June 10, 2002

A VARIETY OF ENVIRONMENTAL DEVELOPMENTS FORM PATTERN

There were several developments on the environmental front last week having an impact on motor fuel marketers. Many of them had ironic twists which managed to turn what should have been “good news” into bad news. Or so it seemed . . .

LOW-SULFUR DIESEL “FACA”

Two weeks ago, the small business advisory committee to EPA on low-sulfur diesel held its first meeting. This was “good news,” because EPA had promised in its original rule-making for low-sulfur diesel that the technical issues related to marketer implementation would be “addressed later”. We had asked for, and got, a representative on the committee (known as a FACA after the law which mandates it) jointly with other marketer groups – Alan Wright of Pilot Oil Corp. But in its first meeting, EPA made it clear the FACA would not address marketer issues – the “bad news.”

Last week, Wright sent a letter to EPA on behalf of SIGMA, PMAA, NATSO, and NACS, urging a wider mandate for the FACA. We urged that it look at several issues, including: 1) what will be the impact of the rule on overall diesel supply; 2) what are refiner plans to produce 500 ppm fuel during the allowed phase-in period (marketers need to know if both fuels will be available between 2006 and 2010); 3) how will possible contamination of product during shipment be handled; 4) what liability will marketers have for misfueling; and 5) what equipment modifications might be required both for heavy duty equipment and for fuel retailers?

EVEN LOWER SULFUR DIESEL?

Even as the industry appeared resigned to the inevitability of 15 ppm sulfur diesel (we’re still considering appealing a court ruling, but it’s not very promising), the first volley of an even tougher battle was fired. Rep. John Dingell (D-MI) began dropping hints he wants to reduce diesel sulfur to 10 ppm or even to zero. He says he will propose legislation within about three weeks. He is supposedly not expecting to actually get such legislation passed this year, but would like something in the non-binding part of the conference committee report on the energy bill to be supportive of the idea. Marketers are concerned about sulfur contamination of 15 ppm diesel; those problems would be exacerbated by an even tighter standard.

PARTICULATE MATTER (PM2.5)

Several years ago, when EPA adopted new standards for PM2.5 – small particles in the air measuring 2.5 microns or less – they did so on the basis of health studies from the Health Effects Institute of Cambridge, MA. Industry at the time challenged the studies, and asked to see the data, not just the results, but we were denied the opportunity. Now researchers at Johns Hopkins University have found a glitch in the computer EPA used for that study and many others. The “glitch” apparently caused EPA to overestimate the bad health effects of PM2.5 by about double. Will that lead EPA to undo its rules? Don’t count on it!

OZONE NON-ATTAINMENT AREAS

EPA has cited that same computer glitch as related to the reasons it has not yet designated new non-attainment areas under the revised ozone standard it adopted in 1998. The Sierra Club is suing to force EPA to move forward.

ETHANOL PLANT EMISSIONS

EPA met with ethanol producers last Monday and outlined steps that must be taken to bring ethanol production facilities into compliance with the Clean Air Act. Preliminary studies by EPA suggest current ethanol plants are emitting 7,500 tons of volatile organic compounds and 8,000 tons of carbon monoxide beyond what is allowed. Officially, the ethanol industry is “voluntarily” instituting the changes, and EPA did meet with producers rather than issue notices of violation. But many in the petroleum industry think that is just the politics of ethanol – if a refiner had been in similar violation, EPA would probably have filed a legal complaint first, and talked later.

BOUTIQUE FUELS

The rumors that Sen. Bingaman (D-NM) would push to limit the number of “boutique fuel” gasoline formulations to three, as part of the energy bill conference committee report, appear to be “less than meets the eye.” Senate staffers tell us that they don’t think it can be done in the context of the energy bill, even though the conversation can get started now.

THE ENERGY BILL ... WAITING

House members of the Conference Committee to work out differences on the Energy Bill were not named last week. It now appears they will not be named until late in June. There appears to be a lot of wrangling over who will get named to the conference committee. Also, the House Republican leadership seems to believe that its best bet is to have the conference committee meeting as late as possible, closer to the election.

