September 24, 2001

GASOLINE PRICING CONTROVERSIES AND "GRANDSTANDING"

Fallout continues from the wild fluctuations in gasoline prices immediately following the terrorist attacks on Sept. 11. Marketers need to be know what is happening, SIGMA's position on the issues, and what SIGMA is doing about it.

WHOLESALE PRICES & ALLOCATIONS

In the immediate aftermath of the attacks, many suppliers raised wholesale prices by 20 cents per gallon or more, closed terminals to unbranded marketers, and severely penalized both branded and unbranded marketers for lifting in excess of their contract volumes. This was at a time when consumer panic led to retail sales for many retailers of more than 300% of their average daily volume.

While many of the nominal price increases were quickly rolled back, the allocation provisions have lingered. SIGMA is concerned about this, and is conducting a survey to determine exactly what happened, when, in the supply chain on and around Sept. 11 and subsequently. That survey is attached; we ask that someone from all independent marketer companies respond as quickly as possible.

RETAIL PRICE SPIKES

At the same time, retail prices also saw selective price spikes. Like the wholesale prices, most of these were rolled back within hours. Some of the increases were unconscionably high, based most likely on misinformation and panic about future supply. Some of the increases were intentional efforts by retailers to put a crimp in panic buying by consumers. It should be noted, however, that we have as yet not heard one single complaint about so-called "price gouging" in the actual emergency areas - the New York City and Washington, DC metro areas - which is where such price spikes might legitimately be called "gouging".

THE BLAME GAME

Almost immediately, the situation became a political football for some, and finger-pointing began. The latest: according to OPIS, Conoco has said it will immediately debrand marketers and jobbers who posted "unconscionable" prices. SIGMA believes that responsibility for the volatility must be shared by all segments of the petroleum industry, as well as by consumers. SIGMA's President and First Vice President, Tom Robinson and Mike Ports, have sent a joint letter to both the National Petrochemical and Refiners Assn. (NPRA) and the American Petroleum Institute (API), expressing our concerns in this area. It said, in part, that "many SIGMA members have expressed emotions ranging from disappointment to deep anger at the public statements made by some refiners which implied or stated expressly that independent retailers were responsible for this volatility and were engaged in "price gouging." Such statements are inappropriate, inaccurate, and harmful to the industry as a whole. Engaging in a "blame game", either privately or in the media, is counterproductive and serves only to tarnish the image of the entire motor fuel refining and marketing industries in the eyes of the public."

STATE ATTORNEYS GENERAL

Many state Attorneys General are grandstanding on this situation, seeking to penalize a few gasoline retailers whose prices went up temporarily. Here=s a quick rundown: AR: in the absence of a Presidential state of emergency, is relying on general "consumer fraud" statutes. FL: Subpoenaed 15 companies who raised prices by "at least 10 cents per gallon". IL: Unknown number of stations facing AG lawsuits. IA: AG has brought suit against Casey's General Stores. KS: 141 stations who raised prices to over $2.49 must pay $1,000 total in penalties and sign consent decree or face lawsuit. MI: Nine stations reportedly faced with legal action by AG. MS: AG holding a hearing to determine who was responsible for price increases. MO: Any station which charged over $2.49 must pay 3 times profits or $1,000, or face lawsuit from AG. OH: Filed 4 lawsuits against stations within 2 days. AG says "No evidence of an immediate gasoline shortage, just a shortage of ethics." OK: Absent declared state of emergency, price gouging law not in effect, but AG has used "jawboning" to urge retail prices down. OR: AG letters to 13 stations seeking information as part of civil investigation; highest documented price was $2.45 per gallon. TX: Gov. has extended to Oct. 14 a disaster declaration, allowing state AG to prosecute "price gougers". VA: Reports of price spikes came only from rural and downstate areas.

INDUSTRY MEETINGS GO ON

In reaction to the terrorist attacks and restrictions on air travel, there had been some question about whether meetings would be cancelled or postponed. The answer, in our industry at least, appears to be "no". Last week's Pacific Oil Conference went forward as planned, although with reduced attendance. The Petroleum Equipment Institute has announced that its Convex 2001 show in Dallas, October 2-4, will go forward. So will the NACS show in Las Vegas, October 20-23.

