EPA 340/1-77-014
EVALUATION OF TOP LOADING
VAPOR BALANCE SYSTEMS
FOR SMALL BULK PLANTS
APRIL 1977
U.S. Environmental Protection Agency
Division of Stationary Source Enforcement
Office of Enforcement
Washington, D.C. 20460
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FINAL REPORT
EVALUATION OF TOP LOADING
VAPOR BALANCE SYSTEMS FOR
SMALL BULK PLANTS
by
R.J. Bryan, M.M. Yamada R.L. Norton
and A. Kokin
Project Officer: John R. Busik
Contract No. 68-01-4140, Task Order No. 9
Prepared for:
U.S. Environmental Protection Agency
Division of Stationary Source Enforcement
Washington, D.C.
June,1977
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TABLE OF CONTENTS
Section Page
I. INTRODUCTION 1-1
II. SUMMARY 11-1
III. PROJECT APPROACH III-l
IV. TOP LOADING SYSTEMS IV-1
A. OPW VAPOR RECOVERY LOADERS IV-1
B. STS VAPOR HEAD IV-6
C. CHIKSAN VAPOR RECOVERY ARMS IV-9
D. PARKER HANNIFIN TOP LOADING SYSTEMS IV-11
E. HOUSTON/GALVESTON AREA VAPOR RECOVERY
INSTALLATIONS IV-15
F. WIGGINS TANK WAGON VAPOR BALANCE SYSTEM . . . IV-20
V. TOTAL BULK PLANT VAPOR RECOVERY SYSTEM PURCHASE
INSTALLATION COSTS V-l
A. EQUIPMENT AND INSTALLATION COSTS V-l
B. OPERATIONS AND MAINTENANCE COSTS V-3
C. EFFECT OF DEPRECIATION AND TAXES V-4
VI. FINANCIAL ANALYSIS VI-1
APPENDIX A. LIST OF CONTACTS A-l
APPENDIX B. FINANCIAL ANALYSIS B-l
REFERENCES
LIST OF FIGURES
Figure Page
1. SCHEMATIC OF THE OPW V-64-FV VAPOR RECOVERY
LOADER (COURTESY DOVER CORPORATION/OPW DIVISION
LONG BEACH, CALIFORNIA OFFICE) IV-2
2. SCHEMATIC OF THE OPW V-64-FN VAPOR RECOVERY
LOADER (COURTESY DOVER CORPORATION/OPW DIVISION
LONG BEACH, CALIFORNIA OFFICE) IV-3
i
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TABLE OF CONTENTS (continued)
LIST OF FIGURES (continued)
Figure Page
3. OPW V-64-F VAPOR RECOVERY LOADER IN USE AT
SMALL GASOLINE BULK PLANT IV-4
4. STS-293 TOP-LOADING VAPOR HEAD (MANUFACTURED
BY SAVAGE TECHNICAL SERVICES, CLARK, NEW
JERSEY) IV-7
5. SCHEMATIC OF CHIKSAN VAPOR RECOVERY ARM
(MANUFACTURED BY FMC CORPORATION, CHIKSAN
DIVISION, BREA, CALIFORNIA) IV-10
6. F428 TOP-LOADING RACK TIGHT FILL SYSTEM
(MANUFACTURED BY PARKER HANNIFIN, FUELING
DIVISION, IRVINE, CALIFORNIA ) IV-12
7. F427 TOP-LOADING RACK TIGHT FILL SYSTEM
(MANUFACTURED BY PARKER HANNIFIN, FUELING
DIVISION, IRVINE, CALIFORNIA) IV-14
8. POSSIBLE MODIFICATIONS TO TOP-LOADING ARMS
WHEN INSTALLING VAPOR RECOVERY SYSTEMS AT THE
LOADING RACK (COURTESY GULF OIL COMPANY-U.S.,
HOUSTON MARKETING DISTRICT) IV-17
9. DIAGRAM OF LOADING RACK AND TRUCK MODIFICATIONS
TO RECOVER GASOLINE VAPORS DURING DELIVERY
TRUCK FILLING OPERATIONS BEING INSTALLED IN
HOUSTON/GALVESTON PLANTS IV-18
10. COMPONENTS FOR WIGGINS - TANK WAGON BALANCE
SYSTEM IV-21
11. SCHEMATIC OF OPERATIONAL WIGGINS TANK WAGON
VAPOR BALANCE SYSTEM USING MODIFIED TOP-
LOADING RACK AT SMALL BULK PLANTS IV-22
ii
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TABLE OF CONTENTS (continued)
LIST OF TABLES
Table Page
IV-1 ACTUAL COSTS OF VAPOR RECOVERY INSTALLATIONS
AT TWO SMALL BULK PLANTS IN SOUTHERN
CALIFORNIA IV-5
IV-2 ESTIMATED COST OF INSTALLING TOP-LOADING VAPOR
RECOVERY USING STS 293 VAPOR HEAD IV-9
V-l ESTIMATED TOTAL COSTS OF VARIOUS TOP LOADING
VAPOR RECOVERY SYSTEMS WHICH CAN BE USED BY
THE SMALL GASOLINE BULK PLANT V-2
V-2 EFFECTS OF POSSIBLE TAX BENEFITS ON COST OF
VAPOR RECOVERY SYSTEMS V-6
VI-1 BUSINESS VOLUME OF A SMALL BULK PLANT NEEDED
TO QUALIFY FOR LOANS VI-3
i i i
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This report has been reviewed by the Environmental Protection
Agency and approved for publication. Approval does not signify
that the contents necessarily reflect the views and policies of
the Environmental Protection Agency, nor does mention of trade
names or commercial products constitute endorsement or recommen-
dation for use.
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I. INTRODUCTION
Regulations promulgated by the Environmental Protection
Agency for Stage I vapor recovery systems at small gasoline bulk
distributing plants require final compliance be achieved no later
than May 31, 1977. Several studies (1-4) have been performed in
recent months to determine the economic feasibility and reasonable
applicability of available vapor recovery equipment for these small
bulk plants.
Probably the most common vapor recovery system currently in
use is the vapor balance system which efficiently controls working
losses. A pipeline between the vapor spaces of the truck and
storage tanks essentially creates a closed system permitting the
vapor spaces of the tank being filled and the tank being emptied to
balance with each other. As liquid flows from the tank being emptied,
additional vapor space is created. At the same time, vapors are
displaced from the tank being filled by the incoming liquid. By
inter-connecting these two tanks, vapors are transferred from the
container being filled to the one being emptied. This prevents
the compression and expansion of vapor spaces which would otherwise
occur in a filling operation. In an air-tight system, venting due
to compression also is reduced substantially. This system is appli-
cable to underground and above ground storage facilities.
Installations of balance systems at the loading rack to
return vapors from the account truck being filled to the storage
tank have been made using two distinct approaches - recovering
vapors through a top loading system and recovering vapors with a
bottom loading system.
Almost all bulk plants were originally designed to load
gasoline through a delivery arm on an elevated platform into open
hatches on top of the trucks. Newer facilities and newly modernized
facilities have often elected to install a delivery arm at ground
level which will connect to ports near the bottom of the truck.
1-1
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Generally vapor recovery installations and bottom loading conver-
sions have been done simultaneously. This has caused considerable
variation in the total cost of the equipment and labor required to
equip a bulk plant for vapor recovery.
Conversion of the loading rack and small delivery trucks
from top loading to bottom loading is not necessary to comply with
Federal regulations to recover at least 90% of the hydrocarbon
vapors generated during gasoline transfer operations. These
modifications are to be considered voluntary actions to modernize
the facility and thereby speed up and simplify loading procedures.
This study is intended to provide an evaluation of the vapor
balance systems at small bulk plants which provide for top loading
of small delivery trucks. This analysis will focus on describing
available systems, appraising the applicability of each system to the
small bulk plant, providing estimated equipment and installation
costs and determining the economic impact of these expenditures on
the small bulk plants.
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II. SUMMARY
In order to provide a better analysis of the financial impact
of vapor recovery system costs on small gasoline bulk plants, a
typical bulk plant was formulated to represent the average storage
capacity, daily throughput and truck fleet size of nearly 400 small
gasoline bulk plants across the county which had been surveyed
previously (2-4). A typical bulk plant, for purposes of this reports,
meets the following criteria:
1. Daily gasoline throughput of 5,000 gallons
(19,000 liters)
2. Two four-compartment trucks each with a
2,000 gallon (7,600 liter) capacity, one
of which is equipped with vapor recovery.*
3. A 20,000 gallon (76,000 liter) above ground
storage tank for each grade of gasoline
marketed.
Seven vapor recovery systems are described which are usable
by small bulk plants. The equipment manufactured by 0PW, Chiksan
and STS was originally designed for the substantially higher flowrates
at a terminal loading rack. All three require installation of a top-
loading vapor head on each gasoline dispensing arm at the loading rack.
When the vapor head is tightly sealed in the tjuck hatch opening for
normal operation, gasoline dispenses through one section of the vapor
head and vapors return to the storage tank through another section.
The equipment manufactured by Parker-Hannifin and Delaval
Turbine and the equipment in use in Houston/Galveston Texas require
significantly less modification to the loading rack. A flexible
hose extension and the appropriate vapor tight coupling are the only
*0nly a portion of a bulk plant's truck fleet would need vapor recovery
capability. This is because 1) the operator may have a significant
business volume of less volatile materials which do not need emissions
control or 2) most of the customers are exempt from vapor control
regulations as a result of the size or age of their storage tanks
or the use of the gasoline in agribusiness.
II-l
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items needed for the product delivery line. Both movable and fixed
equipment for delivery truck modifications are available. Dry-break
style couplers on the fill ports, vapor return connections and over-
fill protection have to be provided for the truck.
Estimated costs for vapor recovery equipment purchase and
installation, using the systems described, vary from slightly under
$8,000 to $32,000. However, a vapor control system is also needed
to control emissions when the bulk plant receives trucked loads of
gasoline. The minimum cost of installing a vapor balance system for
use between an incoming transport and the storage tanks is about
$3,000; the average cost is slightly over $4,000. (Approximately
40% of this cost is for piping, connectors and other materials, and
the remaining 60% is the cost of labor to install the system.)
