Hot Fuel Means Big Rip-Off at Gasoline Pumps

Dec. 14, 2006

Hot Fuel Means Big Rip-Off at Gasoline Pumps

Statement of Joan Claybrook, President, Public Citizen

Good afternoon. I’m Joan Claybrook, president of Public Citizen, a nonprofit consumer advocacy organization based in Washington, D.C. I’m also a former administrator of the National Highway Traffic Safety Administration.

We are here today to highlight a practice common in the gasoline retail industry – one that most Americans don’t know about, but through which retailers have been ripping off consumers to the tune of an estimated 2 billion dollars a year. It occurs every day at gas stations throughout the country, but particularly in the summer and in warmer states such as California, Texas and Florida.

For decades, gasoline retailers have been overcharging drivers by selling them “hot fuel” – gasoline or diesel that is warmer than the industry standard of 60 degrees and that provides less energy than the standard gallon. In an exposé in August, the Kansas City Star estimated that retailers are shortchanging drivers 760 million gallons of motor fuel per year.

On Wednesday, consumers of gasoline and diesel fuel in seven states filed a class-action complaint against some of the nation’s largest oil companies and fuel retailers in an attempt to end this ongoing theft. The states, including some of the warmest in the nation, are: California, Arizona, Texas, Florida, North Carolina, New Jersey and Virginia.

Here is how selling hot fuel bilks consumers: Gasoline or diesel stored at the pump under higher temperatures behaves like all liquids – it expands. But the amount of energy per volume stays the same, and U.S. gas stations do not adjust their measurements at the pump to take into account this change.

Consequently, consumers receive less energy per gallon than they’ve paid for when they unwittingly purchase gas that is warmer than the national standard.

For example, if motorists fill their 20-gallon gas tank on a hot day when the fuel temperature reaches 90 degrees, they are being shortchanged the energy equivalent of more than a third of a gallon. The cost translates to a few cents per gallon, which becomes significant over longer periods of time, particularly in the summer months when there is increased driving in hotter temperatures and gas prices are highest.

The cost is much more severe and immediate for independent truckers, who must regularly fill their trucks’ large tanks as part of their livelihood.

This means more money taken from the pockets of consumers that could be spent on other necessities such as health care, groceries or electric bills.

To add insult to injury, consumers who are sold hot fuel at already high prices are being ripped off twice. First, they receive less fuel than they have paid for.

Second, they are paying prices that are already too high. This has enabled oil companies to make record profits and has led to outrages such as the record 400 million-dollar retirement package last year for Exxon’s former CEO.

The oil industry is also benefiting from state and federal tax loopholes related to hot fuel. Gasoline is measured and taxed at the time it’s bought at wholesale. Any additional amount of taxes paid by motorists at the pump buying hot fuel goes straight into the pockets of the oil companies and the retailers.

These taxes are desperately needed to maintain the infrastructure of our bridges, roads and highways. In 2000, the IRS implemented a plan to end the gaming of the system, but Big Oil lobbied against it, and it was quietly withdrawn during the early days of the Bush administration.   As a result, retailers continue to shortchange motorist safety by avoiding more than $360 million a year in state and federal revenue that would otherwise go to pay for road maintenance and repair.

The system is in desperate need of change. Temperatures throughout the country are estimated to be 5 to 6 degrees higher on average than a century ago, when the 60-degree standard was set nationwide. And with population growth in warmer states in the South, West and Southwest, more and more people are unknowingly buying hot fuel.

In Texas, the average annual fuel temperature is 78 degrees, 18 degrees over the standard temperature at which fuel is measured and priced.

Temperatures vary by region, and during colder months, some consumers temporarily benefit by retailers not adjusting for temperature. But data gathered by the National Institute of Standards and Technology from storage tanks at 1,000 gas retailers from all regions revealed that the average fuel temperature across the country and year-round was almost 65 degrees – 5 degrees higher than the standard.

Those who buy fuel in bulk, such as the U.S. armed forces, have known about this problem for decades and have taken steps to protect themselves with temperature-adjusted purchase agreements. But until now, no one has been looking after the interests of individual drivers and independent truck operators, most of whom don’t even know they are being ripped off.

The gas station pump is the only part of the motor fuel production and distribution system where temperature-based adjustments do not occur. Gasoline retailers can retrofit pumps to reflect changes in fuel temperatures, but Big Oil has fought this by threatening to pass the cost on to consumers and claiming that temperature adjusting would be “too confusing” for the average driver to understand.

What’s easy to understand is the oil industry’s motive: It’s all about profit margins. In the United States, they make more money with the current system.

The industry’s hypocrisy and pursuit of profits is even clearer when you look at what it did in Canada. In the 1990s, Big Oil successfully fought for legislation to allow temperature adjustment in Canada. This was because the industry was losing money to consumers by buying fuel at wholesale that was consistently colder than the norm.

Since the 1970s, Hawaii has adjusted the standard volume of a gallon of gasoline to account for its warmer temperatures. Other states, such as California and Texas, are now investigating how to protect motorists from the hot fuel problem. Ultimately, Congress needs to step in to protect consumers nationwide against hot fuel overcharges. But in the absence of government protections, the only solution is for consumers to band together and force a remedy through the legal system.

Automobile travel and small truck traffic will be heavy during this holiday season. This lawsuit comes at the appropriate time to expose a system that has been quietly picking money from the pockets of citizens throughout the country for decades.

Public Citizen and the Owner-Operator Independent Drivers Association are happy to stand with consumers and independent truckers to right this wrong.

For more information, click here.

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