***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 1 Task Order No. 1010

– General Technical and Programmatic Support in Implementing the Energy Policy Act of 2005 Amendment 1, TDD #11 Task 3

– Conduct Anal ys es: Delivery Prohibition December 18, 2006
EXECUTIVE SUMMARY The Energy

Policy Act of 2005 requi red the U.S. Environmental Protection Agency (EPA) to develop and publish guidelines that address the delivery prohibition processes and procedures that states receiving Subtitle Ifunding must follow. “Delivery prohibition” means prohibiting the delivery , deposit, or acceptance of product (e.g., gasoline) to an underground storage tank (UST) that has been determined to be ineligible by EPA or a state implementing agency for such delivery , deposit, or acceptance. On August 7, 2006, EPA released the “Grant Guidelines to States for Implementing the Delivery Prohibition Provision of the Energy Policy Act of 2005.” Currently , EPA is considering developing a rule on delivery prohibition. The delivery prohibition regulations could possibly be applied to USTs located in states that receive Subtitle I funding, states that do not receive this funding, and to Tribal lands. The regulations would be directed primarily at USTs containing petroleum or petroleum products. 1 This report profiles industry sectors and f

acilities potentially

affected by

delivery prohibition mechanisms. The industry profiles provide an overview of an industry ’s size, activities, and market conditions. The report also estimates the number of USTs and facilities within these industry secto rs, as well as the universe of USTs and facilities located in states and on Tribal lands. Industry Sectors Potentially Impacted by Delivery Prohibition Guidelines EPA reported 641,881 active USTs subject to federal regulation as of September 30, 2006. 2 Depending on which mechanisms are used to implement delivery prohibition, the following industry

sectors could potentially be affected:

 Petroleum distributors, including: 1) terminals that supply refined petroleum products; 2) tank truck carriers; and 3) jobbers (also known as petroleum and petroleum product merchant wholesalers b y the U.S. Census Bureau).

1 In 1988, EPA estimated that approximately 97 percent of tanks store gasoline and other petroleum products (heating oil, aviation fuel, used oil, etc.). The remaining three percent store chemicals, including hazardous substances. ICF Inco rporated, Regulatory Impact Analysis of Technical Standards for Underground Storage Tanks, Volume 1 , August 24, 1988, pp. 1
- 6. E 2 Inc.’s analysis of 13 state UST databases found that 96.5 percent of tanks store petroleum products, 1.8 percent store used o il, 0.3 percent store chemicals and hazardous substances, the contents of 1.1 percent are listed as other, and the contents of 0.3 percent of tanks are listed as unknown. 2 EPA memorandum, “FY 2006 End

- of
- Year Activity Report,” dated November 14, 2006.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 2  Motor fuel retailers, including: 1) convenience stores; 2) service stations; and 3) “h ypermarketers” (high

- volume retailers such as superstores and cost clubs).  General businesses, governments, and institutions owning or operating USTs that are needed to support economic activity at their facilities. Petroleum Distributors Petroleum bulk stations and terminals : According to the 2002 Economic Cen sus, 3,982 stations and terminals provided petroleum or refined petroleum products to wholesale distributors or jobbers. Fuel is ty picall y piped from the refinery to a terminal where it is stored and loaded onto trucks for distribution to service stations and other end users. Delivery prohibition mechanisms will likely not impact this industry

directly , but could indirectly impact operations and processes with dispatchers, tank truck carriers, and/or jobbers. Tank truck carriers : Trucks carry fuel from the terminal to the consumer. They are owned or leased b y jobbers, major oil companies, or other commercial users. According to the National Tank Truck Carriers, there are 30,000 tank trucks involved in fuel delivery . P rivate fleets belonging to major o il companies comprise 20 percent of fuel tank transporters, for

- hire common carriers make up 55 percent, and petroleum jobbers own 25 percent. 3 Jobbers : According to the 2002 Economic Census, there are 3,216 establishments operated as petroleum and petr oleum product merchant wholesalers, also known as jobbers. The petroleum jobber acts as a “middleman” between refineries and motor fuel retailers or commercial end users. Some jobbers transport fuel b y tank truck directly from the regional pipeline termi nal to their customers. Other jobbers keep inventories of products at private or leased tank farms. Motor Fuel Retailers Motor fuel retailers include convenience stores that sell gasoline and other motor fuels as well as traditional service stations. The number of establishments in the motor fuel retail sector varies depending on the source. The 2002 Census Bureau identified 121,446 establishments. The American Petroleum Institute (API) estimates that there are 169,000 retail gasoline outlets. 4 The National Association of Convenience Stores (NACS) conducts an annual survey of gasoline retail outlets, and identified 168,000 retail gasoline facilities. 5 Based on an extrapolation of UST data from nine states to the nation, E 2 In c. estimated 141,776 mo tor fuel retail facilities. For this report, E2 Inc. relied primarily on the NACS’s information because of their comprehensive statistics and analyses that illuminate market conditions and trends.

3 E
- mail correspondence from John Conley, National Tank Truck Carriers, December 2006. 4 American Petroleum Institute, “Growth: The Market Determines the Price.” Fact sheet. 5 NACS, 2006 Gas Price Kit, “How Do Retailers Get

– and Sell

– Gasoline?, www.nacsonline.com***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 3 Most motor fuel retailers buy from jobbers. Large reta il customers buy directly from major oil companies. Convenience stores sell 75 percent of gasoline in the U.S. Hy permarkets sell 8 percent. The remaining 17 percent of gasoline is sold by traditional service stations. Onl y 5 percent of gasoline retail operations are owned b y major oil companies. General Business, Governments, and Institutions USTs are owned and operated b y other sectors in general business, governments, and institutions. They

include:  Agriculture;  Commercial;  Communications and Ut ilities;  Construction;  Government (local, state, and federal);  Institutions (such as hospitals, religious, and educational facilities);  Manufacturing;  Mining;  Services; and  Transportation. Estimated Universe of USTs and Facilities Exhibit ES

- 1 presents the number of USTs and facilities for retail motor fuel sales, agriculture, commercial, communications and utilities, hospitals, manufacturing, and transportation.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 4 Exhibit ES - 1. Number of Facilities and USTs by Industry Sector Industry Sector NAICS Nu mber of Facilities Number of Tanks Retail Motor Fuel Sales 447 168,000 526,008 Petroleum

Storage Agriculture (crop production and animal production) 111, 112 889 1,610
Commercial (wholesale trade, retail trade, accommodation, and food services) 4 2, 44
- 45, 72 (excluding 447) 22,730 52,271

Communications and Utilities (wired telecommunications carriers; and electric pow er generation, transmission, and distribution) 5171, 2211 6,972 10,223

Institutional (hospitals only) 622 2,330 3,812 Manufacturi ng 31
- 33 9,261 15,259 Transportation (air, w ater, truck, transit, pipeline, and airport operations) 481, 483
- 486, 48811 8,559 15,140
Used Oil Storage Not calculated Not calculated Chemical Storage Not calculated Not calculated

This list of industry

sectors is not comprehensive. The industry sector categories were limited by

publicl y available information. Man y other sectors, such as construction, mining, and government, use USTs to support their activities. For the government sector, the UST Compliance Act required each federal agency to provide Congress and EPA with information on the number, location, and compliance status of federally

