MEMORANDUM | 3 October 2008

TO Cho Yi Kwan and Timothy Roberts, U.S. EPA

FROM Neal Etre and Cynthia Manson , Industrial Economics, Inc.

SUBJECT Methodology for Secondary Containment for Piping (Work Assignment 1

- 19, Task 5)

The Environmental Protection Agency's (EPA's) Office of Underground Storage Tanks (OUST) is currently exploring options related to federal rulemaking action(s) associated with implementing provisions of Title XV, Subtitle B of the Energy Policy Act of 2005 (entitled the Underground Storage Tank Compliance Act of 2005). The Energy Policy Act expands eligible uses of the Leaking Underground Storage Tank (LUST) Trust Fund and inclu des provisions regarding inspections, operator training, delivery prohibition, secondary containment and financial responsibility, and cleanup of releases that contain oxygenated fuel additives.

Con cerning secondary containment, the Energy Policy A ct (EPAc t) specifically amends Section 9003 of the SWDA to require states receiving Subtitle I funding to implement secondary containment measures for USTs located within 1,000 feet of any existing community water system or any existin g potable drinking water well (secondary containment provision). Currently, EPA is exploring options associated with implementing the secondary containment provision or requiring financial responsibility for manufactures and installers

. One option under consideration requires secon dary containment for “replaced” piping, but not for “repaired ” piping. In order to implement this requirement, EPA needs a clear definition for when piping is consider ed to be “replaced.” Currently, EPA’s “Grant Guidelines to States for Implementing the Secondary Containment Provisions of the Energy Policy Act of 2005”, published in November 2006, allows states to determine the definition of “replaced” piping. An EPA definition of replaced piping would in some cases take the place of state definitions.
To assist EPA in exploring this option , Industrial Economics, Incorporated (IEc) is developing an approach for assessing the cost to a typical UST facility based on following definitions for “replaced” piping:
Piping replacement defined by a fixed footage of piping;
Piping replacement defined by a fixed percentage of the overall piping length; and
Piping replacement defined by a fixed percentage of the cost of replacing the entire piping run with secondary containment.

This memorandum outlines a draft meth odology for assessing costs to a typical UST facility based on t he three options for defining “replaced” piping. After a brief discussion

on the secondary containment provision and owner/operator behavior , we outline a BACKGROUND AND

INTRODUCTION2 preliminary methodology to analyze t he differences in potential cost s to a “ typical ” UST facility associated with the different definitions of “replaced” piping. To explain the methodology

, we use previously collect ed EPA data and additional research conducted under this effort. Finally, w e present some initial findings based on available cost data

, and note key limitations, uncertainties , and potential next steps

. Note that we developed this memorandum as a companion to an Excel

- based model that will allow EPA to explore the potential co sts associated with the definitions for “replaced” piping. The model will provide EPA with the flexibility to adjust the various assumptions, including costs, length of piping, and the definition triggers for “replaced” piping.

Secondary containment for piping refers to release prevention and release detection systems for piping connected to UST systems. The 2006 Grant Guidelines state that

r elease prevention involves piping having an inner and outer barrier. The release detection system involves monitoring the interstitial space between the inner and outer barriers for evidence of a leak or release of regulated substances. 1 Many UST facilities that do not have secondary con tainment use “single

- walled ” piping

. Without the additional leak barrier and opportunity for straightforward monitoring, single

- walle d piping presents a higher potential for releases of regulated substances to the environment.
The EPAct secondary contai nment provision requires the installation of secondary containment for “replaced” piping, but not “repaired” piping. If an owner/operator’s actions trigger the definition of “replaced” at a facility with single

- wall piping, then the

owner would be require d to install secondary containment for the entire piping run

, and not just replace the portion that required maintenance. For the replacement definitions investigated in this analysis, EPA has determined that a piping run includes the piping from a single tank to its associated dispensers. A typical facility has multiple piping runs. If a replacement was triggered, the owner/operator would only be required to replace the affected piping run. 2 For a repair of single

- walled piping, an owner would not inst all secondary containment. Therefore, the key determent in both cost to facilities and the number of facilities affected by the secondary containment provision is the definition of “replaced” piping.
This initial effort focuses on the cost to a typical facility that may result from a secondary

co ntainment requirement ; therefore

, it is important to understand the factor s that drive owner/operator decision s related to repairing UST piping. In some cases, owner/operators choose to rep air damaged sections of piping

