Fuel Advantage: Avoiding Fuel Scams

With summer on the way, the "hot fuel" debate may be heating up again.


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?

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