Oil Watchdog

LITTLE ROCK, AR — The 62nd annual conference of the Southern
Weights and Measures Association was winding down and Tim Chesser had
reasons to be pleased.

Chesser, assistant deputy director of the Arkansas Bureau of
Standards, had boasted months before the October meeting that financial
support from Wal-Mart Stores Inc. was going to help make the regional
conference the best ever. He wound up thanking 20 companies, including
Wal-Mart, for making the conference a success.

There was an opening-night buffet, daily breakfasts and a catered lunch at an amphitheater overlooking the Arkansas River.

Another dinner included "world championship" barbecued ribs,
chicken, shrimp and brisket, with brownies for dessert. And then there
was the finale with drinks, dinner and entertainment at the Little
Rockin Supper Club. "Continue on and have the time of your life,"
Chesser said after leading the crowd, including oil lobbyists, in a
round of "Happy Birthday to You" for a state official.

Welcome to regulation, weights-and-measures style.

The National Conference on Weights and Measures and its four
regional associations play a key role in the country’s economy, with a
mission to ensure that goods are weighed or measured accurately and
fairly. The regulators, in their words, ensure "trust that is built
into every transaction."

But when it comes to a code of ethics they appear to fall
short. In fact, the national and regional groups haven’t adopted one.
Indeed, they routinely accept ample cash in the form of direct
contributions and annual membership dues from the companies they
regulate to pay for outings and meetings.

The money comes from various industries, including oil
companies and gasoline retailers who have a stake in the most
contentious issue facing regulators: How fuel expands and contracts
because of temperature fluctuation, shorting consumers and plumping
profits for retailers.

Regulators continue to ask businesses, including oil companies,
to help fund their annual outings, which in the past have included
activities such as a casino night and a dinner cruise on Lake Michigan.
Expenses are rising, and without more money, such fun events would have
to be scaled back.

A few conference members have questioned the acceptance of
money from those they regulate. But the practice has continued, and
even grown. The Southern Weights and Measures Association, one of the
regional groups, accepted thousands of dollars directly from private
industries they regulated.

Chesser declined requests for an interview and referred questions to another state official, who did not return calls.

A little more than half of the sponsors of the meeting in Little
Rock were oil companies or gas retailers, as well as the Arkansas Oil
Marketers Association, a staunch opponent of any fix for hot fuel. It
coordinated the donations to help pay for the association’s meeting.

Then there is Bentonville, Ark.-based Wal-Mart, which sells fuel at many of its stores.

Even while Wal-Mart helped fund the regulatory conference, it is
a defendant in a federal lawsuit pending in Kansas City, Kan., alleging
that consumers are being shortchanged because fuel adjusted for
temperature isn’t sold in the United States. The company’s legal
defense argues that fixing hot fuel is an issue best left to state
officials who, so far, have decided that the temperature adjustment
shouldn’t be required.

A Wal-Mart spokeswoman said the retailing giant saw no problem
in making a financial contribution to a group like the southern
association.

"This is not something that is odd. This is something that is
the industry standard," said Laurie Smalling, senior public relations
manager for the company.

She added that regulators were working on issues "that we are working on."

But others say a higher standard applies when it comes to the financial relationship between regulators and the regulated.

Craig Holman, an ethics expert with Public Citizen, a
public-interest group, said that if something caused a reasonable
person to question a regulator’s integrity, it shouldn’t be done. He
said he thought regulatory groups accepting money from those they
regulate was a breach of that standard.

It is similar, he said, to the controversy involving the
chairwoman of the U.S. Consumer Product Safety Commission, who accepted
thousands of dollars for travel from companies regulated by the agency.

"This is the same type of scandal," said Holman, referring to
weights-and-measures regulators, "and it raises a serious conflict of
interest."

While regional regulatory groups accept direct cash
contributions for sponsorships, the national conference has shied away
from that approach, said Judy Cardin, chairwoman of the National
Conference on Weights and Measures. Instead, the national conference
raises cash from companies in the form of dues paid to an industry
membership committee.

"The reality of it is it doesn’t" create a conflict of interest, Cardin said.

Even so, the national conference’s board recently decided to
urge regional groups to stop taking donations directly from companies,
such as those that funded the southern meeting.

Cardin said she thought officials attending that meeting were
not influenced by the donations. But she acknowl-edged that appearances
might suggest otherwise.

"The reality of perception could be that, yes," Cardin said.

Milking the system

The national conference was founded in 1905 to create model
standards that could be adopted by the states. Its regional
associations, which operate as independent organizations, have their
own meetings to develop recommendations to be forwarded to the national
conference. Two national meetings are held each year to debate and
decide what standards should be adopted.

The
break was pushed by several states that wanted more control over the
conferences. But it was inspired, in part, by unhappiness with a milk
study that showed the influence that industry could wield in
weights-and-measures issues.

The milk study in the late 1990s found that more than 40
percent of containers didn’t have the volume of milk indicated on the
label. The study was a combined effort by federal agencies, including
the Federal Trade Commission and the institute, and
weights-and-measures inspectors in several states.

The results were announced and corrections were made. A
follow-up study found a sharp decline in the number of under-filled
milk containers.

"The milk project was very successful," said Louise Jung, now
retired but one of the managers of the study when she was an FTC
employee.

