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MPCA 2007
OCTOBER 31, 2007
II. Overview: How The
III. The Law.
IV. The Rule.
V. Concerns With The Rule:
1. “Co-Mingling”.
2. Branded Retailers & Branded
Contracts.
3. Marine Fuel.
4. Record Keeping.
5. “Splash-Blending”.
6. Other.
VI. Joint Committee on Administrative Rules (JCAR).
VII. Guidance Materials.
VIII. Enforcement.
IX. Final Thoughts.
The Missouri Department of Agriculture is charged with
implementing and enforcing the 10% ethanol mandate, which is commonly referred
to as “E-10” or “E-10 blend”.
MPCA respectfully requests that every impacted MPCA member
follow these instructions.
1. Read this Newsletter from top to bottom.
2. Download complete hard-copies of the law, the rule and
this Newsletter.
3. Set aside an hour of quiet time to thoroughly review and
study the law, the rule and this Newsletter.
4. Check with your fuel suppliers to ascertain how they plan
on implementing the 10% ethanol mandate.
5. If you have any questions, please commit them to writing
and send them in an email to ron@mpca.org. MPCA will do our very best to get
answers to your questions and to disseminate the answers to all MPCA members.
II. OVERVIEW: HOW THE
In
addition, the Missouri Legislature wanted to make the “real world”
implementation of the 10% ethanol mandate law as simple and seamless as
possible because it will be repeated hundreds if not thousands of times per
week by the industry that literally fuels
The following is how the 10% ethanol mandate law is supposed to work in the “real world”.
1. They must load their fuel tanker truck with the E-10 blend if the price of the E-10 blend at that terminal is the same or less than the price of unblended gasoline at that terminal.
2. They may load their fuel tanker truck with unblended gasoline if the price of the unblended gasoline at that terminal is less than the price of the E-10 blend at that terminal.
3. They may load their fuel tanker truck with unblended gasoline regardless of the price so long as they “splash-blend” the unblended gasoline with pure ethanol up to an E-10 blend at a location away from the terminal.
Thereafter, the Missouri fuel distributor will direct their fuel tanker driver to unload the E-10 or the unblended gasoline at one (1) or more retail gas stations located in Missouri regardless of what type of fuel – E-10 or unblended gasoline - is already in the retail fuel tank.
By intent and definition, the 10% ethanol mandate envisions that motor fuel distributors and retailers will freely and frequently switch back and forth from selling E-10 to unblended gasoline based solely upon the price of the various motor fuels at the fuel terminal.
This delicate balance between “government mandate” and the “free market” requires the use of E-10 only when it is cost-effective and, most importantly, protects the consumer by ensuring that retailers are always selling the cheapest motor fuel available, whether it’s E-10 or unblended gasoline.
III. THE LAW. The 10% ethanol mandate is contained in section 414.255, RSMo. Click here to review a copy of the law.
MPCA highly recommends that you download and thoroughly review a
complete copy of the law, and pay special attention to the definitions of “distributor”,
“position holder” and “price”, and subsections 3, 4, 5, 8 and 9.
IV. THE RULE. The Missouri Department of
Agriculture recently finalized the 10% ethanol mandate rule. Click
here to review a copy of the “comments” the Department received from
interested parties (pages 1-5) as well as a copy of the rule, 2 CSR 110-3.010
(pages 5-8).
MPCA highly recommends that you download and thoroughly review a
complete copy of the “comments” and the rule, and pay special attention to
sections 3 (A) – (H) of the rule.
V. CONCERNS WITH THE RULE. The following is a list of initial
concerns MPCA has with the rule that must be addressed either by flexible “real
world” implementation or modifications to the rule or underlying law.
1. “Co-Mingling”. The Missouri Department of
Agriculture ignored MPCA’s repeated requests that the rule must address the
issues surrounding the “co-mingling” of E-10 and unblended gasoline in the
retail fuel tank which by definition results in a fuel that is less than an
E-10 blend.
For example, lets assume you have a 10,000 gallon retail
fuel tank that is half-full with unblended gasoline. If you “co-mingle” it with
5000 gallons of E-10, you now have an E-5 blend in that retail fuel tank.
Unfortunately, the EPA often prohibits the sale of this
“co-mingled” E-5 blend at retail, especially during the summer ozone season
which runs from May through September of each year.
The unwillingness of the Missouri Department of Agriculture
to address this critical issue will force
A. Comply with state law and potentially violate federal law by frequently switching back and forth between E-10 and unblended gasoline based solely upon price which will inevitably result in “co-mingled” fuel in the retail fuel tank;
B. Comply with federal law and violate state law by selling only unblended gasoline regardless of the price of E-10;
C. Comply with both state and federal law by selling only E-10. Since E-10 is often more expensive than unblended gasoline, this option may force 5.8 million consumers to pay more than they should for fuel and put Missouri fuel retailers at a competitive disadvantage with our 8 border states which have no E-10 mandate;
D.
