WASHINGTON – In an August 28 letter to Rep. Darrell Issa (R-CA), Federal Trade Commission Chairman Deborah Platt Majoras wrote, “Although the FTC has not conducted an investigation of this matter, it appears that the sale of “hot fuel” might not cost consumers extra money, while the solution under consideration may raise consumer prices.”
The letter [PDF] was sent in response to an inquiry submitted by Rep. Issa requesting the FTC’s views on possible legislation regarding automatic temperature compensation (ATC). This issue has been the subject of media reports, National Conference on Weights and Measures debates, hearings in the House Oversight and Government Reform Committee’s Subcommittee on Domestic Policy (of which Rep. Issa is the Ranking Republican), and legislation introduced in the Senate by Sen. Claire McCaskill (D-MO).
Majoras noted that the variation in volume caused by a temperature fluctuation of 20 degrees was significantly lower than the common tolerance level states use in calibrating gasoline dispensers. “Based on discussions with state weights and measures officials, the staff understands that a variation in temperature of 20 degrees F affects the volume of a typical 20-gallon tank of gasoline by about 6 tablespoons. FTC staff also understands that, in connection with the calibration of gasoline pumps, it is not uncommon for states to include tolerances of plus or minus 6 tablespoons for every 5 gallons of gasoline pumped.”
The letter notes that 6 tablespoons in a 20-gallon tank is the equivalent of 0.1 percent. Based upon the numbers cited by Majoras, such a variation caused by temperature is approximately only one-fourth the tolerance used by most states.
Majoras suggested that Congress gain additional facts and weigh the benefits and costs associated with any potential solution before considering legislation. She references two basic approaches to compensating for temperature variations.
“The first approach," she said, "involves requiring the installation of devices designed to make temperature adjustments automatically where the gasoline is dispensed. FTC staff understands that the cost of retrofitting existing pumps with such devices is considerable, and probably would ultimately fall on consumers in the form of higher gasoline prices.”
Majoras noted tha the other approach would be to "change the definition of a “gallon” according to local conditions. This approach, however, presupposes that the competitive dynamic of the marketplace does not already take the “hot fuel” phenomenon into consideration in setting prices. Yet depending on competitive conditions in the particular gasoline retailing market being examined, retail prices might well fluctuate according to even small changes in the volume of gasoline dispensed.”
She continued that compensation measures would increase retailers’ costs and likely result in higher prices, without providing consumers with a corresponding benefit.