As is discussed in Section IV, some of the systems do not
require account trucks to have vapor return connectors installed
as an integral portion of the vapor balance system for the loading
operation. Even if the truck does not need to be adapted in order
to be loaded, it may be necessary for it to be able to collect
vapors produced when gasoline is delivered into the customer's tanks.
Equipping a small four-compartment delivery truck with a manifolded
vapor return line and connections will cost an average of $2,200.
Pressure testing, or leak testing5 which should be performed after
the modifications are completed, may be an additional cost. Adding
all these costs together, a bulk plant can expect an initial expen-
diture of $11,000 to $38,000 for a complete vapor balance type of
control system, depending upon the specific system selected.
As of January 1, 1977, only the Houston/Galveston area plants
were known to have made substantial progress toward compliance with
vapor recovery regulations. At that time 75% of the plants had a
vapor balance system for recovering vapors when an incoming gasoline
shipment was unloaded. 46% of the plants were equipped to recover
11-2
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vapors at the loading rack when small delivery trucks were being
filled. In California, Denver and Baltimore/Washington, D.C. areas
less than one-half of the facilities have a vapor recovery system
for incoming loads, and only 1% have vapor recovery for outgoing
loads (4). Because there are not that many systems in use, there
is a minimum of information available on such topics as system
reliability, effectiveness and user acceptance.
The basis of the economic analysis performed was the restric-
tive criterion of a firm's ability to borrow the money for purchasing
and installing a vapor balance systems. Results indicate the smallest
operation which could qualify for the loans needed to purchase and
install the least expensive top loading vapor balance system would
have to have a daily minimum gasoline throughput of 2,400 gallons
(9,100 1 iters).
11-3
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III. PROJECT APPROACH
In order to gather as much information as possible to prepare
an evaluation of top loading vapor balance systems for small bulk
plants, telephone and personal contacts were made with a number of
individuals and firms involved with the subject of gasoline control
recovery. These included EPA and state air pollution control
agency personnel, major oil companies, equipment manufacturers
and suppliers, contractors and individual bulk plant operators.
A complete list is provided in Appendix A.
The principal questions were:
1. What equipment is needed to install a vapor
recovery system at a small gasoline bulk
plant with an existing top loading rack?
2. What were the actual costs or the estimated
costs to complete this installation?
3. What, if any, truck modifications are required
and what is the cost?
4. Have any tests of the operating system's
efficiency been performed?
5. What difficulties have been encountered
in using the system?
As in preceding studies (2,4), the criterion for determining
the economic capability of a bulk plant to install a balance system
for vapor recovery is the anticipated ability of a firm to borrow
the funds for purchasing and installing the vapor recovery system.
Again, the number of bulk plants financially unable to obtain these
monies are considered as also unable to maintain their business
operations.
III-l
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IV. TOP LOADING SYSTEMS
A. OPW VAPOR RECOVERY LOADERS
Schematics of the vapor recovery loaders available from
OPW are shown in Figures 1 and 2. An actual .installation is shown
in Figure 3. The V-64-F and V-64-FV loaders are designed to
operate in ten inch diameter fill openings and will accommodate
down to eight inch diameter fill openings. The only difference
between these models is the material used in seals in product
wetted areas. The V-64-FN is especially designed to operate in
seven inch openings.
The loading arm itself is designed for normal product
delivery through the lower portion and vapor recovery through
the upper portion. Its maximum capacity is 800 gal/min (3,000
1./mi n.).
The head of the loader is segmented so that liquid can flow
from one portion while vapors are returned through the other.
Liquid flow is possible only as long as a positive seal is maintained
between the head and the tank fill opening. A free-floating synthe-
tic rubber collar seal ensures a vapor tight seal even if the loader
and truck hatch are slightly misaligned. As a backup to meters on
the loading rack, overfilling and spillage are prevented by an
adjustable pneumatic level sensor inside the fill tube which
will close the loading valve when the liquid level rises to that
point. Excessive pressure buildup (of approximately 2 psi) during
loading will also close the loading valve. Should the pressure
exceed 5 psi, the loading head will also disconnect.
Installation of this system requires total replacement of an
existing loading arm and construction of a vapor return line. In
addition, an air compressor must be available to provide 100 to
120 psi air needed to operate the arm.
IV-1
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FIGURE 1
DIMENSIONS ARE IN INCHES
SIZE
4"
A
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LIQUID LEVEL SENSOR
(ADJUSTABLE)
FIGURE 2
DIMENSIONS ARE IN INCHES
SIZE
4"
A
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The vapor recovery arm assembly itself now costs $3,950.
Labor and accessory equipment will be the bulk of any installation
cost. Two bulk plants in Southern California who had experience
with this system provided reasonably detailed costs. (See Table IV-1.)
_^Faci 1 i ty
I tem
Plant A-modified
in 1974
Plant B-now
being modified
2 OPW V-64-F loaders
3 Product meters
Compressor
Pipe and other parts
j Labor
i
Permit and engineering
6,200
2,300
incl. with parts
4,500
12,000
1,000
7,900
3,000
900a
3,500
16,500
not available
Total
26,000
31,800
a. Price of used equipment, new equipment would be
$300 more.
Table IV-1. ACTUAL COSTS OF VAPOR RECOVERY INSTALLA-
TIONS AT TWO SMALL BULK PLANTS IN SOUTHERN
CALIFORNIA.
Both operators stated a portion of the material and labor were
required because their plants were older and some work was necessary
to comply with newer building codes, etc. However, it is reasonable
and probable that most other bulk plants will be in a similar situa-
tion.
What costs are directly attributable to installing this
specific type of vapor recovery system on the loading rack? The
loading arms themselves are definitely included. Set stop meters
on the rack should be considered a primary means of preventing
spills, with the overfill devices in the loader or truck as secondary
or backup, overfill protection. Many facilities will be needing to
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install product meters and it appears that their cost should be
included as part of the vapor recovery system. The compressor to
provide air to operate the arm is required. Permits and engineer-
ing are also necessary.
However, both example plants were involved with installing
vapor recovery for incoming loads at the same time. This would
reduce the cost of pipe, miscellaneous parts and labor by approxi-
mately $4,000 (2-4). Thus, Plant A would have spent about $22,000
in 1974 for vapor recovery at his loading rack. Allowing for an
8% annual price increase, he would probably have to spend $28,000
to do the same work now. Subtracting $4,000 for the cost of Phase
"k
I vapor recovery at Plant B, the cost of vapor recovery at the
loading rack is also nearly $28,000.
These plants converted only two loading arms, which is an
exception to the general practice of using one loading arm for
each gasoline grade. It is definitely a cost saving measure, for
if three arms were modified the total cost of vapor recovery at the
loading rack would increase to $32,000.
B. STS VAPOR HEAD
This vapor recovery loader was formerly made by Emco Wheaton
Inc. of Conneaut, Ohio and may still appear in older catalogs. It
is illustrated in Figure 4.
The system is intended for use with existing top loading
systems and for maximum utilization of existing equipment. The
loading arm is fitted with a vapor recovery head that matches a
standard ten inch manhole opening. The unit is then mechanically
clamped and sealed to the truck compartment. A ball joint ensures
proper vertical alignment of the fill tube.
*Phase I vapor recovery is used throughout this report to refer to
the portion of a vapor recovery system which provides control of
hydrocarbon emissions during the transfer of gasoline from a trans-
port delivery vehicle into the small bulk plant's storage tanks.
In a similar context, Phase II vapor recovery refers to the portion
of a small bulk plant vapor recovery system which provides control
of hydrocarbon emissions during the transfer of gasoline from the
storage tanks, through a loading rack, into small delivery trucks.
IV-6
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Polyvinyl chloride hose is suggested as the vapor return line
from the truck back to fixed piping on the loading rack.
Overfill protection is provided by high level sensors and
a pressure relief valve. Available types of high level sensors
are a visual level manual control a float switch, a pneumatic
sensor or thermistor.
The principal limitation to the use of this vapor recovery
head at any given loading arm is its weight: a fully extended
loading arm must be capable of supporting approximately 40 pounds.
The existing loading arm should have a double spring balance
assembly. The vapor head can be installed on a slide tube assem-
bly, but modifications could be required. Consultation with the
factory is suggested.
The vapor head itself costs $1,400. A vapor return line of
polyvinyl chloride would cost about $4/ft ($13/m.). If this flexi-
ble hose were run from the head to the loading rack, 16 to 20 feet
(5-6 meters) would be required. A vapor return line from the rack
to the tanks made of steel would cost $2.50/ft. ($8.25/m.). For
this discussion, an estimated 50 feet of pipe will be required to meet
the vapor return line installed for Phase I vapor recovery. A
minimum of $400 of additional fittings will also be required.
Thus, if no other modification to the existing loading arm were
required approximately $1,750 in equipment would be required to
modify each loading arm. The labor should only add about $1,000
for each arm. However, as with the 0PW system, meters for each
product may be required at a cost of approximately $1,000 each.
The company has now redesigned the head to include a visible
float device for overfill meters. Because of the possible problem
with added weight, should any modification to the existing loading
arm be required, equipment costs could increase by any amount
between $300 and $1,500 per arm. The table below summarizes
expected costs for installing the STS 293 vapor recovery loader on
two or three loading arms, assuming existing loading arms can be
used. Labor costs are uncertain for this installation but these
estimates are not expected to be more than 10-15% in error.
IV-8
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Table IV-2. ESTIMATED COST OF INSTALLING TOP
LOADING VAPOR RECOVERY USING STS 293 VAPOR HEAD
i Modify
I Two Arms
1
Modify j
Three Arms !
Loader, flexible vapor
return hose and fittings
for each arm
5600
8400
Set stop meters (3)
3000
3000
Vapor return piping
between rack and
tanks
3000
3000
Total
11,600
14,900
A recent conversion for which a specific quote was given
involved replacing three inch piping to the rack with four inch
piping and modifying four loading arms. This cost $23,000.