- owned or operated USTs by August 8, 2006. 6 State agencies are required to provide information about federa l, state, and local USTs to EPA by August 8, 2007. 7 To date, the U.S. Department of Defense (DoD) has identified 4,355 USTs on DoD land, of which 4,314 are owned and operated by DoD. It estimates that 30 percent

6 Section 1528(b), “Federal Facilities,” of Title XV, Subtitle B, of the Energy Policy Act of 2005 (i.e., the UST Compliance Act) required that “each Federal agency that owns or operates one or more und erground storage tanks, or that manages land on which one or more underground storage tanks are located, shall submit to the Administrator, the Committee on the Energy and Commerce of the United States House of Representative, and the Committee on the Envi ronment and Public Works of the Senate a compliance strategy report.” 7 The UST Compliance Act requires states to submit a report to EPA on compliance of federal, state, and local government

- owned tanks.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 5 of these tanks have not been inspected. 8 The U.S. Department of Energy estimates that it owns or operates 170 USTs containing petroleum or petroleum products. 9 Other federal agency reports were not publicly available or could not be located through Internet searches. E 2 In c.’s anal ys is did no t attempt to estimate the number of tanks and facilities containing non - petroleum products. However, an anal ys is of 13 state UST databases indicates that 96 percent of tanks and 93 percent of facilities store petroleum products. In addition, 1.8 percent of tanks and 4.4 percent of facilities store used oil. A small percentage of tanks and facilities (0.3 percent) store chemicals or hazardous substances. The content of 1.1 percent of tanks and 1.8 percent of facilities is designated as “other.” In addit ion, the content 0.3 percent of tanks and 0.4 percent of facilities is designated as unknown. The Number of USTs and Facilities in States and on Tribal Land Appendix A lists the number of active USTs and facilities in each of the 50 states (and six terri tories), except those located on Tribal lands. The appendix also provides the percentage of UST facilities in significant operational compliance with UST release detection and release prevention regulations. Collectivel y, states have 635,450 active tanks at 239,859 facilities. 10 Sixty

- five percent of recentl y - inspected USTs in these states were found to be in significant operational compliance with federal UST requirements. In earl y 2006, E 2 Inc. performed an anal ys is to inform EPA’s tribal strategy wor king group about the status of USTs on Tribal land. 11 This analy sis identified 2,951 active regulated USTs on Tribal land. Of these active tanks, 857 had not been inspected since December 1998. Of these 857 tanks, 641 had never been inspected.

8 U.S. Department of Defense, Underground Storage Tank Compliance Strategy Report , Report to Congress and EPA, August 2006, p. 5. 9 U.S. Department of Energy, U.S. Department of Energy Underground Storage Tank (UST) Compliance Strategy Report , July 31, 2006. 10 The number of active USTs for most of the states is based on EPA’s report on UST corrective action measures for end

- of

- year FY 2006. This report provides all of the data on regulatory compliance rates. E 2 Inc. obtained the number of active USTs and facilities for 13 states from an analysis of their onl ine UST databases. From these 13 databases, E 2 Inc. calculated a tank to facility ratio of 2.65. For the remaining states and territories, the number of active facilities was calculated by dividing the number of active tanks in each state by this ratio. 11 E 2 Inc., Tribal Strategy Technical Analysis Summary , draft report prepared for OUST, March 24, 2006.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 6 1. INTRODUCT ION The Energy

Policy Act of 2005 required the U.S. Environmental Protection Agency (EPA) to develop and publish guidelines that address the delivery prohibition processes and procedures that states receiving Subtitle Ifunding must follow. “Delivery pr ohibition” means prohibiting the delivery , deposit, or acceptance of product (e.g., gasoline) to an underground storage tank (UST) that has been determined to be ineligible by EPA or a state implementing agency for such delivery , deposit, or acceptance. On August 7, 2006, EPA released the “Grant Guidelines to States for Implementing the Delivery Prohibition Provision of the Energy Policy Act of 2005.” 12 Currently , EPA is considering developing a rule on delivery prohibition. The delivery prohibition re gulations could possibly be applied to USTs located in states that receive Subtitle I funding, states that do not receive this funding, and to Tribal lands. The regulations would be directed primarily at USTs containing petroleum or petroleum products. T his report profiles industry sectors and facilities potentially affected by

delivery prohibition mechanisms. The industry profiles provide an overview of an industry ’s size, activities, and market conditions. The report also estimates the number of USTs and facilities within these industry sectors, as well as the universe of USTs and facilities located in states and on Tribal lands. 1.1. Scope of work As part of this work, EPA’s Office of Underground Storage Tanks (OUST) asked E 2 Inc. to perform two subtasks:

 UST Industry Profile

– Characterize the universe of potentially impacted UST facilities by

NAICS code, states, and Indian Country
.  UST Facility Profile

– Characterize representative UST facilities b y size, number of USTs per facility , and other relevant factors of operation potentially impacted by the potential action. Although the profiles characterize potentially impacted industries and facilities, they do not estimate compliance costs or economic impacts associated with carrying out delivery prohibition mechanisms. 1.2. General Approach E 2 In c. compiled information from several government and industry sources, including 13 state UST databases, to characterize potentially affected industry

sectors and the universe of USTs and facilities. Specific all y, E2 Inc. reviewed and anal yz ed information from the following resources:

12 U.S. EPA, Grant Guidelines to States for Implementing the Delivery Prohibition Provision of the Energy Policy Act of 2005 , August 2006, www.epa.gov/oust
.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 7 EPA  OUST’s delivery

prohibition grant guidelines (final 8/7/06 version).  OUST’s corrective action measures reports, especially the FY2006 End

- of

- Year Activity Report (11/14/06). 13
 OUST’s Web site for information on legal definitions, regulations, and state programs.  EPA’s Economic Analysis Resource Report , which provides guidance on the content of industry

profiles. 14 E 2 In c. also benchmarked industry profiles previously

developed by

EPA to support regulatory analy ses.  EPA’s sector notebook summaries for the ground transportation industry and the petroleum refining industry
.  The report, Regulatory Impact Analysis for Financial Responsibility Requirements for Petroleum Undergroun d Storage Tanks , prepared in 1988 to support regulatory

anal ys is and rulemaking for the UST program. Government Agencies  The U.S. Census Bureau’s 2002 data on the economy , agriculture, and transportation.  The Energy

Information Agency ’s reports and stati stics on the petroleum industry
.  The U.S. General Accounting Office’s 2001 report on the compliance status of USTs across the country
. 15 State Agencies  E 2 In c. conducted an internal survey of the online UST databases publicl y available from UST programs in 50 states and the territories. Based on this survey , we identified 13 databases of USTs that provided tank, facility , and industry sector information. The states were Alabama, Alaska, Delaware, Florida, Georgia, Maryland, Massachusetts, Minnesota, Misso uri, Nevada, Tennessee, Virginia, and Wisconsin. E 2 In c. extrapolated the data from these states to estimate the national universe of regulated USTs and facilities for seven industry sectors. Industry Associations  Summaries of interviews conducted b y E 2 Inc. in November 2005 with the American Petroleum Institute (API), the National Tank Truck Carriers (NTTC), and the Petroleum Marketers Association of America (PMAA) on the potential impacts of delivery

prohibitions on their industries. These interviews w ere supplemented with additional reviews of their Web sites and e

- mail correspondence.

