950
                                                                            950
                                                                            950
                                                                            950
Threshold for pipe replacement rather than repair [e]
                                                                            158
                                                                              0
                                                                              0
                                                                              0
Under-dispenser containment for all new dispensers b
                                                                          1,273
                                                                          1,273
                                                                          1,273
                                                                          1,273
[a]	The universe of affected systems for these requirements varies because some states have current requirements that differ in frequency and ensure baseline compliance in some regulatory scenarios but not others.
[b]  The affected universes presented for these items reflect 50 percent of ultimately affected systems or facilities. Because these requirements take effect over time and future costs are discounted, we present the universe affected at year 10 as a central estimate. In addition, we adjust unit costs to reflect the fact that the total cost of these requirements grows as the number of affected systems or facilities increases.
[c]	Universe affected phases in over five years.
[d]	The universe of potentially affected units is 162 systems, or 1,296 tanks (at eight tanks per system).
[e]	EPA's screening analysis shows that a requirement to replace piping if more than 50 percent of it requires repairs would likely generate no net costs, as owners or operators would ordinarily pursue replacement under those circumstances. See Appendix C for details.

   Chapter 3.		Assessment of Social Costs

3.1	Introduction
This chapter describes EPA's analysis of the social costs associated with the proposed rule. OMB guidance suggests that an analysis that relies on measures of opportunity cost and willingness to pay provides a holistic basis for assessing the total cost of any proposed rule. Specifically, a social cost analysis should focus on measuring changes in consumer and producer surplus by considering the market responses to compliance costs (e.g., changes in demand and supply).  Along with the administrative costs incurred by the government, changes in producer and consumer surplus reflect the true cost to society of adopting a set of proposed measures.
For this regulatory impact analysis, EPA uses a combination of direct compliance costs and state oversight costs to approximate social costs.  In this context, compliance costs represent a reliable indicator of social costs for the following reasons:
   *       The regulatory requirements generally focus on additional testing and inspection of existing equipment, and do not reflect large-scale investments in equipment or significant changes to operations at the facility level.  In addition, the facilities affected by the rule are distributed with relative geographic uniformity for consumers and producers.
   *       Given the small per-facility costs of the rule (less than $900 for the average facility, as documented in this chapter), closures or changes in market structure represent an unlikely response to the rule.  Therefore, it is unlikely that significant changes to production or consumer behavior will affect social costs.
   *       The short- and long-run impacts of the rule are not likely to differ significantly.  Testing and inspection requirements under the rule may offer some opportunities for owners and operators to reduce costs by learning over time, but they are not likely to reduce costs enough to facilitate large-scale equipment upgrades.
	For these reasons, compliance costs are likely to be a reasonable approximation for social costs over both the short- and long-run.  This chapter presents EPA's compliance cost methodology and results, and summarizes the calculation of government oversight costs.  The chapter also provides a discussion of key uncertainties and several brief sensitivity analyses.   An analysis of the potential economic impacts of the proposed rule is presented in Chapter 5, and a sensitivity analysis that evaluates the effects of alternative interest rates is presented in Chapter 7.

3.2	Compliance Cost Methodology
      In this chapter, EPA presents its methodology for estimating incremental compliance costs of the proposed rule beyond the current baseline costs of existing federal and state regulation of underground storage tanks. EPA's analysis focuses on the specific incremental costs that occur as a consequence of the proposed rule. Throughout this chapter, the analysis distinguishes between three types of costs:
    *       System-level: Costs that occur at the individual UST tank level, including ancillary equipment.
    *       Facility-level: Costs that occur at the level of a facility that owns several USTs; typically 2.74 times the system-level cost to reflect UST ownership by the average facility.
    *       Unit costs: System-level costs related to a particular proposed requirement. For example, the requirement to test spill prevention equipment after repairs has a unit cost of approximately $130.
Calculation of total incremental compliance costs for UST facilities reflects two key components: identification of specific measures necessary for compliance at individual facilities, and calculation of the costs associated with each of these measures. To estimate these costs, EPA developed a compliance cost model that identifies incremental equipment and labor requirements for an individual system. Based on the baseline equipment, existing state regulations, and anticipated responses to the proposed regulation, the model then generates system-specific estimates of compliance costs.  Compliance costs include the labor and capital costs associated with new equipment and installation, inspection, testing, and recordkeeping.  The model also includes other compliance costs, such as those associated with more frequent detection of equipment failure and repair of equipment. Some component costs are specific to individual UST system configurations  -  for example, airport hydrant fuel distribution systems or UST systems with field-constructed tanks  -  while others are consistent across all system types.
      We calculate the compliance costs of the proposed rule by measuring three factors: the regulations already in place in each state (i.e., baseline regulations); the proportion of facilities or UST systems with specific technologies (i.e., the portion of systems that require specific types of upgrades or tests); and the unit cost to comply with each proposed element of the proposed regulation.  Chapter 2 of this regulatory impact analysis discusses the baseline state regulations and the proportion of facilities affected by this rule (see Exhibit 2-5).

An important limitation of our analysis is that we do not have data on the distribution of UST technologies. Consider the following from Exhibit 2-5: we estimate that overfill prevention tests will be a new requirement for 378,672 systems, and spill prevention equipment tests will be a new requirement for 460,696 systems. These requirements could together affect as few as 460,696 systems if all systems that are affected by overfill prevention testing are a subset of the systems that are affected by spill prevention testing. In the absence of additional information, it is equally plausible that these two requirements affect the entire universe of USTs if they overlap as little as possible.
EPA has not identified any information that could allow us to reliably narrow the universe of affected USTs to a number smaller than the entire universe. Further, EPA's review of state data suggests that facilities in all states will be subject to some cost under the proposed rule. Consequently, when considering the total cost of the proposed rule on a facility or UST system basis, we divide the total cost by the number of facilities or systems in the entire universe.
3.2.1	Categories of  Compliance Costs Analyzed
This analysis includes the following categories of compliance costs: operations and maintenance costs; capital costs; and implicit capital costs, or "time value of money costs" associated with earlier detection of equipment failure.  Because the proposed rule focuses on operational improvements, operations and maintenance costs constitute the majority of the compliance costs identified in this analysis.  These costs are relatively frequent, recurring costs that mainly involve a service activity. Operations and maintenance activities include the labor and materials costs associated with maintenance of equipment, routine testing, and inspection (whether performed by the owner, operator, or a contractor). This analysis assumes that UST facility owners and operators pay in full for these costs when they occur (that is, they do not obtain financing and pay over time).
Because the proposed rule does not focus on broad equipment requirements, capital costs represent a small portion of the total compliance costs for this proposed rule.  Capital costs address the purchase and installation of new equipment, such as installing a new double-walled UST or under-dispenser containment. Total capital costs typically include installation labor and initial service required to ensure the new equipment is fully functioning. EPA assumes that UST owners and operators finance these compliance costs over the life of the equipment; all capital costs are calculated over a regulatory time horizon of 20 years.  The following examples characterize the three types of capital cost calculations that are relevant to this regulatory analysis:
Existing equipment replacements: An UST system owner or operator must upgrade an existing system with new equipment to comply with a requirement under the proposed rule (e.g., facilities with EGTs may be required to install release detection equipment if the deferral is removed).  The incremental compliance cost is the total cost of the new equipment and installation (including removal of existing equipment). Any additional (incremental) operation and maintenance costs are also included.
New equipment requirements: An operator is installing new or replacement equipment as an ordinary business expense.  Under baseline regulations, Equipment A is compliant. However, new regulations require a higher level of compliance for new tank systems that can be satisfied at lowest cost by Equipment B. The incremental compliance cost to the owner of the equipment is the additional cost (if any) of purchasing and installing and operating Equipment B instead of Equipment A.  The costs of this requirement reflect the timing of the normal replacement cycle for all equipment in the universe.  For example, owners and operators installing new UST systems will be required to use technologies other than flow restrictors to ensure release prevention.
Time value of money (TVM) costs:  Under baseline regulations, the average UST system requires inspection every three years.  EPA estimates that the baseline three-year inspection, on average, identifies a hypothetical repair or replacement cost of $100 associated with certain equipment.  Under the proposed rule, a new annual test would discover the repair sooner and require repair or replacement one-to-two years earlier.  While the repair expense is the same, the proposed rule generates a time value of money cost by requiring an expenditure sooner.
EPA estimates that the proposed regulations will impose capital costs on the following components due to earlier detection of problems as a result of the new testing requirements:
   *       Overfill prevention equipment;
   *       Spill prevention equipment;
   *       Interstitial areas; and
   *       ATGs, interstitial monitors, vapor monitors, groundwater monitors, and line leak detectors.
The proposed rule requires testing, in addition to inspections, for several UST system components. EPA assumes that testing adds value to baseline release prevention strategies in two ways: first, testing detects issues with an UST system that may not be detectable in inspections.  In addition, in some cases, testing will occur more frequently than baseline inspections and therefore may identify issues that occur between inspections. This analysis therefore considers two types of increased capital costs. First, EPA assumes that additional testing required under the proposed rule will identify malfunctions that prior inspections would have overlooked, and will therefore mandate additional compliance costs related to repair and replacement of equipment. Second, some baseline compliance costs will occur earlier than they would in the baseline, creating time value of money costs as owners and operators forgo the use of funds for other investments.  The time value of money cost of incurring a repair sooner is estimated at seven percent, consistent with OMB's discount rate.  See Appendix D for the detailed cost methodology.

