Running on Empty
Brooks Smith, a self-described fourth-generation oil man, has sunk a lot of money underground lately, but so far he doesn't have much to show for it.
Smith, like many other owners of area gas stations, is spending his effort and his cash in a race against time to meet state-mandated environmental controls on the storage and sale of gasoline. The mandates were first set down five years ago, in the wake of federal Environmental Protection Agency directives, and were supposed to be accompanied by funding to help out the businesses that were affected by them. But while the mandates have continued to march along -- the first compliance deadline came last December, the second deadline is set for the end of this year and the third deadline for 1998 -- the money has dried up, so much so that many independent owners of small gas stations now face financial oblivion. Smith has already closed two of his stations and is making plans to close a third, at least temporarily. His seven remaining stations are profitable enough to make the modifications justifiable.
Other owner-operators may not be as fortunate as they face an end-of-the-year requirement that they install vapor recovery systems on their gas pumps and underground gas tanks, and provide spill protection for when the tanks are being loaded. The spill protection is the cheaper of the upgrades, averaging about $1,000 to $1,500 per tank. The federally mandated vapor recovery system is more costly: a standard-size station could spend $60,000 for a suitable system.
The gas station owners have two choices when it comes to the mandates
-- do the upgrades or face fines and closure. "You do it or they shut you down," says Drew Hollinger, who runs the Coyote Market convenience store and gas station in League City. For the larger stations, the changes are an expense that affects their profits. For smaller stations, it's a matter of survival.
"There's a convenience store down the street from us and that gentleman doesn't sell hardly any gasoline. He'd be ill-advised to spend money on phase two," Hollinger says. "It's a nightmare if you have an old store that doesn't sell much gasoline. I can see a lot of people just walking away from them."
A recent survey by the Texas Oil Marketers Association suggests that may already be happening. Scott Fisher of TOMA says the 110 companies that responded to the survey have closed 468 sites statewide over the last few years because of "petroleum storage tank rules." The respondents estimated that, to avoid having to renovate stations to satisfy the third set of mandates on leak detection and tank integrity, they would close another 341 sites by 1998.
For the first stage of the environmental directives, which involved cleaning up underground leaks, the state managed to provide assistance. Through the Petroleum Storage Tank Remediation Fund, set up in 1989, owners cleaning up petroleum spills could be compensated for such work, based on a sliding scale of deductibles related to how many gas tanks they operated.
But as the number of claims escalated, the Remediation Fund became drastically overcommitted. A bulk storage fee paid by the petroleum industry finances the fund to the tune of around $60 million a year, but by last year, bills for repairing and cleaning up after gasoline leaks had grown to $144 million more than the Remediation Fund had collected. Even though legislators last year approved a two-year, $120 million loan to the fund, it has already developed a new backlog of $100 million in claims.
The downfall, according to Joe Woodard, director of the Remediation Fund, was that the people pushing the cleanup tried to do too much too fast. "Being a brand-new program, entering into something unknown, I don't think anyone had a clear understanding of what the magnitude of the problem would be," Woodard says. And even though the size of the task has now become clear, none of the deadlines or funding mechanisms have been changed to accommodate the new realities.
TOMA's Fisher agrees that the state tried to do too much too soon and didn't have proper controls on the amount of work being done or on its cost. "Before they knew it, they had more than $150 million in claims and only $60 million to pay for it," Fisher says. "There were a lot of small-business people who in good faith had gone out and remediated their site, and then it would be another two years before they'd get paid. Obviously, they took that money out of cash flow."
Woodard emphasizes that, despite the troubles the fund has had, the state needed to try to clean up underground gasoline leaks. Though station owners such as Smith don't argue that point, they do say the fund was used too broadly.
"They overreacted," Smith says. "We don't eat the dirt and we don't grow anything on the dirt where convenience stores and gas stations are. You build on top of the dirt. We spent a lot of money on a lot of things we didn't have to do. That's one reason the fund is broke. When the fund went broke, it made them stand back and look at things with a different perspective."
Something likely will be done in the next session of the Legislature to ease the fund's problems. Woodard is understated when asked if the fund needs to bailed out again. "It will require some help legislatively," he says simply.
But rejuvenating the Remediation Fund is only one aspect of the overall crisis small gas-station operators face, since the fund helps compensate for only the cleanup and repair of leaks -- it does nothing for the other required upgrades to prevent leaks and other environmental risks.
Smith, who as owner of Bay Oil Company is a gasoline wholesaler and retailer, has stations profitable enough to endure the changes. But even he will be forced to close a LaMarque Shoppers Mart station until he can get more loans to finance its possible re-opening.
Drew Hollinger decided it made more sense to buy new pumps for his two combination convenience store/gas stations rather than "retrofitting" vapor recovery systems onto his old pumps. Modifying the old pumps would have cost $60,000, so he went ahead and bought new pumps for $100,000. He estimates that it will take him close to ten years to pay off the cost of the changes.
Many station owners are waiting until the last minute to decide what to do about this year's deadline. But the biggest financial hit will occur in four years, when stations will have to show that their tanks have been specially treated to protect them from corrosion. Since most tanks in the state are more than 20 years old and don't have the necessary protection, Fisher expects this to be the final reckoning for many stations. "The drop-dead date is December 22, 1998," he says.
Smith owns and operates eight stations and sells to another 60 customers in his role as a wholesaler. He estimates that 15 of his clients -- 25 percent -- will not be able to stay in business because of this year's scheduled upgrade and the ultimate 1998 deadline.
"A lot of my customers are only doing 20,000 to 25,000 gallons a month. Say they're only making six cents a gallon. So 20,000 gallons is $1,200 a month. Can they afford to spend $30,000 to $100,000 [in upgrades] for that type of return?" Smith asks. He pauses, then answers his own question with a laugh.
"It's a nightmare if you have an old store that doesn't sell much gasoline. I can see a lot of people just walking away from them.
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