13 EPA, FY 2006 End

- of

- Year Activity Report, November 14, 2006, www.epa.gov/oust/cat/ 14 EPA, Economic Analysis Resource Document , Industry Profile chapter, http://epa.gov/ttn/ecas/econdatat/Rmanual2/4.0.html 15 U.S. General Accounting Office, Improved Inspections and Enforcement Would Better Ensure the Safety of Underground Storage Tanks , May 2001.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 8  Industry

journals and association Web sites, especially information publicly available from The National Association of Convenience Stores (NACS). E 2 In c. and Abt As sociates Inc.  A review of a March 2006 draft report prepared for OUST, entitled Tribal Strategy Technical Analysis Summary
.  A report prepared b y Abt Associates Inc. (Abt) for EPA’s Office of Emergency Management, entitled Regulatory Analysis for the Propos ed Revisions to the Oil Pollution Prevention Regulation (November 2005). This report provided a model for extrapolating national facility estimates from a small sample of state data. E2 Inc. relied heavil y on expert interviews, 2002 census data, and seco ndary sources to characterize the facilities and USTs for terminals, tank truck carriers, jobbers, and motor fuel retailers. The estimates for USTs and facilities in six other industry sectors (agriculture; commercial; communications and utilities; hospit als; manufacturing; and transportation) are based on extrapolating data from a subset of 13 state UST databases to the nation. Appendix B outlines E2 Inc.’s methodology . Given existing data availability and time constraints, the anal ys is was restricted t o the industry sector categories identified in these databases. For example, E2 Inc. did not find publicly available data that would enable characterization of other industry sectors that likely own or operate USTs, such as construction or mining. 1.3. Orga nization of This Report This report has four sections and two appendices:

 Section 1

– Introduction discusses the scope of work and the general approach for developing the industry

and facility

profiles.

 Section 2

– Regulatory Background summarizes the d elivery prohibition guidelines, defines USTs, and briefl y discusses the history of compliance at USTs. The section also summarizes potential delivery prohibition mechanisms and identifies potentially

impacted entities. Lastly, this section discusses prev ious estimates to characterize the universe of USTs and UST facilities.

 Section 3

– In dustry

Profiles characterizes the industries potentially affected by delivery prohibition programs, including: 1) bulk petroleum stations and terminals; 2) tank truck carriers; 3) jobbers; 4) motor fuel retailers; and 5) other sectors that own and operate regulated USTs. This section also presents the estimates of the number of USTs and facilities within these sectors.

 Section 4

– Facilit y Profiles summarizes the number of USTs per facility for different industry

sectors. It also identifies the number of active USTs and facilities by

state, and active USTs located on Tribal land.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 9  Appendix A summarizes the number of active USTs and facilities for each state, exce pt those located on Tribal land. This summary also includes EPA’s FY 2006 statistics on the percent of UST facilities in significant operational compliance with UST release detection and release prevention regulations.

 Appendix B summarizes the methodolo gy used to extrapolate national numbers of USTs and facilities for seven industry sectors (motor fuel retail, agriculture, commercial, communications and utilities, hospitals, manufacturing, and transportation) from 13 state UST databases.
2. REGULATORY BAC KGROUND 2.1. Summary of the Delivery Prohibition Guidelines Section 1527 of the Underground Storage Tank Compliance Act adds section 9012

– Delivery Prohibition

– to Subtitle Iof the Solid Waste Disposal Act. As addressed by EPA’s delivery

prohibition guide lines, “Underground storage tank owners and operators and product deliverers are responsible for not delivering, depositing, or accepting regulated substances to an underground storage tank identified as ineligible to receive product.” 16 The guidelines all ow states to consider not prohibiting the delivery if it would jeopardize the availability

of fuel in any

rural and remote areas. The rural and remote designation would apply

for onl y 180 days following the date of determination that an UST is ineligible to receive a regulated substance. The guidelines are aimed at states receiving Subtitle I funding. EPA is considering delivery prohibition regulations that would be applied to all regulated USTs and UST facilities. 2.2. Definition of an Underground Storage Tank RCRA Subtitle Idefines an UST as any tank that is 10 percent or more beneath the surface of the ground. This includes the underground pipes connected to the tank. Under the UST regulations at 40 CFR part 280 and 281, EPA regulates onl y tanks that hold petroleum or hazardous substances. Other tanks are covered under other regulations, such as tanks holding hazardous materials, which are regulated under Subtitle C. In addition, the following USTs do not need to meet federal requirements for USTs:

 Farm and residential tanks of 1,100 gallons or less capacity holding motor fuel used for noncommercial purposes.  Tanks storing heating oil used on the premises where it is stored.  Tanks on or above the floor of underground areas, such as basements or tunnels.

16 EPA Guidelines, p. 6.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 10  Septic tanks and sy stems for collecting storm water and wastewater.  Flow

- through process tanks.  Tanks of 110 gallons or less capacity
.  Emergency

spill and overfill tanks. The UST regulations and definitions are summarized on OUST’s Web site an d other EPA documents. 17 Delivery prohibition mechanisms will concern USTs that are in active use. Our technical anal ys is considers an UST to be active if it is currently in use or temporarily

out of use. Throughout the technical anal ys is, “tank” is u sed to refer only to USTs, not aboveground storage tanks. 2.3. Compliance History EPA reported 8,361 confirmed releases during fiscal y ear 2006 for roughly 642,000 active tanks in the states, territories, and on Tribal lands. 18 EPA also reported that 62 percent of recentl y - inspected facilities were found to be in significant operational compliance with UST release detection regulations and release prevention regulations. According to EPA, states are allowed to report compliance rates based on state requirement s that are more strict than the federal requirements. States also have different approaches to inspection. EPA has found that “some states focus on suspected non

compliant facilities, while other states conduct random inspections. In FY2006, many states focused on inspections on previously uninspected facilities in response to the inspection requirements in the Energy Policy Act of 2005.” 19 A May 2001 report by

the U.S. General Accounting Office (GAO) surveyed EPA and states on inspection and enforcement of UST regulations. The report estimated that 80 percent of 616,865 regulated tanks had received federall y required equipment upgrades by September 2000. The GAO also estimated that roughl y 29 percent, or 201,000 tanks, were not properl y operated or maintained. 20 The GAO found that “almost half the states and several EPA regions do not phy sicall y inspect all tanks for compliance with federal requirements. Instead, these states and regions estimate compliance rates based on inspections of selected tanks o r on tank owners’ self

- certification that their tanks are in compliance.” 21 2.4. Potential Mechanisms to Implement Delivery Prohibition

17 EPA, Introduction to Underground Storage Tanks: RCRA Subtitle I (40 CFR Part 280) , January 2002. 18 U.S. EPA, “UST Corrective Action Measures for End of Year FY 2006 (Cumulative as of September 30, 2006),” November 14, 2006. 19 Ibid ., “UST Compliance Measures for End

- of
- Year FY 2006 (as of 9/30/06),” p. 2 20 U.S. General Accounting Office, Improved Inspections and Enforcement Would Better Ensure the Safety of Underground Storage Tanks , May 2001, p. 2. 21 Ibid., p. 3.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 11 In Fall 2006, E 2 Inc. identified potential alternatives for delivery prohibition mechanisms that EPA may

propose in a federal delivery prohibition regulation. As shown in Exhibit 2
- 1, E2 Inc. identified five alternatives, which could directly or indirectl y i mpact UST owner/operators, tank truck carriers, jobbers, and possibly terminals. Exhibit 2 - 1. Potential Delivery Proh ibition Alternatives Alternative Description Affected Entities Red Tag (fill pipe) A red tag on the fill pipe indicates that

the UST is not eligible for product delivery.  UST owner/operators  Tank truck carriers  Jo bbers Green Tag (fill pipe) A green tag indicates that the UST is

eligible for delivery.  UST owner/operators  Tank truck carriers  Jo bbers Green Permit A permit is displayed at a conspicuous

place at the UST facility to identify whether the UST or facility is eligible to receive product.  UST owne r/operators  Tank truck carriers  Jo bbers Electronic Roster An electronic roster (posted on the

