November 25, 2002

OLD ENERGY BILL DEAD; NEW ENERGY BILL GESTATING

The Senate adjourned for the year last Thursday, Nov. 21, and the House was followed suit on Friday – as soon as they had acted on some technical amendments to the Homeland Security Bill. With the end of Congress, all pending bills automatically die – including the long-worked-on Energy Bill, which had made it through both House and Senate but failed to get differences worked out in a Conference Committee.

There is both good news and bad news in the death of the Energy Bill. It contained several provisions in either the Senate or House versions (or both) which SIGMA and our marketer members supported. Those provisions included small refiner tax credits (to encourage production of low-sulfur diesel), repeal of the oxygenate mandate in Reformulated Gasoline (RFG), biodiesel tax credits, and an orderly phase-out of the use of MTBE in gasoline. On the other hand, the Senate version of the bill (and the likely “compromise” version as well) contained an ethanol mandate called the “Renewable Fuels Standard” which could have proved disastrous for our industry.

SIGMA was among the first, back in June, to suggest that the “no bill” option would be better than passing anything resembling what was under consideration, so in that sense the death of the bill is a victory. We aren’t trying to take credit for that result, however. The energy bill died in large part because of disputes only marginally related to motor fuel marketer concerns – electricity, drilling for oil in the Arctic National Wildlife Refuge (ANWR), and climate change provisions. One of the ultimate “killer issues” was the issue of producer liability for ethanol (ethanol interests demanded it) and/or producer liability for MTBE (environmentalists couldn’t accept it). The Oxygenated Fuels Assn. was the primary actor in raising that issue, which was never resolved. But in addition to all of those other issues, it is true that SIGMA and our allies in a “supply caucus” – notably NPRA and NACS – worked effectively to highlight the potential supply and distribution problems with an ethanol mandate.

The Republican leadership in both Houses of Congress has indicated that energy legislation will be high on its priority list for the next Congress. SIGMA is already working with key legislators and their staffs to present the marketer viewpoint. The good news here is that, unlike the last Congress, energy legislation will likely be reviewed thoroughly in committee in the Senate before it goes to the floor for debate. The bad news? Something resembling an ethanol mandate is likely to rear its ugly head again!  

ELECTIONS STILL IN DOUBT

Although the broad outlines of the election are known, the winners of one Senate and two House seats are not yet known – one because of an ongoing recount, and the others because of runoff elections. Sen. Landrieu (D-LA) failed to win a majority in the Nov. 5 election and faces a runoff on Dec. 7 versus Republican would-be-Senator Terrell. In the Louisiana 5th District open seat contest, a similar situation will be resolved in a runoff between Lee Fletcher (R) and Rodney Alexander (D). Finally, in Colorado, Beauprez (R) was ahead of Feeley (D) by 122 votes in the final count on the first round, so a recount is mandatory.

Before these 3 races are decided, Republicans are up 5 seats overall in the House; that could go as high as an increase of 7 seats. They are up 2 Senate seats as well, with the possibility of picking up a third.  

NEW SOURCE REVIEW

Last Friday, right after Congress adjourned, EPA announced a final rule to change the New Source Review (NSR) program, making it easier for industries (including refineries) to modify to their operations and plants without lengthy reviews. These changes were first proposed under Clinton, but Democrats had planned to try to block them in Congress. Few SIGMA marketers are directly affected, but the net impact should be a long-term improvement to supply. Refiners can avoid NSR if merely implementing pollution-control measures; under a “clean unit provision” they can avoid repeated NSRs in a short period of time; they can make changes in one area that are offset by improvements in another area under “Plantwide Applicability Limits”; and the method for determining whether they are covered by NSR will change from comparing “current actual vs. future potential” emissions to “current actual vs. future expected actual” emissions. For more information, click here. 

