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Letter to Commissioner Heading Hot Fuel Study Cites His Clear Conflict of Interest:  Spouse's Petroleum Association Job

Washington, DC -- Two national consumer advocacy groups today protested a report by the California Energy Commission that is likely to roll back consumer rights on the sale of gasoline in the state. The California action will also affect national policy on the fairness of gasoline sales, said Public Citizen and Consumer Watchdog.

In a related action, Public Citizen and Consumer Watchdog sent a letter to Energy Commissioner James Boyd, who is lead commissioner on the study, requesting that he remove himself from the “hot fuel” study panel because his wife, Catherine Reheis-Boyd, is a top executive of the Western States Petroleum Association.

Members of the petroleum association include chief opponents of fixing the “hot fuel” ripoff, including major oil companies and fuel marketing associations.

Click here to read the letter.

The final draft of the year-long cost-benefit study by the California Energy Commission (CEC) acknowledges that California drivers unwittingly get less energy in their fuel than they believe they’re getting, that on average fuel is sold in the state at a higher temperature than the federal standard, and that such sales are a basic economic unfairness, said the consumer groups. In November 2008, the CEC estimated the annual loss to consumers in the state at $437 million.

Yet the CEC report denies any economic benefit to consumers in fixing this ripoff and invites the state Legislature to ban retailers from even voluntarily installing gas pumps that compensate for temperature variations in gasoline and diesel fuels. The pumps would deliver gallons that are always equal in energy content, no matter what the fuel temperature.

(For more on hot fuel, see “Hot Fuel Basics” below. Also see www.OilWatchdog.org)

State regulators in the California Division of Measurement Standards have endorsed the temperature-compensating pumps and say they are ready and able to regulate such sales, either voluntary or mandatory. Yet the CEC adopts the oil lobbyists’ position that the state’s gasoline regulators are unready to do the job, said the consumer groups.

The commission is taking final comments on the study, ordered by the Legislature in 2006, on Feb. 11th in Sacramento in a meeting beginning at 10 a.m. (CEC headquarters, 1516 Ninth Street,  Hearing Room A, First Floor)

“The energy commission’s final position seems to be ‘Why bother being fair?’ even though the job of government is to enforce fairness for both buyer and seller in the marketplace,” said Judy Dugan, research director of Consumer Watchdog. “Americans beaten into the ground by corporate unfairness want government to restore protections, not diminish them. The energy commission fails a basic duty by inviting lawmakers to embed unfairness and deception into the law,”

The consumer groups also protested the CEC’s acceptance of gasoline wholesalers’ and retailers’ assertion that consumers would pay all the costs of installing new pump equipment and selling the slightly larger average gallons, with no net savings to drivers. There are compelling economic arguments, submitted to the commission by consumer advocates and lawyers involved in a consumer lawsuit against hot fuel sales, that complex competitive forces would prevent full recoupment. Consumer Watchdog has also argued that refiners would be pressured to cut wholesale prices to compensate retailers for lost profit from selling extra “hot fuel” gallons.

(Click here for more on consumers’ economic argument.)

In its recommendations (page 116 of final study draft), the CEC declares:

“If the only criterion for assessing the merit of mandatory ATC installations for use at California retail stations is a net benefit to consumers, the Transportation Committee (Committee) of the California Energy Commission concludes that [temperature compensation] should not (sic) required since the results of the cost-benefit analysis show a net cost for consumers.”

The report does suggest that legislators also consider “the value of public perception of fairness and accuracy” in its decision. (Not actual fairness and accuracy, just the public perception.) 

Then the report invites the Legislature to dial current law backward:

“If the Legislature chooses not to mandate the use of [temperature compensation] at retail stations, they should clarify if the current intent of the existing statutes is to permit or prohibit voluntary [temperature compensation] at retail outlets for gasoline and diesel fuel.”

Yet in November 2008, the CEC issued a staff report concluding that:

“[p]ermissive voluntary use of automatic temperature compensation (ATC) devises (sic) at California retail stations is already permitted under California Law as it is not specifically prohibited.”  (page 2)

(Click here to see this and other documents from the study.)

The state’s own fuel regulators made it clear to the CEC that fairness is not just a matter of public perception:

In a letter to the energy commission dated January 4, 2009, Kurt E. Floren of the Los Angeles Department of Agricultural Commissioner/Weights and Measures concluded:

“Given the certain premise that liquids do expand and contract with temperature, it is imperative that consumers know, in making purchase decisions, exactly what they are receiving for their money at the time such decisions are made.  This is all the more pertinent in considering that the retail fuel market is, indeed, highly competitive and consumers make purchase decisions based upon very slim per gallon price variances among competitors.  The lack of certainty regarding temperature and resulting fuel expansion that exists in the absence of automatic temperature compensation (ATC) technology at retail fuel stations results in the potential obliteration of the ability to compare value among such minimal price variances.”

Floren also stated that temperature compensation would make life easier for retailers, that “sales volumes and revenues would be directly proportional to their wholesale fuel purchases. The need to continually monitor fuel tank contents and fuel temperatures and to make continual adjustments to advertised fuel prices to achieve those cost recoveries and profit gains become entirely unnecessary, as delivery adjustments are automatic via the technology’s compensation functions.”

The CEC report doesn’t add up, said the consumer groups.

“If retailers and refiners think they can recover every penny from consumers, and if running their businesses would be easier with fuel temperature compensation, why would they be so desperate to prevent it?” asked Dugan. “The answer is clearly that consumers would get an economic benefit, and the oil and fuel industries don’t want to lose the extra profit they’ve been making from hot fuel.”

What California does will affect national regulation. The National Conference on Weights and Measures is scheduled to vote this summer on national temperature compensation of fuel. It has said it awaits the California Energy Commission report for guidance on the issue.

Hot Fuel Basics:
In summer and year-round in warmer states, gasoline heats up and expands. Consumers get slightly less fuel when it is measured just by volume because the standard gasoline gallon assumes a  temperature of 60 degrees.

The loss to drivers adds up to billions of dollars a year nationally. California, according to an admittedly incomplete study accepted by the CEC, has an average gasoline temperature of 71.1 degrees. An earlier federal study registered over 74 degrees. The average loss in California is a few cents a gallon, depending on the gasoline price, but the loss statewide is hundreds of millions of dollars.

When gasoline sells for $4.00 a gallon (as it did last summer), drivers in hot locations and in summer where gasoline may be 90 degrees lose 8 cents a gallon.

Drivers have no way to know the temperature of the fuel  they buy, so they can’t accurately compare value even at gas stations across the street from one another.

At the refinery, at the wholesale level and at delivery to gasoline stations, sales are generally adjusted for fuel temperature variations. The final delivery price or volume is adjusted so the value equals a gallon at the federal standard temperature of 60 degrees F. This adjusted gallon is called a “standard petroleum gallon” and is always equal to the energy content of a 231-cubic-inch gallon at 60 degrees.
 
It is only consumers buying at the pump who get a gallon measured just by volume, no matter what the temperature.

www.ConsumerWatchdog.org

www.Citizen.org

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