September 3, 2001

STANDARDS RELAXED TO MEET GASOLINE SHORTAGES

Refinery fires and other dislocations in the second half of August caused significant disruptions in gasoline markets in parts of the country, coming to a head last week. SIGMA monitored the situation and was able to play a helpful role.

In the Chicago and Milwaukee markets, CITGO was given permission by EPA to sell an off-spec, higher-VOC reformulated gasoline from now through the end of the VOC control period on Sept. 15. The agreement, announced Tuesday, reportedly requires CITGO to pay a per-gallon penalty in the range of 15 or 16 cents (we haven’t seen the actual agreement), to offset any financial benefit it would receive from not having to meet the stricter VOC standards. This is the type of exception to RFG rules that SIGMA pushed EPA to consider a year ago in similar situations – a solution which meets fuel needs while not penalizing in the marketplace those who had taken pains to be in compliance..

On Monday, there was a problem in the Pittsburgh, PA market, where no unbranded gasoline meeting the area’s 7.8 psi specs was available at all. Area marketers contacted SIGMA, and we contacted EPA. Since the 7.8 psi requirement was a state rule, EPA worked with the state in getting a waiver from that requirement – also through the end of the VOC control period. It appeared that shipping costs of bringing in 9.0 psi gasoline would offset any financial benefit of the waiver, so no per-gallon penalty was being assessed..

On Tuesday, SIGMA attorney Jeff Leiter accepted an invitation to appear on a live radio broadcast on KMOX in St. Louis, dealing with a sudden retail price spike there. Charles Jaco, a former CNN correspondent during Desert Storm and now a talk show host, first interviewed a representative from OPIS and then Leiter. In the 15-minute interview, Leiter was able to answer questions about why prices went up and down and was able to point out that 90% of the cost of gasoline is determined before it even gets to the gas station. In response to questions, he noted that retail gross margins last year were around 11 or 12 cents per gallon, and out of that the station must pay labor, utilities, and other operating expenses. He was also able to discuss the high cost of credit card usage in pay-at-the- pump..

We heard of problems in other parts of the country too, many of them affected by the situation in the Midwest. Also on Tuesday, for example, we understand that prices spiked by 25 to 30 cents per gallon at some racks in Texas. The spikes were spotty, leaving wide discrepancies between relatively nearby cities. Why? Apparently Texas was “drained dry” by refiners rushing to supply the Midwest..

CONGRESS RETURNS

Congress has been in recess for the month of August, but returns for business this Tuesday and Wednesday. There is a targeted adjournment date of October 5, which gives little more than a month to complete work. (Actually, nobody really believes they will adjourn by Oct. 5.) Whatever the adjournment date, there is a lot of ground to be covered quickly. An issue of concern to marketers still to be handled is energy policy legislation, which has yet to be taken up by the Senate, and which incorporates many sub-issues such as low-sulfur diesel phase-in, oxy mandates, and possibly tank issues. We’re also working hard on the tribal tax evasion issue. Be ready to respond quickly if we call for your help! .

MISCELLANEOUS...

EPA is expected to issue a lower-sulfur rule for off-road diesel later this year, probably to 500 parts per million (ppm), but an environmental group is pushing EPA for a 15 ppm standard, the same as for on-road diesel . . . GM unveiled the world’s first gasoline-powered fuel cell processor, used in a Chevy S-10 pickup truck, at an annual automotive conference in Traverse City, MI . . . The Mercatus Center at George Mason University says that workplace regulations cost business about $91 billion per year, with half of that in OSHA regulations . . .EPA will re-classify New York City and 2 suburban New York counties (but not northern NJ) as a carbon monoxide attainment area.