, and at other times

, they decide to replace the entire piping run (i.e., the run of piping from one tank to one or more dispensers ) or all of the piping at the facility, regardless of regulatory requirements

. Ideally, a well

- focused re gulation would require secondary containment in all cases where an owner

- operator would have replaced piping under any circumstances, while minimizing the number of times that a small repair would trigger a total piping replacement. Based on EPA’s prior r esearch and additional discussions with UST

1 U.S. Environmental Protection Agency (EPA). “Grant Guidelines to States for Implementing the Secondary Containment Provisions of the Energy Policy Act of 2005.” November 2006

2 Cho Yi Kwan, EPA. Personal Communication. May 2008. FACTORS THAT AFFECT

OWNER/OPERATOR

DECISION

- MAKING3 equipment installers, we identified several factors that drive this decision

- making process, including: 3

Existing single

- walled pip ing type. According to the installers the existing piping material is the most important factor in determining whether to repair a
section of piping or to replace the entire piping run. In general, three types of single

- walled piping exist:

o Fiberglass piping

. Single

- walled fiberglass piping is non

- reactive
and relatively reliable

. Leaks can occur at joints, if the piping was installed improperly. Problematic sections of single

- walled fiberglass piping can be effectively repaired if the owner/operator chooses to do so. Typically, installers cut out the section in need of repair pl us an extra margin, and then glue in a new piece of fiberglass piping

. Secondarily contained fiberglass is commonly in

use.

o Flexible piping (flexpipe). Single

- walled flexpipe is typically a polyurethane pipe coated with anti

- corrosive material, installed as large continuous line between sumps (25 to 100 feet long). It can be installed within concrete conduit or imbedded in gravel; one
installer estimated that the conduit was used at half of flexpipe sites
he had evaluated. Sin gle

- walled flexpipe technology is not frequently installed and has been found to deteriorate when placed
in long

- term contact with fuel. Single

- walled flexpipe may be repaired, but requires a transition sump at the repair site. Flexpipe in conduits may be slightly less expensive to repair th an flexpipe
installed without a conduit, because it require s less excavation. According to the installers contacted for this effort, they rarel y repair single

- walled flexpipe, as it is likely to fail in the future. Typically, the installers encourage replacing all of the single

- walled flexpipe at the facility. One installer noted that repairing single

walled flexpipe “is not an option.” 4

, 5 Altho ugh less frequently
installed tha n secondarily contained fiberglass piping, secondarily
contained flexpipe is currently in use.

3 As part of this effort, IEc reviewed previous EPA research on the activities and costs associated with the installation, repa ir, and replacement of single and secondarily contained piping. The prior research reported on the results of interviews with

UST equipment installers from the Petroleum Equipment Institute (PEI). E 2 (for EP A) conducted a series of phone survey s with seven installers located around the U.S under Task Order No. 1010

– General Technical and Programmatic Support in Implementing the En ergy Policy Act of 2005 Task 1010

- 04

– Technical Research/Analysis And Summarize Information Subject

4

– Secondary Containment Subtasks SC

- 03 and SC

- 04. June and July 2006. In addition, to supplement this research, IEc attempted to contact the same instal lers (and held discussions with three of them) in an effort to seek additional information and clarify their previous responses. We derive our description of the decision

- making factors and later, cost data, from this research.

4 For a discussion on the problems associated with flexible piping, see “ Fact Sheet: T hermoplastic Flexible Piping in Underground Tank Systems.” Maryland Department of the Environment, Oil Control Program. http://www.mde.state.md.us/Programs/LandPrograms/Oil_Control/USThome/index. asp

5 Duan e Grippe, O'Day Equipment LLC. Personal Communication. July/August 2008.4 o Steel piping

. Steel piping is typically found at older sites, often in
rural areas. It is susceptible to corrosion when not adequately protected through cathodic protection methods. The installers
contacted for this effort indicated that they almost never repair steel piping ; instead, they encourage replacement of all piping at the facility

. 6

Cause and extent of the p roblem. One of the most common causes for piping damage is the accidental piercing of a pipe section by mechanical equipment such

as a backhoe. For single

- walled fiberglass piping damaged by equipment, installers typically repair the broken section. It is rarer for the installers to repair single

- walled flexpipe damaged by equipment and more typical to replace all of
the single

- walled flexpipe at the facility

. Depending on the extent of the issues,

o ther problems such as leaking joints or in

- pipe corros ion may require the replacement of the entire piping run , regardless of piping type . One installer noted that when a bad glue job is detected at a facility with fiberglass piping, he typically recommends replacing the entire run, because the poor glue job likely
affects all of the joints and pipes in the system.
Location of the problem along the piping run. Problems located in the dispenser sump (found under the dispenser) or in the flex connector (found at the tank and the end of the piping run) may be e asier to repair because they require less excavation. A leak found in the middle of the piping run may be difficult to find and require extensive excavation to locate the problem. When extensive excavation has already taken place, the marginal cost of in stalling piping with secondary containment is modest.

