WASHINGTON – Congress must consider the economic welfare of its constituents when contemplating legislation to promote renewable and alternative fuels. This was the message delivered on Tuesday by Paul Reid, CEO of the Reid Group in Lockport, New York. Reid testified on behalf of NACS and SIGMA at a hearing before the U.S. House Energy and Commerce Committee's Subcommittee on Energy and Air Quality titled, "Alternative Fuels: Current Status, Proposals for New Standards, and Related Infrastructure Issues."

Increasing the Renewable Fuels Mandate
"SIGMA and NACS do not oppose the transition to a renewable fuels economy. We do, however, urge Congress in its decisions to be fully cognizant of the economic and consumer consequences associated with continuing mandates on the motor fuels business," Reid testified.

"The market is proceeding to offer renewable fuels ahead of the federally mandated schedule," he said. "There is no reason to believe that this will not continue in the absence of an increased mandate. However, if Congress feels compelled to accelerate this transition through a revised federal mandate, SIGMA and NACS call upon Congress to construct the revised program with the interests of consumers in mind."

Reid argued that any increase in the mandate should be contingent upon a finding that there is enough supply of renewable fuels and sufficient infrastructure to bring the fuel to market "without placing an undue financial burden on consumers."

Alternative Fuels and Compatibility
Furthermore, with regards to alternative fuels, Reid advised that Congress shift its attention towards those fuels that are compatible with existing infrastructure and vehicle fleets. "Introduction of such alternatives could prove to be seamless to the consumer and provide an immediate boost to our nation's energy sustainability."

He explained that alternative fuels which are not compatible, while they have a very important role in the future of the motor fuels system, present increased marketing challenges. To illustrate the point, Reid shared with the Committee quotes he had received to convert his locations to sell E-85.

"To convert one of my newer stores to sell E-85, I would be facing an expense of something in the range of $20,000, not including labor expenses," he said. "I was recently quoted a price of $75,000 to install a new E-85 system at one of my stations. Another member of SIGMA told me last week that he was quoted a price of over $200,000."

Reid stressed that in the chicken-and-egg controversy concerning which should come first, the vehicles or the fuel, that the vehicles are the necessary first step.

"Owners of FFVs [flexible fuel vehicles] have the ability to purchase either gasoline or E-85, without any affect on their vehicles. However, when a retailer chooses to sell E-85, the commitment is not as flexible. To offer E-85, as I have explained, requires a significant, long-term economic investment. In addition to the up-front conversion costs, the retailer is dramatically changing his business model.…Consequently, it makes sense that retailers would be hesitant to make such an investment until there is sustained consumer demand in their market. Meanwhile, the drivers of FFVs are not denied the opportunity to purchase fuel because they have the option to buy gasoline. Hence, the chicken should come first. And, in fact, it is."

Reid noted that as more FFVs come on the market and consumer demand increases, more retailers will consider installation of E-85 fueling systems. However, this does not mean consumers will actually buy the product.

Congress: Pushing Expensive Fuel Options, Questioning High Gas Prices
Reid called into question Congress' lack of attention to the cost factor associated with renewable and alternative fuels on the one hand, while focusing considerable attention on high gasoline prices with the other.

"Few other issues attract as much attention from consumers, the media, and Congress as does the price of gasoline. For retailers, the recent increase in wholesale prices have forced retail prices higher and with that comes the fear that lawmakers at the state level and here in Washington will consider legislation to curb retail price increases.

"I mention this because the Congressional discussion about alternative and renewable fuels to date has focused on two issues: reducing America's reliance on imported energy resources and reducing emissions. Little attention has been paid to the cost at which these new fuels may be offered to consumers. Meanwhile, considerable attention has been paid to the price at which retailers sell gasoline. This disconnect must be corrected."

Referencing the NACS Consumer Fuels Study, Reid noted that while consumers support the transition to a "green economy, when they go to fuel their vehicles the only green that truly matters in the green in their wallets (or the balance on their credit cards)."

"SIGMA and NACS have spoken with retailers throughout the nation who sell E-85, and we have learned that volumes of E-85 fall off dramatically when the price is not significantly lower (at least 20 cents per gallon) than gasoline," Reid explained. "Some retailers, including one operating in Minnesota, report that the price differential to maintain volumes is actually closer to 40 cents per gallon. Unfortunately, it is not always possible for a retailer to price E-85 below gasoline.

"Clearly, consumers have made the economic calculation regarding E-85 and they are demanding a benefit in price. Absent that benefit, they will follow their economic interests and purchase gasoline. "

Why Few Retailers Offer E-85?
Several representatives asked Reid if the refining companies deny their branded locations the option to sell E-85, implying that there was a concerted effort on the part of the refining industry to prevent the introduction of the fuel.

Reid explained that the Gasohol Competition Act of 1980, which prevents suppliers from denying a retailer the opportunity to sell E-10 provided the dispenser is clearly de-branded, also applies to E-85 by its inclusion of other synthetic fuels of similar quality.

Rather than being prohibited from selling this product, he explained, retailers are faced with significant capital investments for which current market data indicate there is insufficient consumer demand to reasonably expect any sort of return.

Reid concluded his testimony with one final appeal: "The future of renewable and alternative fuels is a bright one, even without new government programs. As Congress considers policies to accelerate the market's transition, SIGMA and NACS encourage you to keep in mind the nature of the retail marketplace, remember the economic interests of your constituents, and provide safety valves to ensure minimal disruption to the system. Government mandates are antithetical to a free motor fuels marketplace and will only wind up harming consumers in the short run and beyond."