March 4, 2002

CALL TO ACTION ON ENERGY BILL – RENEWABLES MANDATE

Action in the Senate on the Energy Bill is expected to begin sometime this week. SIGMA is judicious in going to our members, asking for contacts with Senators and Congressmen. But right now we are making such a request – because your calls and letters can make a big difference!

Right now, there is in place a loosely-defined “deal” between the Senate leadership, environmental groups, several oil companies, and the ethanol industry to include a 5-billion-gallons-per-year ethanol mandate. This would be in exchange for other concessions in the bill wanted by the various other groups. But many partners to the negotiations have serious problems with some of those other aspects. There is ongoing debate over such issues as drilling for oil in the Alaska National Wildlife Refuge (ANWR), increases in the Corporate Average Fuel Economy (CAFE) standards for automobiles, and even within the fuel standards sections.

SIGMA is very concerned about the proposed ethanol mandate – technically a “renewable fuels” mandate. We are always concerned when government requires specific ingredients in gasoline, rather than setting standards and letting the marketplace determine how best to achieve them. Beyond that, the ethanol industry already has a massive tax break and protections from overseas competition in the form of huge tariffs. And the mandate is inflexible – it would remain in place regardless of the availability of ethanol, and regardless of the price of ethanol. This seems particularly dangerous considering that ethanol production is dominated by a single company.

You can help kill this proposal if you act today! Call or write to ALL of the U.S. Senators representing states in which you operate. A sample letter is attached. If making a phone call, use the sample letter as a guide – or perhaps the previous paragraph in this story (substituting your company’s name for “SIGMA”). In either case, urge the Senator to vote AGAINST the “renewable fuels mandate” in the Energy Bill.

TESTIMONY ON TANKS

SIGMA Legislative Chairman Art DeBlois testified last week in Rhode Island on the general subject of tanks, and specifically on Sen. Chafee’s (R-RI) tank bill, S. 1850. He spoke on behalf of both SIGMA and NACS. Those present at the hearing included Chafee, Sen. Reed (D-RI), Rep. Patrick Kennedy (D-RI), and (in the audience) longtime SIGMA friend Dave Rogers, who is running for the Republican nomination to oppose Kennedy this November. DeBlois and others at the hearing felt it went very well, with both Chafee and Reed making statements in support of what our testimony called for – expanding uses of the federal LUST Trust Fund, and increasing the amount spent from the fund dramatically. We believe that Sen. Reed will push within the Appropriations Committee to actually get the funds released, once S. 1850 is passed. There were no major disagreements during the hearing, although Rep. Kennedy made a rambling anti-NAFTA statement (related to MTBE from Canada) and Jeff Kos, head of the Rhode Island branch of the National Environmental Coalition, testified about the need to “address the issues”, but with no specific proposals. All in all, we feel the hearing helped move us toward our goals on tank legislation.

ARGUMENTS: DIESEL SULFUR

Also last week, SIGMA and our allies made oral arguments before the DC Circuit Court in the lawsuit attempting to block EPA’s ultra-low-sulfur diesel rule. Mike McBride made the arguments for the “fuels” petitioners – API, NPRA, and SIGMA – with separate arguments by an alliance of auto makers and by diesel engine interests on other issues within the rule. The case is before a 3-judge panel sophisticated on environmental issues. Our arguments made several points: 1) EPA has no authority to regulate sulfur because the engine technology requiring it is not in or near common use; 2) the rule will lead to diesel shortages; and 3) the phase-in of the rule is arbitrary and capricious and violates SBREFA (federal law requiring small business input into regulations). On this last point, we showed that a single fuel would have been cheaper and more efficient), that there was no showing of need for the phase-in, and that the SBREFA process focused only on small refiners and ignored marketers, even after admitting to a $1 billion impact on marketers. The judges had lots of questions for both sides in the case; we are underdogs, but have some hope the rule will be sent back to EPA for reworking.

BELOW-COST SALES

Last week, most of the news about proposed federal below-cost-selling legislation involved PMAA and NACS. Two items involved SIGMA:

SIGMA President Mike Ports and Executive Vice President Ken Doyle participated in an amicable meeting on Tuesday involving all three groups, at which each group discussed where they stood in the process.

In a “news flash” on Thursday about NACS’s deliberations on below-cost selling, CSP erroneously reported that SIGMA had efforts “currently underway...to support below-cost legislation in Washington.” This is untrue. SIGMA’s position has not changed. We are still neutral on PMAA’s proposal (based on an earlier PMAA request) and are in the process of evaluating it, seeking member input. In later reports, CSP correctly stated our position, but did not make a correction or retraction of the earlier error.

