Convenience Store News: Senate Bill Requires Compensation for ‘Hot Fuel’

August 13, 2007

Sen. Claire McCaskill of Missouri introduced a bill last week that would give refiners and retailers five years to install temperature-measuring equipment at their pumps. The bill provides a subsidy to independent stations to purchase temperature-measuring nozzles. It also permits states to take separate, similar action.

“This Senate action and separate House hearings will also ignite discussion of wider oil industry practices,” the Foundation for Taxpayer and Consumer Rights, an industry watchdog group, said in a statement.

Motorists lose up to several cents per gallon on fuel that expands at temperatures above the industry standard of 60 degrees, said FTCR. Most wholesale gasoline transactions are adjusted for fuel temperature, with more gallons delivered for warmer fuel. The U.S. military also demands temperature compensation for the fuel it buys.

Gasoline additives such as ethanol also expand when heated, both by the refining process and as a result of hot weather. Temperature measurement at the pump would compensate for expansion of such additives as well as the gasoline and diesel being dispensed, FTCR noted.

Data from a federal study released in 2004 found an average national fuel temperature of 64.7 degrees. At current prices, the loss to motorists nationally from “hot fuel” is $2.3 billion, according to FTCR. In California alone, with a statewide year-round average fuel temperature of nearly 75 degrees, the loss is $450 million to $500 million.

“This bill opens a Pandora’s Box for the refining industry,” said Jamie Court, president of FTCR. “The Congressional debate should lead to examination of not just the sale of ‘hot fuel’ but broader investigation of major oil companies’ fuel pricing and sales practices. It’s now time for Congress and presidential candidates to examine the black box of gasoline pricing and to make a more fair and honest system for consumers.”

Ohio Democrat Dennis Kucinich, chairman of the House Oversight and Government Reform Committee, questioned executives from ExxonMobil and Shell Oil last month on the industry’s resistance to installing temperature compensation devices on retail dispensers in the United States, according to a report by the Petroleum Equipment Institute, based in Tulsa, Okla.

Kucinich called it a “double standard” that temperature compensation is used at all points of the refining and wholesale fuel process, but not at the retail pump. “In Canada, the oil industry moved quickly to adopt automated temperature compensation at the retail pump,” Kucinich said. “But in the U.S., where temperatures are often considerably warmer than the industry standard of 60 degrees, the oil industry has resisted equipping gas stations with temperature compensation technology.”

Hugh Cooley, vice president and general manager of Shell Oil’s wholesale division, was reported as saying consumers are “absolutely not” paying a hot fuel premium. He told the subcommittee there are a number of factors, besides temperature, that determine the energy content of gasoline.

“Consumers are purchasing gasoline dispensed in a uniform measurement and sold in a consistent pricing system that takes into account the same factors in each market, such as supply, distribution logistics, demand, temperature and the like,” Cooley said. “Shell firmly believes that market prices take into account the absence of temperature adjustment.”

Consumers would not realize any pricing benefit and would have the cost of installing temperature-compensation equipment on retail pumps passed on to them, Cooley said. Retailers would have to be willing to sell larger, temperature-adjusted gallons at the same price as they had sold standard gallons for consumers to benefit, and that is unlikely, PEI quoted Cooley as saying.

Ben Scoraci, retail sales director for ExxonMobil’s marketing company, noted his company’s stations adhere to state laws that mandate fuel be measured by volume alone. He said selling temperature-compensated fuel at the retail level would violate current laws and regulations.

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