in a tank over the course of a year, is 91,000 gallons for all tanks.
Inventory control
Another set of inputs relates to EPA's assumptions regarding manual inven-
tory control. The daily, weekly, and monthly inventory limits indicate at what
threshold a loss of product can be detected. In the base case we assume that
loss of product (i.e., by way of a leak) can be detected if 10% of tank capacity
is lost over a period of a day, if 10% of tank capacity is lost over a period
of a week, or if 3% of monthly throughput is lost over a period of a month. We
1/ DRI, Underground Storage Tanks, Technical/Financial/Economic Data Collection,
October 2, 1985.
Bare Steel Tanks Fiberglass Tanks
Tanks 5 years old or less:
Tanks 10 years old or less:
Tanks 15 years old or less:
Tanks 20 years old or less:
Tanks over 20 years old:
4%
8%
28%
24%
36%
50%
30%
20%
0%
0%
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C-2
assume that with better inventory control practices the monthly inventory limit
can be lowered to 0.5% (0.5% of monthly throughput can be detected within a
month). Based on EPA1s understanding of current inventory practices at existing
facilities, we assume inventory control is undertaken at only 25% of facilities.
Water inventory limits set thresholds on a daily and monthly basis for de-
tection of water entering an underground storage tank. We assume water entering
a tank can be detected if it makes up 10% of the daily tank capacity or 3% of
the monthly throughput.
Leak Detection
We specify what monitoring device, if any, will be used by a facility to
detect a leak, the rate of failure of the device, and what year it is installed.
We can model several types of monitoring devices. A summary of these devices
is included in Chapter 4. However, the options require us only to model tight-
ness tests and vapor wells. Based on EPA1s confidence in leak detection and
best engineering judgement, we assume that tightness tests fail at 10% of
facilities and that vapor wells fail at 30% of facilities. In the base case we
assume that no monitoring devices are used. For existing bare steel tanks,
tightness tests are required to be performed once every three years. For
fiberglass tanks and cathodically protected tanks, tightness tests are required
to be performed less frequently, once every five years, because both fiberglass
and cathodically protected tanks generally have a lower number of releases
associated with them.
We also specify whether line leak detectors are used and how effective
they are. In Options I and II we assume that replacement tanks are fitted with
inexpensive line leak detectors which have the ability to detect a loss of
product if the leak rate is three gallons/hour or greater.
Hydrosetting
We modeled bare steel tanks, which make up the majority of the tank popula-
tion, in three hydrosettings: sand, sandstone, and clay. Because fiberglass
tanks make up a small percentage of the tank population we modeled them in one
hydrosetting: sand. The hydrosetting includes a description of the unsaturated
as well as the saturated zone where the UST is located. The ground water depth
distribution for facilities in a given hydrosetting is also specified.
Weighting the results
The results of all model runs are weighted by tank type, detection type,
and hydrosetting. Bare steel tanks make up 89% of the total tank population
and fiberglass tanks make up 11% of the population. In cases where two types
of monitoring is employed for existing tanks, 50% use tightness tests and the
other 50% use vapor wells. We weight the results by hydrosetting assuming that
40% of the tank population is in a sand hydrosetting, 39% of the population is
in a clay hydrosetting, and 21% of the population is in a sandstone hydrosetting.
Tables C-l through C-6 summarize the run specifications for the base case
and the five options considered in the RIA.
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Table C-l
option:
TTH£
NLMIER CP FACILITIES
ax Disramrncw cf bare sou. tanks:
X CF TANKS THAT ME 5 YEARS CLD CR LESS
Z CF TANKS THAI ARE 10 YEARS CU) OR LESS
X CF TANKS THAT ARE 15 YEARS CLD CR LESS
X OF TANKS THAI ARE 20 YEARS CLD QR LESS
X CF TANKS THAT ARE OVER 20 YRS OD
NWCER OF YEARS 1AMC PCPULATICN IS KDCLB)
TAHC TYPE: (DU.TK PI)(LD Bare steel tark
IP - Interim Prohibition (cathodlcally protected tank)
EG — Fiberglass tank
[2] Dally — a loss of product can be detected In a day If 10X of the tank capacity Is lost
Weekly — a loss of product can be detected In a week If 10X of the tark capacity Is lost
ffanthly — a loss of product can be detected In a month If 3X of ninthly throughput Is lost
[3] Dally — water entering an UST can be detected In a day If the amouit of water In the tark Is 10X of the tank capacity
ffanthly — water entering an UST can be detected In a ncnrli If the volune of water entering the tank Ls 3X of the monthly throughput
[4] W-OCNT » Vapor well with a continuous sensor
W-PER ¦ Periodic vapor well
PCLL — PolLulert
PS/BA ¦ Paste stick haLler
TT " Tightness test
GU « Gnxnd water monitoring wsll
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Table C-2
GPTICN: OPTION I (BASELINE)
msnic
REHACBCOT
TITLE
1A
2A
3A
4A
5A
6A
7A
8A
IB
2B
3B
4B
SB
6B
7B
SB
1USER CP FACILITIES
500
500
500
500
500
500
500
500
500
500
500
500
500
500
500
500
AGE DISTRmrnCM CF BARE STEEL TANKS:
X CP TANKS THAI ARE 5 YEARS CLD CR LESS
4
4
4
50
4
4
4
so
NA
NA
NA
NA
NA
NA
NA
NA
X CF TANKS THAI ARE 10 YEARS CLD OR LESS
8
8
8
30
8
8
8
30
NA
NA
NA
NA
NA
NA
NA
NA
Z OF IAIKS THAT ARE 13 YEARS 0U> CR LESS
28
28
28
20
28
28
28
20
NA
NA
NA
NA
NA
NA
NA
NA
X ce TANKS THAT ARE 20 YEARS 0ID CR LESS
24
24
24
0
24
24
24
0
NA
NA
NA
NA
NA
NA
NA
NA
X ce IANKS THAI ARE OVER 20 YRS CU)
36
36
36
0
36
36
36
0
NA
NA
NA
NA
NA
NA
NA
NA
KMER OF YEARS IAMC PCFULATHM IS KEELED
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
IAMC TYPE: (DW,TK PI)(LDR)(BARE)(IP)(K:)
[1}
BARE
BARE
BARE
re
BARE
BARE
BARE
EG
IP
IP
IP
IP
IP
IP
IP
IP
CAPACITY (GALLONS)
4,000
4,000
4,000
10,000
4,000
4,000
4,000
10,000
4,000
4,000
4,000
10,000
4,000
4,000
4.000
10,000
YEARLY TWOUGHHJT (GAL1CNS)
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
kkth.y niwanaer limits (daily, weixly - ioi)
[2]
3X
3Z
3X
3X
3X
3*
3*
3X
3X
3*
3X
3X
3*
3*
3*
3X
MMHLY INVQnCRY LIMITS (IF KKE STRDdNT REQUIREMENTS)
.51
• 5Z
. 5X
5X
.5*
.5*
¦ 5Z
-5X
NA
NA
NA
NA
NA
NA
NA
NA
MVEUKKY OCHIHX. FAILURE (X OF FACILITIES)
751
75Z
75X
75X
75Z
75X
75Z
75X
NA
NA
NA
NA
NA
NA
NA
NA
UAUR mVEKTCRY LIMITS (DAILY, KKIHLY)
[3]
10*. 31
10Z, 3Z
10X, 3X
10X, 3*
10Z, 3Z
10X, 3X
10Z, 3X
10X, 3X
10X, 3X
10*. 3*
10*. 3X
10Z, 3X
10*, 3Z
10*, 3*
10X, 3*
10Z, 3*
1ST MMTCRDG USE): (W-OCWT) (W-PER) (PCLL) (PS/BA) (TT) (CU)
[4]
SYR TT
3YR TT
3YR TT
SYR TT
qw
qw
(flU
5YR TT
SYR TT
5YR TT
SYR TT
CNU
QM
QVW
MDN. FAIL. PBCB. I TT-10X, VW-30X
10X
10Z
10*
10*
30Z
30*
30*
30Z
10X
10*
10*
10Z
30Z
30*
30*
30*
2ND KWTTCRDC USED: (W-aVT) (VW-HR) (POL) (PS/BA) (TT) (GU)
[4]
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
YEAR THAT M30TCKDC IS BEING WlIHLHTTH)
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
LIME LEAD EEtEETICN THRESH) IF USD) (0.05, 0.2, 3.0 GAL/®)
NA
NA
NA
NA
NA
NA
NA
NA
3
3
3
3
3
3
3
3
YEAR TANK IS CA3HXICALLY PROTECTED
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
YEAR Ce MAMM1CKY REITRBCNT
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
HraOSETTDC IS: &WKT0NE
-------
Table C-3
OFTEN:
TITLE
MMER CF EAdUTQS
ACE DISTRIBUTION CF BARE SQXL TANKS:
X CF TMKS HUT ARE S YEARS CLD CR LESS
X CF TANKS THAT ARE 10 YEARS OLD CR LESS
X OP TANKS THAI ARE IS YEARS OLD CR LESS
X OF TANKS THAT ARE 20 YEARS OLD OR
X CF IANXS H1AI ARE CVQl 20 YRS (ID
NICER OF YEARS IAMC PCPtLAIION IS HDELED
IAMC TYPE: (DU.K PI)(UNl)(BARE)(IP)(R:) [1)
CAPACITY (GALLCNS)
YEARLY IBRCU3&UT (GALUMS)
KMBLY mVEMTCRY LIMITS (DAILY, WEEXLY - 10X) [2]
KHQS.Y WVEKKKY LIMITS (IF KRE STRDCEWT REQUIR£MEWIS)
MVQfUKY CCNIHCL FAHiRE (X CF FACILITIES)
UAXER INVENTORY LIMITS (DAILY, KMHLY) [3)
1ST KKLTCRHC USB): (WKXKT) (VW-PER) (PCLL) (PS/BA) (TT) (CM) [4]
KM. FAIL. PROB.i TT-10X, W-30X
2H) KMTICRDC USD: (W-ONT) (VW-PER)(POL)(PS/BA)
-------
Table C-4
cram: option ni (shxwdary ocntadmnd
EXISTING
RQUrafKT
TITLE
1A
2A
3A
4A
5A
6A
7A
8A
IB
2B
3B
4B
5B
6B
7B
8B
NUCai CP FACILITIES
500
500
500
500
500
500
500
500
500
500
500
500
500
500
500
500
AGE DISBOBUnCN OF BARE STEEL TtfKS:
Z CF TANKS THAT ARE 5 YEARS OLD OR LESS
4
4
4
50
4
4
4
50
NA
NA
NA
NA
NA
NA
NA
NA
Z CF TANKS THAI ARE 10 YEARS OLD OR LESS
8
8
8
30
8
8
8
30
NA
NA
NA
NA
NA
NA
NA
NA
Z CF TAMES THAI ARE 13 YEARS OLD CR LESS
28
28
28
20
28
28
28
20
NA
NA
NA
NA
NA
NA
NA
NA
Z OF TANKS THAT ARE 20 YEARS OLD CR LESS
24
24
24
0
24
24
24
0
NA
NA
NA
NA
NA
NA
NA
NA
Z OF TANKS THAI ARE OVHl 20 YRS CLD
36
36
36
0
36
36
36
0
NA
NA
NA
NA
NA
NA
NA
NA
MMER OF YEARS TANC FOUATION IS MXQJD
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
IAM TYPE: (DW.TK PI)(LD«)(BARE)(IP)(RS)
[1]
BASE
BARE
BARE
re
BARE
BARE
BARE
rc
UNR
LOR
LINR
LDR
LDR
LDR
LINR
LDR
CAPACITY (GALLCMS)
4,000
4,000
4,000
10,000
4,000
4,000
4,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
YEARLY HHUHVI (GALLBE)
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
HUfflLY mVENTCRY LOOTS (DAILY, WEHtLY - 10Z)
[2]
3Z
3Z
3X
3Z
3Z
31
3Z
31
3Z
31
31
3Z
3Z
3Z
3Z
3Z
KOTHLY MVENICKY LIMITS (IF KRE SIKDCEHT RHjnHHMENTS)
• 3Z
•SZ
.51
•5Z
¦ 5Z
.51
• SZ
• 5Z
NA
NA
NA
NA
NA
NA
NA
NA
INVBnCRY CONTROL FAILURE (Z GF FACILITIES)
75Z
75Z
75Z
75Z
75X
752
75X
75X
NA
NA
NA
NA
NA
NA
NA
NA
UAXER INVENTORY LIMITS (DAILY, KNIHLY)
[31
10Z, 3Z
10Z, 3Z
10Z, 31
10Z, 31
10Z, 31
101, 3Z
10Z, 31
10Z, 31
101, 31
101, 31
10Z, 31
10Z, 31
10Z, 31
10Z, 31
101, 3Z
101, 31
1ST HKITCRDC USD: (\W-OCNr) (VW-PER) (POLL) (PS/BA) (IT) (GW)
[4]
3YR TT
3YR IT
3YR TT
5YR TT
quw
QH
-------
Table C-5
OPTION:
TITLE
NUSER CF FACILITIES
ACE DISIWBLfnCN CF BARE STEEL TANKS:
Z OP TANKS THAI ARE 5 YEARS CLD OR LESS
X OF TANKS THAT ARE 10 YEARS OLD OR LESS
X SVTS)
INVEMCRY OONHCL FAILURE (Z OF FACILITIES)
WATHt INVQirCRY LIMITS (DAILY, MKMLY) [3]
1ST KKITORDC USD: CVW-OCKT) (VU-PER) (PCLL) (PS/BA)(IT)(GW) (4)
KM. FAIL. FKB.) TT-10Z, W-30X
a® KHnCRQC USD: (W-OCNT) (VW-FBl) (PCLL) (FS/BA)(TT)(GW) (4]
YEAR THAT KKTICRI1G IS BESC HtTKLHTlll)
LIKE LEAD CEIECnCN IHKESHXD IF USB) (0.05, 0.2, 3.0 GAL/Bt)
YEAR IANK IS CA1HBICALLY tKHECTH)
YEAR OF MUOA1CRY RETIREMUT
BYCKCGEITQC IS: SM&GIGNE (SS), SAND, QAY
CW DEPTH DISmiBUnON CF FACILITIES BY HYERD6E1TIN3
1 M
3.5 M
7.5 M
15 M
20 M
OPIICN IV (CLASS)
BQSTINf
REFLAOMENr
1A
2A
3A
4A
IB
2B
3B
43
500
500
500
500
500
500
500
500
4
4
4
50
NA
NA
NA
NA
8
8
8
30
NA
NA
NA
NA
28
28
28
20
NA
NA
NA
NA
24
24
24
0
NA
NA
NA
NA
36
36
36
0
NA
NA
NA
NA
30
30
30
30
30
30
30
30
BARE
BARE
BARE
FG
LIKl
LOR
LD«
Lim
4,000
4,000
4,000
10,000
10,000
10,000
10,000
10,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
3Z
3Z
3X
3X
3X
3Z
3Z
3X
31
3Z
31
3X
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
10Z, 3Z
10Z, 3Z
10X, 3Z
10X, 3X
10X, 3Z
10Z, 3Z
10Z, 3Z
10Z, 31
CVU
CW
CVW
CVU
NA
NA
NA
NA
30X
30Z
30Z
30Z
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
4
4
4
4
NA
NA
NA
NA
SS
SAND
CLAY
SAND
SS
SAM)
(LAY
SAM)
7.9X
5.OX
o.ox
5.OX
7.9X
5.OX
o.ox
5.OX
5.5Z
43.4Z
14.3Z
43.4Z
5.5Z
43.4Z
14.3Z
43.4Z
50.IX
26.4X
46.7Z
26.4Z
50.1Z
26.4X
46.7Z
26.4Z
29.6Z
21.2X
26.5X
21.2X
29.6Z
21.2Z
26.5Z
21.2Z
6.8Z
3.9X
12.5X
3.9X
6.8Z
3.9Z
12.5Z
3.9Z
Footnotes
[1] DH-
Double wall
tank
LIKl ™ Tank with liner
BARE - Bare steel tank
IP » Interim Prohibition (cathodlcally protected tank)
KS ¦ Flhergl «u tark
[2] Daily — a loss of pndict can be detected In a day if 10X of the tank capacity is lost
Weekly — a loss of product can be detected In a week if 10Z of the tank capacity is lost
Mjnthly — a loss of product can be detected In a month lf 3X of monthly tluToughpur is lost
(3] Dally — water entering an UST can be detected In a day if the aroint of water In the tank is 10Z of the tank capacity
~tonthly — water entering an UST can be detected In a month if the vol Line of water entering the tark is 3Z of the monthly thrcughjxir
[41 W-OCNT '¦ Vapor well with a cantlxojous sensor
W-PER " Periodic vapor well
PCLL - Pontile rt
PS/BA ¦ Paste stick bailer
TT - Tightness test
GU — Grtxxid water nonitorlng well
-------
Table C-6
OFTEN:
TITLE
(USER OF FACILITIES
AGE DISHttBinTCN CF BABE STEEL UHS:
X CF TANKS THAT ARE 5 YEARS CLD OR LESS
X CF TANKS THAT ARE 10 YEARS OLD CR LESS
X CF TANKS THAI ARE IS YEARS OLD CR LESS
X (F TANKS THAT ARE 20 YEARS OLD OR LESS
X OF IANKS THAT ARE OVER 20 YRS CLD
tUSEK CF YEARS TAMC PCFILATICN IS KDELB)
TAHC TYPE: (DU.TX PI)(LH«t)(BARE)(IP)(K;) (1]
CAPACITY (GALLONS)
YEARLY mOJGHFUT (GALIHC)
KKtHLY nftEMKKY LIMITS (DULY. UEHCLY - 10X) [2]
MMHLY mvamSY LIMITS (IF hCRE SUmCENT FETJUIREMENIS)
WVEXKRY aamCL FATTIRE (X OF FACILITIES)
WATER INVENTORY LIMITS (DAILY, HMUUT) [3]
1ST KHnCRINS USES: (W-OCNT) (VW-FBt) (PCLL) (PS/BA) (IT) (CW) (4)
MM. FAIL. PHCB. I TT-10X, W-30X
2M> KMITORIIC USED: (W-OCWT) (VU-FER) (PCLL) (PS/BA) (IT) (GU) [4]
YEAR 1HAI MMTORUG IS BEING MMrWW)
LINE LEAD DEJECTION THRE3ELD IF USED (0.05, 0.2, 3.0 GAL/IS)
YEAR TANK IS CA3HDICALLY PROTECTED '
YEAR OF EWDA1GRY RETHS>CMT
[MF06ETTDG IS: SANDSTONE (SS), SAM), CLAY
GU DOTH DISTRIBUTION OF FACILITIES BY UYCRDSETTTNC
1 M
3.5 M
7.5 M
15 M
20 M
OPTION V (STRINGENT)
QQSTDC
REPLAraCNT
1A
2A
3A
4A
5A
6A
7A
8A
IB
2B
3B
4B
SB
6B
7B
as
500
500
500
500
500
500
500
500
500
500
500
' 500
500
500
500
500
4
4
4
50
4
4
4
50
NA
NA
NA
NA
NA
NA
NA
NA
8
8
8
30
8
8
8
30
NA
NA
NA
NA
NA
NA
NA
NA
28
28
28
20
28
28
28
20
NA
NA
NA
NA
NA
NA
NA
NA
24
24
24
0
24
24
24
0
NA
NA
NA
NA
NA
NA
NA
NA
36
36
36
0
36
36
36
0
NA
NA
NA
NA
NA
NA
NA
NA
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
30
BARE
BARE
BARE
EG
BARE
BARE
BARE
EG
LINR
LDR
LINR
UHt
LINR
LDR
LINR
LINR
4,000
4,000
4,000
10,000
4,000
4,000
4,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
91,000
3X
3X
3X
3X
3X
3X
3X
3X
3X
3X
3X
3X
3X
3X
3X
3X
• 5X
• 5X
• 5X
• 5X
.51
• 5X
.5X
.5X
3X
3X
3X
3X
3X
3X
3X
3X
75X
75X
75X
75X
75X
75X
75X
75X
75X
75X
75X
75X
75X
75X
75X
75X
10Z, 3X
10X, 3X
10X, 3X
10X, 3X
10X, 3X
10X, 3X
10X, 3X
10X, 3X
10X, 3X
10X, 3X
10X, 3X
10X, 31
10X, 3X
10X, 31
10X, 3X
10X, 3X
MVW1-3YR
TMMH-3YR
TMW4-3YR
TMAM-3YR
TCW
CVW
CVW
CVW
NONE
NONE
NCNE
toe
NCNE
MNS
NCNE
NCNE
30X/10X
30X/10X
30X/10X
30X/10X
30X
30X
30X
30X
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
HA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
8
8
8
8
8
8
8
8
NA
NA
NA
NA
NA
NA
NA
NA
SS
SAM)
CLAY
SAM)
SS
SAND
CLAY
SAND
SS
SAM)
CLAY
SAM)
SS
SAM)
CLAY
SAM)
7.9X
5.OX
o.ox
5. OX
7.9X
5.OX
O.OX
5.OX
7.9X
5. OX
O.OX
5.OX \
7.9X
5. OX
O.OX
S.OX
5.5X
43.4X
14.31
43.4X
5.5X
43.4X
14.3X
43.4X
5.5X
43.4X
14.3X
43.4X
5.5X
43.4X
14.3X
43.4X
50.IX
26.4 X
46.71
26.41
50.IX
26.41
46.7X
26.41
50.IX
26.4X
46.7X
26.4X
50. IX
26.4X
46.7X
26.4X
29.6X
21.2X
26.5X
21.21
29.6X
21.2Z
26.51
21.21
29.6X
21.2X
26.5X
21.2X
29.6X
21.2X
26. SX
21.2X
6.8X
3.9X
12.51
3.9X
6.8X
3.9X
12.5X
3.9X
6.8 X
3.9X
12.5X
3.9X
6.8X
3.9X
12.5X
3.9X
Footnotes:
[1] CW — Double wall tank
LDR - Tank with liner
BARE « Bare steel tark
IP - Interim Prohibition (cathodlcally protected tark)
EC - Fiberglass tark
[2] Daily — a loss of prodict can be defected in a day If 10X of the talk capacity Is lost
Ueekly — a loss of product can be detected in a week if 10X of the talk capacity Is lost
Kxmhly — a loss of product can be detected In a month if 3X of monthly throughput Is lost
[3] Dally — voter entering an UST can be detected In a day if the amoint of water In the tark Is 102 of the tank capacity
Monthly — water entering an UST can be detected in a month if the votune of water entering the tark is 3X of tte monthly throughput
[4] W-OCNT Vapor well with a continuous sensor
W-PER - Periodic vapor well
PCLL - Poilulert
PS/BA = Pajte stick bailer
TT » Tightness test
GU = Crowd water monitoring well
-------
APPENDIX D
ECONOMIC IMPACT ASSESSMENT METHODOLOGY
-------
D-l
Appendix D
Economic Impact Assessment Methodology for Firms
in the Retail Motor Fuel Marketing Sector
D.l Introduction
The analysis of the economic impacts of UST technical standards on firms
in the retail motor fuel marketing sector (Section 6.B) was performed using an
affordability model If developed by Meridian Research. The model measures
the economic impact of these regulations for representative firms, using the
following information: total assets, annual net income, annual revenues, and
number of retail motor fuel outlets and USTs owned and operated. Economic
impacts are measured in terms of:
• The effect of new UST regulatory costs on firms' rate of return on
assets (i.e., net income to total assets ratio), and the effect of
these costs on firms' rate of return on assets on a per-facility
basis;
• The number of firms that are put into a condition of financial dis-
tress by attempting to meet new UST regulatory costs and the number
of retail motor fuel outlets owned by these firms that are conse-
quently in danger of exiting the industry;
• The number of retail motor fuel outlets that are voluntarily closed
by the firms that own them because the anticipated impact of new UST
regulatory costs would result in a return on assets that such firms
consider to be too low;
• The number of firms that fail in attempting to meet new UST regula-
tory costs and the number of retail motor fuel outlets owned by these
firms that consequently exit the industry.
D.2 Segmentation of Retail Motor Fuel Marketing Firms in the Affordabi1ity
Model
The affordabi1ity model uses 69 firms to represent the approximately
90,000 firms that own, and the 43,U00 firms that operate and lease, the
193,000 retail motor fuel outlets in the retail motor fuel marketing indus-
try. y The firms in this sector were divided into ten segments based on
financial, operational, and marketing characteristics. These segments are:
\! Meridian Research, Inc. and Versar Inc., Documentation of the Afforda-
bility Model, Draft Report, March 1987.
2/ Meridian Research, Inc. and Versar Inc., Financial Responsibility for
Underground Storage Tank Releases: Financial Profile of the Retai1
Motor Fuel Marketing Industry Sector, Draft Report, March 1987.
