WASHINGTON -- In testimony delivered to the House Energy and Commerce Committee on June 7, NACS Vice Chair of Government Relations Sonja Hubbard, CEO of E-Z Mart Stores Inc. (Texarkana, Texas), gained support from other witnesses and members of Congress when she urged Congress to consider placing conditions on the ability of states to adopt ethanol and biodiesel mandates, as well as to move cautiously when considering additional restrictions on the number of boutique fuels.
State Biofuel Mandates
"We recommend you address the issue of state biofuel mandates," Hubbard said. "We recognize this is a controversial issue and I want to make clear that we are not attacking the role of biofuels in the market. But we strongly believe that Congress must consider the market effects of state mandates."
Hubbard's comments were echoed by other witnesses at the hearing, including Ed Murphy of the American Petroleum Institute who said, "We feel strongly that the addition of provisions restricting state bio-fuel mandates would substantially strengthen what has been proposed [in the draft legislation under consideration]. More state biofuel mandates could undo or offset much of the benefit your legislation, as well as EPAct [Energy Policy Act of 2005] promises to provide."
Hubbard noted that her company operates at the intersection of four states and often obtains product from a terminal in one state for sale at a retail location in a neighboring state. If those states were to implement inconsistent mandates, her ability to provide her customers with the best-priced gasoline would be significantly impaired.
Members of Congress also chimed in on the issue. Rep. John Sullivan (R-OK) noted in his opening statement that he is concerned the spread of state biofuel mandates would undermine the flexibility intended by Congress when enacting the renewable fuels standard. Rep. John Shadegg (R-AZ) also engaged with Hubbard on the issue by focusing on the ability of marketers to move product across state lines if those states have different requirements. He noted that if state mandates could impose such complications on the system, then some sort of oversight should be implemented to preserve the efficiency of the motor fuel supply and distribution system. This was consistent with Hubbard's recommendations.
"We suggest that legislation make the adoption of any state alternative fuel mandate, such as an ethanol or biodiesel mandate, conditional upon determinations by the Secretaries of Energy and Transportation that sufficient supplies of such fuels exist to satisfy demand and that such a mandate will be supported by adequate transportation logistics," she said.
Hubbard presented the committee with a map (PDF) of the United States that demonstrates the status of biofuel mandates at the state level. The map shows that as many as 16 states have enacted or have considered enacting such mandates, creating a potential system that would significantly impede the efficiency of the distribution system.
Chairman Joe Barton (R-TX) asked Bob Myers, associate assistant administrator for air and radiation at the Environmental Protection Agency (EPA), if the agency had the authority to control state biofuel mandates. In response, Myers reported that such authority does not exist without additional legislative action.
Further Reduction in Boutique Fuels Should be Pursued Cautiously
"We urge the Committee to be very careful when considering additional legislation on boutique fuels in light of the impact such legislation could have on an already volatile gasoline and diesel fuel market," Hubbard said. "We recommend that you do not establish a federal fuel slate until EPA and DOE [Department of Energy] have completed their study and reported back to Congress as required under EPAct. Only after completion of this study can Congress reasonably anticipate the market effects of such legislative proposals."
This sentiment was strongly supported by DOE Office of Policy and International Affairs Assistant Secretary Karen Harbert, who expressed concerns about reducing the number of boutique fuels. She noted that doing so may have beneficial effects on the market, but it could also put more pressure on refiners. She continued that a fuel slate could possibly have negative consequences for the market and that DOE would need to further understand the potential implications of the proposal. Habert said that further action on the issue of boutique fuels must balance the various interests of environmental quality, supply and distribution fungibility.
Myers reported that a report on the Governor's Task Force on Boutique Fuels should be released by the end of the month. Habert also reported that DOE and EPA are working diligently to complete their analysis of the market and the issue of boutique fuels as required under EPAct. The first such report should be available on time in August 2006.
Bill Becker, executive director of the State and Territorial Air Pollution Program Administrators and the Association of Local Air Pollution Control Officials, argued that boutique fuel programs have benefited state efforts to meet air quality objectives and that environmental controls have contributed very little to the increase in gasoline prices.
Chairman Barton noted his personal experience has demonstrated a price differential of 20 to 30 cents per gallon between conventional gasoline markets and reformulated gasoline markets in Texas, and highlighted that California, which has enacted the most stringent fuel specifications in the nation, is consistently higher than the rest of the nation. He said it would be "ludicrous" to say that clean fuel specifications have not contributed to higher retail gasoline prices.
Hubbard commented that the price differential between the reformulated gasoline market of Dallas/Fort Worth and the surrounding conventional gasoline markets has at times been as high as 40 cents per gallon. This has resulted in consumers fueling with lower priced gasoline at her stations located outside the Dallas/Fort Worth market with such increased frequency that gallons sold at some locations are up 35 percent compared to year before. She further explained that part of the reason prices are so high in Dallas is because of the market's reliance on ethanol, which is trading at extremely elevated prices and must be shipped via truck from the Midwest.
Hubbard presented to the committee another chart demonstrating that the increase in spot market ethanol prices over the past year far outpaced the increase in prices for reformulated gasoline suitable for ethanol blending.
"Ethanol currently is trading at over $3.75 per gallon on the spot market--double its price last year," she said. "There can be no clearer indication that there is not enough ethanol to meet current demand."