John EichbergerVice PresidentGovernment Relations(703) 518-4247
The Kansas City Star published a series of articles in the summer of 2006 claiming that consumers are paying $2.3 billion annually for gas they do not receive because retailers do not compensate for temperature at the pump. Politicians and regulators are looking into the issue at the federal and state levels and class action lawsuits have been filed in several states.
The volume for a gallon of gasoline as measured at the standard 60 degrees F is 231 cubic inches. For every 15 degrees variation, the volume of that gasoline will change one percent. The National Institute of Standards and Technology reports that data collected between 2002 and 2004 at 1,000 gas stations in 48 states showed the average dispensed temperature of a gallon of gasoline was 64.7 degrees F. The Kansas City Star used this information to calculate the cost to consumers of this expansion of gasoline, at an average price of $3.00 per gallon, as the equivalent of $2.3 billion.
The Owners-Operators Independent Drivers Association joined with activist group Public Citizen to file lawsuits in several states claiming that the petroleum industry is knowingly engaged in a campaign of fraud to steal from the consumer. These suits, now in excess of 40 naming major oil companies and retail chains as defendants have been consolidated into one suit.
The National Conference of Weights and Measures spent several years considering possible changes to regulations to either allow states to permit retailers to voluntarily install automatic temperature compensation (ATC) equipment on dispensers or to mandate the installation of such devices at a date in the future.
The House of Representatives Oversight and Government Reform Subcommittee on Domestic Policy held two hearings on the issue in 2007, trying to pin the responsibility for the “anti-consumer” behavior on the major oil companies. NACS testified at the first hearing.
Also in 2007, Senator Claire McCaskill (D-MO) introduced legislation that would require all new dispensers to be ATC equipped and all existing dispensers to be retrofitted within six years. Financial assistance for such conversions will be granted through a new program funded from $5,000 fines assessed against retailers for non-compliance. She reintroduced this legislation on July 21, 2009.
Multiple major oil companies have put labels on their company owned dispensers declaring that the fuel being sold is not temperature compensated to 60 degrees F.
Why You Should CareIt is estimated that converting existing electronic dispensers to compensate for temperature would cost between $2,000 and $4,000 per unit. While Gilbarco has technology to install in new electronic dispensers and claims to be able to install aftermarket, only one company (Krause) has the technology to convert mechanical dispensers and it holds a patent on that system. If conversion were to be required, Krause would have a government mandated monopoly on the market. In January 2007, Krause estimated the cost to convert a mechanical dispenser would be between $2,000 and $3,800.
If a permissive ATC were adopted, the market affects could be significant. Currently, the retail motor fuels market is the most transparent in the nation — empowering consumers to shop by price without ever leaving their vehicles. If retailers began selling different volumes of gasoline, this transparent pricing would be compromised — consumers would have difficulty determining the value from location to location.
Although the NCWM has rejected proposed changes to the method of sale of petroleum products, there are some states that continue to pursue ATC at retail. In addition, the class action litigation seeking damages continues and reintroduced legislation in the U.S. Senate continues to pose at threat.
What NACS Is DoingNACS believes the proposal to compensate gasoline volumes for temperature is unnecessary and will ultimately hurt the consumer. NACS has been cooperating with others in the petroleum industry (in particular state associations) to oppose these developments. NACS is a member of PUMP (Partnership for Uniform Marketing Practices), which is working with a broad range of industry stakeholders to educate Congress, the media and state regulators regarding the issue of ATC. In addition, NACS joined NATSO, PMAA and SIGMA to commission an economic analysis of the proposal which demonstrated that ATC would only increase costs to consumers while providing no tangible economic benefit.
How You Can HelpNACS will monitor progress on the McCaskill legislation and alert you if there is any need to contact your senators. When introduced in 2007, the legislation attracted very little attention and made no progress.
Although the proposals were rejected by NCWM, some states continue to pursue ATC at retail and the issue may appear at state legislatures and in future regional meetings of the NCWM. Pay close attention to notices from your state associations and NACS for updates on potential action in this arena.
Latest DevelopmentsThe National Conference on Weights and Measures failed to approve a permissive standard at its annual meeting in July 2007 and established a task force to answer questions posed by the Conference. In January 2008, the Conference determined that there was insufficient data to justify a vote in July 2008 and changed the classification of the item from “Voting” to “Informational.” The Conference continued to receive input on the topic throughout the next year and was anticipating the delivery of a cost-benefit study being conducted at that time by the California Energy Commission.
In May 2008, NACS, SIGMA, PMAA and NATSO contracted with the Law and Economics Consulting Group (LECG) to conduct an independent cost-benefits analysis of the various proposals to implement automatic temperature compensation at retail.
In July 2008, the NCWM considered a proposal to establish technical specifications to implement ATC if the conference ultimately decides to authorize or require its use. After receiving comments from a large number of state officials and representatives of the petroleum industry, NCWM decided to postpone all action on the issue until it determines the proper course of action pending review of cost-benefit analyses due later in the year.
In January 2009, the LECG study was released at the NCWM Interim Meeting. The study found that there are no excess profits generated by retailers selling motor fuels from dispensers not equipped with ATC devices; retail prices already reflect the volumetric effects of temperature on motor fuels; use of ATC devices will not provide consumers with additional fuel at unchanged prices— consumers will pay the same amount for the same quantity of fuel regardless of unit size; and consumers’ fuel expenditures will increase because they will pay for the costs associated with installation, maintenance and regulation of ATC equipment.
In March 2009, the California Energy Commission completed its work on a cost-benefit analysis of ATC in California and submitted its report to the state legislature. The report concluded that, under all scenarios, the costs far exceeded any potential benefit for the consumer. However, the Commission sought to estimate the economic value of “increased transparency” afforded by ATC and recommended that the legislature consider whether consumers would be willing to pay a slightly higher price for fuel in exchange for what some consider to be a more consistent and “fair” motor fuel gallon. This recommendation ignored the CEC’s own estimated costs of at least $7 million in recurring expense each year compared to an estimated “transparency” benefit of $257,000 annually.
In July 2009, the NCWM voted overwhelmingly to withdraw the proposals to mandate ATC at retail in 10 years and another to permit ATC at retail. The Conference report noted: “Primary reasons for the Committee’s decision were conference consensus against ATC, economic cost factors, lack of benefit to consumers, absence of uniformity in the marketplace, and the additional cost to Weights and Measures officials and service companies.” The issue is now removed from the Conference agenda completely. It may be resurrected by a regional association, but would then have to go through the entire consideration process again.
On July 21, Sen. Claire McCaskill (D-MO) reintroduced the Future Accountability in Retail (FAIR) Fuel Act to mandate ATC retrofit within six years. Sen. McCaskill noted in her press release that “She was inspired by a 2006 three-part series in the Kansas City Star exposing the problem, which prompted her to make a campaign promise to pursue a solution in Congress once elected.
In January 2010, NCWM voted to dissolve its ATC Steering Committee that had been formed to provide input to regulators in the event NCWM decided to proceed with regulations to require or permit ATC at retail. In addition, NCWM voted to withdraw a proposal to establish the testing and regulatory oversight procedures that would be necessary should ATC be required or permitted at retail. These decisions completely removed the ATC issue from the NCWM agenda.
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