March 17, 2014 | Vol. 64, No. 5

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In This Issue

Dear PEI Member:

We have a great opportunity each year to meet and talk with more than 150 members and their customers from February 18 through March 9 at three PEI committee meetings and the annual conventions sponsored by the Western Petroleum Marketers Association (WPMA), the Petroleum and Convenience Store Exposition of Mid-America (PACE), and the Southeast Petro-Food Marketing Exposition (SE Petro). Based on what they told us, here’s our take on the prospects for the rest of 2014.

Overall, this year is shaping up to be better than 2013, but not by much. Distributor sales are a real mixed bag. It seems that if sales are up, profit margins are down. Conversely, some told us that margins are up but sales are off. It is rare to find many distributors with profits AND margins up over last year. And fortunately, there are only a handful of companies where both sales and profits are down.

Those that see pressure on both sales and margins attribute their problems to the increased presence and market penetration of the very large sales-related distributors. As is often the case this time of year, the weather in many parts of the country has put construction projects—and accompanying sales—on hold. Geography doesn’t seem to play as much of a factor as it has in the past—winners and losers can be found in all states.

Expect more merger and acquisition activity. There are deals in the works that are not just involving the acquisition of competitors weakened by the recession. Some mergers and acquisitions will see strong companies seeking a competitive advantage by joining forces.

Other takeaways from our conversations:

  • The service side of the industry is decent to very good—but not great—for most service contractors. I was surprised to hear that a few companies are experiencing weakness on the service side and were at a loss to explain why. Reimbursement for warranty work holds down profits and is a constant source of irritation for distributors/service companies.   
  • Sales and installation of equipment to commercial and manufacturing accounts are a bright spot and continue to command higher gross margins.
  • Smaller distributors and installation contractors are having more problems than the larger companies.
  • Retail service station construction is all over the place, depending on the customer and geography. In all cases, it remains extremely competitive as too many construction companies chase too few new retail installations.
  • As a rule, profits have not recovered along with sales. Pressures on gross margin percentage and accelerating payroll costs have pushed profits lower.
  • Much of the talk at the SE Petro Show concerned a February 27 Reuters report that General Electric is preparing to sell its Wayne subsidiary. Wayne was part of Dresser Inc., which was bought by GE in 2010.   

Business Conditions

EPA Issues Tier 3 Rule

March 31: Deadline for RP1400 Comments


In This Issue


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The U.S. Environmental Protection Agency (EPA) has finalized new regulations that will cut sulfur in gasoline and strengthen vehicle emission standards. The rule is expected to help states meet national ambient air quality standards for ozone and fine particulate matter.

The rule’s most immediate effect will begin in 2017, when the EPA will require refiners to reduce the annual average amount of sulfur in gasoline to 10 parts per million (ppm), which is down from today’s standard of 30 ppm. The Tier 3 rule follows EPA’s 2000 Tier 2 rule, which reduced sulfur in gasoline from 300 ppm to 30 ppm.

In addition to the gasoline requirements, the regulation will require phased-in changes to vehicles, including stronger tailpipe and evaporative emissions standards, beginning in model years 2017 to 2025. The cost of the standards will average $72 per new vehicle, EPA said.

The rule’s compliance timing coincides with the requirements of EPA’s greenhouse gas emissions and fuel economy standards for passenger vehicles, which begin with model year 2017 vehicles.

EPA finalized the Tier 3 rule largely as proposed. However, in one change, EPA will use E10 as a certification fuel, rather than E15, which EPA initially proposed. The entire rule is available at www.epa.gov/otaq/tier3.htm

, Poca West Virginia, has made some territory assignments effective April 1. J.U.R., Blue Jay, California, will represent the complete line of IRPCO products in Northern California and the industrial side of the product line in California, Arizona and New Mexico. Pope & Associates, Inc., Tampa, Florida, will represent IRPCO in Florida. Converse Interests will represent the company in Colorado, Utah, Nevada, Wyoming, Montana and Idaho.

The deadline to comment on PEI’s Recommended Practices for the Design and Installation of Fueling Systems for Emergency Generators, Stationary Diesel Engines and Oil Burner Systems (PEI/RP1400) is March 31, 2014. To download a draft of the document and to comment, go to www.pei.org/rp1400.

The deadline to complete PEI’s 2014 Employee Compensation Survey has been extended until March 31. The survey is open only to PEI distributor members. If you do not have a copy of the survey form and would like to receive one, contact Chris Bouldin at 918-236-3964 or cbouldin@pei.org.

Massachusetts Attorney General Martha Coakley announced a $4 million settlement
February 27 with Shell Oil Company to resolve allegations that Shell made false reimbursement claims for environmental cleanup projects. Shell allegedly made false claims for more than a hundred gasoline stations to get reimbursement from the state’s Underground Storage Tank Petroleum Product Cleanup Fund program. Under the terms of the settlement, Shell must pay more than $1.9 million to the UST Program Expendable Trust and more than $2 million to the state.
The latest word from EPA’s Office of Underground Storage Tanks is that there is a very slim chance that the new underground storage tank (UST) regulations proposed in 2011 will be finalized by September 30. The proposed regulations emphasized the proper operation and maintenance of UST equipment. The Agency did confirm that it still plans to issue the regulations.

South Dakota this month unveiled plans to use E15 in its state vehicle fleet for a six-month period. Currently the state’s flex-fuel fleet consumes E10, but the trial will test E15 in some non-flex gasoline vehicles.

Frances J. Sledd
, 73, of Amelia County, Virginia, passed away March 8. Frances and H.R., her husband of nearly 54 years, started Beneficial Systems 28 years ago, and she was a large part of the company’s history and success. She is survived by her husband, H.R. Sledd Sr.; her son, Ron Sledd; her daughters and their husbands, Sissy and Bruce Carroum, Frances Victoria and Jonathan Dowdy, Melissa DeAnne and J.L. Rogers II, Kate and Cris Rodriguez; and her grandchildren, Aaron Sledd, Parker and his wife Natalie Carroum, Cooper Ellis Dowdy, Isabeau and Calypso Rodriguez.

Tennessee installation and service company
. Southeast Compliance Inc., P. O. Box 422, Collierville, Tennessee 38027, has applied for service and construction division membership. John M. Varner is president of the firm, which was established in 1997. The company installs, tests and repairs cathodic protection systems; tests lines and leak detection systems; and cleans underground and aboveground tanks. Sponsored for PEI membership by Eric M. Scott, SouthernCo, Memphis, TN.


  • Flexrite Sdn. Bhd., Selangor, DE, Malaysia (mfr)
  • InstaKey Security Systems, Lakewood, CO (mfr)
  • Scott Tyler Mechanical Services, Meshoppen, PA (S&C)



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© 2014
Petroleum Equipment Institute
P. O. Box 2380
Tulsa, OK 74101-2380

The TulsaLetter (ISSN 0193-9467) is published two or three times each month by the Petroleum Equipment Institute. Robert N. Renkes, Executive Vice President, Editor. Opinions expressed are the opinions of the Editor. Basic circulation confined to PEI members.