C. CHIKSAN VAPOR RECOVERY ARMS
A schematic of the Chiksan vapor recovery arm is shown in
Figure 5. This system can be designed to load through either
eight inch or ten inch truck domes at a rate of 800 up to 1,200
gal/min (3,000 up to 4,500 l./min), a rate substantially in excess
of the normal small bulk plant's loading rate of 100 to 200 gal/
min (40C to 760 l./min.).
The lower portion of the arm is normally used for product
delivery, while the upper portion serves as the vapor return.
The vapor head is pneumatically sealed into the truck hatch. A
flexible collar surrounding the vapor head ensures the seal will
remain vapor tight throughout the loading operation. As with the
0PW system, product flow is possible only as long as a positive
seal is maintained between the truck and the loader. Product flow
is through one compartment of the vapor head and vapor return is
through a second.
As a backup to set stop meters on the loading rack, overfill
protection is provided by a float and check valve mechanism located
IV-9
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Figure 5. SCHEMATIC OF CHIKSAN VAPOR RECOVERY ARM (MANUFACTURED BY
FMC CORPORATION, CHIKSAN DIVISION, BREA, CALIFORNIA)
IV-10
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in the vapor return section of the head. To prevent tank damage
from excessive pressure, flow will stop and the dome seal will
be released if the vapor pressure rises above 2 psi.
Installation of this system would also require total replace-
ment of the loading arm and construction of a vapor return line.
Sixty to eighty pounds of air pressure must also be provided,
generally by an air compressor.
The vapor recovery arm itself costs $4,000. Labor and
accessory equipment will again be the major cost at any installa-
tion. Although no installations have been found at small bulk
plants at the time of this report, the total installation cost
should be nearly identical to that estimated for the OPW Vapor
Recovery Loader: $28,000 for modifying two arms; $32,000 for three
arms.
D. PARKER HANNIFIN TOP LOADING SYSTEMS
1. F428 Top Loading Rack Tight Fill System
A simplified sketch of this system is shown in Figure 6.
An existing loading arm would be adapted by a four-inch flexible
hose to reach the trucks. A three or four-inch flexible hose for
vapor return would be installed adjacent to the flexible loading
hose. At the end of each hose is an appropriate vapor tight coupling.
These couplings are then connected to a loading adapter which has
been mechanically clamped and sealed into the open truck hatch. The
loading adapter which can be moved from one hatch to another
weighs only twenty-eight pounds.
Overfill protection must be provided independently: this
system offers only an emergency pressure relief (rated at 3 psi).
A company representative estimated the cost of installing the
F428 system, for both parts and labor, to be as follows:
-------
4-Inch Hose to
Modified Existing
Loading Arm —*
3 or 4-Inch Vapor
Return Hose
4-Inch Quick Coupling
,rO
F218 API Coupler />• 'K- u
:VV) , /
y>v,_ i Hlectri.cal
Connection/'^ _ _
.?.>£> *£>.•. To Loadind/Aj;'
1**; /i Rack ' '
"Quick Clamp &
Coupler Interlock
-F428
Loading
Adapter
10-Inch
Manhole Opening
Relief Spring
Figure 6. F428 TOP-LOADING RACK TIGHT FILL SYSTEM (MANUFACTURED BY PARKER
HANNIFIN, FUELING DIVISION, IRVINE, CALIFORNIA)
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Modify Modify
two arms three arms
Vapor return piping and manifolding from
tanks to loading arms $3,000 $3,000
Flex hose attached to loading arm, flex
hose for vapor return and vapor tight
couplers for each loading arm 1,200 1,800
Electrical overfill protection on a truck 1,000 1,000
Hatch loading adapters (one for leaded
gasolines and one for unleaded) 1,400 1,400
$6,600 $7,200
Again, set stop meters should most probably be installed. This
would increase the cost by $3,000 for vapor recovery at the loading
rack.
Also, if the truck hatches are not the proper size, new ones
would have to be installed. This would cost $200 for parts and
labor for each hatch. If the firm had one four-compartment truck to
modify, this would add an additional $ 800 to the cost, for a
possible total expenditure of $10,400 for adapting two loading arms
and one truck or $11,000 for three arms and the one truck.
2. F427 Top Loading System
Rather than use movable temporary connections on truck hatches
as in the F428 system, permanent vapor tight product inlet connectors,
vapor tight vapor recovery outlets connectors, emergency vents and
overfill protection devices are installed in each compartment of the
truck. This installation is illustrated in Figure 7. Modifications
to the loading rack will be the same as required to use System F428.
There is an optional means of installing the vapor return lines
using this system. It would be quite possible to manifold together
all the vapor recovery outlets on the truck and have one only
required connection. The loading rack would be modified so that
rather than having a flex hose vapor return line on each arm, there
would be only one line leading directly back to the storage tanks.
With this alteration, the complete installation would be nearly
IV-13
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Emergency Venting
Capability 4052K
Float Loading 4-Inch Quick Coupling Vapor
Switch Adapter Recovery Connection
Figure 7. F427 TOP LOADING RACK TIGHT FILL SYSTEM (MANUFACTURED BY PARKER HANNIFIN,
FUELING DIVISION, IRVINE, CALIFORNIA)
IV-14
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identical to that described as being in use in the Houston/
Galveston area.
Again, referring to data provided by the company representa-
tive, the cost of installing the F427 system, for both parts and
labor, is summarized below. The principal difference in cost
between the two Parker Hannifin systems is the requirement for
permanent truck modifications to accommodate the product fill line
and the vapor return line.
Modify Modify
two arms three arms
Vapor return piping and manifolding from
tanks to loading arms $3,000 $3,000
Flex hose attached to each product loading
arm, and an API type coupler for each
loading arm 1,000 1,500
Truck loading adapter, vapor recovery
connector, emergency vent and float
switch overfill protection, and for
one four-compartment truck 4,400 4,400
$8,400 $8,900
As before, set stop meters should probably be installed at the
loading rack. Three meters will increase the total cost for recovery
at the loading rack by $3,000.
E. HOUSTON/GALVESTON AREA VAPOR RECOVERY INSTALLATIONS
During the survey of bulk plants in Houston/Galveston, Texas (4),
a vapor balance system design was observed in use at a large enough
number of facilities to warrant a specific description in this docu-
ment. Principal features of the system include 1) minimal modifica-
tions to the existing loading rack; 2) the use of dry break, quick-
connect connections between the top loading arm and new fill ports on
the truck; 3) the use of a single vapor return line which connects
to a manifold on the truck; and 4) the discontinued use of filling
through existing truck hatches.
IV-15
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The plants visited are using the following approach for
modifying the facilities. Vapor return piping to the loading rack
is branched off the vapor return lines between the storage tanks
and the transport unloading area. The piping to the loading rack
is usually placed underground to minimize problems with truck
traffic. At the loading rack, a flexible hose is attached to the
vapor return line and a dry break or vapor tight fitting is affixed
to the hose. This is to eliminate vapor losses to the atmosphere
when the return line is not connected.
The top loading rack is then modified to enable the vapor
tight delivery of gasoline to the account truck. The existing
fittins on the loading arm are removed and a vapor tight connector,
similar to the OPW Kamlock fitting is attached. If the loading arm
is unable to move in both horizontal and vertical planes for exact
alignment with the compatible coupler on the account truck a flexi-
ble hose is used for this purpose as shown in Figure 8. One end of
the hose is attached to the loading arm and the coupler is attached
to the other end, thereby providing a flexible connection similar to
that on the vapor return hose.
Account delivery trucks must also be modified in this vapor
recovery system. Each compartment must be fitted with a vapor
tight fill connector, a vapor return connection and an overfill
protection device. Specifically, the vapor return line installation
involves welding a pipe into each compartment and then joining all
pipes together in a manifold as shown in Figure 9. This manifold
line leads to a compatible fitting for the flexible vapor return
line at the loading rack. A hole is drilled into each compartment
and a submerged fill pipe is permanently attached. To the top of
this submerged fill pipe is affixed the compatible vapor tight connec-
tor for the top loading arm. A cap is fitted over this connector
when it is not in use to eliminate the leakage of vapors or the en-
trance of dirt or other impurities. The last item installed in a
compartment is the overfill protection.
IV-16
-------
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Figure 8. POSSIBLE MODIFICATIONS TO TOP-LOADING ARMS WHEN INSTALLING VAPOR RECOVERY SYSTEMS AT
THE LOADING RACK
-------
I—I
<
I
-------
A float system is installed in each compartment to be used
as an indication of the amount of gasoline dispensed or as an
overfill protection. The indicators consist of a rod with a
float attached. The rod in most cases is 12 to 18 inches (5 to
7 cm) long and is graduated. As the liquid level reaches the
float, the assembly rises and the liquid level is visually adjus-
ted. The assembly rises through a coupling with a hole cut for
the diameter of the rod. Rubber o-rings are installed to seal
around the rod to eliminate the escape of vapors. A pin is placed
in the top of the rod to keep it from falling into the compartment
when it is empty. When not being used, the cap is placed over the
fitting. If the rod is in the full position, the rod is simply
pushed down and the cap installed.
Some of the bulk plant operators interviewed have complained
of this rod system stalling and thereby not yielding the true
amount of liquid dispensed. When talking with the contractors who
install the truck conversion, they have not encountered any complaints
from their clients.
Major oil company contacts provided cost information for the
work necessary to modify the loading rack and contractors provided
data on the costs of installing the necessary equipment on the
delivery trucks. The range and average costs are tabulated below.
- • ¦ ¦ ¦
Work
Range
Average
Modify loading rack and
install vapor return
1 ine
$3000-4000
$3200
Modify one
four-compartment
delivery truck
$1200-3200
$2000
Total
$4200-7200
$5200
Although no one who was interviewed discussed installing meters at the
loading rack, it is possible that some firms will elect to do so, at
an additional cost of $3,000.
IV-19
-------
F. WIGGINS TANK WAGON VAPOR BALANCE SYSTEM
The Wiggins System has been adapted specifically for use at
bulk plants. The design had originally been utilized in refueling
aircraft and other vehicles which required leak tight connections.
