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South Regional Report

By Hank Behar

NEW YORK -- Of all 50 U.S. states, only Missouri, North and South Carolina passed laws requiring terminals to offer unblended petroleum product suitable for blending with ethanol. But in South Carolina, the American Petroleum Institute (API) sued to suspend gas deliveries in that state, claiming the way the law was passed violated the state constitution and the courts agreed, issuing an injunction to stop the practice.

Meanwhile, refiners also sued to overturn the law in North Carolina, but have not sought an injunction, so it's still legal to deliver unblended gasoline in North Carolina.

Missouri's law came in before the new federal mandates were passed last year, and stands outside the present controversy. API's manager of Fuels Issues, Al Mannato, declined to comment on future actions by API concerning Missouri’s law.

Behind the issue is the Volumetric Ethanol Excise Tax Credit, also known as VEETC, which is a federal law that gives a 51-cent tax credit to the blender for every gallon of pure ethanol blended into gasoline. For example, an E10 blend will generate 5.1 cents per gallon of tax credits. The sticking point is which party does the blending. If the oil companies that deliver already blended gasoline do the blending, they get the tax credit. But if the retailer does the blending, also known as splash blending, it gets the 5.1-cent credit. Splash blending is done in mostly two ways: in the tanker truck or in the storage tank at the retail station.

Retailers claim if the major oil companies receive the tax credit, the money the oil companies get will not necessarily stay in the states where the blended gasoline is delivered. However, if retailers receive the tax credit, not only will the savings stay in the state, but retailers will also be free to pass on the savings to consumers in the form of lower prices -- something the major oil companies may not feel compelled to do.

Standing with API in its court actions in North Carolina is the National Petroleum and Refiners Association. Meanwhile, The American Coalition for Ethanol and the Ethanol Promotion and Information Council support the delivery of unblended product to retailers.

"If retailers are cut off from receiving unblended gasoline it will be in violation of free market principles, so we support the efforts in the state legislature to keep the law in effect. Splash blending is a win-win situation for both consumers and retailers," said Gary Harris, president of the North Carolina Petroleum Marketers and Convenience Store Association.

When a vaguely written law meets comes up against a complicated issue such as price gouging, only confusion, and sometimes a lawsuit, can follow.

This is the case in Mississippi, when in the aftermath of Katrina, the state attorney general sued Louisville-based Fair Oil Co. for violating the state's price gouging law.

Winston County Chancery Court Judge J. Max Kilpatrick ruled in favor of Fair Oil, charging Mississippi's price gouging law "too vague to pass Constitutional muster."

During an emergency, the law states, goods and service shouldn't cost more than what's ordinarily charged for comparable items "in the same market area at or immediately before declaration of a state or local emergency." Fair Oil challenged the law, declaring that the phrase "the same market area" isn't definitive enough, nor is the language "at or immediately before."

Supporting his decision, Kilpatrick cited similar laws in Florida, New York and Alabama that use precise terms in defining "trade area" and "affected area," and according to the Jackson Clarion-Ledger, Kentucky's law isn’t clear as to whether it requires a company to keep prices the same as on the day of the emergency, or hold prices to some average of the prior week or month.

The issue was not settled, however, since the attorney general planned to appeal the judge's decision, while proposing a bill that sets the period for determining the average price of fuel at 30 days before an emergency event.

Gearing up for the legislation is the Mississippi Petroleum Marketers and Convenience Store Association (MPMCSA), which, as the state's leading representative body of the fuel retailing industry, intends to make its voice heard.

"We agree with Fair Oil in its endeavor to work with the Attorney General and the Legislature to clarify the law," said MPMCSA Executive Director Jerry Wilkerson. "Our members are opposed to price gouging of any kind, and a stronger, more precisely defined law will help achieve that goal."

Kentucky's current cigarette tax is 30 cents a pack, placing it 47th in the nation, with the average state tax of $1.19. However, the state is proposing a 70-cent hike in cigarette taxes, bringing it to $1 a pack.

"The problem is that instead of raising revenues to meet the state's budget shortfall, the tax could very well have the opposite effect," said Ted Mason, executive director of the Kentucky Grocers Association and Kentucky Association of Convenience Stores (KGA/KACS). "Economists estimate cigarette sales volume in Kentucky would plunge 42 percent, diverting cigarette sales to neighboring states like Missouri where the tax is 17 cents a pack and Virginia where it's 30 cents, while driving other customers to illegal markets such as the Internet and black market where taxes are not collected at all.

"And if that's not enough, it would also cut cigarette sales at convenience stores by 160 million packs a year, depriving each location an average of $185,000 in cigarette sales, which translates into a profit loss of $33,000," he added. "And lower profits means lower tax revenue for the state, so the tax just doesn't make sense."

Sense or not, Mason, the KGA/KACS and others are making their opposition to the proposal known to legislators before it gains momentum.

In Fort Worth, Texas, an in-depth survey by the area CBS station was conducted to determine if the dispensers in North Texas were pouring properly, and considering there are 294,708 dispensers in the Lone Star State, a few showed up with problems in both directions: dispensing too little gas, or too much gas.

Texas, however, only requires dispenser inspections every four years, and, according to Weights and Measures inspector, Henry Opperman, "When an inspection period goes beyond a year and a half, that's really going beyond what regulatory oversight should be."

The regulations are out-dated in Opperman's opinion, so the Texas Petroleum Marketers and Convenience Store Association (TPCA) stepped into the matter, and under the leadership of TPCA President Chris Newton, a dialog was established between interested parties and TPCA staff to look into what can be done to update the regulations governing dispenser inspections and registration.