Internet or sent by e

- mail) notifies product deliverers and dispatchers that an UST is not eligible for delivery.  UST owner/operators  Tank truck carriers  Jo bber s  Terminals (indirectly) Technological Each UST has a barcode that identifies its

eligibility status. The product deliverer scans this information prior to deposit.  UST owner/operators  Tank truck carriers  Jo bbers
2.5. Previously Developed Estimates In 19 88, EPA completed an extensive regulatory analy sis of technical standards for USTs. In that anal ys is, EPA identified several characteristics of the affected population of tanks, including industry sectors, facility

characteristics, tank characteristics, and financial conditions for firms owning USTs. 22 Inaddition, during the 1980’s, EPA’s Office of Toxic Substances performed a statistical study to assess the number of tanks, the number of establishments with tanks, the number of tanks that failed tightnes s tests, and factors contributing to leaks. 23
3. INDUSTRY PROFILES The delivery

prohibition requirements would be directed primarily at USTs containing petroleum or petroleum products. USTs containing petroleum products are found in the

22 ICF Incorporated , Regulatory Impact Analysis of Technical Standards for Underground Storage Tanks, Volume 1 , August 24, 1988, prepared for U.S. EPA, Office of Underground Storage Tanks. 23 U.S. EPA, Underground Motor Fuel Storage Tanks: A National Survey , EPA 560/5

- 86
- 013, May 1986.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 12 retail motor fuel marketing sector and in several other industry sectors. Industry

sectors potentially

affected by

delivery prohibition regulations include:

 Petroleum distributors, which include: 1) petroleum bulk stations and terminals 24 ; 2) tank truck carriers; and 3) jobbers.

 Motor fuel retailers, which include: 1) convenience stores; 2) service stations; and 3) h ypermarketers (high volume retailers such as superstores and cost clubs).

 UST owner/operators in other sectors that store petroleum to support economic activities at their facilities. Throughout this report, the terms “firm” and “company” are used interchangeabl y and refer to a specific business owner. In addition, the terms “facility ” and “establishment” are used interchangeabl y. As defined b y the U.S. Census Bureau, “an establishment is a single ph ys ical location at which business is conducted and/or services are provided. It is not necessaril y identical with a compan y or enterprise, which may consist of one establishment or more.” 3.1. Overview of the Fuel Distribution Industry Crude oil is refined into gasoline and other petroleum products, and the majority of gasoline is shipped first by pipeline to storage terminals, and then loaded into trucks for delivery to individual gas stations and end use rs. Jobbers buy petroleum products from oil refiners and resell them to residential, industrial, or commercial consumers like gas stations, convenience stores, trucking companies, and farming operations. Large consumers are able to buy directly from term inals. The fuel distribution industry comprises four sectors: 1) bulk stations and terminals; 2) tank truck carriers; 3) jobbers; and 4) motor fuel retail sales. Each of these sectors is profiled using the following information:

 Industry

definition  Ind ustry activities  Industry

size and concentration  Geographic distribution  Market conditions Exhibit 3

- 1 shows the number of facilities and USTs for this industry
.

24 The Census Bureau defines petroleum bulk stations as establishments with bulk storage capacity from 10,000 to 100,000 gallons for stations receiving supplies by tanker, barge, or pipeline, and those with capacity from 100,000 to 2,100,000 for stations getting supplies from other sources. Terminals have bulk storage capacity exceeding 100,000 gallons in facilities receiving supplies by tanker, barge, or pipeline, and those whose capacity exceeded 2,100,000 gallons for facilities receiving suppl ies from other sources.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 13 Exhibit 3 - 1. Number of Facilities and USTs by Industry Sector Industry Sector NAICS Total Number of Facilities Number of USTs Data Sources Fuel Distribution Petroleum Bulk Stations and Terminals 4247 3,982 Not applicable  2002 Economic Census  Literature review Tank Truck Carriers (private and for

- hire) 4842201

4842301 Approx. 30,000

tru cks Not applicable  Interview with National Tank Truck Carriers Association (NTTC)  EPA Sector Notebook  Literature review Jobbers 42472 3,216 Unknown  2002 Economic Census  Literature review  Interview with Petroleum Marketers Association of America (PMAA) Retail Motor Fuel Sales 4471  API  Fact sheets  Tank to facility ratio calculated from 9 state UST databases Convenience stores (75%) 447110 110,895 347,212  The National Association of Convenience Stores (NACS) fact sheets  Facility/tank ratio calculated from 9 state UST databases Traditional service stations (17%) 447190 53,245 166,710  NACS fact sheet on market share  Facility/tank ratio calculated from 9 state UST databases Hy perm arketers (8%) 45291 3,860 uncertain  NACS fact sheet on market share Retail Subtotal 168,000 526,008***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 14 3.2. Petroleum Bulk Stations and Terminals 3.2.1. Industry

Definition This industry

consists of companies that supply a wide range of petroleum products from bulk storage facilities to jobbers and other wholesalers. Two t ypes of firms operate in the industry : refineries that engage in wholesale distribution of their products, and other merchants that bu y and sell products, either from refineries or importers. 25 The U.S. Census Bureau defines a petroleum bulk station as an esta blishment with bulk storage capacit y from 10,000 to 100,000 gallons for stations receiving supplies by tanker, barge, or pipeline, and those with capacity from 100,000 to 2,100,000 for stations obtaining supplies from other sources. Terminals have bulk st orage capacity exceeding 100,000 gallons in facilities receiving supplies b y tanker, barge, or pipeline, and those whose capacit y exceeded 2,100,000 gallons for facilities receiving supplies from other sources. Current alternatives to implement delivery prohibition requirements will not directly impact this industry , although comments from the National Tank Truck Carriers suggested that EPA send lists of prohibited tank facilities to gasoline distribution terminals. 26 3.2.2. Industry

Activities Companies in this industry have one primary

activity : selling petroleum and petroleum products to wholesale merchants. These wholesale merchants include jobbers who serve retail motor fuel outlets and other petroleum product consumers as well as large superstores and cost clubs (hy permarketers) who sell gasoline to their customers. 3.2.3. Industry

Size and Concentration The 2002 Census reported 3,982 petroleum bulk stations and terminals companies that distributed petroleum products to wholesale distributors and jobber s. Annual revenue was $92.6 million with 58,197 employ ees nationwide. The industry is highly concentrated with the 50 largest companies controlling 77 percent of total industry revenue. 3.2.4. Geographic Distribution Texas, Minnesota, and California have the highest number of establishments.