Product loading and vapor return connections are designed for and
should only be used for bottom loading of the truck. The system is
being considered here with top loading systems primarily because it
requires minimal modifications to the existing top loading rack.
Components of the system are shown in Figure 10 and a schematic of
an operational installation is given in Figure 11. At this time,
actual installations have been located only in Colorado.
The loading arms would need just to have flexible hose
attached which would extend to ground level and reach the truck to
be loaded. The loading nozzle Model ZZ9B would then be attached
to the hose. Vapor return piping would need to be installed from
the tanks to the rack. Flexible hose might also be used for a
short distance to simplify connecting the vapor return line to the
truck.
As with most other systems, primary overfill protection should
be provided at the rack by installing set-stop meters. The pressure
sensitive--3psi--automatic shut off of the loading nozzle should be
a secondary prevention means. An additional safety measure which is
recommended is the installation of a thermal expansion relief valve
on the vacuum side of the product dispensing pump. In areas subject
to large diurnal temperature variations, there is a risk of damage
to hoses. The relief valve, set to open at 75 psi, provides a means
for expanding product to escape from the loading arm piping and
return to the tanks.
Most of the system modifications are performed on the truck.
Hatches are sealed and new openings are drilled into each compart-
ment. The ZV9 vent is installed into each of these openings and
all compartments are then manifolded together to provide a single
IV-20
-------
ZV9 VENT
Adjustable for tank ullage
Gravity
off load
ZN2B RECEIVER
rigure 10
COMPONENTS FOR WIGGINS
T:'/\GCv! VAPOR SUANCL SYSTEM
T".
-------
Figure 11. SCHEMATIC OF OPERATIONAL WIGGINS TANK WAGON VAPOR BALANCE SYSTEM USING MODIFIED
TOP LOADING RACK AT SMALL BULK PLANTS
I
ro
PO
-------
common vapor return line. In order to provide tight connec-
tion during loading, the inlets on the truck are fitted with the
ZN2B Receiver.
Data from the manufacturer indicate the price range for
retrofitting a tank truck with the Wiggins equipment would be in
the range of $450 to $500 per compartment, or $1,800 to $2,000 for
a four-compartment truck for both materials and labor. Specific
parts which are required are a ZV9 Vent and a ZN2B Receiver. These
cost $79 and $39 each, respectively, with one of each needed for
each truck compartment. The bulk plant portion of the system would,
of course, depend upon the extent of the required modification.
The cost of the loading nozzle is $289 each. The remainder of the
cost would be attributed to the vapor return line, thermal expansion
relief, etc. Overall, adapting a loading rack with three product
lines should cost approximately $3,000. Again, if meters are to be
purchased and installed, the cost would be increased by another
$3,000. As an illustration of the range of costs, one individual
reported an expenditure of $14,000, much of which he attributed to
the installation of a new loading rack. In summary the costs of
this system, on the average, are as shown below:
Modify one four-compartment delivery truck
Conversion of the loading rack and installa-
tion of vapor return piping
Loading nozzles (three)
Set-stop meters for overfill protection
IV-23
$1,800
3,000
900
3,000
$8,700
-------
V. TOTAL BULK PLANT VAPOR RECOVERY SYSTEM
PURCHASE AND INSTALLATION COSTS
A. EQUIPMENT AND INSTALLATION COSTS
The previous section dealt solely with the installation of
a vapor balance system to recover gasoline vapors produced dur-
ing the filling of a delivery truck at a small bulk plant. The
two other segments of a vapor recovery system -- reducing emis-
sions when the bulk plant receives gasoline and when the smaller
account truck delivers to the consumer -- must also be included
in estimating the cost to the small bulk plant operator of con-
trolling gasoline vapor losses to comply with Federal regulations.
Substantial data have already been presented (2-4) on the costs
of Phase I vapor recovery and on adapting delivery trucks for
vapor recovery. Phase I at a facility with above ground tanks
will cost an average of $4200; and at a facility with underground
tanks, $2,700. Converting one four-compartment delivery truck
will cost an average of $2,200 (2-4). By combining these costs
with those estimated for the various top loading vapor recovery
systems available, the total expected necessary expenditure for
a bulk plant can be determined. For clarity, these costs are
presented in tabular form in Table V-l.
These costs are intended to represent the expenses of a
bulk plant with an average daily gasoline throughput of 5,000
gallons (20,000 liters), two small delivery trucks of about 2,000
gallon capacity (7,600 liters) each, and a 20,000 gallon storage
tank (76,000 liters) for each grade of gasoline sold.
Variables which will affect the cost of vapor recovery
and could not be well defined include amount of site preparation,
e.g. earthwork, electrical work, overhead pipe support structures;
amount of time a truck or the loading rack would be out of ser-
vice; and amount of work to bring an older plant into compliance
V-l
-------
Table V-l. ESTIMATED TOTAL COSTS OF VARIOUS TOP LOADING VAPOR RECOVERY SYSTEMS
WHICH CAN BE USED BY THE SMALL GASOLINE BULK PLANT
Top Loading
Rack Vapor
Recovery
System
Phase II
Equipment
and Installa-
tion Cost a
Equipment and Installation
Costs for Phase I Vapor
Recovery at Plants with
Above Ground Tanks b
Equipment and Installation
Costs for Vapor Recovery
on One Four-Compartment
Delivery Truck
Total
Equipment and
Installation
Costs
0PW - 2 arms
3 arms
$28,000
32,000
$4,200
$2,200
$34,400
38,400
STS - 2 arms
3 arms .
11,600
14,900
4,200
2,200
18,000
21 ,800
Chiksan - 2 arms
3 arms
28,000
32,000
4,200
2,200
34,400
38,400
Parker Hannifin
F428 - 2 arms
3 arms
9,600
10,200
4,200
2,200
16,000
16,600
Parker Hannifin
F427 - 2 arms
3 arms
11,400
11,9.00
4,200
d
15,600
16,100
Houston/Galveston
area systems
3 arms
8,200
2,900 e
d
11,100
Wiggins -
3 arms
8,700
4,200
d
12,900
These costs include $3,000 for three set-stop meters at the loading rack. If the plant already has meters or
. chooses not to install them, costs will be reduced accordingly.
Phase I Vapor Recovery at a facility with underground tanks will cost an average of $1,500 less.
jThis is a specific quote by one contractor for modifying trucks to use this particular system.
Truck modifications are a mandatory part of the vapor recovery system, so the cost is incorporated in Column 2.
This is the average cost quoted by major oil company representatives in this area ( 4 ).
-------
with current building and safety codes. This last
probably not be considered a direct consequence of
vapor recovery equipment.
item should
instal1ing
B. OPERATIONS AND MAINTENANCE COSTS
Only a few bulk plant operators have had long-term
experience with vapor recovery systems. Thus, cost information
is limited. Maintenance costs for vapor balance and bottom-
loading are generally expected to be small. Transfer hoses and
mating fittings will require replacement. Installation of
automatic controls for loading and unloading of gasoline may
impose additional maintenance requirements. No direct informa-
tion on operating costs was available.
Based upon experience with balance systems in service
stations, one major oil company estimated the annual costs of a
balance system in a bulk plant to be apportioned as follows:
Any increase in facility value should increase assessments,
thereby increasing taxes. The amount will vary with tax rates and
assessments.
Possible changes in insurance rates due to vapor balancing
have not been resolved. To date, insurance companies have not indi-
cated whether either an increase or decrease in rate could result
from a change in risk category.
Although information on these miscellaneous costs is limited,
it appears that; (1) operating and maintenance costs for vapor
recovery may be significant and (2) the principal impact is directly
related to the initial cost.
Percent of initial
system cost
Interest (8 years at 10%)
Depreciation(straight line for 8 years)
Property taxes
Maintenance
6.2
12.5
2.5
3.0
24.2
V-3
-------
C. EFFECT OF DEPRECIATION AND TAXES
Tax incentives and depreciation may have a significant impact
for many companies contemplating a vapor recovery investment. In
this connection, the Internal Revenue Code includes special provi-
sions for firms, and especially small businesses, purchasing and
installing certified pollution control facilities. In addition
to all interest payments being deductible expenses for tax purposes
Section 169 of the code permits a rapid write-off of such certified
investments. Under this regulation a business may choose to
depreciate its newly acquired equipment over a sixty-month period
instead of over its useful life. Employing the straight-line
depreciation method, 20% of the cost of this investment would be
deductible for five years.
Section 46 and 50 of the code deal with the subject of
investment tax credits. All businesses may credit 10% of the cost
of equipment with a depreciable life of at least seven years to
their actual tax liability. Lesser percentages may be created for
equipment depreciated over a minimum period of three years to a
maximum of six years. For a life of 3 or 4 years, the investment
tax credit is 3.33%. For 5 or 6 years, the credit is 6.67%. The
purpose of this regulation is to provide businesses with added
incentives to purchase equipment.
Finally, Section 179 of the code furnishes small business
with an additional opportunity to reduce their taxes. It permits
an added first year bonus depreciation allowance equal to 20% of
the purchase price of the equipment or $2,000, whichever is greater
If this bonus depreciation is taken by the taxpayer, he must make
an appropriate reduction in the basis of the equipment.
Accordingly, a small business will be able to deduct its
interest expense plus over 50% of the purchase and installation
price of certified pollution control equipment during the first
year. Other businesses will be able to deduct 30% plus interest
charges.
-------
Let us examine the effect of these regulations on a parti-
cular vapor recovery expenditure. Suppose a facility was required
to spend $10,000 for its equipment and installation, and $1,000
per year for maintenance. What is the after tax cost of this
expenditure for both a regular business and a qualifying small
business? Let us assume the marginal tax for a regular business
is 48% and the marginal rate is 22% for a small business. The
appropriate calculations are shown in Table V-2.
Tax deductible expenses include depreciation, the investment
tax credit, property taxes and maintenance. For qualifying small
business, there is also bonus first year depreciation. The total
savings after tax is calculated by multiplying the total deductible
expenses by the marginal tax rate. Then, taking the present value
of these savings and summing them for the given period yields the
total saving accruing to the investor in equipment.