SIGMA's Annual Meeting in Seattle, Nov. 10-12, is also a "go". But it will be a very different meeting from what we had originally been planning. The educational sessions are being re-tooled to deal with the new realities that we are facing as an industry, and we are making a special effort to maximize the number of fuel suppliers present at the meeting. Already, some 20 fuel supplier companies have committed to send representatives - about half the number we expect to end up with. We know many people don't want to travel right now unless they have to. We're doing what we can to make sure the Seattle meeting is worth any "extra effort" you may have to make to attend.

TAX EXTENSIONS

In response to the terrorist attacks, the IRS and many states have issued notices extending the deadline for many or all tax payments by "affected" corporations and individuals. Definitions vary as to who is "affected", but generally include crash victims, relief workers, those whose employment is in a disaster area, and those whose records are maintained in a disaster area. The five boroughs of New York City, plus Arlington County, Virginia, have been declared federal disaster areas, and thus all taxpayers located in those areas qualify for the extensions. Extensions are for 120 days to 6 months.

In addition to this specific relief for those most directly affected, the IRS is allowing a specific extension for ALL taxpayers for tax obligations falling due between Sept. 10 and Sept. 24. The due date for all such taxes, including estimated tax payments, filing of returns, and filing any other federal tax documents, was postponed to Sept. 24. This extension does NOT apply to federal tax deposits.

WEEKLY REPORT ON THE WEB

The SIGMA Weekly Report is now being made available on our website, www.sigma.org. In the long run, this will be available on our "members only" section. However, in the near term, we are making it available to all visitors to the site. Other features have also recently been added. We encourage you to visit the SIGMA home page frequently!

NEW AGENDA FOR CONGRESS

Despite its focus on the terrorist attacks and responses to them, Congress plans to inch back toward considering more routine matters as well this week.

Conferees on the EPA Appropriation bill for fiscal year 2002 (FY02) plan to meet this week; EPA may get a slight increase in funding for activities related to emergency preparedness, chemical attacks, and attacks on refineries. (Until Sept. 11, there was talk about across-the-board cuts for EPA.)

The Senate Environment and Public Works Committee plans a markup this Tuesday at 9:30 am of the Smith-Reid MTBE bill. In its current form, the bill is somewhat anti-ethanol. However, we know that some of those provisions will have to come out if the bill is to have any chance of passage. The sponsors were hoping to move a "clean" bill, with very few amendments considered in committee, and were looking to make needed changes in advance of markup. SIGMA met with key players last Friday on tank provisions, and gave them our suggested language. In general, there are some things we like in the bill and some we will oppose if they are not changed. We are planning to send a letter, perhaps jointly with NACS, outlining our position on the bill.

At this point, it is unclear what Congress will do the remainder of the year. It is possible they might merely handle appropriations legislation and go home; in that scenario, there still might be a shot at energy policy legislation in an appropriations bill. It is also possible that Congress might change its plans and stay in session, in which case there will be opportunity for lots of additional issues to be addressed. The decision simply hasn't been made yet.

MISCELLANEOUS NOTES . . .

In a less-than-surprising move, the National Corn Growers Assn. has joined with the Renewable Fuels Association in support of EPA in California's lawsuit over the oxygenate mandate . . . Donald Schregardus, the former head of Ohio's environmental agency and the "controversial" nominee for head of enforcement at EPA, has withdrawn his name from consideration, saying it was clear he would not be given timely consideration . . . Phillips Petroleum closed on its purchase of Tosco last week; no divestitures were required by the FTC . . . EPA's chief administrative law judge has scheduled oral arguments on Oct. 4 over whether EPA can charge "economic benefit" penalties against other government agencies. The specific case involves the Army and underground tanks. Rumor has it that Defense Secretary Rumsfeld pressured EPA to change its policy, in a meeting with EPA Administrator Whitman.