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Hot Fuel's Alternate Universe | Oil Watchdog

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Hot Fuel's Alternate Universe


Mon, Mar 24, 2008 at 3:43 pm

    Hot Fuel's Alternate Universe

    3-24-08 by dugan



    Sometimes when an argument doesn’t make sense, it’s the argument’s fault. That was my conclusion when a weights and measures official from New York came to the California Energy Commision to defend gas stations’ practice of selling "hot fuel," which gives drivers less value than they think when they buy gasoline. (To be precise, nearly four cents a gallon less on average in California) When I figured it out, with some help from experts, it turned out he wasn’t talking about California at all, or at least wasn’t offering any evidence of it. So we’ve asked the commission to just disregard the testimony. Here’s our letter, signed by OilWatchdog and the independent truckers association. 

     March 24, 2008
    To: California Energy Commission/ Gordon Schremp (by e-mail)
    From: Judy Dugan, Consumer Watchdog (formerly The Foundation for Taxpayer and Consumer
    Rights) and Oil Watchdog.org; John Siebert, Owner Operator Independent Truckers
    Re: “Hot Fuel” Issue and proceedings of California Energy Commission regarding
     The efforts of the California Energy Commission to determine the “costs and benefits” of
    adjusting the retail sale of gasoline and diesel fuels for heat expansion have been scientific and
    evenhanded. While we believe that the law (AB868) requiring your actions was a delay-and-
    obfuscate tactic by the fuel marketers who wrote the law, CEC’s participation and preparation
    have been nonpolitical, serious and sound. For this reason, we ask you to reject and disregard the
    unsupported arguments made by Ross Andersen at the staff workshop meeting on March 4, 2008.
             Mr. Andersen, a Weights and Measure official from New York, made a non-germane and
    unsupportable presentation in which he sought to deny the significance of hot fuel losses to
    consumers in California. He offered no evidence or other factual foundation for his conclusions,
    and we ask that his presentation be disregarded by the CEC. It is simply contrary to the accepted
    reality of how motor fuel is sold to consumers in California.  Even the oil industry does not
    dispute the significant difference between “net” and “gross” gallons.  It simply argues that
    existing laws permit (or somehow require) motor fuel to be sold on a “gross” basis to consumers,
    The result is that consumers have no way to determine the temperature or energy content, and
    thus the actual value, of what they’re pumping into their tanks.
     Mr. Andersen’s presentation depended on an anecdote from a single “highly reputable
    retailer” in Albany, New York (annual average temperature 47.5 degrees Fahrenheit);
    generalized conclusions about the supposed situation in the State of Minnesota (Minneapolis
    annual average temperature 44.9 degrees); and “my Accountant advisor” to describe an
    obfuscating and meaningless “station inventory accounting.”  Obviously, for California
    consumers, any reliance on “data” from a single retailer in frozen upstate New York or
    comparison to Minnesota is preposterous.  Our joint concern is the purchase of motor fuel in
    California. A description, without real-world evidence, of “station inventory accounting” in a
    distant state has nothing to do with the significant difference between the “net” gallons purchased
    by suppliers and the “gross” gallons sold to consumers in California.

    For example, even the definitions introduced at the Staff Workshop on March 4
    acknowledge that retailers purchase motor fuel on a “net” gallon basis but sell to consumers by
    the “gross” gallon.  In other words, retailers are buying one thing (“net” gallons adjusted to
    match the energy content of gallons at 60 degrees Fahrenheit) and reselling to consumers in
    California another thing (“gross” gallons above 60 degrees Fahrenheit). The task at hand is to
    objectively quantify as best we can the admitted damage to consumers in cost, in trust and in
    fairness, as well as the true costs of an ATC retrofit, including who will or should bear those
     The fuel industry certainly understands the value of  temperature variation. It has spent
    the resources to assure that motor fuel is price-adjusted to exactly 60 degrees Fahrenheit
    throughout the wholesale distribution system, so that distributors are not shortchanged. The staff
    of the California Energy Commission has determined that “[r]etailers [in Canada] determined
    that the retrofit work was economical.”  However, even with the enormous volume of fuel
    delivered to consumers in California, the industry has not allowed consumers to get the same
    value by adjusting the pump volume or price for temperature, in a transparent manner.
     The preliminary data collected by the California Division of Measurement Standards
    confirms that motor fuel is being sold in excess of 60 degrees throughout California. Its final
    study will confirm the extent of the sale of hot fuel to consumers in California and the cost to
    consumers.  At 75 degrees Fahrenheit, with gasoline approaching $4 per gallon (and with diesel
    fuel well over $4 per gallon), this is 4 cents for each gasoline gallon sold in California. 
    According to the staff of the CEC, California motorists buy 20 billion gallons of gasoline and
    diesel fuel each year.  At a 75 degree average and $4 a gallon price, this would amount to $800
    million in losses each year to California consumers.  As the price of gasoline rises, the cost to
    consumers is ever more palpable.
          On another important point that Mr. Andersen attempted to dismiss, there is no dispute in
    California that the motor fuel industry computes and pays tax to governments on “net” gallons,
    while taxes are recouped from consumers on a “gross” gallon basis. Through this practice, by
    definition, the California motor fuel industry is collecting and keeping substantially more tax
    from consumers is actually paid to governments. The industry itself admits it engages in this
    practice, because it says it is within the law to do so. Anyone suggesting otherwise must produce
    actual and verifiable data from California to support such a statement. Anything else is empty
    speculation at variance even with the oil industry. 
     We also disagree that the cost of temperature compensation retrofit would or should be
    fully passed on to consumers in California or that fuel retailers would or could act together to
    pass on these costs. The distribution system for motor fuel in California is highly profitable and
    these profits can easily absorb all or part of the retrofit of retail pumps, especially if the shift is
    made over time. It is also possible, even likely, that branded stations would be aided by the major
    oil companies’ dealer assistance funds that are typically used for station upgrades.
     Finally, as we have said repeatedly, any temperature compensation retrofit may be
    accomplished in stages as pumps naturally age and need to be replaced. Small-volume rural
    stations may be exempted or given broad extensions.

    Judy Dugan                                            John H. Siebert 
    Research Director                                   Project Director
    Consumer Watchdog/OilWatchdog.org     OODIA Foundation, Inc.   

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