The milk industry agreed to cooperate with regulators in fixing the problem.

But several state regulators didn’t think they had been given
sufficient credit. And some in the milk industry were furious about the
bad publicity. The milk industry approached the national conference
with an idea that would, in effect, make it difficult for such studies
to occur in the future.

"They believe that standard procedures should be in place to
determine when such studies should be conducted," according to a
conference board document.

The issue was turned over to a conference committee comprised
of businesses, including milk-industry representatives. The committee
developed a proposal that would require the conference to approve any
such future study if state inspectors were to participate. The proposal
also included provisions requiring that the industry targeted had to be
notified before the study was approved and given a chance to comment
about whether it was necessary.

The policy was approved by the conference in 1999.

The public knew nothing about this until now because conference
proceedings typically received no attention outside the cloistered
world of regulators and the industries they regulated.

That changed last year because of hot fuel.

The hot-fuel issue

The conference has debated for decades whether to require retail
pumps to make an adjustment to account for fluctuations in the energy
output of a gallon of fuel caused by temperature changes.

Fuel expands and contracts depending on temperature. At the
longtime industry standard of 60 degrees, the 231-cubic-inch U.S.
gallon puts out a certain amount of energy. But the average retail fuel
temperature nationwide and year-round is about 65 degrees, causing the
fuel to expand and the amount of energy to decline for each gallon
dispensed. Despite such fluctuations, retail pumps in America make no
adjustment, so consumers get only 231 cubic inches per gallon,
regardless of temperature.

In a series of stories beginning last year, The Kansas City
Star estimated that hot fuel cost consumers an estimated $2.3 billion
annually — a number that also accounts for any offset of fuel sold
below 60 degrees.
Although nothing had been done about it at the regulatory level, hot
fuel in 2006 drew the attention of several consumer groups and an
independent truckers’ organization. Some of them began to attend
conference meetings — and were stunned by how cozy regulators were
with the industries they regulated.

"I was shocked to my shoes," said Judy Dugan, research director
for The Foundation for Taxpayer and Consumer Rights in Santa Monica,
Calif. "They have spent so long doing their business outside of public
view that they don’t know how they appear to other people."

Take, for instance, the annual outings.

They are a high point for the national conference and its
regional groups, and businesses are accustomed to being asked to help
pay for them. In 1998, there was a proposal to end the national
conference’s event — or at least the industry contribution to it —
but the conference’s board rejected the idea.

"Members of the committee feel that the outing makes an
important contribution to the success of the conference," according to
conference documents.

The cost of the 1998 national conference event was $18,554, and industry dues paid $11,132 of the amount.

This year, responding to a request from regulators, an industry
membership committee increased its dues by about $4,000 to raise more
money for the outing.

Critics say the tight relationship between regulators and
industry titans goes beyond paying for parties.
Regulators rely on industry to provide information about various
proposals — and that input is usually accepted without question, said
John Siebert, project manager of the Owner-Operator Independent Drivers
Association in Grain Valley.

Industry members also help regulators lobby for government
funding. For instance, petroleum marketers and other industry
representatives came out in support of regulators after the 2001
terrorist attacks threatened to crimp state budgets, said Don Onwiler,
a Nebraska weights-and-measures official.

Despite such lobbying help, though, Onwiler insists it doesn’t influence him in favor of those industries.
"I don’t show favoritism," he said.

Industry pitches in

Wal-Mart officials said they were asked by a petroleum association to give money for the event in Arkansas.

Ann Hines, executive vice president of the Arkansas Oil
Marketers Association, said she agreed to raise funds. Each sponsor
contributed but she declined to say how much.

Hines said the donations were meant to promote Arkansas. As for
any perception of conflict of interest, she contended there wasn’t one
because Arkansas had already decided not to support hot-fuel reform.

"I can’t tell you what a good department we have here," she said.

When Southern regulators gathered in Little Rock in late
October, they were greeted by the mayor. Michael Belue, a consultant
for the American Petroleum Institute, an industry trade group opposed
to hot-fuel reform, offered the benediction.

No consumer groups were present. But nearly 20 oil-industry
representatives showed up to say that hot-fuel reform was a bad idea.
One industry representative said it was important to not approve
hot-fuel reform because the decision could help plaintiffs in lawsuits,
such as the one pending against Wal-Mart and others in Kansas City,
Kansas.

"Just keep coming back and tell us what you think," said
Richard W. Wotthlie, head of Maryland’s weights and measures
department, after industry testimony.

Southern states have some of the highest fuel temperatures in
the country and consumers there are among the most affected. After
nearly deciding to recommend that hot-fuel reform should be withdrawn
from consideration nationally, southern regulators recommended further
study of temperature-adjusted gasoline at retail and a vote on
temperature-adjusted diesel sales at high-volume dispensers, such as at
truck stops.

Arkansas regulators voted against the watered-down proposal.

By then, the conference was nearly over. Many agreed it had been
a great meeting. Next year the regional meeting will be in Atlanta.

"This has been a fantastic conference," said Richard Lewis, who
oversees Georgia’s weights and measures department. "We just hope we
can do as good of job as Tim and his staff have."
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Go to KansasCity.com to read previous articles about hot fuel. To reach
Steve Everly, call 816-234-4455 or send e-mail to [email protected].