For a regular business, the expenditure would be $10,000 plus
the present value of $1,250 for 10 years at 9%, or $18,779.48.
With tax savings of $8444.56, the actual cost in a present value
sense would be $10,334.92
For a qualifying small business, the expenditure would be
the same at $18,779.48. However, the tax savings would be only
$3,923.12, yielding an actual cost of $14,856.36. The marginal tax
rate difference of 26% has a considerable impact on the actual cost
of the investment even though the small business has the advantage
of first year bonus depreciation.
V-5
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Table V-2. EFFECTS OF POSSIBLE TAX BENEFITS ON COST OF VAPOR RECOVERY SYSTEMS
REGULAR BUSINESS
Operating Tctal Total
Year
Depreciation
Investment
Tax Credit @ 6.67%
Property
Taxes
and
Maintenance
Deductible
Expense
Savi ng
After Tax
1
$2,000
$667
$250
$1,000
$3,917
$1380.16
2
2,000
250
1 ,000
3,250
1560
3
2,000
250
o
o
o
3250
1560
4
2,000
250
1 ,000
3250
1560
5
2,000
250
1 ,000
3250
1560
6
250
1 ,000
1250
600
7
250
1 ,000
1250
600
8
250
1 ,000
1250
600
9
250
O
o
o
1250
600
10
250
1 ,000
1250
600
TOTAL
SMALL BUSINESS
1
$3,600
$667
$250
$1,000
$5,517
$1,213
2
1,600
250
1 ,000
2,850
627
3
1,500
250
1 ,000
2,850
627
4
1,600
250
1 ,000
2,850
627
5
1 ,600
250
1 ,000
2,850
627
6
250
1 ,000
1,250
275
7
250
1,000
1,250
275
8
250
1 ,000
1 ,250
275
9
250
O
o
o
1,250
275
10
250
1,000
1,250
275
TOTAL
i
cr>
Present Value of
Tax Savings @ 7%
$1 757.16
1362.56
1273.42
1190.12
1112.26
39S.34
373.62
344.21
326.36
305.01
$8444.56
$1134.34
547.65
511.82
478.34
447.04
183.24
171.26
160.05
149.58
139.80
$3923.12
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VI. FINANCIAL ANALYSIS
Determining the financial structure and capability of
typical bulk plants is a very difficult matter. Many of these
firms are in businesses other than just the wholesale marketing
of gasoline. They sometimes own gasoline stations and sell tires,
batteries and accessories (TBA) in addition to gasoline and other
petroleum products. It is also quite difficult to define what
one means by typical in terms of location, customer set, sales
volume, additional lines of business, profitability and asset
value.
Bulk plants operate in market environments that vary in
competition due to the make up of their respective customer sets.
These markets range from being virtually monopolistic to being
highly competitive. Consequently, a bulk plant operator must
react in a manner that is sensitive to his environment while
considering the range of alternatives available to his customers.
Both bulk plant operators and their customers are prepared
to modify their actions to take advantage of changing market
conditions. The operators will seek to raise prices and curtail
services in order to maintain or increase profit margins. On
the other hand, their customers will seek to obtain special ser-
vices and lower prices for gasoline. The degree of existing
competition will be the major determinant in resolving this con-
flict. In addition, the bulk plant operator may sometimes be
able to purchase product from his supplier at a reduced price to
enable him to supply gasoline to a particular group of customers
at a given prices.
In an earlier study (2) PES carried out a financial
analysis of small gasoline bulk plants. Data gathered in this
VI-1
-------
current study have agreed well with the data from the earlier
study, and indicate that the first financial analysis is still
valid. Therefore, it has not been deemed necessary to perform a
separate economic analysis to evaluate the specific impact of top
loading vapor recovery systems on bulk plants. The Market Analysis
and Financial Analysis sections from Reference (2) are reproduced
in Appendix B of this report for the convenience of the reader.
The analysis showed that the critical financial factor was the
ability of the plant owner to obtain funds for the initial invest-
ment in vapor recovery equipment. Firms with assets between $50,000
and $750,000 were studied from the point of view of their debt
structure, working capital position and profitability of the enter-
prise. Small Business Administration and Pollution Control Finan-
cing Authority loans were considered along with conventional bank
loans. Tax incentives were evaluated and found to be of limited
assistance to small businesses, such as is the independent jobber.
Table VI-1 presents a comparison between the level of expenditure
necessary for a vapor recovery system and the average daily gaso-
line throughput needed to provide adequate revenues to qualify for
the loan.
VI-2
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Table VI-1. BUSINESS VOLUME OF A SMALL BULK PLANT
NEEDED TO QUALIFY FOR LOANS
Daily
Gasoline Throughput
Gal Ions
2,400
4,000
8,800
12,800
Liters
9,100
15,100
33,300
48,500
Maximum
Loan Available
Bank-80%
$15,000
30,000
60,000
90,000
SBA
or PCFA-
100%a
$20,000
35,000
75,000
120,000
Vapor control
systems which
would be
affordable
Wiggins, Houston/
Galveston Area
System
Those above, Par-
ker Hannifin,STS
Those above, OPW
Chi ksan^
AUb
aSBA - Small Business Administration
PCFA - Pollution Control Financing Authority
^These size plants might choose to modify two or three trucks.
Even if they would have that additional expense, they would
still qualify for a loan sufficient to afford all equipment
and installation costs.
V1-3
-------
APPENDIX A
LIST OF CONTACTS
-------
CONTACTS
GOVERNMENTAL AGENCIES
Gary Parish, U.S. Environmental Protection Agency, Region
VIII, Denver, Colorado.
Fred Thoits, U.S. Environmental Protection Agency, Region
IX, San Francisco, California.
Randy Brown, U.S. Environmental Protection Agency, Region
VI, Dallas, Texas.
Dean Simeroth, California Air Resources Board, Sacramento,
California.
Ernie Trunco, Colorado Department of Health, Air Pollution
Control Division, Denver, Colorado.
Mike Innerary, Texas Air Control Board, Houston Branch
Office, Houston, Texas.
Howard Houston, Texas Air Control Board, Austin, Texas.
Mr. Gorry, New Jersey Bureau of Air Pollution Control,
Trenton, New Jersey.
Harry Chatfield, South Coast Air Quality Management
District, Los Angeles, California.
Karl Krause , Ventura County Air Pollution Control Board,
Ventura, California.
-------
MAJOR OIL COMPANIES
John Graff, Chevron Oil Company, Rocky Mountain Division, Denver,
Colorado.
Les Wells, Shell Oil Company, Los Angeles, California.
George Johnson, Gulf Oil Company, Houston, Texas.
E.E. Carroll, Texaco Oil Company, Houston, Texas.
Gordon Potter, Exxon, Houston, Texas.
-------
EQUIPMENT MANUFACTURERS, SUPPLIERS AND CONTRACTORS
Richard Gregory, Dover Corporation/OPW Division, Long Beach,
Cali forni a.
George Davidge, Oilfield Construction, Bakersfield, California.
Bud Reed, Parker Hannifin Fueling Division, Irvine, California.
Dean Woods, J-8 Equipment Co., Denver, Colorado.
Bob Martin,E.B. Wiggins, Inc., Los Angeles, California.
John Larson, Petroleum Dynamics, Inc. Los Angeles, California.
Jim Barnes, Huddleston Equipment Co., Los Angeles, California.
Art Benjamin , Jr., P.S.I. Equipment Sales, Inc., Fresno,
Cali fornia.
Robert Wheaton, Equipment Specialists Inc., Clark, New Jersey.
Jack Ritterbush, J & L Tanks, Los Angeles, California.
Bob Schertzel, R.H. Alexander Co., Los Angeles, California.
Cleo Williamson, FMC Corp., Chiksan Division, Brea, California.
Darrell Summers, FMC Corp. Chiksan Division, Brea, California.
Mr. Glidden, Tennile Co., Texas City, Texas.
Roy Young, Reliable Tank Co., Rhome, Texas.
Harry Britton, Smith Tank & Equipment, Waco, Texas.
Bill McCarly, Hobbs Trailers, Houston, Texas.
Cliff Heard, Heil Co., Houston, Texas.
Russ Reinsch, Parker Hannifin Fueling Division, Irvine, California.
Ray , Weld-It Co., Los Angeles, California.
-------
BULK PLANT OPERATORS
Don Looman, Looman Oil, Inc., Ventura, California.
Ed LeValley, James Petroleum Corp., Bakersfield, California.
Burt McCormack, Santa Barbara, California.
S. Freehling, Midway Gas & Oil, Denver, Colorado.
James Clark, James Clark Corp., Santa Paula, California.
Roland Kuhn, Gulf Oil, Galveston, Texas.
OTHER INTERESTED GROUPS
Petroleum Equipment Institute, Tulsa, Oklahoma
Captain Henry, Los Angeles County Fire Department, Los Angeles,
California.
Contacts which provided no input for this report are not shown on
this list.
-------
APPENDIX B
FINANCIAL ANALYSIS
-------
FINANCIAL ANALYSIS EXCERPTED FROM "ECONOMIC
ANALYSIS OF VAPOR RECOVERY SYSTEMS ON SMALL
BULK PLANTS"
Report for Contract No. 68-01-3156,
Task Order No. 24, September, 1976
6. MARKET ANALYSIS OF BULK PLANTS
Bulk plants operate in market environments that vary in
competition due to the make up of their respective customer sets.
These markets range from being virtually monopolistic to being
highly competitive. Consequently, a bulk plant operator must
react in a manner that is sensitive to his environment while con-
sidering the range of alternatives available to his customers.
Both bulk plant operators and their customers are prepared
to modify their actions to take advantage of changing market con-
ditions. The operators will seek to raise prices and curtail ser-
vices in order to maintain or increase profit margins. On the
other hand, their customers will seek to obtain special services
and lower prices for gasoline. The degree of existing competition
will be the major determinant in resolving this conflict.
6-1
-------
A principal aspect of the bulk plant business that appears
to be self-evident is that the field lacks consistency. As implied,
previously, there are several owner/operator situations within the
industry. Additionally, competition is increasing from other methods
of marketing gasoline. These methods include direct dealers and
pipeline facilities.