25 IBIS World , abstract, “Petroleum Bulk Stations and Terminals in the U.S.,” September 29, 2006. 26 Interview with John Conley, National Tank Truck Carriers by E 2 Inc. on November 1, 2005 regarding proposed delivery prohibition gui delines.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 15 3.3. Tank Truck Carriers 3.3.1. Industry

Definition Trucks carry

fuel from the terminal to the consumer. They are owned or leased by jobbers, major oil companies, or commercial users. The industry comprises private fleets and c ommon (for

- hire) carriers. Private fleets own the fuel they carry while common carriers receive a freight rate pay ment to deliver fuel to the fuel owner’s customers. 3.3.2. Industry

Activities Tank truck carriers t ypically hold 8,500 to 10,000 gallons in sev eral compartments. Different grades of gasoline are blended in the truck’s compartments using special additive packages. When the tanker truck reaches a motor fuel station, the truck operator unloads each grade of gasoline into the appropriate USTs. 27 M any USTs have automatic tank sensors that gauge the fuel level and send an electronic message to a dispatcher when a delivery is needed; the dispatcher then sends this order to a truck. Some stations continue to use a measuring stick to gauge the level of fuel in the USTs, although this is becoming a rare practice. According to the API, many major oil companies have onl y one to two dispatchers in the country , with trucks sent on

- demand. 28 At the other end of the spectrum, some companies are so small that the owner serves as the dispatcher. The amount of time between a fuel order and delivery depends on the urgency , the location of the truck, and the distance of the station from the terminal. For on

- demand orders, a truck can arrive within hours. The m ost technologicall y advanced carriers are able to electronically notify a driver of his destination while he is in line at the terminal. Sometimes a driver can be told to alter the truck’s destination while en route. Most petroleum terminals have a car dlock s ys tem, similar to those used at self

- service gas stations. The wholesale distributor (usually a jobber) maintains an account with the terminal. At the time of pickup, the tank truck driver inserts a card into a machine that acknowledges the jobber ’s identity , dispenses the desired amounts of fuels, and calculates the jobber’s bill for the shipment. 29 Common carriers and private trucks carry between three and six loads a day , depending on how far stations are from the terminal. 30 The main regional difference in the fuel distribution industry

is between urban and rural areas. In urban areas, the distance between the terminal and stations is shorter, so fuel delivery trucks can make many deliveries per day . Urban jobbers make many deliveries per da y while rural jobbers

27 Energy Information Agency, Where Does My Gas Come From? , brochure, htttp://www.eia.doe.gov/neic/brochure/gas04/gasoline.htm. 28 Interview with Prentiss Searles, American Petroleum Institute, November 1, 2006. 29 AM C Insurance Web site, www.amcinsurance.com/html/fuel_jobber.html 30 E
- mail from John Conley, National Tank Truck Carriers, December 4, 2006.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 16 ty picall y make two deliveries per week. As shown in Exhibit 3

- 2, common carriers average 82 miles per shipment while private fleets average 37 miles. In general, major oil companies and convenience store chains with private fleets o nly deliver fuel to stations that they own. Many

of the majors are moving out of retail motor fuel sales, and therefore, fuel trucking. Jobbers usually own and operate a fleet of delivery trucks although they

also hire common carriers, in part because of the liability associated with hauling gasoline and, in some cases, to focus on their own retail operations. Exhibit 3 - 2. Shipment Characteristics for Tank Truck Carrier Industry, Commodity Flows for Gasoline and Aviation Turbine Fuel Segment Value ($ M) Tons (thousands) Average Miles per Shipment For
- Hire 62,840 (37%) 106,424 (22%) 82 Private 106,424 (63%) 375,843 (78%) 37 Total 169,264 482,267 Source: U.S. Census Bureau, 2002 Economic Census: Transportation , 2002 Commodity Flow Survey, p. 21.
3.3.3. Industry

Size and Concentration According to a 1997 sector anal ys is developed b y EPA for the trucking industry , trucking companies are diverse, ranging from large emplo yers to private self

- employ ed transporters. 31 The Census Bureau and industry associat ions do not provide a precise estimate of the ownership and size of the petroleum tank truck industry . As shown in Exhibit 3

- 2, the 2002 Census Bureau’s commodity flow survey indicates that private fleets carry

78 percent of the volume of gasoline and tur bine aviation fuel. In addition, the National Tank Truck Carriers estimates that there are roughl y 30,000 fuel trucks operating across the country
. 32 The major oil companies own 20 percent of these trucks, common carriers make up 55 percent of the fleet, and jobbers own the remaining 25 percent. 33 Common carrier companies carrying petroleum products range in size from five trucks to hundreds. 34 3.3.4. Geographic Distribution In formation about the geographic distribution of petroleum tank truck ownership, eithe r private fleets or common carriers, was not publicly available. EPA’s 1997 sector analy sis of the general trucking industry found that trucking facilities were represented across the nation, but most heavily

concentrated in the midwestern states of Minne sota, Wisconsin,

31 EPA, Sector Notebook for the Ground Transportation Industry, September 1997. 32 Interview conducted with John Conley, National Tank Truck Carriers, November 11, 2005. 33 E
- mail from John Conley, National Tank Truck Carriers, December 6, 2006. 34 Interview conducted with John Conley, National Tank Truck Carriers, November 11, 2005.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 17 Illinois, Indiana, Michigan, and Ohio. EPA also found that California, Texas, Ohio, Florida, and New York had the largest number of trucking establishments with pay rolls. 35 3.3.5. Market Conditions In terms of profitabilit y, large and efficie nt transporters were netting close to a half

- cent per gallon on gasoline deliveries in 1987. 36 Over the past few ye ars, the tank truck industry has been greatl y affected b y diesel prices and consumer demand for gasoline and other petroleum products. In ad dition, the industry has faced steep increases in insurance premiums. A February

2002 article in the Modern Bulk Transporter stated that “all trucking companies are facing extraordinary increases in premium costs, some as much as $8,700 per truck, compare d to a cost of $880 per truck a few y ears ago.” 37 3.4. Jobbers 3.4.1. Industry

Definition Petroleum jobbers (the Census Bureau refers to them as “petroleum and petroleum product merchant wholesalers”) serve as the “middleman” that move petroleum products from termin als to gas stations and other end users. 3.4.2. Industry

Activities In 2002, the average jobber sold roughl y 12 million gallons of petroleum products per ye ar. Jobbers operate in a verticall y integrated industry , with jobbers engaged in four ty pes of activit ies:

 Bulk storage plant operations: Jobbers often have multi

- ye ar contracts with suppliers that specify

minimum quantities and provide incentives for higher volumes purchased. Jobbers store supplies at bulk plants (tank farms) from which they distribute product to their customers. Jobbers that are situated more convenientl y to petroleum terminals will often have less extensive bulk plant operations since drivers will ty picall y pick up their fuels right at the “rack” (the regional pipeline terminal) an d deliver them directly to customers. Inventories at bulk plants ty

picall y turn over every

10 day s.

 Fuel transportation: Jobbers deliver petroleum products either from their own storage facilities using their private trucks or b y hiring common carrier s. They may also distribute products directl y from their suppliers’ regional terminal. In order to streamline deliveries and minimize their inventories, large jobbers use computer and information technology that facilitates communications with

35 EPA , Sector Notebook for the Ground Transportation Industry, September 1997, p. 23. 36 Donald M. Smith, “The Economics of Truck Ownership: Can Jobbers Still Make Money Hauling Petroleum?,” National Petroleum News , November 1, 1987. 37 Mary Davis, “Tank Truck C arriers Struggling with Insurance Industry Crisis,” Modern Bulk Transporter , February 1, 2002.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 18 customers and onboard computers for delivery trucks. These communications technologies allow them to deliver more gasoline directly from the terminal. As a result, they

avoid the risk and expense of holding their own inventory . About 50 percent of all gasoline is distributed straight from the rack.

