July 9, 2001

"SHOWDOWN AT OK CORRAL" IN CONGRESS THIS WEEK!

After weeks of jockeying for position, action on National Energy Policy may reach a crucial showdown on Tuesday and Wednesday in the House of Representatives. While this is by no means the end of the battles, this may be our best chance to have an impact on the outcome of the energy debate as it affects marketers. SIGMA's lobbyists are working full-tilt. We also need your direct involvement on part of the debate - see the attached "Request for Grassroots Letters". Here's the deal:

The Energy and Air Quality Subcommittee of the House Energy and Commerce Committee will begin markup this Tuesday on legislation dealing with boutique fuels. "Markup" is the process of going through a tall section-by-section and considering amendments. While some amendments can be considered by the full House, it is in committee that most of the details of legislation are worked out. And in the case of boutique fuels legislation, the devil truly is in the details.

• The bill the subcommittee will mark up will probably be named the "Energy Advancement and Conservation Act." It will be based largely on the Tauzin (R-LA) bill we reported last week. However, the bill has not vet been introduced, does not yet have a bill number, and was still being redrafted even as we went to press over the weekend. hems provisions in the draft we last saw: 1) a study by EPA and DOE of the impact of boutique fuels on air pollution, price, supply and distribution; 2) elimination of the per-gallon oxygenate mandate in RFG (keeping the overall average oxygenate mandate) (this is something reportedly accepted by the ethanol industry last year, but they object to it now); 3) directing EPA to address problems in the winter-to-summer "shoulder season" for lower RVP gasoline; 4) direct EPA to finalize, within 60 days, its proposed rule effectively granting a 0.3 psi waiver for ethanol-blended summertime RFG; and 5) changing some of the anti-gaming rules for blendstock accounting by refiners.
   

• The fourth point above (ethanol waiver) has been somewhat mooted, and may be dropped from the bill, due to action last week by EPA (see story on page 2). Aside from that provision, SIGMA supports the provisions of the Tauzin bill - at least as of the last draft we saw last week.
   

• Support for the Tauzin bill is far from unanimous. In fact, the House Republican leadership is deeply divided between support for the Tauzin approach and support for a competing "Blunt" (R-MO) bill, H.R. 2249, also supported by Speaker Hastert (R-IL). One major difference between the bills is ethanol: the Blunt bill contains an effective mandate for the use of ethanol nationwide in RFG; the Tauzin bill does not. This disagreement remains, despite efforts by a 20-member Republican leadership "energy policy" committee which has tried to resolve the differences.
   

• There are reports that the ethanol industry and its Congressional allies will attempt to substitute the Blunt bill for the Tauzin bill during markup. California Congressmen may attempt to amend the bill to directly grant the California waiver from the oxygenate mandate for RFG. An alliance of California and Northeastern Congressmen may attempt to create an even-broader option for states to individually opt out of the oxygenate mandate in RFG. Finally, SIGMA is supporting an effort to have H.R. 1891 added to the underlying bill during markup. This is a provision which would block the phase-in portion of ultra-low-sulfur diesel fuel rule coming later this decade.
   

• Rep. Tauzin has said he may pull his bill from further consideration if it is amended "substantially". He didn't define what that meant, though; some of these amendments might be incorporated even before his bill is introduced.
   

• SIGMA lobbyists are contacting committee members and staff and telling them that we generally support the underlying Tauzin bill. We are also supportive of all of the amendments listed above, with the exception of the Blunt bill on ethanol. In addition, we are asking all SIGMA members to contact members of the committee to express your support for adding H.R. 1891 to the bill tree enclosed memo). SIGMA is working with PMAA and NATSO on this bill.

It is far from clear how this "shootout" on Tuesday and Wednesday will come out. Whether marketers win or lose, it won't be the end of the fight. But if we lose, it will certainly make victory that much more difficult in later battles.