For any particular operator, there are relevant factors that
affect his business and have a major influence on its conduct. These
factors will certainly include the following:
e Relationship with his supplier
e Efficiency of his plant
o Size of his customers
e Distance traveled to his customers
c Extent of direct competition
e Governmental regulations
These factors will affect both his gross profits and net pro-
fits. For example, if the operator's customers are relatively dis-
tant his delivery costs will be high. If he has many small customers,
costs per delivery will be higher than if he had a few large customers.
Bulk plant suppliers may not sell gasoline to all of their
customers at the same price. According to industry practice, an
operator will be able to purchase product from his supplier at a
lower price if he incurs higher than normal expenses in servicing
his customers. In a sense, the operator is being subsidized by
his supplier in order to sell gasoline to a particular group of
customers at a given price.
During this study, the question has been raised of independent
operators receiving subsidies for other situations beyond their con-
trol, such as the installation of vapor recovery equipment. . The
almost universal response from both operators and suppliers was that
a lump sum type of assistance could not be expected.
6-2
-------
The operators seem to be left with three possible alterna-
tives: 1) either absorb the added costs, 2) seek lower supply prices,
or 3) raise delivery prices. An increase in the price of gasoline
raises the further question of an accompanying decrease in demand
and the possible substitutions available to consumers seeking to
purchase gasoline at lower prices.
Economically, direct supply is viable only for individual
customers located relatively short distances from refineries. If
long distances must be traveled for any deliveries, costs will begin
to escalate rapidly for individual small users. Large users, those
with at least. 8,000 gallon (.30,000 liter) tanks, are likely to deal
with direct bulk sellers or hire trucks to provide deliveries from
the refinery to his facility, bypassing the bulk plant.
7. FINANCIAL ANALYSIS
7.1 FINANCIAL DATA AND STATISTICS
Determining the financial structure and capability of typical
bulk plants is a very difficult matter. Many of these firms are in
businesses other than just the wholesale marketing of gasoline. They
sometimes own gasoline stations and sell tires, batteries and acces-
sories (TBA) in addition to gasoline and other petroleum products.
It is also quite difficult to define what one means by typical in
terms of location, customer set, sales volume, additional lines of
business, profitability and asset value.
Many firms, both large and small are reluctant to freely dis-
perse their annual financial data. Nevertheless, sources for this
information are available through Dun and Bradstreet and Robert
Morris Associates (RMA). The former provides banks, insurance
companies and other institutions with financial data, corporate his-
tories and ratings for numerous companies. PES has obtained several
of these reports for firms in the bulk plant business.
7-1
-------
Robert Morris Associates is a service that publishes summary
data for groups of companies within most Standard Industrial Classi-
fication (SIC) codes. For the bulk plant industry, SIC code 5171 was
selected which is defined as follows:
"Establishments primarily engaged in wholesaling
petroleum products, including liquified petroleum
gas, from bulk liquid storage facilities." *
RMA has collected financial data for 153 firms within this
classification. As indicated above, the companies included in this
listing are often in other related businesses in addition to the
operation of bulk plants. RMA has published data for companies
grouped according to their asset value. The groups consist of 18
companies with assets under $250,000, sixty-seven companies with
assets of between $250,000 and $1,000,000, and fifty-nine firms with
assets of between $1,000,000 and $10,000,000. In addition, signifi-
cant ratios by statistical quartile have been computed for the com-
panies within each asset grouping. These statistics are presented
in Tables 7.1 and 7.2.
The ratios calculated in Table 7.2 are defined in Table 7.3.
These ratios are commonly used to assess the financial capability
and health of firms as compared to other organizations in the same
industry.
Three numbers are depicted for each ratio in Table 7.2.
These values represent the quartile points in each case. For
example, if a group had 19 members, then the quartile points would
define the values of the fifth, tenth and fifteenth members. It
is clear from this discussion that management of any company in a
given industry will attempt to keep their ratios away from the
lowest quartile of any group as this might tend to indicate weak-
ness. By having this type of data, management is able to measure
its performance against others in the same industry.
*
Robert Morris Associates - Statement Studies, 1975
-------
Table 7.1 BALANCE SHEET
AND INCOME STATEMENT FACTORS
FOR WHOLESALERS OF PETROLEUM PRODUCTS
WHOLESALERS OF - PETROLEUM
PRODUCTS
77 STATEMENTS
ENDED ON OR ABOUT JUNE 30, 1974
76 STATEMENTS
ENDED ON OR ABOUT DECEMBER 31, 1974
ASSET SIZE
Under
$250K
$250K &
Less Than
$ 1 MM
$1 MM &
Less Than
$10MM
All
Sizes
NUMBER OF STATEMENTS
73
67
59
153
ASSETS
Cash
Marketable Securities
Receivables Net
Inventory Net
All Other Current
Total Current
Fixed Assets Net
All Other Non-Current
Total
%
10.4
.0
27.6
25.0
1.8
64.8
28.5
6.7
100.0
%
10.8
1.7
27.7
17.3
1.8
59.4
33.2
7.5
100.00
%
14.1
.5
23.6
19.0
1.8
59.0
34.4
6.6
100.0
%
9.7
1.7
24.4
18.3
1.2
55.4
38.4
6.2
100.0
LIABILITIES
Due to Banks-Short term
Due to Trade
Income Taxes
Current Maturities LT Debt
All Other Current
Total Current Debt
Non-Current Debt. Unsub.
Total Unsubordinated Debt
Subordinated Debt
Tangible Net Worth
Total
3.2
18.6
2.6
4.1
19.7
48.3
10.4
58.8
.0
41.2
100.0
4.9
20.0
4.5
4.7
8.0
42.1
17.7
59.8
.9
39.4
100.0
3.8
23.0
5.6
3.6
10.1
46.2
16.5
62.7
.4
36.8
100.0
3.9
22.3
4.0
3.7
, 8.4
42.2
18.1
60.3
.3
39.4
100.0
INCOME DATA
Net Sales
Cost of Sales
Gross Profit
All Other Expense Net
Profit Before Taxes
100.0
82.6
17.4
13.9
3.5
100.0
81.9
18.1
14.8
3.3
100.0
84.5
15.5
10.6
4.8
100.0
78.4
21.6
14.8
6.8
7-3
-------
Table 7.2 RATIO ANALYSIS FOR WHOLESALERS OF PETROLEUM PRODUCTS
Based on 153 statements ending during calendar year
1974
Asset
$250 and
$ 1 MM and
Size
Under
less than
less than
All
$250M
$ 1MM
$10MM
Sizes
RATIOS
18
67
59
153
RATIOS
1.0
1.2
1.2
1.2
Quick
.8
.5
.9
.7
.9
.6
.9
.6
Current
1.7
1.8
2.0
1.8
1.5
1.4
1.3
1.4
1.1
1.0
1.0
1.0
Fixed/
.3
.4
.5
.5
Worth
.7
.8
.9
.8
1.0
1.4
2.0
1,6
Debt/
.7
.8
.9
.8
Worth
1.3
1.5
1.6
1.6
2.7
2.9
3.3
3.1
% Profit
85. 8
50.3
60.3
60.7
Bef. Taxes/
28.5
35.2
33.3
35.2
Worth
6.6
19.3
23.0
20.3
% Profit
25.5
18.4
18.4
19.2
Bef. Taxes/
16.4
11.4
12.9
12.9
Tot. Assets
3.8
7.0
7.4
7.2
The three values in each box represent the quartile points
for each ratio and asset size.
-------
Table 7.3
DEFINITION OF RATIOS
QUICK RATIO
Method of Computation: The total of cash, short-term marketable
securities and net receivables for the industry composite was
divided by the total of current liabilities.
Result: The ratio measures short-term liquidity available to
meet current debt.
Principle: Also known as the "acid test" or "liquidity" ratio,
it is of particular benefit to short-term creditors, as it
expresses the extent to which cash and those assets most
readily convertible into cash can meet the demands of current
liabilities. Any value of less than 1 to 1 implies a re-
ciprocal "dependency" on inventory or other current assets to
liquidate short term debts.
CURRENT RATIO
Method of Computation: The total of current assets for the in-
dustry composite was divided by the total of current liabili-
ties.
Result: The ratio is one measure of the ability of the in-
dustry to meet its current debt.
Principle: In comparing an individual company to the industry,
a higher current ratio indicates that more current assets
are free from debt claims of creditors and prompter payment
can be expected.
FIXED/WORTH
Method of Computation: The net fixed assets (plant & equipment
less reserve for depreciation) for the industry was divided
by the tangible net worth.
7-5
-------
Table 7.3 Definition of Ratios con't.
Result: The ratio expresses the proportion between investment
in capital assets (plant and equipment) and the owners'
capital.
Principie: The higher the ratio, the less owners' capital is
available for working capital. The lower this ratio, the
more liquid is the net worth and the more effective owners'
capital is as a liquidating protection to creditors. The
presence of substantial leased fixed assets—off the balance
sheet--may deceptively lower the ratio.
DEBT/WORTH
Method of Computation: The total debt for the industry composite
was divided by the tangible net worth.
Result: The ratio expresses the relationship between capital
contributed by creditors to owners' capital--"what is owed to
what is owned."
Principle: Total assets or resources represent the entire
capital at the disposal of a given company an'd consist
of net worth or owners' capital, and creditor capital —
that provided by those outside the business for temporary
use. The proportion existing between debt and worth--or
leverage—records the debt pressure. The lower the ratio,
the easier the pressure and the greater the protection
for creditors.
PROFITS BEFORE TAXES/WORTH
Method of Computation: The amount of net profit before taxes
was divided by the tangible net worth.
7-6
-------
Table 7.3 Definition of Ratios con't.
Result: The ratio expresses the relationship between the owners'
share of operations before taxes for the year and the capital
already contributed by the owners.
Principle: Capital is usually invested in a company in the
anticipation of a return on that investment—in the form
of a profit. This hope of a profit is the attraction for
original and new capital. The higher the profit before
taxes to worth, the greater is the probability of making
appreciable addition to owners'
capital after payment of dividends and taxes.