3.2.2	Estimation of System-Level Compliance Costs for UST Systems
Estimates of system-level compliance costs for each part of the proposed rule are based on publicly available data on equipment, installation, and testing costs, information collected from professionals in industries that provide relevant equipment and services, and EPA's professional judgment.  Costs are estimated to occur according to the rule implementation schedule identified in Exhibit 1-2; we use an annual discount rate of seven percent to adjust costs with compliance windows of more than one year.
Labor costs used in this analysis reflect labor-hour estimates from EPA Information Collection Request 1360.08 for specific inspection and recordkeeping tasks.  The cost of labor is based on Bureau of Labor Statistics (BLS) labor rates for skill categories appropriate to the retail sector and technical requirements of the proposed rule. In particular, EPA selected labor rates that correspond to categories of labor employed in the retail motor fuels sector (NAICS 447).
The analysis adjusts these rates using a 12 percent overhead factor and a fringe benefits factor of 28.3 percent, which is specific to service-providing industries. For requirements that are likely to be satisfied by third-parties, such as testing, labor costs are included in the costs of those services.
In addition, specific requirements under the proposed regulation are addressed as follows:
   *       For proposed regulatory changes that take effect over time as equipment ages, the analysis assumes a constant rate of equipment replacement, and calculates a constant annual payment for the net present value of 20 years of replacements. Appendix D discusses the specific assumptions made in the analysis.
   *       To identify the total system-level compliance cost of removing deferrals from airport hydrant fuel distribution systems (AHFDSs) and field-constructed tanks (FCTs), the analysis calculates both the direct costs of removing the deferral of these systems from the regulations under 40 CFR Part 280, and the additional costs of complying with other new regulatory options that apply to all systems (and become relevant when deferrals are removed).  Under the proposed regulations, owners and operators of these systems must perform annual bulk line testing at prescribed rates or use an automatic tank gauge at prescribed leak rates.  Appendix A discusses specific assumptions related to these tank populations.
   *       To estimate the total system-level compliance cost of removing the deferral from emergency generator tanks, the analysis calculates the cost of complying with specific proposed changes that apply to the broader universe of conventional UST systems and become relevant when the deferral is removed. Removal of the deferral under the proposed rule means that EGTs must comply with release detection requirements at 40 CFR Part 280, Subpart D.
Exhibit 3-1 presents the unit-level costs for the individual requirements in the proposed rule.
Exhibit 3-1

            Unit Costs For The Requirements In The Proposed Rule[i]

                               ONE-TIME [a]
($)
                                  O&M
($)
                        REPAIR/REPLACEMENT
COST [b]
($)
Release Prevention
Walkthrough inspections
                                                                          $0.00
                                                                         $25.36
                                                                          $0.13
Overfill prevention equipment tests
                                                                          $0.00
                                                                        $214.69
                                                                         $11.00
Spill prevention equipment tests
                                                                          $0.00
                                                                        $125.68
                                                                          $3.34
Interstitial integrity tests
                                                                          $0.00
                                                                        $310.25
                                                                        $126.10
Spill prevention equipment test after repair
                                                                          $0.00
                                                                        $125.68
                                                                          $0.00
Overfill prevention equipment test after repair
                                                                          $0.00
                                                                        $214.68
                                                                          $0.00
Interstitial integrity test after repair
                                                                          $0.00
                                                                        $157.78
                                                                          $0.00
Eliminate flow restrictors in vent lines for all new tanks and when overfill devices are replaced
                                                                        $394.20
                                                                          $0.00
                                                                          $0.00
Release Detection
Operability tests  -  ATG
                                                                          $0.00
                                                                         $56.17
                                                                          $1.12
Operability tests  -  interstitial monitoring
                                                                          $0.00
                                                                          $9.93
                                                                          $1.16
Operability tests  -  electronic LLDs
                                                                          $0.00
                                                                         $56.17
                                                                          $2.15
Operability tests  -  mechanical LLDs
                                                                          $0.00
                                                                          $0.00
                                                                          $0.77
Eliminate groundwater and vapor monitoring as release detection methods
                                  $68.89 [c]
Add SIR/CITLD to regulations with performance criteria
                                                                         $10.00
                                                                          $0.00
                                                                          $0.00
Change release detection leak rate probabilities  -  ATG
                                                                      $2,431.37
                                                                     -$8.00 [f]
                                                                          $0.00
Change release detection leak rate probabilities  -  LLD
                                                                        $412.39
                                                                    -$12.00 [f]
                                                                          $0.00
Change release detection leak rate probabilities  -  SIR
                                                                         $15.00
                                                                     -$2.40 [f]
                                                                          $0.00
Change release detection leak rate probabilities  -  CITLD
                                                                         $80.00
                                                                     -$1.60 [f]
                                                                          $0.00
Response to interstitial monitoring alarms
                                                                          $0.00
                                                                         $78.19
                                                                          $0.00
Remove deferral for emergency generator tanks [h]
                                                                        $298.56
                                    $172.74
Other
Remove deferral for airport hydrant fuel distribution systems
                                                                     $11,281.20
                                                                    $229,837.14
                                                                          $0.00
Remove deferral for UST systems with field-constructed tanks
                                                                         $12.83
                                                                     $55,474.81
                                                                          $0.00
Require notification of ownership change
                                                                          $0.00
                                                                         $12.83
                                                                          $0.00
Closure of lined tanks that cannot be repaired according to a code of practice
                                                                    $35,499 [d]
                                                                          $0.00
                                                                          $0.00
Requirements for determining compatibility
                                                                          $0.00
                                                                      $1.89 [g]
                                                                          $0.00
EPAct-related Provisions
Operator training
                                                                        $265.89
                                                                        $130.80
                                                                          $0.00
Secondary containment - new and replaced tanks
                                                                      $7,890.18
                                                                          $0.00
                                                                          $0.00
Threshold for pipe replacement rather than repair [e]
                                                                          $0.00
                                                                          $0.00
                                                                          $0.00
Under-dispenser containment for all new dispensers
                                                                      $1,795.11
                                                                          $0.00
                                                                          $0.00
[a]	One-time costs presented here are not shown in annual terms. For the purposes of estimating total annual costs for the proposed rule, these one-time expenditures are annualized over 20 years at a seven percent interest rate.
[b]	Time value of money costs due to earlier repair and replacement of equipment reflect costs of repair or replacement sooner than would have occurred in the baseline. For most requirements, these are costs that would occur and be identified by annual tests, i.e., they reflect one year's worth of accumulated issues that require equipment repairs or replacements. Three requirements represent exceptions. TVM costs for overfill prevention and interstitial integrity testing, which occur every three years under the Preferred Option, represent the repairs and replacements over three years. In addition, TVM costs for walkthrough inspections represent the repairs and replacements identified on a monthly basis to match the requirement under the Preferred Option. See Appendix D for additional details.
[c]	The cost presented here is the average unit cost for the phasing out of groundwater and vapor monitoring and the phasing in of alternative compliance methods. It includes elements of annualized one-time costs and O&M costs.
[d]	We assume that this cost occurs in full for the systems that require closure of lined tanks in a given year.
[e]	We assume all facilities exceeding the 50 percent threshold for piping replacement would opt to replace piping in the baseline; costs are therefore zero. See Appendix C for detailed calculations.
[f] 	Operations and maintenance costs associated with the adjustment of release detection leak rate probabilities is negative because operators avoid costly testing related to false alarms.
[g] 	This includes an annualized cost of $0.01 related to the cost of storing records for the life of the UST system.
[h] 	Because different subsets of EGTs are subject to different requirements, we present average unit costs that divide the total cost to the affected universe by the total number of affected units. O&M costs include any TVM costs associated with operability tests. See Appendix D for additional details.
[i]  Cost estimates were derived using a seven percent discount rate.