-------
D-2
refiners, large jobbers, publicly held convenience stores, large privately
held convenience stores, independent chains, small jobbers, small privately
held convenience stores, open dealers, lessee dealers operating more than one
outlet, and lessee dealers operating one outlet. The model also reports
results separately for "large" firms (defined as firms owning retail motor
fuel outlets with more than $4.6 million in annual sales); "small" firms
(defined as firms owning retail motor fuel outlets with less than $4.6 million
in annual sales); and lessee dealers, defined as firms that operate retail
motor fuel outlets. Exhibit D-l presents the number of representative firms
used by the model in each industry segment, the actual number of firms in each
industry segment, and the number of retail motor fuel outlets owned or
operated by the firms in each industry segment.
D.3 Regulatory Costs Used by the Affordaoi1ity Model
The affordability model classifies regulatory costs as either annual costs
or the costs of special events. Annual costs are those costs that are always
incurred each year by the firm (e.g., leak detection costs); the probability
that the firm incurs these costs is 1.0. The total annual costs paid by the
firm are based on the number of USTs and outlets that the firm owns. The
costs of special events are those costs that a firm would not incur on an
annual basis, and they include both the costs associated with random events
(e.g., the costs of performing corrective action for UST releases) and one-
time costs such as the costs of tank upgrading, replacement, or tank closure.
These costs are based on the number of USTs owned by the firm; the probability
that any given UST incurs these costs ranges from 0 to 1.0. Because it is
assumed that all USTs have the same probability of incurring these costs and
that all costs for special events are statistically independent, it is
possible to assume that any UST owned by any firm has the same probability of
incurring these special event costs.
The costs of a special event may include:
• The cost of new capital equipment and the installation of this equip-
ment;
• Other costs, including corrective action costs, tank upgrade/-
retirement costs, and closure costs.
The model allows the user to specify up to three special events: a high-cost
event, a medium-cost event and a low-cost event.
The probabilities associated with special events are assigned by the user.
To perform the economic impact analysis for firms in the retail motor fuel
marketing sector, the costs and probabilities assigned were the costs and
probabilities developed by SCI, using the UST Model.
To determine economic impacts on affected firms, the basic economic unit
of the model, it is necessary to determine the costs that a firm will incur at
-------
D-3
Exhibit D.l
INDUSTRY SEGMENTS, NUMBER OF REPRESENTATIVE FIRMS
IN THE MODEL, AND THE NUMBER OF FIRMS IN EACH INDUSTRY
SEGMENT IN THE RETAIL MOTOR FUEL MARKETING SECTOR
Industry Segment
Number of
Representative
Firms in Model
Number of
Finns in
Industry
Segment
Number of
Outlets Owned
or Operated
by Firms in
Industry Segment
Large Firms J/:
Firms Owniny Retail Motor Fuel Marketing Outlets
• Refiners
• Large Jobbers
a Public C-Stores
e Large Private C-Stores
o Independent Chains
22
4
9
3
9
27
5,470
9
105
125
46,779
39,455
6,113
7,011
5,136
Subtotal, Large Firms
47
5,736
104,494
Smal 1 Firms ZJ'¦
• Small Jobbers
• Small Private C-Stores
• Open Dealers
1
1
8
3,296
402
80,304
6,591
1,608
80,304
Subtotal, Small Firms
10
84,002
88,503
Subtotal, All Owners
57
89,738
192,997
Firms Operating
Retail Motor
Fuel Marketing Outlets
Lessee Dealers:
• Operating More Than
One Outlet
• Operating One Outlet
9
3
8,625
34,506
24,150
34,506
Subtotal, Lessee Dealers
12
43,131
58,656
TOTAL
69
NA
NA
Source: Meridian Research, Inc. and Versar Inc., Financial Responsibi1ity for
Underground Storage Tank Releases: Financial Profile of the Retail Motor
Fuel Marketing Industry Sector, Draft Report, March 1987.
1/ Large firms own retail motor fuel outlets and have annual sales of more
than $4.6 mi 11 ion.
y Small firms own retail motor fuel outlets and have annual sales of less
than $4.6 mi 11 ion.
NA = not applicable.
-------
D-4
all of its facilities and their associated USTs. For annual costs, the costs
for a firm are the sum of the annual costs at all of the USTs or facilities
that the firm is responsible for. For special events, four cost scenarios
were developed for each firm. These four cost scenarios represent four out of
a large set of possible cost scenarios that the firm may face. For example,
with three types of corrective action cost scenarios, a firm owniny ten USTs
faces 10,000 possible combinations of corrective action costs. This wide set
of possibilities has been reduced to four cost scenarios, labeled high-cost,
medium-cost, low-cost, and no-cost scenarios. The assumptions used iri devel-
oping the costs and probabilities of incurring one of these cost scenarios are
described in detail in Exhibit D-2, and are outlined below:
• High-Cost Scenario: This scenario uses the probability and expecteu
value of costs, given that at least one high-cost event occurs at any
UST owned by a firm. For a firm with only one UST, this scenario
uses the costs and probability of a high-cost event. For a firm with
thousands of USTs, where it is a near certainty that at least one
high-cost event will occur at some tank, this scenario has a proba-
bility of 1 and costs equal to the expected value of corrective action
costs at all tanks in a given year. For firms of intermediate size,
the probability and costs of this scenario vary with the number of
tanks.
• Mediurn-Cost Scenario: This scenario uses the probability ario
expected value of costs, given that a firm incurs at least one
medium-cost event at one UST and no high-cost event at any UST. The
costs include the expected value of low-cost events at USTs that uo
not incur medium-cost events.
• Low-Cost Scenario: This scenario uses the probability and expected
value of costs, given that at least one low-cost event occurs and no
high- or medium-cost event occurs at any tank owned by the firm.
0 No-Cost Scenario: This scenario uses the probability that the firm
incurs no special events at any UST owned by the firm. This scenario
has no costs (i.e., the special event costs equal zero).
The economic impact on the firm is based on the total regulatory costs
paid by the firm (i.e., annual and special event costs). For each year, the
model computes the impact on the firm of the regulatory costs four times, once
for each of the four cost scenarios. The annual costs are always included in
the calculations, because the firm always incurs these costs. The economic
impacts under each of these four cost scenarios are then weighted together-
according to their probability of occurrence to calculate the impact on the
firm for that year.
U.4 Methods of Mitigating the Costs of Special Events
The economic impacts of UST regulatory costs may be mitigated if firms are
able to obtain loans to cover some of the regulatory costs or if they nave
-------
Exhibit D.2
DERIVATION OF COST SCENARIOS FOR UST SPECIAL COST EVENTS
Cost Cost of High-Cost Cost of Medium-Cost Cost of Low-Cost
Scenario Probability Assumption Events to the Firm Events to the Firm Events to the Firm
High Cost
Medium Cost
Low Cost
No Cost
At least one high-cost
event occurs at an UST
owned by the firm
At least one medium-cost
event occurs at an UST
owned by the firm, and no
high-cost event occurs at
any UST owned by the firm
At least one low-cost event
occurs at an UST owned by
the firm and no medium- or
high-cost event occurs at
any UST owned by the firm
No special event occurs at
any tank owned by the firm
Expected value of high-cost
events at all tanks owned
by the firm, given that at
least one high-cost event
occurs for at least one
tank owned by the firm
No Costs
No Costs
Expected value of medium-cost
events at all tanks owned by
the firm that do not incur a
high-cost event
Expected value of medium-cost
events at all tanks owned by
the firm, given that at least
one medium-cost event occurs
for at least one tank owned
by the firm
No Costs
No Costs
No Costs
Expected value of low-cost
events at all tanks owned
by the firm that do not
incur a high- or medium-cost
event
Expected value of low-cost
events at all tanks owned
by the firm that do not
Incur a medium-cost event
Expected value of low-cost
events, given that at least
one low-cost event occurs
for at least one tank owned
by the firm
No Costs
Source: Meridian Research, Inc. 1987.
-------
D-6
insurance to cover the corrective action cleanup costs. The model treats
these possibilities in the following manner.
D.4.1 Loans
A firm may obtain a loan to cover the costs of special events such as tank
capital and installation costs, corrective action costs, or tank upgrade/ re-
tirement costs. The model computes the economic impacts of the regulatory
costs under each cost scenario twice: once assuming that the firm receives a
loan, and once assuming that the firm does not receive a loan. The results of
these two computations are then weighted according to the probability that the
firm will receive a loan. The probability that a firm will receive a loan is
assigned on the basis a set of financial criteria. Exhibit D-3 presents the
financial criteria used to determine the probability that a firm will receive
a loan. Small firms may have difficulty obtaining loans even if they meet
these loan criteria, because banks often assess the value of personal as well
as business assets in deciding whether to grant a loan to small firms.
D.4.2 Insurance
The model allows a user to specify the percentage of firms in any industry
segment that have pollution liability insurance. Insurance is assumed to
cover all of the costs of corrective action cleanup and third-party liability
awards above the deductible amount and up to the required aggregate amount of
coverage. (The size of the deductibles and aggregate amounts of coverage are
user options.)
D.5 Structure of the Affordabi1ity Model
The affordabi1ity model estimates the economic inpacts of new UST regula-
tions by calculating the effect of paying regulatory costs on representative
firms' return on assets (net income to total assets ratios). The revised
return on assets figure is then paired with the probability of failure that is
associated with a return on assets of this level. These failure probabilities
were derived from financial data from a sample of bankrupt and non-bankrupt
firms. Exhibit D-4 shows ranges of net income to total assets ratios and
their associated failure rates for firms with high and low levels of total
assets.
The model computes a firm's revised net income to total assets ratio (i.e.,
the new net income to total assets ratio that a firm will have after it has
incurred the estimated regulatory costs) three times:
• Once to calculate the failure rate when it is assumed that the firm
will not receive a loan;
# Once to calculate the failure rate when it is assumed that the firm
wi11 receive a loan;
-------
D-7
Exhibit D.3
FINANCIAL CRITERIA USEL) BY THE MODEL TO DETERMINE
THE PROBABILITY THAT A FIRM WILL RECEIVE A LOAN
Financial Criteria Probability
Loan to Total Assets Ratio is
Greater Than 0.5; or
Firm's Net Income to Total Assets Ratio
After Receiving a Loan Is Less Than 0.00 0.0
Loan to Total Assets Ratio Is
Less Than 0.5 and Greater Than 0.1; or
Firm's Net Income to Total Assets Ratio
After Receiving a Loan Is Greater
Than 0.00 and Less Than 0.0b O.b
Loan to Total Assets Ratio Is Less
Than 0.1; and
Firm's Net Income to Total Assets Ratio
After Receiving a Loan Is Greater Than 0.0b 1.0
Source: Meridian Research, Inc. and Versar Inc., Documentation of the
Affordabi1ity Model, Draft Report, March 1987.
-------
D-8
Exhibit 0.4
PROBABILITY THAT A FIRM HAVING A NET INCOME
TO TOTAL ASSETS KATIO IN A GIVEN RANGE WILL FAIL
Probability That a Firm Will Fail
Firm's Net Income For Firms with Total For Firms with Total
to Total Assets of $20 Million Assets of Greater Than
Assets Ratio or Less $20 Million
Greater Than 0.040
0.U001
0.00003
0.039 to 0.000
0.0027
0.000b
-0.001 to -0.040
0.01U7
0.0034
-0.041 to -0.300
U.0704
0.02bb
-0.301 or less
1.0
1.0
Source: Meridian Research, Inc. and Versar Inc., Documentation of the
Affordability Model, Draft Report, March 1987.
-------
D-9
• Once to calculate the exit rate for outlets that are voluntarily
closed by the firms that own them.
The equations used to compute failure rates for the loan and no-loan calcu-
lations are the same, except that the costs of a loan and of making loan pay-
ments are included in the loan calculations. The equations used to calculate
the voluntary exit rate differ slightly from those used to calculate the
failure rate, because the voluntary exit rate is based on a long-run rate of
return on assets.
The logical structure of the affordabi1ity moael is outlined in
Exhibit D-5. The steps the model follows are:
• Calculate the firm's baseline before-tax income. At the beginning of
each year, the model estimates the firm's baseline before-tax income,
given its after-tax net income.
• The model then branches off along two tracks, one to calculate the
failure rate (loan and no-loan calculations) and one to calculate the
voluntary outlet exit rate.
• Calculate the firm's taxable income. Taxable income is computed by
subtracting the firm's tax-deductible expenses from its baseline
before-tax income. Tax-deductible expenses include:
All compliance costs (e.g., leak detection ana tank upgrade/
retirement costs and the cost of a financial responsibility
instrument, etc.);
All corrective action and tank installation costs and
third-party liability awards;
The depreciation on capital expenditures;
The interest costs of the loan.
• Calculate the firm's after-tax net income. This step comprises three
sub-steps:
Calculate the firm's tax liability based on its taxable income;
Subtract the firm's tax liability from its before-tax income;
If the firm is assumed to receive a loan, the value of tne loan
is added to the after-tax income for the year in which the loan
is received, and the loan payments are deducted from the firm's
income for the life of the loan.
-------
D-10
Exhibit D.5
THE AFFORDABILITY MODEL: LOGICAL STRUCTURE AMD PROCESSES
er return imc 4K) tf*us*a j«<
CED
-------
D-ll
0 Adjust the firm's total assets. If the firm's after-tax net income
is negative, then the firm sells off its assets to cover its
operating loss.
• Compute the firm's net income to total assets ratio (when computing
the failure rate), or the long-run return on assets (when computing
the voluntary exit rate). The long-run return on assets is the net
income to total assets ratio after a firm incurs special costs.
• Determine whether the firm is in severe financial distress. A firm
is considered to be in severe financial distress if its net income to
total assets ratio, without a loan, is between -0.04 and -U.3.
• Determine a firm's failure rate or an outlet exit rate.
The failure of a firm is a discrete probability that is
dependent on the firm's net income to total assets ratio and the
size of the firm.
The outlet exit rate is a discrete probability function that is
based on the same enpirical evidence used to create the failure
rate probabilities. The number of outlets that are projected to
exit is based on a firm's rate of return on assets per outlet.
This is then adjusted to take into account the following factors:
• The long-run decline in the number of retail motor fuel outlets in
operation;
• The number of outlets that would exit the industry as a result of
tank replacement costs, even in the absence of further UST regulation.
• Integrate the failure rates from the loan and no-loan calculations by
weighting these two results according to the probability that the
firm will receive a loan.
The model calculates economic impacts for 15 years; if more years need to be
considered, the model performs the series of calculations outlined above for
each subsequent year.
To accommodate the multiple cost scenarios and the availability of loans,
the model goes through these calculations several times when estimating a
failure rate for firms. Exhibit D-6 shows how the model reduces failure rates
for each cost scenario (with and without a loan) to a single estimated failure
rate for all cost scenarios.
-------
D-12
Exhibit D.6
STRUCTURE OF THE AFFORDABILITY MODEL:
CALCULATION OF THE FIRM FAILURE RATE UNDER THE FOUR SPECIAL
EVENT COST SCENARIOS, CONSIDERING THE FIRM'S ABILITY TO OBTAIN A LOAN
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-------
APPENDIX E
REGULATORY FLEXIBILITY ANALYSIS
-------
E-l
Appendix E
Regulatory Flexibility Analysis
E.l. Introduction
E.l.A. The Purpose of a Regulatory Flexibility Analysis
The Regulatory Flexibility Act (P.L. 96-354) requires that regulatory
agencies carefully consider the potential effects of regulation on small en-
tities. The agency is required to prepare a Regulatory Flexibility Analysis
if the proposed regulation will
have any significant economic effect on a substantial number of in-
dividuals, small businesses, small organizations or small governmen-
tal jurisdictions. 1/
A Regulatory Flexibility Analysis is
an analysis of the proposed rule describing whether the rule will
have a significant economic impact on individuals, small businesses,
small organizations, and small governmental jurisdictions, including
a description of reasonable alternatives to the proposed rule which
accomplish the stated objectives of the proposed rule in a manner
consistent with the goals and objectives of applicable statutes and
which minimize the burdensome effect of the proposed rule on such
individuals, businesses, organizations and governmental jurisdictions,
including alternatives consistent with the goals and objectives of
applicable statutes such as~
(A) The establishment of differing compliance or reporting require-
ments that take into account the amount of resources available
to individuals, businesses, organizations and governmental
jurisdictions;
(B) An exemption from coverage of the proposed rule, or any part
thereof, for such individuals, businesses, organizations, and
government jurisdictions;
(C) The clarification, consolidation, or simplification of compliance
and reporting requirements under the proposed rule for such
individuals, businesses, organizations, and governmental juris-
dictions; or
(U) The use of performance rather than design standards or any other
reasonable means to reduce, in a manner consistent with the goals
and objectives of applicable statutes, the burdensome effect of
the rule on such individuals, businesses, organizations, and
governmental jurisdictions. 2/
1/ Regulatory Flexibility Act, Public Law Sfb-3b4, Sec. b03.
hj Ibid., Sec. 604.
-------
E-2
E.l.B. The Purpose of This Report
This report is designed to address the basic issues of a Regulatory Flex-
ibility Analysis, which are set forth in the Regulatory Flexibility Act and
elaborated on in EPA Guidelines. 1/ These issues include the following:
The rationale, objectives, and legal basis for the proposed rule;
Identification of regulatory alternatives that might minimize the
impact on small entities;
The demographics of the small entities to which the rule applies;
Compliance costs of the rule and applicable alternatives;
Impacts of the rule on small entities—both absolutely and relative
to the impacts on large entities; and
Issues related to other rules, including overlapping regulations and
exemptions or allowances granted to the affected small entities under
other regulations.
E.l.
Sources of Information and Data
This Regulatory Flexibility Analysis (RFA) is based on the Regulatory
Impact Analysis (RIA) for Technical Standards for Underground Storage
Tanks. 1/ The information, data, and models used were developed in the RIA
and are documented there; the data and results from the RIA that are used in
this report have been summarized and structured in a manner that focuses on
RFA issues. Greater detail and more thorough development of these results are
found in the RIA itself.
E.2. Basis for the Proposed Regulatory Action
E.2.A. Rationale for the Proposed Rule
There are an estimated 1.4 million underground tanks in use in the United
States for the storage of petroleum products and chemicals. 1/ Most of
these underground tanks are made of bare steel and are without protection to
prevent corrosion. Moreover, most bare steel tanks are quite old, with an
estimated median age in excess of 15 years, z/ Although any tank can leak,
1/ EPA, Guidelines for Implementing the Regulatory Flexibility Act,
Feb. 9, 1982.
2/ SCI, Inc., Regulatory Impact Analysis for Technical Standards for
Underground Storage Tanks, March 1987.
1/ Data Resources, Inc., Compliance Cost Calculations for EPA Regulation
of Underground Storage Tanks, Preliminary Draft Report, 198b.
i/ RIA, Sec. l.A.
-------
E-3
older bare steel tanks are especially vulnerable. Thus a large number of
these bare steel tanks is found to be leaking each year, and a larger number
is thought to have leaks that have not yet been detected.
There is mounting evidence that leaks from underground storage tanks rep-
resent a significant hazard to human health ana the environment. Although
some costs (such as the loss of the product stored in the tanks) are borne by
the owner of a leaking tank, most of the harm is inflicted on society at
large. Such hazards include health risks to workers in the vicinity of a
leaking tank, risks of fire and explosion, health risks from contamination of
drinking water supplies, and potential agricultural losses caused by the con-
tamination of soil or irrigation water. Corrective action—which can include
removing contaminated soil, removing a floating plume, or removing a dispersed
plume--is expensive. Thus, from society's point of view, it is typically more
cost-effective to prevent a leak than to clean one up. The proposed regula-
tion incorporates both approaches—corrective action for existing leaks and
prevention of future tank failures.
E.2.B. Objectives and Legal Basis for the Proposed Rule
The proposed rule is intended to minimize the damage to environmental
resources, especially to ground-water supplies, of leaking underground storage
tanks. Under the Hazardous and Solid Waste Amendments to the Resource Con-
servation and Recovery Act (RCRA), enacted on November 8, 1984, EPA was
charged with establishing a regulatory program for underground tanks storing
petroleum products and hazardous substances other than Subtitle C hazardous
wastes. Under Section 9003 of Subtitle I of RCRA, the Administrator of EPA is
required to promulgate regulations for release detection, prevention, and
correction. The regulations promulgated pursuant to Section 9003 must in-
clude, but need not be limited to, requirements for:
• Maintaining a leak detection system, an inventory control system
together with tank testing, or comparable systems or methods of
identifying releases;
• Maintaining records of monitoring, leak detection, inventory control,
tank testing, or comparable systems;
• Reporting of releases and corrective action taken in response to
releases; and
• Closure of tanks.
For approval of a State program under Section 9004 of Subtitle 1, the
State program must include regulations or standards for all of these types of
requirements. These regulations or standards must be "no less stringent" than
the requirements promulgated under Section 9003 and the State must provide for
adequate enforcement of compliance with these requirements and standards.
The proposed rule contains requirements for: construction of new tanks,
systems for leak detection, retirement or upgrading of existing tanks, report-
ing of releases, corrective action, tank closure, and recordkeeping.
-------
E-4
The costs of requirements for reporting of releases and for maintaining
records have not been included in the main body of the RIA or in this KFA.
E.3. Identification of Regulatory Alternatives
E.3.A. Components of a Regulatory Strategy
A regulation consists of a number of major components, each of which may
be associated with several regulatory requirements. In addition, when devel-
oping a regulation, various regulatory choices must be made—whether to enpha-
size new tanks versus existing tanks, for example, or whether to stress pre-
vention of leaks versus remedial action. The regulatory components of the UST
technical standards that have major cost implications are identified in this
section. (For reasons discussed more fully in Section 4.A, this review-like
the RIA and the RFA as a whole—focuses on the regulation of petroleum USTsJ
A more complete discussion of the effectiveness and costs of these components
is found in Section 4 of the RIA.
E.3.A.I. Construction of New Tanks
The most important issues in the construction of new tanks are protection
against corrosion and provision for containment of releases from the system.
One dimension of choice is materials. In increasing order of capital cost,
the major materials options are:
• Bare steel;
• Coated and cathodically protected steel; and
t Non-corroding fiberglass.
When repair and replacement costs are considered, cathodically protected steel
tanks are clearly the most cost-effective choice for new tanks. 1/
A second dimension of choice for new tanks is the use of impermeable
liners or the addition of a second wall for the tanks and/or pipes. Such a
secondary containment system—especially when used with interstitial monitor-
ing—greatly improves the ability to contain and detect leaks. This option,
however, is substantially more expensive than use of a single-walled tank.
E.3.A.2. Systems for Leak Detection
Numerous systems have been developed to allow detection of leaks or re-
leases from underground tank systems. A partial listing, discussed further in
the RIA, includes:
• Tank and pipe tightness tests;
• Line leak detectors;
2/ RIA, Sec. 4.3.
2/ RIA, Sec. 4.
-------
E-b
• Vapor wells;
• Floating liquid sensors or liquid observation wells;
• Manually operated inventory monitoring programs;
• Automatic inventory control; and
• Interstitial space monitoring.
These systems vary in sensitivity to slow leaks, extent of leak detected,
accuracy, cost, skill requirements for operation, and other aspects. Tight-
ness tests can only be done occasionally, and vapor well monitoring may be
periodic or continuous, while other types of monitoring are continually in
place. Where monitoring is periodic, it is more effective--ana more expen-
sive—the more frequently it is done. Leak detection systems are generally
more expensive to install for existing tanks tnan for new tanks. Interstitial
space monitoring, of course, is appropriate only for secondary containment
systems, and thus is not appropriate for existing tanks.
E.3.A.3. Retirement or Upgrading of Existing Tanks
Since the major environmental threat is posed by existing tanks, which are
predominantly old and made of bare steel, a potentially important component of
UST regulation is the retirement of existing tanks. Tank retirement would
allow old tanks to be replaced by new tank systems that have a substantially
lower potential to leak. However, requiring the retirement of tanks would be
costly.
Upgrading existing tanks is an alternative to tank retirement. Several
methods of upgrading can be used, including:
• Retrofitting of cathodic protection;
• Interior coating; and
• Lining or partial lining of tanks and pipes.
The costs of upgrading are less than 20 percent of the costs of purchasing and
installing a new corrosion-resistant tank, and the degree of leak reduction
achievable by means of upgrading appears to approach that of a new tank.
E.3.A.4. Corrective Action
In general, there are four types of corrective action. These are:
• Removal of any fumes or free product from the surface;
• Removal of contaminated soil;
• Removal of a floating plume;
• Removal of a dispersed plume.
-------
E-b
Removal of free product Is necessary to mitigate fire and explosion hazards
and must be done whenever discovered. The appropriateness of any of the other
types of corrective action depends on the specific circumstances involved.
Removal of a floating plume or a dispersed plume, of course, is not relevant
if the leak has not penetrated to the water table. Removal of contaminated
soil may not be necessary (or may be only a minor task) if a leak is discov-
ered early enough so that only a negligible amount of motor fuel has leaked.
In general, the type of corrective action that is appropriate depends on the
circumstances of the individual leaking tank. EPA has determined, however,
that a floating plume should be removed whenever one is found.