Overall c ost of repair. When the cost of replacement is comparable to the cost of repair, it often makes better fiscal sense for the owner/operator to replace the single

- walled piping to reduce future repair costs and liability concerns

. This is a personal decision made by the owner/operators , but t he installers indicated that
facilities typically replac e single

- walled piping during renovations.
Existing state regulation. Presently, at least 19 states require some form of secondary containment for piping. Depending on the state, owners may have limited options to repair existing single

- walled piping. 7 It is expected that as a result of the EPAct Guidelines, more states will enact se condary containment provisions for piping. For example, Colorado’s secondary containment provision recently went into effect on August 1, 2008. The provision defines “replaced” as repairing over 50 feet in length or 50 percent of the costs of replacing t he entire piping run with secondary containment.

6 In addition, 40 CFR part 280.33(c) does not allow the repair of steel piping that has released product.

7 Underground Storage Tank Guide . Thomson Publishing Company

. 2008.5 The installers contacted for this effort stated that they strongly recommend the use of secondary containment (regardless of piping type) and stress to their clients its benefits, namely better leak protec tion and monitoring. The installers emphasize to clients that while the costs of installing secondary containment may be higher , the benefits associated with reduced leaks and the peace of mind provided by secondary containment far outweigh the additional costs. They estimate that secondary containment has become the industry standard for newly installed piping and that anytime they need to replace an entire piping run, they wo uld install secondary containment. This implies that the use of single

- walled piping will likely be phase d out over time in most states

. 8 The rate at which the phase

- out occurs will likely depend on EPA’s and states ’ definition (s) of “replaced” piping es tablished under the secondary containment provision. Since the industry generally rates single

- walled steel and flexible piping as less effective products, it is likely that they will continue to be phased out regardless of EPA’s rulemaking. However, fa cilities may be less inclined to replace single

- walled fiberglass piping, as it has a relatively low failure rate. I n order to substantially reduce the number of facilities using single

- walled fiberglass piping, EPA may wish to set a strict standard for t he definition of “replaced” to target these facilities. An additional benefit of this approach would be that the stricter standard would likely catch facilities that use steel and flexpipe as well. EPA will have to weigh its options carefully, as a stric t standard may result in an undue burden on some facilities.
In this section, we present our preliminary methodology for assessing costs to a typical UST facility based on the three options for defining “replaced” piping. For each of the options presented below, we compare the cost of replacing the entire piping run to the baseline costs that the facility would incur in absence of the secondary containment for piping provi sion. As mentioned above, our discussions with installers suggest that for single

- walled flexpipe and single

- walled steel piping, a typical UST facility would replace its failed piping with secondary containment

, regardless o f how the standard defines “re placed.” Therefore, we focused our effort on developing an assessment for typical facilities that use single

- walled fiberglass piping, since they are the group most likely to repair their piping. 9

ASSUMPTIONS USED TO DEMONSTRATE THE METH ODOLOGY EPA’s prior research gathered cost information from installers on various UST installation and repair practices. The ins tallers caution that these cost estimate s , based on specifications given to them by the researcher s , are their best efforts given limit ed information about the facility

. 10 Given the wide variations in costs, we employ the mid

point values presented in the EPA research. Where values are not available, we supplement with information from our discussion s with the installers. In practice, hi gh variability in equipment costs and site specific conditions result in a wide range of costs.

8 We talked with installers from California, Colorado, and South Dakota. California has required secondary containment for piping since the 1980s. Colorado recently (August 1, 2008) enacted new secondary containment requirements for piping. South Dakota currently does not require secondary containment for piping.

