                       DRAFT REGULATORY SUPPORT DOCUMENT
                    DECOMMISSIONING STAGE II VAPOR RECOVERY
                         FINANCIAL BENEFITS AND COSTS
                                   MAY 2011
      The methodology for capturing gasoline vapors generated during vehicle refueling is in a transition phase.  Stage II vapor recovery systems (VRS) are being supplemented by onboard refueling vapor recovery (ORVR) nationwide.  Stage II VRS capture gasoline vapors at the fuel inlet of a vehicle and transfers them to the underground storage tank.  ORVR blocks the gasoline vapors from exiting the fill neck and instead displaces them to an activated carbon canister on the vehicle where they are purged to the engine during vehicle operation.  Manufacturers have equipped various vehicles with ORVR since 1998.  Since 2006, all newly manufactured passenger cars and light trucks have incorporated ORVR controls.  Once vehicles equipped with ORVR are in widespread use, using Stage II VRS on fuel dispensers under the program as now structured in most states offers little or no additional emissions benefit, especially as ORVR phase-in continues.  
      Under section 202(a)(6) of the Clean Air Act (CAA), EPA has authority to determine a time when ORVR is in widespread use and to then waive or revise the statutory requirements for installing and operating Stage II VRS equipment in serious, severe and extreme ozone non-attainment areas.   Subsequent to this determination, state and local air quality management agencies may seek state implementation plan (SIP) revisions to permit gasoline dispensing facilities (GDF) to discontinue use of Stage II VRS and follow recommended procedures for decommissioning the equipment and vapor vent piping.
      In a notice of proposed rulemaking (NPRM), EPA is proposing a date when ORVR will be considered in widespread use.  Once final, this finding gives states the option to conclude that at that date or some other date in the future that the effectiveness of Stage II VRS programs have reached a point where the emissions benefit relative to the control from ORVR will no longer justify the cost of installing new Stage II VRS systems or maintaining existing ones.  In some cases, there is, or could be, a net emissions disbenefit associated with continuing to employ Stage II VRS.  
      The purpose of this document is to present the financial benefits and costs associated with removing Stage II VRS from GDFs.  The financial information is useful when evaluating cost impacts or burdens or cost savings when removing Stage II VRS equipment.

STAGE II VAPOR RECOVERY SYSTEMS CURRENTLY IN USE  
      Stage II VRS are required to be used at certain GDFs located in serious, severe, and extreme non-attainment areas for ozone under section 184(b)(4).  It has also been used in certain areas of the Ozone Transport Region (OTR) under section 182(b)(4) of the CAA, but Stage II use in these areas is not directly affected by the section 202(a)(6) widespread use finding and Stage II waiver.  As listed in the reference, these include 21 states and the District of Columbia.  In addition, 6 states have adopted Stage II VRS regulations to address issues such as ozone attainment and maintenance and air toxics.  This is technically the same hardware and related requirements as are used in the serious, severe, and extreme areas, but removal actions by these states does not depend on EPA's widespread use finding.  In total, as of this writing, a total of 27 states and the District of Columbia have included these control measure in their federally-approved state implementation plans (SIPs) in the form of generally applicable regulatory requirements governing all GDF that exceed the relevant gasoline throughput criteria. 
      Based on conversations with state agencies and industry associations, EPA estimates that Stage II VRS in these areas cover about 40 percent of gasoline consumption and is installed at about 45,000 GDF's in part or all of the 27 states and the District of Columbia as mentioned above.  Of these, based on gasoline consumption in these 28 jurisdictions, EPA estimates that about 6,200 are in areas not covered by section 182(b)(3) and, in addition, about 600 GDFs in Maine and Vermont are expected to remove these controls in 2012 and 2013 as a result of separate state regulatory actions.  Finally, of the remaining 38,200 GDFs, about 11,300 GDF's in California are expected to retain this equipment until at least later this decade.  This leaves about 26,900 which may potentially remove Stage II VRS in response to an EPA determination of ORVR widespread use.  

