Opinion Editorials

California's Underground Storage Tank Program

By Catherine Reheis-Boyd
Special to The Bee
Published: Sunday, Jan. 17, 2010

Dan Morain's column, "As he slashes, governor hands a goody to oil industry" (Forum, Jan. 10), paints a colorful but very misleading portrait of an environmental program that has provided major benefits to California.

The biggest beneficiaries of California's Underground Storage Tank Fund are not "big oil companies" as Morain claims. The biggest beneficiary is the environment, which has benefited from a program that has ensured underground storage tanks are safe and that older and abandoned tanks are cleaned up.

Currently, owners of underground storage tanks pay 2 cents for every gallon of gasoline or diesel they put through those tanks. These owners include independent owners and operators of service stations, large fleet operators, government entities such as cities and school districts, and major oil companies.

Whether or not these costs are passed on to consumers is a function of market dynamics, business strategies and other factors.

This distinction is significant because the companies that pay into the fund – whether small, medium or large – do so with the reasonable expectation that they are eligible to receive reimbursement for some of the costs associated with cleaning up and remediating leaking underground tanks.

That's how the program was conceived when it was created in 1989 and that is how it works today. Large entities like major oil companies are the last in line to receive reimbursement. Many of them have paid hundreds of millions of dollars into the fund and to date have received little if any reimbursement.

Perhaps more importantly, the fund grew out of an urgent need to address a significant environmental issue. It was established to provide critical financial stability to tank owners, many of whom were facing financial ruin because of costs associated with tank removal and site remediation.

The fund also sets aside millions of dollars each year to pay for abandoned tanks that might otherwise be left untended, remediation of sites on school property and financial assistance to very small operators in meeting California's aggressive and expensive environmental requirements.

This program has worked well to address an environmental threat. With bipartisan support, the Legislature recognized a need to provide additional funding for the program and did so.

That's an example of government working well. It's unfortunate Morain felt it necessary to criticize the effort.

Oil Industry Earnings

Recent news coverage of oil industry earnings (e.g., Profit-gorged Exxon should finally pay up, published on HeraldNet.com on February 5, 2008) understandably has raised questions among consumers. Here are some facts that might help put the numbers in perspective

 

According to published reports, the average earnings for the 14 oil and gas companies that released 2007 Fourth Quarter preliminary earnings was 7.1 cents on the dollar. For all of 2007, the earnings for the same companies averaged 8.2 cents on the dollar.

 

When compared to results of other U.S. manufacturing companies, those earnings were about average, with some companies reporting much higher earnings. For the five-years from 2002 through 2006, the oil and gas industry earned 7.4 cents per dollar and all manufacturing companies earned 6.4 cents.

Offshore oil exploration

Some news coverage of federal legislation designed to prevent offshore oil exploration and development in Northern California focused on the issues of supply and gasoline prices.

What wasn’t usually mentioned was the question of energy security and our growing dependence on foreign oil, much of it from very unstable regions of the planet.

 

In the early 1980s, US crude oil production was

approximately 10 million barrels per day. Today, we produce slightly more than 5 million barrels per day. Since the early 80’s, demand for petroleum products has grown and we have become more dependent on imported sources of oil.

 

Foreign imports of crude oil and finished products currently represent about 65 percent of the volume needed to meet our daily domestic product demand of close to 21 million barrels. Allowing access to additional US resources, with appropriate environmental sensitivity, would help us reduce dependence on foreign oil and thus improve our national energy security. However, we do feel that it’s important for consumers to understand that decisions by elected officials to exclude US energy supplies from being safely and sensitively produced have real-world consequences for our nation, our state and consumers.

 

Cleaner Burning Diesel

Some recent efforts to improve air quality at California ports ignore the really good news about new cleaner burning diesel fuel. Since last year, all of the diesel fuel s

old in California has been Ultra Low Sulfur Diesel fuel which is much cleaner-burning than regular diesel. This new cleaner-burning diesel removes 97 percent of the sulfur from diesel fuel.

Additionally, all of the new trucks being sold in California today are equipped with advanced emission control equipment. When combined with Ultra Low Sulfur Diesel, these new trucks produce

lower particulate matter emissions than vehicles that operate on natural gas.

 

Because diesel engines are generally more efficient than gasoline engines, increased use of cleaner-burning diesel technology is one way California can reduce greenhouse gas emissions and address global warming.

 

For young people learning about international trade and the challenges of moving large amounts of imported consumer goods to market, the problems associated with diesel fuel are rapidly becoming problems of the past. For them and for future generations, new cleaner-burning diesel fuel is a source of energy they can depend on.

Zone Pricing

Recent articles about “zone pricing” in the petroleum business miss the mark about the reasons for, and effects of, this widely accepted, legal business practice.

The Federal Trade Commission (FTC) has studied zone pricing since the 1990’s, and has consistently determined that it is a valuable tool that enables refiners and distributors of gasoline to respond to local market conditions.

 

A 2005 FTC report called Gasoline Price Changes: The Dynamic of Supply, Demand, and Competition concluded: “[T]here may be legitimate business justifications for zone pricing … Price [] zones allow more flexibility to refiners to meet localized competition, thereby resulting in lower prices in areas with more competition than might otherwise be the case.”

 

Consumers’ frustration over rising gas prices is understandable. But, it is important that they receive accurate information about market conditions behind recent volatility at the pump.

 

The US Energy Information Administration (EIA) cites record-high crude oil costs as the primary reason. EIA also reports that over 80% of the US average retail price of unleaded regular gasoline is comprised of crude oil costs and taxes.

 

As dozens of state and federal investigations have shown over the years, market conditions – not alleged anticompetitive business practices – primarily determine the cost of gasoline.

Sulfur and crude oil

Several refiners on the West Coast are seeking permits to upgrade their facilities to allow them to use a broader slate of crude oil. This effort has generated considerable discussion about the relationship between the sulfur content of crude oil and refinery emissions.

 

The assertion that increased refining of higher sulfur crude oil results in increased ground, air and water pollution is inaccurate.

California refineries operate under very strict regulations that protect the air, water and ground from contamination. Those requirements do not change based on the sulfur content of the crude oil being refined. It is inaccurate to claim that higher sulfur crude oil results in increased pollution.

 

Additionally, California refiners are required to produce some of the cleanest-burning fuels made anywhere on the planet – regardless of the sulfur content of the raw materials. Every drop of those fuels sold in California always meets those requirements. Many California refineries were initially designed to process high sulfur crude oil produced in California. This type of crude oil has been processed safely at California refineries for many years. Using as much of it as possible reduces our state’s dependence on foreign oil supplies.

 

Some refiners want to make additional upgrades, at significant costs, to allow them to refine a broader spectrum of crude oil – including higher sulfur oil. Those upgrades will help ensure refiners can continue to supply vital transportation fuels to consumers in the face of increasing competition for global supplies of oil.

 

California refiners need more, not less, raw material flexibility to continue providing an abundant supply of cleaner-burning transportation fuels to consumers.