9 While a specific facility may decide to repair steel piping or single

- wall flex

- piping with a single

- wall option, these facilities are likely to have fewer options for repair than a facility with fiberglass piping; therefore the difference between “repair” and “replace” is more important to facilities with fiberglass systems

. 10 Researchers gave the installers the following specifications to base their costs on: three USTs per facility; 300 feet per piping run; and four dispensers. EPA gathered cost information in the summer of 2006. Given the wide variation and uncertainty in the cost estimates, we do not adjust the costs provided to EPA for inflation. PRELIMINARY

METHODOLOGY

AND EXAMPLE

RESULTS6 The Excel

- based model that accompanies this memorandum provide s the flexibility to adjust these cost estimates and other facility

- based assumptions . Exhibit 1 present assumptions used to characterize a typical UST facility. We selected these assumptions based on those previously developed by EPA. 11 To verify the reasonableness of these assumptions, we presented them to the installers, who generally agreed that they represented a typical site.

EXHIBIT 1 ASSUMPTIO NS USED TO DESCRIBE A TYPICAL UST FACIIL TY

METRIC ASSUMPTION

Number of tanks per facility (i.e., number of piping runs) 3
Typical l ength of single

- walled fiberglass piping per facility (feet) 300
Typical l ength of piping run per tank (feet) 100

Source: Task Order No. 1010

– General Technical and Programmatic Support in Implementing the Energy Policy Act of 2005 Task 1010

- 04

– Technical Research/Analysis And Summarize Information Subject 4

– Secondary Containment Subtasks SC

- 03 and SC

- 04. June and July 2006.

The baseline cost to repair a section of single

- walled fiberglass piping depends largely on two factors:

The location of the section of pipe in need of repair. According to the installers, if the repair is in the area of the dispenser sump or flex connector, the costs associated with repair ranges from $250 to $1,500, an average of $667. 12 Typically, these repairs do not require extensive (or expensive) excavation. Since
th e annualized costs over 10 years for these repairs ($95) are relatively low and they impact a relatively small area at the facility, they will not likely trigger the “replaced” requirement under the definition options explored in this
memorandum. We there fore assume that the only repairs that may trigger the “replaced” definition involve pipe buried in concrete.
The size of the repair. The larger the damaged section of piping, the more expensive the repair job. Installation requires additional excavatio n, piping length, equipment, and paving.
Exhibit 2, below, presents the assumptions used to develop estimates of baseline repair costs and the cost to replace the entire piping run with secondary containment (i.e., secondarily contained fiberglass piping plus interstitial monitoring costs). Based on previous EPA research, we estimate annualized cost to repair 10 feet of single

- walled fiberglass piping to be $641. For each additional 5

- foot section, we estimate the annualized cost to run an additional $2 14. Therefore, for example, the annualized cost to repair a 25 foot section of single

- walled fiberglass pipe totals $1,283 [(3 x $214) + $641 ]

.

11 Task Order No. 1010

– General Technical and Programmatic Support in Implementing the Energy Policy Act of 2005 Task

1010

- 04

– Technical Research/Analysis And Summarize Infor mation Subject 4

– Secondary Containment Subtasks SC

- 03 and
SC

- 04. June and July 2006.

12 Task Order No. 1010

– General Technical and Programmatic Support in Implementing the Energy Policy Act of 2005 Task

1010

- 04

– Technical Research/Analysis And Summariz e Information Subject 4

– Secondary Containment Subtask SC

- 04. June
2006.7

EXHIBIT 2 ASSUMPTION S USED TO CALCULATE POTENTIAL COSTS OF S ECONDARY CONTAINMENT

The baseline assumes that a typical facility, in the absence of a secondary containment provision, would repair e xisting single

- walled fiberglass piping up to a certain length. At a threshold length, the owner determines that it is more cost effective to replace the run of single

- walled piping with secondary containment . Because of variations in owner/operator pref

erences and tolerance for risk, the installers had difficulty identifying a specific length pipe or cost point that would trigger the replacement of the piping run. For this exercise, we make an initial screening

- level assumption that if repairs cost more than 75 percent of the cost to replace the piping run, then owner/operator would chose

ACTIVITY COST RANGE AVERAGE A NNUALIZED a

BASELINE Baseline repair costs (for replacing 10 feet of single

- walled fiberglass piping) b,c $1,200

- $12,500 $4,500 d $641

Baseline repair costs for additional five feet of single wall piping $1,000

- $2,000 $1,500 $214

CAPITAL COSTS ASSOCIATED WITH REPL ACING ENTIRE 100 FOO T PIPING RUN WITH SE CONDARY CONTAINMENT

Excavation costs $1,600

- $2,000 $1,800 $698

Material costs e $3,400

- $6,400 $4,900 $648

Labor costs $3,900

- $5,200 $4,550 $256
Paving $2,200

- $2,800 $2,500 $356

Electrical $1,100

- $3,200 $2,150 $306
Interstitial monitoring equipment f

- $3,000 $427

Total Annualized Costs $2, 691

Notes:

a Capit al costs were annualized over 10 years (i.e., the expected time required to pay off the project ) using OMB’s approved discount rate of seven percent. OMB Circular A