MODEL GDF
      Today the average GDF pumps about 120,000 gallons of fuel per month.  While it varies somewhat by design and location, this average GDF would have 5 dispenser cabinets with 10 fueling points or nozzles connected by associated piping with fuel product being stored in an average of four underground storage tanks.  There are two types of Stage II VRS:  balance and vacuum assist.   It is estimated that about 70 percent are vacuum-assist type systems and 30 percent area balance-type systems.      

REMOVAL OF THE STAGE II VRS REQUIREMENT
      EPA is proposing that ORVR is in widespread use, effective nationwide, June 30, 2013, and to waive the section 182(b)(3) requirement after that date.  After the effective date of a potential final rule, any state currently requiring Stage II VRS under section 182(b)(3) of the CAA may seek EPA approval to revise its state regulations to no longer require GDFs to implement Stage II.   Additionally, for any nonattainment area classified serious or above for the first time after approximately January 1, 2011, EPA would not require adoption and implementation of a new Stage II program under section 182(b)(3).  This is because such areas, under the terms of section 182(b)(3), would not be required under the CAA to implement Stage II programs until two and a half years after such classification, which would be the effective date of the proposed widespread use determination and removal of the section 182(b)(3) requirements for Stage II VRS.  
      The NPRM also proposes that individual states affected by the statute (with or without existing Stage II programs) may separately submit SIP revisions to EPA that demonstrate that ORVR widespread use has occurred (or will occur) on a date earlier than June 30, 2013, for areas in their states, and request that EPA revise or waive the section 182(b)(3) requirement as it applies to only those areas.  Such a separate demonstration would require an EPA rulemaking and the Administrator's approval before it could be effective.  One approach states may use in an attempt to make such a demonstration is by using area-specific data rather than the more general, national data.  For completeness sake, it should be noted that this proposed action would not require any State to remove Stage II VRS.

DECOMMISSIONING OF STAGE II SYSTEMS

      The Petroleum Equipment Institute (PEI) and at least two states have recommended practices or specific requirements for decommissioning Stage II systems.  The PEI guidance is especially instructive as it was developed by industry experts with a focus on regulatory compliance and safety.  It basically contains the following steps which involve either hardware, labor or both.  Most steps apply to both balance and vacuum assist type systems, some only to vacuum assist.  The steps listed below assume that underground vapor vent piping is left in place and no construction breaking up the GDF driving surfaces is needed.  
   * Relieve pressure in the tank ullage.
   * Remove and collect all liquids from equipment.
   * Remove or disable vacuum-assist vapor pump(s), if installed.
   * Reprogram dispenser electronics as required related to vacuum assist pump at each dispenser or centrally if one pump.
   * Disconnect and cap off the vapor line at the dispenser end and the tank end for each dispenser.
   * Replace Stage II nozzles and all related aboveground dispensing hardware with conventional hardware for each dispenser.
   * Remove Stage II operating instructions.
   * Conduct tank system integrity test.
   * Assure overfill device is present and fully functional.
   * Restore the facility to operating status.
   * Maintain documentation of the procedures used in decommissioning.
   * Report results to owner and/or regulatory authority, as required.
   * Update any registration or certificates to reflect that Stage II equipment is no longer in service.


COSTS OF DECOMMISIONING STAGE II VRS
      After a State acts to remove its Stage II VRS requirement, each GDF owner in that jurisdiction should ascertain the optimum point at which to initiate the decommissioning process, within the time boundaries of the state requirements.  Not all states will act simultaneously and within a given state not all GDFs will initiate this effort at the same time.  In fact, we generally expect owners will pick the optimum time point (date) which minimizes their total cost and the disruption to business operations.  To accomplish this, we expect GDF owners to pick date points at or near a normal upcoming maintenance point for their GDF pump hanging hardware. 
 	Once decommissioning starts, this sets in motion a series of actions and ongoing changes in future operations in several categories.  These lead to both costs and reductions in costs (savings).  This part of the analysis discusses the costs and savings related to these actions and ongoing changes.  These will be identified as one time or recurring costs or savings for the model GDF.