 Motor fuel retailing: Some distributors sell gasoline at their own retail stores. Others retail petroleum by supplying and owning the pumps, USTs, and other equipment used by

independent convenience stores. They then share in the gasoline profits under special purpose leases.

 Refining : A small number of jobbers own and operate small refineries.
Exhibit 3 - 3. Key Statistics for the Petroleum Wholesale Distribution Industry

(excluding Liquefied Petroleum Gas) Statistic 2002 Census Data Number of Establishments 3,216 Number of Companies 2,624 Industry Revenue ($ billions) 111.3 Refined Petroleum Products Sold (million gallons per year) 11.5 Employment 34,752 Source: 2002 Economic Census
3.4.3. Industry

Siz e and Concentration In 2002, approximately

2,624 companies operated as jobbers with annual revenue of around $111 billion. The industry is highl y concentrated with the 20 largest firms holding 68.5 percent of the market. As shown in Exhibit 3

- 4, jobbers have a wide range of annual revenue. Revenue can vary significantly

from y ear to y ear because of the variability

of crude oil prices.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 19 Exhibit 3 - 4. Distribution of the Number of Facilities Owned by Firms of Various Sales Size Engaged in Wholesale Petr oleum Distribution (Excluding Liquefied Petroleum Gas) Annual Sales of Firm Number of Firms Number of Facilities Less than $250,000 326 330 $250,000 to $499,999 213 213 $500,000 to $999,999 251 255 $1,000,000 to $2,499,999 355 369 $2,500,000 to $4,99 9,999 260 275 $5,000,000 to $9,999,999 233 251 $10,000,000 to $24,999,999 289 323 $25,000,000 to $49,999,999 149 197 $50,000,000 to $99,999,999 92 171 Over $100,000,000 74 449 Firms not operated for the ye ar 382 383

Total 2,624 3,026 Source: 2002 Economic Census

Exhibit 3 - 5. Distribution of Size of Firms Engaged in Wholesale Petroleum Distribution Number of Facilities per

Firm Number of Firms Number of Facilities Firm only (no bulk tank facilities) 1,988 1,988 1 509 509 2 69 138 3
- 4 29 93 5
- 9 12 80 10
- 24 11 190 More than 25 6 218 Total 2,624 3,216 Source: 2002 Economic Census
3.4.4. Geographic Distribution Texas has the greatest number of jobbers with 397 establishments that earned 35 percent of the nation’s annual revenues in 2002. T exas was followed by Georgia, California,***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 20 Missouri, New York, and Colorado, whose petroleum product wholesale operations captured another 25 percent of the market. 3.4.5. Market Conditions According to Census Bureau statistics, the number of companies in the p etroleum wholesale industry

has steadily

declined since the earl y 1980s. In 1982, there were 6,287 firms in the business. By 2002, the number of firms had thinned to 2,684. The major oil companies that supply

jobbers are consolidating. Contracts with s uppliers, which last three to ten ye ars, t ypically require jobbers to purchase minimum levels of product. As a result, they

are merging to secure their supplies. As stated by one analy st, “the wholesalers that manage to survive were expected to be those with the greatest technological sophistication, those with strong relationships with the major oil companies and retailers, and especially those that can bolster their distribution operations with value

added services.” 38 However, as shown in Exhibit 3

- 5 , the majority of jobbers are small, single unit operations. Jobbers make their profits on the spread between the purchase price and selling price, and on the volume of product sold. Small jobbers often lack the economies of scale to afford sophisticated electronic communications and logistics technology to make their distribution activities more efficient. Large wholesale purchasers can negotiate bigger price discounts from suppliers. The fixed cost of their bulk holding facilities can also be spread o ver a larger volume of product. Large consumers of petroleum products often b ypass jobbers. The convenience store industry is consolidating to create larger companies that can bu y directly from refiners. In addition, new h ypermarketers, like Wal

- Mart and Costco, do not need jobbers to serve as brokers with refineries and terminals. In addition, by offering lower gasoline prices, these superstores are able to attract customers away from retail stores owned by jobbers. On the horizon, Internet compan ies are teaming with jobbers to create business

- to business retailing of petroleum products online, which could potentially change the way petroleum is marketed and sold. 39 3.5. Motor Fuel Retail Sales 3.5.1. Industry

Definition The motor fuel industry

comprises convenience stores that sell gasoline as well as gasoline service stations that sell gasoline and lubricating oils. 3.5.2. Industry

Activities

38 Reference for Business Web site, www.referenceforbusiness.com/industries/Whol esale

- Trade 39 Bob Vavra, “The Urge to Merge,” National Petroleum News , June 1, 2000.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 21 Motor fuel stations are owned and operated b y four kinds of companies: major oil companies, jobbers, independent convenience store chains, and h yp ermarketers. Various business arrangements exist between station owners and operators. A compan y can own the site and the USTs, lease the site and own the USTs, or lease both the site and the USTs. An oil company can own and operate a service station, own the station and lease it to a dealer to operate it, or a dealer can own and operate the station with an agreement to sell a certain brand of fuel under that brand’s name. This latter arrangement gives the oil compan y or jobber a guaranteed supply outlet for their petroleum products. Sixty

- two percent of fuel stations operate under the brand of a major oil company . A ty pical lessee dealer operates one to two stores. 40 A compan y’s suppliers and size dictate its options for obtaining gasoline. Branded independent retailers must go to a specific refiner. L arger unbranded independent retailers t ypicall y have contracts with a specific refiner, and sometimes multiple refiners. Particularl y high

- volume retailers can purcha se gasoline on demand at the terminal. The cost of each delivery

varies, especially

when wholesale prices are fluctuating. As a result, large unbranded retailers often purchase gasoline futures to lock in prices for future delivery

on a specific date. T his hedging practice allows retailers to manage their costs as they

ride out volatile prices. However, as noted by the Energy

Information Agency , whether a company is branded, unbranded, has long

- term contracts, or buy s on the spot market, “during tight s upply periods and rising wholesale prices, even the time of day that wholesale product was purchased can play a role in determining the retail price.” 41 The average UST has a capacit y of 8,000 to 10,000 gallons so the t ypical retailer receives a gasoline s hipment every day or so. Large retailers can sell three to four times their tank capacity and receive multiple shipments per day . Convenience stores sell, on average, about 3,500 gallons of gasoline per store per day
. 42 Exhibit 3 - 6. Key Statistics for the Petroleum Wholesale Distribution Industry

(excluding Liquefied Petroleum Gas) Statistic 2002 Census Data Number of Establishments 121,446 Number of Companies 66,681 Industry Revenue ($ billions) 249.1 Gasoline Sold (billions of gallons) 143.5 E mployment 926,792 Source: 2002 Economic Census except gasoline volumes, which are from the Association for Convenience & Petroleum Retailing.