DIESEL WORKSHOP

Marketers who were among the 275 in attendance at last week’s joint Industry/EPA Workshop on Low Sulfur Diesel Implementation gained a much better understanding of the issues they will face and EPA’s current thinking on those issues. We will have a detailed memo in the near future, but here are some highlights:

•  EPA released a “Draft Question & Answer Document” at the workshop, which – when it is finalized – will have the force of regulation behind it. It outlines key questions and answers them in ways that will be binding on EPA regulators in enforcing the rules. A copy of the DRAFT version of this document will be at www.epa.gov/otaq/regs/fuels/diesel within the next week or so. Remember, this is still just a draft – is is expected to be finalized around the first of next year.

•  Pipelines have indicated little problem with sulfur leeching from the walls of the pipe during shipment, which is good news. However, they reported substantial problems at the load point and at breakouts, where dedicated piping or other better practices might be required to prevent contamination of 15 ppm sulfur diesel. Also, most pipelines will need to change their sequencing of products (buffering low-sulfur diesel between 30 ppm gasoline or 500 ppm diesel) to minimize the transmix cut – a cut that even so will be 20% to 40% larger.

•  Terminals currently handling ultra-low-sulfur diesel are doing it with dedicated barges and piping; terminal tanks also have to be dedicated, and scrubbed clean before use. The issue for marketers is terminal capacity – will some products be discontinued in order to carry this product?

•  Retailers already handling 15 ppm diesel report that the only way to avoid contamination is separate piping and dedicated trucks (or scrubbing them before use). This is a significant problem for those using common carriers. At retail, it seems to require 4 complete turns of the UST for product to meet specs – short of emptying and scrubbing the UST.

•  It is obvious that there will be some misfueling; the question is, how much, and how can it be prevented? Those who think there will be little or no price disparity between 15 ppm diesel and 500 ppm diesel (an unlikely prospect, we think) believe the only misfueling will be accidental, and can be handled relatively easily. SIGMA, other marketer groups, and the American Trucking Assn. are calling for different nozzle sizes for the two products. It’s tricky, though – we don’t want to reduce flow rates, and we want EPA to make a decision by mid-2003 to give time to make the change. EPA is also looking at some high-tech solutions, such as transponders, to achieve the same goal – a solution we don’t think is very practical or workable.

EPA plans to meet with trade association reps within a couple of weeks to move forward on these and other issues. 

SPCC - REQUEST FOR DELAY

SIGMA was one of 15 associations which sent a letter to EPA Administrator Whitman last Friday, asking for a delay in the implementation deadlines under the new Spill Prevention, Control, and Countermeasures rule. We also made the same request in a meeting at OMB on Friday. We ask for the delay because the final rule has “inconsistencies, ambiguities, and confusion” which will make it hard for industry to comply, and which need to be cleared up. Marketers affected are primarily terminals and bulk plants. For a copy of the letter, click here. 

HIT THE GROUND RUNNING

Unlike the last Congress, the new Congress which convenes in January is expected to hit the ground running, especially on energy legislation. That means that we will not have the usual six months to figure out our priorities. This is important because we may be calling on you to make contact with the Senators and Representatives with whom you have influence (as a constituent or provider of jobs in their District). If you get such a call, please follow up promptly! Also, December would be an EXCELLENT month to meet with your (possibly new) Senators and Representatives in their home district offices, to let them know what you care about. 

ADAM CHARLES PORTS

We are deeply saddened to report the accidental death, earlier this week, of Adam Ports, the 18-year-old son of SIGMA President Mike Ports and Lori Ports. Our thoughts and prayers are with them and their family.

Adam was a freshman at Tiffin University, and was active in student government. He had achieved a black belt in Tae Kwon Do and helped other students in martial arts by teaching. The family requests that any memorial contributions be made to the soon-to-be-created Adam Charles Ports Memorial Foundation for Martial Arts, c/o FirstMerit Bank, NA., Attention: Robbie Ross, P.O. Box 37, Wooster, OH 44691.