November 17, 2003

Energy Bill Agreement Reached; Action Expected This Week

Call to Action!!!

SIGMA Convention

SIGMA Legislative Committee

Energy Bill Provisions

Underground Tank Provisions in the Energy Bill

 

ENERGY BILL AGREEMENT REACHED; ACTION EXPECTED THIS WEEK

The Republican leadership announced agreement last Friday on a final Energy Bill; the actual language wasn't posted on the Congressional website until Saturday. The schedule going forward calls for the full Conference Committee to meet this afternoon (Monday) to ratify the agreement, with action by the full House of Representatives tomorrow, and Senate action to begin on Thursday.

Although the odds of a bill being passed and signed into law are now greatly enhanced, it is by no means a "done deal". Democrats, and possibly some Republicans, may attempt to offer amendments to the agreement at the Conference Committee later today. It is not 100% certain that it will pass the House, although that is considered likely. As for the Senate, the big question is whether or not enough Democratic votes can be found to end a possible filibuster. We understand that a cloture motion, to end debate in the Senate, is ready to be filed as soon as the Conference Committee files its report. Even so, that would accomplish nothing without 60 votes - meaning all Republicans plus 9 Democrats.

Key provisions of the bill, as we understand it (we're still digesting a 1700 page conference report), are reported below.   

CALL TO ACTION!!!!

Although SIGMA has never supported and does not support an ethanol mandate, we concluded a year ago that one will be adopted with or without our support (and with or without this energy bill). We have therefore concentrated our efforts on achieving other "doable" legislative goals within the overall energy bill. In the Conference Committee version of H.R. 6, we believe we have the best Energy Bill Congress is likely to pass. For that reason, we will be sending letters from SIGMA to each Senator early this week, urging them to support passage of the Energy Bill.

We need your help too! Please call on both of your U.S. Senators - by phone, fax, or e-mail - and urge them to support the Conference Committee report on the Energy Policy Act of 2003. If you don't have their contact information, go to www.senate.gov and click on the easy links. Review the details of the bill at the bottom of this report, and you'll see we gained a lot more than we lost. Then make those calls or send those faxes and e-mails TODAY!!   

SIGMA CONVENTION

Some 591 marketers, suppliers, and guests just concluded the largest and best SIGMA convention in 3 years. Sorry if you missed it! Most of the SIGMA staff will be back in the office Tuesday or Wednesday; until then, we appreciate your patience.   

SIGMA LEGISLATIVE COMMITTEE

Much of the time at the Legislative Committee meeting last Saturday morning was, appropriately, devoted to discussions of the energy bill. But there are also other issues.

• The committee recommended, and the Board concurred, that SIGMA commit up to $5,000 to join with other groups as intervenors if necessary to support EPA in any lawsuits brought by state Attorneys General try to force EPA to regulate carbon dioxide (CO2) as a criteria pollutant.

•  Members were reminded that the low-sulfur gasoline program begins on 1/1/04, but that it will only involve some paperwork for downstream marketers. There is no downstream testing for sulfur required; however, beginning in 2006, there will be sampling required.

• Low-sulfur on-road diesel comes into effect in mid-2006, and retailer liability issues have not yet been resolved.

• Members were urged to work with their state associations in getting to know and become involved with their state Attorney General, because increasingly the AGs are intervening in state and national issues that affect you.

• If and when Congress passes the Energy Bill, we will distribute a series of detailed legal memos to guide you in understanding and complying with its provisions.    

ENERGY BILL PROVISIONS

•  Renewable Fuels Standard (RFS) - The "engine" driving a fuels title in the energy bill is the RFS, which has sometimes been called an ethanol mandate but includes other renewable fuels such as biodesel. It will require the use of 3.1billion gallons of renewable fuels in calendar year 2005, slowly rising to 5 billion in 2012, with an escalator thereafter based on motor fuel demand. This is a mandate for refiners and importers, which will each be required to use their pro-rata portion of the total mandate each year or buy credits from someone who has used more than their required share. While much of the detail will await the implementing regulations EPA will have to adopt, there may be opportunities for marketers to generate credits, which might have some economic value, through voluntary blending below the rack.

• Repeal of RFG Oxygenate Mandate - In return for the RFS, the ethanol industry is accepting repeal of the oxy mandate for RFG - effective immediately upon enactment in California, but in 9 months in the rest of the country. That means NY and CT will effectively have an ethanol mandate for some 8 months after MTBE bans kick in 1/1/04.

•  MTBE Ban - The use of MTBE in motor fuel will be banned as of 12/31/2014, although individual states may ban it earlier or may opt out of the ban and keep using it. There is no phase-down provision.

•  MTBE Defective Product Liability - MTBE is protected from "defective product" strict liability standards, effectively returning law in that area to where it stood prior to a 9th Circuit court decision from California a couple of years ago. Potential liability for negligence remains for all parties who handle or sell MTBE. The provision is retroactive to Sept. 5, 2003, meaning several recently-filed lawsuits are blocked.

•  RFS Detail and Exceptions - Alaska and Hawaii are not included in the RFS, apparently meaning their consumption is not used in calculate pro-rata shares of the RFS for refiners and importers, but also that ethanol used there does not generate credits. However, they could opt in to the program. Small refiners (under 75,000 bbd) are exempt from the program in a similar fashion (no mandate, not calculated in the percentages, and also unable to generate credits) from 2005 through 2010, unless they opt in, and can get another 2 year extension for hardship cases. There is apparently no similar provision for small importers. Refiners and importers can run a deficit for one year on RFS credits, in essence making it up the next year. We failed to achieve our objective of having a mechanism to effectively mandate that all ethanol credits be made available for trade at market-based prices. Finally, although there is no direct requirement that at least 35% of ethanol be used in summer months, if DOE finds that is not happening, then EPA is required to develop regulations that will require it.

