The 5% Challenge

Small' move of ethanol blend wall introduces big liability problems.

By
Samantha Oller, Senior Editor/Special Projects Coordinator

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It’s a conundrum that brings to mind a famous episode of “I Love Lucy.”

Friends Lucy and Ethel, on their first day on the production line at a chocolate factory, become quickly overwhelmed by the volume of candy flowing their way. To keep up, they frantically stuff the bonbons in their mouths and clothes, and hilarity ensues.

Of course, fuel marketers haven’t found much to laugh about in the federal government’s latest attempts to meet the Renewable Fuel Standard’s (RFS) mandated goal of 36 billion gallons of renewable fuel blended into transportation fuels by 2022.

This October, the Environmental Protection Agency (EPA) ruled to move the legal maximum amount of ethanol that can be blended with gasoline—or the blend wall—from 10% to 15%. Most considered the decision a foregone conclusion; the current market, with its offerings of E10, E85 and biodiesel, is barely making a dent in the mandate. Indeed, if every gallon of gasoline sold in the United States were blended with 10% ethanol, it would ring up to only 14 billion gallons total, according to NACS figures.

Of course, moving the blend wall by 5 percentage points would add only about 7 billion gallons to the country’s ethanol total. However, Growth Energy, a coalition of 52 ethanol producers that triggered the EPA’s review of an E15 waiver, considers the move a “first step,” and in fact proposes the introduction of E20 by 2015 and E30 by 2019 to further help the country meet the RFS.

And while Growth Energy claims that “not only are today’s vehicles capable of successfully using E15, the existing fuel dispensation infrastructure similarly is capable of dispensing higher ethanol fuel blends,” the reality is not that simple. As industry leaders and fuel-equipment manufacturers argue, that 5-percentage-point bump opens up a gaping chasm of liability concerns for fuel retailers.

“When you look at the requirements to move the blend wall to E15, it’s totally a Pandora’s box,” says Jeff Dzierzanowski, new business development manager for Source North America Corp., a distributor of fueling equipment based in Addison, Ill. “This is almost like we’re going from leaded to unleaded gas. In time, this will touch every gas station in the country.”

EQUIPPED TO FAIL

Marketers may initially view E15 as an opportunity rather than a problem. The EPA is not expected to mandate moving the blend wall on a national level (although its decision may trigger ethanol states to make the move). As PMAA president Dan Gilligan says, “Many of our member companies would welcome the opportunity to blend and market E15.”

However, he says via e-mail, “The concerns arise with the potential ‘unintended consequences’ that create liability issues for retailers.” One of the largest areas of liability concern is fueling infrastructure. Most fueling equipment in the field is not listed by Underwriters Laboratories (UL) as compatible with blends above E10, says John Eichberger, NACS’ vice president of government relations. This third-party listing is important because it absolves the retailer of liability should equipment fail or leak.

“If marketers want to sell these new higher-ethanol-blend fuels, they must use listed equipment,” Eichberger says in an e-mail interview. “This requires taking a careful inventory of underground components to determine if they must be changed and purchasing new dispensers that are officially ULlisted as compatible. Until we successfully change certification processes via federal legislation, there is no other mechanism to lawfully sell these products.”

Dzierzanowski, who has been supplying researchers at the National Renewable Energy Lab with legacy petroleum equipment to test the boundaries of higher ethanol blends, says UL approval is different than a claim of “compatibility.”

“A lot of manufacturers will tell you their products are compatible [with E15]—but is it UL approved?” Dzierzanowski asks. “You have several manufacturers who say they’ve applied for UL approval or compatibility on different widgets. But when you’re talking about the fueling system … every component that touches it needs to be compatible. Otherwise you create a leak point in that system.” (Visit www.cspnet.com to download a checklist and fueling system diagram, courtesy of Source North America Corp.)

These may include:

Dispensers. The major dispenser manufacturers have expanded their warranties on standard fuel dispensers— and those in the field—to include use of E15.

According to Richard Browne, vice president of global product marketing for Gilbarco Veeder-Root, Greensboro, N.C., manufacturer of fuel-dispensing and storage equipment, “If you are going to dispense E15, make sure the local fire marshal will either give a waiver to use E10 equipment, or buy equipment approved to E25, which is a flex-fuel dispenser,” he says. To this point, the local fire marshal may grant retailers permission to sell E15 without UL-certified equipment, but “the fire marshal cannot waive federal law nor protect you from gross negligence liability,” Eichberger says.

While UL listed two dispensers earlier this year for E25 and two for E85, the listing is not retroactive. “Consequently, unless retailers install such dispensers that were manufactured after the date UL listed them, they are not compatible,” says Eichberger. Selling fuel through equipment not listed as compatible opens the retailer to OSHA violations, tank insurance and state tank-fund violations, violation of bank loans that require compliance with regulations, violation of fire codes and liability for gross negligence, he says.

At the same time, specs for vaporrecovery systems are currently written for E10 and still need to be revised.

Underground equipment.One of the biggest complications with E15 may be phase separation in the storage tank, says Browne. In this phenomenon, ethanol blends separate into a layer of ethanol and water on the bottom of the tank, and pure gasoline on the top. The motorist may dispense pure gasoline into his car, which can cause engine issues.