3.3	Calculation of Incremental Compliance Costs
This analysis estimates the compliance cost of the proposed rule by calculating the incremental cost of each regulatory change on the population of tank systems in every U.S. state and territory. This procedure relies on national estimates of the universe of systems employing specific baseline technologies, as well as EPA's assessment of the baseline regulatory requirements in each state and territory. The analysis categorizes compliance costs into one-time or operations and maintenance costs and amortizes one-time compliance costs over the 20-year regulatory time horizon. As a final step, it discounts annual compliance costs associated with several of the proposed changes to delayed compliance horizons specified in the proposed rule (e.g., overfill operability testing must be performed within three years of the date the proposed rule becomes effective).
To calculate compliance costs, EPA employs a number of assumptions, some of which likely overstate compliance costs:
   *       Time value of money costs. This analysis does not assume that the rate at which problems occur in UST systems will decline as a result of the proposed rule. The number and severity of problems will likely fall due to more frequent testing and inspections, but the rate of decline is uncertain and the analysis does not attempt to adjust for these changes. This likely causes the analysis to overestimate the costs of the proposed rule.
   *       Size of universe. EPA's analysis assumes that the number of UST systems in the universe remains constant over time, with new systems replacing closures. EPA's end-of-year reporting data reveal that the universe of conventional UST systems has declined at a rate over two percent per year since 1999. Assuming this pattern continues, future annual compliance costs due to the proposed rule are likely to be lower than estimated in this analysis. However, in absence of other data we assume that new installations and upgrades will offset all closures, and that annual compliance costs will remain constant.  Impacts of assuming an alternative baseline universe of UST systems that declines over time are discussed in Sections 3.3.1 and 3.4.1.
   *       Full compliance. EPA assumes that all owners and operators subject to each requirement will come into compliance. This ensures a high estimate of costs, as each system subject to the rule implements the required measures and consequently incurs the related costs.
   *       Timeliness of repairs. EPA assumes that all issues identified through testing of equipment will be properly addressed through immediate repair or replacement of equipment. This may overstate costs if owners or operators fail to address identified issues in a timely fashion.
   *       Date on which costs are incurred. EPA assumes that all costs are incurred at the beginning of the year in which each requirement of the proposed rule becomes effective. This may overstate costs that occur at the end of the time frame.
These combined assumptions help ensure that the total costs estimated in each scenario below are not likely to be understated, even in cases where some uncertainty is associated with unit cost estimates for equipment or testing.  Two key areas of uncertainty that affect the distribution of costs are noted below.
   *       Geographic distribution of technologies:  EPA lacks information on how UST systems with specific equipment (e.g., ATG) are distributed nationally.  If most are located within states with existing applicable requirements, then costs could be lower (conversely, if most are located in states with no existing applicable requirements, then costs could be higher). In the absence of this data, EPA assumes a uniform distribution of technologies across all states. EPA assesses the extent to which this assumption creates cost uncertainty at the end of this chapter.
   *       Distribution of costs across systems:  EPA does not have information on how costs are likely to be distributed among the systems that are subject to new requirements. For example, a correlation among systems that require overfill operability testing, spill prevention equipment tightness testing, and interstitial integrity testing after repair would concentrate costs on these systems in ways that EPA's primary assessment of costs does not capture. While this does not affect total cost estimates, EPA assesses the distributional consequences of an outcome where costs are highly-concentrated in Chapter 5.
3.3.1. Calculation of Incremental Compliance Costs Using an Alternative Baseline
	EPA's primary analysis assumes that the universe of UST systems stays constant over time. That is, the analysis assumes that when an UST system enters the universe, another exits, and vice versa. However, data show that the universe of UST systems has been declining over the past two decades (albeit at a slowing rate). Therefore, EPA also assesses compliance costs associated with the proposed rule based on an alternative baseline that projects a declining universe.
	To calculate the rate of universe decline, EPA mapped historical data on the universe of UST systems from 1991 through 2010 to an exponential one-phase decay function, which appears to most accurately represent the observed behavior of the UST system universe over time. Steep declines in the universe of UST systems in past years reflect increases in tank size as well as industry consolidation. However, these declines may be reaching functional limits, both because the number of fuel outlets needed to serve the population is considerable, and because tank sizes may be reaching a practical limit in their ability to be transported and installed.[,]
	The function used to project future UST universe sizes indicates that over a 20-year time period, the annual number of affected UST systems gradually declines to 586,021 UST systems by year 20 under this alternative baseline.  The number of UST systems affected under this alternative baseline is approximately 97 percent of the size of the original baseline, which assumes a constant universe size of 611,449 UST systems over this period. As a result, compliance costs associated with the proposed rule are only marginally smaller under this alternative baseline.  See Appendix J for additional details.
3.4	Results of Assessment of Compliance Costs
Exhibit 3-2 presents a summary of the estimated incremental compliance costs associated with the proposed rule by type of UST system affected. In all options, it is clear that the category of conventional UST systems will bear the largest proportion of compliance costs under the proposed rule. While compliance costs associated with removal of deferrals from EGTs are constant across regulatory scenarios, other costs vary substantially among the regulatory options.  The model parameters used to produce the results discussed in this chapter are presented in Appendix E and were selected to reflect the preferred and alternative options described in Chapter 1.

Exhibit 3-2

             Total Annual Compliance Costs Of The Proposed Rule[c]
                                    Option
                               Preferred Option
                                 ($ millions)
                                 Alternative 1
                                 ($ millions)
                                Alternative 2
                                 ($ millions)
Conventional UST systems [a]
                                     $180
                                     $360
                                     $120
Emergency Generator Tanks (EGTs) [b]
                                     $2.2
                                     $2.2
                                     $2.1
Airport Hydrant Fuel Distribution Systems (AHFDSs)
                                      $18
                                     $120
                                     $0.0
UST systems with Field-Constructed Tanks (FCTs)
                                     $4.6
                                      $33
                                     $0.0
Total
                                     $200
                                     $520
                                     $120
[a] Conventional UST systems include all systems that are not AHFDSs, FCTs, or EGTs.
[b] Costs for EGTs are lower in Alternative 2 because operability testing is performed every 3 years versus every year under other options.
[c]  Cost estimates were derived using a seven percent discount rate.

Exhibit 3-3 presents a disaggregation of compliance costs under each regulatory option. The following areas contribute significantly to the differences in compliance costs among the alternatives.
   *       Release prevention: The greatest difference in compliance costs between Alternative 1 and the Preferred Option is related to release prevention; specifically, due to the combination of walkthrough inspections, overfill prevention equipment tests, spill prevention equipment tests, and interstitial integrity tests, and testing after repairs.  These requirements account for 55 percent and 73 percent of total compliance costs, respectively. This variation is largely dependent on the testing or inspection frequency required under each alternative.
   *       Removal of deferrals for AHFDSs and UST systems with FCTs: Removal of deferrals for AHFDSs and FCTs is accompanied by tightness testing of equipment that varies in frequency depending on the alternative. This tightness test drives most of the variation in compliance costs. Under the Preferred Option, total costs for these systems are $23 million, or approximately 11 percent of total compliance costs; under Alternative 1, total costs are $153 million or approximately 29 percent of total compliance costs. Alternative 2 maintains the deferrals and therefore has no incremental compliance cost.
   *       Operability tests for release detection methods: The Preferred Option and Alternative 1 each require annual testing of the operability of release detection systems, while Alternative 2 requires these tests every three years. Operability testing costs approximately $21 million under both the Preferred Option and Alternative 1, though they constitute 11 percent of total compliance costs for the Preferred Option and only four percent of total compliance costs for Alternative 1. Three-year testing under Alternative 2 (which includes operability tests for groundwater and vapor monitoring since they would remain as release detection methods) costs approximately $8 million, or about seven percent of total compliance costs for that option.
In total, these categories represent approximately 90 percent of the total compliance costs for each option. In addition, the adjustment of release detection leak rate probabilities under Alternative 1 constitutes most of the remaining 10 percent of costs for that option.
EPA determines average compliance costs per system by dividing the total cost of the proposed rule by the total 611,449 systems in the regulated universe of conventional UST systems and EGTs.  EPA's analysis shows that the compliance cost for this proposed rule is $300 per system, or approximately $890 per typical facility among motor fuel retailers, the sector with the highest average number of UST systems per facility.
      Exhibit 3-4 presents the same total costs as Exhibit 3-3 but shows the number of systems affected and the cost of the requirement per affected system. The costs in this exhibit reflect annualized one-time costs, discounting, and adjustments for the adoption of certain requirements over time (e.g., elimination of flow restrictors for new and replaced tanks), and therefore differ from the unit costs presented in Exhibit 3-1. It is important to note that the unit costs in Exhibit 3-4 cannot be summed to obtain a cost per system, as nearly all systems are already in compliance with some requirements of the proposed rule.

Exhibit 3-3

Annual Compliance Costs Due To The Proposed Rule
All values in $ thousands[i]
                                  Description
                               Preferred Option
                                 Alternative 1
                                 Alternative 2

                           Capital Cost
(Annualized)
                                    O&M
                                  Total Cost
                           Capital Cost
(Annualized)
                                    O&M
                                  Total Cost
                           Capital Cost
(Annualized)
                                    O&M
                                  Total Cost
Release Prevention

Walkthrough inspections
                                                                           $0.0
                                                                      $46,000.0
                                                                      $46,000.0
                                                                           $0.0
                                                                      $46,000.0
                                                                      $46,000.0
                                                                           $0.0
                                                                      $14,000.0
                                                                      $14,000.0
Periodic testing of:
 Overfill prevention equipment
 Spill prevention equipment [a]
 Interstitial integrity
                                                                           $0.0
                                                                      $87,000.0
                                                                      $87,000.0
                                                                           $0.0
                                                                     $230,000.0
                                                                     $230,000.0
                                                                           $0.0
                                                                      $78,000.0
                                                                      $78,000.0
Testing after repairs to spill and overfill prevention equipment, and interstices [b]
                                                                           $0.0
                                                                      $13,000.0
                                                                      $13,000.0
                                                                           $0.0
                                                                       $8,700.0
                                                                       $8,700.0
                                                                           $0.0
                                                                      $13,000.0
                                                                      $13,000.0
Elimination of flow restrictors in vent lines for all new tanks and when overfill devices are replaced
                                                                       $1,200.0
                                                                           $0.0
                                                                       $1,200.0
                                                                       $1,200.0
                                                                           $0.0
                                                                       $1,200.0
                                                                            N/A
                                                                            N/A
                                                                            N/A
Subtotal  -  Release Prevention [g]
                                                                       $1,200.0
                                                                     $146,000.0
                                                                     $147,200.0
                                                                       $1,200.0
                                                                     $284,700.0
                                                                     $285,900.0
                                                                           $0.0
                                                                     $105,000.0
                                                                     $105,000.0
Release Detection