PROFITS BEFORE TAXES/TOTAL ASSETS
Method of Computation: The amount of net profit before taxes
of the industry were divided by the total assets for the in-
dustry.
Result: The ratio expresses the owners' share of the year's
operations before taxes related to the resources contributed
by both owners and creditors.
Principle: The relationship indicates the net profitability of
the use of all resources of the business.
-------
7.2 FINANCIAL STATEMENT SUMMARY
Each industry tends to exhibit different types of financial
statements. For example, the firms in one industry may have a
large percentage of fixed assets while another industry may show
more current assets. On the liability side as well, firms within
an industry will show similarities and will tend to differ in the
degree of various elements. Consequently, it is extremely diffi-
cult to compare firms in various industries. The common practice
is to assess how any given firm in an industry compares to the
averages and standards developed for that industry.
By reviewing the data for the balance sheets and income
statements given in Table 7.1, some general statements can be made
about the data summarized for the industry. Most of the data shown
is representative of firms with at least $250,000 in assets. The
smaller companies have a greater percentage of current assets than
the larger firms with differences appearing primarily in a higher
percentage of fixed assets in inventories and a low percentage of
assets. On the liability side of the balance sheet, a reasonably
large disparity between the smaller and bigger firms is apparent
in the percentage of non-current debt. This fact reflects the
greater difficulty in most industries of small firms to obtain
long term debt.
One further point should be made regarding financial data
on balance sheets. According to generally accepted accounting
principles, fixed assets always reflect historical cost rather than
their current market values. Therefore, the balance sheet of a
company may not truly reflect the actual financial capability of the
firm. For example, a small bulk plant may have been purchased
thirty years ago and the recorded land value will reflect its
actual cost at that time. In the intervening period, the market
value of the land may have increased substantially but the firm's
7-8
-------
balance sheet and accounting records will continue to carry this
asset at its original cost.
7.3 INVESTMENT IN VAPOR RECOVERY SYSTEMS
The approach to be taken in the following discussion will
be to assess the impact of several expenditure levels for vapor
recovery equipment on firms of various asset values and sales.
As can be expected, within each group of companies, an irregular
ability to accept costs of a given amount will be exhibited.
The PES approach will be to evaluate the impact of varying expendi-
tures on average firms of several sizes (as represented by data
in Table 5.1) and assess the new quartile position of this firm
(as represented by the data in Table 5.2). If any expenditure
causes the firm to show drastic and unfavorable changes in parti-
cular ratios, it can be concluded that the expenditure will have
an adverse effect on the enterprise. This is due to the fact
that such changes indicate the probable existence of strains on
the financial capabilities of the firm in such areas as availa-
bility of capital, profitability and borrowing potential.
The analysis described below will concentrate on firms with
assets of between $50,000 and $750,000, and will be concerned
principally with the debt structure, working capital position
and profitability of an enterprise. These firms can be expected to
require an investment of at least $10,000 for installation of a top
loading vapor balance at plant sites and for modification of their
delivery trucks. Although it is recognized that some plants may
need to convert their own transports, this $5,000 expenditure
(approximate) is not being included as a cost of installing vapor
recovery equipment. Also, plants which elect to convert to bottom
loading at a cost in excess of $30,000 will be considered as volun-
tarily making this expenditure as a facility modernization.
7-9
-------
7.4 SOURCES OF CAPITAL
Most companies in the asset range being considered will be
unable to raise the needed capital internally and will have to
seek outside sources of funds. The most likely organizations
available to provide this assistance will be banks. Other assist-
ance may be expected from the Small Business Administration (SBA)
and the Pollution Control Financing Authority (PCFA) in most states.
The latter have been organized to provide low interest loans to
industry in order to purchase and install pollution control equip-
ment. However, only in the State of California has this organiza-
tion been specifically attempting to assist small businesses.
On June 4, 1976 President Ford signed Senate Bill 2498 into
law (Public Law 94305) which provides the SBA with the capability
to guarantee contracts that the California PCFA has with businesses
including loan agreements. These contracts are then used as
security to sell tax exempt bonds primarily to banks who make loans
to firms needing to install pollution control equipment at reduced
rates. If this program proves successful, it will probably be
expanded to other sections of the ocuntry.
When a potential borrower seeks a loan, he must demonstrate
to his bank that he possesses the capacity to repay the principal
and interest in a reasonable time period. If he cannot demonstrate
this fact, neither the SBA nor the PCFA can grant him a loan. His
credit worthiness is determined solely by his bank.
In most usual circumstances, banks will make equipment
loans for a period of three to five years at the prevailing rate
of interest. This rate is presently about 11%, however, it is
subject to change depending on the size of the loan, the type of
equipment and the credit worthiness of the borrower. If the loan
applicant qualifies under SBA or PCFA criteria, he could obtain
a loan for eight or more years at an interest rate that is three
or four percent below the prevailing rate.
Recently, the SBA has also recognized the special hardships
that can be created for small businesses in meeting air pollution
7-10
-------
regulations. Accordingly, a program of air pollution control loans
has been instituted. Further information pertaining to this pro-
gram, was provided in Reference 1.
7.5 ANALYSES OF FINANCIAL CAPABILITY
In order to assess the financial capability of typical small
firms in the industry, seven pro-forma balance sheets and income
statements have been created for enterprises with selected levels
of assets and sales. These statements, as shown in Table 7.4 ,
represent companies with assets ranging from $50,000 to $750,000
and with total annual sales between $150,000 and $2,500,000. These
statements were developed from the data provided in Tables 7.1 and
7.2.
From these data, ratios for total debt/net worth of the
seven typical companies have been generated assuming different level
of vapor recovery expenditures. These new ratios are shown in
Table 7.5 for two cases. In the first case the loan is made for 80%
of the designated amount - a 20% down payment being required. The
second case shows 100% financing available, because of guarantees
by the SBA or the California PCFA. When the debt/net worth ratio
reaches the 2.5 area, it indicates that the firm is maintaining a
high proportion of debt. At this point creditors of this company
will begin to become concerned about its credit worthiness. Any
additional borrowing will become extremely difficult unless the
debt/net worth ratio can be reduced. For this reason a ratio of 2.2
will be considered as a desirable maximum.
Working capital must also be considered in order to assess
the capability of an enterprise to make a down payment, if necessary
and continue in operation while paying off the loan. Quite clearly,
all working capital cannot be diverted to loan purposes. For this
exercise let us assume that 50% of working capital can be diverted.
-------
Table 7-4, PRO FORMA BALANCE SHEETS AND INCOME
STATEMENTS FOR BULK PLANTS OF VARIOUS SIZE ASSETS
ASSET SIZE $50,000 $100,000
BALANCE SHEETS
Assets
Cash 5,200 10,400
Marketable Securities
Receivable Net 13,800 27,600
Inventory Net 12,500 25,000
Other Current Assets 900 1,800
Total Current Assets 32,400 64,800
Fixed Assets Net 14,250 28,500
Other Non-Current Assets 3,350 6,700
TOTAL ASSETS 50,000 100,000
LIABILITIES
Accounts Payable 9,300 18,600
Short Tenn Bank Loans 1,600 3,200
Income Taxes Payable 1,300 2,600
Current Maturities - Long 2,050 4,100
Term Debt
Other Current Liabilities 9,850 19,700
TOTAL CURRENT LIABILITIES 24,150 48,300
Non-Current Debt- 5,200 10,400
Unsubordinated
Subordinated Debt
TOTAL LIABILITIES 29,400 58,800
TANGIBLE NET WORTH 20,600 41,200
TOTAL LIABILITIES & 50,000 100,000
NET WORTH
n 50,000
$200,000
$300,000
$500,000
$750,000
15,600
20,800
32,400
54,000
81,000
5,100
8,500
12,750
41,400
55,200
83,100
138,500
207,750
37,500
50,000
51 ,900
86,500
129,750
2,700
3,600
5,400
9,000
13,500
97,200
129,600
178,200
297,000
445,500
42,750
57,000
99,600
166,000
249,000
10,050
13/.00
22,500
37,500
55,250
150,000
200,000
300,000
500,000
750,000
27,900
37,200
60,000
100,000
150,000
4,800
6,400
14,700
24,500
36,750
3,900
5,200
13,500
22,500
33,750
6,150
8,200
14,100
23,500
35,250
29,550
39,400
24,000
40,000
60,000
72,450
96,600
126,300
210,500
315,750
15,GOO
20,800
53,100
83,500
132,750
2,700
4,500
6,750
88,200
117,600
181,800
303,000
454,500
61,800
82,400
118,200
197,000
255,500
150,000
200,000
300,000
500,000
750,000
INCOME STATEMENTS
Net Sales
150,000
300,000
500,000
700,000
1,000,000
1,600,000
2,500,000
Cost of Sales
123,900
247 ,800
413,000
578,200
819,000
1,310,400
2,047,500
Gross Profit
126,100
52,200
87,000
121,800
181,000
289,600
452,500
Other Expenses
20,850
41,700
69,500
97,300
143,000
236,800
370,COO
Profit Before Taxes
5,250
10,500
17,500
24,500
33,000
52,800
82,500
Taxes
1,155
2,310
3,850
5,390
19,110
7,260
12,344
26,600
Net Profit
4,095
8,190
13,560
25,740
40,456
55,900
-------
Table 7.5 TOTAL DEBT/NET WORTH RATIOS FOR TYPICAL FIRMS OF VARIOUS ASSET SIZES AND EXPENDITURE LEVELS
Bank Loans @ 80% of Expenditure (20% Down Payment)
ASSETS
EXPENDITURE^^
$50K
$1OOK
$150K
$200K
$300K
S500K
$750K
Down Payment
$0
1.3
1.3
1.3
1.3
1.5
1.5
1.5
1 OK
1.8
1.6
1.6
1.5
1.6
1.6
1.6
$2K
20K
2.2
1.8
1.6
1.7
1.6
1.6
1.5
$4K
30K
2.6
2.0
1.8
1.7
1.7
1.7
1.6
$6K
50K
3.4
2.4
2.1
1.9
1.9
1.7
1.7
$1 OK
75K
2.9
2.4
2.2
2.0
1.8
1,7
$1 5K
100 K
3.4
2.7
2.4
2.2
1.9
1.8
$20K
125K
3.0
2.6
2.4
2.0
1.9
$2 5 K
SBA and PCFA Loans @ 100% of Expenditure
ASSETS
EXPENDITURE^"^^^
$50K
$1 OOK
$150K
$200K
$300K
$500K
$750K
$0
1.3
1.3
1.3
1.3
1.5
1.5
1.5
10K
1.9
1.7
1.6
1.5
1.6
1.6
1.6
20K
2.4
1.9
1.8
1.7
1.7
1.6
1.6
30K
2.9
2.2
1.9
1.8
1.8
1.7
1.6
50K
3.9
2.6
2.3
2.0
2.0
1.8
1.7
75K
3.3
2.6
2.3
2.2
1.9
1.8
TOOK
3.9
3.1
2.6
2.4
2.0
1.9
125K
3.4
2.9
2.6
2.2
2.0
-------
Many organizations are likely to find this amount too high and could
result in causing them cash flow difficulties. Nevertheless, 50%
appears to be a reasonable jumping off point.
