October 20, 2003

Conference Negotiators Agree on Energy Bill

Federal Budget Deficit

Leavitt Nomination

Below Cost Sales Acts

CONFERENCE NEGOTIATORS AGREE ON ENERGY BILL

Late Thursday night and early Friday morning, a "deal" was reached between House and Senate Republicans negotiating on the Energy Bill. Within the fuels title of the bill (the area of greatest interest to SIGMA) the agreement includes these broad provisions:

• Renewable Fuels Standard: There would be a nationwide mandate for use of ethanol and/or biodiesel starting at 3.0 billion gallons in 2005 and increasing to 5 billion gallons in 2012.

• MTBE Not Banned: There would NOT be an MTBE ban, although current state authority to ban MTBE would remain intact. (Some press reports, which we think are in error, say there is an MTBE ban in the agreement.)

• MTBE Liability: Manufacturers and users of MTBE would be protected from lawsuits based on "defective product" claims.

• Repeal of RFG Oxygenate Mandate: The requirement that Reformulated Gasoline contain oxygenates would be repealed. Repeal would be effective immediately upon enactment for California, and 270 days (9 months) after enactment for the rest of the country.

• Ethanol Blending Waiver (1 p.s.i.): States would be given the authority to eliminate the 1 p.s.i. waiver from the Reid Vapor Pressure (RVP) rules for ethanol-blended gasoline.

• Tank Reform Legislation: Reform of the Federal Underground Storage Tank program, largely based on tank reform legislation SIGMA has supported, will be included in the bill.

• Blending of Compliant Fuels: Some limited flexibility will be provided for blending together (or "co-mingling) at the station level of ethanol-based RFG with non-oxygenated RFG.

In addition, the tax title of the bill will include:

• Small Refiner Tax Incentives for upgrading to make low-sulfur diesel.

As with any such "agreement in concept", there will be some detail that we will need to see in the actual legislative language before we can say for sure what a particular provision does. For example, it is not clear to us yet whether the MTBE liability protection is retroactive or has a later effective date. Similarly, we are waiting to see if the actual legislative language matches our understanding of what was agreed to on tank reform and on blending of compliant fuels.

Another remaining contentious issue appears to be how to “pay for” the lost revenue from ethanol blending if the tax incentive remains and a mandate for increased ethanol usage is enacted. Ethanol proponents had seemingly engineered a coup by inserting language which takes the ethanol tax incentive out of the General Fund rather than the Highway Trust Fund. However, the issue is now entangled in a debate over how to offset the loss of revenue to the General Fund.

Republicans involved in the negotiations had hoped to have the actual language of the fuels provisions, as well as agreements on the rest of the bill, drafted and released to the full conference committee by the end of the day on Friday – a deadline they do not appear to have met. Thus, it appears there will be further “slippage” from the schedule the leadership was suggesting late last week: the conference committee was to vote on the bill today (Monday), the full House of Representatives would vote on Tuesday, and the Senate would move to take action shortly thereafter -- assuming there is no filibuster by Senate Democrats. We should know one way or the other – whether this agreement will be enacted or not – by the end of this week.

Our latest information is that Republicans were considering removing two very contentious provisions from the conference committee report, in order to help head off a filibuster threat -- allowing oil drilling in the Arctic National Wildlife Reserve (ANWR), and taking an inventory of oil and gas resources in coastal waters.   

FEDERAL BUDGET DEFICIT

The Federal budget deficit for the Fiscal Year that ended Sept. 30 apparently came in at a record-high $374 billion. The prior record was around $300 billion in FY 1992. Projections for FY 2004 are for even deeper deficits. The Congressional Budget office expects a deficit of $480 billion, and that is before factoring in any of the $87 billion in the pending emergency spending bill for Iraq and Afghanistan, according to press reports.  

LEAVITT NOMINATION

The Senate Environment and Public Works Committee acted last Wednesday to approve the nomination of Gov Leavitt (R-UT) to be the new head of EPA. The vote was 16-2, with only Sens. Clinton (D-NY) and Lieberman (D-CT) voting no. Sen. Boxer (D-CA) abstained on the vote, but announced she will put a “hold” on the nomination to prevent action by the entire Senate on confirmation. Sen. Lautenberg (D-NJ) also says he will place a hold on the nomination. The stated reason for the opposition: the failure of Leavitt and the Bush Administration to answer a number of questions submitted by Democratic Senators.    

BELOW COST SALES ACTS

On Wednesday, Oct. 15, the Federal Trade Commission provided comments to Wisconsin state Rep. Krug in response to an inquiry. The FTC took a position in opposition to the existing Wisconsin below-cost-sales act, saying it likely leads to higher prices for consumers because it protects competitors, rather than competition, and therefore (per the FTC) discourages pro-competitive price-cutting. A press release on the subject, as well as links to the FTC documents, is at http://www.ftc.gov/opa/2003/10/wigas.htm.

Meanwhile, New York has enacted a below-cost-selling act which appears to overcome the objections raised by Gov. Pataki (R-NY) when he vetoed a similar bill last year. The changes to the bill include allowing sales at 98% of cost, and allow for dismissal of a complaint where injury to competition is de minimus. The Empire State Petroleum Assn. has sent a letter to Pataki urging him to sign the bill; it is expected he will act one way of the other within the week.

Finally, in an interesting related note, the chief staff officer of Australia’s gas station owners association was in the USA last week, meeting with a number of marketer groups and seeking information on below-cost-selling laws in this country for possible use “down under”. His members’ concern: the two major supermarket chains in Australia have allied themselves with two of the country’s major oil companies, and are aggressively promoting cross-merchandising. The perception is that gasoline is being used as a loss leader.   

SIGMA Weekly Report October 20, 2003 © Copyright SIGMA