E.3.A.5. Closure and Replacement of a Tank After Failure
When a tank has failed, it is necessary to prevent further leakage. If
the business requires a tank to continue in operation, the tank must be re-
placed. (Even if operations cease, the tank must be closed.) In some cases
it is possible to repair the tank. The proposed rule, however, requires that
any tank to be repaired must be structurally sound, have no other repairs, and
be repaired and relined in a manner that will prevent future releases.
E.3.A.6. Alternative Cases
As a reference case, the RIA assumes that no UST regulations other than
the interim prohibition requirements are in place; that is, the RIA assumes
that 89 percent of existing tanks are bare steel and the remaining 11 percent
are fiberglass and are without supplementary leak detection systems. New
tanks must be coated or cathodically protected, and tanks found to be leaking
are replaced with coated or cathodically protected tanks. The RIA examined
five alternative regulatory options, which are summarized below and in Exhi-
bit E. 1.
Option I. In addition to the interim prohibition requirements, this
option includes the following requirements:
• All new tanks are coated and cathodically protected, with line leak
detectors.
• Periodic leak detection tests are performed; these are:
- Quarterly vapor well monitoring, or
- Tank tightness tests every three years (for existing tanks) and
every five years (for new tanks).
• Existing tanks are replaced when leaking.
• Corrective action includes the removal of floating plumes in all
cases and site-by-site assessment, which is assumed in the RIA to
result in the removal of the dispersed plume in 40 percent of all
cases of ground-water contamination.
Option II. In addition to the interim prohibition requirements, this
option includes the following requirements:
-------
Exhibit E.T
COMPARISON OF THE TECHNICAL STANDARDS FOR USTs UNDER THE REGULATORY OPTIONS
Leak Detection/Monitoring Systems
Standard for Standard for Standard for New Standard for Corrective Phase-In
Regulatory Option New USTs-L/ Existing USTs or Upgraded USTs Action Cleanup Period
Option I
Coated and cathodlcally
protected
Quarterly vapor wells;
or tank tightness tests
every 3 years
Line leak detectors; and
either quarterly vapor
well, or tank tightness
tests every 5 years
S1te-by-s1te assessment;
removal of dispersed
plume 1n 40 percent of
the cases
Replace tanks
when leaking
Option II
Same as Option I
Monthly vapor wells, or
tank tightness tests
every 3 years
Same as Option I
Same as Option I
Existing tanks
are upgraded/
replaced within
10 years
Option III
Coated and cathodlcally
protected with secondary
containment system
Same as Option I
Interstitial monitoring
using a continuous sump
monitoring system
Same as Option I
Same as Option I
m
Option IV:
Well-head protection
areas Ij
Same as Option III
Continuous vapor well
monitoring
Same as Option III
Slte-by-slte assessment;
removal of dispersed
plume In 100 percent
of the cases
i
Existing tanks
are replaced
within 5 years
Non-wel1-head
protection areas
Same as Option I
Same as Option I
Same as Option I
S1te-by-s1te assessment;
removal of dispersed
plume not required
Same as Option I
Option V
Same as Option III
Continuous vapor well
monitoring, or monthly
vapor well monitoring
and tightness tests
every 3 years
Same as Option III
Same as Option I
Same as Option II
Source: RIA, Section 5.B
-1/ It Is assumed that all existing USTs are constructed of bare steel.
i/ It Is assumed that the floating plume Is removed In 100 percent of all cases when there Is ground-water contamination. The percent of cases
1n which It Is assumed that the dispersed plume Is removed when there 1s groundrwater contamination depends on the regulatory option.
1/ It is assumed that 40 percent of the tanks are In State-designated well-head protection areas.
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E-8
• All new tanks are coated ana cathodically protected, with line leak
detectors.
• Periodic leak detection tests are performed; these are:
- Monthly vapor well monitoring, or
- Tank tightness tests every three years (for bare steel tanks) or
every five years (for upgraded or new tanks).
• Existing tanks are upgraded to new tank standards within 10 years.
• Corrective action includes removal of floating plumes in all cases
and site-by-site assessment, which is assumed in the RIA to result in
the removal of the dispersed plume in 40 percent of all cases of
ground-water contamination.
Option III. In addition to the interim prohibition requirements, this
option includes the following requirements:
• All new tanks are coated and cathodically protected and have
secondary containment systems, with continuous sump monitors.
• New tanks have interstitial continuous sump monitors. Existing tanks
have periodic leak detection tests, which are assumed to be:
- Quarterly vapor well monitoring, or
- Tank tightness tests every three years (for bare steel tanks).
• Existing tanks are replaced when leaking.
• Corrective action includes the removal of floating plumes in all
cases and site-by-site assessment, which is assumed in the KIA to
result in the removal of the dispersed plume in 40 percent of all
cases of ground-water contamination.
Option IV. In addition to the interim prohibition requirements, this
option includes the following requirements:
Tanks in State-designated well-head protection areas (assumed to be-40 percent
of tanks)
• All new tanks are coated and cathodically protected and have second-
ary containment systems, with continuous sump monitors.
• New tanks at well-head protection areas have interstitial continuous
sump monitors. Existing tanks have periodic leak detection tests,
which are assumed to consist of continuous vapor well monitoring.
• Existing tanks are retired and replaced within five years.
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E-9
• Corrective action includes the removal of floating plumes in all
cases and site-by-site assessment, which is assumed in the RIA to
result in the removal of the dispersed plume in 100 percent of all
cases of ground-water contamination.
Tanks not in State-designated well-head protection areas:
• All new tanks are coated and cathodically protected, with line leak
detectors.
• Periodic leak detection test are performed; they are:
- Quarterly vapor well monitoring, or
- Tank tightness test every three years (for existing tanks) and
every five years (for new tanks).
• Existing tanks are replaced when leaking.
• Corrective action includes the removal of the floating plume in all
cases and site-by-site assessment, which is assumed by the KIA to
result in the removal of the dispersed plume in none of the cases of
ground-water contamination.
Option V. In addition to the interim prohibition requirements, this
option includes the following requirements:
• All new tanks are coated and cathodically protected and have second-
ary containment systems, with continuous sump monitors.
• Intensive leak detection (for existing tanks), assumed in the RIA to
be either:
- Continuous vapor well monitoring, or
- Monthly vapor well monitoring and three-year tightness tests.
• Existing bare steel tanks are retired and replaced with new tanks
within 10 years.
• Corrective action includes the removal of floating plumes in all
cases and site-by-site assessment, which is assumed in the RIA to
result in the removal of the dispersed plume in 40 percent of all
cases of ground-water contamination.
E.3.C. Potential Elements of Flexibility in the Proposed Rule
The alternatives outlined in Section E.3.A and the regulatory options
incorporating them are summarized in Exhibit E.2. This exhibit presents the
components of the proposed rule (which is Option II), the principal alterna-
tives, and their respective options.
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E-10
Exhibit E.2
REGULATORY ALTERNATIVES TO THE PROPOSED RULE
Regulatory
Component
Proposed Rule
(Option II)
Alternatives
Considered
Considered
in Option
Construction
of New Tanks
Coated and cathodically
protected with line
leak detectors
Secondary containment
systems, coated and
cathodically protected tanks,
with line leak detectors
III,
V
Leak Detection:
Secondary containment
systems (as above) if in
well-head protection area
IV
Existing Tanks Frequent --
Monthly vapor wells
or tank tightness
test every 3 years
New Tanks
Retirement and
Replacement
or Upgrade
of Existing
Bare Steel
Tanks
Line leak detectors,
and either quarterly
vapor well monitoring
or tank tightness tests
every 5 years
Replace if leaking
Upgrade to new tank
standards (coated and
cathodically protected)
within 10 years
Intensive —
Continuous vapor well
monitoring, or monthly
vapor well monitoring
and tightness tests
every 3 years
Continuous vapor well
monitoring if in well-head
protection area
Interstitial monitoring
using a continuous sump
monitoring system
Replace if leaking
No upgrade or retirement
because of age alone
Replace and require secondary
containment system within
5 years if in well-head
protection area
Replace and require secondary
containment system within
10 years
IV
III,
IV (if in
wel1-head
protection
area), V
All
I,
III
IV
Corrective Remove floating plume;
Action site-by-site assessment
of other requirements
Remove floating plume; All
site-by-site assessment
of other requirements
Remove dispersed plume IV(a)
in all reported cases
Source: RIA, Section 5.B.
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E-ll
Replacement or Upgrade. The proposed rule allows upgrading of existing
tanks to a coated and cathodically protected status within 10 years of promul-
gation. Alternatives considered in the RIA included deleting any tank age
requirements, mandatory retirement within a few years for tanks in well-head
protection areas, and a universal tank retirement requirement. The tan*
upgrade requirements of the proposed rule are substantially less costly than
any type of replacement requirement would have been. For example, retirement
options considered involved replacing the tank with a new tank having a
secondary containment system, which is more expensive than replacement with a
simple coated and cathodically protected tank. Although the regulatory
alternative of adopting no upgrade or retirement requirement has the lowest
initial cost, analysis suggests that this choice would result in a
substantially higher number of leaks and corrective action costs in the long
run than the upgrade requirements in the proposed rule.
All of the options considered, and the proposed rule, require replacement,
if necessary, of a leaking tank. When it is possible to repair a leaking
tank, the proposal permits this less costly approach. However, the feasibil-
ity and effectiveness of repairs must be considered on a case-by-case basis.
New Tanks. The proposed rule allows new tanks to be coated and cathodi-
cally protected to protect against corrosion, which is less costly than re-
quiring that tanks be constructed of fiberglass. Tnis protection requirement
is initially more expensive than permitting bare steel tanks, but the RIA
indicates that such protection is more cost effective and has a lower long-run
impact on small businesses. The proposed rule is more cost effective and has
a lower long-run inpact both in terms of the costs of tank repair and
replacement and the costs of corrective action clean-up. The principal alter-
native to the proposed protection requirement would be the use of secondary
containment systems; Options III and V, and, in limited circumstances, Option
IV included a containment component. The proposed rule thus incorporates the
least expensive option for the new tank construction component of the regula-
tion.
Leak Detection. The proposed rule requires frequent detection, but it
allows a wide variety of detection methods. The principal alternative ana-
lyzed in the RIA would require more intensive—and thus costly—continuous
detection. Where secondary containment systems are required, interstitial
monitoring using a continuous sump monitor is also required. Analysis has
shown that better leak detection may be cost effective in the long run because
it will reduce the number of corrective actions; however, the proposal permits
owners and operators to- use the least expensive approach to leak detection of
any of the options considered.
Corrective Action. The proposed corrective action requirements cannot oe
precisely defined because of the site-by-site nature of the assessment needed
to determine specific requirements. Like the. proposed rule, however, all
options included a requirement that any floating plume be removed. The RIA
assumes that removal of a dispersed plume will be necessary in 40 percent of
releases involving ground-water contamination. The selection of a site-by-
site risk assessment for cleanup is more cost-effective than a national
cleanup standard with a variance provision.
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E-12
Overview. For almost all of the important components of the regulation,
the proposed rule adopts the least costly of the options considered in the
regulatory analysis. In instances where the initial costs of a proposed com-
ponent are higher than the costs of an alternative, the alternative would be
less cost effective in the long term if corrective action costs were also
taken into consideration.
E.4. Demographic Analysis of Small Firms
E.4.A. Definition of Small Firm
For this Regulatory Flexibility Analysis, small businesses in the retail
motor fuel marketing sector are defined as firms with less than $4.b million
in annual sales. 1/ This is the definition used by the Small Business
Administration (SBA) to identify small businesses in this sector, and this
annual sales figure has also been shown in EPA's preliminary analysis to re-
flect an appropriate size cutoff for small firms in this sector. This defini-
tion includes all firms in the retail motor fuel marketing sector with two or
fewer outlets. Firms with £4.b million in sales will typically have approxi-
mately $500,000 in assets and $2S0,000 in net worth. A substantial number of
these small firms have fewer than 10 employees and less than $100,000 in net
worth. The SBA sales-based definition of small business includes those firms
most vulnerable to significant economic impacts and those firms least likely
to have insurance to cover their corrective action expenditures. This defini-
tion also includes all firms with a net worth that is less than the costs of
replacing three tanks or the cost of performing a corrective action that in-
volves ground-water cleanup.
There are two major classes of firms in the small-business segment of this
sector: those that own and operate their own outlets and those that operate
outlets that they lease. Firms in this latter class are termed "lessee" or
"independent" dealers. In the group of firms in this sector owning their own
outlets are many "open" dealers, defined as firms owning and operatiny a
single retail motor fuel outlet.
This definition of small business is based on retail motor fuel outlets.
USTs also are found in two other types of uses: the storage of motor fuels
for non-retail purposes and the storage of hazardous substances.
A preliminary analysis of the category of businesses owning non-retail
petroleum USTs (i.e., those used to store petroleum products that are not
retailed as motor fuel), revealed that such USTs are used for a variety of
purposes by a large and diverse group of businesses. The most common uses of
non-retail petroleum-containing USTs are to store motor fuel at facilities
where fleets of vehicles or several off-the-road vehicles are located. For
example, the owner of a fleet of busses or a farmer with many gasoline-powered
off-the-road vehicles would be likely to have an UST at his or her facility.
Owners and operators of non-retail petroleum USTs are found in all sectors of
American business, including farming, timber operations, mining, manufactur-
ing, transportation, and wholesale and retail trade; and these owners and
operators own and operate firms of all sizes. Similarly, owners and operators
1/ Federal Register, Vol. 49, No.28, p. b032, February 9, 19b4.
-------
E-13
of USTs containing hazardous substances are also widely distributed throughout
the economy.
Because firms owning non-retail petroleum and hazardous substance USTs
fall into hundreds of Standard Industrial Classifications (SICs) -and range in
size and type from one-person nonprofit organizations to small governmental
jurisdictions to major corporations, and-because no data are currently avail-
able to identify these firms and entities, EPA is placing the primary emphasis
of this Regulatory Flexibility Analysis on the retail motor fuel marketing
sector. The use of the retail motor fuel sector as the focal point for this
Regulatory Flexibility Analysis is consistent with the RIA, which also concen-
trates on the economic inpacts of the proposed rule on firms in the retail
motor fuel sector. There are several reasons for this focus:
• It is appropriate to focus on firms in the retail motor fuel sector
because they have the greatest potential for economic dislocation,
since:
- There are no substitutes for the use of USTs in this sector;
- UST costs represent a significant fraction of capital and operating
costs for outlets owned by these firms; and
- There are generally at least three USTs per retail outlet in this
sector.
• The retail motor fuel sector is overwhelmingly dominated by small
businesses, so that impacts on small businesses and the potential for
mitigating these impacts through regulatory alternatives are probably
greater in this sector than in any other sector in which USTs are
found.
• Data on which to base the analysis are available for this sector in
sufficient quantity and of high enough quality to ensure reasonable
accuracy of analysis and that the analysis will capture most of the
severe small-business impacts likely to result from promulgation of
the proposed rule. In other sectors, it is often not possible to
identify which firms (and thus which or how many small firms) have
USTs, or how many USTs they have.
For these reasons, EPA believes that the issues that must be addressed in a
Regulatory Flexibility Analysis can-be best addressed by focusing the analysis
on small retail motor fuel marketing outlets.
EPA has used a variety of data sources to develop estimates of the number
of small businesses engaged in retail motor fuel marketing and to describe the
economic and financial characteristics of this sector and these firms. The
American Petroleum Institute, the National Association of Convenience Stores,
the Petroleum Marketers Association of America, the Society of Independent
Gasoline Marketers of America, and the Service Station Dealers of America have
assisted EPA by providing data and by suggesting possible data sources. EPA
also used data on the small businesses in this sector compiled by the Small
Business Administration and the Department of Energy and data made available
-------
E -14
in many private-sector publications (particularly Tne Lundberg Letter and
National Petroleum News).
E.4.B. Size Distribution, Characteristics, and Competitors of Affected Small
Firms
Firms in the retail motor fuel marketing sector can be disaggregated in
two dimensions: principal business of the firm, and ownership/operator
status. 1/ The types of owners of retail motor fuel outlets, by principal
business, include:
• Refiners, which include the "Major" and "seiiii-major" oil companies.
Major refiners -- the largest firms in the sector -- are vertically
integrated oil companies owning refineries that produce petroleum
products distributed through thousands of their wholesale and retail
"branded" outlets;
• Jobbers, which are primarily wholesalers of petroleum products who
may also own retail motor fuel outlets or convenience store outlets;
• Convenience stores, which are chains of retail stores (that for our
purposes exclude jobbers) with outlets that sell motor fuels;
• Independent chain marketers, which are owners of chains of retail
motor fuel marketing outlets that often sell "unbranded" or private
brand petroleum products (and that for our purposes exclude jobbers
and convenience stores); and
• Open dealers, which are single-outlet dealers who both own and oper-
ate their gasoline marketing operations.
Operators of retail motor fuel outlets are divided into two classes:
• Owners, which are firms of any type that both own and operate their
retalI outlets; and
• Lessee dealers (also called "independent" dealers), which operate
retai1 outlets under lease arrangements, generally with refiners,
jobbers, or independent chains.
Data for 1984 indicate that the retail motor fuel marketing industry was
composed of an estimated 193,000 retail motor fuel outlets. The structure of
ownership and operation is summarized in Exhibit E.3, which shows that of all
outlets:
• 45,840 (Z3.7 percent) are owned and operated by large firms;
• 88,503 (45.9 percent) are owned and operated by small firms; and
1/ Meridian Research, Inc. and Versar, Inc., Financial Kesponsibility
for Underground Storage Tank Releases: Financial Profile of the
Retail Motor Fuel Marketing Industry Sector, Draft Report, March 1987.
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E-lb
Exhibit E.3
LARGE- AND SMALL-BUSINESS OWNERSHIP AND OPERATION
OF RETAIL MOTOR FUEL OUTLETS
Operator Size and Segment
Number
of Firms
Number of Retail
Outlets Owned
and Operated
Number of Retail
Outlets Leased
and Operated
Large Businesses
Refiners
27
y,964
-
Large Jobbers
5,470
18,742
-
Large Convenience Stores
114
13,12^
-
Independent Chains
12b
4,010
-
Total Large Businesses
5, 73o
4b,840
-
Small Businesses
Owner Operators
Small Jobbers
3,29b
b,5yl
-
Small Convenience Stores
402
1,608
-
Open Dealers
80,304
80,304
-
Total Small Owners
84,002
88,503
-
Lessee Operators
Leased From
Refiners
N.A.
-
3b,817
Jobbers
N.A.
-
20,713
Independent Chains
N.A.
-
1,127
Total Lessee Operators
43,131
-
58,bb7
TOTAL
132,842
134,343
ba,bb7
Source: Meridian Research, Inc. and Versar
Underground Storage Tank Releases:
Inc., Financial Responsibi1lty for
Financial Profile of the Retail Motor
l-uel Marketing Industry Sector, Draft Report, January
198/.
N.A. = Not Applicable.
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E-lb
• 58,657 (30.4 percent) are owned by large firms but operated by small
firms under lease arrangements.
Of the estimated 89,738 firms owning retail motor fuel outlets:
• 5,736 (6.4 percent) are large firms; and
• 84,002 (93.b percent) are small firms.
Firms owning retail motor fuel outlets range in size from some of the
largest corporations in the world to small businesses with no reported pay-
roll, and the number of outlets owned by one firm ranges from one to several
thousand. The retail motor fuel sector, however, is made up predominantly of
small firms. Over three-quarters of all retail motor fuel outlets are oper-
ated by small firms, and nearly lb out of every lb firms owning retail motor
fuel outlets are small firms.
Open dealers were estimated to operate just over 80,3U0 retail motor fuel
outlets (41.6 percent of all outlets). Open dealers vary widely in terms of
firm size and age of outlet. Some have new outlets and over $b00,000 iri
assets, while others have 30-year-old tanks and £42,000 in assets. EPA esti-
mates that the typical (i.e., median) open dealer has $90,000 in net worth,
$210,000 in assets, and $14,000 in annual after-tax profits. Such a typical
open dealer firm is thus a business earning a reasonable profit (a b.7 percent
rate of return on assets) and having a reasonable expectation of continuing in
business.
Small business owners in the retail motor fuel sector include owners of
small chains of retail outlets. It is common for owners of small chains to
own 2 or 3 retail outlets and also to act as wholesale suppliers for several
open dealers. (This business pattern is particularly common in rural areas.)
It is also common for a firm in this sector to own a chain of several conveni-
ence stores, for which gasoline sales are not generally the primary line of
business (and some of whose outlets may not sell gasoline at all). EPA esti-
mates that there were approximately 3,700 such small business chains owning
and operating approximately 8,200 retail motor fuel outlets (4.2 percent of
all outlets).
Approximately 58,650 motor fuel outlets (30.4 percent) are estimated to be
owned by large firms and operated under lease arrangements by independent
dealers. Large, vertically integrated petroleum firms constitute an estimated
62.8 percent of these owners; jobbers constitute an estimated 3b.3 percent;
and other independent chains make up 1.9 percent. The chains owned by non-
refinery firms may consist of as many as 100 retail motor fuel outlets. Out-
lets operated by lessee dealers range in characteristics from some of the most
modern and efficient outlets in the country to some of the most financially
marginal operations in the retail motor fuel sector. EPA estimates that the
typical (i.e., median) single-outlet lessee dealer has $b2,000 in net worth,
$82,000 in assets, and $6,000 in annual after-tax profits. Such a typical
lessee dealer firm is thus a very small firm, but one which is nevertheless
earning a reasonable profit (a 7.3 percent rate of return on assets) and has a
reasonable expectation of continuing in business.
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£-17
Although the typical open dealer and lessee dealer are sound businesses,
there are marginal firms in both categories. A marginal firm is defined as
one that is making very low profits or that has an aging outlet and cannot
afford to invest any substantial amount of money into this outlet. In time,
outlets age and become more marginal, and EPA estimates that existing outlets
have tended to exit the industry at a rate of about 4.1 percent per year.
This outlet exit rate is based on the number of outlets that exited the
industry in 1984 (the base year of this analysis) and on the expected number
of outlets that would exit in the future, even in the absence of further UST
regulation, as a result of baseline tank replacement. 1/ Because many of
the outlets that close are replaced by new businesses that are small, this 4.1
percent exit rate does not necessarily mean that the small business share of
the retail motor fuel marketing sector is significantly declining.
E.5. Analysis of Compliance Costs
This chapter summarizes the costs of compliance associated with the pro-
posed rule and the regulatory alternatives considered. Costs are first sum-
marized by cost element and then described in the form of several scenarios.
E.5.A. Cost Components
E.5.A.I. Costs of New Tanks
Proposed rule. Under the proposed rule, all new tanks (whether installed
at a new retail motor fuel outlet or installed at an existing outlet as a
replacement for a bare steel tank) must be coated and cathodically protected
single-walled tank systems with improved line leak detectors. The estimated
cost of such a system is $20,000 per tank—$6,000 in capital cost for the tanK
itself and $14,000 for installation. £/
Alternatives Considered. The principal alternative—incorporated in
Options III, V, and, in limited circumstances, IV—is a secondary containment
system consisting of a protected single-walled tank with a liner. The esti-
mated cost of such a system is $23,000—$6,000 in capital cost for the tank
itself and $17,000 for installation. 1/
E.5.A.2. Costs of Upgrading or Replacing Non-Leaking Tanks
Proposed rule. The proposed rule allows the upgrading of existing bare
steel tanks to new tank standards (coating and cathodic protection). The
estimated cost of upgrading is $3,0S0. 1/ The upgrading must be carried out
within 10 years, but the RIA assumes that two tanks at the same outlet will
not be upgraded in the same year.
1/ Meridian Research, Inc. and Versar, Inc., Documentation of the
Affordability Model, Draft Report, March 1987.
1/ Based on engineering estimates.
1/ Based on engineering estimates.
1/ RIA, Sec. 4.C.
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E-18
Alternatives Considered. Of the several alternatives considered by EPA,
the least expensive in terms of initial outlays is the alternative of requir-
ing tank replacement when leaking. This alternative was included in Options I
and III; however, this alternative led in the long term to estimated correc-
tive action costs that were substantially higher than those of other
options—enough higher to increase the overall costs of the regulation. 1/
The other principal alternative would have required that existing tanks tie
retired and replaced with new tanks. (New tanks would require a secondary
containment system.) The costs of replacing one tank under such a requirement
would be $3b,500--$12,500 2/ for closure of the existing tank and £23,000
for the purchase and installation of a new tank. The costs of retiring and
replacing a three-tank system with a secondary containment system would be
£86,500. Option IV would have required the replacement of old tanks within
well-head protection areas within b years, while Option V contemplated the
replacement of all old tanks within 10 years.
E.5.A.3. Costs of Monitoring and Leak Detection
Proposed rule. The proposed rule allows owners and operators to use any
of several methods of monitoring and leak detection; 1/ the RIA assumes that
one of two types of monitoring and leak detection will be used:
• Tank tightness testing (done every three years for old tanks and
every five years for upgraded tanks) at a cost of an estimated $b00
per tank; or
• Vapor well monitoring, which has an estimated capital cost of $l,b00
per facility for the vapor wells; the monthly monitoring required
thereafter has an estimated cost of $7b per test, or an annual cost
of $900 per facility.