Operability tests for release detection methods
                                                                           $0.0
                                                                      $21,000.0
                                                                      $21,000.0
                                                                           $0.0
                                                                      $21,000.0
                                                                      $21,000.0
                                                                           $0.0
                                                                       $7,900.0
                                                                       $7,900.0
Eliminate groundwater and vapor monitoring as release detection methods

                                                                       $2,000.0

                                                                       $2,300.0
                                                                            N/A
                                                                            N/A
                                                                            N/A
Add SIR/CITLD to regulations with performance criteria
                                                                           $2.7
                                                                           $0.0
                                                                           $2.7
                                                                           $2.7
                                                                           $0.0
                                                                           $2.7
                                                                           $2.7
                                                                           $0.0
                                                                           $2.7
Remove deferral for emergency generator tanks [c]
                                                                         $310.0
                                                                       $1,900.0
                                                                       $2,200.0
                                                                         $310.0
                                                                       $1,900.0
                                                                       $2,200.0
                                                                         $310.0
                                                                       $1,800.0
                                                                       $2,100.0
Change release detection leak rate probabilities [d]
                                                                            N/A
                                                                            N/A
                                                                            N/A
                                                                      $53,000.0
                                                                      -$3,800.0
                                                                      $50,000.0
                                                                            N/A
                                                                            N/A
                                                                            N/A
Response to interstitial monitoring alarms
                                                                           $0.0
                                                                         $830.0
                                                                         $830.0
                                                                           $0.0
                                                                         $830.0
                                                                         $830.0
                                                                           $0.0
                                                                         $830.0
                                                                         $830.0
Subtotal  -  Release Detection [g]
                                                                         $312.7
                                                                      $23,730.0
                                                                      $26,032.7
                                                                      $53,312.7
                                                                      $19,930.0
                                                                      $76,332.7
                                                                         $312.7
                                                                      $10,530.0
                                                                      $10,832.7
Other

Remove deferral for airport hydrant fuel distribution systems [e]
                                                                          $85.0
                                                                      $18,000.0
                                                                      $18,000.0
                                                                          $85.0
                                                                     $120,000.0
                                                                     $120,000.0
                                                                            N/A
                                                                            N/A
                                                                            N/A
Remove deferral for UST systems with field-constructed tanks
                                                                           $0.0
                                                                       $4,600.0
                                                                       $4,600.0
                                                                           $0.0
                                                                      $33,000.0
                                                                      $33,000.0
                                                                            N/A
                                                                            N/A
                                                                            N/A
Require notification of ownership change
                                                                           $0.0
                                                                          $42.0
                                                                          $42.0
                                                                           $0.0
                                                                          $42.0
                                                                          $42.0
                                                                           $0.0
                                                                          $42.0
                                                                          $42.0
Closure of lined tanks that cannot be repaired according to a code of practice [f]
                                                                           $0.0
                                                                       $2,100.0
                                                                       $2,100.0
                                                                           $0.0
                                                                       $2,100.0
                                                                       $2,100.0
                                                                           $0.0
                                                                       $2,100.0
                                                                       $2,100.0
Requirements for determining compatibility
                                                                          $11.0
                                                                       $1,200.0
                                                                       $1,200.0
                                                                          $11.0
                                                                       $1,200.0
                                                                       $1,200.0
                                                                          $11.0
                                                                       $1,200.0
                                                                       $1,200.0
Subtotal  -  Other [g]
                                                                          $96.0
                                                                      $25,942.0
                                                                      $25,942.0
                                                                          $96.0
                                                                     $156,342.0
                                                                     $156,342.0
                                                                          $11.0
                                                                       $3,342.0
                                                                       $3,342.0
EPAct-related Provisions

Operator training
                                                                          $23.0
                                                                         $120.0
                                                                         $140.0
                                                                          $23.0
                                                                         $120.0
                                                                         $140.0
                                                                          $23.0
                                                                         $120.0
                                                                         $140.0
Secondary containment
                                                                         $920.0
                                                                           $0.0
                                                                         $920.0
                                                                         $920.0
                                                                           $0.0
                                                                         $920.0
                                                                         $920.0
                                                                           $0.0
                                                                         $920.0
Subtotal  -  EPAct-related Provisions [g]
                                                                         $943.0
                                                                         $120.0
                                                                       $1,060.0
                                                                         $943.0
                                                                         $120.0
                                                                       $1,060.0
                                                                         $943.0
                                                                         $120.0
                                                                       $1,060.0
Subtotal [g]
                                                                       $2,600.0
                                                                     $200,000.0
                                                                     $200,000.0
                                                                      $56,000.0
                                                                     $460,000.0
                                                                     $510,000.0
                                                                       $1,300.0
                                                                     $120,000.0
                                                                     $120,000.0
Additions for new units (beyond those included above) [h]
                                                                           $4.6
                                                                           $0.0
                                                                           $4.6
                                                                         $750.0
                                                                           $0.0
                                                                         $750.0
                                                                           $4.6
                                                                           $0.0
                                                                           $4.6
Total [g]
                                                                       $2,600.0
                                                                     $200,000.0
                                                                     $200,000.0
                                                                      $57,000.0
                                                                     $460,000.0
                                                                     $520,000.0
                                                                       $1,300.0
                                                                     $120,000.0
                                                                     $120,000.0
[a] Alternative 1 calls for spill prevention equipment replacement every three years. For analytical convenience, we annualize the cost of replacement over three years and incorporate it as an O&M cost.
b Costs fall under Alternative 1 compared with the Preferred Option because replacement of spill prevention equipment every 36 months will eliminate the need for repairs to such equipment.
[c] Costs related to removal of deferrals for the regulation of emergency generator tanks include the cost of removal of deferrals, installation and maintenance of ATG on approximately seven percent of systems, installation and maintenance of SIR on 60 percent of systems, and performing operability testing on all EGT systems. See Appendix D for details.  O&M costs for emergency generator tanks are lower in Alternative 2 because operability testing is performed every 3 years versus every year under other options.
d Operations and maintenance costs associated with the adjustment of release detection leak rate probabilities is negative because operators avoid costly testing related to false alarms. These avoided costs are the only items included in the O&M for this requirement.
[e] Airport hydrant fuel distribution systems include a capital cost because tanks associated with airport hydrant fuel distribution systems without existing ATGs are assumed to install ATGs to comply with the requirement.  UST systems with field-constructed tanks without existing ATGs are assumed to conduct annual precision tightness tests to comply with the requirement.  See Appendix A for details.
[f] Although the closure of lined tanks represents a capital cost, we consider it an operations and maintenance cost as a modeling convenience. See Appendix D for details.
g Total may not add correctly due to rounding.
h As a simplifying assumption, EPA assumes that UST systems enter and exit the universe at a constant annual rate, such that the total number of UST systems in the universe does not change. We assume that operations and maintenance costs associated with these systems offset each other, as the number of entries equals the number of exits; however, new systems entering the universe will still incur incremental capital costs associated with certain requirements (e.g., a new emergency generator tank would need to install a release detection method).  For modeling purposes, we account for these new units in the "Additions for new units."  The costs shown reflect the capital costs associated with new units for all but the following requirements: elimination of flow restrictors for new tanks, requirement of secondary containment for new tanks, and requirement of under-dispenser containment for new dispenser systems.
[i]  Cost estimates were derived using a seven percent discount rate.

Exhibit 3-4

     Discounted And Annualized Cost Per System Affected By Requirement[g]
                                Description[a]
                               Preferred Option
                                 Alternative 1
                                 Alternative 2

                              Cost per System [f]
                               Systems Affected
                              Cost per System [f]
                               Systems Affected
                              Cost per System [f]
                               Systems Affected
Release Prevention

Walkthrough inspections
                                                                           $104
                                                                        440,817
                                                                           $104
                                                                        440,817
                                                                            $37
                                                                        387,724
Periodic testing of: [b]
                                                                           $299
                                                                        290,891
                                                                           $681
                                                                        335,750
                                                                           $180
                                                                        432,682
-          Overfill prevention equipment

-          Spill prevention equipment [c]

-          Interstitial integrity

Testing after repairs to spill and overfill prevention equipment, and interstices [d]
                                                                           $164
                                                                         82,276
                                                                           $106
                                                                         82,276
                                                                           $164
                                                                         82,276
Eliminate flow restrictors in vent lines for all new tanks and when overfill devices are replaced
                                                                            $37
                                                                         32,460
                                                                            $37
                                                                         32,460
                                                                             $0
                                                                         32,460
Release Detection

Operability tests for release detection methods  [b]
                                                                           $121
                                                                        176,934
                                                                           $121
                                                                        176,934
                                                                            $52
                                                                        152,915
Eliminate groundwater and vapor monitoring as release detection methods
                                                                            $63
                                                                         31,612
                                                                            $74
                                                                         31,612
                                                                             $0
                                                                         31,612
Add SIR/CITLD to regulations with performance criteria
                                                                             $1
                                                                          2,882
                                                                             $1
                                                                          2,882
                                                                             $1
                                                                          2,882
Remove deferral for emergency generator tanks [e]
                                                                           $188
                                                                         11,704
                                                                           $188
                                                                         11,704
                                                                           $181
                                                                         11,704
Change release detection leak rate probabilities  [b]
                                                                            N/A
                                                                            N/A
                                                                           $251
                                                                        197,532
                                                                            N/A
                                                                            N/A
Response to interstitial monitoring alarms
                                                                            $78
                                                                         10,569
                                                                            $78
                                                                         10,569
                                                                            $78
                                                                         10,569
Other

