September 30, 2002

HOUSE MAKES OFFER ON ETHANOL PROVISIONS FOR ENERGY BILL

As this Congress moves toward adjournment, or at least a long recess for the November elections, action on the Energy Bill in conference committee has stepped up. The committee met twice last week, and has meetings scheduled early this week in an attempt to wrap things up.

Two of the major contentious issues remaining are oil drilling in the Arctic National Wildlife Refuge (ANWR), which House Republicans are pushing for, and an ethanol mandate, which Senate conferees want. On ANWR, House conferees have now offered a compromise to the Senate: allow exploration, but only on 2,000 acres. Whether that will be acceptable is open to question; it largely depends on what key Senators get in return in other areas.

The House’s proposal on ethanol makes several steps in the right direction. In fact, House conferees appear to have accepted in large part four of the dozen proposals. SIGMA and NACS made a couple of weeks ago to make the Renewable Fuel Standard (ethanol mandate) more workable.

Key provisions:

• The ethanol mandate would begin in 2005, not in 2004 as contained in the Senate bill. SIGMA supports this change.

• Phase-in of the ethanol mandate would be slowed slightly from the Senate version and stretched out to be completed one year later than the Senate version. The Senate called for annual growth of 400 million gallons of ethanol, which would be “front-loaded” in terms of percentage growth. The House offer calls for an annual growth rate of about 10% per year, which would mean a growth of 200 million gallons in the second year and 500 million gallons in the final year. SIGMA had suggested a 5% annual growth rate in the mandate for ethanol.

• The liability protections for ethanol producers (especially defective product claims) in the Senate bill would be extended to MTBE, as SIGMA had suggested, and to ETBE.

• The Senate ban on MTBE would be eliminated, allowing market forces to determine its phase-out.

• States would have more flexibility to waive the renewable fuel standard, and also to individually ban MTBE. SIGMA is concerned that these provisions would lead to even more boutique fuels. The U.S. Chamber of Commerce has thrown its support behind the MTBE provisions in the House offer.

SIGMA is also concerned that the House offer does not yet do what we were hoping for in the area of tanks, and are working on that issue.

A variety of groups on all sides of the political spectrum are raising questions of whether the bill that is shaping up really accomplishes anything – a point made in editorials in The Washington Post. The Competitive Enterprise Institute is issuing reports tweaking Northeastern representatives for supporting wind energy but opposing a windmill farm off Cape Cod, and also pointing out that drilling in ANWR would do far more for our energy independence than an ethanol mandate.

Will there be an energy bill? Probably. There are now serious proposals on the table on the most controversial issues dividing the various sides. Key Senators and Congressmen appear to be on the verge of getting what they want out of a bill, and President Bush is lobbying publicly for a bill, calling it his second priority behind an Iraq resolution. The only issue that hasn’t yet reached the point where outlines of a compromise are apparent is electricity. Rep. Tauzin (R-LA), chairman of the conference, is hoping to complete action this week.    

CANOPY DEPRECIATION

Last Tuesday, representatives of the petroleum marketing industry met with the IRS task force that is looking into a uniform rule for depreciation of canopies at retail fuel facilities. SIGMA was represented by attorney Alan Weiner and staff member Tom Osborne. Other groups participating included NACS, who has led this effort, PMAA, and API, as well as individual marketers and oil company representatives invited by the various groups.

While it will be some time before the IRS task force has a completed proposal, we believe the industry made a strong case that all canopies of the standard designs used in the past 15 years (or more) should qualify for 5-year depreciation as “personal property” rather than as real property. Although a tax court in 1994 applied the 5-year standard, the IRS has until now taken the position that the 15-year depreciation should be used unless the facts “on the ground” are virtually identical to those of the company (JFM) which won that 1994 court ruling. According to surveys done by NACS and SIGMA in preparation for the meeting, some 40% to 50% of marketers are depreciating their canopies over 5 years, with the balance following the IRS preference of 15 years. 

