Volatile Times

Fuel volatility, credit card fees top SIGMA agenda

AMELIA ISLAND, Fla. -- Just weeks after the U.S. House of Representatives passed the Energy Policy Act of 2005, an energy bill which included several provisions for which SIGMA members had fought hard, attendees of the Society of Independent Gasoline Marketers of America's Spring Convention in Amelia Island, Fla., found themselves with a great deal to talk about.

While retailers voiced excitementand some disappointmentwith the bill, the extreme volatility of fuel prices and rampant increases in credit card interchange fees received at least as much attention [image-nocss] from SIGMA members during the legislative committee meeting on Wednesday.

SIGMA attorney R. Timothy Columbus told members that there's nothing you can do about the volatility of crude oil prices. He said the problem has been made worse in part because large investment companies have persuaded the directors of large pension funds that they should have up to 15% of their assets invested in the commodities markets, especially oil.

As these investors buy up crude oil futures, Columbus said, there are too many dollars chasing too few futures contracts. He added that there is nothing illegal about the practice, despite the fact that it is helping to create an extremely volatile price environment for oil.

Should the problem become too large, however, Columbus said members of Congress would step in. Volatility is part of the market, it's here to stay. But if it has become a cartoon of what the market should be, there are probably more than two people elected by the people who will come down and chat with us about it.

Credit card interchange fees generated a similar amount of buzz throughout the crowd of about 250 marketers and suppliers in attendance. On that score, too, SIGMA attorneys said that while they are applying lobbying power to help, there was little that could be done politically to solve it.

One possible solution would be to add a surcharge to customers paying with credit cards; however, doing that would violate the current terms of the agreement retailers sign with credit card issuers, which could result in the very serious problem of not being able to accept cards as payment.

Columbus said the two issuesfuel volatility and credit cardswere examples of tools developed to help the industry ending up being a heavy burden on the industry. The credit cards own us right now, he said. He added that a coalition of retail organizations, including SIGMA, the National Association of Convenience Stores (NACS) and others, has been studying the credit card interchange fee issue for nearly two years and that some type of action could come within the next few months.

That action, Columbus said, could include the L-word': Litigation.

The Energy Policy Act of 2005 passed by the House on April 21 also generated a great deal of discussion. The bill includes several items of interest to fuel marketers that had been left out of a similar bill passed by the House in 2003.

The bill still requires that increasing amounts of renewable fuels, such as ethanol, be mixed in with gasoline, ramping up from 3.1 billion gallons in 2005 to 5 billion gallons by 2012. SIGMA had fought this provision, but it ultimately was included over the organization's objections.

Importantly, the bill includes a safe harbor provision thatif included in the final draft of the billwould prevent the fuel additive methyl tertiary butyl ether (MTBE) from being considered a defective product. This would significantly reduce marketers' exposure to product liability lawsuits related to environmental damage caused by MTBE, which has been shown to move quickly through waterways. Also, MTBE would be phased out over time and would no longer be added to gasoline by 2014 unless individual states choose to allow it.

The bill also would repeal the reformulated gasoline oxygen mandate throughout the country 270 days after the bill is passed into law. It also sets a limit on the number of boutique fuelsdifferent formulations of gasoline required in different regions of the countryto the number on the market as of Sept. 1, 2004.

Other topics of discussion of special interest to marketers included the significant challenges caused by implementing the federal Environmental Protection Agency (EPA)'s ultra-low-sulfur diesel requirements, and the recent agreement reached between several state attorneys general and major credit card companies that credit cards may not be used for the purchase of tobacco over the Internet.