For pipes, the RIA assumes that line leak detectors, at an estimated capital
cost of £1,0b0 per facility, will be used. In addition to routine monitoring
costs, the cost of leak verification (required if a leak is suspected) is
estimated to be $4,000.
Alternatives considered. The principal monitoring alternative involves
continuous monitoring, including (in the case of a secondary containment sys-
tem) interstitial monitoring. For existing tanks, this would require contin-
uous monitoring, i.e., a continuous vapor well at an estimated capital cost of
$6,220 per facility (and operating costs that are- estimated to be negli-
gible). Continuous monitoring of a new (or replacement) tank with a liner
could be done with a continuous sump monitor, which has an estimated cost of
$750 per tank.
1/ RIA, Sec. b.C.
2/ Based on engineering cost estimates.
1/ RIA, Sec. 4.B.
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E-ly
The cost savings in the proposed rule are only realized when the cost of
the leak detection system is considered in tandem with the cost of the tank
system. For example, although the cost of a continuous sump is less than that
of a line leak detector, it is not possible to install a continuous sump on a
tank that is not lined.
E.5.A.4. Costs of Replacement of Leaking Tanks
Proposed rule. Replacement of a leaking tank is estimated to have the
same costs as purchasing and installing a new tank. The costs of closure that
would be associated with removing the old tank are assumed in the RIA to be
included in the costs of corrective action. The estimated cost of replacing a
tank with a coated and cathodically protected system is $20,000. It is esti-
mated that tanks must be replaced in 60 percent of occurrences of each kind of
release. In the remaining 40 percent of cases, it is estimated that the tank
can be repaired at a cost of $6,600. 1/
Alternatives considered. As in the proposed requirements, replacement of
a leaking tank is estimated to cost the same as a new tank, and the costs of
tank closure are assumed to be incorporated into the costs of corrective
action. The principal alternative considered, however, involved replacement
of a leaking tank with a tank and a secondary containment tank system, the
estimated cost of which is $23,000.
E.5.A.5. Costs of Corrective Action
The costs of corrective action were estimated in the KIA on a probabilis-
tic basis, which involves consideration of several levels of severity of non-
plume release and several levels of severity of plume release. For example,
the costs of corrective action for a non-plume release L/ are estimated to
have an expected value of:
$19,100 = (0.2 x $2,700) + (0.8 x $23,200)
The costs of corrective action for a small plume release 1/ (i.e., one with
an area of less than 2b square meters) are estimated to have an expected value
of $33,200 if only the floating plume is cleaned up and $69,200 if the dis-
persed plume must also be cleaned up. The costs of corrective action for a
large plume release are estimated to have an expected value of:
$123,700 = (0.6 x $66,200) + (0.1 x $131,200)
+ (0.1 x $20b,200) + (0.2 x $281,200)
1/ Based on engineering estimates.
2/ Based on data provided by Roy F. Weston, Inc., in a memo to the
Emergency Response Division of EPA, Nov. 17, 1986.
1/ Based on data provided by SCI, Inc., using UST Model estimates.
i/ Based on data provided by Roy F. Weston, Inc., in a memo to the
Emergency Response Division of EPA, Nov. 17, 1986.
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E-20
The overall costs of corrective action for the first five years under the
proposed rule are based on the following baseline estimates of release
rates: 1/
• 3.3 percent of existing tanks per year will experience non-plume
releases. Non-plume releases account for 28 percent of all releases.
• 2.2 percent of existing tanks per year will experience small plume
releases requiring clean-up of the floating plume only. Such small
plume releases account for 15 percent of all releases.
• 3.3 percent of existing tanks per year will experience small plume
releases requiring clean-up of both floating ana dispersed plumes.
Such small plume releases account for 28 percent of all releases.
• 3.0 percent of existing tanks per year will experience large plume
releases. Large plume releases account for 2b percent of all re-
leases.
Although the relative proportions of different types of releases varied
among the regulatory options considered by EPA, the corrective action costs
associated with a given type of release were essentially the same under all of
the options.
E.5.A.6. Summary
The compliance costs of different actions or events are summarized in
Exhibit E.4 for the proposed rule and for the major alternatives considered
(which are essentially incorporated in Option V). Exhibit E.4 identifies
several areas of substantial actual or potential cost differences between the
proposed rule and its principal regulatory alternatives.
• The proposed requirement to upgrade existing tanks is approximately
$30,000 less expensive per tank than the costs of any alternative
that requires mandatory retirement of a non-leaking UST.
• Monitoring and leak detection under the proposed rule are less costly
than the interstitial monitoring that would have been required by
some options. These cost savings are only realized when the cost of
the tank system and its accompanying monitoring system are added
together.
• Replacement of leaking tanKS under the proposed rule is $3,000
(13 percent) less expensive than the alternatives considered under
other options.
• Corrective action is sufficiently expensive—and sufficiently more
expensive for plume releases than for non-plume releases—to justify
requiring leak prevention and early leak detection to reduce the
overall impact of UST regulation.
1/ SCI, Inc., using UST Model estimates.
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E-21
COSTS
Exhibit E.4
OF INDIVIDUAL COMPLIANCE
ACTIONS
Action/Event
Proposed Rule
Alternative
Monitoring
{Existing Tanks)
$1,050 initial
and either
$1,500 initial plus
$900 annual
or
$500 per tank
every 3 years
(5 after upgrading)
$b,220 initial cost
Monitoring
(New Tanks)
$2,550 initial plus
$900 annual
$750 initial costj/
Tank Upgrade or
Closure and
Replacement
$3,050 per tank
$35,500 per tank
Leak Verification
$4,000
$4,000
Replacement of
Leaking Tank
$20,000
$23,000
Expected Value of
Corrective Action
Non-Plume Release
$19,100
$19,100
Small Plume Release
-- Floating Plume Only
$33,200
$33,200
— Both Floating and
Dispersed Plume
$59,200
$59,200
Large Plume Release
$123,700
$123,700
Source: Meridian Research, Inc. and Versar Inc., based on cost estimates
using the UST Model and engineering estimates.
J/ This alternative can only be used if tanks have a secondary containment
system. Such tanks have a unit cost $3,000 higher than the cost of some
new tanks that may be installed under the proposed rule.
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E-22
E.5.B. Selected Cost Scenarios
E.b.tt.l. Monitoring with No Release
Proposed rule. In the absence of a leak, the proposed rule involves two
types of expenses for existing tanks:
• Monitoring costs of $b00 per tank ($1,500 for a 3-tank facility)
every 3 years, or $1,500 in initial costs and $b00 per facility per
year thereafter. In addition, installation of line leak detectors
entails an initial cost of $1,050.
t Upgrading tanks at $3,0b0 per tank. For a 3-tank facility, this cost
is assumed by the RIA to be incurred three times within 10 years.
Alternatives considered. Under the alternatives considered, monitoring
costs would have been equal to those of the proposed rule; however, tank re-
placement costs under the alternatives were substantially greater than under
the proposal. However, under the mandatory tank replacement requirements
specified in some options, every existing tank would have had to be replaced
with a tank and secondary containment system, at a total cost per tank of
$36,250, which includes:
i $12,b00 in tank closure costs;
0 $6,000 for the new tank itself;
0 $17,000 for installation; and
0 $750 for installation of sump monitoring equipment.
Thereafter, under the replacement requirements of some of the options consid-
ered, cost savings would accrue as a result of the monitoring; depending on
the monitoring system in use, this savings could have been substantial.
E.5.B.2. Minimal Release
The smallest estimated release is assumed by the RIA to impose the follow-
ing costs in addition to the costs of routine monitoring ana tank upgrading or
retirement:
0 $4,000 for leak verification;
0 $2,700 for corrective action; and
0 $6,500 for tank repair.
This estimated cost of $13,200 is assumed to be imposed at tne time the leak
is discovered; the same costs would have been incurred under the regulatory
alternatives.
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E-23
E.5.B.3. Average Non-Plume Release
Proposed rule. In the event of an average non-plume release, a retail
motor fuel outlet is assumed to incur the following costs:
• $4,000 for leak verification;
• $19,100 for corrective action; and
• $20,000 for tank replacement (or $6,500 for tank repair).
This estimated $43,100 in costs (or $29,600 if the tank is repaired only) is
assumed to be incurred at the time the leak is discovered. If the leaking
tank is bare steel, a firm would save the $3,050 associated with upgrading the
tank.
Alternatives considered. Under any option that required that new tanks
have secondary containment systems, the costs of an average non-plume release
would have been:
• $4,000 for leak verification;
• $19,100 for corrective action;
• $23,000 for tank replacement; and
• $750 for installation of sump monitoring equipment.
This estimated $46,850 in costs would have been incurred at the time the leak
was discovered. If the leaking tank was bare steel, the firm would have saved
the $36,250 in costs associated with retirement of the old tank.
E.5.B.4. Average Small Plume Release
Proposed rule. In the event of an average small plume release (i.e., one
covering an area of less than 25 square meters), a retail motor fuel outlet is
assumed to incur the following costs:
• $4,000 for leak verification;
• Corrective action costs of:
- $33,200 for a floating plume only, or
- $59,200 for a floating and dispersed plume;
• $20,000 for tank replacement (or $6,500 for tank repair).
This entire estimated cost of $57,200--or $83,200--(or $43,700 and $69,700,
respectively, if the tank is repaired) is assumed to be incurred at the time
the leak is discovered. If the leaking tank is bare steel, of course, the
firm would save the $3,050 in upgrading costs.
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E-24
Alternatives considered. Under any option that required that new tanks
have secondary containment systems, the costs of an average sma11-p1ume re-
lease will be:
• $4,000 for leak verification;
• Corrective action costs of:
- $33,200 for a floating plume only, or
- $59,200 for a floating and dispersed plume*
• $23,000 for tank replacement; and
• $750 for installation of sump monitoring equipment.
This estimated cost of $60,950--or $86,950--would have been incurred at the
time the leak was discovered. If the leaking tank was bare steel, the firm
would have saved the $3b,250 in costs associated with retirement of an old
tank.
E.5.B.5. Average Large Plume Release
Proposed rule. In the event of an average large plume release (i.e., one
covering an area greater than 25 square meters), a retail motor fuel outlet is
assumed by the RIA to incur the following costs:
• $4,000 for leak verification;
• $123,700 for corrective action; and
• $20,000 for tank replacement (or $b,500 for tank repair).
This estimated $147,700 in costs (or $134,200, if the tank is repaired) is
assumed to be incurred at the time the leak is discovered. If the leaking
tank is bare steel, the firm would save the $3,050 in costs associated with
upgrading the tank.
Alternatives considered. Under an option requiring that new tanks have
secondary containment systems, the costs of an average large plume release
would have been:
• $4,000 for leak verification;
• $123,700 for corrective action;
t $23,000 for tank replacement; and
t $750 for installation of sump monitoring equipment.
This estimated $151,450 in costs would have been incurred at the time the leak
was discovered. If the leaking tank was bare steel, the firm would have saved
the $3b,250 in costs associated with the retirement of the old tank.
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E-25
E.6. Analysis of Competitive Effects
E.6.A. Characteristics Affecting the Degree of Impact
E.6.A.1. Monitoring, Tank Replacement, and Tank Failure
Compliance costs can be grouped into those associated with three types of
events:
t Routine monitoring and tank upgrading, which will occur in any event;
• Retirement and replacement of a tank; and
• Tank failure, including tank replacement and corrective action asso-
ciated with a release.
These three types of circumstances have very different cost impacts on the
firms that own USTs.
Routine no-failure monitoring and upgrading. The costs of monitoring and
leak detection under the proposed rule depend on the approach adopted by the
owner or operator of the UST in question. The proposed rule allows--as an
interim measure for the first decade after promulgation--existing tanks to be
monitored by tightness tests performed every three years (after upgrading,
this interval increases to five years). This is estimated to cost $1,500 per
test for a three-tank outlet. At a b.9 percent discount rate (the estimated
real cost of borrowing used in the Impact Analysis in the RIA) 1/ —and
assuming that tests are done in the third, sixth, and ninth years—the present
value cost of these tests is $3,055. For monthly vapor well monitoring, which
the proposed rule allows for new as well as existing tanks, the initial cost
is estimated to be $1,500, and the subsequent estimated annual costs are $900.
At a 6.9 percent discount rate, the present value of costs over a 10-year
horizon is $7,850, and over a 20-year horizon it is $11,110. Under the regu-
latory alternative requiring continuous monitoring, the initial cost (and
present value cost) for a continuous vapor well is $6,220. Sump monitoring
equipment is estimated to cost only $2,260 (initial cost) for a three-tank
outlet, but this cost would be associated with the construction of a new out-
let or the replacement of an existing tank; it would not be likely to occur
separately. Finally, line leak detectors are estimated to cost $1,050 per
outlet, an initial cost that would be incurred regardless of the method of
tank monitoring used.
The proposed rule's requirement to upgrade existing tanks has associated
costs estimated to be $3,050 per tank. It is also possible to spread this
cost out over time by upgrading tanks in different years. Thus, 10-year moni-
toring and upgrading of 3 tanks under the proposed rule have a combined pres-
ent value cost of approximately $11,000 to $15,000 (depending both on the
method of tank monitoring used and on when the tanks are upgraded). This cost
is only a fraction of the cost of one new tank.
1/ Meridian Research, Inc. and Versar, Inc., Documentation of the
Affordability Model, Draft Report, March 19571
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E-2b
Tank replacement. A mandatory tank replacement program is almost an order
of magnitude more expensive than the proposed requirement for ongoing
monitoring and tank upgrading. Even if the new tank standard consisted only
of a requirement for coating and cathodic protection, the costs of closure and
replacement would be 532,500 per tank, or $78,500 for a 3-tank facility. If
the new tank standard required a double containment system, closure ana re-
placement costs would be $35,500 per tank—or a total of about $8b,50U for a
3-tank facility. Although the impact of these costs in any year—as well as
their present value—could be somewhat reduced by phasing, these costs are
substantial for an individual outlet.
Tank failure. Tank failure can iiipose even higher costs on a firm, al-
though just how much higher depends on the basis used for comparison. The
expected value of corrective action is $19,100 for a non-plume release and
$123,700 for a plume release. Leak verification costs are estimated to be
$4,0U0. In addition the tank would have to oe replaced, although separate
closure costs would not be incurred in this event. These costs would be
$20,000 for a simple cathodically protected tank or $23,0U0 for a secondary
containment system. As opposed to the $11,000 to $15,000 in costs that would
be incurred if no.release occurs, a non-plume release would nave a net impact
of $43,100 under a requirement for single-walled cathodically protected tanks
and $46,100 under a secondary-containment tank requirement, and a large plume
release would have a net impact of $147,000 under a requirement for
single-walled cathodically protected tanks and $150,700 under a
secondary-containment requirement. Compared to a regulation that included a
requirement for the mandatory retirement of old tanks—and thus that saved the
cost of tank closure—the net impact of an average non-plume release would be
$10,600 more per tank than the proposed tank retirement costs (although
$48,400 less than the cost of replacing all three tanks). In addition, the
net impact of an average large plume release would be $115,200 more per tank
than the costs of a requirement for the mandatory retirement of one
single-walled tank (and $38,200 more tnan mandatory retirement of all three
tanks). Thus, although the costs of an average non-plume release would add
relatively little to the costs of tank retirement, such a requirement would
have impacts three to four times those that would be incurred if there was no
release. An average large plume release would have additional cost impacts
that would substantially exceed the impact of the proposed tank retirement
requirement, and these iripacts would be roughly 10 times as great as the
impacts of the proposed monitoring and upgrading requirements.
E.6.A.2. Age of Facility and UST
The age of a facility with USTs may be related to both the condition and
type of USTs located there. In general, the older a bare steel tank is, the
more likely it is to leak within a given number of years. Thus firms with
older facilities may be—and firms owning older USTs will be—more likely to
suffer the high-cost inpacts associated with releases the older their tanks
are. Conversely, most fiberglass tanks, cathodically protected tanks, and
double containment systems are found in new facilities, and in facilities
owned by firms with tank upgrading programs. Protected tanks have approxi-
mately one-sixth the probability of leaking over a 30-year period that bare
steel tanks do. Thus new facilities and new USTs have a probability of in-
curring corrective action costs that is 80-85 percent lower than that of old
-------
E-27
facilities with bare steel tanks. _L/ In the absence of further regulation,
new facilities are also more likely to have monitoring systans that will de-
tect a release relatively early. Firms with new facilities and USTs are
therefore likely to have relatively low-cost releases. This situation is
accentuated when a facility that is being constructed is compared with an old
facility that has bare steel tanks. When a tank at an old facility is re-
placed, tank closure costs (estimated to be $ 12,500 per tank) are incurred;
when a new facility is constructed, these costs are not incurred. Closure
costs are sufficiently high that it would be cheaper, for example, to install
a coated, cathodically protected tank with a secondary containment system at a
facility under construction than it would be to replace an old tank with a new
bare steel tank at an existing facility. Further, facilities that are being
constructed today tend to have leak detection systems installed at the time of
construction. The costs of these measures thus add little to the total cost
of constructing a new facility. However, in such a case the new facility
would have made a net capital investment in additional tanks, while the old
facility would have no net investment and thus a newly constructed facility
can meet tank construction standards (and enjoy related savings in terms of
the expected value of corrective action costs) essentially without impact
because it would have installed the tanks anyway. A firm that is building a
new facility to enter the retail motor fuel market will have correspondingly
lower compliance costs than an old facility with old tanks. Thus, although
one of the effects of this regulation may be to force existing outlets owned
by small businesses to exit, it may also provide an opportunity for new out-
lets to enter the industry.
E.6.A.3. Firm Size
A firm's conpliance costs and cost impacts are principally related to the
number of tanks owned or operated by the firm. Except for the costs of vapor
well monitoring and line leak detectors (the costs of which are relatively
constant per outlet), all costs are either associated with a number of tanks
or the number and severity of releases, which are expected to be related to
the number of tanks (or to a given type of tank). Inherent economies of scale
in terms of compliance activity per tank or per outlet are minimal. The RIA
estimates, for example, that the cost of installing one new secondary contain-
ment system is $23,000, whereas the cost of installing three such tanks simul-
taneously is $68,000.
However, economies of scale can be realized if all three USTs are replaced
at one time rather than individually; closure costs when one tank is replaced
are $12,500, but are only $18,500 if three tanks are replaced simultaneously.
This economy of scale may give large firms an advantage, because they are
better able to finance the costs of replacing all three tanks simultaneously.
Small firms, which will have to spread costs of tank replacement out by re-
placing one tank at a time, will thus pay $19,000 more than if they replaced
all tanks at once.
1/ RIA, Sec. 4.B.
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E-28
The number of tanks at retail motor fuel outlets does not vary much with
the size of the facility. At a minimum, a very small outlet in a rural area
may have only two tanks—storing leaded regular and unleaded regular gasoline,
for example. A very large outlet may have four USTs, to store leaded regu-
lar, unleaded regular, unleaded premium, and diesel (or, in some cases, kero-
sene). Nevertheless, one outlet that has 20 times (or more) the level of
sales of a second outlet is likely to have at most twice as many USTs. There
are thus substantial economies of scale in regulatory costs per gallon of
motor fuel sold per outlet. However, the volume of sales per outlet is not
related to the size of the firm owning or operating the outlet; both small and
large firms own high-volume outlets.
Compliance costs are relatively constant per retail motor fuel outlet and
do not vary greatly with respect to the size of the outlet (i.e., number of
tanks or sales volume). Thus, there are few economies of scale to be realized
as the number of outlets owned per firm increases; in fact, the compliance
costs incurred per firm will generally be proportional to the number of out-
lets owned.
Firm size may be coincidentally related to the magnitude of compliance
costs in one of two senses. First, large firms may be adding new outlets,
whereas small firms (other than those entering the market for the first time)
may have older outlets. For such new outlets (as noted above), the impacts of
the regulation will be relatively small. Second, some large firms (especially
refining firms) already have in place a program of upgrading retail outlets
and replacing old tanks. The costs of such an existing program cannot be
attributed to the proposed regulation.
Although firm size itself has little relation to regulatory costs per
outlet, larger firms tend to be more able to survive the impacts of regulatory
costs than small firms. As discussed in detail in Section E.b.C.2, firms
owning multiple outlets can pool regulatory costs among outlets. This results
in lower overall regulatory costs per outlet for large firms than for
one-outlet firms that experience a serious release. Further, large firms will
normally have better access to credit, making it easier for large firms to pay
for tank upgrading or the costs of corrective action.
E.6.B Effects on Profitability
E.6.B.I. Classes of Small Businesses
As noted in Section E.4., there are at least three distinct types of small
businesses in the retail motor fuel sector: open dealers, who make up
56.3 percent of small firms in this sector; small chains, which constitute
2.6 percent of small firms; and lessee dealers, who make up 41.1 percent of
small firms. Of these groups, open dealers are relatively straightforward to
analyze, since they tend to own and operate only one outlet and motor fuel
retailing is their principal business.
The analysis of profitability was conducted assuming that small firms will
not be able to obtain insurance or to receive support from State UST funds
designed to assist small firms to meet the costs of corrective action. Such
State assistance might include loans, loan guarantees, insurance, or other
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E-29
programs designed to smooth the regulatory burden over time or over a larger
affected population. The assumption that neither the insurance industry nor
State funds will be available to assist small firms in meeting their correc-
tive action costs reflects the situation confronted by most small firms to-
day. EPA hopes to encourage both the insurance industry ana the States to
provide UST coverage for small firms in the future. If such coverage becomes
available at a reasonable cost, the adverse impacts on small businesses pre-
dicted by this Regulatory Flexibility Analysis could be significantly over-
estimated.
Small jobbers and small convenience stores are involved in other lines of
business. Moreover, most of these firms operate more than one outlet that
retails motor fuel. Because of this combination of characteristics, it is not
possible to obtain financial data on individual outlets; however, the major
economic impacts on typical firms in these segments can be analyzed by examin-
ing all outlets simultaneously.
Lessee dealers present unique problems for analysis. The dealers them-
selves are small businesses, and at least three-quarters of them operate only
one outlet. However, the firms from whom they lease their outlets— refiners
(62.8 percent), jobbers (3b.3 percent), and independent chains (1.!# per-
cent)—are virtually all large businesses. This relationship is difficult to
analyze because it is not generally clear whether the owner or the lessee will
bear the burden of regulatory costs. Currently, the most common lease
arrangement makes the lessee dealer responsible for "sounding the alarm"
(i.e., for operating whatever leak detection and inventory control systems
have been agreed on by the owner and lessee) but not for maintaining or re-
placing tanks or paying for corrective action. However, some lessors are
attempting to alter these arrangements to increase the responsibilities of
lessees by, for example, holding the lessee responsible for releases or re-
quiring the lessee to buy the tanks. 2J Even if the owner initially pays
the costs, it is entirely possible—and certainly in the owner's interest—to
pass costs through to the lessee in the form of rent increases. A further
practical consideration is that financial data on the individual outlets of
any owner are not available, while financial data for single-outlet lessee
dealers are available. It is therefore not generally feasible to look di-
rectly at the impacts of regulatory costs on the owner on an outlet-specific
basis—even if he bears all of these costs. The Agency will therefore examine
the impact of regulatory costs on leased outlets in terms of profitability of
independent lessee dealers. There are two possible methods of rationalizing
this approach. The first is to assume that lessee outlets are roughly as
profitable to the owners as they are to the operators—i.e., to let impacts on
the operator be a proxy for impacts on the owner. The second is to assume
that the owner will find a way to pass through the most important costs to the
lessee regardless of the legal responsibilities set forth in the lease. The
Agency believes that this approach will provide a reasonable approximation of
major impacts, such as those associated with the closing of an outlet.
JJ Notes of meeting with the Service Station Dealers of America, l%b.
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E -30
E.6.B.2. Analysis of Impacts on the Median Dealers
Economic inpacts were analyzed in detail for two typical retail motor fuel
dealers,, the median open dealer and the median single-outlet lessee dealer.
Each of these representative firms has median levels of net income, total
assets, and net worth for its class of firm. For the median open dealer, net
assets are $210,000, net annual income is £14,000, and net worth is £yo,000.
For the median lessee dealer, net assets are £82,000, net annual income is
£6,000, and net worth is £62,000. The financial impacts incurred in a sinyle
year as a result of the costs of different compliance activities related to
different events are summarized for these two median firms in Exhibit E.b. To
measure these impacts on individual firms, compliance costs are adjusted for
the portion of these costs that will be borne by the government in the form of
investment tax credits on new tanks and in the form of reduced corporate
profits tax payments.
Routine monitoring. Testing three tanks has an after-tax cost of £l,27b.
This reduces the rate of return of both types of median firms to approximately
6 percent, which is still a good rate of return. The iiipact of testing is
further reduced by the fact that these costs are incurred no more often than
once every four years.
