Fuel Retail Groups Applaud Temperature Control Report

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Fuel Retail Groups Applaud Temperature Control Report

SACRAMENTO, Calif. -- The California Energy Commission’s (CEC) recent finding that consumers would pay more for fuel and the "net cost to society is slightly negative" if automatic temperature compensation were required on fuel pumps statewide was applauded yesterday by various trade groups that represent petroleum retailers.

A CEC workshop is scheduled today to review the Commission’s draft report, released Nov. 26 following a year-long study of the costs and benefits to consumers associated with automatic temperature compensation (ATC). The 158-page report found the initial costs alone to retrofit fuel pumps in California would range from $102 million to $123 million, and that annual expenses for ATC-related maintenance and inspections would range from $4.4 million to $13 million.

Groups including the California Independent Oil Marketers Association (CIOMA), Petroleum Marketers Association of America (PMAA), Society of Independent Gasoline Marketers of America (SIGMA), NACS -- the Association for Convenience and Petroleum Retailing and NATSO, representing truck stops -- will provide testimony today that the CEC report is a good first step in providing a level and comprehensive analysis of ATC.

At issue is how a gallon of fuel is defined, based on changes in temperature. For decades the standard for a gallon of fuel has been 231 cubic inches when measured at 60 degrees Fahrenheit. However, when the temperature of the fuel increases beyond 60 degrees, the fuel expands and the opposite occurs when the temperature drops below 60 degrees. Every 15-degree swing in temperature changes the volume of fuel by an estimated 1 percent for gasoline and about 0.6 percent for diesel fuel, according to the trade groups.

Proponents of ATC mandates argue "hot gas" costs consumers money. The petroleum retailing groups, however, have consistently maintained that ATC will actually cost consumers more money.

"Temperature variations are already factored in to retail prices," said Carl Boyett, CEO of Boyett Petroleum, which operates Boyett Petroleum and Kwik Serv stations in and around Modesto, Calif. "If retailers are required to adjust the volume of each gallon of fuel they sell, they will necessarily adjust the price of that fuel by an equal amount. In addition, consumers will be forced to pay for the installation and operation of the ATC equipment in the form of higher prices. We agree with the CEC that ATC will not benefit consumers it will only increase their fuel costs."

While petroleum retailing groups praised the work of the commission, they continued to express concern that some of the costs may, in reality, be higher than what the CEC estimated because of inaccurate assumptions concerning retail fuel operations. They also disagreed with the CEC’s suggestion that fuel retailers could simply raise prices on convenience store items to cover the costs associated with installation of ATC equipment.

"The majority of fueling stations in the country are operated by single-store businesses, not the integrated oil companies that continue to divest their small retail assets," said Tom Robinson, president of Robinson Oil Corp., which operates 34 Rotten Robbie stations and Mrs. Robbie’s Markets throughout the greater San Francisco Bay Area.

"Retailers exist on such thin profit margins—which annually average one to two cents per gallon—that they depend upon in-store traffic and sales to support their business. Raising prices on in-store items to pay for ATC equipment would be counter-productive, especially when their competitors for those same items in other retail channels will not incur similar costs," Robinson said in a statement.

The groups said the petroleum retailing industry opposes any regulatory proposals that will increase costs to consumers without providing them an equal or greater benefit.

"The CEC study demonstrates that society would pay more for temperature compensated fuel while receiving no benefit of equal or greater value. Consequently, we believe proposals to implement ATC at petroleum retailing locations should be rejected," stated Jay McKeeman, CIOMA’s vice president of government relations and communications.