- 94.

b Includes the cost of excavation, cutting damaged pipe, installing new pipe, and repaving. This analysis assumes that no additional sumps have been added to the system during the repair.

c EPA research e stimated the average repair for fiberglass piping is seven feet. To simplify this analysis, we round up to 10 feet. Discussions with installers confirm that the cost range is comparable.

d Based on the average repair cost reported for single

- walled fiber glass piping with excavation of concrete with rebar.

e Material costs include 100 feet of secondarily contained fiberglass, an d all necessary pipe fittings, connections, and valves.

f This may overestimate costs of installing interstitial monitoring, as many facilities may already have adequate leak detection in place

.

S ources: Task Order No. 1010

– General Technical and Programmatic Support in Implementing the Energy Policy Act of 2005 Task 1010

- 04

– Technical Research/Analysis And Summarize Informatio n Subject 4

– Secondary Containment Subtasks SC

- 01, 03 and 04. June/July 2006. Robert Renkes. Petroleum Equipment Institute. Personal Communication. June 2008. Duane Grippe, O'Day Equipment LLC. Personal Communication. July/August 2008. Jerry Thomas. C.E. Thomas Company. Personal Communication. July 2008. Ken Korneychuck, Eaton Sales and Service Co. Personal Communication. August 2008.8 replacement (with secondary containment ) regardless of regulations. 13 Therefore, if the total cost of repair exceeds the 75 percent threshold, we assume no incremental costs to the facility would result from the secondary containment provision. For example, if the annualized cost of repair exceeds $2, 018 [ 0.75 x $2, 691 ]

, we assume the owner/operator chooses to replace the entire piping run with secondary containment in the baseline, and the regulation would cause no change in costs.
We estimate the annualized cost to replace single

- walled fiberglass piping with secondary containment to be $2, 691 . This includes the cost to excavate, install secondarily contained piping , and repave the site. We also include the potential costs of installing interstitial monitoring equipment , as this is a requirement for secondary containment.
Note that we investigated the most recent OUST ICR in an attempt to gather the operations and maintenance (O&M) costs associated with interstitial monitoring . T he ICR does not clearly identify O&M costs specific to interstitial monitoring for piping

. Moreover, it is not clear that a requirement for interstitial monitoring would represent an additional monitoring requirement, or a replacement for some current monitoring activity

. As a result, for this illustrative effort, we assume no O&M costs attributable to interstitial monitoring. The Excel model contains a placeholder (set at 0) should EPA wish to test scenarios with O&M costs for interstitial monitoring for piping. 14

METHODOLOGICAL APPRO ACH AND EXAMPLE RESU LTS We define the costs of the secondary containment provision for piping as the incremental cost associated with triggering the def inition of “replaced.” Simply put, if the repair triggers the regulatory requirement for replacement of the piping run, the incremental cost is the difference between the replacement costs and the baseline repair costs. However, if, as stated previously, the baseline cost exceeds 75 percent of the replacement costs, we then assume that a facility would have replaced the piping regardless of the rule. Therefore, no incremental cost is assigned to the facility. 15

In contrast to most regulatory analyses, in this case, the baseline cost of repairs drives the incremental costs, since replacement costs remain constant and it is the difference between these replacement costs and the repair costs that would have been incurred without the regulation that is measure d. Below, we present the preliminary methodology for calculating the incremental cost to a typical facility for the three “replaced” piping definitions. We use the example data derived from EPA research to demonstrate our approach.

Option 1: Piping repl acement defined by a fixed footage of piping Under the first definition option, “replaced” piping is determined by a fixed footage of piping. In this case, the trigger to require the installation of secondary containment is based on the length of the pipi ng section in need of repair. We first select a threshold value that triggers the definition of “replaced” piping. For this exercise, we chose a threshold value of 25 feet

– that is, once a piping repair job spans 25 feet in length, a

13 We select 75 percent because one installer indicated that this was a reasonable threshold. Note that in the Excel model that will accompany this memorandum, the user will have th e flexibility to adjust the point at which the facility chooses to replace piping and instead of repair.

