INSIGHT: Effort to storm-proof fuel supply stalls

19 September 2007 16:42  [Source: ICIS news]

By Joe Kamalick

 

WASHINGTON (ICIS news)--Efforts to storm-proof US retail fuel supplies have pretty much run out of gas as high costs, conflicting federal policies and the threat of price control legislation and litigation have combined to choke off a good idea.

 

One of the lessons learned in the wake of disastrous double hurricane hits on the US Gulf Coast in August and September 2005 was that recovery efforts were severely impeded because ambulances, fire trucks, evacuation boats and other rescue vehicles simply ran out of gas.

 

In the aftermath of Hurricane Katrina in August that year and Rita at the end of September, first responders in vehicles of all types raced into the storm-struck coastal areas of five states to rescue the homeless or injured, deliver emergency supplies and begin recovery. 

 

But, according to the Department of Homeland Security (DHS), many of those emergency vehicles got stranded for lack of fuel or had to make a limited number of short trips into devastated areas before turning back to their bases outside the storm region in order to refuel.

 

There was plenty of gasoline in storage tanks at thousands of retail service stations throughout the storm ravaged region, but because electric power had been knocked out there was no way to pump fuel. Electric power remained down for days in most areas hardest hit by Katrina and Rita, and some sectors were without power for weeks. 

 

That inability to access plentiful and at-hand fuel supplies made rescue and recovery work harder for emergency crews and ordinary citizens alike - and it may have cost some their lives.

 

At the onset of this year’s hurricane season, Homeland Security Secretary Michael Chertoff said his department had asked gasoline retailers and their trade associations to take steps to ensure that service stations in hurricane-prone regions of the country were equipped with auxiliary power units that would allow them to distribute gasoline as soon as the storm had passed, even though the power grid might remain offline for many days.

 

In a letter also signed by Energy Department Secretary Samuel Bodman, Chertoff told one major gasoline retailer association that “When a storm strikes, access to fuel is critical for first responders, businesses and residents struggling to recover”.

 

“It is essential that fuel retailers and terminals be able to continue business operations following a disaster that might cause widespread and sustained power outages,” the two department heads said.

 

“Too few [gasoline retailers] had taken the precaution of procuring and learning how to safely connect an emergency generator to allow the pumping of fuel after the predictable loss of electricity,” Chertoff and Bodman wrote.

 

“First responders and citizens [should] not face the deep frustration and potential tragedy of finding that your terminals and retailers have adequate fuel without a way to provide it when needed most,” the two cabinet secretaries said, adding:  “Preparedness is not the sole obligation of government; it is also the obligation of every company on which Americans depend in an emergency.”

 

However well-intentioned the two department leaders’ admonitions, ensuring back-up power sufficient to operate a retail gasoline station is not that simple. As one retailer noted, you can’t just run out to Home Depot, pick up a little generator and plug it into your pumps. It is a lot more complicated - and it isn’t cheap.

 

According to Pat Moricca, president of the Gasoline Retail Association of Florida, the wiring and switchbox installation needed to prepare a gas station for auxiliary power can cost around $10,000 alone. 

 

Purchase and installation of an auxiliary electric power unit starts at around $40,000 and goes up, depending on the size of the retail facility, the number of pumps, etc. 

 

An expenditure of $50,000 or more is a significant and even prohibitive expense, according to Moricca, for independent operators who make up more than half of the 160,000 US gasoline service stations nationwide.

 

Recognizing those cost hurdles, the Florida legislature enacted a law requiring that gasoline stations located within a half-mile of a designated hurricane evacuation route pay for the wiring and switchbox work, so that their facilities would be able to connect auxiliary power if those units could be made available before or after a storm. The state did not require the retailers to actually install auxiliary power units.

 

Dan Gilligan, president of the 8,000-member Petroleum Marketers Association of America (PMAA), cited other issues in addition to the high cost of equipping retail fuel stations with back-up power.

 

In a response letter to Chertoff and Bodman, Gilligan noted that other federal policies or practices can work at cross-purposes to restoring retail fuel service after a storm.  He pointed out that in anticipation of Hurricane Wilma in October 2005, the US Coast Guard prohibited barge deliveries of gasoline and diesel to Florida ports days ahead of Wilma’s landfall.

 

As a consequence, many Florida gas stations ran out of fuel even before the storm landed. So even if they had had auxiliary power capability after the storm passed, they had no fuel to pump.

 

“Another common problem was phone access,” said Gilligan of the days following Katrina, Rita and Wilma. “When phone lines are down, many credit card payment systems are down as well,” meaning retailers could not make credit sales. “Small businesses cannot risk taking credit cards without verification,” Gilligan said.

 

Gilligan also cautioned that maintaining and restoring retail fuel service following major storms or other disasters is at risk because of two bills pending in the US Congress. A major energy bill, HR-6, and a separate bill, HR-1252, variously provide for caps on retail fuel prices and impose criminal penalties on service station owners judged to be charging “unconscionable” fuel prices in the wake of a storm.

 

Both bills have been approved by the House and HR-6 has passed in the Senate. The Bush White House has indicated the president would veto both.

 

Gilligan told Chertoff and Bodman that faced with possible prosecution for undefined “unconscionable” prices, most retailers likely would leave their stations closed in the wake of a storm - even if they had auxiliary power and full tanks.

 

The Department of Homeland Security said that some retail fuel stations have been equipped with auxiliary power, “often with the assistance of fuel suppliers”. But the department did not know how many of the nation’s 160,000 gas stations are so equipped.

 

The effort now appears stalled. Gilligan said he has heard nothing from Homeland Security or the Energy Department since the exchange of letters in June.

 

Other retail fuel trade groups, including the Service Station Dealers of America (SSDA) and the Society of Independent Gasoline Marketers of America (SIGMA), said they have not had any communication at all from federal officials about back-up power issues.

By: Joe Kamalick
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