Remove deferral from airport hydrant fuel distribution systems
                                                                       $188,545
                                                                             97
                                                                     $1,193,506
                                                                             97
                                                                            N/A
                                                                            N/A
Remove deferral from UST systems with field-constructed tanks
                                                                        $45,344
                                                                            102
                                                                       $327,861
                                                                            102
                                                                            N/A
                                                                            N/A
Require notification of ownership change
                                                                             $5
                                                                          8,946
                                                                             $5
                                                                          8,946
                                                                             $5
                                                                          8,946
Closure of lined tanks that cannot be repaired according to a code of practice
                                                                        $35,499
                                                                             59
                                                                        $35,499
                                                                             59
                                                                        $35,499
                                                                             59
Requirements for determining compatibility
                                                                             $2
                                                                        611,449
                                                                             $2
                                                                        611,449
                                                                             $2
                                                                        611,449
EPAct-related Provisions

Operator training
                                                                            $54
                                                                          2,625
                                                                            $54
                                                                          2,625
                                                                            $54
                                                                          2,625
Secondary containment
                                                                           $415
                                                                          2,224
                                                                           $415
                                                                          2,224
                                                                           $415
                                                                          2,224
[a] Requirements that apply at the facility level are converted to a system basis using a conversion factor of 2.74 systems per facility.
[b] Because the number of systems affected varies depending on the individual testing requirements, we estimate the number of systems affected by all three requirements by dividing their total cost by the sum of their unit costs. For example, if the three requirements had total unit costs of $100 and created new costs of $100,000, we would estimate that they affect 1,000 systems.
[c] Alternative 1 calls for spill prevention equipment replacement every three years. For analytical convenience, we annualize the cost of replacement over three years and incorporate it as an O&M cost.
[d] Costs fall under Alternative 1 compared with the Preferred Option because replacement of spill prevention equipment every 36 months will eliminate the need for repairs to such equipment.
[e] Costs related to removal of deferrals for the regulation of emergency generator tanks include the cost of removal of deferrals, installation and maintenance of ATG on approximately seven percent of systems, installation and maintenance of SIR on 60 percent of systems, and performing operability testing on all EGT systems. See Appendix D for details.  Costs for emergency generator tanks are lower in Alternative 2 because operability testing is performed every 3 years versus every year under other options.
[f] It is important to note that these unit costs cannot be summed to obtain a total cost per system because nearly all systems are already in compliance with some requirements of the proposed rule.
[g]  Cost estimates were derived using a seven percent discount rate.

3.4.1	Assessment of Compliance Costs under the Alternative Baseline Scenario
Exhibit 3-5 presents total annual compliance costs of the proposed rule under the alternative baseline discussed in Section 3.3.1. Annual compliance costs are slightly less than those presented in Exhibit 3-2, reflecting the fact that the cumulative universe of affected systems in the alternative baseline is only marginally smaller than the universe in the original baseline.
Exhibit 3-5

Total Annual Compliance Costs Of The Proposed Rule Using an Alternative Baseline[d]
                                    Option
                               Preferred Option
                                 ($ millions)
                                 Alternative 1
                                 ($ millions)
                                Alternative 2
                                 ($ millions)
Conventional UST systems [a]
                                     $170
                                     $350
                                     $110
Emergency Generator Tanks (EGTs) [b]
                                     $2.2
                                     $2.2
                                     $2.1
Airport Hydrant Fuel Distribution Systems (AHFDSs)
                                      $18
                                     $120
                                     $0.0
UST systems with Field-Constructed Tanks (FCTs)
                                     $4.6
                                      $33
                                     $0.0
Total[c]
                                     $200
                                     $500
                                     $120
[a] Conventional UST systems include all systems that are not AHFDSs, FCTs, or EGTs.
[b] Costs for EGTs are lower in Alternative 2 because operability testing is performed every 3 years versus every year under other options.
[c]  Totals may not add exactly due to rounding.
[d]  Cost estimates were derived using a seven percent discount rate.
3.5	Sensitivity Analyses
      Certain aspects of EPA's compliance cost estimates are characterized by significant uncertainty and are sufficiently large that deviations from chosen assumptions may have a measurable impact on cost estimates. In this section, the analysis evaluates the sensitivity of certain results to variation in key parameters. These sensitivity analyses include evaluations of:
   *       Total compliance costs to the proposed rule under an alternative estimate of labor costs. Specifically, the analysis evaluates the effect of using higher labor rates, overhead costs, and fringe benefits factors, and lower average labor costs.
   *       Highest and lowest compliance cost scenarios for the distribution of technologies tested for overfill prevention equipment operability, tightness of spill prevention equipment, and interstitial integrity. If facilities using these technologies are disproportionately located in states that do not already have similar regulations in place, costs could be higher than estimates presented in the earlier parts of this chapter. Similarly, if affected facilities are located in states that already have similar regulations in place, costs could be substantially lower than estimated.
   *       High-end and low-end estimates of possible compliance costs for interstitial integrity testing. EPA's estimate of costs associated with interstitial integrity testing assumes a certain distribution of technologies, each of which carries a different testing cost. Variation in this distribution of technologies among facilities can significantly affect the estimates of compliance costs associated with interstitial integrity testing.
3.5.1. Compliance Costs of the Proposed Rule Using Alternative Estimates of Labor Rates, Overhead Costs, and Fringe Benefits
      For conventional UST facilities, EPA has selected labor, overhead, and fringe benefits rates that best reflect a "typical" UST facility.  These labor rates are representative of skilled labor costs at motor fuel retailers, which own and operate roughly 80 percent of the universe of UST systems.  The use of these rates has a material impact on the estimated compliance cost of the proposed rule because they drive the operations and maintenance costs associated with requirements for walkthrough inspections and operability tests.
      To evaluate the impact of alternative labor rates on total compliance cost estimates, EPA considered two alternative scenarios.  The first is consistent with the OUST Information Collection Request 1360.08 and reflects labor rates reflective of economy-wide average wages, benefits, and overhead.  This represents a high-end estimate because it reflects industries with highly skilled labor requirements and benefits (e.g., law firms).  The second uses specific labor categories and costs representative of retail motor fuel establishments, but assumes that lower-level staff may complete walkthrough inspections.
      Exhibit 3-6 presents the results for the three labor category scenarios.  While one-time costs are not affected by the change in labor rates, operations and maintenance costs in the high-cost scenario are roughly $100 million higher than EPA's primary estimate, totaling $300 million rather than $200 million (an increase of 50 percent). The majority of this increase is due to higher operations and maintenance costs related to walkthrough inspections and operability tests. In contrast, the low-end labor-rate cost estimate totals approximately $180 million, roughly $20 million (or 10 percent) lower than EPA's central estimate. In addition to lower benefits and labor rates, this estimate assumes that clerical-level personnel will perform walkthrough inspections. This is consistent with remarks by UST experts, who indicated these tasks were most likely to be completed by non-technical workers.  For AHFDSs and systems with FCTs, EPA uses constant industry average labor rates across all scenarios.

Exhibit 3-
6

Compliance Cost Sensitivity Analysis:  Alternative Labor Rates[i]
                                  Description
                                 Proposed Rule

                       Lower Estimate
($ thousands) [a]
             Primary Estimate used for Analysis
($ thousands) [b]
                       Upper Estimate
($ thousands) [c]
Release Prevention

Walkthrough inspections [d]
                                                                        $23,000
                                                                        $46,000
                                                                       $120,000
Periodic testing of:
 Overfill prevention equipment
 Spill prevention equipment
 Interstitial integrity
                                                                        $87,000
                                                                        $87,000
                                                                        $87,000
Testing after repairs to spill and overfill prevention equipment, and interstices
                                                                        $13,000
                                                                        $13,000
                                                                        $14,000
Elimination of flow restrictors in vent lines for all new tanks and when overfill devices are replaced
                                                                         $1,200
                                                                         $1,200
                                                                         $1,200
Subtotal - Release Prevention
                                                                       $124,200
                                                                       $147,200
                                                                       $222,200
Release Detection

Operability tests for release detection methods
                                                                        $20,000
                                                                        $21,000
                                                                        $42,000
Eliminate groundwater and vapor monitoring as release detection methods [e]
                                                                         $2,100
                                                                         $2,000
                                                                           $270
Add SIR/CITLD to regulations with performance criteria
                                                                             $3
                                                                             $3
                                                                             $3
Remove deferral for emergency generator tanks
                                                                         $2,100
                                                                         $2,200
                                                                         $3,200
Change release detection leak rate probabilities
                                                                             $0
                                                                             $0
                                                                             $0
Response to interstitial monitoring alarms
                                                                           $830
                                                                           $830
                                                                           $830
Subtotal - Release Detection
                                                                        $25,033
                                                                        $26,033
                                                                        $46,303
Other

Remove deferral for airport hydrant fuel distribution systems f
                                                                        $18,000
                                                                        $18,000
                                                                        $18,000
Remove deferral for UST systems with field-constructed tanks f
                                                                         $4,600
                                                                         $4,600
                                                                         $4,600
Require notification of ownership change
                                                                            $19
                                                                            $42
                                                                            $74
Closure of lined tanks that cannot be repaired according to a code of practice
                                                                         $2,100
                                                                         $2,100
                                                                         $2,100
Requirements for determining compatibility
                                                                           $910
                                                                         $1,200
                                                                         $2,500
Subtotal  -  Other
                                                                        $25,629
                                                                        $25,942
                                                                        $27,274
EPAct-related Provisions