14 Underground Storage Tanks: Technical and Financial Requirements, and State Program Approval Procedures, EPA ICR
Number 1360.08

. 15 For facilities with steel and single

- walled flexible piping, we assume that operators would replace their piping regardless of whether it is required by EPA.9 facility is requir ed to replace the entire run of piping (in this case, we assume the piping run is 100 feet in length). Based on this trigger threshold, Exhibit 3 presents our approach to estimating the incremental costs associated with Option 1.

EXHIBIT 3 ILLUSTRATI VE RE SULTS: REPLACEMENT IS DETERMINED BY A F IXED FOOTAGE (25 FEE T)

LENGTH OF REPAIR REL ATIVE TO

A 25 FOOT THRESHOLD LENGTH

OF REPAIR (FEET) ANNUALIZED COST OF

REPLACING PIPING RUN

WITH SECONDARY

CONTAINMENT ANNUALIZED COST

TO REPAIR SINGLE

WALLED

FIBERGLASS PIPING ANNUALIZED

INCREMENTAL COST

OF SECONDARY

CONTAINMENT

Repair length is below threshold 10 $2, 691 $641 a $0 a
Repair length is at threshold 25 $2, 691 $1,281 $1, 410
Repair length is above threshold 35 $2, 691 $1,709 $ 982
Repair length is substantially above
threshold 50 $2, 691 $2, 349 $0 b

Notes:

a This scenario assumes that the owner/operator would choose to repair the single

- walled piping and, therefore, would incur no incremental costs for secondary containment.
b In this scenario, the annualized cost of a 50

- foot repair would be $2,349, which represents more than 75 percent of the annualized cost to replace piping run with secondary containment. We assume that this facility would replace the entire piping run in the absence of the rule and, therefore, incurs no incremental costs for secondary containment.

Exhibit 3 demonstrates the cost to a typical facility when “replaced” piping is determined by a fixed footage. The facility with a short repair length of 10 feet does not trigger the replacement standard; thus it incurs no incremental costs. On the contr ary, the facility with the length of repair at the threshold realizes a high incremental cost, because it would be forced to replace its piping, while the cost of repairs remains relatively low. When repair length is beyond the threshold (e.g., the facili ty with the 35 foot repair), the incremental cost of replacement is lower, because its repair costs would have been relatively high. Finally, when repair length is substantially greater than 25 feet, the repair cost exceeds the point at which the operator would likely have chosen to replace the pipes in absence of the rule. In this case the annualized cost of a 50

- foot repair would be $2,349, which represents more than 75 percent of the cost of replacement. Therefore, we assume that this facility would h ave replaced pipes in the absence of the rule and incurs no incremental costs. This example shows that the incremental costs are sensitive to the change in repair length, particularly around the threshold value.

Option 2: Piping replacement defined by a fixed percentage of the overall piping length Under the second definition option, “replaced” piping is determined when a certain percentage of the total piping run is replaced. Our approach to this option is very similar to Option 1, only we add a step t o the calculation. The first step is to convert the threshold percentage to a length of piping. For example, we assume under Option 1 that a typical piping length is 100 feet. The incremental cost calculation first converts the percentage of piping to f

eet by multiplying the length of the piping run by the percentage. As a result, under the previous example, a 25 percent threshold is equivalent to 25

- foot threshold. In the Excel based model, the user will have option to change the typical10 length of a p iping run to explore how this definition differs from Option 1. To highlight the change in pipe run length, Exhibit 4 illustrates Option 2 based on a 25 percent threshold for “replaced” piping and typical pipe run length of 125 feet. Note that because

we increase the length of the piping run, the annualized cost of replacing the entire run with secondary containment also increases. 16

EXHIBIT 4 ILLUSTRATI VE RESULTS: REPLACE MENT IS DETERMINED B Y A FIXED PERCENTAGE OF

OVERALL PIPING LENGT H (25%) WITH A PIPIN G LENGTH OF 125 FEET

PERCENTAGE OF PIPING REPAIRED

RELATIVE TO A 25 PER CENT

THRESHOLD PERCENTAGE

OF PIPING

LENGTH ANNUALIZED COST OF

REPLACING PIPING RUN

WITH SECONDARY

CONTAINMENT a ANNUALIZED COST

TO REPAIR SINGLE

WALLED

FIBERGLASS PIPING ANNUALIZED

INCREM ENTAL COST

OF SECONDARY

CONTAINMENT

Percentage of piping length is
below threshold 10% $3, 364 $747 b $0 b

Percentage of piping length is at
threshold 25% $3, 364 $1,548 $ 1,815

Percentage of piping length is
above threshold 30% $3, 364 $1,815 $1, 548

Percentage of piping length is substantially above threshold 50% $3, 364 $ 2
, 883 $0 c

Notes:

a We assume a linear relationship between annualized replacement costs and piping length.
b This scenario assumes that the owner/operator would choose to repair the single

- walled piping and, therefore, would incur no incremental costs for secondary containment.

c In this scenario, the annualized cost of repairing 50 percent of the piping run would be $2,883, which represents more than 75 percent of the annualized cost to replace piping run with secondary containment. We assume that this facility would replace the entire piping run in the absence of the rule and, therefore, incurs no incremental costs for secondary containment.

