Fuel Advantage: Avoiding Fuel Scams

With $4-plus diesel already causing plenty of angst, the thought of not getting what you’ve paid for seems like another slap in the face.

That is the essence of the argument to fix the “hot fuel” issue—that consumers are getting further bilked at the pump when the temperature rises above 60 degrees Fahrenheit—the amount at which liquids begin to expand. No one was talking much about “hot fuel” before a 2006 investigation by the Kansas City Star, which reported it cost U.S. consumers around $2.3 billion a year, but the series certainly sparked quite a bit of controversy and spurred legislative and legal action.

Last year, U.S. Senator Claire McCaskill (D-Missouri) introduced the FAIR Fuel Act (awaiting a hearing by the Senate Committee on Commerce), which would require installation of automatic temperature compensating equipment in all retail gasoline pumps within six years of enactment and establish a grant fund for retailers who want assistance to pay for the new equipment.

In the meantime, a possible class-action lawsuit against U.S. oil companies for knowingly overcharging for fuel passed its first hurdle late February when a U.S. District judge rejected a motion from the companies to dismiss the case.

TEMPERATURE TROUBLE

The point of contention is the expansion of fuel at 60 degrees and above, which results in buying more fuel to get the same amount of energy—for example, the standard 231-cubic-inch gallon of fuel in 60 degrees expands to 235 in 90 degrees. A National Institute of Standards and Technology study of 1,000 U.S. fueling stations showed the average year-round gallon of fuel is sold at 64.7 degrees.

Tyson Slocum, director of Public Citizen’s “Energy Forum,” says since wholesalers have bought and sold product based on temperature-adjusted pumps for years, retailers should be required to do the same.

“The problem is, of course, the infrastructure cost of retrofitting pumps with these gauges, and that’s why we think the oil industry, rather than the retailers, ought to finance the transition to fuel-adjustment pumps,” he says.

Rich Moskowitz, Vice-President and regulatory affairs council with the American Trucking Associations, says while mandating automatic temperature compensation (ATC) equipment might seem like an obvious solution, the issue is much more complicated.

“Is it a good idea to sell fuel and prove the accuracy of fuel being sold?” he says. “Sure it is. Is ATC the answer to that? Maybe not.

“When you dig into it, the devil is in the details.”

COMPETITIVE MARKETPLACE

First of all, there is not enough data about the impact of hot fuel on consumers, Moskowitz says, so moving forward without that could end up causing more problems. He says the intense competition among fuel retailers has generally maintained a fair marketplace, and throwing another element into that mix could also be troublesome.

“I don’t know of any other industry that advertises its price in two-foot tall numbers that are visible from the highway, and a penny is enough to move the market,” he says. “(If) it’s enough for you to change what station you’re going to visit on the way home, what do you think it is for a trucking company that’s putting in a couple hundred gallons of fuel?”

Retailers know they cannot gouge their customers, or their customers will simply go down the street. Moskowitz says that basic principle has protected consumers well, because a retailer with an “extra” 100 gallons due to hot fuel has limited options.

“He’s saying, ‘At $4 a gallon, that’s an extra $400 potential revenue—let’s see if I can price it so it’s an extra $200,’” Moskowitz says. “And then the guy across the street goes, ‘I can undercut him, I’ve got an extra $100 here,’ and then the guy across the street says, ‘I can undercut him, I’ve got an extra $50 here.’ Before you know it, you’re back down to the competitive price.”

WHO PAYS?

Retrofitting thousands of pumps across the country certainly won’t come cheaply, and this has been roadblock for McCaskill’s legislation—the bill would mandate retrofitting retail pumps and pay for it through a levy on royalty payments made by companies for drilling on federal land.

“It’s very difficult right now to secure that kind of financing for a project like that,” Slocum says. “Anytime you get a big pot of money, you’re going to get other members of Congress who would rather that money be spent on their priorities.”

Moskowitz says if retailers have to pay for the equipment, consumers will end up footing the bill, anyway. There will be additional costs as well, such as additional training for government inspectors to make sure retailers are compliant.

“You’ve got weights and measures officials that go out with meter-provers and make sure the pump is dispensing a true gallon,” he says. “Once you deal with ATC, those inspectors now need to be trained to measure the temperature and do a calculation to figure out if it’s properly adjusting for temperature, so it becomes much more complicated and expensive.”

Further complicating things, the government would also have to create new laws to govern the equipment and its usage.

“(Otherwise) if I’m running a gas station and it’s 72 degrees one day, maybe I turn the ATC measuring device off, and if it’s 58 degrees I turn it back on,” Moskowitz says.

BY THE BOOK

Prentiss Searles, marketing issues manager with the American Petroleum Institute (API), says the National Conference on Weights and Measures, which sets marketplace standards, should arbitrate any concerns or questions, and their current stance is that nothing illegal is going on.

“By law, since the early 1900s, retail sales of motor fuels have been based on a single-size volume metric gallon, and that’s 231 cubic inches, and it doesn’t reference temperature,” he says.

Searles says the allegation that consumers are losing billions of dollars a year because of hot fuel is not accurate.

“Right now, you’re getting what you pay for,” he says. “By definition, consumers aren’t losing money, because they’re receiving a gallon of gas for every gallon of gas they purchase. The unit is posted on the pump; retailers must meet those requirements, and all states go out and check that when you buy a gallon, you get a gallon.”

WAITING GAME

It may be a long time before either legislative or legal actions force a change, but some ongoing studies could shift the balance. California’s Energy Commission is studying the pros and cons of installing ATCs at retail outlets, and the Government Accountability Office is examining the effects of selling temperature-adjusted fuel. Still, most industry experts doubt that much will come of the efforts.

Technology & Maintenance Council general chairman Darry Stuart says mandating temperature controls on all retail fuel pumps in the U.S. would open a Pandora’s Box.

“It’s the way we’ve been buying fuel for years,” he says. “If everything were truly sold on a temperature-compensated basis, is it more accurate? Yes it is. The question is, at what cost?

“At one point in the season, you end up with a gain, another time you might end up with a little bit of a loss. Over time, everything averages out.”

For expanded coverage of other “fuel scams,” watch for the Summer issue of Fuel Advantage, available at www.fuelpub.com

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