Phase separation happens when water absorbed by the ethanol separates out during storage. If enough water enters the tank, the ethanol separates from the petrol and settles on the bottom along with the water.
There is no such thing as an acceptable amount of water being registered on a tank gauge when biofuels are in the mix. Even now in 2021, I see advice to retailers from wetstock monitoring companies that up to 25mm of water is ok to carry on trading. This is totally false. If you get a water alarm, shut off your pumps immediately and get it checked out before reopening.
If water leaks into a tank, it is critical that further deliveries are also stopped to prevent mixing. This often allows the fuel to be saved from phase separation. You can remove the water and ethanol mix but the remaining petrol will not hit the required octane and will be off-spec.
