ALEXANDRIA, Va. -- Consumers are not being overcharged for gasoline and diesel fuel and requiring retailers to install automatic temperature compensation (ATC) devices will increase costs to consumers, according to a report released today by NACS and other retailer groups.
The report, prepared by Mike Flynn, principal at global economic and financial consulting firm LECG Inc., was commissioned by NACS, Petroleum Marketers Association of America (PMAA), Society of Independent Gasoline Marketers of America (SIGMA), and NATSO, representing the nation's truck stops and travel plazas. Its analysis used as a point of reference a study conducted by the California Energy Commission (CEC) on the same topic.
The report found:
- 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.
- Consumers' fuel expenditures will increase because they will pay for the costs associated with installation, maintenance and regulation of ATC equipment.
At issue is how a gallon of fuel is defined, based on changes in temperature. For decades, the standard for a gallon of fuel has been 231 cubic inches when measured at 60 degrees F. However, when the temperature of the fuel increases beyond 60 degrees, the fuel expands; the opposite occurs when the temperature drops below 60 degrees. Every 15-degree swing in temperature changes the volume of gasoline by an estimated 1 percent and of diesel fuel by an estimated 0.6 percent.
Proponents of ATC mandates argue that "hot fuel" costs consumers money and claim that requiring retailers to sell larger gallons will save American consumers billions of dollars each year. But Flynn's analysis demonstrates that such "savings" are illusory and based upon faulty logic that disregards economic facts.
"These activists make no attempt to offer independent evidence that the 'hot fuel rip-off' profits supposedly enjoyed by retailers in 'warm' areas actually exist," Flynn explained. "To the contrary, the actual data on the profitability of U.S. retail stations completely refute the existence of the alleged 'hot fuel profits' and effectively dispose of the 'hot fuel' claims."
Because retail prices already reflect changes in fuel temperature, Flynn concludes that implementation of ATC devices would provide no economic benefit to consumers, but would saddle them with additional costs.
"A change in the unit of measure by a particular percentage would result in a change in the retail price per unit by the same percentage," said Flynn. "Changing the volume of a gallon of gasoline or diesel fuel to compensate for temperature would result in an equal adjustment in price, thereby negating any supposed benefit to the consumer. The change of fuel distribution to a temperature-compensated gallon would merely change the price of the unit distributed, such as a change from gallons to liters.
"The only thing the proposed ATC Retrofit would accomplish would be higher retail prices for gasoline and diesel fuel, owing to the costs of that retrofit itself," Flynn said. "Emphatically, consumers would not enjoy 'more fuel' as a result."
This is the same conclusion reached by the CEC Staff Report, although Flynn refuted some of the assumptions and conclusions made in that report and concludes that the report under-estimates costs to the consumer, and over-estimates theoretical "benefits."
"While the CEC Staff Report grudgingly comes to the correct conclusion that, overall, the net benefit of the proposed ATC Retrofit would be negative, it makes the question sound closer than it actually is," Flynn concluded. "Because there would be no benefits whatever from the proposed ATC Retrofit, and because the CEC Staff Report has significantly underestimated its total cost, the economic case against the ATC Retrofit actually should be seen as overwhelming."
Click here (PDF) for a copy of the report.