WASHINGTON -- Sonja Hubbard, CEO of E-Z Mart Stores, Texarkana, Texas, and vice chair of government relations for the National Association of Convenience Stores (NACS), testified Wednesday before the U.S. House Committee on Energy & Commerce regarding proposed boutique fuels legislation, NACS said.
The Boutique Fuels Reduction Act of 2006 would seek to accelerate the reduction of such fuel blends that are required by states to meet air quality standards by establishing a federal slate of fuels from which states can choose. Hubbard testified regarding [image-nocss] the industry's concerns about enacting legislation establishing a fuel slate before Congress receives data evaluating the market implications of such action.
Hubbard testified on behalf of NACS and the Society of Independent Gasoline Marketers of America (SIGMA). Combined, NACS and SIGMA members sell approximately 80% of the gasoline and diesel fuel purchased by motorists in the United States each year.
NACS and SIGMA have for many years warned Congress about the fragmentation of the fuels markets that has resulted from various jurisdictions requiring their own boutique fuel blends, said Hubbard. Nevertheless, it is our straightforward message to this committee today that we are more concerned than reassured by the prospect of new fuels legislation this year.
Hubbard said the industry is working hard to implement a number of significant changes established in the Energy Policy Act of 2005 (EPAct), as well as challenges concerning the recent introduction of ultra-low-sulfur diesel fuel (ULSD).
Simply stated, the gasoline and diesel fuel markets, and all of the participants in those markets, need time to implement EPAct's renewable fuel standard, to complete the phaseout of MTBE as a gasoline additive and to make the changeover to ULSD, said Hubbard, adding that over time, as gasoline and diesel fuel supplies stabilize or increase, the nation's motor fuels distribution infrastructure will grow accustomed to handling new fuels and fuel blends, and that gasoline and diesel fuel wholesale and retail price volatility should decline.
In reviewing the proposed boutique fuels bill, Hubbard urged the committee to be very careful when considering additional legislation on boutique fuels with respect to the impact such legislation could have on an already volatile gasoline and diesel fuels market. Hubbard said the draft under consideration reflected improvements over previous fuel slate proposals, and she complimented the committee for being responsive to marketer concerns; however, she noted, If this committee's intent is to moderate retail gasoline and diesel fuel prices through additional boutique fuels legislation, NACS and SIGMA are not convinced that the discussion draft will have the desired effect.
Hubbard offered three recommendations to the committee concerning boutique fuels legislation:
1. Wait for the Environmental Protection Agency (EPA) and U.S. Department of Energy (DOE) to complete their study, as stipulated under Section 1541(c) of the EPAct, prior to taking action on a federal fuel slate.
Without this study, Congress simply cannot know what effect a fuel slate will have on overall motor fuel supplies and thus on wholesale and retail prices. If, in your desire to moderate motor fuel prices, your actions in enacting a fuel slate actually reduce overall gasoline and diesel fuel supplies and contribute to greater price volatility, then you will have achieved the opposite of your stated goal.
2. If Congress cannot wait for the EPA and DOE study, then only enact the first portion of the proposed legislation to gradually reduce the number of boutique fuels used across the nation through a so-called ratchet.
Such a ratchet would not force states to conform their existing fuels to a narrow slate of fuels. Instead, it represents the logical next step in addressing the issue of boutique fuels and would build on the boutique fuels policies enacted in EPAct.
3. Condition any state's implementation of an alternative fuel mandate upon determinations made by the secretaries of Energy and Transportation that sufficient supplies of such fuels exist to satisfy demand, and that such a mandate will be supported by adequate transportation logistics.
Currently, state alternative fuel mandates are the biggest threat to gasoline and diesel fuel fungibility confronting the motor fuel manufacturing and distribution industries. State boutique alternative fuel mandates are not covered by EPAct's boutique fuels restrictions, but they should be.
Hubbard reminded the committee that when Congress enacted the renewable fuels standard as part of EPAct, phasing in 7.5 billion gallons of ethanol, it included a credit and trading program to promote market flexibility to accommodate the requirement. State biofuels mandates compromise this flexibility, she said. In fact, the ethanol industry this year is diverting supplies originally destined for conventional gasoline markets to those reformulated gasoline markets that have transitioned away from MTBE. State biofuel mandates would prevent this diversion from happening, she said.
State ethanol and biodiesel mandates undermine our efforts and weaken the flexibility that this committee and this Congress built into the EPAct renewable fuels standard, she said. She added, We are also concerned about the supplies of biofuelsethanol currently is trading at over $3.50 per gallon on the spot marketdouble its price last year. There can be no clearer indication that there is not enough ethanol to meet current demand.
Hubbard said if the committee does move forward with boutique fuels legislation, the industry suggests such a measure should be limited to a boutique fuels ratchet and a restriction on the implementation of state alternative fuel mandates. Once EPA and DOE have completed their EPAct report, their conclusions may lead to new proposals for the enactment of a fuel slate, said Hubbard. Until that report is complete, we believe fuel slate proposals are premature.
To view the text of Hubbard's testimony, click here.
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