Operator training
                                                                           $130
                                                                           $140
                                                                           $230
Secondary containment
                                                                           $920
                                                                           $920
                                                                           $920
Subtotal - EPAct-related Provisions
                                                                         $1,050
                                                                         $1,060
                                                                         $1,150
Subtotal g
                                                                       $180,000
                                                                       $200,000
                                                                       $300,000
Additions for new units (beyond those included above) h
                                                                             $5
                                                                             $5
                                                                             $5
Total g
                                                                       $180,000
                                                                       $200,000
                                                                       $300,000
[a] Lower Estimate relies on BLS Industry-Specific Occupational Employment and Wages, NAICS 447000 - Gasoline Stations, May 2008 for: Managerial (41-1011 First-Line Supervisors/Managers of Retail Sales Workers): Technical (53-1021 First-Line Supervisors/Managers of Helpers, Laborers, and Material Movers, Hand); Clerical (53-6031 Service Station Attendants); and BLS National Occupational Employment and Wages, May 2008 for Technical for operability testing (49-2094 Electrical and Electronics Repairers, Commercial and Industrial Equipment) and Legal (23-1011 Lawyers). Benefits rate is 24.6 percent of wages, as reported in BLS Employer Costs for Employee Compensation, September 2008. Table 10: Trade, transportation, and utilities - retail trade. Overhead rate is 12 percent from OMB Circular A-76, p. D-7.  Assumes that service station attendants perform walkthrough inspections, consistent with information from experts consulted for this analysis.
[b] Primary Estimate relies on BLS Industry-Specific Occupational Employment and Wages, NAICS 447000 - Gasoline Stations, May 2008 for: Managerial (11-0000 Management Occupations (Major Group)); Technical (53-1021 First-Line Supervisors/Managers of Helpers, Laborers, and Material Movers, Hand); and Clerical (43-9061 Office Clerks, General); and BLS National Occupational Employment and Wages, May 2008 for Technical for operability testing (49-2094 Electrical and Electronics Repairers, Commercial and Industrial Equipment) and Legal (23-1011 Lawyers). Benefits rate is 28.3 percent (BLS Employer Costs for Employee Compensation, September 2009. Table 10: All workers, service-providing industries). Overhead rate is 12 percent from OMB Circular A-76, p. D-7.
[c] Upper Estimate relies BLS Employer Costs For Employee Compensation, September 2008 for Managerial (Table 9, Management, Professional, and Related); Technical and Technical for operability testing (Table 10, Professional and Technical Services (Service Industries)); and Clerical (Table 11, Office and Administrative Support); and BLS National Occupational Employment and Wages, May 2008 for Legal (23-1011 Lawyers). Overhead rate used is 67 percent from OUST Information Collection Request 1360.08 from October 24, 2007.
[d] Walkthrough inspections under the Lower Estimate rely on clerical labor rates estimated using BLS Standard Occupational Code 53-6031, Service Station Attendants; under other scenarios, we use technical labor rates estimated using BLS Standard Occupational Code 53-1021, First-Line Supervisors/Managers of Helpers, Laborers, and Material Movers, Hand. UST experts consulted for this analysis suggest that walkthrough inspections are most likely to be performed by gas station clerks or service attendants, not technical personnel (e.g. 3rd-party contractors).
[e] Baseline activities for operators of tanks that use groundwater or vapor monitoring include activities such as recording of monthly measurements, which rely on technical labor.  By eliminating groundwater and vapor monitoring as release detection methods under the proposed rule, these activities will no longer be required.  As a result, increasing labor rates reduces the incremental costs of the proposed rule.
f  The labor rate used for these types of system is the latest ICR labor rate, except for a component of the Operator Training requirement, which uses the United States Air Force labor rate for pay grade E-6 over 3.
[g] Totals may not add exactly due to rounding.
[h] As a simplifying assumption, EPA assumes that UST systems enter and exit the universe at a constant annual rate, such that the total number of UST systems in the universe does not change. We assume that operations and maintenance costs associated with these systems offset each other, as the number of entries equals the number of exits; however, new systems entering the universe will still incur incremental capital costs associated with certain requirements (e.g., a new emergency generator tank would need to install a release detection method).  For modeling purposes, we account for these new units in the "Additions for new units."  The costs shown reflect the capital costs associated with new units for all but the following requirements: elimination of flow restrictors for new tanks, requirement of secondary containment for new tanks, and requirement of under-dispenser containment for new dispenser systems.
[i]  Cost estimates were derived using a seven percent discount rate.

3.5.2	Sensitivity Analysis of Distribution of Technologies Tested for Overfill Operability, Spill Prevention Equipment Tightness, and Interstitial Integrity
      Because data on the distribution of UST technologies (including release detection and prevention technologies) is available only at a national level, EPA is not able to identify how facilities and systems with certain technologies are distributed across different states.  As a result, the cost analysis assumes that technologies are distributed uniformly across all states and territories.  For systems that require testing for overfill operability, spill prevention equipment tightness, and interstitial integrity, actual compliance costs may differ substantially from EPA's estimates if this assumption does not hold.   For example, if facilities using these technologies are disproportionately located in states that do not already have similar testing requirements in place in the baseline, compliance costs could be higher than the estimates based on a uniform distribution presented in Exhibit 3-2 and Exhibit 3-3. Similarly, if affected facilities are concentrated in states that already have similar regulations in place in the baseline, then actual compliance costs could be substantially lower than estimates based on a uniform distribution.
      To investigate the impact of the assumption of uniform distribution of technologies, EPA performed a bounding analysis of the two extreme cases of distribution.  Exhibit 3-7 reports the possible range of values for scenarios where compliance cost is the lowest (i.e., facilities are located in states that already satisfy the proposed rule), the actual model scenario based on uniform distribution, and the scenario in which compliance costs are highest. Variation between the minimum and maximum cost scenarios totals approximately $21 million, or eleven percent of the total compliance costs estimated for the rule. EPA's primary estimate of these costs is near the mid-point of the range of estimates.
Exhibit 3-7
Discounted Highest And Lowest Compliance Cost Scenarios For Technologies Tested For Overfill Operability, Spill Prevention Equipment Tightness, And Interstitial Integrity[b]
                               Regulatory change
                              Lower
($ millions)
                             Primary
($ millions)
                              Upper
($ millions)
Overfill operability testing[a]
                                                                            $23
                                                                            $23
                                                                            $23
Spill prevention equipment testing
                                                                            $54
                                                                            $55
                                                                            $62
Interstitial integrity testing
                                                                             $0
                                                                             $9
                                                                            $13
Total
                                                                            $77
                                                                            $87
                                                                            $98
[a] Because the entire universe of systems will be required to test overfill operability, EPA does not expect any uncertainty related to the locations of affected systems.
[b] Cost estimates were derived using a seven percent discount rate.

3.5.3	Sensitivity Analysis of Compliance Costs for Interstitial Integrity Testing
      EPA's estimates of compliance costs associated with interstitial integrity tests are weighted to exclude tanks and piping that are continuously monitored using vacuum, pressure, or liquid-filled methods.  In addition, tanks using continuous interstitial monitoring sensors are excluded.  For the purpose of this analysis, EPA assumes that five percent of tanks and 90 percent of piping with interstices will require such testing. Costs may vary to the extent that the actual number of facilities with these types of equipment differs from these estimates.
      To establish a range of possible values, EPA investigated the scenarios outlined in Exhibit 3-8. For relatively large changes in EPA's choices of parameters for universe affected, total costs for this proposed change vary between $5 million and $12 million.  This uncertainty of $7 million represents four percent of the total estimated compliance costs of the rule.
Exhibit 3-8
        Sensitivity Analysis Of Interstitial Integrity Testing Universe
                                                                       Estimate

Universe Affected
                         Discounted Cost
($ millions)
                                     Lower
Tanks
                                                                             5%
                                                                             $5

Piping
                                                                            50%

                                    Primary
Tanks
                                                                             5%
                                                                             $9

Piping
                                                                            90%

                                     Upper
Tanks
                                                                            50%
                                                                            $12

Piping
                                                                            95%

Note: Cost estimates were derived using a seven percent discount rate.

3.5.4	Summary of Sensitivity Findings
      EPA's sensitivity findings suggest that possible variation in labor rates is likely to produce the most significant impact on the estimated cost of the proposed rule: plausible selections for labor rates may reduce preferred option costs by approximately $20 million (10 percent) or increase them by $100 million (50 percent). Separately, EPA has identified potential variation of approximately eleven percent related to the distribution of technologies involved in overfill operability testing, integrity testing of interstitial areas, and spill prevention equipment tightness testing, and approximately four percent related to assumptions regarding interstitial integrity testing. We note that each of these sensitivity analyses reflects variation compared with the primary estimates of costs presented throughout this chapter.
      These analyses only illustrate the uncertainty surrounding certain elements of the proposed rule. The estimates presented in the body of this chapter represent reasonable, conservative central tendencies for the costs of the proposed rule.

3.6	Administrative Compliance Costs
In addition to compliance costs related to the operation of UST systems, the proposed rule will also impose certain administrative costs on affected entities. We outline these costs below.