DIESEL FACA CONCLUDES

The advisory panel on ultra-low-sulfur diesel met last Tues. and Wed. and completed its work, issuing a final report. That report essentially concluded that the technology to comply with the rule is “on track” for where it should be at this point. The final report does make reference to largely-unspecified “concerns” by refiners and others in dealing with the fuel, but there is no specificity of the problems we had hoped to build a record about – difficulty in handling, possible contamination of product, and supply shortages. We commend Alan Wright of Pilot Oil for his hard work on the panel, representing SIGMA and other marketing groups. We are, however, as disappointed as he is on the final outcome of the panel, which ended up not dealing with downstream issues much at all. 

NEW CDL RULES

Marketers who have employees that must have commercial drivers’ licenses (CDL) should be aware of new federal regulations which go into effect today (Sept. 30, 2002). Most of the changes are to the standards for issuing and revoking CDLs, and to rules for the states to ensure compliance. While not requiring specific action on your part immediately, you need to be aware of things which would trigger revocation of CDLs, and align your own company’s policies with the new rules as necessary.

INDIAN TRIBAL ISSUES

There has been no significant movement of our legislation that would enhance collection of excise and sales taxes on motor fuel and tobacco by Indian tribes and their members. For that reason, we have put our support behind efforts to limit the recognition of new tribes until the tax issues are resolved. Last week, the Senate defeated a proposed moratorium on recognizing new tribes for one year that had been proposed by Sens. Dodd (D-CT) and Lieberman (D-CT). The vote was 80 to 15. Separately, in the House, Rep. Moran (D-VA) has introduced a bill to extend federal recognition to six Virginia tribes. SIGMA sent a letter to Rep. Duncan (R-TN) which was read into the record of a hearing on the bill, H.R.2345, opposing such recognition. It is unclear if the bill will move this year; no votes were taken at the hearing. 

STOP STATIC CAMPAIGN

API and the Petroleum Equipment Institute (PEI) are launching a joint campaign during National Fire Prevention Week (Oct. 6-12) to address the problem of flash fires during refueling. The campaign points out that cool, dry air constitutes the typical climatic conditions when static electricity buildup is most likely to occur. For information on the campaign, and on the safety issues, go to either organization’s website, http://api.org (go to the consumer section), or www.pei.org/static.

PAID FAMILY LEAVE

California, which has brought the nation so many great ideas in terms of legislation, has come up with another one: comprehensive paid family leave under the workers comp umbrella. Workers will be entitled to up to 6 weeks of leave to care for a new child or sick family member, at 55% of salary. Coming soon to your state?  

CONGRESSIONAL SCHEDULE

Congress was originally scheduled to adjourn the end of this week, but will not meet that deadline. Some are now predicting adjournment the end of next week (around the 11th of October), while others think it might be closer to the 18th. The federal fiscal year ends today, and Congress has not yet enacted the funding bills for Fiscal Year 2003 (FY03). A “Continuing Resolution” is keeping the government funded for a week, and another is expected, and then another – to get us past the election. After that, it’s anybody’s guess whether Congress will enact appropriations bills or “punt” the issue to the next Congress which convenes in January.  

OFF-ROAD FUEL ISSUES

Two issues on this subject. First, EPA has issued a rule regulating the emissions from off-road vehicles such as forklifts, snowmobiles, and diesel engines over 50 horsepower in recreational boats, yachts, and cruisers. The rule is phased in, and deals primarily with engines rather than with fuels. Separately, IRS has scheduled a hearing on Feb. 27, 2003 on a proposal to include mobile machinery in the definition of a highway vehicle subject to road taxes – machinery that, while normally used off-road, is designed to be able to travel upon highways going from job to job. SIGMA will be involved in this issue.   

MISCELLANEOUS NOTES

The Dept. of Justice has announced that, after reviewing the proposed merger between ADM and Minnesota Corn Processors, the #1 and #2 U.S. ethanol producers, it will not conduct a full-scale investigation. With the merger, ADM will officially control 46% of the ethanol market.

DOT’s RSPA has published a final rule with two changes which might affect some members. First, it has adopted the North American Industry Classification System (NAICS) to replace SIC codes for determining who is a small business. Also, the rules will allow payment of fees by “any credit card” acceptable to the agency, rather than specifying only Visa and MasterCard. (We don’t know which other credit cards the agency plans to consider “acceptable”.) Decision on reducing fees for transporters of Hazmat, as required by law, is once again postponed – RSPA keeps hoping Congress will change the law to let them keep the extra money!