40 http://www.abbunitedstates.com/glossary_gas_convenience.asp 41 Energy Information Agency, www.eia.doe.gov 42 NACS, 2006 Gas Price Kit, “How Do Retailers Get

– and Sell

– Gasoline?, www.nacsonline.com***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 22 3.5.3. Industry

Size and Concentration The motor fuel retail industry is a diverse market comprising several thous and convenience stores and traditional gasoline service stations. The number of establishments varies depending on the source. The 2002 Census Bureau identified 121,446 establishments. The API estimates that there are 169,000 retail gasoline outlets. 43 NACS conducts an annual survey of gasoline retail outlets, and identified 168,000 retail gasoline facilities. 44 Based on an extrapolation of UST data from nine states to the nation, E 2 In c. estimated 141,776 motor fuel retail facilities. For this report, E2 Inc. relied primaril y on the NACS’s information because of their comprehensive statistics and analy ses. According to industry

survey s conducted by

the NACS, in 2004, 110,895 convenience stores sold 75 percent of the gasoline in the U.S. Major oil co mpanies owned only 2.6 percent of convenience stores selling gasoline. 45 Also in 2004, 55 percent of the convenience stores selling gasoline were one

- store operations, compared to only 13 percent operated b y a company with 500 or more stores. The t ypical business has an independent owner/operator. In addition, as of July 2005, 3,860 hy

permarketers sold 8 percent of gasoline. Traditional service stations sell the remaining 17 percent. The major oil companies own less than five percent of all retail gasol ine stations. According to the 2002 Census Bureau, the industry is not especially

concentrated with the 50 largest firms holding 33.2 percent of the market.

43 American Petroleum Institute, “Growth: The Market Determines the Price.” Fact sheet. 44 NACS, 2006 Gas Price Kit, “How Do Retailers Get

– and Sell

– Gasoline?, www.nacsonline.com 45 NACS, NACS 2006 Gas Price Kit, www.nacsonline.com***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 23 Exhibit 3 - 7. Distribution of the Number of Facilities Owned by Firms of Various

Sales Size Eng aged in Motor Fuel Retail Sales Annual Sales of Firm Number of Firms Number of Facilities Less than $250,000 5,094 5,117 $250,000 to $499,999 6,762 6,796 $500,000 to $999,999 11,273 11,394 $1,000,000 to $2,499,999 19,123 19,892 $2,500,000 to $4,999,9 99 8,838 10,394 $5,000,000 to $9,999,999 2,899 5,907 $10,000,000 to $24,999,999 1,317 6,771 $25,000,000 to $49,999,999 432 5,882 $50,000,000 to $99,999,999 190 5,448 $100,000,000 to $249,999,999 86 5,237 Over $250,000,000 72 27,851 Firms not operate d for the entire year 10,595 10,757 Total 66,681 121,446 Source: 2002 Economic Census

Exhibit 3 - 8. Distribution of Size of Firms Engaged in Retail Motor Fuel Sales Number of Facilities per

Firm Number of Firms Number of Facilities Single unit fi rm (0) 60,673 60,673

1 1,705 1,705 2 1,571 3,142 3
- 4 1,088 3,663 5
- 9 781 5,052 10
- 24 543 8,012 25
- 49 184 6,272 50
- 99 63 4,376 More than 100 73 28,551 Total 66,681 121,446 Source: 2002 Economic Census***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 24 3.5.4. Geographic Distribution According to the 2002 Census, the number of gasoline outlets is distributed throughout the country . Texas, California, and Florida have the highest numbers of establishments and employ ees, and account for approximately 24 percent of the U.S. sales revenue. An anal ys is co nducted b y the California Energy Commission on the impacts on rural counties of upgrading the state’s UST program found that the number of fuel stations could adequately

serve some communities, while other communities were poorly served. 46 The major oil c ompanies have closed gasoline stations at a rate that is more than twice as fast as the national average. The presence of the major companies declined from presence in 32 states in 1984 to 23 states by 1997. The number of major companies is expected to f

all as consolidation in the industry continues. Rather than focus their geographic scope, fast

- growing independent refiners have expanded their operations. Refiners owning gasoline outlets increased their scope from 14 states in 1990 to 24 states in 1997
. 47 Citgo, a wholl y - owned subsidiary of the Venezuelan state oil company PdVSA, expanded its operations from 31 states in 1984 to 48 states in 1997. Similarly , Tosco, a compan y based in Connecticut, went from having no retail outlets in 1990 to presence in 37 states in 1997. 48 In addition, hy

permarketers were particularl y successful in a number of mostly southern states, including Texas, where they held more than 14 percent of the market by 2002, followed b y Washington (13.9 percent), Arkansas (11.4 percent), Tennessee (11 percent), and Kentuck y (10.2 percent). 49 3.5.5. Market Conditions As stated by

API , “Competition in the retail sector is intense. The overwhelming trend has been the increasing efficiency with which gasoline is delivered to the consumer.” Duri ng the early

2000s several factors negativel y affected the industry , including weak economic conditions, decline in consumer spending, and unstable gasoline prices. According to NACS data, retailer gross margins have steadil y eroded over the past severa l y ears. In 2004, margins hit 6.9 percent, their lowest level since 1984 when they were 6 percent. Also in 2004, a retailer’s average gross margin (before expenses) was 12.7 cents per gallon. NACS states that ty pical net profits per gallon are a “few ce nts at most.” As a result, although motor fuel sales accounted for 66.5 percent of convenience store sales, it contributed only 36.6 percent of total store gross margins.

46 C alifornia Energy Commission, Impacts of the Underground Storage Tank Upgrading Program on Petroleum Product Supplies in Rural California , December 1998. 47 Energy Information Agency, http://www.eia.doe.gov/emeu/finance/usi&to/downstream/dtab05.html 48 Energy Information Agency, http://www.eia.doe.gov/emeu/finance/usi&to/downstream/dtab05.html 49 Ref erence for Business, http://www.referenceforbusiness.com/industries/Retail

- Trade/Gasoline

- Service

Stations.htm
.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 25 The market has also experienced more competition as hypermarketers and independent oil companies entered the retail gasoline sector. 3.6. General Industry Requiring Petroleum Storage Non
- retail motor fuel tanks are owned by firms engaged in agriculture, mining, construction, manufacturing, transportation, communications and utilities, trade , and services, and b y government entities. Exhibit 3

- 9 shows the number of facilities and tanks for six industry

sectors. Exhibit 3 - 9. Number of Facilities and Tanks for Non - Retail Industries Industry Sector NAICS Total Number of Facilities Number o f USTs Agriculture (crop production and animal production) 111, 112 889 1,610
Commercial (wholesale trade, retail trade, accommodation, and food services) 42, 44
- 45, 72 (excluding 447) 22,730 52,271

Communications and Utilities (wired telecommunication s carriers; and electric power generation, transmission, and distribution) 5171, 2211 6,972 10,223

Institutional (hospitals only) 622 2,330 3,812 Manufacturing 31
- 33 9,261 15,259 Transportation (air, water, truck, transit, pipeline, and airport operati ons) 481, 483
- 486, 48811 8,559 15,140

This list of industry

sectors is not comprehensive. The industry sector categories were limited by

publicl y available information, particularly b y the industry sector breakdowns provided b y state UST databases. Many other sectors, such as construction, mining, and government, use USTs to support their activities. For the government sector, the UST Compliance Act required information on the number, location, and compliance status of federal USTs by August 8, 2006 , 50 and state and local