Vapor well monitoring has an initial cost that is similar to the cost of
tank testing--£l,275 after taxes--and a cost that is only 60 percent of this
in subsequent years, and thus the impact on the profits of these small busi-
nesses will be similar to that of tank testing. Line leak detectors have a
smaller cost—£1,050, or £892 after taxes—and a correspondingly smaller im-
pact on profits.
Tank upgrading. Upgrading one tank has an after-tax cost of £2,5W. Tnis
reduces the rate of return of the median open dealer to about b.b percent, and
it decreases the median lessee dealer's rate of return to just over 4 per-
cent. Thus even in the year in which a tank is upgraded, it is possible for
these firms to finance this activity out of profits and still retain at least
a fair rate of return. Under the proposed rule, a dealer with three tanks
need not upgrade a tank more frequently than once every three years to meet
the 10-year regulatory deadline. This will further spread the impact of the
tank upgrading requirement.
Tank retirement. The after-tax costs of closing a tank are £lO,62b. For
closure and replacement with a single-walled coated and cathodically protected
tank, the after-tax costs are £27,115. The impact of tank closure costs alone
would reduce the rate of return of the median open dealer to l.fa percent, and
it would reduce the rate of return of the median lessee dealer to a very poor
level of -3.2 percent. Closure and replacement would place both types of
median firms in severe financial distress--rates of return of -b.2 percent for
the median open dealer and of -25.7 percent for the median lessee dealer--for
the year in which replacement occurred.
Considered in a broader perspective, this means that the after-tax cost of
retiring three tanks equals six years of net income for the median open
dealer. Since zero profits for an extended period of years substantially
eliminates the value of savings in corporate profits tax, it is arguably more
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E-31
Exhibit E.5
IMPACTS ON PROFITABILITY UF SELECTED COMPLIANCE
ACTIVITIES AND EVENTS
Median Median
Cost of Action Open Lessee
Activity/Event Before Tax Adjusted 1/ Dealer Dealer
Pre-Reg illation
Net Income
Net Income/Assets
Financial Condition
$ 14,000
6.67%
Good
$ b,000
7.32 %
Good
Test Three Tanks
Net Income
Net Income/Assets
Financial Condition
$ 1,500
$ 1,275
$ 12,725
b.0b%
Good
4,72b
b. 7 b%
Good
Upgrade One Tank
Net Income
Net Income/Assets
Financial Condition
£ 3,050
£ 2,593
$ 11,407
5.43%
Good
3,407
4.15%
Fair
Tank Retirement
Tank Closure
Net Income
Net Income/Assets
Financial Condition
$ 12,500
510,625
3,375
1.61%
Fair
-5
2,b25
-3.20%
Poor
Tank Closure and
Replacement 1/
Net Income
Net Income/Assets
Financial Condition
Non-Plume Release
Leak Verification and
Corrective Action
Net Income
Net Income/Assets
Financial Condition
£ 32,500 ^27,115 3/
5 23,100 5 19,635
-J 13,115
-6.25%
Severe
Distress
5,b35
-2.68%
Poor
-$ 21,115
-25.75%
Severe
Distress
-$ 13,b3b
-lb.63%
Severe
Distress
Leak Verification,
Corrective Action and
Tank Repair
Net Income
Net Income/Assets
Financial Condition
$ 29,600
$ 25,160
-$ 11,160
-5.31%
Severe
Distress
-$ 19,160
-23.37%
Severe
Distress
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E-32
Exhibit E.5 (Continued)
Median Median
Cost of Action Open Lessee
Activity/Event Before Tax Adjusted 1/ Dealer Dealer
Leak Verification,
Corrective Action and
Tank Replacement
Net Income
Net Income/Assets
Financial Condition
$ 43,100
$ 36,125 3/
22,12b
-10.54*
Severe
Distress
30,125
-3b.74%
Failure
Small Plume Release with
Clean-up of Floating Plume
Leak Verfication and
Corrective Action
Net Income
Net Income/Assets
Financial Condition
$ 37,200 £ 31,620 h
17,620
-8.39%
Severe
Distress
-fc 25,620
-31.24%
Failure
Leak Verification,
Corrective Action and
Tank Repair
Net Income
Net Income/Assets
Financial Condition
$ 43,700
$ 37,145
¦£ 23,145
-11.02%
Severe
Distress
-fc 31,145
-37.98%
Failure
Leak Verification,
Corrective Action and
Tank Replacement
Net Income
Net Income/Assets
Financial Condition
$ 57,200 ^ 48,110
-$ 34,110
-16.24%
Severe
Di stress
-$ 40,110
-48.*1%
Failure
Small Plume Release with
Clean-up of Floating and
Dispersed Plume
Leak Verfication and
Corrective Action
Net Income
Net Income/Assets
Financial Condition
$ 63,200 $ 53,720 3/
39,720
-18.91%
Severe
Di stress
-£ 47,720
-58.20%
Failure
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E-33
Exhibit E.5 (Continued)
Activity/Event
Cost of Action
Before Tax Adjusted 1/
Median
Open
Dealer
Median
Lessee
Dealer
Leak Verification,
Corrective Action and
Tank Repair
$ 69,700 $ 59,24b
Net Income
-$ 45,245
-$ 53,245
Net Income/Assets
-21.55%
-64.93%
Financial Condition
Severe
Failure
Distress
Leak Verification,
Corrective Action and
$ 83,200 $ 70,210 1/
Tank Replacement
Net Income
-$ 56,210
-$ 64,210
Net Income/Assets
-26.77%
-78.30%
Financial Condition
Severe
Failure
Distress
Large Plume Release
Leak Verification and
Corrective Action
$127,700 $108,545
Net Income
-$ 94,545
-$102,545
Net Income/Assets
-45.02%
-125.05%
Financial Condition
Failure
Failure
Leak Verification,
Corrective Action and
Tank Repair
$134,200 $114,070
Net Income
-$100,070
-$108,07U
Net Income/Assets
-47.65%
-131.79%
Financial Condition
Failure
Failure
Leak Verification,
Corrective Action and
$147,700 $125,035 2/
Tank Replacement
Net Income
-$111,035
-$lly,035
Net Income/Assets
-52.87%
-145.1b*
Financial Condition
Failure
Failure
Source: Meridian Reserach, Inc. and Versar Inc., using the affordability model.
1/ Adjustment is based on Cost x (1-TR), where marginal corporate tax rate, TK, is
estimated to be 15 percent. Where losses are made, it is assumed that the deduction
will be carried over, since costs do not recur annually.
1/ New standard is a single-walled cathodically protected tank.
b Cost of new tank (£6,000) is reduced by 10 percent income tax credit prior to
adjustments for tax described in note. 1/
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E-34
appropriate to look at the pre-tax costs, which are the equivalent of seven
years of the profits of the median open dealer. For the median lessee dealer,
the impact is far more severe; the pre- and after-tax cost of retiring three
tanks is equal to more than 13 years of net income. The total after-tax costs
of retiring three tanks would exceed the net worth of the median lessee dealer
by about one third, or $20,000, and the total pre-tax costs of retiring three
tanks would slightly exceed the net worth of the median open dealer.
For firms that typically have a planning horizon of less than b years, an
expense large enough to absorb six years or more of profits could easily per-
suade the owner to leave the industry, and costs in excess of 10 years of
profits would almost certainly do so. Second, because of limited access to
credit, even the median open dealer may be unable to raise the funds to pay
for tank closure and replacement; a replacement tank system cannot be used as
collateral to provide security for a loan the way a tank system for a newly
constructed facility could. On the other hand, although the business as a
whole can expect to produce regular income, the investment in tank replacement
(like expenditures on corrective action) is not itself an income-producing
investment. This consideration is especially important in view of the fact
that these costs would equal or exceed the net worth of either type of median
dealer.
A non-plume release. As Exhibit E.b shows, the expected value of the
after-tax cost of leak verification and corrective action for a non-plume
release is $19,635. This alone would absorb more than the net income of the
median open dealer and would be three times the net income of the median
lessee dealer. Corrective action would leave the median open dealer in poor
financial condition (-2.7 percent rate of return), and it would leave the
median lessee dealer in severe financial distress (-16.6 percent rate of re-
turn) .
The expected value of the total costs of corrective action for a non-plume
release and tank replacement are $36,125 after taxes and $43,100 before taxes
(the before-tax cost becomes more relevant when losses are this large relative
to annual net income). This is about one-third more than the costs of retir-
ing one tank. This impact would place the median open dealer in severe finan-
cial distress, and it is estimated to be sufficient to cause the median lessee
dealer to fail. However, if a tank can be repaired, the total after-tax cost
declines to $25,160. This somewhat smaller cost, however, is still sufficient
to put both types of median dealer in severe financial distress.
In a broader context, the average before-tax cost impact of a non-pluine
release is equal to two or three years' net income and one-third to one-half
the net worth of the median open dealer. For the median lessee dealer, the
cost is equal to five to seven years' net income and 50 to 70 percent of net
worth. This perspective tends to confirm the conclusion that the median open
dealer could well remain in business—if financing could be obtained--but tne
median lessee dealer would likely close if he had to pay for a non-plume re-
lease.
A small plume release. As Exhibit E.5 shows, the expected value of the
after-tax cost of leak verification and corrective action for an average small
plume release (i.e., one less than 2b square meters in area) is $31,620 if
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E-35
only a floating plume must be cleaned up and £53,720 if a dispersed plume must
also be cleaned up. Corrective action costs for a floating plume alone are
twice the annual net income of the median lessee dealer. Payiny these costs
would leave the median open dealer in severe financial distress (-8.4 percent
rate of return). The additional costs of cleaning up a dispersed plume are
nearly four times the annual net income of the median open dealer and nine
tines the annual net income of the median lessee dealer. These costs would
leave the median open dealer in severe financial distress (-18.9 percent rate
of return) and cause the median lessee dealer to fail (-b8.2 percent rate of
return).
When tank replacement costs are included, the inpact becomes more severe.
Average after-tax costs are $48,110 if only a floating plume is cleaned up and
$70,210 in cases in which a dispersed plume is also cleaned up. For clean-up
of a floating plume, the costs exceed three times the annual net income of the
median open dealer and seven times the annual net income of the median lessee
dealer. Bearing these costs would put the median open dealer in severe finan-
cial distress (-16.2 percent rate of return) and would cause the median lessee
dealer to fail (-48.9 percent rate of return). If a dispersed plume is also
cleaned up, the costs would exceed five times the annual net income of tne
median open dealer and are nearly 12 times the annual net income—and more
than the net worth—of the median lessee dealer. Bearing these costs would
put the median open dealer in very severe financial distress (-26.8 percent
rate of return) and would cause the median lessee dealer to fail (-78.3
percent rate of return).
If a tank can be repaired rather than replaced, the average total after-
tax costs are reduced to £37,14b if only a floating plume is cleaned up and
$59,245 if a dispersed plume is also cleaned up. Despite this reduced cost,
the median open dealer would still be in severe financial distress—and the
median lessee dealer would still fail—in both cases.
A large plume release. As Exhibit E.b shows, an average large plume re-
lease (i.e., one greater than 2b square meters in area) nas an expected value
in after-tax leak verification and corrective action costs of $108,54b (al-
though the pre-tax costs of $127,70U may again be a more appropriate measure
because of the size of the loss). These after-tax costs alone are nearly
eight year's net income for the median open dealer, 18 years' net income for
the median lessee dealer, and are substantially greater than the net worth of
either type of median dealer. This is clearly enough to cause either type of
median dealer to fail. The after-tax costs of tank replacement, which would
be necessary to continue in business, are $12b,035—or $114,070 if the tank
can be repaired—which merely raises the already high probability that both
median dealers will fail.
E.6.B.3. Summary of Effects on Profitability for the Median Dealer
The proposed rule requires the monitoring and upgrading of all tanks,
regardless of circumstances. The costs of these provisions could easily tie
financed by either median firm out of average profits in the year in which
they were incurred and still leave the firm with a fair to good rate of re-
turn. Moreover, these costs would not occur in more than six of the first 10
years that the regulations were in force. Thus the iripact of these provisions
on the profitability of a median firm is relatively minor.
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E-3b
In contrast, a requirement to retire existing tanks and replace them with
new tanks meeting a cathodic protection standard would have a severe impact.
One-year costs would place either type of median firm in severe financial
distress. The cost of retiring three tanks would approximately equal the
median open dealer's net worth and six or seven years' of his net income.
This would probably be enough to induce the median open dealer to leave the
industry. These costs would substantially exceed both the median lessee
dealer's net worth and a decade of his net income. Costs of this magnitude
would almost certainly induce the owner to close the outlet or the dealer to
leave the industry. If the new tank standards required a secondary contain-
ment system, costs (including monitoring equipment) would be nearly 2U percent
higher than those for retirement and replacement. It would then be a virtual
certainty that both types of median dealer would close rather than incur such
costs.
The costs of an average non-plume release could be severe enough to force
the median open dealer to fail and would be likely to force the median lessee
dealer out of business, regardless of whether the owner or the dealer initi-
ally bore the costs. This result depends somewhat on the severity of the
release and the availability of financing. A small plume release that re-
quired clean-up of a dispersed plume would—on average—force the median open
dealer very close to failure and would clearly be costly enough to force the
median lessee dealer to fail. An average large plume release woula force
either type of median dealer to fail in virtually every circumstance.
Analyzing the median firm has its limitations, since it provides little
information about impacts on firms at either end of the distribution of
financial characteristics, such as marginal firms; median values give no
insights as to how many marginal firms there are or what their financial
condition is. This is important for an analysis of monitoring and tank
upgrading costs; for example, for a firm with a net income of $1,UUG or less,
these costs alone will exceed a decade of profits and probably induce the firm
to leave the industry. For other events, however, analyzing impacts on the
median firm is far more useful. Given the results derived above, it can be
predicted with reasonable confidence that a majority of small firms would
leave the retail motor fuel sector rather than face the costs associated with
the mandatory retirement of existing tanks and that a majority of firms that
experience a release will fail as a result of costs associated with the
release.
E.6.B.4. Analysis of the Inpact on Small Firms
The impact of UST regulation on small firms as a whole was performed using
an affordability model. The affordabi1ity model uses the release rates esti-
mated by the UST Model, the costs of corrective action, and the compliance
costs discussed above to measure the economic inpacts of regulation on all
firms in the retail motor fuel sector. The economic impact analysis is
presented in Section b.B of the RIA. A summary of the structure of the
affordability model appears in Appendix D of the RIA.
The analysis of economic impacts on small firms uses the affordabi1ity
model to assess the percentage of outlets owned by small firms that will exit
the retail motor fuel sector and to identify the factors responsible for these
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E-37
exits. The main results of this analysis are presented in this section.
These results are summarized in terms of the cumulative percentage of small-
firtn-owned outlets surviving at the close of years b, 10, and lb after imple-
mentation of the proposed UST regulations.
Some retail outlets in the motor fuel sector will exit the industry even
without the imposition of regulatory costs on their owners; exits occurring in
the absence of regulatory costs are termed "natural" exits. Natural exits
were extrapolated from past industry exit trends and are based on expectations
about future releases in the absence of further UST regulation. 1/ The
natural exit was estimated by dividing the number of exits predicted by past
industry exit trends, which were assumed to continue for the next lb years, by
the number of retail outlets owned by small firms (i.e., firms with less than
£4.6 million in assets) now in the industry.
To determine the percentage of total exits attributable to the proposed
rule (and to the other regulatory options analyzed), the percentage of natural
exits was subtracted from the percentage of exits predicted to occur under the
rule. The difference between these percentages was then attributed to the
impact of regulatory costs. Exits caused by regulatory costs are divided into
two categories:
• Exits attributed to tank replacement. This category of exit includes
all exits (above the percentage of natural exits) attributable to the
impact of the costs of leak detection, mandatory tank upgrading,
replacement of tanks that cannot be repaired after a release, or
mandatory tank closure and replacement.
• Exits attributed to corrective action. This category of exit in-
cludes those where the firm owning the outlet could meet all UST
regulatory costs other than those of corrective action but would fail
if forced to incur corrective action costs.
When a firm fails as a result of a large release it cannot afford to clean
up, the exit of its affected outlets could be attributed either to the costs
of tank replacement or the costs of corrective action, because either cost by
itself may be sufficient to cause the firm to fail. In this analysis, sucn
exits are attributed to the costs of tank replacement.
Through the end of year 5, 19 percent of outlets owned by small firms would
exit without any further UST regulation. At the close of year b, the proposed
rule has a higher predicted percentage of small-firm-owned outlets surviving
in business--Z9 percent—than any other option. The total impact of the reg-
ulation on exit is defined as the difference between survival based on the
continuation of natural exit and survival assuming all regulatory costs are
incurred. This reflects a total iripact of b'd percent of smal 1-firm-owned
outlets exiting the industry as a result of the proposed rule (see Ex-
hibit E.6). Option V, which has the highest expenditures for mandatory tank
replacement during years 1-5, has the lowest percentage of smal1-firm-owned
1/ Meridian Research, Inc. and Versar Inc., Documentation of the
Affordability Model, Draft Report, March, ISJ87.
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E -38
Exhibit E.fa
ECONOMIC IMPACTS OF PROPOSED REGULATION (OPTION II)
ON SMALL FIRMS IN THE RETAIL MOTOR FUEL MARKETING
INDUSTRY, ASSUMING NO REVENUE INCREASE OR REVENUE
INCREASES OF 1, 3, OR 5 PERCENT
Percentage of Existing Outlets
Scenario Year b Year 10 Year lb
Base Case - No Further UST Regulation
Survival Based on the Continuation
of Natural Exit 81 72 64
Regulation Under Proposed (Option II) Requirements
No Revenue Increase
Exit Due to Regulatory CostsJ/ 52 bl 49
Percentage Surviving 29 21 lb
1 percent Revenue Increase
Exit Due to Regulatory Costs]/ 40 40 39
Percentage Surviving 41 32 25
3 percent Revenue Increase
Exit Due to Regulatory Costs]/ 19 18 17
Percentage Surviving 62 54 47
5 percent Revenue Increase
Exit Due to Regulatory Costs]/ 7 4 1
Percentage Surviving 74 68 63
Source: Meridian Research, Inc. and Versar Inc., using affordability model
results.
^ Calculated as the difference between survival based on continuation of
natural exit and percentage surviving given all regulatory costs and the
indicated revenue increase.
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E -39
outlets surviving (18 percent). Although the overall percentages of outlets
surviving are similar for all options analyzed, the composition differs:
• Under the proposed rule and Options I and III, which do not have
mandatory tank replacement, only 2 percent of outlets are predicted
to exit because of tank replacement costs, but b'd percent are pre-
dicted to exit because of corrective action costs.
• Under Option IV, which has mandatory tank replacement in a limited
number of cases, 15 percent of outlets are predicted to exit because
of tank replacement costs, and 39 percent are predicted to exit be-
cause of corrective action costs.
• Under Option V, which has universal mandatory tank replacement and
the most stringent leak detection measures, 41 percent of outlets are
predicted to exit because of tank replacement costs, but only ft
percent are predicted to exit because of corrective action costs.
As would be expected, the percentage of outlets surviving is lower in
subsequent years. Most of this increased exit is due to natural exit, which
is 28 percent over 10 years and 3b percent over lb years. Total predicted
10-year survival under the proposed rule is 21 percent (with other options
ranging from 11 to 18 percent). The total predicted 15-year survival under
the proposed rule is 15 percent (with other options ranging from 7 to 12 per-
cent). This represents the total-exit impact of the proposed rule of bl per-
cent over 10 years and 49 percent over 15 years (see Exhibit E.b). In all
time horizons, small-firm-owned outlet survival for the proposed rule is
better than that of any other option analyzed. The relative pattern of tank
replacement and corrective action inpacts described above continues in the 10-
and 15-year horizons, but the impacts of tank replacement costs become rela-
tively more inportant for Option IV and V as time goes by. For the proposed
rule, tank replacement impacts become zero in 10 years and -Z percent in 15
years. This reflects a reduction in the natural exit caused by tank replace-
ment or upgrading—the only option analyzed for which this occurs.
These results show that--in terms of the percentage of surviving outlets
owned by small firms—the proposed rule is superior to the other options
considered. In terms of the economic inpacts of tank replacement or upgrade
alone, the proposed rule is also superior to the other options considered.
The most inportant source of substantial iiipacts of the proposed UST reg-
ulation is the cost of corrective action. EPA estimates that 89 percent of
all small businesses owning retail motor fuel outlets would fail if tney were
forced to meet the full costs of corrective action for a release sufficiently
serious to reach ground water. Fourteen percent of all small businesses own-
ing retail motor fuel outlets would fail if they were forced to pay the aver-
age costs of corrective action for a release that does not reach ground water;
in this second case, most of the firms that would fail would be considered
marginal. If releases requiring a corrective action with average costs occur
at the level estimated by the RIA, and if no revenue increases are possible
for small businesses, 10 percent of small firms will fail in each of the first
five years as a result of these corrective action costs. EPA also estimates
that corrective action costs may be high enough and frequent enough to cause
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E-40
many independent marketers to close outlets that are operated by lessee deal-
ers. It is possible, however, that these closed outlets might be replaced by
newer facilities, which might in turn be operated by lessee dealers.
E.6.C. Potential Price and Revenue Effects
E.6.C.I. Potential Recovery of Regulatory Costs from Increased Revenues
If firms were able to recover their regulatory costs by increasing their
revenues, they could offset inpact on their profits. The revenues of retail
motor fuel marketing firms might increase, for two reasons:
• The retail price of motor fuels could rise and provide a higher mar-
gin that could be used to pay these costs.
• As outlets exit the industry, the volume of motor fuel sales at the
remaining outlets could increase. This increase in volume would
provide the firm with higher profits because the relatively fixea
costs of operation would be spread over a higher volume of sales.
This would enable owners to pay their regulatory costs from this
higher profit margin. In the retail motor fuel sector, a 12-15 per-
cent increase in the volume of motor fuels sold would have about the
same effect on net revenue as a 1 percent increase in price (with no
cost increase).
To the extent that revenue increases, regulatory costs need not have an inpact
on profits. Thus the regulatory burden will be borne by consumers (if prices
rise) or by the firms that exit the industry (if the volume of sales of the
remaining outlets rises). Since any analysis of regulatory flexibility is
particularly concerned with possibilities that might prevent substantial num-
bers of firms from failing, the analysis will focus on price increases rather
than volume increases for outlets that survive a substantial number of fail-
ures.
Exit and survival for various levels of revenue increase are shown in
Exhibit E.6 1/ for retail motor fuel outlets owned by small firms. Cumula-
tive survival at the end of 5, 10, and 15 years is shown for both natural exit
(defined in Section E.b.B.4.) and the proposed rule. The cumulative exit of
currently existing small-firm-owned outlets estimated to be caused by the
proposed rule (i.e., above and beyond natural exit) is:
• 52 percent after 5 years and 49 percent after 15 years, if there is
no associated increase in the retail price of gasoline;
t 40 percent after 5 years and 39 percent after 15 years, if there is a
price increase of 1 percent;
• 19 percent after 5 years and 17 percent after 15 years, if there is a
price increase of 3 percent;
a 7 percent after 5 years and 1 percent after 15 years, if there is a
price increase of 5 percent.
1/ RIA, Sec. fa.B.
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E-41
These results show that, on average, the inpacts of the proposed rule can
be virtually eliminated by a 5 percent increase in the retail price of motor
fuel. With a 3 percent price increase, however, the proposed rule would still
cause 17 percent of all currently existing smal1-firm-owned outlets to exit
the industry. Nevertheless, a b percent price increase—about $0.04 per
gallon in late 1986 prices—is ,relatively small compared with gasoline price
fluctuations over the last 5 to 10 years.
E.6.C.2. Ability of Small Firms to Pass Costs Through to Customers
The analysis presented above indicates that a relatively modest price
increase would allow small retail motor fuel marketing firms to recover enough
of their compliance costs so that the number of outlets exiting—net of nat-
ural exit—resulting from the proposed rule would be negligible in the long
run. In the case of UST regulation in the retail motor fuel sector, however,
the ability of impacted firms to pass their costs through to customers in the
form of price increases will be severely limited. A number of competitive
factors lead to this conclusion:
• There are few substitutes for gasoline, but there are many substi-
tutes for gasoline purchased from an individual outlet. Thus, al-
though market demand for retail gasoline as a whole is relatively
inelastic, demand at individual outlets can be highly sensitive to
price.
• UST regulatory costs are largely independent of the quantity of gaso-
line pumped at a given outlet. Regulatory costs per gallon are
therefore likely to be much less for a high-volume outlet than for a
low-volume outlet. This will limit the potential for lower- volume
outlets to pass compliance costs through to customers.
• Some outlets are much further along in programs to prevent and detect
releases. Such outlets will incur relatively few compliance costs
for either tank upgrading or corrective action. Competition from
them will thus tend to limit the ability of other outlets to pass
compliance costs through in the form of higher prices.