CORRECTION RE: NPRA

Speaking of corrections, we have one of our own to make:

In the SIGMA Weekly Report of 2 weeks ago (Feb. 18), we incorrectly stated that we are working with NPRA to support a small refiner tax credit proposal in the energy bill. We are in fact working with an informal coalition of small refiners. Although many of them are NPRA members, they are neither representing nor represented by NPRA on this issue. We understand that NPRA has taken no position on small refiner tax credits. We apologize for the misstatement.

CALIFORNIA WAIVER

California Gov. Davis (D) is expected to decide by the end of this month whether to delay the state’s phase-out of MTBE (scheduled for year-end). In the meantime, he has asked for help from the state’s two senators, Boxer (D) and Feinstein (D), to get a 3-year waiver from the oxygenate standard for RFG inserted into the Energy Bill. Politicians in the state, particularly Davis, are concerned about a state report predicting $2 to $3 gasoline price spikes if the MTBE ban goes into effect and ethanol is effectively required for most of the state’s gasoline supply.

SIGMA MEETING NEWS

The Westin La Cantera Resort, site of SIGMA’s Spring Convention at the end of next month, was listed as #2 of the “Top 30 North American Resorts” by Conde Nast Traveler magazine. You won’t want to miss this opportunity to visit a fabulous resort! (For comparison purposes, the Loews Ventana Canyon Resort, site of 3 previous SIGMA meetings, was #14 on the list, and no other SIGMA convention site made the top 30.)

The “Collaborative Workgroup on Technology” will meet over breakfast in San Antonio on Friday morning, April 26. The working group has a new format and needs help with the agenda. Please answer the following questions and send your answer to Ken Gunn at caliber1mt@aol.com, or call 406-587-8772: What technology areas would you like to have on the agenda for consideration? What areas should be addressed, such as: What is on the market? What are the steps to implementation? What offers the best ROI? What experiences have marketers had? Thanks for your help!

MISCELLANEOUS ITEMS

The head of EPA’s Office of Regulatory Enforcement resigned last week, and blasted the Bush Administration for being too pro-industry. His specific complaint related to the way the administration is handling the “New Source Review” program for power plants and refineries. That program was placed on hold last May for a 90-day review, which has yet to be completed . . . Several trade groups, including the American Trucking Associations (ATA), have separately urged that the pending DOT rules for Hazmat transporters should clearly pre-empt state rules, rather than having them be in addition to various state rules . . . The changes to the winter-to-summer RFG transition rules were officially released last Tuesday, Feb. 26. Elimination of the blendstock tracking and accounting rules took effect immediately; other provisions take effect April 29 . . . House Democrats have announced plans to introduce a measure to reinstate the federal Superfund tax for 5 years. The tax expired in 1995, and has not been reinstated due to differences between the political parties on overall reform of the Superfund program .

DRAFT LETTER TO SENATORS REGARDING ETHANOL MANDATE

The Honorable __________________

United States Senate

Washington, D.C. 20510

Re: Opposition to Proposed Ethanol Mandate

Dear Senator ________________:

The United States Senate will soon consider S. 1766, the national energy policy legislation introduced by Senator Tom Daschle. As an independent marketer of gasoline with operations in your state, I urge you to use your influence to prevent the inclusion of an ethanol, or renewable fuels, mandate in this legislation when it is considered by the Senate. The domestic ethanol industry already enjoys significant federal and state tax incentives and is protected from foreign competition by high tariffs on imported ethanol. An annual 5 billion gallon ethanol mandate is simply bad energy policy and should be deleted from S. 1766.

Many independent marketers already blend ethanol with gasoline in order to take advantage of the tax credit and compete with the major integrated refiners. Ethanol use has grown from 1 billion gallons annually in 1997 to a projected 1.7 billion gallons in 2002. The Department of Energy projects that ethanol use for motor fuels will increase steadily over the next 10 years even without a mandate. And while a massive ethanol mandate will help farmers, it will hurt consumers at the pump. Over the last several years, the areas of the nation that already have mandated the use of ethanol have experienced both some of the highest retail pump prices for gasoline in the nation and the greatest amount of wholesale and retail price volatility. This has not been a coincidence, and this experience will be exported to the rest of the nation if this ethanol mandate is enacted.

A federal ethanol mandate will take money directly out of the pockets of your constituents each time they visit a retail gas station to fill up their cars and trucks and transfer it into the pockets of Mid-West agri-businesses and other farmers. A vote for this ethanol mandate is a vote for increased gasoline production costs and for increased gasoline price volatility in the coming years.

I strongly urge you to oppose the ethanol mandate in S. 1766.

Sincerely,