COMING BENZENE REGULATION?

In EPA’s recently-released “air toxics” assessment, a claim is made that 100 million Americans live in areas where there is greater than a 10-in-a-million chance of cancer cases caused by mobile source pollutants. Whether this study is flawed by the same computer glitch reported above, we don’t know. But benzene, a component of most gasoline, is one of the more significant “air toxic” pollutants. Thus, we would expect that EPA might begin to move to regulate benzene in gasoline in the not-too-distant future. Be prepared.

CHANGES TO RFG RULES

EPA has issued a “direct final rule” changing some of the rules for the RFG program. For the most part, the “changes” are not changes at all – they are merely codifying into the Code of Federal Regulations changes that had been made earlier informally, or recognizing court decisions. Among that kind of changes: recognizing the opt-out of 12 counties in Maine from the RFG program; recognizing the re-classification of Sacramento’s non-attainment status; and deleting the provision (overturned by the courts) allowing former non-attainment areas to opt into RFG.

The rule also reclassifies the San Joaquin Valley of California as a Severe non-attainment area; federal RFG will become mandatory in that area as of Dec. 10 of this year. Since statewide CARB gasoline is already more stringent than federal RFG, the “only” effect of that change will be to require oxygenates. (Separately, we’ve heard that the northern parts of the San Joaquin Valley are asking to be moved into a separate area, because they don’t have as severe a problem as the Fresno and Bakersfield areas. Also, there are rumors the valley wants to be declare an “Extreme” non-attainment area, which would give it an extra five years to meet Clean Air Act standards.)

Unless there are objections, the rule will go into effect immediately. If there are objections, it will be changed to a “temporary” rule as well as a proposed final rule, and the normal regulatory processes will be followed. At this point, SIGMA does not see anything to object to.

TAXES ON “OFF-ROAD” FUELS

The Internal Revenue Service has issued a proposal to revise the definition of what constitutes an “off-road” vehicle, making it exempt from federal excise taxes. IRS is trying to tighten the definition to get at vehicles that are used partly on-road and partly off-road, such as construction cranes mounted onto what are otherwise “trucks.”

The proposal was issued last Thursday, with comments due by mid-August. SIGMA would like input from our members on this subject. A memo from our attorneys outlining the proposal is posted here. Please look it over and tell us how it would affect you and your customers.

SOT REPEAL & MINIMUM WAGE

The Special Occupational Tax (SOT) on retailers of beer and wine ($250 per store) remains in effect and is due July 1. The industry continues to push to have this tax repealed, with NACS leading the way. Steve Visocan, who is NACS chairman-elect and was invited as a constituent of Sen. Baucus (D-MT), testified at a hearing last week before the Senate Finance Committee urging such a repeal.

Senate Democrats plan to debate and act in July on legislation to increase the minimum wage by $1.50 per hour over 17 months. While we do not support a minimum wage increase, on of the best chances of SOT repeal is as part of minimum wage legislation – as one of the “offsets” to help small businesses deal with the increased cost of a higher minimum wage.

ATTN: CO, MT, & SD MARKETERS

If you market in those states, note that EPA has announced it will require all automotive waste wells (Class V injection wells in service bays) to either close down or apply for a permit.

SIGMA MEETING DEADLINES

The housing cutoff date for the Summer Leadership Meeting at the Willard Intercontinental Hotel is this Friday, June 14. The cutoff date for regular rates for the special “SIGMA Masters” program at Charlottesville with George Overstreet, “Creating Wealth Through Motor Fuel Marketing,” was to have been last Saturday, June 8. We are extending that deadline, and will accept registrations at the regular rate through tomorrow (Tuesday, June 11). Don't miss either of these excellent programs! Click here for information on the SIGMA Masters program, and click here for information on the Summer Leadership Meeting.