• Entry into the retail motor fuel sector is easy. A new convenience
store with both gasoline and grocery sales, for example, can be con-
structed and stocked for £250,000 to £600,000. 1/ Newly built
facilities will experience little or no cost impacts related to new
tank standards. They also will have relatively low corrective action
costs, because their tanks will not be bare steel. Thus competition
from actual or potential entrants into the retail motor fuel market
will limit the ability of existing firms with old tanks to pass
compliance costs through to customers.
1/ National Association of Convenience Stores, 198b State of the
Convenience Store Industry, 1985.
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E-42
The size of regulatory compliance costs per outlet depends critically
on whether or not a release occurs, and on the size and nature of the
release and the costs of responding to it. In the absence of UST
insurance, these costs will not be spread evenly over outlets. Thus
competition from outlets that do not experience a release will tend
to prevent outlets that do have a release from passing the related
corrective action and tank replacement costs through to consumers.
The extremely u/ieven--and largely random—distribution of compliance costs
is a key factor in analyzing iiipacts. A 3-tank motor fuel outlet that
experiences no release will have 10-year monitoring and tank upgrading costs
that average roughly £1,500 per year. An outlet that has a large plume re-
lease will probably incur costs in excess of $100,000 and--if it is an open
dealership—will fail as a result. Moreover, the inpact of this disparity in
regulatory costs on large and small firms is quite different. By way of
illustration, if 20 out of 100 open dealers have large plume releases, this
20 percent will fail even if the average compliance cost alone would not have
been enough to cause any of the 10U dealers to fail. The result is different,
however, for larger firtns--say b larger firms, each with 20 outlets, 4 of
which experience large plume releases. In each case the firm's other lb out-
lets may earn enough profit to compensate the firm for the costs of compliance
associated with all 20 of its outlets; whether or not the four outlets witn
releases remain open, the firm itself will not fail if the average compliance
costs for all 20 outlets is less than the net income of the firm. The key
difference between the larger firm and the open dealer lies in the pooling of
risk that a firm with multiple outlets can achieve, even if insurance is not
available. (In addition, a larger firm is likely to have better access to
credit to cover an unusually costly release than will an open dealer.) Thus,
while the large firm may face higher average regulatory costs than small firms
that have no releases, the ability to pool risk will result in a large cost
advantage over small firms that do experience releases.
The numerical illustration presented above is borne out in the analysis of
larger firms. Results for large retail motor fuel firms other than refineries
are shown in Exhibit E.7. These results indicate that, with no revenue in-
crease, the average large firm will be in financial distress over a b-year
horizon, but will break even (zero net income) over a 10-year horizon. If
price increases are possible, however, the situation for a large firm improves
substantially. As little as a one-percent price increase is sufficient to
make the rate of return (net of compliance costs) greater than the baseline
rate of return over a 10-year horizon, although the rate of return for the
large firms over five years is still negative as a result of regulatory
costs. A 3-percent price increase, however, is sufficient nearly to produce a
rate of return over bO percent higher than the baseline rate of return even in
the first five years and to more than double the baseline rate of return over
a longer period. A 5-percent price increase would produce rates of return
three to four times the baseline level. Clearly, with a price increase of
2 percent or more, larger firms would be more than able to recover average
compliance costs—including those of very costly releases—from increased
revenues by pooling risk among outlets.
This pooling option is not available to small firms. Indeed, the analysis
in Section 6.B indicates that even with a 3-percent price increase, the pro-
posed rule would still produce the exit (net of natural exit) of iy percent of
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E-43
Exhibit E.7
ECONOMIC IMPACT OF REGULATION UNDER THE PROPOSED RULE
ON THE RATE OF RETURN FOR LARGE FIRMS I/, ASSUMING
REVENUE INCREASES OF 1, 3, OR 5 PERCENT
After-tax
Rate of Return on
Total Assets
Scenario
Years 1-b
(%)
Years b-10
(X)
Years 11-15
(*)
Base Case--No Regulation
4.2
4.2
4.2
Proposed Rule with
No Revenue Increase
-8.6
0.0
2.0
Proposed Rule with
Revenue Increase
1 Percent Revenue Increase
-1.9
4.fa
b.l
3 Percent Revenue Increase
7.1
11.9
13.2
5 Percent Revenue Increase
14.2
18.8
20.1
Source: Meridian Research, Inc. and Versar Inc., using affordabi1ity model
results.
1/ Firms with more than $4.6 million in sales, except refiners.
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E-44
current small firms. Yet a 3-percent price increase would make the rate of
return for larger firms both high enough to cover average compliance costs and
attractive enough to stimulate substantial entry.
These various facets of the competitive market make it unlikely that a
substantial level of compliance costs can be passed through to customers.
Moreover, to the extent that costs can be passed through, it is likely to be
routine compliance costs (monitoring and possibly tank upgrades) that are
borne by most outlets rather than corrective action costs that are borne only
by outlets experiencing releases. A revenue increase would itself do nothing
to alter the distribution among small firms of regulatory costs, which under
the proposed rule is largely a function of the fact arid severity of releases.
A price increase large enough to defray the costs related to a release would
certainly attract fierce competition from new entrants and existing firms that
did not have to bear corrective action and tank replacement costs or could
pool these costs among many outlets. Thus it is most unlikely that the major
cost impacts, which are likely to force a small firm to close but which are
borne only by some outlets, can be passed through to consumers.
E.b.D. Economic Effects
E.6.D.I. Effect of Failures and Other Exits from the Industry
The analysis presented above indicates that UST regulation will have a
very substantial inpact on the ability of small firms to survive—that many
firms will voluntarily leave the industry rather than incur compliance costs,
and many more will fail as a result of the costs associated with a release.
EPA's estimates of the impacts of different release events on the exit (in-
cluding failures) of single-outlet small firms can be summarized as follows:
• Monitoring and Tank Upgrading. If there is no release, the event
with the greatest irrpact in one year under the proposed rule is a
tank upgrade. An estimated 0.5 percent of small firms would exit as
a result of this cost iiipact.
• Mandatory Tank Replacement. Under options that require mandatory
replacement, an estimated 35.2 percent of small firms would exit as a
result of the cost impact of replacing one tank in a single year, and
an estimated 76.3 percent of small firms would exit as a result of
the cost iiipact of replacing three tanks in one year. Uf secondary
containment systems were required, these exits would be 35.5 percent
and 87.5 percent, respectively.) The actual impact lies somewhere in
between, since three tanks must be replaced but all three do not have
to be replaced in one year. Analysis of the median open dealer,
however, suggests that exit would be over 50 percent. These esti-
mated exits also indicate another dimension of the regulatory re-
quirements: the rapid phasing in of an expensive requirement has a
substantially higher inpact than a more gradually phased requirement.
• Non-Plume Release. It is estimated that, as a result of the average
cost impact of a non-plume release, 3.1b percent of single-outlet
dealers would fail if the tank could be repaired, and 15.b percent
would fail if the higher costs of tank replacement were required.
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E-4b
0 Small Plume Release. It is estimated that 27.7 percent of single-
outlet dealers would fail as a result of the average cost impact of a
small plume release that involved only cleaning up of a floating
plume, and 64.2 percent of single-outlet dealers would fail as a
result of the average cost inpact of a small plunie release that
involved cleaning up the floating and dispersed plume.
• Large Plume Release. It is estimated that 88.3 percent of single-
outlet dealers would fail as a result of the average cost impact of a
"large plume release.
• All Releases. It is estimated that a firm that has a release at one
of its USTs has a 48 percent chance of failing. It is possible that
the firm will have more than one release in a single year and very
likely that it will have more than one release in the first five
years after implementation.
The overall conclusions about the cumulative percentage of exit among all open
dealers, performed with the affordability model and presented in the R1A, are
presented in Exhibit E.fa.
The results of the analysis of exits under the proposed rule can be sum-
marized as follows: 1/
• Cumulative natural exit is estimated to be:
-- 19 percent through year b;
-- 28 percent through year 10; and
— 36 percent through year 15.
• Cumulative exit attributable to the impact of regulatory costs is
estimated to be:
-- 52 percent through year 5;
-- 51 percent through year 10; and
— 49 percent through year 15.
• Total cumulative survival of existing firms is estimated to be:
-- 29 percent through year 5;
— 21 percent through year 10; and
— 15 percent through year 15.
1/ RIA, Sec. 6.B.
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E-4b
Exits attributed to the impact of the costs of the proposed rule were slightly
lower than the exits attributed to the costs of the four regulatory options
examined in the RIA. A regulation that causes 40 percent of existiny small
firms to leave the industry clearly has a significant impact on a substantial
number of small businesses.
E.6.D.2. Effect on Production
The high percentage of exit estimated to result from impacts of the pro-
posed rule suggests that production (i.e., retail services) will be sharply
reduced. For several reasons, however, this is not necessarily the case.
• When an outlet closes, sales will tend to be diverted to other out-
lets in the neighborhood.
• New entry into the retail motor fuel sector is relatively easy, and,
relative to existing firms, new entrants have a low level of compli-
ance costs associated with tank construction and a low risk of re-
leases.
• If production threatens to fall sharply, the retail price of gasoline
will probably rise somewhat, which will both slow exit and stimulate
new entry.
Just how much production falls depends largely on how much gasoline prices
rise. Price increases will tend to be transitory, however, since they will
stimulate sales by new entrants and by high-volume outlets that have not ex-
perienced releases. Decreases in production can be expected to be quite small
compared with the percentage of gross exits.
E.6.D.3. Effect on Employment
The level of employment in the retail motor fuel sector depends on a
variety of factors. These include the number of retail outlets, the volume of
sales per outlet, the average hours maintained by outlets, and other institu-
tional factors such as the percentage of gasoline sold through self-service
pumps. If a substantial percentage of existing firms exit, employment in this
sector will be reduced. Yet entry of new firms and increases in the volume of
sales of other surviving firms will tend to offset this effect. There may be
a tendency for employment to fall relative to motor fuel sales if existing
firms have full-service outlets and the outlets that replace them are
convenience stores or ugas-and-go" outlets. However, the effects on
employment are difficult to estimate with precision.
E.6.D.4. Effect on Market Structure
The proposed regulation will tend to have more inpact on marginal firms
and on low-volume firms than on financially healthy firms. It seems probable
that some reduction in the total number of retail outlets will also occur.
Firms owning large numbers of outlets—principally refiners and the largest
convenience stores—may experience somewhat smaller iripacts to the extent that
they already have programs to retire and upgrade USTs. The overall percentage
of small firms that exit can be expected to be substantially higher than the
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E-47
percentage of large firms that exit because small firms cannot pool regulatory
costs among outlets. Nevertheless, it is not clear that a significant in-
crease in market concentration will result from the proposed rule. Several
factors are important:
• The regulation will provide significant opportunities for new entry,
and large firms have no obvious advantages over small firms when it
comes to entry.
• Of the total number of retail outlets owned by large firms, bb per-
cent are operated by independent lessee dealers rather than by the
large firms themselves. Thus a move by large firms to expand the
number of outlets they own would be likely to result in an increase
in the number of lessee dealer firms.
• High-volume outlets, which are likely to gain the most business, are
owned by relatively small businesses as well as large businesses.
• One of the fastest growing classes of retail motor fuel outlets-
convenience stores—may not be small by the SBA definition but are
small enough to reduce rather than increase overall measures of in-
dustry concentration.
The proposed rule can be expected to cause a substantial reduction in the
number of small firms currently in the sector; however, this does not mean
that large firms will gain substantial market share. There may be little net
reduction in the number of small retail motor fuel firms. Even if the firms
that gain the most are not "small" in the sense used in this analysis, they
are unlikely to be large enough to increase market concentration.
E.6.E. Potential for Alternatives to Reduce the Inpacts on Small Entities
The basic purpose of the Regulatory Flexibility Act and of any regulatory
flexibility analysis is to examine alternatives to the proposed rule that may
have a smaller impact on small businesses than the rule itself, and to adopt
such alternatives whenever possible. There are two basic types of alterna-
tives: 1) exemption of small businesses; and 2) alternate provisions in the
regulation that would apply to small businesses.
E.6.E.I. Small Business Exemption
Small businesses own or operate 7b percent of retail motor fuel outlets in
the United States. Retail motor fuel outlets of different sizes differ only
slightly in the number of USTs they own. To the extent that the probability
of a release is related to the size of the firm owning the facility at all,
USTs owned by small firms may be somewhat more likely to leak than USTs owned
by large firms, because small-firm-owned USTs are slightly more likely to be
bare steel. There is no inherent relationship between the size of the firm
that owns an UST and the threat posed to human health and the environment by a
release from an UST. In short, at least three-quarters of the potential dam-
age to human health and the environment that is expected to occur as a result
of releases from USTs is likely to be associated with USTs owned or operated
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E-48
by small businesses. Any exemption for small businesses—especially an exemp-
tion from the corrective action requirements, which cause the greatest impacts
on small businesses—would therefore fail to achieve the statutory goals set
forth in Subtitle I.
E.6.E.2. Alternative Regulatory Provisions for Small Businesses
The potential for promulgating alternative provisions for small businesses
that would be less burdensome than the provisions of the proposed rule is
virtually eliminated by one basic fact: The provisions in the proposed rule
are already substantially less burdensome than available alternatives. In
particular:
• Continuous monitoring would have a capital cost four times as great
as that of the frequent monitoring required by the proposed rule.
Moreover, the tank tightness tests allowed as an interim measure for
existing USTs have no capital costs, and their present value cost
(over a 10-year horizon) is less than half that of any other method.
This minimizes the potentially adverse impact on small businesses of
immediate compliance with new tank detection requirements.
• Mandatory replacement of bare steel tanks would be approximately ten
times more expensive than the tank upgrading required by the proposed
rule. A mandatory replacement requirement would cause something like
half the single-outlet firms to exit the industry, whereas the re-
quirement as proposed will have minimal impacts.
• Secondary containment systems are nearly 20 percent more expensive
than the proposed rule's new tank requirement of a coated and
cathodically protected system. By avoiding these higher initial
costs, the proposed rule minimizes the adverse impact on small busi-
nesses.
• The proposed rule allows leaking tanks to be repaired, within limits
designed to ensure that tank repair is technically sound. This saves
an estimated £13,500 (about two-thirds of the installed cost of a new
tank) over the costs of replacing a tank. Tank repair would be par-
ticularly attractive to small businesses that would wish to continue
their operations by repairing their existing tanks. It would produce
a percentage of exit for single-outlet firms that is estimated to be
one-quarter lower than tank replacement exits in the event of a non-
plume release.
Virtually the only element of any of the options analyzed that would have
a lower direct financial impact on small businesses than the requirements of
the proposed rule would be a waiver of the requirement to upgrade or replace
bare steel tanks in circumstances other than detection of a release. This
provision itself, however, would have a very significant inpact on a substan-
tial number of small firms, since it would provide no protection against re-
leases—and there is a better than bO percent chance that a small business
will fail when a release occurs.
Leak detection is part of the proposed rule, and it is considered by EPA
to be a requirement that is essential to the program. Indeed, leak detection
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E-4y
is the key to other elements of flexibility in the proposed rule, especially
the gradual phasing in of provisions and the allowing of tank upgrades rather
than replacement. Moreover, the costs of the leak detection requirement are
not estimated to have significant economic impacts on small businesses.
The gradual phasing in of provisions is an element of regulation often
used to minimize the inpacts on small businesses. The proposed rule, however,
already utilizes this approach. Because rapid upgrading would have the high-
est up-front costs, the greatest iiipact on small businesses, and might simply
not be practical, the proposed rule allows tank upgrades to be spread out over
10 years.
Corrective action is not precisely prescribed in the proposal, except for
the mandatory requirement to clean up any floating plume. The site-specific
assessment approach embodied in the proposed rule, which was designed to seek
out cost-effective solutions, is itself an element of flexibility that will
minimize impacts on small businesses.
In promulgating the proposed rule, EPA has attempted to provide as much
flexibility for small firms as possible. Inclusion of alternative provisions
that would further reduce the burden on small firms thus does not appear to be
a realistic possibility.
E.6.E.3. The Regulatory Flexibility Act and UST Regulations
In mandating the consideration and use of less burdensome alternatives for
small entities, the Regulatory Flexibility Act is concerned with two types of
situations: either there are substantial economies of scale in some aspect of
compliance, so that small entities will have high unit costs, and/or small
businesses constitute a relatively minor part of the problem, so that less
thorough compliance by this part of an industry will produce relatively little
harm. For USTs, at least in the retail motor fuel sector, neither of these
situations holds. Compliance costs vary a great deal, but this variability is
unrelated to economies of scale with respect to number of outlets or to firm
size. Collectively, small businesses contribute significantly to a large and
serious problem, so that ignoring them would leave the problem unsolved. The
potential basis for relieving the burden on small businesses that the Regula-
tory Flexibility Act envisioned thus does not exist in the case of the
regulation of USTs.
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APPENDIX F
METHODOLOGY FOR ESTIMATING RISK
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APPENDIX F
METHODOLOGY FOR ESTIMATING RISK
1. INTRODUCTION
1.1 Purpose of the Risk Estimation Methodology
The methodology for calculating risk that is used in this report and
referred to in Chapter 7 is an ordered, logical set of steps that transforms
data on the UST problem into estimates of risks to human health. It is
intended to support the regulatory impact analysis (RIA) by providing detailed
estimates of the damages that leaking USTs are likely to impose in the
baseline (that is, with no further regulation). In addition, when the
methodology is applied to the anticipated situation under the proposed
regulations and the alternatives, we can obtain a measure of the damage
reductions provided by the regulations compared to the baseline. This measure
is an important component of the process of estimating the regulatory benefits.
1.2 Purpose of This Appendix
This appendix is intended to provide a conceptual overview of the risk
estimation methodology, and descriptions of the individual steps required by
the methodology and how they fit together to produce estimates of risks to
humans.
An additional purpose of this appendix concerns the assumptions made in
the course of the analysis. While the methodology builds as directly as
possible on empirical data and data outputs from simulations performed using
the UST Model, we found that assumptions had to be made at several key
points. The appendix discusses the bases for the key assumptions and how they
affect the results. One major purpose of this appendix is to present the
methodology in sufficient detail to allow interested parties to provide useful
suggestions for changes and improvements in the estimation procedures.
This appendix, as well as the sections of the main body of the report
that deal with risk analysis, was prepared by ICF Incorporated, and describes
work done by ICF and Pope-Reid Associates (PRA) in conjunction with Sobotka &
Co., Inc. (SCI).
1.3 Organization of the Appendix
The appendix is divided into five sections. This first section
introduces the methodology, with a schematic look at situations that impose
risk. The first section also presents an overview of the three-stage approach
used for estimating risk: 1) estimating the risks in each of a large number
of scenarios; 2) estimating the frequency of each scenario; and 3) integrating
these steps to provide a distribution of individual risks ans an estimate of
aggregate population risk.
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-2-
The second, third, and fourth sections cover in detail each of the three
stages of the risk estimation approach in turn. The second section describes
the individual steps taken to estimate risks in given scenarios, and presents
the data inputs and outputs of the process. The third section describes the
steps taken to estimate the nationwide frequency, or probability, of each of
the scenarios whose risks have been estimated. As in the second section, the
data inputs and outputs are presented. The fourth section integrates the
estimates of risks by scenario and scenario probabilities described in the
second and third sections.
Finally, the fifth section discusses the most important assumptions used
in the analysis. We describe each of the assumptions in the context of the
risk estimation steps in which they are involved. We then discuss the basis
for each assumption is discussed, and the effect that changes in the
assumptions would have on the results.
1.4 A Schematic Look at a Situation that Imposes Risk
A generalized scenario for the kind of risk-imposing UST incident
considered by the methodology can be described briefly as follows. An
underground gasoline storage tank or its associated piping fails, and releases
gasoline over some period of time before the failure can be detected and
stopped. Before the release is discovered, the released product moves
downward through the backfill surrounding the tank, and then into the
unsaturated zone. If enough time elapses, the released product contacts the
top of the water table aquifer and, since gasoline is lighter than water, it
spreads out over the ground water into a floating plume. By various
processes, chemical components move out of the floating plume and into the
ground water.
The contaminants travel along through the aquifer, moving downgradient
and spreading out. A private well, sunk into the surficial (unconfined)
aquifer some distance away, withdraws contaminated water after the dispersed
plume reaches it. Through drinking the contaminated water, exposure occurs
over time, until the release is discovered or exposure ends because the water
becomes too contaminated to use.
The risk imposed in this case will depend on the concentrations the
contaminant reaches at the receptor well, the length of time over which
exposure occurs, the toxicologic potency of the gasoline components, and, for
population risk, the number of exposed individuals. The highest risk to any
individual is generally experienced by those using the closest downgradient
well, where concentrations will be highest over the longest period of time.
Scenarios like this one occur at many locations, each with a different
combination of tank type, release rates and duration, aquifer depths and
material, ground-water velocity, and distribution of wells. To estimate the
total risk and the distribution of the maximum risk, then, we need a
methodology that is able to estimate total and maximum risks for each of a
large number of scenarios, and then combine these estimates using information
on the frequency with which each scenario is likely to occur.
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-3-
2. RISK ESTIMATION BY SCENARIO
2.1 Components of the Scenarios
We assessed risk from exposure to gasoline for 9,720 different exposure
scenarios in each regulatory option. These scenarios comprise combinations of
three tank designs, four vadose zone types, nine floating plume sizes, three
ground-water velocities, and 30 exposure well locations.
2.1.1 Tank Designs
We assumed that existing tanks in the base case were made of either bare
steel or fiberglass, in proportions of 89 percent bare steel to eleven percent
fiberglass. All replacement tanks were assumed to be protected tanks. The
tank design affects the frequency with which leaks develop, and the leak rate
once a failure has occurred.
2.1.2 Vadose Zone Types
The four vadose zone types were sandstone/limestone/shale, sand,
metamorphic/igneous, and silt/clay. The vadose zone type influences the
dimensions of the floating gasoline plume for a given leak.
2.1.3 Floating Plume Size
Given a population of 1.4 million tanks, the UST model predicted the
number and average duration of plumes of different sizes. No plumes were
predicted with a size of greater than 10,000 square meters for any vadose zone
type. The plumes that were predicted fell into nine size ranges (0-1, 1-10,
10-25, 25-100, 100-500, 500-1,000, 1,000-2,000, 2,000-5,000, and 5,000-10,000
square meters). The floating plume size affects the transfer of benzene from
the floating plume to the aqueous (ground-water) phase and the degree to which
the contaminant is concentrated along the centerline of the dispersed plume.
2.1.4 Ground-Water Velocities
Ground-water velocity affects the transit time for benzene to reach the
wells, and its concentration in the water reaching the wells. We considered
three different ground-water velocities: 0.1 m/day, 1 m/day, and 5 m/day.
Pope-Reid Associates (PRA) developed a modified version of the Wilson-Miller
analytic solute transport model. This model simulates concentrations
resulting from a point source release of contaminant. In order to simulate an
area source of finite size, multiple benzene injection points were used. We
assumed the same retardation factor (7.6) in all media. This is a mid-range
value (the estimated range for most aquifer media is approximately 4-12) and
mainly affects the timing of the arrival of benzene at an exposure well; the
variation in predicted concentrations is not great if different retardation
factors are used.
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-4-
2.1.5 Position of Exposure Wells
Benzene concentrations were estimated at 30 exposure wells located in a
grid covering a range of transport distances that may be achieved up to the
time the leak is discovered. The grid has wells at distances of 10, 25, 50,
100, 250, 500, 1,000, 2,000, and 2,500 m downgradient located on the
downgradient centerline and at 50 m and 100 m transverse to the centerline.
Well locations relate to the intensity and duration of exposure to benzene in
the drinking water.
We combined all of these information elements, and predicted risk to
individuals for each of these scenarios within each regulatory option. We
also combined our estimate of individual risk with an estimate of population
risk.
2.2 Calculation of Risks
This section describes the methodology used for calculating human health
risks in the UST Model and presents examples of these calculations. PRA
generated a separate benzene concentration profile (showing predicted
concentrations over time at a fixed depth) for each combination of vadose zone
type, floating plume size, ground-water velocity, and exposure well position.
The risk estimation methodology produces an estimate of human health risks for
each concentration profile that is dependent on the size of the population
affected at the exposure well and the duration of the exposure.
The first step in calculating risk is to limit the number of years of
exposure according to the duration of the plume. Under the assumption that
the plume is removed when the leak is detected, benzene concentrations at
exposure wells occur only prior to detection.
The next step is to adjust the initial concentrations predicted by PRA's
transport model by a loading rate factor, to take into account the benzene
mass loading rate to ground water. This adjustment factor enters the
calculation of risk as shown in equation (1):
i
(1)
where:
CA = adjusted benzene concentration (ug/1)
i
ML = mass loading adjustment (dimensionless)
Co = initial predicted concentration (ug/1).
i
Yearly benzene concentrations in drinking water are converted into
chemical doses to exposed individuals. The risk estimation methodology
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-5-
predicts chronic effects and is based on lifetime chemical dose. Therefore,
yearly chemical concentrations must be transformed to average lifetime dose
levels in mg/kg-day. The yearly concentration is converted to an annual dose
by assuming that average human body weight is 70 kg, and absorption efficiency
is 100%, thereby yielding equation (2) for the yearly dose computation:
D = (2 1 /70 kg/day) * CAi (ug/1) = 0.029 (2)
i
where:
D = yearly dose in mg/kg-day
i
0.029 = conversion factor of concentrations in ug/1 into
dose in mg/kg/day.