ANNUAL BASIS PER GDF
      The costs presented in this analysis are divided between aboveground hardware and dispenser related  activities.  Most above ground hardware component costs involve the nozzles, hoses, swivels, check valves, and other related components needed at the dispensers to dispense fuel and capture the vapors displaced during refueling  The within dispenser consists involve isolating and capping the vapor piping, dealing with vacuum assist pumps, and other related actions.  The aboveground costs at a GDF are driven by the number of nozzles present at the GDF, while the dispenser costs depend mostly on the number of dispensers.  This analysis will break down costs into aboveground and dispenser portions. 
      Table 1 shows the aboveground hardware costs  for the model GDF mentioned here to represent the typical service station with Stage II VRS.  These costs are associated with replacing aboveground hardware of the Stage II VRS with conventional nozzle hardware.  After moving to conventional dispensing hardware, the GDF will not be required to maintain nozzles with bellows, coaxial hoses and high hang hose retractors, special breakaway fittings, swivels, flow limiters, vapor check valves and hose splitters.  As can be seen in Table 1, for the model GDF used here, average replacement costs drop by $3580.  This savings would occur at decommissioning since maintenance was presumed to be due anyway and at each maintenance subsequent interval for the GDF.

TABLE 1:   COST COMPARISON OF HARDWARE COMPONENTS 
ITEM
COST OF STAGE II VAPOR RECOVERY EQUIPMENT
COST OF NON-STAGE II EQUIPMENT

Multi-product Single Nozzle Dispenser
Multi-product Single Nozzle Dispenser
HANGING HARDWARE COMPONENTS
FOR 5 DISPENSERS (10 NOZZLES)
Vacuum pump, vapor recovery Nozzle and coaxial hose, breakaway, flow restrictor, swivel adaptors, vapor caps, vent caps, other required equipment
Nozzle and traditional fuel hose,   breakaway, check valves, clamps and seal kits and other required equipment
OVERALL COST ESTIMATE #1
$4,900
$1,540
Franklin Fueling Systems


OVERALL COST ESTIMATE #2
$3,500
$1,200
Graffco Equipment


OVERALL COST ESTIMATE  #3
$6,900
$2,060
Nozzlemax *


OVERALL COST ESTIMATE #4
$3,600
$1,920
JME Ellsworth Co.


OVERALL COST ESTIMATE #5
State of Maine DEP*
$7,100

$1,360
TOTAL AVERAGE COSTS
$5,200
$1,620
SAVINGS PER GDF

$3,580
*vacuum assist system

LABOR AND LOST REVENUE COSTS OF DECOMMISSIONING
      Labor costs  for maintaining dispensers and hanging hardware occur each time maintenance occurs.  Since this analysis assumes that Stage II decommissioning occurs at a point when GDF maintenance would have occurred any way, many of the labor and other business costs normally associated with this activity are not also counted here.  This leaves only one time labor and other costs related to the decommissioning of the Stage II VRS dispensers.   These include direct labor costs for activities such as disconnecting the vapor line between the dispenser and the underground storage tank and capping at each point of disconnection, disabling and/or removing vacuum pumps if used, and other activities related to modifying the hardware and electronics within the dispenser to disable or remove Stage II VRS.  In addition, there would be administrative labor costs related to removing any Stage II related labels or directions on the dispenser, maintaining documentation of the procedures used in the decommissioning, reporting the  results to owner and/or regulatory authority, as required, and updating any registration or certificates to reflect that Stage II equipment is no longer in service. Underground vapor piping would not be uncovered and in most cases, but would remain connected to the tank.
        As summarized in Table 2, in this analysis, we therefore include  time to modify hardware within each dispenser as discussed above and time to complete documentation and put the station back in full operation.  The personnel certified to conduct these activities would spend between 1 and 3 hours at each dispensing unit to exchange equipment and complete the administrative tasks at a billed labor rate between $70 to $120/hour.  The model GDF we are using has five dispensers. To be reasonably conservative for estimating costs, we have chosen the higher labor rate and 10 labor hours to decommission the model GDF.  Since there will be some miscellaneous parts and materials related to the within dispenser work these have been included at 20 percent of direct labor.  Two hours has been included for completion of administrative tasks.  
        There are two other categories of costs associated with this decommissioning.  It should be noted that the re-commissioning process for a non-stage II GDF would include tank integrity tests such as a pressure decay test .  Costs for these are not included here as they are often annual requirements under SIPS for Stage I control requirements and NESHAPS for GDFs which are in place wherever Stage II is required.  Second, it is noted that the work on the dispensers and nozzles will put at least part of the GDF out of operation for a day. To some degree, this business disruption would occur anyway during the normal maintenance cycle.  However, to be conservative here, we estimate foregone sales of about 2000 gallons (1/2 of a day's throughput at the model GDF) and a net revenue loss of $300 to account for within dispenser work that occurs only at decommissioning.
TABLE 2:   ONE TIME COSTS ESTIMATES OF DECOMMISSIONING DISPENSERS
ITEM
 COST OF DECOMMISSIONING  STAGE II VRS
LABOR COSTS
5 Multi-product Dispensers
Direct Labor for reconfiguration  of 5 dispensers:

