WASHINGTON -- Bill Douglass, CEO of Douglass Distributing Co., Sherman, Texas, and 2004-2005 chairman of the National Association of Convenience Stores (NACS), told the U.S. Senate Committee on the Environment & Public Works Wednesday that the decline in the use of methyl tertiary butyl ether (MTBE) as a gasoline additive is a direct result of Congress' failure to adopt liability reform provisions for MTBE as part of last year's energy bill, NACS reported on its website.
I am not seeking to get into a debate as to whether Congress should have adopted [image-nocss] the so-called MTBE safe-harbor last year. But, this committee, and Congress as a whole, must understand that the decisions you made last year are having repercussions in the gasoline markets this year, said Douglass, testifying on behalf of NACS and the Society of Independent Gasoline Marketers of America (SIGMA) in the hearing, Impact of the Elimination of MTBE.
It is clear that the domestic ethanol production industry is doing its utmost to maximize the amount of ethanol it will produce and sell this year. But it is uncertain whether these best efforts will be sufficient to meet the demand for ethanol in the next six months as the nation transitions away from MTBE, said Douglass in both written and oral testimony.
Douglass also said that boutique fuels continue to complicate the supply and distribution of gasoline. The energy bill's cap on the number of boutique fuels does not cover state boutique renewable fuel mandates, and such mandates constrain the availability of ethanol in other areas of the nation and limit supply flexibility in the marketplace, he said.
He noted that the transition from MTBE-additized gasoline to ethanol-additized gasoline will affect retailers, noting that preparations for the new fuel require several steps that will take time. Retailers will be undertaking preparations to market gasoline blended with ethanol at the same time that they are preparing to switch from winter to summer gasoline blends. And while many retailers have been selling ethanol blended gasoline for years, there are others like myself who will be making this transition for the first time.This could be problematic as there are many others in my situation.
While there are few public policy options open to Congress to mitigate potential gasoline or ethanol supply shortages and price volatility in the short term, Douglass suggested that the action that would have the greatest significant positive effect on supply and consumer prices in the next six months would be the temporary suspension of the tariff on imported ethanol. Such a move would help supplement the efforts of the domestic ethanol industry to satisfy the rapidly escalating demand without penalizing consumers with a 53-cents-per-gallon tariff. This would be meaningful, sound public policy enacted for the good of the consumer.
In the medium term, Douglass suggested that Congress consider two additional actions. The first would be to extend the boutique fuels cap under the Energy Policy Act of 2005 to limit state boutique renewable fuel mandates, thereby easing the transition to an ethanol market. Second, Congress should pass legislation to encourage the expansion of domestic refining capacity.
Click here to play video of the hearing.
Meanwhile, NACS and SIGMA sent a joint letter to key House and Senate leaders expressing strong opposition to recent legislative proposals that would require gasoline retailers to install dispenser systems to handle the sale of E85, which is 85% ethanol and 15% gasoline (see related story in this issue of CSP Daily News).
NACS and SIGMA are not opponents of E85. In fact, an increasing number of NACS and SIGMA members have chosen to market E85, and we expect this number to increase in the future, the letter said. However, a mandate to market E85particularly when that mandate does not take into account market forces, consumer demand for E85, the varying economics of E85 and the impact that the costs of this mandate could have on small business marketersnecessitates our opposition to these proposals.
NACS and SIGMA said that a mandate for E85 at retail is misguided for a number of reasons:
Cost to the retailer. The most practical option for a retailer to meet the mandate would be to install a new underground storage tank (UST) system at significant cost. The installation of a new dispenser and UST system alone to market E85 will require an investment of between $50,000 and $200,000 per retail outlet, assuming the retail location has the room on site and can obtain permits. Consumer demand. Less than 5% of the current motor vehicle fleet is comprised of flexible-fuel vehicles that can operate on both E85 and gasoline, and the number of motorists who actually use the flexible-fuel option with E85 is substantially lower. While these percentages may rise based on the long-term plans of motor vehicle manufacturers and motorists' behavior, there is no guarantee that consumer demand for these vehicles will remain constant or increase. Varying economics. E85 offers motorists lower fuel economy and fewer miles per dollar (vs. miles per gallon). According to anecdotal evidence provided by existing E85 marketers, if the retail price of E85 rises above regular unleaded, their E85 sales drop by between 70% to 80%. The best available evidence indicates that most motorists will buy E85 only when its price is significantly lower than regular unleaded; given that recent ethanol prices have ranged between $2.50 to $3 per gallon (between 50 to 90 cents per gallon over the pretax wholesale price of gasoline), it has not been practical for E85 retailers in most markets to price their E85 below regular unleaded without losing substantial money on every gallon sold. Impact on small-business marketers. A mandate to install E85 UST systems would fall disproportionately on small businesses. Over 70% of the c-stores that sell gasoline are owned and operated by companies that operate fewer than 10 stores. Thus, an E85 retail mandate to spend more than $50,000 for a new UST system to market E85 would fall disproportionately on these small businesses. Impact on the federal budget. The Energy Policy Act of 2005 authorized a tax credit for each retail facility that installs an E85 tank and dispenser system up to a maximum of $30,000. If an E85 retail mandate is adopted, even if only half of the nation's 167,000 retail gasoline facilities are covered by the mandate, the costs to industry would exceed $8 billion and the tax credit would cost the federal government more than $2.5 billion.Click here to read the full text of the letter that NACS and SIGMA sent to Senator Pete Domenici (R-N.M.), chairman of the Senate Energy & Natural Resources Committee; Sen. Jeff Bingaman (D-N.M.), ranking minority member on the Senate Energy & Natural Resources Committee; Sen. James Inhofe (R-Okla.), chairman of the Senate Environment & Public Works Committee; Sen. James Jeffords (I-Vt.), ranking minority member of the Senate Environment & Public Works Committee; Representative Joe Barton (R-Texas), chairman of the House Energy & Commerce Committee; and Rep. John Dingell (D-Mich.), ranking minority member of the House Energy & Commerce Committee.
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