Exhibit 4 demonstrates how changing the length of a typical piping run alters incremental

costs under Option 2. By extending the pipe length, we increase the size of the area in need of repair and the overall costs to replace the piping run with secondary containment. As expected the incremental cost of replacement increases as pipe length increases.

Option 3: Piping replacement determined by a fixed percentage of the cost of replacing the entire piping run with secondary containment Under the third def

inition option, “replaced” piping is determined by a fixed percentage of the cost of replacing the entire piping run with secondary containment. For this approach, we estimate a cost threshold to determine when a facility must install secondary containmen t. Exhibit 5 presents the results of our approach to this option. Based on a 25 percent cost threshold, we determine that any repairs over $ 673 [0.25 x $ 2, 69 1 ] , would trigger the secondary containment requirement. As in the previous options, those over the 75 percent cost threshold do not incur incremental costs associated with secondary containment provision, since we assume they replace their pipes in the absence of the rule.

16 We assume a linear relationship between annualized replacement costs and piping length.1 1

EXHIBIT 5 ILLUSTRATI VE RESULTS: REPLACE MENT IS DETERMINED B Y A FIXED PERCE NTAGE (25%)

OF THE COST OF REPLA CING THE ENTIRE PIPI NG RUN WITH SECONDAR Y

CONTAINMENT

PERCENTAGE RELATIVE TO A 25

PERCENT COST THRESHO LD PERCENTAGE

OF COST OF

PIPING RUN ANNUALIZED COST OF

REPLACING PIPING RUN

WITH SECONDARY

CONTAINMENT ANNUALIZED COST

TO REPAIR SINGLE

WALLED

FIBERGLASS PIPING ANNUALIZED

INCREMENTAL COST

OF SECONDARY

CONTAINMENT

Percentage of cost is below
threshold 10% $2,691 $2 69 a $0 a

Percentage of cost is at threshold 25% $2,691 $ 673 $2, 018
Percentage of cost is above
threshold 30% $2,691 $ 807 $ 1,884

Percentage is substantially above
threshold 80% $2,691 $2, 153 b $0 b

Notes:

a This scenario assumes that the owner/operator would choose to repair the single

- walled piping and, therefore, would incur no incremental costs for secondary containment.
b Since 80 percent of the annualized costs of replacing the entire run ($2, 153 ) exceeds the 75 percent cost

- effectiveness threshold, we assume that this facility would replace the entire piping run in the absence of the rule and, therefore, incurs no incremental costs for secondary containment.

LIMITATIONS The three definitions for “repla ced” piping provide EPA with several options as it considers the goals and scope of a proposed rulemaking action on secondary containment. As EPA considers the merits of each option, it is important recognize the key limitations of this methodological app roach, including:
Data may not be representative of a typical UST facility

. In 2006, EPA
collected UST installation and cost data from seven UST equipment installers, several of which we followed up with as part of this effort. Since not all installers

p rovided information for all cost areas, the sample size of the data is small and represents the experience of only a few equipment installers. The collection effort
focused on one

- on

- one phone discussions, not a more systematic survey method to guarantee t he installers received the same questions. As such, t he cost data and other assumptions represent the experiences and opinions of a few installers contacted by EPA. To the extent that their experiences differ from the general population of equipment inst allers , the data may not adequately represent a typical
UST facility. 17

Data may not capture the site

- specific c osts. According to the installer s , facility

- specific conditions such as geographic location, soil type, and facility size determine the types of equipment installed at UST facilities. To account for site

-

17 Similarly, other assumpti ons, such as the length of piping per facility, may not adequately represent the typical UST facility. In fact, some installers told EPA that facilities may contain substantially more piping than 300 feet presented in this analysis.12 specific variability, facilities may need to purchase different or additional equipment. For example, some states, such as Wisconsin and Montana, require
the installation of interstitial moni toring for new sumps installed during a piping replacement job. 18 Facilities in these states bear the additional costs of the installation and operation and maintenance costs of interstitial monitoring. The

current methodology does not attempt to account for potential site

- specific
characteristics . To the extent that these characteristics drive costs at a facility, we may mischaracterize costs as typical

