October 29, 2001

"BOUTIQUE FUELS", MTBE, ETHANOL, AND ENERGY POLICY

SIGMA and our members continue to be concerned about the proliferation of "boutique fuel" formulations which have led to the loss of fungibility in our motor fuel system. Tied in with that concern is the ongoing three-way battle over the oxygenate standard for RFG (between ethanol interests, methanol interests, and marketer interests). Whether the issues are coming to a head or not, there are a lot of related developments in the past week.

ENERGY SUBCOMMITTEE HEARING DELAYED

The House Energy and Commerce Subcommittee on Oversight and Investigations hearing on "Issues Concerning the Use of MTBE in Reformulated Gasoline: An Update", twice postponed due to the anthrax scare, is now scheduled for this Thursday. SIGMA’s First Vice President, Mike Ports, is still scheduled to testify on behalf of SIGMA and NACS. He will urge that the oxygenate mandate in RFG be repealed and not be replaced with a "renewable fuel" mandate.

EPA ISSUES "BOUTIQUE FUELS" STUDY REPORT

EPA has released its study on boutique fuels. It consists of two documents, which are available on EPA’s website at www.epa.gov/otaq/fuels.htm. One part is a general "white paper" that looks at various options to reduce the number of boutique fuels nationally. It does not make any specific recommendations, but asks for comments on all of several major options, including: 1) mandating a single national fuel based on California RFG, 2) creating a single 49-state fuel (with California going its own way), or 3) dividing the country into two or three regions with separate fuel standards by region. This will be a topic of discussion at the SIGMA Legislative Committee meeting in Seattle on Sunday, November 11. Be there if you care about this issue!

EPA TO PROPOSE RFG CHANGES

The other part of EPA’s boutique fuels study is a set of recommendations for the RFG program that will be issued as proposed rules prior to next spring’s changeover to summertime fuel standards. Terminals must currently be "in compliance" with summer RFG by May 1, with no interim

steps. Given the economic incentives to not sell summer gasoline early, this "cliff" approach causes shortages. The new rule, if adopted, will instead prohibit terminals from receiving winter gasoline after April 15, allowing for a period of blending-down – to May 1, May 8, or possibly May 15 – at which time terminals would be required to be 100% in compliance. There are several other proposed changes to the RFG program, including: 1) perhaps allowing a 2% enforcement tolerance as of May 1, 2) simplifying blendstock accounting; 3) allowing previously-certified fuel to be re-classified from conventional to RFG, or from northern to southern; and 4) perhaps reducing the minimum allowable RVP for RFG from 6.4 to 6.0 psi, thereby allowing for the manufacture of a sub-RVP, sub-octane blendstock for ethanol blending. While many of these points are similar to issues SIGMA has raised in the past, we need to hear from members before adopting a formal position. This too will be discussed at the Legislative Committee.

SENATE ENERGY BILL HAS ETHANOL MANDATE

Senate Republicans are circulating a draft energy bill which they may attempt to attach to other legislation on the Senate floor before adjournment this year. It would repeal the oxygenate mandate in RFG, but would add a "renewable fuels" mandate, escalating from 0.97% of all gasoline and diesel sold in the U.S. in 2002 to 2.40% in 2011. This would mean 5 billion gallons of ethanol (or biomass diesel) annually, compared to the 1 billion gallons currently produced. There would be a trading program for credits, but it’s not clear how it would apply to refiners, importers, and/or blenders. The bill would also allow states to mandate or prohibit MTBE, ethanol, or ethers – leading to more boutique fuels. Another topic for the Legislative Committee!

STATE DEVELOPMENTS

NH is applying to opt out of the federal RFG program, instead requiring an RFG without oxygenates. EPA rules prohibit opt-out before 2004. Meanwhile, the Louisville metro area – home of some of the most severe boutique fuel problems – has been declared an "attainment area" for ozone. But the fuels regulations will remain, at least for the time being, in order to help the area stay in attainment.