EPA ACTS ON ETHANOL WAIVER

Last Friday, EPA Administrator Whitman signed a final rule on a VOC adjustment for ethanol-blended RFG, allowing for a partial RVP waiver. The finalized rule has several significant changes from what had been proposed. The original proposal had drawn SIGMA's objections because of fears of creating additional boutique fuels; the changes seem to have addressed most of our concerns. As signed, the rule:

• Applies only to RFG in the Chicago and Milwaukee markets. EPA felt that, since these are isolated markets with no MTBE used, the fear of a non-linear bump in RVP as a result of co-mingling was virtually non-existent.
   

• Allows for a 2% VOC waiver, which effectively means that ethanol-blended RFG can be 0.3 psi of RVP higher than otherwise allowed. The ethanol industry had argued for a waiver of 4%, but EPA declined to go that far.
   

• Does NOT require that VOC-adjusted RFG in those markets be kept segregated from non-VOC-adjusted RFG. In essence, this becomes a refinery-gate rule.
   

• Does NOT address the question of eliminating the per gallon oxygenate standard; EPA is still studying that option.

SIGMA is happy that the rule, as adopted will not further balkanize fuel markets We appreciate that EPA appears to have listened to our comments.

MTBE REGULATION

There are reports that EPA has revived a plan first put forward during the Clinton Administration to regulate or ban the use of MTBE under the Toxic Substances Control Act (TSCA). The plan is now undergoing inter-agency review, with completion expected by the end of the summer.

MORE ENERGY LEGISLATION

The Senate Finance Committee will take up tax provisions related to energy policy at a hearing this Wednesday. SIGMA will be filing written comments in support of a package of tax benefits and incentives for small refineries (regardless of who owns them), on the basis that it is more costly for a small refinery to comply with environmental upgrades than it is for a larger refinery.

Meanwhile, the House Ways and Means Committee is scheduled to take up energy tax legislation on Thursday, but that markup will probably be delayed to next week. There, SIGMA is supporting a specific set of tax breaks for small refiners. We are urging that a refiner's retail chain's employees not be counted in determining whether a refiner is "small" based on number of employees.

TRIBAL TAX DEVELOPMENTS

Last Monday, the Coalition Against Sales and Excise Tax Evasion (CASETE) met with the White House Office of Intergovernmental Affairs (OIA) to discuss tribal excise tax collection issues. CASETE, of which SIGMA is a founding member, was represented by PMAA President Dan Gilligan. Terry Miller, OIA Associate Director, told those present that the Bush Administration is committed to fairness for local governments and small business owners, and that the Administration's views on Native American policy are still being formulated. CASETE expects legislation on the matter to be introduced in the near future.

In a separate and disappointing development, marketers suffered a setback in the New York Court of Appeals last week. Earlier, a lower court had ruled that the Governor of New York could not enforce excise taxes against other retailers if he did not enforce them against tribal ventures. Last week, the highest court in the state ruled 6-0 to overturn the lower court, thereby overturning the position that had been the central point of a lawsuit by NACS and the New York Assn. of Convenience Stores.

TANK ISSUES

At the end of the Clinton Administration, EPA issued - but had not yet published in the Federal Register- proposed chances to the rules for Spill Prevention, Containment, and Countermeasures (SPCC). The new rule was pulled back by the Bush Administration. EPA has again requested to issue the rule, and it has been under review at the Bush Office of Management and Budget since late April. SIGMA is not thrilled with much of the proposed rule. However, it does contain one provision we support: all underground tanks that are regulated under UST rules would be exempted from SPCC rules; currently, only those under facilities with less than 42,000 gallons of tank capacity are exempt. Interestingly, SIGMA proposed the total exemption for USTs and EPA accepted it back in October 1991. Now, almost 10 years later, it still hasn't been translated into actual rules.

In another development, an EPA study released in June shows that 43%a of federal LUST Trust Fund money is being spent by the states on administrative expenses. The reason: almost all cleanups (95%) are paid for by tank owners rather than by the states, and most other uses of the funds are prohibited. The report may provide impetus for Congress to act to broaden the allowed uses of the fund. which now has a balance of more than $1.6 billion. SIGMA has supported expanding allowable uses of the fund to include enforcement of tank rules.