The yearly dose profile is then transformed into a profile of 70 year
average doses, assuming an individual life span of 70 years using equation (3):
i
DA = I D / 70 (3)
i
t=i-70
where:
DA = average lifetime dose (mg/kg/day)
i = current year.
Finally, carcinogenic risk is predicted in each year for an individual
having received a full lifetime exposure using equation (4):
R = 1 - exp C-H * DA) (4)
where:
R = lifetime individual risk
-1
H = potency or unit risk of benzene (mg/kg-day)
DA = lifetime average dose (mg/kg-day)
Population risk is calculated by multiplying individual risk by the
number of people exposed.
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-6-
2.3. Examples of Risk Scenarios
In order to make the risk estimation procedure more concrete, we have
constructed two specific scenarios to use as examples. One is a typical or
median situation, in that its individual characteristics would not lead us to
label it either a particularly high or particularly low risk case. Partly to
emphasize the wide range in characteristics related to risk, and partly to
make clear that the typical case is not the only type of risk scenario
considered, we have structured the second example to be a high-risk case.
2.3.1 A Typical Risk Scenario
In this scenario, there is a gasoline storage tank situated in a sand
aquifer, where ground water is moving 1.0 meter per day. The nearest
downgradient private well is 100 m away. The nearest public well is much
further away, on the other side of a small river, and thus would not be
affected by any releases from the UST.
The tank begins to leak, slowly at first, so that the loss of product is
not immediately noticed (given the inventory control procedures used by the
UST operators). The leak rate grows over time until the leak is detected at
the end of two years. By the time of detection, the release has formed a
roughly circular floating plume 100 m2 in area.
2.3.2 Predicted Concentrations and Risks in the Typical
Risk Scenario
For this scenario, PRA's transport model calculates initial
concentrations for the two years as shown in Exhibit F.l. Given the aquifer
type, the loading rate adjustment was.3,500 meaning that the injection of
benzene into the ground water from the floating plume is 3,500 times as fast
as would be predicted on the basis of diffusion across the area of the
floating plume/ground water interface alone. The application of this
adjustment factor yields the adjusted concentrations shown in the second
column of Exhibit F.l.
The yearly dose for each individual using the well computed using
equation (2) are shown in the third column of Exhibit F.l.
The average lifetime dose is calculated using equation (3), and is shown
in the fourth column of Exhibit F.l. Finally, the risk computed in each of
the years is shown in the last column.
Population risk at this well in this individual scenario is equal to the
number of individuals using the well times the individual risk shown in
Exhibit F.l. Population risk for the release would include additional risks
for any other wells affected by the release. Because it was assumed that the
exposure well is the closest to the UST, the risks to the individuals using it
would be designated as the risks to the most exposed individuals (MEI) for
this tank.
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EXHIBIT F.I
COMPUTATION OF RISKS FROM A TYPICAL SCENARIO
(assumes sand aquifer, 100 m2 plume, two year duration, nearest well at 100
m, and ground-water velocity at 1.0 m/day)
Initial Adjusted Yearly Lifetime Lifetime
Concentration Concentration* Dose Dose Individual
Year (mg/1) (mg/1) (mg/1) (mg/1) Risk
1 4.28 E-9 1.48 E-5 4.28 E-7 6.11 E-9 1.8 E-10
2 2.03 E-5 7.07 E-2 2.03 E-3 2.92 E-5 8.5 E-7
* Adjustment factor = 3,500.
Source: UST Model outputs and calculations by ICF.
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-8-
2.3.4 A High Risk Situation
Some factors tending to increase risk include larger plumes; longer
lasting plumes; slower ground water (which raises maximum concentrations and
thus maximum risks for nearby wells); closer exposure wells; more individuals
exposed per well; and more exposure wells. One composite high-risk scenario
could consist of several of these factors combined. We present below the risk
calculations for a scenario in which a tank is located in a sandstone aquifer,
and leaks for ten years before the release is discovered, creating a 3,500 m2
floating plume. In addition, the ground-water velocity is slower, at 0.1
meters per day rather than 1.0. The nearest exposure well is only 50 meters
away.
2.3.5 Predicted Concentrations and Risks in a High Risk Scenario
Exhibit F.2 presents the calculations used to estimate risks from the
release to individuals at the nearest well. MEI risks are more than 1,000
times higher than in the more typical case, and population risks for this well
are also much higher. Population risk from the release would be calculated
with data on individual risks at all of the affected wells.
2.4 Constituents of Concern in the Release
2.4.1 Composition of Gasoline
Gasoline is a complex mixture of chemicals largely composed of
hydrocarbons. Modeling all of the compounds present in gasoline and
evaluating their potentially harmful effects would be an enormous effort. A
more manageable approach for predicting health effects from gasoline is to
select chemicals to serve as surrogates for the complex mixture. In order to
pick the most effective chemicals to use in modeling gasoline, a variety of
factors were considered. These included composition of gasoline and the
relative concentration of constituents both in the complex mixture and in its
aqueous solution; toxicity and health hazards caused by gasoline as a whole as
well as by individual constituents; and factors affecting exposure potential,
such as mobility and persistence.
Theoretically 1,200 to 1,500 different hydrocarbons could be present in
gasoline. However, only 100-200 compounds are likely to exist in
concentrations that can be identified at the levels of detection of current
analytical techniques (Shehata, 1983). Ninety-eight percent of these
compounds are hydrocarbons. Composition of gasoline varies according to the
source of crude oil, variations in the individual petroleum streams used to
blend gasoline, selection of the stream used in blending, and the season of
the year for which the gasoline is blended. Despite this variability, similar
components can be found in most gasolines; although the concentrations of
these components are quite variable (Shehata, 1983).
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EXHIBIT F.2
COMPUTATION OF RISKS FROM A HIGH-RISK SCENARIO
(assumes sandstone aquifer, 3500 ra2 plume, ten year duration, nearest well at
50 m, and ground-water velocity at 0.1 m/day)
Year
Initial
Concentration
Adjusted
Concentration-
Yearly
Dose
Lifetime
Dose
Lifetime
Individual
Risk
1
2.95
E-9
5.86 E-6
1.7
E-7
2.4
E-9
1.0
E-10
2
1.89
E-5
3.35 E-2
9.7
E-4
1.4
E-5
4.0
E-7
3
2.76
E-4
5.48 E-l
1.5
E-2
2.3
E-4
6.7
E-6
4
1.07
E-3
2.13
6.2
E-2
1.1
E-3
3.2
E-5
5
2.39
E-3
4.75
1.4
E-4
3.1
E-3
8.9
E-5
6
5.87
E-3
11.66
3.4
E-l
7.9
E-3
2.3
E-4
7
7.73
E-3
15.36
4.4
E-l
1.4
E-2
4.1
E-4
8
9.61
E-3
19.09
5.5
E-l
2.2
E-2
6.4
E-4
9
1.14
E-2
22.65
6.6
E-4
3.1
E-2
8.9
E-4
10
1.3 :
E-2
25.83
7.5
E-l
4.2
E-2
1.2
E-3
* Adjustment factor = 1,987.
Source: UST Model outputs and calculations by ICF.
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Additives are added to gasoline to improve its performance as a motor
fuel. These compounds may be added for antiknock properties, or as
antioxidants, surfactants, and deposit modifiers. They are usually added in
very small quantities. Some of the additivies to leaded gasoline, including
tetraethyl lead, and ethylene dibromide (EDB) are quite toxic. However, the
phase-out of leaded gasoline will serve to lower the concentration and amount
of lead and EDB stored in tanks, reducing their significance as ground-water
pollutants.
2.4.2 Health Hazards from Gasoline and Its Constitutents
Few studies on whole gasoline are available; the Carinogen Assessment
Group (CAG) has derived a risk value for whole gasoline but it was derived
from an animal bioassay rather than human studies. An effective chemical
surrogate for gasoline should be present in significant quantities and also be
responsible for a significant portion of the toxicity expected from gasoline.
Therefore, in order to identify effective surrogate chemicals for gasoline it
is important to determine components in gasoline that are responsible for the
majority of its toxicity. Gasoline can be divided into four major classes of
hydrocarbon components: alkanes, olefins, alicyclic compounds, and aromatic
compounds; chemical additives also should be considered. A good general
discussion of the toxicity of these gasoline constituents can be found in
Drinking Water and Health, written by the National Academy of Sciences
(1982). This report states that the alkane fraction of gasoline has
relatively low toxicity, the olefin fraction exhibits little toxicity other
than weak anesthetic properties, and the alicyclic hydrocarbons act as general
anaesthetics and have depressant effects on the central nervous system with a
relatively low degree of acute toxicity. The alicyclic compounds are not
cumulative and have little, if any significant toxicity upon prolonged
exposure.
The report also indicates that aromatic hydrocarbons generally have been
regarded as the most toxic fraction of petroleum and petroleum solvents, and
that this fraction is also the most soluble in water. The aromatic fraction
contains benzene, alkyl derivatives of benzene, and small quantities of
various polynuclear aromatic hydrocarbons. Benzene, because of its
volatility, unique myelotoxcity, and carcinogenic potential, is the most toxic
component. The toxicity of toluene, the xylenes, and other alkylated benzene
derivatives is considerably lower. Although chemical additives have a fairly
high degree of toxicity, their concentrations in gasolines are quite low.
Moreover, they have a relatively low solubility in water.
Consequently, the report concludes that an assessment of the toxicity of
drinking water contaminated by crude oil or refined petroleum products should
focus on the aromatic fraction. Further it determines that, because benzene
is the most acutely toxic member of the aromatic fraction and also has the
highest solubility in water, the toxicity of drinking water polluted by crude
or refined petroleum will be determined largely on the basis of benzene
content.
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-11-
Based on the discussions in the National Academy of Sciences report and
the concentrations of individual chemicals in gasoline we identified the toxic
properties and potencies of benzene, toluene, ethyl benzene, and ethylene
dibromide. Using standard EPA intake assumptions and the acceptable chronic
intake levels, we calculated acceptable ground-water concentrations for each
of these chemicals assuming that all the exposure to a given pollutant comes
from ground water.
A comparison of these concentrations showed that EDB produces serious
effects at much lower concentrations than the other chemicals under
consideration, and that concentrations of benzene producing significant
harmful effects are considerably lower than those of the alkylated aromatics.
Because EDB is an additive to leaded gasoline only, both EDB and benzene
should be modeled as the chemicals of concern for leaded gasoline. For
unleaded gasoline, the chemical of concern based on health effects should be
benzene alone. The Carcinogen Assessment Group has determined a unit risk
-1
value of 0.029 Cmg/kg/day) for benzene and this value is derived from human
epidemiologic data.
In addition to toxicity, the exposure potential for possible surrogate
chemicals for gasoline was considered. Consideration was given to factors
affecting the environmental fate and transport of components of gasoline as
well as their toxicity and concentration. A paper by Johnson and Dendrous
(1984) reports that "the primary mode of gasoline migration occurs after the
gasoline product has dissolved in ground water ... Thus, the hydrocarbons that
dissolve into the ground water constitute the greatest threat to public water
supplies." Both EDB and benzene are fairly soluble.
3
Benzene has a water solubility of 1.75 x 10 tng/1 (U.S. EPA, 1984A) and
3
EDB has a water solubility of 4.3 x 10 mg/1 (Verschueren, 1983). Toluene has
2
a water solubility of 5.3 x 10 mg/1 (U.S. EPA, 1984B), which is similiar to
those of ethyl benzene and xylene. Hexane, a representative of the aliphatic
compounds, has a solubility of 9.5 mg/1 (National Academy of Sciences, 1982).
Benzene, because of its high water solubility compared to other hydrocarbon
components of gasoline, may be concentrated by a factor of ten in the water
soluble fraction of gasoline (the portion that dissolves in ground water and
migrates with it) (Guard et. al., 1983).
Once dissolved in ground water, components of gasoline may move with the
ground water, absorb to soil, or be degraded by biological and physical
mechanisms. Evidence in the literature suggests that straight-chain paraffins
are the most susceptible to microbial degradation (Davis et. al., 1972).
Cycloparaffins have been found to be poorly oxidized by microorganisms (Van
der Linden and Thijsse, 1965). Biodegradation of aromatics has been reported
but not quantified (Brookman et. al., 1985), and evidence suggests that it may
be slow in anaerobic environments. Basically, the conclusion for benzene
biodegradation is that it is possible, even probable in some environments, but
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-12-
not sufficiently generalizable or quantifiable to justify rapid biodegradation
in general modeling efforts. EDB is very slowly degraded, having a reported
half-life for chemical degradation of 2.5 years (Vogel and Reinhard, 1983).
Absorption to soil particles varies depending on pH, organic content of
the soil, soil moisture content, consistency of soil, and temperature
(Brookman et. al., 1984). Some generalizations have been made suggesting that
the absorbability of hydrocarbons decreases in the order of olefins £
aromatics £ cycloalkanes £ alkanes (Houzim, 1978). Higher molecular
weight hydrocarbons absorb preferentially in all hydrocarbon systems and soils
(Moore, 1976), suggesting that benzene will be the least absorbed aromatic
hydrocarbon. Other studies report that benzene is not greatly absorbed in
soil or some kinds of clay (Rodgers et. al., 1980). Consequently, benzene
will migrate with the ground water and will not be greatly attenuated.
2.4.3. Conclusion
In light of the information on toxicity, concentration, and exposure
potential, benzene appears to be a reasonable chemical to serve as a surrogate
for gasoline exposure and health effects. Benzene appears in concentrations
ranging from 0.5 to 5 percent of the total gasoline volume. It is one of the
most toxic chemicals in gasoline. Certainly it is the most toxic chemical
appearing in significant concentrations, especially in unleaded fuel, which
does not contain EDB. Unleaded fuel already accounts for 60 percent of
gasoline demand and will continue to increase its share of the gasoline
market. EPA has proposed complete elimination of leaded gasoline as early as
January 1988, reducing further the problem of lead and EDB contamination.
Benzene is one of the more soluble components of gasoline and is only
moderately adsorbed onto the soil, resulting in a high exposure potential.
Consequently, benzene is the best choice to represent risks from gasoline
exposure, although EDB may also be modeled for leaded gasoline.
We chose to use the Carcinogen Assessment Group's unit risk value (0.029
-1
(mg/kg/day) ) for benzene rather than a risk value derived from a recent
animal bioassay for whole gasoline because the former value was derived from
human epidemiologic data. This represents an upper bound (95 percent-level)
confidence limit on the carcinogenic potency of benzene. Preliminary
calculations suggest that the use of value for whole gasoline would raise
estimated risks by less than a factor of two. Also, we believe benzene is
better choice than gasoline to determine risk because the components of
gasoline would separate as they moved within the ground water so exposure to
whole gasoline is unlikely to occur.
2.5 Rate of Transfer of Benzene from the Floating Phase to Ground
Water
We determined that there are three potential rate-limiting steps for the
concentration of benzene in the aqueous plume. These are the total mass of
benzene available (i.e., the benzene mass leak rate), the transfer rate across
the pore surface area within the floating plume, and the infiltration leaching
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-13-
rate. Each of these values was calculated as shown in the equations below for
different plume sizes and vadose zones, and the slowest rate for each
combination of plume size and vadose zone was used as the rate of transfer
from the floating plume to the aqueous phase.
LEAK RATE =AxTxPxFx Dens / Dur
A = floating plume area,
T = floating plume thickness
P = porosity,
F = fraction of pore space occupied by gasoline,
Dens = density of benzene in gasoline,
Dur = duration of leak
TRANSFER RATE ACROSS PORE AREA = A x T x SVR x Flux
SVR = surface to volume ratio,
Flux = flux across surface
INFILTRATION LEACHING RATE = A x I x S
I = net infiltration,
S = solubility of benzene in a gasoline: water system,
assumed to be 55 mg/L.
I = W x (1 - RO) x (1 - E), where
W = available water (precipitation + pad washdown),
RO = runoff coefficient (assumed to be 0.90), and
E = evaporation coefficient (assumed to be 0.25).
Values for T, P, F, SVR, and Flux are provided in Exhibit F.3.
2.6. Transport Modeling to Estimate Benzene Concentrations_
Three different ground-water velocities were considered (O.lm/day,
lm/day, and 5m/day) in order to cover the range of velocities for the
different vadose zone types. The model used was a modified version of the
Wilson-Miller analytic solute transport model, which simulates concentrations
that result fnom a point-source contaminant release. We used multiple benzene
injection points in order to simulate a source of finite area. The
retardation factors for most aquifer media fall in the range of four to twelve
and we chose a mid-range value (7.6) to represent the retardation factor in
all media. The variation in predicted concentration using difficult
retardation factors is not great.
We used the model to estimate benzene concentrations at 30 wells screened
two meters below the surface of the aquifer. The wells are located on a grid
downgradient of the tank covering a range of distances that may be reached
before the leak is discovered. The grid has wells on the centerline, and at
50m and 100m transverse to the centerline, at distances of 10, 25, 50, 100,
250, 500, 1000, 2000, and 2500m downgradient. No account was taken of effects
of pumping drawdown on benzene transport nor of the fact that a well that
pentrates the floating plume could withdraw part of this plume.
-------
EXHIBIT F.3
VARDOSE ZONE PROPERTIES FOR CALCULATING BENZENE TRANSFER FROM THE FLOATING PLUME TO THE AQUEOUS PHASE
Vadose Zone Type S.vmbo I
Floating Plume Thickness, m. T
Porosity P
Fraction of Pore Space F
Occupied by Gasoline
-1
Surface/Volume Ratio, m SVR
2
Flux, mg/(M -sec) Flux
Sandstone/Limestone/Shale Sand
0.11 0.11
0.35 0.35
0.6 0.6
980,000 31,000
-7 -7
5.5 x 10 5.5 x 10
Si I t/C I ay Mu Uimiorph1c:/ Igneous
6.6 11 l I
0.U25 n 15
0.6 0.6
300,000 310,000
-7 -7
5.5x10 5.5x10
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-16-
2.7 Type of Aquifer
The modeling was done under the assumption that the ground water being
contaminated is found in unconfined, surficial aquifers. It was also assumed
that exposure to humans is through ground water from wells that tap into these
unconfined aquifers. In an unconfined aquifer, the water table (the dividing
line between the saturated and unsaturated zones) forms the upper surface.
Water from wells in unconfined aquifers comes from dewatering of the saturated
zone. Transmissivities of unconfined aquifers may fluctuate and are a product
of aquifer hydraulic conductivity and the thickness of the saturated zone.
These aquifers are in direct communication with the ground surface by
percolation through the unsaturated zone. Thus, unconfined aquifers have a
higher potential for contamination than confined or semi-confined aquifers
because of their direct communication with the surface.
2.8 Duration of Exposure
2.8.1 Detection of Leak
In all cases we assumed that exposure would stop within one year of
detection of a gasoline leak from an underground storage tank. We did not
consider cases where tank owners or operators do not take corrective action
after detecting a leak.
2.8.2 Taste/Odor Threshold for Gasoline
We predicted risks based on two sets of assumptions; in both scenarios
leak detection stops exposure (see above). In the first scenario, exposure
ceases earlier if the modeled levels of gasoline in the plume correspond to a
total gasoline concentration that exceeds the taste or odor threshold; in the
second scenario concentrations above the taste/odor threshold do not terminate
exposure.
Taste and odor can serve as an indicator of ground water contamination
from gasoline that has leaked from underground storage tanks because some of
its constituents can be detected by the taste and odor they impart to the
ground water. It is unlikely that people will drink contaminated water if it
has a noticable taste or odor, so taste and odor thresholds are key factors in
determining whether water contamination by gasoline poses a significant risk
to human health. If chemicals are present in concentrations above their odor
threshold, the presence of contamination will be noticed, and we assume
consumption of contaminated water will be halted, and further risk will be
averted. If an odorous compound is not present, or is present in insufficient
concentration, the contamination will not be detected and exposure will
continue.
Taste and odor thresholds are subjective and great discrepancies exist in
the literature between thresholds for individual chemicals. In addition, the
components with the lowest toxicological thresholds may not be the ones with
the lowest taste and odor thresholds. Thus, certain components can serve as
warning flags but may not be hazardous themselves. Based on the threshold
-------
-17-
values of certain components, a value for the taste/odor threshold for
gasoline can be determined and it can be assumed that this threshold will
limit ingestion exposures to benzene and other toxic components of gasoline.
Because no threshold values for gasoline could be found in the
literature, the taste/odor threshold for gasoline was based on those of its
components. Taste or odor thresholds from aqueous solutions are available for
only three major components of the water soluble fraction (WSF): benzene,
toluene, and ethylbenzene. Benzene appears to have the highest threshold
value which is over an order of magnitude higher than that of ethylbenzene, as
determined by Alexander (1982). Benzene is, however, the most soluble of the
three compounds, and thus is likely to appear in considerably larger
concentrations in ground water. Considering concentration in gasoline,
solubility, and theresholds, it is unlikely that using toluene or ethylbenzene
rather than benzene would result in significantly different threshold values.
In fact, analyses of the WSF of gasoline (Guard et. al., 1983) have shown
similiar concentration and percent ranges for benzene and toluene; the ratio
of benzene to toluene is 1 to 1.3.
Although it is likely that chemical odors or taste are additive, we were
unable to locate any significant experiments concerning additivity of
thresholds so, to be conservative, no assumption about additivity was made.
Benzene odor thresholds for aqueous solutions range from 33.3 mg/1 to 0.072
mg/1 in the sources we identified. The 0.072 mg/1 threshold should be
considered a minimum value because the experimental conditions and sensitivity
of the panelists are likely to bias the results to give lower thresholds. The
taste threshold for benzene in water was reported as 0.5 mg/1. Published
toluene odor threshold values are less variable than those reported for
benzene, with an average of 2.2 mg/1 (or ppm) and should provide a better
indicator of an odor threshold for the general population. If the ratio of
benzene to toluene is assumed to be 1 to 1.3, this odor threshold would cause
detection of ground-water contamination at a benzene concentration of
approximately 1.7 mg/1. Thus, we used 1.7 mg/1 (benzene) as the effective
odor threshold for modeling.
2.8.3 Dermal and Inhalation Exposure
None of our scenarios considers dermal or inhalation exposure from
continued use of water for washing or showering after ingestion ceases. Work
performed since these model runs were completed indicates that dermal exposures
may exceed ingestion exposures, and inhalation exposures are similar to
ingestion exposures. Moreover, these exposures could continue, via washing
and showering, even after a leak is detected and bottled water is substituted
for well water for cooking and drinking purposes. Therefore, we may have
underestimated risks by neglecting these exposure routes.
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-18-
3. ESTIMATING SCENARIO FREQUENCIES
This section describes the methods used for calculating the frequencies
of each scenario. Topics covered are the way tank ages and aquifer depth
distributions are built into the UST Model; the UST Model outputs in terms of
plume size and duration distributions; estimated distributions of aquifer
materials and ground-water velocities; estimates of exposed populations; and
distributions of distances from tanks to the nearest wells. In addition, the
estimated frequencies of the sample scenarios introduced in Section 2 are
presented.
3.1 Distributions of Floating Plume Size, Incorporating Tank Age and
Ground-Water Depth
The data on the releases used in the risk estimation process include, as
covered in Section 2, the area of the floating gasoline plume, the length of
time it exists before it is detected, and its hydrogeological setting. This
section explains how the UST Model outputs are combined with information on
the distribution of hydrogeological characteristics to yield detailed joint
frequency distributions of plume characteristics.
The UST Model analysis is intended to simulate the releases from the
entire national population of USTs over the next thirty years. Because the
relevant characteristics of this population are so diverse, a large number of
separate simulations must be performed, varying the characteristics from one
simulation to another. For technical reasons, the simulations are grouped in
runs tracking the performance of 500 tanks each; some characteristics are
varied within each run while other characteristics are varied only between
runs.
Within each run, each simulated tank is assigned an age as of the
promulgation of the regulations: five, ten, fifteen, twenty, or twenty-five
years. The proportion of each 500 tanks assigned to each age group is
determined on the basis of data on actual age distributions by type of tank;
these distributions are shown in Exhibit F.4. Each of the 500 tanks within a
run is also assigned a depth to ground water: 1.0, 3.5, 7.5, 15, or 25 meters,
in proportion to PRA estimates of the frequency with which these depths occur
for given aquifer types. PRA made these estimates based on a mapping effort
described below. These frequencies are shown in Exhibit F.5. Exhibit F.6
shows one example of a joint distribution of tank ages and ground-water
depths used in a run with a specific tank type and aquifer composition.
Between runs, the most important variables that are changed are the
aquifer material, the type of tank, and the leak detection methods employed.