50 Section 1528(b), “Federal Faciliti es,” of Title XV, Subtitle B, of the Energy Policy Act of 2005 (i.e., the UST Compliance Act) required that “each Federal agency that owns or operates one or more underground storage tanks, or that manages land on which one or more underground storage tank s are located, shall submit to the Administrator, the Committee on the Energy and Commerce of the United States House of***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 26 USTs by August 8, 2007. 51 The U.S. Department of Defense (DoD) has identified 4,355 USTs on DoD land, of which 4,314 are owned and operated b y DoD. It estimates that 30 percent of these tanks have not been inspected. 52 The U.S. Department of Energy estimates that it owns or operates 170 USTs containing petroleum or petroleum products. 53 Other federal agency reports were either not publicly available or could not be readil y found through Internet searches. 3.6.1. Methodology Used to Estim ate Universe of Facilities and USTs E 2 In c. estimated the universe of potentiall y affected facilities for the six industry sectors by adapting a methodology

used b y EPA in its regulatory anal ys is for the proposed revisions to the Spill Prevention, Control , and Countermeasure (SPCC) regulation. 54 This methodology

involves extrapolating a small sample of state data to a national estimate of facilities. First, E 2 In c. survey ed available UST data from the Web sites of 50 states. E 2 In c. identified 13 state U ST databases that provided industry sector information that could be downloaded from the public Web sites. These states were Alabama, Alaska, Delaware, Florida, Georgia, Maryland, Massachusetts, Minnesota, Missouri, Nevada, Tennessee, Virginia, and Wiscon sin. 55 Because of existing data availability and time constraints, the six industry sector categories were determined by the availability

of state data. 56 Not all states provided the same sector information. NAI CS codes were assigned to each industry sec tor based on the ty pes of companies listed in the UST databases. Once NAI CS codes were assigned to each of the six general industry sectors, E 2 In c. used 2002 Census data to estimate the total number of establishments (facilities) in that sector for the appropriate states. The 2002 Census also provided the total number of establishments for that industry sector in the nation. For each industry sector, E 2 In c. divided the total number of UST facilities (from the state datasets) b y the total number of fa cilities for those same states (from the 2002 Census). This calculation provides the percentage of facilities in those states that have USTs. E 2 In c. assumed that this percentage held true for the nation. For each industry sector, the national number of UST Representative, and the Committee on the Environment and Public Works of the Senate a compliance strategy report.” 51 The UST Compliance Ac t requires states to submit a report to EPA on compliance of federal, state, and local government

- owned tanks. 52 U.S. Department of Defense, Underground Storage Tank Compliance Strategy Report , Report to Congress and EPA, August 2006, p. 5. 53 U.S. Departm ent of Energy, U.S. Department of Energy Underground Storage Tank (UST) Compliance Strategy Report , July 31, 2006. 54 EPA, Regulatory Analysis for the Proposed Revisions to the Oil Pollution Prevention Regulation (40 CFR Part 112), November 2005. 55 Abt Associ ates, Inc. also provided 11 datasets obtained in 2005 from state agencies for the SPCC regulatory analysis. Five of these databases were used in the analysis. 56 The SPCC methodology identified industry sectors by matching owner information in the state dat abases with the Dun & Bradstreet Market Spectrum database.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 27 facilities was calculated by multiplying this percentage by the national number of facilities in that sector (from the 2002 Census). E 2 In c. estimated the number of active tanks in each industry sector b y m ultiplying the estimated number of UST facil ities by the tank/facility

ratio calculated for each sector from the state databases. 3.7. Non - Petroleum USTs and Facilities Exhibit 3

- 10 shows the percentages of tanks containing petroleum and non

- petroleum substances based on information available from 13 s tate UST databases. For these states, E 2 In c. found that 96 percent of tanks and 93 percent of facilities store petroleum products. In addition, 1.8 percent of tanks and 4.4 percent facilities store used oil. The remainder is chemicals, hazardous substances, or unknown.

Exhibit 3 - 10. Petroleum and Non - Petroleum USTs and Facilities

(based on 13 states) Substance % of Tanks % of Facilities Petroleum 96.54 93.20 Used Oil 1.83 4.36 Chemicals 0.04 0.05 Hazardous Substances 0.27 0.26 Unknown 0.26 0.36 Other 1.07 1.77 These statistics are comparable to estimates developed for the 1988 regulatory anal ys is where EPA estimated that about 97 percent of tanks stored petroleum products (heating oil, aviation fuel, used oil, etc.). The remaining three perc ent stored chemicals, including hazardous substances. 57

57 ICF Incorporated, Regulatory Impact Analysis of Technical Standards for Underground Storage Tanks, Volume 1 , August 24, 1988, p. 1
- 6.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 28 4. FACILITY PROFILE 4.1. Size of Facilities Exhibit 4

- 1 provides the number of tanks per facility for seven industry

sectors.
Exhibit 4 - 1. Number of Tanks per Facility for Selected Industry Sector s

Industry Sector Number of Tanks per Facility Retail Motor Fuel Sales 3.13 Petroleum

Storage Agriculture 1.81 Commercial (wholesale and retail trade) 2.30 Communications and Utilities 1.47 Institutional (hospitals only) 1.64 Manufacturing/Industr ial 1.65 Transportation 1.76 Used Oil Storage 1.11 Chemical Storage 2.35
4.2. Number of Active Tanks and Estimated Facilities by State Appendix A lists the number of active tanks and facilities in each of the 50 states (and six territories), except those located on Tribal lands. The appendix also provides the percentage of UST facilities in significant operational compliance with UST release detection and release prevention regulations. Collectivel y, these states have 635,450 tanks at 239,859 facilities . Sixty

- five (65) percent of recently

- inspected USTs in these states were found to be in significant operational compliance with federal UST requirements. The number of active tanks for most of the states is based on EPA’s report on UST corrective action measures for end

- of
- ye ar FY 2006. This report provides all of the data on regulatory

compliance rates. E 2 Inc. obtained the number of active tanks and facilities for 13 states from an analysis of their online UST databases. From these 13 databases, E 2 In c. calculated a tank to facility ratio of 2.65. The number of active facilities for the other states was calculated b y dividing the number of active tanks in each state by this ratio. 4.3. Number of Active Tanks on Tribal Land In earl y 2006, E2 Inc. perf ormed a technical anal ysis to inform EPA’s tribal strategy workgroup about the status of USTs located on Tribal lands. The anal ys is focused on active tanks regulated under RCRA Subtitle Ithat were either currentl y in use or temporaril y out of use.***DRAFT, DELIBERATIVE MATERIALS

– DO NOT RELEASE OUTSIDE OF EPA***

Delivery Prohibition DRAFT

– Do not cite or quote DRAFT Preliminary Analyses December 18, 2006 29 E2 In c. based its anal ys is on data received from the EPA regional offices. All regions provided data except for Region 3, which had no USTs on Tribal land. The data included owner, owner t ype (e.g., local government, state government, federal government, pr ivate, or commercial), tribe, tank location, number of regulated active tanks, date of last inspection, and other information of interest to the working group. The regions were not asked to provide information on the number of facilities or tanks owned or operated b y specific industry

sectors. The anal ys is identified 2,951 active regulated USTs on tribal land; 857 of these tanks had not been inspected since December 1998. Of these 857 USTs, 641 had never been inspected. Approximately one third (988 US Ts) are owned b y a government entity
. Tribal governments own 670 USTs, local non

- tribal government agencies own 136 USTs, state government agencies own 65 USTs, and federal government agencies own 117 USTs on tribal land.

Exhibit 4 - 2. Status of Tanks on Tribal Land
Tank Status by Region

0 200 400 600 800 1000

1 2 3 4 5 6 7 8 9 10 RegionNumber of Tanks Regulated active tanks on tribal land not inspected since Dec. 1998 Regulated active tanks on tribal land never inspected Regulated active tanks on tribal land