Energy Policy Remains Undefined
The 2012 federal elections were supposed to end gridlock in Washington, D.C. Well, that outcome was not achieved and it is hard to envision political changes that will make much difference in 2014 either.
One of the more divisive issues in Congress relates to energy policy, and energy policy is extremely important to petroleum and convenience marketers. The Petroleum Marketers Association of America (PMAA) estimates that marketers and retailers have invested more than $500 billion in liquid fuels infrastructure (mostly for gasoline and diesel), so public policies that undermine the future of liquid fuels can do great economic harm.
A good example is all the buzz about natural gas as a transportation fuel. Because of dramatically expanded domestic production of natural gas, prices are extremely low right now and are likely to remain so in the next decade. Some trucking companies are converting parts of their fleets to compressed natural gas (CNG) or liquefied natural gas (LNG) and those conversions will take market share from diesel marketers. We really do not comment on that because that is the competitive marketplace functioning as it should.
We do comment and express concern when government jumps in and wants to subsidize the costs related to conversions of trucks and retail infrastructure. PMAA believes federal and state governments need to let the marketplace work without government handouts. There are plenty of financial incentives for marketers to invest in CNG or LNG infrastructure and government incentives are not needed. So much of the divisions in Congress are about government spending and here is one expense that cannot be justified.
Another top priority for PMAA in 2013 has been focusing on the Environmental Protection Agency’s (EPA) proposed changes to federal Underground Storage Tank (UST) regulations. EPA estimated the new costs to gasoline retailers would be approximately $900 per year, while PMAA determined the cost would be $6,900 per year. PMAA welcomed a bipartisan letter sent to EPA highlighting small business concerns with the UST proposed rule. The letter was sent by Reps. Gregg Harper (R-Miss.) and John Barrow (D-Ga.) and signed by 56 other members of Congress. A similar letter was sent by Sens. Mary Landrieu (D-La.) and Jim Risch (R-Idaho) and signed by 12 additional senators from the Small Business Committee. The letters represent one of the few moments during the 113th Congress that Republicans and Democrats worked together.
The national Renewable Fuel Standard (RFS) debate has intensified in 2013. The primary concern relates to the national ethanol mandate resulting in higher gasoline prices in 2014. While gasoline sales have decreased, the federal ethanol mandate has increased. Lawmakers on both sides of the aisle have concurred that Congress does not have the votes to repeal the mandate, but does have the votes to tweak it so that it can work for all parties. Stakeholders and lawmakers alike are afraid that refiners may be forced to cut back production, export production and/or buy more expensive renewable identification numbers (RINs) down the road, which will create chaos in the marketplace.
PMAA has been active in the discussion and the Board of Directors voted in support of a regulatory adjustment to the RFS by urging the EPA administrator to adjust the corn-based ethanol mandate to a level achievable with E10 and reasonable growth for E85. Because the futures markets for crude oil basically determine the rack price for gasoline and diesel, PMAA has continued to lobby for regulations promoting more transparency and position limits. Final implementation of the U.S. Commodity Futures Trading Commission’s (CFTC) position limit rules was to have gone into effect on Oct. 12, 2012 (for spot month position limits). However, on that date, the U.S. District Court of D.C. ruled in favor of the plaintiffs (International Swaps and Derivatives Association, et al.) on the new speculative position limits rule. Unfortunately, the court said the CFTC failed to justify the “necessary and appropriate” basis of the position limits rule. CFTC will appeal the court’s decision and may issue a new rule later this year.
PMAA filed an amicus brief in support of the CFTC’s efforts to appeal the position limits ruling and met with CFTC commissioners to urge them to issue a new position limits rule. PMAA cautiously supports the commission’s final rulemakings on margin/capital requirement for OTC swaps and registration of unregulated exchanges, which will reduce leverage in the marketplace that will benefit end-users like PMAA member companies and other market users from excessive price volatility and extreme price increases at the terminal rack.
PMAA continues to work with its coalition members to fully fund the agency and we have begun conversations about a pending CFTC reauthorization. The final CFTC rulemakings will give end-users better price information because it will force swaps dealers to real-time reporting, which will bring competition to the swaps markets.
In 2013, PMAA decided to focus more attention on fuel-related issues following natural disasters, such as hurricanes, tornados and earthquakes. Because the sequence of events following a natural disaster are often similar in terms of access to fuel supplies, PMAA has organized a task force that is examining the bottlenecks and making recommendations to federal and state governments to streamline the process. Weather forecasting has become extremely accurate in modern times. We usually know where and when a storm will hit, so some waivers could be implemented before the storm and not days later. The task force will also put together a guide with information for planning for and responding to a disaster that will be useful for state association executives. Dan Gilligan is president of the Petroleum Marketers Association of America (PMAA).
Dan Gilligan is president of the Petroleum Marketers Association of America (PMAA).