June 18, 2001

EPA DENIES CALIFORNIA OXYGENATE WAIVER

On Tuesday, the Bush Administration rejected California's request for a waiver from the oxygenate mandate in reformulated gasoline (RFG). The decision, announced by EPA Administrator Whitman, said that EPA had concluded it did not have the power under the Clean Air Act to do so, absent clear evidence that the waiver would actually lead to cleaner air in California. However, most observers see the decision as primarily political in nature - something to make life more difficult for California Gov. Gray Davis (D) while helping President Bush in farm states such as Iowa and protecting him from attacks by farm-state Democrats.

SIGMA issued a news release the same day as EPA's announcement, expressing our "disappointment" at the "unwise" decision. "We are disappointed that the Administration missed this opportunity to promote a responsible energy approach while resolving a serious glitch in the laws," said SIGMA President Tom Robinson.

California already requires a cleaner-burning gasoline than federal RFG. However, it is a performance-based requirement that does not include any specific "ingredient" mandates. Parts of California are covered by both the federal and state requirements, meaning that oxygenates such as MTBE or ethanol must be added to gasoline that already far exceeds all federal performance standards. Because California wants to ban MTBE by the end of next year, and because ethanol currently isn't viable in that market, marketers had honed a waiver would avoid a serious supply problem come January 2003.

Fallout from the decision is still coming. California officials are considering suing EPA over the decision, and are also weighing the option of delaying their planned MTBE ban. Gov. Davis was clearly upset by the decision, and in his statement emphasized that it will have a negative impact on supply and will likely lead to higher prices. Meanwhile, members of the California Congressional delegation are drafting legislation to attach to an appropriations bill which would grant the California waiver. SIGMA has in fact called for Congress to take action on the matter, something we have supported in the past as the "Bilbray Amendment". And the ethanol industry is licking its chops, reportedly poised to develop 40 new or expanded ethanol plants.

ENERGY POLICY DEBATE GETS SERIOUS IN HOUSE AND SENATE

Republican leaders in both the House and Senate are giving signs they intend to force action on National Energy Policy over the course of the summer. On the Senate side, that amounts to at least three Senators - Craig (ID), Murkowski (AK) and Thomas (WY) - threatening to block Senate action on a patients' bill of rights until Majority Leader Daschle (D-SD) sets a firm date for floor consideration of energy legislation. The Sen. Energy and Natural Resources Committee will have another hearing in the series at which SIGMA President Tom Robinson testified last month; the hearing, to include representatives from the Renewable Fuels Assn. (ethanol), the Oxygenated Fuels Assn. (MTBE), the California Air Resources Board, and the Energy Information Administration, will no doubt touch on the oxygenate standard as well as other energy issues.

On the House side, the word is that leaders want energy legislation completed before the August recess. We've even heard there are specific deadlines, such as having bills out of committee by July 12. The Ways and Means Committee may complete its markup of energy legislation this week. The Energy and Commerce Committee will likely look at conservation measures first, but has also shown some interest in doing something about "boutique fuels". Legislation by Rep. Blunt (R-MO), which may have the blessing of Republican leaders, would pre-empt state ability to require boutique fuels. In essence, the nation would end up with 3 fuels: conventional gasoline, a new RFG which states could opt into with a formula that meets or exceeds current RFG standards and which would also require extensive use of ethanol, and whatever California decides for its fuel. It is rumored that a mandate for ethanol in RFG might be tied to a phase-out or elimination of the tax incentive for ethanol. We have not yet thoroughly reviewed the bill, and it may still be undergoing changes.

MORE ENERGY POLICY...

The denial of the California waiver may influence the overall debate on MTBE. Legislators from the Northeast had thought they might "tag along" with California if the waiver were granted. Now they may become more sympathetic to ethanol interests as a way out of the MTBE-in-ground-water problem.

The General Accounting Office (GAO), responding to a request from top Democrats on the House Energy & Commerce and Government Reform committees, is attempting to investigate the Bush Administration's energy task force. Specifically of interest in the investigation is whether there was undue influence by industry on the task force. So far, the White House is refusing GAO's requests for information, and GAO is asserting that the information it wants is clearly within its prerogative.

WYDEN ATTACKS "BIG OIL"

Sen. Wyden (D-OR) issued a report on Friday, June 15, which he claims raises serious questions about anticompetitive and anti-consumer practices among the nation's leading oil companies. The report contains oil industry documents from the mid-1990's which talk about the problem of the time: excess refining capacity which had led to a collapse of gasoline prices and miserable refining margins. This was no secret; discussions of excess refining capacity were mentioned by virtually every oil analyst who spoke at a SIGMA meeting during the time. The industry closed 50 refineries in the 1990's, 24 of them since 1995, in large part because excess refining capacity and resulting low refining margins made upgrades uneconomical. However, Wyden claims that some of the documents he has uncovered raise serious questions about anti-competitive and anti-consumer practices among leading oil companies, such as competitors discussing mutual opportunities to control oil and gasoline supply, keeping markets tight.

Wyden then accuses the oil industry of a "...financial triple play, boosting profits by reducing refinery capacity, tagging consumers with higher pump prices, and then arguing for environmental rollbacks and additional financial incentives." He calls for a full bipartisan investigation by the Senate. To view his report, go to www.senate.gov and click on "senators by name". Click on Sen. Wyden, the last on the list, to reach his website. The document was displayed on the front page of his website as of Friday afternoon.

WITHHOLDING OF GASOLINE

The Wall Street Journal reported last Monday that Marathon-Ashland intentionally withheld Gasoline from the Chicago and Milwaukee markets early last summer. The FTC says no laws were broken and didn't name MAP in its report. MAP denies the charge. The Journal notes, the tactic will come under harsh scrutiny on Capitol Hill in relation to this year's high gasoline prices.

SENATE ORGANIZATION

With the Senate now in Democratic hands, there had been speculation that control could change again soon. High on the speculation list was the possible resignation of Sen. Torricelli (D-NJ), who would be replaced by a Republican appointee, or the possible defection of Sen. Miller (R-GA). The chances of that happening were dimmed considerably last week when Sen. Chafee (R-RI) told a home state newspaper that he would bolt the Republicans if needed to prevent conservatives from again taking control of Senate committees. This week Sen. Miller, who has consistently denied any intent to switch parties, came to the Democratic Caucus breakfast for the first time, we hear.

WITHHOLDING TAXES

The IRS has issued new federal withholding tables effective for wages paid after June 30. Publication 15-T has new rates for all types of tables, including wage bracket, percentage, and alternative methods. Please note: the initial printed copy of Pub. 15-T has an error in the new percentage method Table 7, Annual Payroll Period, for married persons. The phrase "$21,488.50 plus 30%" in the right column should read "$21,448.50 plus 30%". The version available at the IRS website, www.irs.gov has the correction.

ADDITIONAL INFORMATION...

E-Mailed with this newsletter was a report on below-cost selling laws in the 50 states plus Puerto Rico. This report was put together by SIGMA's attorneys at the request of our Marketer Operations Committee.

Betz-Dearbom has adapted, for member use, a PowerPoint version of SIGMA's white paper on gasoline supply and prices. That was also e -nailed with the newsletter.

SIGMA COMMITTEE MEETINGS

SIGMA's Summer Committee meetings in Washington are July 17-18, at the Willard Hotel. Given the major issues facing the industry in the energy policy debate, it's important that you attend and schedule appointments on the Hill. Go to www.sigma.org for schedule & registration form. The cut off date for rooms at the Willard is June 25; they're already sold out on Wed, July 18 & getting close on Sunday, July 15.