State Squeezes Station Owners On Pump Costs

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Editors Note:

The following article in the Feb. 23 print edition contained several errors regarding the Granvia Service Center in Rancho Palos Verdes. The owners of the gas station are Masoud and Shahla Sharifi, not the man identified in the article as the owner. Also, the owners are in the process of completing environmental upgrades to comply with the state law by the April 1 deadline, and the owners intend to sell gasoline after the deadline, contrary to what was reported in the article. The Business Journal obtained the information reported in the article from a list compiled by the South Coast Air Quality Management District. That list was based on correspondence from station owners and operators who had informed the agency they intend to stop selling gasoline as of April 1 rather than comply with the state law. The agency did not update the list to reflect a subsequent application from the Sharifis for a permit; the agency has since approved the permit.

After 27 years owning and operating a gas station and auto service bay in Rancho Palos Verdes, Tony Hadh is going to stop selling gasoline next month, forfeiting roughly three-fourths of his revenue.

The reason? Hadh doesn’t have $40,000 to $60,000 to upgrade the gasoline hoses and underground pipes at his Granvia Service Center with the latest technology designed to reduce the level of harmful vapors that escape into the air. The deadline to comply with a state mandate is April 1.

Hadh is one of about 150 owners of gas stations and other facilities with pumps in Los Angeles County who have notified local air quality regulators that they will stop selling gas before the April 1 deadline.

“This is a low margin business and we just can’t afford that kind of cost. They are forcing us out of business,” Hadh said.

Meanwhile, thousands of other gas stations in Los Angeles and across the state are scrambling to comply with the deadline imposed by the California Air Resources Board back in 2000 under threat of fines as steep as $25,000 per day. As of Jan. 31, fewer than one-third of the state’s estimated 12,000 gasoline dispensing facilities including gas stations, and operations such as car lots and bus yards had completed the upgrades.

The cost of compliance runs from $20,000 to $100,000 per gas station, depending on how many tanks and pumps are there.

But cost is not the only obstacle that station owners face. Some of the required equipment just isn’t available due to manufacturers’ shortages. The credit crunch has made it tough to get loans. And the permit process hasn’t been easy.

“This is a train wreck,” said Jay McKeeman, vice president of government relations and communications for the California Independent Oil Marketers Association, which represents independent gas station owners. “The regulators didn’t take into account all the complications that go into putting in this equipment.”

The situation has become so bad that service station owners have formed the Responsible Clean Air Coalition to lobby the Air Resources Board for a one-year deadline extension. But the board has kept the deadline in place, citing the long advance warning.

“We want all the equipment installed on time so we can get the emission reductions,” said Air Resources Board spokeswoman Gennet Paauwe.

But Paauwe said that if service station owners can demonstrate that they have made good faith efforts to meet the deadline, local air pollution control districts can keep fines to a minimum level, perhaps down to a token sum.


Emission targets

Federal and state laws require California regulators to remove 10 tons per day of smog-forming gases by 2010. The regulators drafted the vapor-reducing program to eliminate six tons. They found an additional four tons from other industrial sources.

This is the latest in a long series of crackdowns on pollution that have hit gas stations hard. Over the last three decades, stations had to install vapor-tight nozzles and leak-proof underground tanks, all at significant cost.

This round was implemented in two phases. The first required new hoses for transfer from fuel trucks to underground tanks, and new valves on the tanks. The deadline was 2005 and the cost was relatively low.

The second phase requires elimination of vapor emissions between the underground storage tanks and the pump hoses and nozzles that dispense gasoline into vehicles.

To comply with this phase, station owners must install new nozzles, put vapor control systems on the underground pipelines between the tanks and the dispensers, put pressure monitors on the underground tanks and install bulky vapor processors above ground.

Midsized and major gasoline retailers have been working for years to meet the deadline. United Oil Co. in Gardena, which has 115 service stations in Southern California about 50 of those in Los Angeles County has spent roughly $10 million to date.

