Draft Report Accepts Industry Call for Ban on Temperature-Compensating Device, Denies Consumers Would Benefit From Any Remedy
Santa Monica, CA -- A California Energy Commission (CEC) draft report on the "hot fuel" ripoff proves beyond doubt that consumers are unfairly treated at the pump, yet fails to recommend that the ripoff be fixed through temperature compensation devices at the pump, said Consumer Watchdog.
Consumer Watchdog, in a letter to the CEC, said that if it does not call for a technical solution, it must "recommend adoption of a cost-free but less accurate solution--a statewide reference temperature of 71 degrees. This would require no equipment and little regulatory adjustment. It would offer less benefit to consumers in warmer parts of the state, and be a greater cost burden on retailers in colder parts of the state. But by recommending an outright ban on adjustment at the pump, you leave yourselves no other option. To keep 'hot fuel' sales in place is, as your own study confirms, patently unfair to consumers."
The CEC draft unfortunately concedes to industry lobbyists' demands by calling for an outright ban on the voluntary sale of fuel that is adjusted by volume to compensate for higher temperatures in the state, said the nonprofit, nonpartisan Consumer Watchdog. The report also accepts the industry assertion that consumers would not benefit from any correction because retailers would simply raise prices to recoup all costs, even though this is the least likely outcome in a competitive market.
In the letter sent yesterday to the energy commission, Consumer Watchdog research director Judy Dugan says, "You prove there is a pick-pocket at the gas pump, then ask that he be required to keep his hand in our wallets indefinitely."
The CEC draft, following a year-long process, fully acknowledges that consumers suffer an annual loss in the hundreds of millions of dollars statewide. When the temperature of gasoline rises above 60 degrees, gasoline expands but gas pumps don't account for the bigger volume, so consumers receive less energy per gallon than they should. Gasoline averages over 70 degrees in California, higher in summer and in the south. The energy loss to consumers averages a few cents a gallon, but reaches up to a dime a gallon when gasoline prices are high and temperatures are warmer.
Click here to see more background on hot fuel.
Click here to see the CEC draft report.
"The report's conclusions often appear at odds with the professional work over the past year by energy commission staff," said Dugan. "The report acknowledges that there is no way for consumers to know the temperature of the fuel they are buying, so they can’t determine what gas station offers the true best value. Yet the value of fixing that imbalance is ignored."
In its letter to the CEC, Consumer Watchdog protests recommendations that appear at odds with the report's factual findings. (Click here to see the letter.)
The letter says:
"[T]he report does not recommend a corrective measure, denies that consumers would benefit from any remedy and, most shockingly, calls for legislation that would prevent retailers from voluntarily selling gasoline in the fairest manner."
Consumer Watchdog objects strongly to the following conclusions in the report:
- That the state's Division of Measurement Standards (DMS) "lack[s] adequate regulatory structure" and "consumer protection" (pp. 89, 90 and 123) to oversee voluntary temperature compensation of motor fuel by retailers. DMS officials, during our many meetings at the CEC, made it clear that the had long experience with regulated temperature compensation of other fuel, such as propane, and the legal tools to easily manage it with motor fuels. The DMS has long been a regulatory voice in favor of fuel temperature compensation.
- That the state Legislature should pass a law prohibiting any voluntary fuel temperature compensation, because of the supposed inability of the DMS to oversee and regulate it. (pp. 90, 123.) Your recommendation, a wholesale acceptance of the fuel industry's argument, is a humiliating slap at the state's own professional and experienced experts, who are confident that they have the tools already to do the job.
- That no matter what method might be used to compensate for "hot fuel," retailers will raise the price of gasoline or other items to recoup any lost profit and the consumer benefit "would be therefore be (sic) zero." (p. 88 and various). Yet you offer no proof of that assertion. It is just as likely that competition would force retailers to absorb some or all of the cost; that oil refiners would adjust their prices to retailers slightly downward; and that major oil companies would help branded stations absorb physical conversion costs."
Consumer Watchdog also noted in the letter that "While your recommendation implies that the legislative ban could be removed if the DMS developed 'sufficient' standards, the vagueness of the word "sufficient" would likely keep the ban in place indefinitely. Such a law would fulfill the petroleum industry's every wish regarding temperature compensation of fuel. We have little doubt that once such a law is in place, no state regulatory proposal will be deemed 'sufficient' to allow removal of the ban.
Pumps that adjust the volume of gasoline for temperature are already voluntarily in use in Canada. As a story today in the San Francisco Chronicle noted:
"Those pumps are widely used in Canada, where long and frigid winters otherwise would cost oil companies money. And in the United States, the oil industry adjusts for temperature throughout its supply chain as gasoline is piped from refineries to distribution centers and trucked to gas stations. Only at the final step - the driver buying gas - is no adjustment made."
Yet unlike in Canada, the U.S. oil and fuel industries reject the idea that what's fair for them is fair for consumers, said Consumer Watchdog. At the very least, it said, gasoline should be sold in the state at the statewide average "reference temperature" until broader adjustments to gas pumps can be agreed on.
"Consumers are sick of being governed on behalf of the oil industry at the national level, and don't want lobbyists writing their laws at any level," said Dugan. "Yet the CEC recommendation that temperature adjusting pumps be banned indefinitely until some universal solution comes along is part of the lobbyist wish list. California, instead of dragging its feet, should be in the lead on giving a fair deal to drivers."
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Consumer Watchdog is a nonprofit, nonpartisan consumer rights organization. For more information, see:
www.ConsumerWatchdog.org or www.OilWatchdog.org