July 30, 2001

ENERGY LEGISLATION TAKING SHAPE IN HOUSE

The Republican leadership in the House of Representatives worked last week to put together a comprehensive energy bill, combining bills reported out of each of 4 different committees. The combined bill is expected to be brought up on the House floor this week. All proposed amendments to the roll-up bill were to have been submitted to the Rules Committee by close of business on Friday; the Rules Committee will then decide on Monday or Tuesday which amendments will be considered by the full House. The 4 bills being wrapped into one are:

• H.R.2436, the "Energy Security Act", passed by the House Resources Committee. That bill contains a number of production incentives for oil and other energy sources, including a provision allowing for oil and gas drilling in the Arctic National Wildlife Refuge (ANWR).
   

• H.R.2460, the "Comprehensive Energy Research and Technology Act", passed by the House Science Committee. Among its many provisions for alternative fuel vehicle research and development are incentives for the development of fuel cell vehicles.
   

• H.R.2511, the "Energy Tax Policy Act", from the House Ways and Means Committee. That bill includes provisions supported by SIGMA to allow for the expensing of small refiner environmental upgrade costs and a partial tax credit for those expenses, with a broadened definition of small refiner.
   

• An as-yet-unnumbered bill (almost unheard of!), the "Energy Advancement and Conservation Act", passed by the House Energy and Commerce Committee. This is the bill that includes a study of boutique fuels, calls on EPA to ease the transition from winter to summer RVP gasoline, and fixes some problems in blendstock accounting rules for refiners. This is the bill that briefly contained the provision blocking EPA's planned phase-in of ultralow-sulfur diesel rules, but which were stripped from the bill in full committee.

We do not know what amendments the Rules Committee is likely to allow to be considered to the overall energy bill during debate later this week. We have heard sketchy reports of a deal between California Congressmen and the Republican leadership to allow for consideration of an amendment to exempt California from the oxygenate mandate in RFG. This would apply to California only, not to all states (as was the case with a proposed amendment defeated in committee). SIGMA is generally in support of granting the "California waiver" as a step in the right direction; however, we are waiting to see the actual language to determine if we will support the amendment. We suspect that both ethanol and MTBE interests will oppose the amendment; Northeastern Congressmen, who had been seeking a waiver for their states too, may not support a waiver just for California. We'll have to wait and see.

The alliance of marketer groups led by PMAA and NATSO and including SIGMA and NACS, which had worked to get repeal of the diesel sulfur phase-in placed into the bill at committee level, has decided not to make a similar effort on the House floor. There will still be opportunities to pursue that option in the Senate, in Conference Committee, and with the Bush Administration. In fact, the group sent a letter on Friday to EPA Administrator Whitman taking her to task for her letter in opposition to that amendment written July 18. We point out that, contrary to her assertions in the letter, 1) we fully understand the provision of the phase-in, 2) the current plan is not a "delicate balance" between EPA and the stakeholders but rather a surrender to DOE on an issue that ALL other stakeholders opposed, and 3) that EPA should have done a study of the environmental cost of a phase-in before trying to mandate one.

SENATE ENERGY BILLS

The Senate is not moving as rapidly as the House on energy legislation. Markup on a general energy bill may begin this week, but markup of any boutique fuels or other fuels issues will wait until after the August recess. Ditto with a tax-related energy bill, according to Finance Committee Chairman Baucus (D-MT). Congress is scheduled to adjourn until after Labor Day this Friday, Aug. 3, although they may stay in session as much as another week, depending on how action on key spending bills goes. 

MTBE DEVELOPMENTS

Illinois has acted to ban the use of MTBE in gasoline within three years. Already, Reformulated Gasoline (RFG) in the Chicago market is required to be blended with ethanol rather than MTBE, so the change will not be as dramatic as it first appears. However, it will have some impact downstate.

The California Air Resources Board (CARB) was reporting last Thursday and Friday on challenges it faces in dealing with the coming MTBE phase-out in that state, now that the Bush Administration has denied a waiver from the oxygenate mandate and a similar waiver was defeated in House committee. Although we don't know the details, we understand that CARE staff was to outline options for implementing Phase III California RFG without the waiver. Separately, the Metropolitan Water District of Southern California adopted a plan on July 20 that will bar all but non-polluting boat engines on reservoirs used for drinking water.

Meanwhile, a study by EPA has found MTBE contamination in municipal water systems quite commonplace, showing up in 8.7% of water samples nationwide. It was found in 14% of surface water sources and only 5% of groundwater sources. It was more likely to be found in areas where RFG is required than where it is not. EPA has not stablished a drinking water standard for MTBE; however, it has issued a "taste and odor" advisory of 20 to 40 micrograms per liter. In no case in this initial study did the MTBE levels exceed 20 micrograms per liter. 

MEETING WITH EPA DEPUTY

For the past dozen years, through the first Bush Administration as well as the Clinton Administration, SIGMA has participated with a group of small business associations in meetings with top EPA officials on a regular basis. Our first meeting with the current Bush Administration will be with Linda Fisher, Deputy Administrator, on September 14. We have been asked to submit any issues we want to discuss by August 8.

PRODUCTS PIPELINES

The special section in the July/August issue of Independent Gasoline Marketing magazine entitled "America's Product Pipeline System" is now available for purchase as a stand-alone reprint. It is suitable for use in training new employees, lobbying state and local officials, educating the press, and even for such things as job fairs and civic presentations. Visit the SIGMA website at www.sigma.org to download an order form.

WINTER/SUMMER RVP SWITCH

EPA appears to be taking seriously the need for some action to ease the transition from wintertime to summertime gasoline - something called for in the pending energy bill in Congress. In preliminary discussions, EPA appears to be focusing on changes in rules at the terminal level rather than at the retail level. Right now, terminals must meet summertime RVP standards by May 1, but weather constraints mean they can't start the changeover too early, so there is pressure to draw down stocks to a very low level in order to make a rapid turnover of the tanks. EPA seems favorably inclined toward a later deadline for terminals to complete the turn, in conjunction with a deadline for the last shipment of wintertime gasoline to the terminal.

STAGE II IN CALIFORNIA

EPA has issued a final rule approving SIP revisions for five California air districts - Bay Area, Sacramento, San Joaquin, Lake County, and Monterrey Bay. In general,  EPA approved changes to those SIPS, but with some caveats regarding their Stage 11 Vapor Recovery programs. In essence, the areas are being told to revise the Stage II rules in ways that would allow EPA to step in and enforce the rules should California abdicate its responsibility (something that is unlikely to happen, of course). The practical effect: probably more-frequent inspections of Stacie II equipment than California officials had initially planned.

GASOLINE PRICES

The June Consumer Price Index (CPI) shows what some of the news media have downplayed recently regarding gasoline prices. Those numbers show that, in June, gasoline prices were actually DOWN by 3.2% from a year earlier. They also show that, compared to inflation overall in the economy, gasoline prices are still a real bargain. With "100" representing prices in the 1982-84 base period, overall inflation in the economy stood at 178.0 in June, while the price of gasoline was only 141.3. Put another way: while gas prices were up 41.3% in the past 19 years, overall prices in the economy were up nearly twice as much --78%.