•  Other MTBE Provisions - There as a $250 million per year MTBE Producer Conversion Assistance Program from 2005 to 2012 to assist in the conversion of MTBE plants to the production of other fuel components.

•  Ethanol Taxes - The tax incentive level is unchanged (52 cents per gallon of ethanol used), but it will come out of the General Fund, not the Highway Trust Fund. There will no longer be a reduced tax rate at the rack. To get the incentive, marketers will either buy blended product at the rack, with the incentive reflected in the total price, or pay full taxes on both the gasoline and ethanol at time of purchase and apply for a refund or tax credit. There may be a major restructuring of motor fuel taxes with the Highway Bill next year, to raise more revenue for the highway program.

•  BioDiesel Tax Incentives - In addition to being eligible for RFS credits, BioDiesel becomes a tax-favored fuel. A tax incentive of $1 per gallon will apply to soy-based biodiesel, with a $0.52 per-gallon incentive for biodiesel made from other products such as used cooking oils. Both incentives would operate in the same way as the new ethanol incentive.

•  Ethanol Waiver - The 1 p.s.i. waiver for ethanol-blended fuels from volatility restrictions remains, but states would be allowed to opt out of it based on claims that it is preventing the state from meeting some National Ambient Air Quality Standard (NAAQS), such as the ozone standard.

• Blending of Compliant Fuels - In what opponents call "co-mingling", beginning with the 2005 summer control season it will be legal to blend together two different types of RFG (ethanol-based, MTBE-based, or non-oxygenated) in retail outlet tanks under limited circumstances. We originally asked for full blending rights at the station level, and then asked for 3 allowable blending periods of 21 days each. What we got was 2 blending periods of 7 days each for each retail outlet; the station owner must notify EPA that it is entering into such a blending period before doing so. States can legislatively overturn even this limited right, but it should help with supply problems during crises, and also lead to greater supply flexibility for marketers in even normal times.

•  Ethanol Market Study - There is a provision for a substantial ethanol market concentration study, with provisions to suspend the RFS if supply, price, or market concentration become problematic.

•  Small Refiner Tax Credits (low-sulfur diesel) - In a provision SIGMA strongly supported, small refiners (under 155,000 bbd with under 1500 refinery employees are given nearly 100% write-off of the cost of upgrades to make new low-sulfur diesel.

•  Boutique Fuels - EPA is directed to not approve a State Implementation Plan (SIP) calling for a boutique fuel spec if it will produce significant price or supply dislocations. In addition, EPA and DOE are directed to undertake a major study of boutique fuels.

•  Northern/Southern RVP - EPA is directed to repeal its northern RVP standard for summertime gasoline within 3 years of enactment of the bill, and to develop a new national RVP standard. This applies to both RFG and conventional gasoline.

•  Underground Tank Provisions - See following story.    ■

UNDERGROUND TANK PROVISIONS IN THE ENERGY BILL

In a major victory for marketers, H.R. 2733 is being attached as a subtitle to the Energy Bill; it would be unlikely to pass as a stand-alone bill given contention surrounding some of its provisions. This bill, significantly reforming the Underground Storage Tank Program for the first time in 20 years, was originally introduced by Reps. Burr (R-NC) and Fossella (D-NY). In its final form in the Energy Bill, it has a number of major and important provisions.

•  LUST Fund Spending - The federal Leaking Underground Storage Tank Trust Fund, paid for by a 1/10 cent per gallon tax on gasoline and diesel fuel, now has a balance of some $2.1 billion, and it is growing every year. This bill will authorize spending $2 billion of that money over the next 5 years, with 80% of it required to be distributed to the states. Authorization doesn't guarantee the spending; money will still have to be appropriated each of those 5 years. However, authorization is the necessary first step.

•  Uses of LUST Fund Money - States would be able to use their grants from the Federal LUST Trust Fund for a wider range of activities, including inspections and enforcement of tank rules.

•  State Inspection Mandate - States would have 3 years to inspect any tanks which have not been inspected even once since the 1998 tank upgrade deadline. After that, they would be required to inspect all tanks at least once every 3 years (except that in the first 3-year cycle, states could get an extension to 4 years).

• Sunshine on Public Tanks - Within 18 months, government entities would be required to report on any tanks they have that are not in compliance with the 1998 upgrade rules. While not ensuring they will be brought into compliance, this would at least use embarrassment as a means of nudging them toward compliance.

•  Federal Red Tag Assistance - It would become a violation of federal tank rules to violate a state "red tag" rule by putting fuel into a tank that had been designated as out of compliance. Rules would protect marketers by requiring states to list red-tagged tanks on a website (if not listed, the marketer would be off the hook) and to ensure that such tanks are closed using a relatively tamper-proof cap.

•  State Tank Trust Funds - To combat the recent move by some states to raid their tank trust funds (which were set up as a form of insurance for demonstrating financial responsibility), there is a coupling of EPA approval of the Trust Fund with EPA approval of a state's overall tank program (and eligibility for a share of that $2 billion mentioned above.) However, in its final form, a paragraph was added which weakens that linkage.

We also did not get in the bill the provision we wanted which would have allowed use of Federal LUST Trust Fund money to be used to supplement state Trust Funds - because it was felt that would violate the "polluter pays" principle.   

SIGMA Weekly Report November 17, 2003 © Copyright SIGMA