BELOW-COST SELLING

PMAA is reportedly calling for a national below-cost sales ban for motor fuel. Contrary to what you may have read elsewhere, SIGMA has not had a position on such legislation in the past, because in the past it has been entirely a state issue and SIGMA generally does not take positions on state issues. We do know that some of our members strongly oppose below-cost sales laws, and some support them. We will no doubt be looking at this issue at our Legislative Committee meeting as well.

NOMINATING COMMITTEE

CORRECTION: In last week’s Nominating Committee report, we inadvertently reversed the positions of two nominees. Paul Reid is nominated to be Secretary-Treasurer, and Bill Shipley is nominated to be Second Vice President. We apologize to them and to you for the error.

FINANCIAL PRIVACY RULES

The Gramm-Leach-Bliley Act of 1999 requires financial services businesses to take actions to ensure privacy of financial data for their customers. Those rules may apply to some SIGMA marketers, based on activities such as ATMs, check cashing services, and issuance of private fleet cards. In general, all such businesses are required to have data security mechanisms (to prevent inadvertent disclosure) and data integrity mechanisms (to prevent electronic data from becoming corrupted). However, currently there are no specific mandated standards for the security or integrity. Of greater concern is that some SIGMA marketers may be caught up in the privacy notice disclosure requirements – the kind you have been receiving with your credit card bills, bank statements, and the like. Because it applies only to personal information (not business information), and to ongoing relationships, this will probably not be the case merely from operating (or leasing space for) an ATM, nor from incidental check-cashing. It might become a problem for those who issue fleet cards, although only if those are issued to individuals for personal use rather than to businesses. The most onerous part of the regulations, the "opt-out notification" requirement, applies only if you are selling or sharing financial information with others that is not required for completing the transaction in question. While most SIGMA marketers will not be affected, you should seek further legal advice if you are on the "borderline" in providing individual financial services or selling data.

TOBACCO LEGISLATION

A SIGMA legal memo describing pending tobacco bills in Congress will soon be available at www.sigma.org.

TANK ISSUES

SIGMA attorney Jeff Leiter participated in an API tank conference in Phoenix at which SIGMA had lent its name as a co-sponsor. He confirmed that state tank officials are asking for more flexibility from EPA in response to 9/11 events, but it is unclear what direction that will take. Repeating a drumbeat that began last spring, state officials are very critical of employee turnover at the station level and think new regulations or "tweaking" are needed to move more toward automated equipment and rely less on human intervention to detect and prevent leaks and spills. Also at the conference, representatives of AIG and Federated told attendees to expect tank insurance premiums to go up, but not dramatically, for companies like theirs whose rates are regulated by state insurance commissioners. However, because of a tougher reinsurance market, some of those using surplus lines may be hit hard as a result of 9/11.

In other tank-related news, NC has a new law which requires contractors to meet pre-set cleanup schedules and cost estimates to get tank fund reimbursement. Two conflicting reports have come out on MTBE cleanup costs – the Methanol Institute report says it is "not the imminent threat" it was thought to be in 1998, while a consulting firm estimates national MTBE cleanup will cost $29 billion.

FLEETS AND TAXES

The IRS issued an "advance notice of proposed rulemaking" on Oct. 22, inviting public comment on gasoline excise tax issues related to refunds. This is the first step in a process to address questions and concerns about how tax-exempt sales are handled through fleet cards and credit cards. No specific proposal is pending. SIGMA will be involved in the process as new regulations are adopted.

INDUSTRY SECURITY

Eleven energy companies have formed an ISAC - an Information Sharing and Analysis Center – to help identify and reduce infrastructure vulnerabilities and to protect from cyber or physical attacks. Other companies are welcome to join. It will probably be most valuable to those involved in trucking and terminal operations (as well as those further upstream – refiners, pipelines) and for larger retailers. This is based on a cyber-only ISAC that has been operated successfully for several years for the banking industry. The ISAC hopes to be up and running by this Thursday, Nov. 1. Cost is $7,500 per company annually. We’ll have more information at the convention. If you want information sooner, email tosborne@sigma.org for several documents that explain the ISAC and can help you sign up.