By Samuel Diamond
Ask any distributor or wholesaler who started out in delivery, and you’re likely to hear the same thing: taking on storage can be one of the most personally (and financially) rewarding moves of a fuel dealer’s career. Of course, to reap those rewards, one must take on a number of risks, and in business as in life, managing and mitigating risk is often key to one’s success.
Bulk storage risks vary greatly between the stages of opening, operating and expanding facilities. This article will attempt to provide an overview of some of the most common environmental, regulatory and financial risks storage facility owners encounter. What we hope you will find is that all three categories are not just inherently related but equally critical.
Note: in terms of financial challenges, this article will examine operational risks such as run-outs and distributor shorting. Pricing-related risk is a whole different animal, which we try to help “tame” with our annual hedging survey; please refer to last month’s article, “Change and Adaptation,” for more information.
Three million dollars. That’s how much three petroleum distributors in Northern California must now pay in penalties by order of the Contra Costa Superior Court. Back in 2011, the companies were fined a total of $6 million for “failing to maintain underground storage tanks at gasoline stations, disabling leak detection devices and improperly handling hazardous wastes and substances,” according to the Associated Press. Half of the penalty was suspended under the condition that the companies come into compliance with applicable regulations, but when that didn’t happen, the court ordered the remaining fines to be paid in full.
The Golden Coast might seem worlds away from New England, but as Robert Ceppi, project manager at bulk plant design, engineering and construction firm MPE, Inc., points out, “The national codes don’t change much.” Ceppi reminds us that the NFPA and EPA have set regulatory standards that storage facilities in all states across the U.S. must follow. Compliance with these standards is a necessary starting point, but for the best protection, Ceppi recommends storage facility owners look beyond federal and state regulations.
“Some areas have local officials who ask for more,” Ceppi says. “It really comes down to local authorities. The middle of the city and the middle of farmland require different levels of fire protection.” This statement holds true for both oil and propane storage, though regulations, and thus regulatory risks, differ from fuel to fuel.
For example, the electrical wiring at any facility storing flammable liquids, such as propane or gasoline, must be explosion-proof. Ceppi notes that this regulation does not apply to some fuel oil or biofuel facilities, but advises going the extra mile anyway. “We always install explosion-proof electrical systems in case one day a flammable liquid is added.”
Other fire prevention measures for propane storage facilities range “anywhere from hydrants to remote controlled water cannons,” Ceppi explains. “Some places actually put in a complete water spray system, with sprinkler heads around the LP bulk tanks.” While this might come as a surprise, it’s a set-up Ceppi has encountered, and the reasons for it might sound equally surprising. “It’s not to put out the fire — it’s to cool the tanks and prevent them from pressurizing and exploding.”
An extreme case, no doubt, but in bulk storage it can pay to prepare for the extreme. Hank Smith, who serves as President and CEO of Independent Technologies, the parent company of WESROC Monitoring Solutions, notes that the regulatory scope of propane storage can stretch beyond NFPA and EPA requirements. “Just recently we had a propane dealer ask us about using a mix of existing WESROC tank monitors and newly purchased WESROC monitors to meet Homeland Security requirements,” Smith says. “The answer is, ‘Yes, we can do that.’”
The heating oil industry has made and is continuing to make great strides in terms of reducing its environmental footprint. However, high-efficiency heating systems and ultra-low sulfur Bioheat® fuel blends do not remove the environmental risk associated with fuel spills. Whether from a large leak caused by a tank breach, or a small splash caused by overfill at the loading rack, a spill “typically results in some sort of a regulatory nightmare,” Smith says.
To prevent overfills at storage facilities, WESROC offers an Overfill Alarm Monitoring System that can display the fuel levels of up to eight tanks. If a tank is ever filled past its preset overfill level, a loud alarm will sound accompanied by a flashing red light.
“If a tank is filled by pump, some alarms can be connected directly to the pump shutdown system,” Ceppi notes.
Tank monitors and connected alarms can go a long way toward preventing overfills, but when it comes to preventing large-scale leaks from contaminating the ground, other steps need to be taken. For example, the EPA requires that certain bulk plants implement a Spill Prevention Control and Countermeasure (SPCC) plan to help stop oil from reaching navigable waters or adjoining shorelines.
Only a licensed professional engineer (PE) can certify an SPCC plan, these plans must be updated every five years, and the EPA sometimes performs random audits to ensure that a storage facility remains in compliance, Ceppi says. As a standard practice, MPE, Inc. provides an SPCC plan whenever the firm designs and builds a new facility.
Certified SPCC plans typically account for containment capacity equal to 100 percent of the contents of the facility’s largest tank, plus the displacement that could be caused by the total precipitation of a 25-year storm event. “In New England, that averages about 7 inches of rain,” Ceppi says.
Environmental risks and regulations vary significantly between oil and propane storage, as between aboveground and underground tanks. Aboveground tanks, typically considered “safer” from an environmental standpoint for petroleum suppliers, can actually pose more regulatory burdens for propane suppliers, according to Ceppi. For these reasons, whenever expanding a storage facility, whether by adding a new type of fuel or more of the same, the facility owner should seek consultation on potential code compliance issues or environmental risks, from a licensed professional engineer who specializes in bulk storage.
Failure to comply with safety and environmental regulations can result in huge fines — remember the California case. And while dealers who are just getting into distribution might be tempted to skate by with the bare minimum protections in order to save money, such a strategy is probably not worth the degree of risk involved.
“The other benefit of risk management is the facility owner’s insurance costs might be lower,” Ceppi says. “I know many times when insurance companies call, they want to see the SPCC plan to make sure the storage facility is in compliance.”
Insurance premiums are one thing, but what about the daily financial risks that storage facility owners encounter? One that probably keeps most awake at night is the dreaded run-out. Hank Smith lists off some of the biggest costs, both tangible and intangible: “Run-outs often result in expensive equipment testing, overtime and significant customer inconvenience,” he says. “And when a dealer runs out of supply, it is tough to survive with no product to sell.”
WESROC tank monitors can provide a bulk storage operator peace of mind not just by sending alerts when supplies run low, but also by being capable of communicating this data in multiple ways. “WESROC utilizes cellular (multiple carriers, multiple frequencies), satellite, phone line or internet to transmit the tank level to the second part of the system, the internet-based hosting system,” Smith explains.
“The hosting system presents the information to the dealer in a manner that makes saving on run-outs and delivery costs easily attainable.” Smith says dealers can access WESROC data via a website, direct interface to existing back-office software, an app, “or good-old-fashioned emails and texts.”
Another financial risk involved in running a storage facility is one that the scrupulous fuel dealer might never see coming: distributor shorting. “I personally have worked with dealers who initially thought WESROC equipment was not functioning correctly, because the gallons the WESROC hosting system was reporting delivered didn’t match what was billed by the transport company,” Smith says. “WESROC showed the dealer that deliveries from the same transport driver were always short, and the problem was quickly solved.”