3.6.1	State Government Administrative Compliance Costs
      The proposed rule imposes new Underground Storage Tank program administration requirements on state government agencies.  Specifically, state government agencies will incur costs associated with new notification requirements, and costs associated with obtaining and reading the regulations. This section reviews state government costs associated with these activities.
      Costs associated with obtaining and reading the regulations assume that 10 people will each take six hours to read the regulation in each state (using the legal labor rate for states of $47 per hour from OUST's ICR 1360.08).  In addition, based on the ICR, we assume that the reporting and recordkeeping burden for states to apply for State Program Approval (SPA) is approximately 28.5 hours (using the clerical labor rate for states of $26 per hour).  The total compliance cost in nominal terms is therefore approximately $205,000; the annualized compliance cost assuming the 20-year regulatory time horizon is approximately $19,000. States that already require ownership change notifications will incur compliance costs associated with these activities.
      State agencies that do not currently have a requirement for notification of changes in UST ownership or for at least an annual UST registration must also process a certain number of notices due to annual turnover in facility ownership. State government compliance costs for this activity assume a typical nominal recordkeeping cost of $30 per facility, based on OUST's ICR 1360.08; compliance costs assume the use of existing recordkeeping systems.   Eight states and territories do not currently have recordkeeping requirements consistent with the proposed regulation.  These eight states and territories will incur approximately $100,000 per year, due to an annual turnover rate of approximately 10 percent in UST facility ownership.
      Lastly, each state agency will incur costs to process the one-time notifications of existence for EGTs, AHFDSs, and FCTs.  State government compliance costs for this activity assume a typical nominal recordkeeping cost of $30 per facility, based on OUST's ICR 1360.08; compliance costs assume the use of existing recordkeeping systems.   Based on the estimated universe of EGTs, AHFDSs, and FCTs, the total state processing cost in nominal terms is approximately $560,000; the annualized processing cost assuming the 20-year regulatory time horizon is approximately $53,000.
      Total state government administrative compliance costs sum to $170,000 per year. Note that under alternative baseline assumptions, these costs would decline by a very small percentage (roughly 2 percent) as the universe of affected systems declines. These costs are reflected in Exhibit 3-10.
3.6.2	Costs to Regulated Universe to Review Regulations
      This analysis assumes that all facility operators in the universe will be required to read the proposed rule in order to comply with it. For conventional USTs and EGTs, we estimate that reading and understanding the proposed rule will require 4.75 hours of labor from a manager at each facility. This equates to a one-time cost of approximately $244 for each facility, or $54 million. This is equivalent to an annual cost of $5.1 million under each proposed option. For FCTs and AHFDSs, we assume these costs are subsumed in the management costs for these systems (see Appendix A for details).
3.7	Summary  -  Total Social Costs
      In total, EPA estimates that the Preferred Option for the proposed rule will produce incremental costs of approximately $210 million per year compared to the current regulatory baseline. Exhibit 3-9 summarizes these costs per category. Regardless of the option, conventional UST systems will incur over 65 percent of these costs.  Costs to AHFDSs and FCTs comprise approximately 11 percent and 29 percent of total costs under the Preferred Option and Alternative 1, respectively.

                                  Exhibit 3-9

                             Total Social Costs[e]
                                   Category
                         Preferred Option
($ millions)
                          Alternative 1
($ millions)
                          Alternative 2
($ millions)
Conventional UST systems[a]
                                                                           $180
                                                                           $360
                                                                           $120
Emergency Generator Tanks (EGTs) [b]
                                                                           $2.2
                                                                           $2.2
                                                                           $2.1
Airport Hydrant Fuels Distribution Systems (AHFDSs)
                                                                            $18
                                                                           $120
                                                                           $0.0
UST systems with Field-Constructed Tanks (FCTs)
                                                                           $4.6
                                                                            $33
                                                                           $0.0
Cost to Owners/Operators to Read Regulations
                                                                           $5.1
                                                                           $5.1
                                                                           $5.1
State Government Administrative Costs [c]
                                                                           $0.2
                                                                           $0.2
                                                                           $0.2
Total Social Costs d
                                                                           $210
                                                                           $520
                                                                           $130
[a] Conventional UST systems include all systems that are not AHFDSs, FCTs, or EGTs.
[b] Costs for EGTs are lower in Alternative 2 because operability testing is performed every 3 years versus every year under other options.
[c] The costs for UST systems directly owned or operated by local, state, and federal government entities are included in the estimates of compliance costs within the other categories.  Costs shown here reflect the administrative costs for state governments to read the regulations, apply for state program approval, process notifications of ownership changes, and process one-time notifications of EGT, AHFDS, and FCT existence.
[d] Totals may not add up due to rounding.
[e] Cost estimates were derived using a seven percent discount rate.

Limitations of Compliance Cost Analysis
While EPA has taken steps to present a sound analysis of compliance costs, it recognizes that certain assumptions and limitations are inherent to this assessment.
Tank configuration: This analysis assumes that a particular configuration of equipment represents the average UST system. This assumption affects the compliance costs of the proposed rule because systems with different configurations (e.g., more sumps per tank) could have different costs.  Mischaracterizing this configuration may under- or overstate total costs as well as system-level costs.
System-level compliance costs: As discussed in Section 3.3, system-level compliance costs are based on public information, input from UST industry professionals, and EPA professional judgment, all of which are assumed to provide the most accurate available data at the time of this proposal. EPA recognizes that these data sometimes reflect only a small number of sources, and are therefore characterized by uncertainty.
As a result of these uncertainties, the precise cost of the proposed rule may differ from the estimate generated by EPA's analysis. The above sensitivity analyses, though not strictly additive, suggest that the outside range of cost uncertainty is approximately 50 percent from EPA's central estimates. Moreover, because EPA's estimate is framed by a number of conservative assumptions (outlined in section 3.3), it is unlikely that this analysis understates the costs of the proposed rule significantly.

3.7.1	Summary  -  Total Social Costs under the Alternative Baseline Scenario
      Under the alternative baseline universe assumption described in Section 3.3.1, EPA estimates that the Preferred Option for the proposed rule will produce incremental costs of approximately $200 million per year compared to $210 million in annual costs in the primary analysis. Exhibit 3-10 summarizes these costs per category. Regardless of the option, conventional UST systems will incur over 65 percent of these costs.  Costs to AHFDSs and FCTs comprise approximately 11 percent and 30 percent of total costs under the Preferred Option and Alternative 1, respectively.

Exhibit 3-10

              Total Social Costs Using an Alternative Baseline[e]
                                   Category
                         Preferred Option
($ millions)
                          Alternative 1
($ millions)
                          Alternative 2
($ millions)
Conventional UST systems[a]
                                                                           $170
                                                                           $350
                                                                           $110
Emergency Generator Tanks (EGTs) [b]
                                                                           $2.2
                                                                           $2.2
                                                                           $2.1
Airport Hydrant Fuels Distribution Systems (AHFDSs)
                                                                            $18
                                                                           $120
                                                                           $0.0
UST systems with Field-Constructed Tanks (FCTs)
                                                                           $4.6
                                                                            $33
                                                                           $0.0
Cost to Owners/Operators to Read Regulations
                                                                           $5.1
                                                                           $5.1
                                                                           $5.1
State Government Administrative Costs [c]
                                                                           $0.2
                                                                           $0.2
                                                                           $0.2
Total Social Costs d
                                                                           $200
                                                                           $510
                                                                           $120
[a] Conventional UST systems include all systems that are not AHFDSs, FCTs, or EGTs.
[b] Costs for EGTs are lower in Alternative 2 because operability testing is performed every 3 years versus every year under other options.
[c] The costs for UST systems directly owned or operated by local, state, and federal government entities are included in the estimates of compliance costs within the other categories.  Costs shown here reflect the administrative costs for state governments to read the regulations, apply for state program approval, process notifications of ownership changes, and process one-time notifications of EGT, AHFDS, and FCT existence.
[d]  Totals may not add up due to rounding.
[e] Cost estimates were derived using a seven percent discount rate.

   Chapter 4.		Assessment of Benefits And Cost Savings
4.1	Introduction
      The beneficial impacts of a regulatory change are typically measured in two ways:  as "social benefits" that usually take the form of reduced environmental damage, reduced human health risk, and improvements in the value of environmental amenities.  Benefits also include avoided costs associated with reduced need for cleanup and avoided costs of "averting behavior" (e.g., obtaining replacement water supplies).  Ideally, social benefits reflect accurate measures of the total "willingness to pay" (WTP) of consumers to obtain improvements in environmental quality.  In other cases, avoided costs (e.g., medical care) can be used to inform proxy estimates of WTP when direct estimates of WTP are unavailable.  In the context of this rule, EPA examines social benefits and separately considers the avoided costs associated with reduced need for cleanup of releases because reliable WTP estimates for the value of an avoided cleanup are not available, and because avoided costs represent a real economic cost savings.
      This chapter describes the approaches used to evaluate avoided remediation (cleanup) costs and other benefits.  It first outlines several different methods attempted for measuring benefits and cost savings, and describes the final selected method (expert consultation) in detail.  Next, it provides a description of monetized cost savings and other benefits, including avoided cleanup costs, avoided vapor damage cleanup estimates, avoided product loss, and the value of avoided cancer risk associated with anticipated reductions in releases and reductions in severity of releases.  The chapter then presents a screening-level analysis of the quantity of groundwater potentially protected by the regulations.  Finally, we provide a qualitative discussion of ecological and other human health benefits.
4.2	Investigation of Empirical Methods for Measuring Benefits and Cost Savings
	The benefits and cost savings of the proposed rule result from the reduced incidence and size of releases that would occur due to the new requirements.  EPA examined a number of ways to use quantitative, empirical data on release rates, inspection effectiveness, and program performance to estimate directly the changes in releases that could be expected under the proposed rule.  This section describes the different data sources and methods considered, and the limitations of each.

