Temperature compensation issue heats up

Efforts to force petroleum marketers to compensate for the affect of temperature on fuel dispensing have been on the rise since a series of articles appeared in The Kansas City Star last August.

“It was probably the most-debated topic at the National Conference on Weights and Measures,” Dan Gilligan, president of the Petroleum Marketers Association of America, told NPN MarketPulse.

The Petroleum Marketers Association of America, Arlington, Va., is a federation of 45 state and regional trade associations representing approximately 8,000 independent petroleum marketers nationwide.

Gilligan participated in a panel at the Interim Meeting of the National Conference on Weights and Measures, Jan. 21-24 in Jacksonville, Fla.

Gilligan said the main point that he underscored while participating in the panel was that “retailers are not profiting from temperature variances of fuel.” He complained that The Kansas City Star reported that “major oil companies are ripping off consumers at the retail stations by selling hot fuel

“Major oil companies only own 5 percent of the gas stations in America,” Gilligan said. “Ninety-five percent of the gas stations are owned by independent businesses – many of them small businesses – and to allege that they’re intentionally ripping off consumers with warm fuel is outrageous.

“We felt that the articles have exaggerated the issues and to impose two billion to three billions dollars of cost on retailers for an imagined problem was something that was very troubling to us,” Gilligan said.

An earlier estimate had been $3 billion to $4 billion to retrofit the 168,000 locations in the U.S. that retail fuel. Gilligan said that figure was revised downward to $2 billion to $3 billion. The earlier, larger sum had been partly based on an estimate that 20,000 rural retailers in the U.S. still use mechanical pumps that would need to be replaced if temperature compensation became mandatory, he said.

However, Gilligan said that a company in Canada is preparing to market a temperature-compensation device that can be retrofitted on mechanical dispensers; that news prompted PMAA to reduce its estimate of the total cost. “All of those rural pumps would not necessarily have to be replaced,” Gilligan said.

Even so, temperature compensation should not be made compulsory, Gilligan said.

“Our view is that to the largest extent possible most consumers are made whole over the year,” Gilligan said. “The Btus they might lose in the summer they gain back in the winter, so generally they’re made whole.” (A British thermal unit, or Btu, is the amount of heat required to increase the temperature of one pound of water one degree Fahrenheit.)

A number of states and a consumer group are pushing for temperature compensation. For example, two Missouri representatives have filed legislation requiring that the volume of retail motor fuel sold in the state be adjusted for temperature changes.

The measure, to be considered by the Missouri General Assembly in the legislative session that began this month, would divide the state into 10 districts, with a temperature-adjusted gallon tailored to each one based on the district’s average temperature, The Kansas City Star reported. The legislation is meant to change the current system, which makes no adjustment for temperature fluctuations at the retail pump.

“It is something that is not right and needs to be corrected,” Kate Meiners, a Democrat representing southern Kansas City, Grandview and part of Lee’s Summit, told the newspaper. The co-sponsor of the bill is Edward Wildberger, a Democrat representing St. Joseph.

The legislation would become effective in January 2008.

Meiners said she decided to file the bill when constituents contacted her after reading the stories about “hot fuel” in The Kansas City Star. The articles explored the effects of selling fuel when its temperature rises above the industry standard of 60 degrees. The industry and regulators agreed to the standard nearly a century ago, even though it is virtually unknown to the average consumer.

The physics of hot fuel is fairly simple. Fuel expands and contracts depending on temperature. At 60 degrees, the 231-cubic-inch U.S. gallon puts out a certain amount of energy. But fuel is often sold at much higher temperatures, causing the gas to expand and the amount of energy, by volume, to decrease. Yet consumers still get only 231 cubic inches per gallon, since retail pumps in the United States make no adjustment for changes in the volume caused by temperature.

The Star reported in August that consumers were being overcharged an estimated $2.3 billion annually at then-current prices for gasoline and diesel because of the hot-fuel phenomenon. That figure also accounted for fuel sales below 60 degrees, which occasionally benefit consumers.

Even at the current lower gasoline prices, the cost of hot fuel to consumers reaches $1.7 billion a year, according to The Star’s calculations.

Even though the industry doesn’t adjust for hot fuel at the retail level, The Star reported that volumes are carefully adjusted for temperature at other stages in the fuel-distribution channel. Moreover, the industry has embraced temperature adjustment at the retail level in Canada, where cold fuel could pinch profits.

The biggest impact of selling hot fuel is on consumers in Sun Belt states such as California, Arizona, Texas and Florida. But consumers in Midwestern states, including Missouri, also are affected. Consumers in Missouri pay an estimated extra $12 million per year, at current prices, because of hot fuel.

The Star’s hot-fuel coverage prompted California’s attorney general to launch an investigation into whether that state’s consumer protection laws had been violated. Legislation has been filed in Texas to address the issue. A multi-state class-action lawsuit has been filed against major oil companies and fuel retailers seeking compensation for consumers. And state regulators representing 25 states have submitted draft recommendations to address the issue of temperature compensation.

Besides PMAA, the American Petroleum Institute is opposing temperature compensation. In a recent presentation to weights and measures officials, API said an approach used by Hawaii — the only state to address the hot-fuel issue — wouldn’t translate well to other states.

Hawaii, instead of retrofitting pumps, has required pumps since the 1970s to be set to sell a larger gallon of about 234 cubic inches to help offset the effects of hot fuel. In recent presentations, the industry has argued that Hawaii is unique in that temperatures are relatively stable year-round and throughout the islands.

The Missouri bill — akin to the legislation previously filed in Texas — would divide the state into 10 sections. State regulators would establish the volume of a gallon of fuel in each district based on its average temperature.