The Value of Equipment Inspections
Written by: Patrick Rounds, President and CEO
Managing financial resources is an everyday responsibility. Businesses owners may set aside one day a week or one weekend a month to review financials, compare the balance sheet to the budget, and develop reports, but managing the budget occurs every day.
When it comes to your petroleum storage tank system, there are some tasks that are required every so often, while others daily. Maintaining your system is a daily task. As part of our risk management and loss control program, PMMIC inspects your UST system once per year, but you need to manage your system every day. Management includes routine system inspection and maintenance.
Equipment inspections are essential and have and have a significant impact on your business. To put it into perspective, consider an ice cream freezer in a convenience store. If it starts to “lose its cool” and allows the temperature to rise above freezing, you risk losing the contents of the freezer. If you catch it soon enough, you might save the tasty treats inside before they become unmarketable. Too late and you will lose them all. Your loss is the cost to clean up the melting mess, and of course the cost of the treats. You also may have the loss of business caused by the upset customer not receiving the treat when they wanted it, but for the most part the losses are quantifiable.
In theory, the same could be stated for loss of petroleum from a tank system that is not properly maintained. You pay for lost product and cleanup cost—however, unlike the melted ice cream on your floor, costs for cleanup of petroleum contamination from subsurface soil and groundwater is not easily projected. It may cost hundreds of thousands of dollars and could cost you your business.
In the environmental remediation industry, there is no direct correlation between the cost of the cleanup and the amount of fuel lost. Rather, cleanup costs are dependant upon satisfying a complex regulatory process, and at some point, a regulator. The sooner a leak is discovered and stopped, the less it will cost to cleanup. Over the past 24 years we have learned that it costs six times more to clean up a leak discovered by reviewing inventory records than it does to clean up a leak discovered by a loss control inspection.
Costs average $60,000 for a typical PMMIC claim, but the cost of an individual claim may exceed $1 million. It would take a large ice cream spill to cause $60,000 in damages; I don’t want to try to consider how much you would have to lose to get to the $1 million level. The point is both losses are caused by a failure to address a maintenance concern before the damage occurred. The problem is that most of you check your freezer temps everyday—those of you who run good businesses check it several times per day, but you do not check your tank systems every day. In fact, many of you likely do a partial check about once per month (“Did we get a passing ATG reading yet?”).
Frequent inspections are essential. Consider the ice cream example. The store manager leaves on Friday after confirming the freezer is working properly. Over the weekend, the assistant manager is in charge. The manager clocks in Monday morning to find the freezer has not been checked since Friday, with the assistant manager justifying that no one had bought any treats from the freezer since Saturday morning. The freezer temperature is now 67 degrees and likely has been since it was last opened. If the ice cream freezer holds 120 items at an average of $3 each, the loss of merchandise is $360. A clerk with a bucket and mop will cost about $18 per hour for one hour to mop the floor and dispose of lost product. Not counting lost business until the freezer is repaired, the total loss is a whopping $378!
Let’s consider a dispenser leaking one gallon of product per day. The ATG will never detect the loss. Your staff is busy and will likely not open the dispensers unless there is an emergency. Because they are not checking, a leak begins on April 15 (do you see foreshadowing here?) and is not discovered until the PMMIC inspector conducts your annual insurance inspection on August 15th. By then, you have lost approximately 120 gallons of product. At roughly $3 per gallon, a loss of $360 (only $90 per month, not bad, huh?). Now you must notify DNR that you have a release. You contact your environmental consultant who comes out to determine just how much product you did lose and how far it migrated in the soil and groundwater. Probably no bucket and mop involved, but initial assessment and paperwork required for DNR is approximately $15,000. You contact PMMIC and notify us of the possible claim and we inform you of YOUR $10,000 deductible. While the environmental consultant is drilling your site, you must shut down the leaking dispenser and several other dispensers to make room for the assessment activities. The total cost ends up at least $10,000 plus staff time and lost business. On average, PMMIC will have to pay $60,000, if a release is confirmed and the claim is eligible. Insurance rates will reflect the cost of the claim. The headache of cleanup will last from 4 to 10 years.
If you catch the freezer temperature starting to rise, you can save the ice cream treats before it is too late. If you observe a small leak at a dispenser, you can usually get it fixed without shutting down any other dispensers and, if caught soon enough, you will not have to conduct any assessment or cleanup. You check freezer temps every day with $360 at risk. Which system should you be checking everyday?
Remember, maintenance is something you do, not something you did. Compliance is a business issue!