Two types of existing tanks and as many as six different aquifer materials
were used for the UST Model runs for each set of detection assumptions. All
of the runs were the same size; thus, to ensure that the outputs reflected the
characteristics of the population as a whole, the outputs were weighted by
estimates of their frequency before being combined into weighted averages.
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-19-
EXHIBIT F.4
DISTRIBUTION OF EXISTING TANK TYPES AND AGES
TANK AGE: 5 10 15 20 25 TOTAL BY TYPE
BARE STEEL 4% 8% 28% 24% 36% 100%
FIBERGLASS 50% 30% 20% 0 0 100%
Source: SCI estimates.
EXHIBIT F.5
DISTRIBUTION OF DEPTHS TO GROUND WATER
BY AQUIFER TYPE
DEPTH FROM GROUND SURFACE TO TOP OF WATER TABLE
(METERS)
1 3.5 7.5 15 25
AQUIFER TYPE
SANDSTONE/LIMESTONE/SHALE
2%
6%
55%
30%
7%
SAND/GRAVEL
5%
33%
29%
31%
2%
IGNEOUS/METAMORPHIC
6%
0%
0%
17%
77%
SILT/CLAY
0%
13%
49%
31%
8%
Source: PRA estimates.
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-20-
EXHIBIT F.6
EXAMPLE OF JOINT AGE/GROUND WATER DEPTH DISTRIBUTION:
BARE STEEL EXISTING TANK; SAND/GRAVEL AQUIFER TYPE
PERCENTAGE OF TANKS
TANK AGE AT DEPTH TO GROUND WATER (METERS)
PROMULGATION
1 3.5 7.5 15 25 TOTAL
5
0.2
1.3
1.2
1.2
0.1
4%
10
0.4
2.6
2.3
2.5
0.2
8%
15
1.4
9.2
8.1
8.7
0.6
28%
20
1.2
7.9
7.0
7.4
0.5
24%
25
1.8
11.9
10.4
11.2
0.7
36%
TOTAL
5%
33%
29%
31%
2%
100%
NUMBER OF TANKS IN A 500-TANK RUN
TANK AGE AT DEPTH TO GROUND WATER (METERS)
PROMULGATION
1 3.5 7.5 15 25 TOTAL
5
1
7
6
6
0
20
10
2
13
12
12
1
40
15
7
46
41
43
3
140
20
6
40
35
37
2
120
25
9
59
52
56
4
180
TOTAL
25
165
145
154
10
500
Source: Calculated from Exhibits F.4 and F.5.
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-21-
The combinations of tank material and aquifer material used in the runs
are shown in Exhibit F.7. The exhibit also shows the assumed frequencies of
each combination, which were used to weight the outputs. EPA data on types of
existing tanks were used to establish the weights for bare steel vs.
fiberglass existing tanks: 89 percent bare steel vs. 11 percent fiberglass. A
careful analysis by Pope Reid Associates, Inc.(PRA), of the joint distribution
of service stations and hydrogeologic settings, based on work done by the
Office of Pesticide Programs using the DRASTIC ground-water vulnerability
index,1-1 was used to establish the basic frequencies of aquifer material.
These frequencies were then used as the basis for the frequencies used in the
analysis, which combined some of the less frequently found aquifer categories
with more common types found to yield similar outputs. For fiberglass tanks,
which are much less common than bare steel tanks and less likely to leak, all
aquifer types were represented by sand, to allow the analysis to concentrate
on the bare steel tanks. Exhibit F.8 shows the originally estimated
frequencies, and the way they were transformed into the frequencies used to
weight the outputs.
3.2 Assumptions About Ground-water Velocities
The range of ground-water velocities near USTs, which affects the dilu-
tion of contaminant plumes as well as the speed with which the contaminant can
reach a receptor, was represented by three discrete categories: 0.1 meters per
day; 1.0 meter per day; and 5 meters per day. The relative frequencies of
these velocities, which can be expected to vary by aquifer composition, were
developed by PRA. The frequencies used in the analysis are shown in Exhibit
F.9.
3.3 UST Model Outputs As Used
From each of the UST Model runs, the outputs used in the risk analysis
are the floating plume areas and durations from all of the tanks. The
floating plume areas are broken down into categories that range from less than
one square meter up to 10,000 square meters. The average duration between the
start of a release and the time it is detected is reported separately for each
of the 9 size categories. An example of these outputs is provided in Exhibit
F.10. The exhibit reveals that each run is divided into releases that take
place before the original tank is replaced, and those releases that take occur
after replacement. The total number of plumes in each size category, and the
weighted average duration for each (weighting together the plumes from the
existing tanks and the replacement tanks) is found by combining the two, as
shown.
1J Aller, L. T. Bennett, J.H. Lehr, R.J. Potty, 1985. DRASTIC: A
Standardized System for Evaluating Ground Water Pollution Potential Using
Hydrogeologic Sections. USEPA, Office of Research and Development, Ada, OK.
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-22-
EXHIBIT F.7
DISTRIBUTION OF TANKS BY AQUIFER TYPE
(INCLUDING ALL AQUIFER TYPES EXAMINED)
SANDSTONE/LIMESTONE/SHALE 21%
SAND 31%
GRAVEL 1%
IGNEOUS/METAMORPHIC 8%
SILT/CLAY 39%
Source: PRA estimates.
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EXHIBIT F.8
DISTRIBUTION OF TANKS BY AQUIFER
TYPE SHOWING COMBINATIONS USED IN ANALYSIS
BARE STEEL EXISTING TANKS:
ORIGINAL
SANDSTONE/LIMESTONE/SHALE 21%
SAND 31%
GRAVEL 1%
IGNEOUS/METAMORPHIC 8%
SILT/CLAY 38%
FIBERGLASS EXISTING TANKS:
SANDSTONE/LIMESTONE/SHALE
SAND
GRAVEL
IGNEOUS/METAMORPHIC
SILT/CLAY
ORIGINAL
21%
31%
1%
8%
38%
AS MODIFIED
21%
40%
(COMBINED WITH SAND)
(COMBINED WITH SAND)-
38%
AS MODIFIED
100%
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-24-
EXHIBIT F.9
JOINT DISTRIBUTION OF GROUND-WATER
VELOCITIES AND AQUIFER TYPES
GROUND-WATER VELOCITY
(METERS
PER DAY)
AQUIFER COMPOSITION
0.1
1.0
5.0
TOTAL BY
TYPE
SANDSTONE/LIMESTONE/SHALE
13.1
1.9
6.2
21%
SAND/GRAVEL/IG/META
0.9
19.5
19.2
40%
SILT/CLAY
6.7
23.0
9.1
39%
TOTAL BY VELOCITY
21%
44%
35%
100%
Source: PRA estimates.
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-25-
3.4 Adjustment for First Plumes
In many cases, the UST Model predicts that more than one plume will form
per tank over the thirty-year period studied. This can happen because both
the existing tank and its replacement fail, or because a pipe failure
associated with the existing tank could be followed by the failure of the
tank. The data in Exhibit F.10, for example, shows an average of 1.13 plumes
associated with each existing bare steel tank, and an additional 0.16 plumes
for the replacement tanks, for a total of 1.29 plumes per installed tank.
There is a problem with assuming that two identical plumes from one tank
cause a total of twice as much risk as one plume. We expect that after
private wells near the tank have been found to be contaminated by the first
plume, the wells' users will switch to another water source. Even if the
first plume is cleaned up, it is unlikely that the lost private wells will
ever be used again. This means that the second or third plume at a site will
impose very little additional risk.
We have adjusted for this phenomenon by estimating the number of first
plumes per tank that will occur within each floating plume size interval,
based on the expected total number of plumes. The calculation method employed
assumed only one tank per facility (which is more accurate for non-service
station UST facilities than for service stations) and that the size
distribution of first, second, and later plumes are identical. Under these
assumptions, it is possible to estimate the number of facilities that have at
(-p)
least one plume, given the expected total number of plumes, as 1-e , where
e is 2.721 (the base of natural logarithms) and p is the expected number of
plumes per tank. For example, if the expected number of plumes per tank is
(-1.29)
1.29, then the expected fraction of tanks with at least one plume is 1-e
, or 0.72. This value gives us the expected number of first plumes per site,
which can be compared to the expected total number of plumes per site. The
ratio of these two values, 0.72/1.29, which is the the proportion of plumes
that are first plumes, was multiplied by the expected number of plumes of each
size category to yield an estimate of the number of first plumes in each size
category. This assumes that the size distribution of plumes is the same for
first plumes as for later plumes. The estimate of first plumes for the data
in Exhibit F.10 is shown in Exhibit F.ll.
3.5 Exposed Populations
We used two distinct approaches to estimating exposure. One was
developed with the aim of predicting total population risks, whereas a
separate, more conservative approach was used in predicting the distribution
of risks to the most exposed individuals at each site.
Average densites of persons using private wells near USTs was calculated
based upon data for a random sample of 1991 zip codes obtained by SCI, using
data from the Federal Reporting Data System and the National Planning Data
Corporation. For each zip code, we calculated the total population served by
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EXHIBIT F. 10
SAMPLE UST MODEL OUTPUT: DISTRIBUTION
OF RELEASE SIZES AND DURATIONS
FLOATING PLUME SIZE
PLUMES PER
PLUMES PER
(SQUARE METERS)
EXISTING
REPLACEMENT
TOTAL PLUMES
TANK
TANK
PER TANK
0-1
0.02
0.01
0.03
1-10
0.06
0.05
0.11
10-25
0.05
0.04
0.09
25-100
0.18
0.03
0.21
100-500
0.38
0.01
0.39
500-1000
0.24
0.00
0.24
1000-2000
0.16
0.01
0.17
2000-5000
0.02
0.01
0.03
5000-10000
0.01
0.01
0.02
TOTAL
1.13
0.16
1.29
AVERAGE
AVERAGE
WEIGHTED
DURATION
DURATION
AVERAGE
OF EXISTING
OF REPLACEMENT
DURATION,
FLOATING PLUME SIZE
TANK PLUMES
TANK PLUMES
ALL PLUME!
(SQUARE METERS)
(YEARS)
(YEARS)
(YEARS)
0-1
1.3
1.0
1.2
1-10
1.8
7.1
4.2
10-25
2.4
11.7
6.6
25-100
2.0
15.9
4.1
100-500
2.9
3.4
2.9
500-1000
4.2
4.2
1000-2000
6.8
13. 7
7.1
2000-5000
9.0
14.5
10.1
5000-10000
4.5
4.5
* Run of 500 Bare Steel Existing Tanks, Combination of Ages and Ground-
Water Depths, Sandstone/limestone/shale Aquifer, Base Case Assumptions
Source: UST Model Outputs.
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EXHIBIT F.11
NUMBER OF PLUMES PER TANK ADJUSTED
TO INCLUDE ONLY FIRST PLUMES
TOTAL PLUMES ESTIMATED FIRST
PER TANK PLUMES PER TANK
PLUME
SIZE
0-1 0.03 0.02
1-10 0.11 0.07
10-25 0.09 0.05
25-100 0.21 0.12
100-500 0.39 0.22
500-1000 0.24 0.13
1000-2000 0.17 0.09
2000-5000 0.03 0.01
5000-10000 0.02 0.01
TOTAL 1.29 0.72
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private wells and divided by the area in acres to get the population per acre
served by private wells. We used service stations as a surrogate for tanks.
The density of persons using private wells for each zip code was multiplied by
the number of service stations in that zip code and the products were summed.
Dividing this sum by the total number of service stations in the sample gave
the average private-well-using population per acre. A similar method was used
to calculate the population at risk per acre from public wells.
The areas around each exposure well in the ground-water modeling grid
were calculated, and the average population at risk from both public and
private wells was determined for each exposure well by multiplying this area
by the total population at risk per acre. The population at risk for each
exposure well is listed in Exhibit F.12. We then applied this population
distribution to the individual risk, to give the cumulative population cancer
risks for each plume size, ground-water velocity, and vadose zone type.
A potential weakness of the approach used to estimate average well-using
population near USTs is that it is based on the population density over an
entire zip code. This average density could be lower than the density
immediately surrounding USTs, thereby leading to over-estimates of the
distance from USTs to the nearest well. For the analysis of MEI risks,
therefore, we used a case-by-case approach that looked explicitly for wells in
the immediate vicinity of a sample of 45 actual service stations. These
service stations all are located in zip codes where at least 90 percent of the
population user water from private wells. The distance from the service
station to the closest downgradient well was estimated using maps showing
nearby structures, assuming that the tank was directly below the service
station and that all nearby structures had private wells on site. These
distribution factors were also used to weight the risk estimates. The
cumulative frequency distribution for distance from tank to closest well is
shown in Exhibit F.13.
3.6 Estimated Frequencies of Example Scenarios
By combining estimates of the joint distributions of plume sizes and
frequencies; aquifer types; groundwater velocities, and well distributions, we
estimate the total number of USTs that will fall into each scenario. These
estimated frequencies are used to weight the estimated risks to generate
nationwide distributions and totals. For example, we estimate that out of 1.4
million tanks, 14,844 will (in the base case) fall into the aquifer
composition, plume size, and ground water velocity scenario represented by the
"typical" case described in Section 2. Of these, 4,443 will have the closest
well about 100 m away.
Similarly, for the high risk scenario, there will be 6,737 USTs with the
same aquifer, plume, and velocity characteristics. Of those, 419 will also
have the closest well 50 m away.
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EXHIBIT F. 12
POPULATION DISTRIBUTION AT EXPOSURE WELLS:
NUMBER OF PEOPLE POTENTIALLY
EXPOSED AT EACH WELL
Distance Downgradient, Distance from Centerline (meters)
(meters)
0
50 *
100*+
10
0.23
0.23
0.57
25
0.26
0.26
0.65
50
0.49
0.49
1.2
100
1.3
1.3
3.3
250
2.6
2.6
6.5
500
4.9
4.9
12.0
1,000
6.5
6.5
17.0
1,500
6.5
6.5
17.0
2,000
6.5
6.5
17.0
2,500
16.0
16.0
41.0
* The numbers displayed in the cells are for each (tranverse) side of
the plume. The total population exposed for these wells is twice the
number shown here.
+ The plume is assumed to potentially affect wells as far as 200 m from
the centerline.
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DISTANCE TO NEAREST WELL
Cumulative Frequency Distribution
diatuiicir 111 meters
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4. COMBINING ESTIMATES OF RISK BY SCENARIO AND
SCENARIO PROBABILITIES
The preceding sections described the details of the methodology used to
calculate the risks imposed by a given release and exposure scenario, and the
frequencies with which each specific scenario will occur. This section very
briefly decribes the combination of these two basic steps to produce estimated
maximum exposed individual (MEI) and population risks across all scenarios,
again referring to the two example scenarios introduced earlier.
4.1 Estimating the Distribution of MEI Risk
Section 2 described the calculation of the risk to the most exposed
individual in each of a large number of scenarios. Section 3 described the
methodology used to estimate how commonly each of these scenarios occurs in
the total population of 1.4 million USTs. These data were combined to yield a
distribution of MEI risk. For example, by taking all scenarios with MEI risk
-3 -2
between 10 and 10 , and adding their frequencies, we obtain the total
predicted number of USTs out of the UST population that will impose risks
-3 -2
between 10 and 10 . Repeating this procedure for each risk category yields
the information needed to produce a complete distribution of MEI risks. The
-3
high risk scenario, for instance, imposes an MEI risk of 1.2 x 10 , and has a
frequency of 419 USTs out of the entire population. The frequency of 419
would be added to the sum of the frequencies of all of the other scenarios
-3 -2
imposing risks greater than 10 but less than 10 . The frequency of the
typical risk scenario, 4,443, would be added to the frequency of the other
-7 -6
senarios with risks of between 10 and 10 , which is the approximate degree
of MEI risk associated with the typical risk scenario described in Sections 2
and 3.
4.2 Estimating Population Risk
To estimate population risk, the risk to each individual at an exposure
well in each scenario is multiplied by the estimated number of individuals at
that well to yield the total risk for each instance in which the scenario
occurs. Multiplying by the scenario's frequency yields the total risk for all
instances of that scenario. Summing these totals across all scenarios gives
the total population risk imposed by all USTs. Carrying the high-risk
-3
scenario through this procedure yields risks of 1.2 x 10 per individual;
given the assumption of 0.23 exposed individuals and the frequency of 419 per
1.4 million tanks, the high risk scenario by itself imposes a total of 2.5 x 10
-1 -3
cases. Similarly, the lower individual risk scenario contibutes 4.9 x 10
cases to the total, based on 4,443 tanks, 1.3 persons per well on average, and
-7
a risk of 8.5 x 10 per individual.
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4.3 Comparisons Among Regulatory Alternatives
A separate MEI risk distribution and total risk estimate was prepared for
the baseline and for each regulatory alternative, using data on plume sizes
and durations generated by the UST Model under detection and prevention
assumptions appropriate to each alternative. The separate MEI risk
distributions and total risk estimates then allow risk-based comparisons to be
made across alternatives.
5. ASSUMPTIONS MADE IN THE RISK ANALYSIS AND THEIR EFFECT
ON RESULTS
As is clear from the preceding sections, the risk estimation methodology
relies, at some crucial points, on assumptions for which supporting data are
hard to find. This section summarizes the most important assumptions, the
reasons they were made, and the most likely direction of any bias that the use
of the assumptions imparts to the results.
5.1 Using Benzene Instead of Whole Gasoline or EDB
Risk estimates were based on the Carcinogen Assessment Group's unit risk
value for benzene, rather than on estimates of the risks that either whole
gasoline or EDB pose. The use of estimates for the risk of whole gasoline
would, according to preliminary calculations, raise the estimated risk by less
than a factor of two; the use of the estimate for EDB could increase the
estimated risks by an order of magnitude. Thus, it would appear that the use
of benzene as the basis for the risk estimates could mean that risks are
underestimated.
Benzene was, nonetheless, considered the appropriate chemical of concern
because the hazard it poses has been assessed using human epidemiologic data,
and because it is and will continue to be widely present in gasoline. By
contrast, the value for whole gasoline was based on an animal bioassay, and
EDB will be phased out of gasoline rapidly. In the context of the regulatory
impact analysis, risks from EDB are significant primarily for releases that
began in the past but have not yet been discovered.
5.2 Confined vs. Unconfined Aquifers
The risk analysis assumes that all wells near USTs draw from unconfined,
surficial aquifers. These aquifers, which are not protected from
contamination in the unsaturated zone by any relatively impermeable confining
layers, are much more vulnerable to releases from UST than deeper, confined
aquifers. Predicted concentrations of benzene are therefore much higher than
they would be if the analysis had included confined aquifers.
In some areas of the country large proportions of wells probably tap the
less-vulnerable confined aquifers. Available data, however, did not allow a
nationwide estimate of the relative proportions of confined and unconfined
aquifers. For this reason, the more conservative assumption of 100 percent
unconfined aquifer wells was made.
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5.3 Depth of Well Screens
The risk analysis assumed that all wells are screened two meters below the
surfaoe of the water table. That is, they draw water only at that particular
level in the aquifer. Concentrations of benzene are relatively constant at
varying depths at a distance of about 500 m or more from a source of
contamination, but very close to a floating source of contamination the
concentrations can rise dramatically near the top of the ground water table.
Most wells are probably screened at depths below two meters to minimize
the chance that the well will be dry when the water table fluctuates, and to
ensure a cleaner source of water. Thus, the assumption of a two-meter screen
depth is a conservative one, more likely to result in overestimates of risks,
rather than underestimates. Furthermore, any wells very near a source and
screened very close to the water table's surface are likely to draw in some of
the floating plume. This could be expected to lead to early detection of the
plume, thereby reducing risk rather than increasing it.
5.4 Exclusion of Dermal and Inhalation Exposures
The risk estimates assumed all risk results from ingestion of benzene,
with no significant contribution from other exposure routes. This assumption
was made based on preliminary analysis showing that other routes, including
dermal and inhalation exposures, could be expected to contribute only a small
amount of risk incremental to that from ingestion.
Further analysis has shown that human health risks from leaking USTs may
be significantly underestimated if dermal and inhalation exposures are
ignored. The dermal dose of exposure to benzene may actually be somewhat
greater than the ingestion dose, thereby making exposure through activities
such as showering and bathing the major pathway for human health risk
associated with leaking USTs. The underestimation of risk may be further
exacerbated because, while ingestion exposures are likely to stop after the
taste and odor threshold is reached, dermal and inhalation exposures might
cont inue.
5.6 End of Exposure at the Time of Release Detection
The risk analysis assumed that all exposure stopped as soon as the release
was detected. This assumption was based on the idea that detection would be
associated with reporting of the release and notification of the affected
individuals.
There may be cases, however, in which a release is detected and stopped by
an UST operator but not reported to the authorities. In addition, there may
be cases in which some of the wells affected are unknown to the authorities,
who are therefore unable to notify the wells' users. In either case, some
cases of ingestion exposure could continue long after the detection of the
release. Dermal and inhalation exposure could, as noted above, continue even
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after notification and the end of ingestion exposure, depending on the nature
of the response to the contamination of the well water.
This possibility of continued exposure means that the estimated risks are
understated to some degree. This problem is exacerbated by the fact that the
relationship between risk and length of exposure is supralinear, since the
length of time raises both the duration and concentration of the exposure.
5.6 Benzene Transfer and its Dependence on Service Station Pad Washdown
The risk estimates are linearly related to the predicted rate of transfer
of benzene from the floating plume to the ground water. As discussed in
previous sections, this rate can be limited by a number of parameters, all of
which are subject to some uncertainty. The frequency with which service
station operators wash down the concrete pad covering the USTs is one area of
uncertainty in predicting of the rate at which water infiltrating through the
unsaturated zone influences the benzene loading rate. In the risk analysis,
it was assumed that the pad is washed down (in the absence of rain) 350 days
per year. If this is an overestimate of the frequency of pad washdowns, the
reported results could be overestimates of risk. Further data collection
indicates, however, that the assumed frequency of washdown is a reasonable
estimate of the actual frequency at most well-operated service stations.
5.7 Estimates of the Distributions of Wells
As decribed in an earlier section, well locations were estimated
differently for the purposes of estimating population and maximum individual
risks. Estimates of total population risk were based on assumptions of
independent distributions of wells and USTs across each zip code, since
average densities of wells by zip codes were used as the basis of the
estimates of the exposed populations at each well grid point. This analysis
did not account for the possibility that, within a given area, wells and USTs
may cluster in one heavily-populated subregion, where well densities near the
USTs will be significantly higher than the value estimated for the area as a
whole.
Preliminary analyses indicate that actual densities of wells near USTs
could be two to three times higher than the estimates used in the analysis,
due to the clustering of wells and USTs. The predicted population risk is
proportional to the estimated density of wells; thus, the population risk as
reported may be understated.
Estimates of the distribution of risks to the most exposed individual, on
the other hand, were derived based on a small sample of actual service
stations and distances to nearby structures. In order to allow the assumption
that each nearby structure represented a well, the analysis was limited to
regions known to use private wells almost exclusively. Because further
analysis has tentatively shown that regions of high private well use are rare,
and services stations are seldom found in these regions, it is clear that the
estimated frequencies of MEI risks are significantly overstated by the
analysis.
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5.8 Risks from First Plume Only
The analysis assumed that after the first plume from an UST discovered,
nearby private wells affected or potentially affected by contamination from
the UST will be taken out of service. Any subsequent leaks will therefore
impose no risk. This assumption could result in slight underestimates of risk
to the degree that later plumes reach beyond the area contaminated by the
first plume, into areas with wells that are still in use.
5.9 Use of Average Plume Durations, Combining Plumes from Existing
and Replacement Tanks
As discussed in section 3, the risk analysis was based on numbers of
plumes from both existing and replacement tanks, and the average plume
duration for each plume size catagory. The use of average plume duration
introduces a subtle form of distortion into the analysis, because of the fact
that risks rise more than linearly in proportion to duration. The prevention
of one or two plumes of short duration, which will reduce actual risk, will
raise the average duration of plumes. This apparent increase in duration
actually causes the estimated risk to increase, in spite of reduction in the
number of plumes.
On the whole, this form of bias has little effect on the results. When
regulatory alternatives with different degrees of effectiveness at preventing
plumes are compared, however, this bias can mask the true relative risk
reduction of the alternatives. This problem appears most clearly if the
regulatory alternatives differ only in terms of their provisions for
replacement tanks: the alternative that prevents the most releases in
replacement tanks can appear to reduce baseline risk less than an alternative
that allows releases to occur but detects them after a short time. By
including a few more short-duration releases, the latter alternative's average
release duration is pulled down, reducing the estimated risk associated with
it. Because the plumes from the replacement tanks are probably not the first
plumes at a site (because replacements are typically made after the existing
tank has failed), and because the methodology is intended to focus on the
risks of the first plumes only, it seems inappropriate that releases from the
replacement tanks should affect the relative risk rankings of the
alternatives. This distortion could be avoided in large part by performing
the risk analysis separately on the plumes from existing tanks and the plumes
from the replacement tanks.
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