“We believe we’ll hit about 90 percent compliance by the deadline, with the remaining stations coming in shortly afterward,” said Jeff Appel, United’s secretary-treasurer. “From what I understand, we’re considerably ahead of the curve.”

United Oil started early enough and had the capital to proceed. Smaller independent service station owners operating on low margins did not have available funds. Some turned to the state’s underground storage tank program for financing, but the little that was left there was quickly depleted. So most station owners postponed action. But as the deadline approached, the banking crisis made it impossible to get loans.

“I just didn’t have the money to do this and I couldn’t get the money to do this,” said Toheed Ashgar, owner of Arcadia Gas & Repair Co. in Arcadia.

Toheed, who stopped selling gasoline late last year, said it would have cost him $70,000 to make the upgrades.

Like most of those who have told air pollution control officials they will stop selling gasoline before April 1, Toheed has another line of business: an auto repair shop that generates more than half of his revenue.

Just down the street from Toheed, George Fasching had operated a combination car wash/gas station for 31 years before he decided to stop selling gasoline in December because of the impending deadline. He was not willing to spend an additional $35,000 to $40,000 to upgrade his equipment because gasoline sales only comprised about one-fifth of his total revenue. The gas pump was there just for the convenience of his car wash customers.

“It wasn’t worth it to make all those changes,” Fasching said.

Low volume gasoline dispensers make up the majority of those withdrawing their permit applications, said Sam Atwood, South Coast Air Quality Management District spokesman.

For example, companies with truck or rental car fleets often have a single gasoline pump on their premises, more as a convenience for their operations than as a separate line of business. The expense wasn’t worth it, so their employees will be going to gas stations from now on.

The facilities that went ahead with the retrofits have faced other problems.

McKeeman of the California Independent Oil Marketers Association said that only a handful of companies make equipment the stations need, so many of his members have had long waits. Also, installation contractors have been busy installing the new pipelines, pressure monitoring systems and dispenser nozzles, and some station owners are still waiting their turn.


Permit nightmare

Most frustrating of all for many station owners has been obtaining the required permits from local government departments. While air pollution control agencies such as the South Coast Air Quality Management District are supposed to be the main regulators in charge of the gas station retrofits, all of the underground tank and pipeline work must get the approval of the local fire department, while all the above-ground vapor processors must get inspected by local building and safety departments.

“It’s been a nightmare getting permits; every city has their own requirements on what you have to do and the permit delays have been substantial,” said United Oil spokesman Appel.

Other service station retail companies told the Business Journal that departments in some cities in Southern California have been openly hostile to the permit applications, seeking to impose additional requirements and sharply raising fees.

“They know they have us over a barrel, so they think they can double or triple the permit fees,” one oil retailer executive said. He declined to have himself or his company identified, saying he feared retribution from officials in various city departments that grant the permits.

State Air Resources Board spokeswoman Paauwe conceded that cooperation of local governments has been an issue. She said her agency has met with local government agencies to try to get their assistance. She added that some local governments don’t like the look of the above-ground vapor processors and have required gas station owners to build walled enclosures around them, adding thousands of dollars to a station’s retrofit tab.

Service station owners said these problems could be minimized if state regulators grant a deadline extension.

“A short delay to April 1, 2010, allows for more affordable equipment to become available on the market, additional financing opportunities for small business owners and additional time for local county permitting,” the Responsible Clean Air Coalition states on its Web site. “A delay would cost the state no money, protect jobs and balance environmental needs with current economic realities.”

But a delay would likely just postpone the inevitable for Hadh, the Rancho Palos Verdes gas and service station owner.

Without gasoline sales, he fears he will be unable to make the mortgage payments on the property, and that he would have to close down entirely and lay off his six employees.

“Our margin is so low that even if we got a loan,” he said, “it would be very difficult to pay back. It’s just not beneficial for us to comply.”

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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