Fund Will Help Retailers With 'Temp Comp' Costs

Majors, marketers will install temperature compensation at pumps to settle lawsuit

Carole Donoghue, Petroleum Editor

KANSAS CITY. Mo. -- Seven major oil companies and three large retail chains will spend several millions of dollars to install automated temperature compensation (ATC) at their branded stations in hopes of settling a long-running class action lawsuit in Kansas City.

The deals detailed in court documents are likely to be described as a win by both sides of the litigation. The class-action attorneys can claim that the industry has admitted cheating consumers by selling so-called "hot fuel"--gasoline and diesel that is warmer than the standard 60-degree-Fahrenheit gallon.

Refiner and retailer groups are expected to contend that the total amount that some of the refiners will pay into a specially created fund--$21.6 million--is relatively small, compared to the billions of dollars first mentioned by the trial attorneys. Additionally, some will point out that state weights and measures officials have yet to allow the installation of ATC at retail and are unlikely to do so in the near future.

Two-thirds of the money to be paid by six refiners--Shell, BP, ConocoPhillips, ExxonMobil, CITGO and Sinclair--will provide financial incentives for their retailers and wholesalers to "defray the costs" of installing ATC at retail and to pay for "meaningful disclosures" at the pump about the energy content of "hot fuel." The remaining one-third will go to state Weights and Measures departments to help them pay for inspection and regulation of ATC at retail.'

The seventh refiner, Valero Energy, will post the actual temperature of the motor fuel in its tanks at stations in 24 states and will convert to ATC equipment at its branded outlets when enough of its peers in the market have done so to make ATC an industry standard in the affected region, according to the just-unveiled agreements.

Meanwhile, chain retailers Sam's Club, Casey's and Dansk Investment Group (formerly West Coast marketer USA Petroleum) have agreed to gradually convert their retail sites to ATC.

The class-action lawsuit, filed six years ago, represents consumers in 28 states. The plaintiffs sued 120 refiners and retailers for failing to install ATC devices at retail. They claim that marketers overcharge consumers for fuel in hot weather, when fuel expands in volume at the station, only to shrink later in the car's tank. The trial lawyers said refiners and retailers were pocketing $3.5 billion a year in extra profits from "hot fuel" sales to consumers but abandoned the unjust enrichment claim in March.

Lawyers for the class-action plaintiffs are asking the federal court to conditionally certify the classes and preliminarily approve the class settlements. The agreements are supposed to go into effect 10 days after the court issues final approval of the deals.

CSP Daily News first reported on the plans to establish a special ATC fund in a news flash on April 18. The amount each refiner will pay varies.

BP, ConocoPhillips, ExxonMobil and Shell must pay $5 million each, while CITGO and Sinclair will contribute $800,000. Valero will pay $200,000 to contribute to the costs of carrying out the public notice plan and administering the settlement. It will also pay $4.5 million in attorneys' fees and litigation costs as approved by the court.

BP marketers in 25 states will be impacted by the settlement deal, Casey's agreement will involve stores in five states, and the Exxon and ConocoPhillips' deals will each affect marketers in 28 states. For CITGO and Shell retailers, 27 states are involved, while Valero will have to make changes eventually in 24 states, Sinclair in 11 states and Sam's in 25 states.

After five years, any money remaining in the fund will be pooled for a sixth and final year for payment to retailers or W&M departments. Anything left after that will go to non-profit organizations. The fees and litigation costs of the trial attorneys will be capped at 30% of the fund for each refiner, or no more than $1.5 million.

The agreements signed with Sam's, Casey's and Dansk are similar to that previously inked by Costco. They will install ATC devices at any sites they operate in Alabama, Arizona, Arkansas, California, Florida, Georgia, Kansas, Louisiana, Maryland, Mississippi, Missouri, Nevada, New Mexico, North and South Carolina, Oklahoma, Tennessee, Texas, and Virginia.

Casey's obligation to convert its sites will be suspended if it purchases the majority of its fuel in the relevant state on a non-temperature adjusted basis, while Dansk will be allowed to phase in ATC devices at the stations it owns in California over a three-year period. Casey's has also agreed to pay up to $700,000 in litigation costs, Sam's will pay up to $3 million and Dansk will pay up to $58,000.

The three companies have also agreed to install ATC at any new retail stations they open in the conversion states. Additionally, if Sam's starts to buy fuel on a temperature-adjusted basis in the states of Indiana, Maryland, New Jersey, Pennsylvania or Utah, it will also convert all dispensers in those states to ATC.

Attorneys' fees, litigation costs and the costs of notice and settlement administration will all be deducted from the special fund before the proceeds are paid out. It is not clear how much will be left in the fund at the end of the day but the money will be shared out to the ATC states based on the volume of fuel sold in each state, the average temperature of that fuel, and the maximum number of stations in each state between January 2004 and the present.

Under the settlements, no state will receive less than 1% of the fund amount. The agreements were also modified to reflect the fact that some refiners have fewer stations in a particular state and that some marketers buy fuel on a non-temperature-corrected basis, or that the average fuel temperature is close to--or even below--the 60-degree-Fahrenheit standard.

To receive payments, a retailer or wholesaler must submit a written statement to the settlement administrator listing the states where he will install ATC or make disclosures about the temperature of motor fuel and the corresponding energy content. He must also say how much it will cost and provide the working he intends to use of any disclosures, and detail the authorization that he has received from the state's weights and measures department.

State weights and measures departments looking to collect from the fund must also tell the administrator how they have adopted regulations or authorized the use ATC and how they expect to use the money to implement the system.

To ensure that settlement money is available to eligible parties later in the settlement period, the fund administrator may not disburse more than 25% of the total amount of money in each of the first two years.

During the six years of litigation, more than 400 depositions were conducted, 25 experts were deposed and almost a terabyte--equivalent to 1,000 copies of the Encyclopedia Britannica--were produced in the discovery process, according to court documents.