4.2.1	Engineering Estimates and Literature
	One approach to estimating the benefits of the proposed rule would be to develop an engineering model of the release rates associated with equipment and practices before and after the implementation of the rule requirements.  However, this approach would address only a small number of the proposed rule components because most of the requirements are not focused on equipment modifications, but instead call for inspections, testing, and maintenance.  These are requirements for changes in human behavior, and are not easily measured using equipment testing.
	This suggests that EPA could best measure benefits empirically by examining studies of how changing frequencies in inspection and testing would lead to different leak rates.  Therefore, EPA conducted a targeted literature review of engineering literature and studies of the effectiveness of testing and inspection programs.  We were unable to identify any studies directly applicable to the proposed UST regulations, but we did identify EPA and published literature on the effects of better inspection and testing rates more generally. We summarize several key studies below.
   *       California study of impact of secondary containment on UST system releases (2002):  This study examined whether use of secondary containment throughout UST systems resulted in differences in release rates.  The study's conclusions were hampered by a limited sample size, and authors note that releases from other parts of the systems may have affected results.  The study did not find a significant relationship between secondary containment and release rates at sites, but did find that facility-level factors (e.g., improper installations) made it more likely than expected that all systems at a facility would either have or lack releases.  While the study cannot be used to directly estimate the benefits associated with the proposed regulation, its conclusions suggest that regulations focusing on effective facility-level inspections may be well-targeted.
   *       National Research Council study of effectiveness of state vehicle emissions inspection and maintenance programs (2001):  This study reviewed four state programs and one city program aimed at reducing motor vehicle emissions by requiring inspections and maintenance.  While the study did not address UST systems, the structure of vehicle inspection programs is similar to the proposed regulations in that both require owners/operators to undertake routine inspections and undertake maintenance as needed.  The study found that the programs had a measureable impact on ambient air quality, but did not identify whether the differences were statistically significant.  While the results do not provide a quantitative basis for estimating the impacts of the proposed rule, the study suggests that mandatory inspection programs can reduce emissions.
   *       Environmental Results Program (ERP) data: Data from several environmental results programs (ERPs) show a statistically significant improvement in verified compliance as a result of a combination of self-certification, technical assistance, and inspections.  While these programs do not isolate the impact of specific regulatory changes, the results are consistent with other findings that programs that rely in part on self-implemented inspections and reporting can reduce noncompliance.
In general, the literature does not address UST inspection programs directly, and does not provide quantitative results that can be used to estimate the impacts of the proposed rule.  However, the literature does provide data that generally indicate that self-implementing inspection programs (with external validation) do have an impact on equipment maintenance, and generally lead to a reduction in environmental impacts.  This suggests that some positive impact should be expected from the proposed rule.
4.2.2	Statistical Analysis of State Release Data
	A different approach to a robust analysis of benefits would be to develop a database of State UST rules and reported release rates before and after the effective dates of rules similar to the proposed rule.  With good quality data, one could combine these rules and reported release rates and isolate the marginal impacts of various components of the proposed rule.  To collect detailed data at the facility level, however, would require visiting state UST programs individually and collecting detailed site inspection data from state case files and archives.  Not only would such an effort be prohibitive in terms of available resources, but our current knowledge of the state programs suggests that variable inspection practices and changes in record-keeping practices over time may limit the ability of the exercise to provide robust results.
	In the absence of site-specific data, however, we collected and examined data on state regulatory programs and reported releases from available aggregate sources.  Specifically, we identified and evaluated data from the following sources:
   *       Leak Autopsy Reports:  In 2004 and 2005, EPA released two draft "leak autopsy" studies ("the draft 23-state Autopsy Report" and a separate study examining the State of Florida).  These studies examined the sources and extent of releases that occurred in systems that were compliant with the 1998 standards, and identifies the extent to which different baseline releases are associated with failures of equipment in different parts of the UST system (e.g., piping, overfill protection equipment).
   *       State Regulatory and Report Data:  State programs are required to report aggregated information to EPA on the number of active UST systems, the number of inspections, and the number of confirmed releases reported in each six-month period.  In addition, EPA obtained information about state regulatory programs and the effective dates for state requirements that are similar to the requirements of the proposed rule.
Using the available data, EPA examined several different statistical approaches, focusing on regression analysis, to compile and examine a set of state-level data that included the number of UST systems in each state in a given year, the number of releases from UST systems in each year, the number of UST inspections conducted in each year, and the presence or absence of regulations designed to prevent releases.
      Before conducting regression analysis on the data set of state USTs and releases, EPA first adjusted the data to account for a number of data quality concerns.  A key data concern was the relationship between states with low-frequency inspections and states reporting small numbers of confirmed releases.  To ensure that the reported UST releases accurately reflected most or all releases taking place, EPA developed an index that scored each state based on the frequency of inspections.  States that reported inspection rates less frequent than every five years, and/or inconsistent inspection frequencies over time, were removed from the sample, based on the assumption that release data from those states may be less reliable due to less frequent third party verification (i.e., state inspection) of system operations.  In other words, we assume that owners/operators may be less inclined to report releases or properly maintain their equipment if they are in a state where inspections occur infrequently or inconsistently.
      In conducting the analysis, however, EPA identified several fundamental problems with available data that limit the value of a regression analysis approach.  These include significant data availability and reliability issues related to the limited number of observations and programmatic changes among states that prevent the isolation of regulation-related impacts.  Specifically:
      *       Consistent, accurate release data are not available.  It is likely that measurement error exists in the recording of confirmed releases across states (the dependent variable) and that it is related in some systematic way to the regulatory structure of the state or other explanatory variables (as opposed to random reporting error) in the analysis.  In addition, state inspections vary in timing and focus across states; this, in turn, affects the consistency of third-party verified compliance and release information.  While EPA attempted to account for this by selecting only states with a high frequency of inspections for inclusion in the analysis, the interaction between inspection frequency and degree and effectiveness of regulation creates sample selection problems (i.e., states with higher release rates due to limited regulation may also be states that do not conduct frequent inspections and therefore have less reliable data).  Therefore, normal regression properties do not hold, and results may be biased in ways that do not allow for a reliable interpretation.
      *       Many regulations consistent with the proposed rule are currently in place in only a small number of states.  EPA addressed limited variation in the presence of regulations by dropping several regulatory variables from the analysis, but the resulting lack of variation and the small number of observations make it likely that regulatory indicators will proxy for other relevant characteristics of that state.
      *       Study design is limited by available data.  Ideally, an analysis of the effectiveness of UST leak prevention regulations would employ observations from a large number of states over a time period that includes years before and after regulations were in place.  Such "panel" data would allow for identification of impacts temporally and spatially.  Panel data would also allow for fixed-effects estimation, which controls for any unobserved characteristics of states that might affect release rates (such as soil pH or climate), independent of any effect of regulation.  Available data superficially appear to be panel data, since they provide information on the number or rate of releases from different states in multiple time periods, along with information on the presence or absence of UST regulations by state.  However, for many regulations it is unclear both when the regulation was first promulgated and when the effects of the regulation would be expected to be fully realized (e.g., through inspections).
      As discussed in more detail in Appendix F, quantitative analysis of annual UST releases by state did not reveal a consistent measure of the potential impact of release prevention regulations.  The data limitations noted above prevented the use of the preferred method of fixed effects estimation using panel data.  In the absence of fixed-effects estimation, the analysis cannot reliably draw conclusions about the impacts of regulations on releases, independent of any unmeasured characteristics of states that could be affecting the number of releases in each state.  In other words, in addition to data quality issues discussed above, the small number of states with specific UST release prevention regulations prevents identification of robust relationships between individual regulations and the number of releases per year.
      However, through cross-sectional analysis, EPA was able to estimate that release rates in California and Florida  -  two states with mature UST regulation regimes  -  were about 55-65 percent less than one would expect based on release rates at other states during the time period examined.   This difference could serve as an upper bound for the potential of leak prevention regulations to reduce the rate of UST releases.
4.3	Final Methodology for Assessment of Positive Impacts: Expert Consultation
      To estimate the individual effects of each proposed regulatory change, and in light of the absence of applicable engineering models and limited empirical state data, we resorted to a consultation with five experts with experience in regulation of USTs and implementation of state inspection programs.  The remainder of this chapter describes in detail the final methodology used to identify reductions in releases associated with the proposed rule, and the calculation of cost savings associated with those avoided releases.
      To ensure that the assessment of regulatory effects relied on broad expertise in regulatory implementation, EPA developed a pool of technical experts with national reputations for leadership in implementation of underground storage tank regulatory programs, or with extensive expertise in assessing spill causation at UST sites.  From this pool, several experts were interviewed and five experts were identified.  Each of the identified experts has over 20 years of experience in the regulation, assessment, and/or remediation of underground storage tanks, including direction of state programs and implementation of regulations similar to some aspects of the proposed regulation.
      EPA provided an identical set of written questions separately to each expert and conducted individual follow-up telephone interviews to clarify and verify responses.  Appendix G provides a detailed explanation of the process EPA followed in identifying experts, more detailed information about the qualifications of the experts, and an explanation of the factors EPA considered when including and excluding expert feedback. Appendix H provides the questions distributed to experts and their responses.