2 hours per dispenser @ $120 labor rate(1, 2)
$1,200
Miscellaneous dispenser hardware/parts @20% of direct labor
$240
Administrative tasks
$240
TOTAL LABOR COSTS
$1,680
Revenue lost for one day out of service
2,000 gallons @ $0.15/gal gross marketing margin 

$300
TOTAL LABOR AND LOST REVENUE COSTS
$1,980
Source: 1-Core Engineering, Inc.; 2-OPW, A Dover Company

FINANCIAL BENEFITS OF REMOVING STAGE II VRS
      The financial benefits of removing Stage II VRS arise as a result of reduced life cycle costs.  For purposes of this analysis the costs and savings for the first 12 months will be presented beginning when decommissioning first occurs and for the subsequent 12-month periods  (without initial one-time costs).   The direct costs (and cost savings) for hardware and labor were presented above.  In addition there are other recurring costs and cost savings which will occur in the first year and subsequent periods. The recurring costs and costs savings fall into the following categories: foregone vapor recovery savings, reduced dispenser operating costs, and elimination of any annual costs related to system testing, inspections, fees, training and record keeping.  This third category of costs is identified in EPA enforcement guidance related to Stage II VRS and in state Stage II SIPs.   Table 3 presents the annual reduced  dispenser operating and maintenance cost for the model GDF on an annual (or 12 month) basis.
        Beyond this, GDFs will lose the vapor recovery savings originally expected with Stage II VRS.  Even though ORVR is in widespread use, some benefit would have continued to accrue into the future. The methodology for calculating this benefit is presented in EPA's Stage II technical guidance document.   Using 86 percent Stage II efficiency, 85 percent ORVR penetration and $2.30 per gallon (2010 average retail gasoline price without tax included), the foregone annual recovery savings is about $930 for the model GDF in the year Stage II is removed.  This value would change every year due to the volatility of gasoline prices and the continued phase-in of ORVR vehicles. While the affect of the ORVR phase in can be predicted from Table 2 in the reference listed in footnote 1, predicting future gasoline prices is difficult.  For purposes of this analysis the $930 will be kept constant.  

TABLE 3:    OPERATING AND MAINTENANCE COSTS COMPARISON

STAGE II VRS COSTS
(SAVINGS)
CONVENTIONAL
COSTS
(SAVINGS)
PER MODEL GDF


Stage II  vacuum pump maintenance (1,2, 4, 5)
$500
$0
Eliminate electricity costs of operating  vacuum pump(5)
$144
$0
Training and Certification of operators(1, 2)
$600
$0
GDF Compliance costs  (monitoring & recordkeeping)(1, 2)
$600
$0
Vapor Recovery Savings
($930)
$0



OPERATING AND MAINTENANCE SAVINGS WHEN SWITCHING TO CONVENTIONAL EQUIPMENT


($914)
Source: 1-NESCAUM; 2-State of Vermont; 3-Franklin Fueling Systems; 4-Core Engineering, Inc.; 5- OPW, A Dover Company.
		

