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January 28, 2002
YEARLY “UNFUNDED MANDATE” OF ENERGY BILL ABOUT $1 BILLION
The Congressional Budget Office (CBO) has completed an analysis of the costs imposed on the private sector by S. 950, the proposed energy bill introduced by Sens. Smith (R-NH) and Reid (D-NV). The costs are estimated as follows:
- The cost of replacing MTBE in gasoline would be about $950 million annually, starting in 2006, and would decline after a few years to about $600 million annually. This is not the total cost of banning MTBE. CBO says that 10 states accounting for 40% of RFG sales have already acted to ban MTBE, and they would be unaffected by the ban. The $950 million cost is only for the remaining states and the 60% of RFG they sell.
- Eliminating the ethanol RVP waiver, which would require the replacement of butanes and other high-volatility components of gasoline, would cost about $65 million annually.
- The Cost of more-frequent environmental testing of gasoline and additives is relatively low, at somewhere between $10 million and $20 million every 5 years.
Although S. 950 passed out of the Senate Environment and Public Works Committee last fall, it has not been acted on in the full Senate. It may be rolled into the overall debate on energy policy, which Sen. Daschle (D-SD) says will come before the Presidents Day recess. In his latest statement, Daschle implies there will be a tax section in the bill, but Democrats haven’t yet decided how much.
EPA TANK MEETINGS
SIGMA and other industry groups met last week with Cliff Rothenstein, head of the Office of Underground Storage Tanks at EPA, and two of his staff members, Bill Lienesch and Judy Barrows. The purpose of the meeting was to discuss pending tank legislation in Congress introduced by Sen. Chafee (R-RI). We were concerned that EPA didn’t appear to be as far along in their analysis of the bill as we had hoped and expected they would be; other issues have apparently taken priority. Nevertheless, the industry groups were able to go over our own analysis, and to have a good exchange of views with the OUST office. Other groups in the meeting included NATSO, PMAA, NACS, API, and the Oxygenated Fuels Assn. (OFA). We previously reported that all of the groups are “generally supportive” of the Chafee bill. This does not in all cases represent formal endorsements. Specifically, API has not yet taken a position on the bill.
Separately, it should be noted that EPA is opening its annual tank conference to all who wish to attend, not just state regulators and invited guests. It is March 11-13, at the Renaissance Worldgate Hotel in Kissimmee, FL, just south of Orlando. There will be three tracks: Tanks, Cleanups, and Policy Direction/Program Management. Registration fee is $40; hotel rooms are $82/night. For more information, Contact Jeanette Bengtson, NEIWPCC, at 978-323-7929.
WINTER/SUMMER TRANSITION
EPA continues to work on proposals for transition from witner to summer RFG that it hopes will avoid some of the price spikes and availability problems that have plagued the program in recent years. An announcement is expected as early as this week. EPA reached out to SIGMA regarding the possibility of moving or eliminating the May 1 deadline for terminals to sell only summertime RFG. SIGMA statistics helped to illustrate to EPA what a problem that would be for retailers, and the pressure it would put on them to turn their tanks by the June 1 retail deadline. We continue to try to convince EPA that this is a bad idea.
ADDITIVE RULES
EPA is withdrawing parts of a rule that would give more flexibility to additive manufacturers. The “detergent rule” has always required additive makers to list information on the oxygen content of the additive at the time it is sold. An amendment to the rule announced Nov. 5 would have dropped that requirement. However, EPA was expected to announce late last week that the proposed changes would be withdrawn and reissued later.
INSURANCE “TIPS”
At the recent Winter Management Conference in Steamboat Springs, CO, there was an excellent program on the state of the insurance industry, and ways marketers can act to reduce their costs and risks. The program, put on by experts on insurance from within marketer companies, also explained the forces that are driving higher insurance costs:
- Even before 9/11, the stock market was in bearish conditions. When the market is bullish, insurers can make money on their investments and sustain claims losses.
- 20 insurance companies went out of business in the first 9 months of 2001 (pre-9/11), and about 18 more are currently on credit watch.
- Insurance companies had $4 billion invested in Enron.
- Property losses due to 9/11 were more than $19 billion, and workers comp expenses were more than $6 billion.
- There have been a variety of underestimated loss issues for the insurance industry, including asbestos losses being under-reserved, mold exclusions in Texas that were not predicted, and others.
- The industry is worried about a catastrophic computer virus coming along.
- What can a marketer do in a situation where insurance rates are rising so dramatically? Here are 9 suggestions that were offered at the conference:
- Explore exotic alternatives like a Captive Insurance Product. This could save money through administrative efficiency, risk management, control by the group over who participates (not sharing risks with the high-risk people), and annual oversight and audit of the program.
- Prepare management for the upcoming rate increases. The situation today looks much like it did in the early 1990s.
- Decrease your risk exposure.
- Prepare pristine submissions. Address losses – what did you do to address it, and be sure it will never happen again. Show your compliance with loss control reports, and show a compromise if you cannot fulfill the suggestions. Show the upgrades you have made, and show your disaster recovery plans.
- Work the broker, and use competition in your favor. Divide the market and use two brokers – this insures that the brokers do not go to the same insurer. Ask for greater coverages. And ask for a discount on the broker’s commission, or ask them to do it for a flat fee.
- Pay attention to values on property and inventory coverages. Just because it was $100,000 last year, is that the right number this year? Look at whether you need replacement cost insurance versus actual cash value (which would be less).
- Do you have blanket coverage? Get a blanket policy on your property coverage, and tie it to realistic underlying values.
- Watch out for language on the application. For example, distinguish between a “loss” and a “claim”. Address the question of whether you have ever been “non-renewed”.
- Pay attention to the timing of any claims; be sure to get them in on time.
- Other topics were touched on during the session, and we can’t fully cover everything that was exchanged. But some key ideas were:
- If your loan says you will have insurance, be sure you have it. Work with your lender on adding language to the loan that will give some leeway based on availability or affordability of insurance.
- If you have supply agreements that require you to indemnify the refiner for losses at your customers’ outlets, be sure your agreements with your dealers have the same language. Be sure you are named as an additional insured on your dealers’ insurance.
- Track the insurance certificates of vendors who come onto your property. Where applicable, look at your need to be included as an “additional named insured” and ask to be included as such in your contract with those who supply or work for you.
SIGMA Weekly Report January 28, 2002 © Copyright SIGMA
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