Even those retailers already selling E10 may not be in the clear, because most do not have sensors to detect phase separation, Browne says: “We’re hearing it’s an issue at 10% ethanol concentration; as the concentration goes up, it will become more of an issue.” A phase detection sensor costs the same as a standard model, he says.

Piping systems. Dzierzanowski highlights this area of the fueling system as the “weakest link.” While several piping systems are in the field, some of their manufacturers are no longer in business. “Under the old UL standard, if a fire marshal said the manufacturer claims compatibility, you can use it, no problem,” he says. “Now that UL is issuing certifications [for higher ethanol blends] again, how do you go to that manufacturer if they’re not in business to verify compatibility?”

The issue of equipment compatibility is especially relevant to retailers who have grown through acquisition. Take, for example, a marketer with a network of 50 sites built through acquisition. “Now with a population of 50 stations, I may have five to six flavors of piping and submersibles,” Dzierzanowski says. “In a lot of states, it’s not a problem— they won’t force you to follow UL approvals. But what happens when there’s a catastrophic leak? Who will take the blame?” The easiest way to tell if a fueling system is compatible with E15 is to verify with the manufacturer if it is UL listed for E15 or higher blends, says Brandon Grote, product manager of aboveground products for OPW Fueling Components, Hamilton, Ohio. “Then you have third-party certification that clearly states your product is safe for use in products above E15,” he says. This past summer, OPW’s dispensing equipment became UL listed for use with E85, so it can handle blends from 10% to 85%. “People cannot just drop it into their tanks and expect everything will be OK,” Dzierzanowski says. “It’s going to take time, but they’re going to have problems with seals and things like that.”

MISFUELING MISADVENTURES

The EPA has authorized E15 only for vehicle models 2007 or newer and light trucks—although this may be expanded to models 2001 and newer later this fall. It also still prohibits its use in marine or nonvehicle engines. This sets up the real potential for misfueling.

The EPA has proposed pump-labeling requirements for dispensers selling E15. But this is not foolproof. “If I put a sign on the pump that says this is E15 and it’s not compatible with vehicles older than ’07, and it’s 10 cents per gallon cheaper, and someone pulls up to the pump, what’s to prevent them from putting cheaper product in the tank?” asks Jeff Miller, NACS chairman and president of Miller Oil Co., Norfolk, Va., a chain of 36 sites in Florida and Virginia. “They go down the road, their engine stalls, blows up or something like that—who’s liable? Who gets sued? I’m going to get sued. That is, if I can get insurance on this whole thing. There are just so many moving pieces that it’s gotten me really concerned.” Should a customer use E15 in a nonapproved engine, says Eichberger, the retailer may also be held responsible for a Clean Air Act violation, which has fines of up to $37,500 per day, and liable for equipment damage or injury. “There are no surefire ways to prevent misfueling,” Eichberger says. Even nozzle-size restrictions that accompanied the leaded-to-unleaded gasoline transition were circumvented by consumers seeking lower-priced leaded fuel for their unleaded vehicles, he says. And unlike E85, which mandates separate, boldly labeled dispensers, E15 would be dispensed through the current pumps. To provide liability protection to retailers on the constantly shifting blend wall, industry groups are pushing for the approval of H.R. 5778, “The Renewable Fuels Marketing Act of 2010.” As written, the bill directs the EPA to issue guidelines for determining if new or existing equipment is compatible with a new fuel blend. If the equipment meets the EPA’s conditions, it will be deemed compatible with all applicable laws and regulations, including tank insurance and bank loan policies.

The EPA would also be required to issue a labeling requirement for fuels such as E15 and protect retailers who use labels according to standards from Clean Air Act violations, or from responsibility for voiding an engine’s warranty if a self-service consumer misfuels. The associations are hopeful that the next Congress will vote on the bill.

While it may seem as if retailers are at the mercy of the EPA and Congress, lobbying for the passage of H.R. 5778 can be a truly effective means of regaining control, says Miller, who spent a day on Capitol Hill to educate lawmakers about the implications of a move to E15 and urge support for the bill.

“Don’t forget: E15 is not the end,” he says. “It’s all about 36 billion gallons of ethanol. So what happens if they decide to go to E25?”  


If You Want to Sell E15

  • Check with your fuel supplier. Branded refiners will not allow the sale of anything beyond E10, according to John Eichberger, NACS’ vice president of government relations. Those who are unbranded should review their contracts to determine their ability to blend beyond E10.
  • Use only third-party listed equipment.This means taking a full inventory of underground components and dispensers to determine if they are officially UL listed compatible with blends higher than E10—and if not, purchasing new equipment that is listed.
  • Educate customers. Once the EPA publishes its fueling guidelines, inform customers on the appropriate uses of E15. “Be aggressive,” says Eichberger. “This will not provide any legal protection, but you might be able to stop some customers from accidentally misfueling.”
  • Price it clearly. Label price signs appropriately. The wholesale price of E15 could be lower than E10, but you must clearly distinguish your E15 posted price from the E10 posted price, Eichberger says: “There is an energy difference and you don’t want to violate consumer protection or weights and measures standards.”
  • Beware of blending. While some retailers may consider using blender pumps to mix E85 and E10 to create a mid-level ethanol blend, Eichberger warns against it. There are no UL-listed blender pumps available, he says, so retailers would be violating federal law.  

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