COMBINED HARDWARE AND OPERATING SAVINGS
      The results of Tables 1, 2, and 3 can be used to estimate costs for following the point of Stage II decommissioning and at the first maintenance point thereafter.  These are shown in Table 4.  The recurring costs (savings) are dependent on the time length of the GDF maintenance cycle.  Industry sources indicate a life cycle of about 18 months for above ground hardware. Thus costs (savings) in the time period following completion of initial decommissioning would start again 18 months later.  For purposes of this rulemaking, this analysis is on a 12 month basis and assumes the hanging hardware cost savings, which would occur at the 18 month point, are apportioned   at 2/3 of total per 12 months.  

TABLE 4:  12 MONTH COSTS (SAVINGS) FOR DECOMMISSIONING STAGE II VRS FOR MODEL GDF
ITEM
 INITIAL YEAR 
RECURRING 
HANGING HARDWARE
 ($2,363)
 ($2,363)
LABOR COSTS
$1,680
$0
NET REVENUE LOST
$300
$0
OPERATING AND MAINTENANCE
($1,844)
($1,844)
VAPOR RECOVERY 
$930
$930
TOTAL
($1,297)
($3,277)

      An illustration may be helpful here.  If a GDF was decommissioned in January 2015 there would be a savings of $1,297 at that time.  The next maintenance event would be assumed to be July 2016.  In this illustration, for 2016 the costs (savings) would be based on the 12 month operating/maintenance savings, the 12 month foregone vapor recovery savings, and the hanging hardware savings.  The total savings would be $3,277.  This savings value would continue for subsequent twelve month periods, since hanging hardware is apportioned at 2/3 and other items from Table 4 are already on a 12-month basis.
      
COST DIFFERENCE OF MAINTAINING STAGE II VRS VS CONVENTIONAL DISPENSING SYSTEM
       Stage II has been a part of VOC emission control in many areas for some time.   Areas throughout the country listed in footnote 2 would be potentially affected by this proposed action, if they chose to seek SIP revisions as a result of it.   EPA believes that not all of these jurisdictions will remove their requirements for the GDF in their states at the same time, for example and as mentioned earlier, California has 11,300 GDFs and may keep their requirements in place for the rest of this decade.  EPA estimates that there will be approximately 27,000 GDFs that will be given the option to take steps to decommission their Stage II VRS after a widespread use determination by EPA.  For purposes of this analysis, it is our judgment that decommissioning will occur over about a three year period, with approximately 1/3 of the GDF population affected annually.  EPA makes this estimate based on the following rationale: 1)in many cases there are not adequate number of trained installers and jobbers to meet a surge demand, especially with seasonal limitations in areas such as New England; 2) states are likely to act to remove their Stage II requirements on different schedules and give varying time periods for action by the GDF owners; and, 3) facilities are expected to wait to dismantle their Stage II systems during their scheduled maintenance periods that extend beyond one year. 
       Costs and savings were estimated on a per facility basis based on the model GDF described above, and the initial and recurring cost savings are calculated on that basis.  In terms of understanding the overall financial impact, it is useful to assess cost savings during transition years and long term.  To assess impacts during the transition years, initial and recurring model GDF costs may be multiplied by the  number of GDFs assigned for decommissioning each year, 1/3 of the total, (approximately 9,000 GDFs), and those decommissioned in previous years, to estimate the nationwide impacts or benefits of this proposed action.    The long term 12-month savings in 2011 dollars would simply be the product of all decommissioned GDFs (27,000) and $3,277 per 12-months or about $88 million. 