. Data may not capture potential variability in operator behavior. To simpl if y the methods for this preliminary approach to secondary containment, we generalize operator behavior down to a few simple decision rules, based on the discussions with the installers. For example, we assume that, in general, operators will not attempt to repair damaged steel piping and single

- walled flexpipe

. To the extent owner/operators act differently than the installers suggested, the model may mischaracterize operator choices and behaviors.

Cost estimates do not include efforts to find leaks when ow ner suspects a problem

. Several of the installers suggested that the costs associated with discovering the location of leaks can be an important factor in determining whether an owner/operator decides to replace piping. 19 To find leaks in piping,
installer s typically drill pilot holes or conduct more extensive excavations. If the cost to discover the leak is high enough, it may be more cost effective for the owner to replace the defective or damaged piping entirely. This effort does not
account for these costs or their potential impact on owner/operator behavior.

This approach provides EPA with a reasonable starting point as it c onsider s a rulemaking under EPAct’s secondary containment provision. While the example data provide context to evaluate the options for defining “replaced” piping, the accompanying Excel tool, once completed, will give EPA the ability to evaluate how changes in key assumptions result in changes to expected costs to a facility . As EP A refines this approach, it may wish to consider the following:

Importance of threshold values. An evaluation of the sample results shows that
the threshold value that trigger s the replacement of piping in both the baseline and the regulatory scenario has a significant impact on the incremental cost to the facility. Facilities just under the threshold are not required to replace piping, therefore, do not bear any costs associated with a potential rule. A facility on the
threshold bear s the highest cos ts of a potential rule, as the difference between replacement cost and repair costs is greatest

. As a facility’s repair costs increase (as a result of larger or more extensive repair), the incremental cost to replace piping decreases. At an higher thresho ld, it is practical for the facility to replace pipes rather than repair them . The magnitude of both threshold values will have a

18 Duan e Grippe, O'Day Equipment LLC. Personal Communication. July/August 2008.

19 It is important to note that one installer disagreed with this statement and felt that locating leaks was relatively simple and inexpensive. Ken Korneychuck, Eaton Sales and Service Co. Personal Communication. August 2008. CONSIDERATIONS

AND POTENTIAL

NEXT STEPS13 significant impact on the number of facilities affected by a secondary containment rulemaking and the cost they bear as a res ult of the rule.

Refine ment of data on operator behavior and potential costs

. EPA may wish to consider a systematic data collection effort to gather more detailed information on the costs associated with repair and replacement of UST piping , and on the

p revalence of different types of piping currently in place . The current cost data, derived from a relatively informal discussion with a small sample of equipment installers, may mischaracterize typical costs and behaviors at UST facilities. In addition, E PA may wish to conduct further analyses to improve estimates of the frequency in which facilities conduct piping repairs versus replacement when a problem is discovered . This effort could involve additional interviews or
collection of information from a f ocus group of installers in different regions.

I dentification of the number of potential ly affected facilities. The current effort focuses on isolating potential impacts of the secondary containment provision at a typical UST facility. The next logical step is to assess the number and location of facilities that may be affected by potential secondary containment requirements. This may be a challenging effort, as data categorizing the types of piping employed at facilities may not be readily available. Information on state regulations should inform this effort.
Incorporation of behavior associated with finding leaks when owners suspect a problem. As stated above, for a facility with a suspected pipe l eak, the cost associated discovering the location of the leak

, while not part of the explicit repair or replacement cost, is likely a factor in determining whether an owner/operator decides to replace piping in the baseline scenario, regardless of regulation

. Owner/operators who find it more cost

- effecti ve to replace piping due to the

expense of find ing a leaking pipe would incur no incremental costs resulting from the secondary containment provision. EPA may therefore wish to consider methods to incorporate this decision

- making behavior into the cost mo del

. This
effort would likely require the collect ion of additional information, including:

o Information on the processes used to locate suspected leaks in piping;

o Costs associated with efforts to find suspected pipe leaks;

o Information on the decision

- maki n g behavior of owner/operators
and the extent to which the cost of locating suspected leaks
influences their decis ion to repair or replace piping; and

o The typical number facilities that may suspect leaking pipes in a

year

.