Issue of ‘hot gas’ grows hotter; lawsuit filed against 17 companies mp2

“Hot gas,” the subject of a series of articles in The Kansas City Star last August, is heating up again. It is the subject of a lawsuit filed last week against 17 oil companies and gasoline and diesel retailers.

Truck drivers and motorists in seven states filed a complaint Dec. 13 alleging overcharging at the pump for fuel heated above the industry standard, according to Public Citizen and the Owner-Operator Independent Drivers Association.

Public Citizen is a national, nonprofit consumer advocacy organization based in Washington, D.C. The Owner-Operator Independent Drivers Association, based in Grain Valley, Mo., is an international trade association representing the interests of independent owner-operators and professional drivers on issues that affect truckers.

So-called "hot fuel" provides less energy than a standard gallon and bilks consumers of more than two billion dollars nationwide, according to information released by the organizations at a Dec. 15 telephone press conference to announce their lawsuit.

"Automobile travel and small truck traffic will be heavy during this holiday season," said Public Citizen President Joan Claybrook, who participated in the press conference. "This lawsuit comes at a particularly appropriate time to expose a system that has been quietly picking money from the pockets of citizens throughout the country."

Prentiss Searles, senior associate on marketing issues for the American Petroleum Institute, told NPN MarketPulse in an interview last September, “Right now fuel isn’t purchased on a Btu basis.” (A British thermal unit, or Btu, is the amount of heat required to increase the temperature of one pound of water one degree Fahrenheit.) “It’s purchased on a volume basis,” Searles said. “You get 231 cubic inches every time.

“If you do temperature compensation you’re going to get less or you’re going to get more, but you’re very, very, very seldom going to have the fuel be exactly 60 degrees and get a gallon,” Searles said.

“You get a different amount of Btu per gallon depending on the temperature of the fuel,” Searles continued. He pointed out that the Btu per gallon of E85, the blend of fuel that is 85-percent ethanol and 15-percent gasoline, is less than that of gasoline. “Look at E85 – that’s 30 percent less Btu’s. So, are you going to sell E85 on that basis also?”

(For more on ‘hot fuel’ and the series that appeared in The Kansas City Star, see the Sept. 28, 2006, issue of NPN MarketPulse, “Temperature compensation in the spotlight, after years in obscurity.”)

The groups filing the lawsuit contend that for decades fuel retailers have been overcharging drivers by selling gasoline or diesel that is warmer than the industry standard of 60 degrees, the groups said. Like all liquids, the volume of fuel expands and contracts when the temperature changes. Hotter fuel has less energy in each gallon than cooler fuel, the groups said. Regardless of whether fuel temperature rises due to radiant heat from the sun or the refinery process, the results are the same: consumers pay more for less energy.

Those who buy fuel in bulk, such as the U.S. armed forces, have temperature-adjusted purchase agreements with the oil industry, according to the groups bringing the lawsuit. In fact, fuel is adjusted for temperature all along the distribution line except at the end point, when it is delivered to individual consumers, according to the groups. By some estimates, retailers are shortchanging drivers 760 million gallons per year, according to the groups.

The class-action lawsuit charges the petroleum retailers with breach of sales contract and consumer fraud and seeks relief for motor fuel consumers in the states of California, Texas, Florida, Arizona, New Jersey, North Carolina and Virginia. It calls for remedies in the form of restitution and the installation of temperature correction equipment for pumps that dispense gasoline and diesel fuel. The 17 companies charged in the suit are Alon USA, Inc., Ambest, Inc., Chevron USA, Inc., Circle K Corporation, CITGO Petroleum Corporation, ConocoPhilips LLC, Costco Wholesale Corporation, Flying J., Inc., Petro Stopping Centers, L.P., Pilot Travel Centers LLC, Inc., 7- Eleven, Inc., Shell Oil Products Company, LLC, Tesoro Refining and Marketing Company, The Kroger Company, TravelCenters of America, Inc., Valero Marketing and Supply Company and Wal-Mart Stores, Inc.

The groups also said the oil industry benefits from state and federal tax loopholes related to overheated fuel. Gasoline and diesel fuel is measured and taxed at the time it is bought at wholesale. Any additional amount of taxes paid by motorists at the pump buying hot fuel does not go to federal and state governments to repair our highways, roads and bridges – it goes straight into the pockets of the oil companies and retailers, according to the groups.

While the oil industry opposes temperature compensation in the United States, it embraces it in Canada, where it stands to lose money from selling "cold fuel" that has more energy than the standard gallon, according to the groups. The industry has voluntarily implemented the use of temperature control equipment at retail pumps in Canada and supported legislation there to make the technology mandatory at the point of sale.

"Although the industry claims that the cost of hot fuel amounts to pennies for individual consumers, it really adds up to a $50 tax on every car in the country," said John Siebert, project manager of the Owner-Operator Independent Drivers Association Foundation and a participant in the conference call.

"Ultimately, Congress needs to protect U.S. consumers against the industry-wide practice of hot fuel overcharges – but in the absence of government protections, the only solution is for consumers to band together and force a remedy through the legal system," said Claybrook.