TABLE 5:   NATIONWIDE SAVINGS OF REMOVING STAGE II VRS (INITIAL PLUS RECURRING)
COST SAVINGS FOR MODEL PLANT of 120,000 GPM 
 SAVINGS FROM  SWITCHING TO CONVENTIONAL DISPENSERS OVER MAINTAINING STAGE II VRS
12-MONTH MODEL PLANT GDF SAVINGS AFTER STAGE II VRS IS REMOVED
                       INITIAL $1,297; RECURRING $3,277 
ESTIMATED NATIONWIDE SAVINGS FOR FIRST 12 MONTH PERIOD IF STAGE II VRS IS REMOVED FROM  9,000 GDFs
                                  $11,673,000
ESTIMATED NATIONWIDE SAVINGS FOR SECOND 12 MONTH PERIOD  IF STAGE II VRS IS REMOVED FROM A TOTAL OF 18,000 GDFs
                                  $41,166,000
ESTIMATED NATIONWIDE SAVINGS FOR THIRD 12 MONTH PERIOD IF STAGE II VRS IS REMOVED FROM A TOTAL OF 27,000 GDFs 
                                  $70,659,000
ESTIMATED LONG TERM NATIONWIDE SAVINGS 
                                 $88,479,000 

	In conclusion, the agency has regarded Stage II VRS decommissioning to involve equipment replacement, labor, elimination of certain expenses associated with Stage II VRS operation.  We have estimated costs on a model GDF basis and then multiplied by the number of facilities estimated to decommission Stage II VRS and the results indicate a long term substantial annual savings of over $88 million per 12 months, nationwide.

GENERAL DISCUSSION ON COST SAVINGS FOR NEW INSTALLATIONS
	The analysis above represents savings only for GDFs which have currently installed and are operating Stage II VRS systems.  There are also two other categories of GDFs where savings could accrue.  These include retrofit of GDFs in current Stage II areas which are now exempt but whose throughput exceeds the state levels for exemptions in the future and in areas which might come under section 182(b)(3) in the future.  The second is new GDFs located in areas currently under section 182(b)(3) and installations at new GDFs in areas whose ozone NAAQS status becomes serious or worse in the future.  The savings profile for GDFs in these two categories has similar elements to those identified above but some additional elements as well.
RETROFIT INSTALLATIONS FOR GDFs IN AREAS CURRENTLY REQUIRING STAGE II VRS OR IN AREAS DOING SO IN THE FUTURE UNDER SECTION 182(b)(3)
      This is the situation faced by many GDFs upon implementation of section 182(b)(3) and thus the costs of these installations were studied thoroughly in the early 1990s. This retrofitting of Stage II VRS was the most expensive control situation because it includes extensive above ground costs per dispenser as well as construction and below ground costs for piping needed to route the vapors back from the dispenser to the underground storage tank (UST), trenching, backfilling and installation.   Above-ground costs are driven by the number of nozzles present at the service station, while below-ground costs are driven by the physical layout of the GDF such as the GDF configuration facility (i.e., number of dispensing islands, distance between islands and distance from islands to UST), the type of system (balanced system or vacuum assist system) and other station physical characteristics (amount of concrete over UST and amount of backfill material required).  In EPA's Stage II technical guidance document, a summary of capital costs estimates were provided for installing Stage II VRS.  Taking the average of the costs suggested by commenters ($18,715) for Model Plant 4 and applying the Department of Labor's Consumer Price Index Inflation Calculator, the capital outlay in 2011 would average about $30,000.  This would be the potential savings per GDF plus the savings for annual operating costs of about $2,700 per year as discussed above.  It is not possible to fold these potential savings into the total above, because the number of potentially retrofit GDFs is not known.
  STAGE II VRS INSTALLATIONS AT NEW GDFs IN CURRENT OR FUTURE AREAS SUBJECT TO SECTION 182(b)(3)
      Stage II VRS installation costs at new GDFs would involve mostly above ground hardware.  There would be below ground costs for vapor vent piping and installation to the dispensers manifold, and underground storage tank, but there would be no extra costs for driveway break up and resurfacing. EPA estimates these costs to be about $11,000 for a vacuum assist system when applying the Department of Labor's Consumer Price Index Inflation Calculator, leaving a remaining additional cost of about $20,000 per GDF.  This $20,000 would be the potential savings per GDF plus the savings for operating costs of about $2,700 per year as discussed above.  There would be no further business disruption costs since these GDFs would be new construction.   It is not possible to fold these potential savings into the total above, because the number of potentially new GDF installations is not known.
