August 24, 2010

Ms. Tonya Hoover Mr. James Goldstene

Acting State Fire Marshal Executive Officer
Office of the State Fire Marshal California Air Resources Board
1131 "S" Street 1001 "I" Street
Sacramento, CA 95811 P.O. Box 2815
Sacramento, CA 95812

Chief Hoover and Mr. Goldstene:

This letter communicates the significant and serious concerns of the California Independent
Oil Marketers Association in regards to the decision by the State Fire Marshal to order
removal of all hold open latches from enhanced vapor recovery nozzles manufactured by
VST. It also includes our recommendations, going forward.

We disagree with the OSFM decision to remove the hold open latches. We believe that
consumers will be exposed to equal, if not greater, risk with this decision. This was carefully
explained and documented by industry representatives in several meetings with CARB,
OSFM and representatives from the California Air Pollution Control Officers Association
(CAPCOA). Further, we are very discouraged that reasonable, equally effective inspection
alternatives were ultimately dismissed.

To put this in context from a regulated community perspective we offer the following.
Gasoline dispenser operators in this state are required to use the VST nozzle if they operate a
balance-type EVR system. 1 The nozzle is certified by CARB and the State Fire Marshal. It is
deemed “commercially available” by CARB. The nozzle costs about three times as much as
its pre-EVR predecessor. It only has a one-year warranty. So when a mandated, certified,
“commercially available”, more expensive, lesser warranted nozzle creates a health and
safety problem, purchasers of that nozzle are justifiably distressed when confronted by the
fact that their equipment must be modified leading to further economic consequences from
business loss, possible replacement cost, and liability for damages/legal representation.

We believe the following actions should be taken immediately:

- Immediate approval of an “enhanced inspection” alternative to the hold-open latch
removal directive by the SFM.

1Not only are VST nozzles required at VST EVR system sites, CARB Advisory 408, 11/19/09, requires
replacement of existing nozzles with EVR-compliant nozzles in certain situations. Locations with pre-EVR
balance systems also have had to replace older hanging hardware with the VST nozzles.
- A specific timeline for equipment replacement and/or repair should be issued as soon as
possible. A determination of a station operator’s potential financial responsibility for
equipment repair and/or purchase needs to be quickly communicated.
- An independent, third-party audit should be commenced immediately to determine
whether all nozzle components were subjected to full and rigorous testing, both during
the agency certification process and by independent testing laboratories.
- Agencies should make financial assistance available to station owner/operators who
incur financial harm from the SFM’s decision to remove hold open latches.
- Going forward, agencies having a role in certification should be included in the chain of
liability regarding the safe operation of equipment they have certified.

Following are specific points that have led to the recommendations:

- We have concern and confusion with how agencies were able to arrive at this decision
without balancing the risk and consequences of latch removal.
- We are concerned that the decision included a broad and over-reaching prescription
without appropriate consideration of the limited number of events and the specific
situations in which those events occurred.
- We are concerned over the total disregard for the serious economic consequences this
decision is likely to have on approximately one third of the state’s gasoline outlets and
lack of financial assistance to negatively impacted stations.
- We are concerned that agencies have not taken swift and proactive action to protect
station owners from economic harm, specifically assessing whether the nozzles in
question are defective.
- We are concerned that this decision was reached without a clear understanding of when a
solution, other than removal of the latches, may become available.

What we have seen is regulatory agencies send suspect nozzles to the equipment
manufacturer for analysis. Not surprisingly, the equipment manufacturer finds the problems
are not their fault. We have seen no objective analysis of the facts involved in each incident.
We have seen no specific timeline for a solution or solutions to the malfunctions. And, we
have seen agencies positioning themselves to avoid implication regarding these problems.

While we appreciate the inclusion in discussions regarding appropriate ways to resolve this
very complicated situation – we must note that we were contacted approximately 45 days
after the initial incident occurred, and after several industry-wide communications had been
issued by the Air Resources Board (CARB), the Fire Marshal (OSFM) and nozzle
manufacturer VST relating to the nozzle issue. It is crucial to involve the regulated
community at the earliest possible moment when conditions regarding the health and safety
of our customers occur since our members have front-line responsibility, encounter
immediate economic consequences and are legally liable in these situations.

We will continue to communicate with our members regarding the directives and other
communications from agencies that have a material effect on the operation of their facilities.

We remain committed to being included, in the future, on the development of solutions and
directions in such cases; early communication and coordination is essential in developing
quick and effective solutions to complicated problems.
Please feel to contact me if you wish to discuss this letter or the current situation in greater
detail.

Sincerely,

Jay McKeeman,
Vice President, Government Relations & Communications

cc: Linda Adams, Secretary, Cal/EPA

Lester Snow, Secretary, Resources Agency
Mary Nichols, Chair, California Air Resources Agency
Dan Pellissier, Deputy Cabinet Secretary, Governor’s Office
Alberto Ayala, Chief, CARB Monitoring & Laboratory Division
CIOMA Board of Directors