With this factor in mind, one can estimate the maximum loan
a firm can undertake based solely on working capital from bapks or
through the SBA or PCFA for the seven typical companies as follows:
50% of
Asset
Working
Maximum
Maximum SBA
Size
Capital
Bank Loan
or PCFA Loan
$ 50,000
$ 4,125
$ o
$ 25,000
100,000
8,250
15,000
50,000
150,000
13,375
30,000
75,000
200,000
16,500
35,000
100,000
300,000
25,950
60,000
150,000
500,000
43,250
100,000
150,000
750,000
64,875
150,000
150,000
Since a minimum of .pl0,000 i$ considered necessary "'"or
installation of a complete vapor recovery system for incoming and out-
going loads, any acceptable loan below this amount is shown as zero.
Additionally, SBA and PCFA loans of larger amounts can be supported
since they may not require down payments, and are to be repayed
over longer time periods at lower interest rates.
Finally, profitability must be considered since the enter-
prise must generate the earnings to replenish working capital and
make loan payments. Realistically, no lender will be confident in
making a loan unless principal and interest payments are covered by
the potential earnings of the enterprise. Accordingly, the firm's
net income will determine the amount of loan that may be granted.
Under usual circumstances, an investment in plant and equip-
ment is made in order to replace worn out facilities, modernize
7-14
-------
the establishment, or improve operating efficiencies. The result
of this type of investment is reasonably expected to be increased
profitability. It is these higher profits that are then used to
repay the principal and interest of any loan undertaken for the
purpose of making this investment. In the case of vapor recovery,
this scenario cannot be expected. Rather, any debt incurred for
the purpose of meeting vapor recovery regulations will have to be
honored from non-rising profits.
The profits of any business are used to provide a return to
its owners and for reinvestment in the business. Consequently, it
is unreasonable to expect that all of the profits of the business
should be employed for vapor recovery purposes. Every company must
constantly reinvest in its plant and equipment in order to maintain
adequate operations.
Again, let us assume that no more than 50% of after tax
profits can be utilized for loan repayment. This procedure, provides
for a minimum level of profits to be used for purposes unrelated to
the vapor recovery installation.
Given this background, the maximum loans that can be expected
for the seven typical companies are as follows:
Asset
Size
50% of
After Tax
Profits
Bank Loan
SBA or
PCFA Loan
$ 50,000
100,000
150,000
200,000
300,000
500,000
750,000
$ 2,000
4,000
6,800
9,500
12,750
20,000
28,000
$ 0
$ 0
15,000
30,000
45,000
60,000
90,000
125,000
20,000
35,000
60,000
75,000
120,000
150,000
7-15
-------
These estimates have been based solely on the amount that can be
repaid from previous year's profits and do not include the effect
of any special tax incentives.
Tax incentives may have a significant impact for many com-
panies contemplating a vapor recovery investment. In this connec-
tion, the Internal Revenue Code includes special provisions for
firms, and especially small businesses purchasing and installing
certified pollution control facilities. In addition to all interest
payments being deductible expenses for tax purposes, Section 169 of
the code permits a rapid write-off of such certified investments.
Under this regulation a company may choose to depreciate its newly
acquired facility over a sixty-month period instead of over its use-
ful life. Employing the straight-line depreciation method, 20% of
the cost of this investment could be deductible for five years.
Sections 46 and '50 of the code deal with the subject of
investment tax credits. Under the 1975 provision, all businesses
may credit 10% of the cost of equipment with a depreciable life of
at least seven years to their actual tax liability. Lesser per-
centages may be created for equipment depreciated over a minimum
period of three years to a maximum of six years. The purpose of
this regulation is to provide businesses with added incentives to
purchase equipment.
Finally, Sections 179 of the code furnishes small business
with an additional, opportunity to reduce their taxes. It permits
an added first year bonus depreciation allowance equal to 20% of
the purchase price of the equipment.
Accordingly, a small business will be able to deduct its
interest expense plus almost 50% of the purchase and installation pri
of certified pollution control equipment, depending on the depre-
ciation method used. Other businesses will be able to deduct 30%
plus interest charges.
-------
The primary benefit resulting from these incentives will
be a reduction in the tax burden on the affected companies. Con-
sequently, firms with little or no profits will accrue only minor
assistance from these regulations. For firms enjoying profits,
they will benefit from sharply reduced tax expenses and an increased
cash flow. The latter will provide additional security to financial
institutions contemplating loans to the firm and may result in the
business being able to spend larger sums on pollution control equip-
ment.
7.6 DETERMINATION OF LOAN LIMITS
In order to be eligible for a loan, a company must be able
to demonstrate that its financial structure is able to absorb addi-
tional borrowing, that it possesses the working capital to make
the required down payment and pay the associated fees, and that it
has the earnings capacity to maintain its financial capability and
retire the loan. These aspects have been considered above for our
typical companies in relation to various size loans. We can now
combine the results above and determine approximately the maximum
amount each size firm can be expected to borrow.
This estimate has been calculated by computing the minimum
acceptable loan amount for each size company and then choosing the
smallest amount in each group. The data resulting from this pro-
cedure are shown in Table 7.6. The amount that can be borrowed
for each asset group is then equal to the smallest value in that
group as follows:
-------
Asset
Size
Net Sales
Dollars
80%
Bank Loan
100% SBA or
PCFA Loan
$ 50,000
$ 150,000
$ 0
$ 0
100,000
300,000
15,000
20,000
150,000
500,000
30,000
35,000
200,000
700,000
35,000
60,000
300,000
1,100,000
60,000
75,000
500,000
1,600,000
90,000
120,000
750,000
2,500,000
125,000
150,000
It should be reemphasized that these amounts reflect estimated
maximum investments for the typical firms based on the specified
assumptions. These assumptions are believed to reasonably reflect
the real world situation, but they are susceptible to reinterpretations.
7-18
-------
Table 7.6 ACCEPTABLE LOAN AMOUNTS BY FACTOR
80% - Bank Loan
FACTOR
ASSH^^.
Working
SIZE
Debt
Capital
Profi tabi1i ty
K$
K$
K$
50K
20K
0
0
100k
40K
15K
15K
150K
60K
30K
30 K
20CK
75K
35K
45K
300K
100K
60 K
60K
500K
150K
100K
90K
750K
150K
150K
125K
100% - SBA or PCFA Loan
FACTOR
ASSET
SIZE
-K-$
50K
100K
150K
200K
300K
500K
750K
Debt
-K$-
15K
30K
45K
7 OK
75K
125K
150K
Working
Capital
25K
50K
75K
TOOK
150K
15 OK
150K
Profi tabi1i ty
0
20K
35K
60K
75k
120K
150K
7-19
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REFERENCES
1. R.J. Bryan and R.L. Norton, "Cost Data: Vapor Recovery Systems
at Service Stations." EPA Contract 68-02-1405, Task
Order 2, September 1975.
2. R.J. Bryan, W. Jacobson, A. Kokin, R. Sakaida and M.M. Yamada,
"Economic Analysis of Vapor Recovery Systems on Small
Bulk Plants." EPA Contract 68-01-3156, Task Order 24,
September 1976.
3. R.J. Bryan, W.O. Jacobson, R.R. Sakaida, P.S. Bakshi,
J. Stevenson, "Study of Vapor Recovery Systems at
Small Bulk Plants," EPA Contract 68-01-3156, Task
Order 15, October 1976.
4. R.J. Bryan, M.M. Yamada and R.L. Norton, "Effects of Stage I
Vapor Recovery Regulations on Small Bulk Plants and
on Air Quality in the Washington, D.C. Baltimore, Md.,
and Houston/Galveston, Tx. Areas." EPA Contract 68-
01-3156, Task Order 28, March 1977.
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GLOSSARY
OPW - Equipment manufactured by Dover Corporation/OPW Division, P.O.
Box 40240, Cincinnati, Ohio 45240
Parker Hannifin - Equipment manufactured by Parker Hannifin
Corporation, P.O. Box C-19510, Irvine, California 92713.
STS - Equipment manufactured for Equipment Specialists Incorporated
by Savage Technical Services, 35 Walnut Street, Clark, New Jersey
07066.
Chiksan - Equipment manufactured by FMC Corporation, Chiksan Division,
P.O. Box 158, Brea, California 92621
Wiggins - Equipment manufactured by Delaval Turbine Inc., Wiggins
Connectors Division, 5000 Triggs St., Los Angeles, California 90022
Phase I Vapor Recovery - Segment of a small bulk plant's vapor
recovery system which controls hydrocarbon emissions during the trans-
fer of gasoline from a transport truck delivery to the plant's
storage tanks.
Phase II Vapor Recovery - Segment of a small bulk plant's vapor
recovery system which controls hydrocarbons emissions during the trans-
fer of gasoline from the plant storage tanks through a loading rack
into smaller.deli very trucks.
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