Drain the retail motor fuel tank to a point where it is acceptable to switch
between E-10 and unblended gasoline. Timing this perfectly without running out
of fuel is extraordinarily difficult, especially for smaller motor fuel
retailers in rural
E. Add additional pure ethanol to the “co-mingled” fuel in order to bring the motor fuel up to an E-10 blend. This is very difficult to accurately calculate and implement, and it runs the risk of adding too much pure ethanol which can create a greater than E-10 blend which violates both state and federal law; or
F. Dedicate separate retail fuel tanks for E-10 and unblended gasoline. This option is simply far too costly and unrealistic for the vast majority of motor fuel retailers.
Please see comment # 14 of the rule.
2. Branded Retailers & Branded
Contracts. The 10%
ethanol mandate law - section 414.255, RSMo, subsections 8 and 9 - attempts to
address how a branded retailer, who is contractually obligated to purchase fuel
from a particular branded supplier per a franchise agreement, is supposed to
implement the 10% ethanol mandate in the “real world”.
Currently, a ConocoPhillips branded retailer is
contractually obligated to go to a specific fuel terminal and purchase fuel
only from ConocoPhillips, their branded supplier. In almost all cases, the
branded retailer would be violating their franchise contract – and thus be
subject to very stiff penalties - if they purchased fuel from a supplier who is
not their branded supplier.
Once the 10% ethanol mandate goes into effect on 1/1/08, if
a ConocoPhillips branded retailer goes to a fuel terminal to get a load of
fuel, are they obligated to compare the price of E-10 from every suppliers at
that terminal and not just the E-10 price offered by ConocoPhillips? Isn’t this
the equivalent of forcing a Coke distributor to purchase and sell Pepsi, or
forcing a McDonald’s franchisee to purchase and sell Whoppers?
Again, in almost all cases the branded retailer would be
violating their franchise contract if they purchased fuel from a supplier who
is not their branded supplier.
Unfortunately, the rule does not provide any “real world”
guidance regarding this potential conflict between existing supply contracts
and the law when it comes to purchasing supplies of fuel.
3. Marine Fuel. The Missouri Department of
Agriculture ignored the will of the Missouri Legislature, which did not want to
exempt marine fuel, and instead put a provision in the rule that exempts
“marinas that sell fuel exclusively to watercraft” from the E-10 mandate.
This unnecessary exemption will further fragment and
balkanize
However, an exemption is not the same as a prohibition. MPCA believes that the rule simply exempts marine fuel from the E-10 mandate but that permissive E-10 blending of marine fuel is very much allowed.
Please see section 3 (G) of the rule.
4. Record-Keeping. The Missouri Department of
Agriculture ignored the comments of MPCA and other interested parties and put
several onerous record-keeping provisions in the rule.
In fact, MPCA believes that the rule may require the
maintenance and retention of documents and paperwork that are not within the
“purview or control” of the “position holder, supplier, distributor, and
ultimate vendor”.
Please see sections 3 (B) – (D) of the rule.
5. “Splash-Blending”. “Splash-blending” is where a fuel distributor pulls unblended gasoline from the fuel terminal and thereafter at a location away from the terminal “splash-blends” the unblended gasoline with pure ethanol to make an E-10 blend. “Splash-blending” differs from “injection blending” which typically occurs at the fuel terminal.
The Missouri Department of Agriculture agreed with MPCA that
“splash-blending” is allowed under the law but chose not to specifically
address this issue in the rule.
Please see comment # 17 of the rule.
6. Other. It is all but certain that upon
review MPCA members will come up with additional concerns regarding the rule.
VI. JOINT COMMITTEE ON ADMINISTRATIVE RULES
(JCAR). Pursuant to chapter 536,
RSMo, the Joint Committee on Administrative Rules (JCAR) has the authority to
review rules. Section 536.014, RSMo, states that:
“No department, agency, commission or board rule shall be
valid in the event that:
(1) There is an absence of statutory authority for the rule
or any portion thereof; or
(2) The rule is in conflict with state law; or
(3) The rule is so arbitrary and
capricious as to create such substantial inequity as to be unreasonably
burdensome on persons affected.”
It is not known at this time if MPCA will request a JCAR
hearing, or if JCAR will hold a hearing on the E-10 rule pursuant to the
request of other interested parties.
VII. GUIDANCE MATERIALS. The Missouri Department of
Agriculture has posted some 10% ethanol mandate guidance materials on their
website, including various statutes and “Ten Things Missouri Tank Owners and
Operators Need to Know About Ethanol – Store Operator Checklist”.
Click here
to review a copy of these guidance materials.
Once again, MPCA highly recommends that you download and thoroughly
review a complete copy of these guidance materials.
VIII. ENFORCEMENT. Missouri’s 10% ethanol mandate is
unique among the 50 states in that it attempts to inject free market pricing
mechanisms, or “price triggers”, into what is essentially a government mandate.
MPCA believes that it will take a year or more to figure out
how to implement the new law and rule in the “real world” in a way that is
simple, seamless, and does not hurt the consumer or small business owners.
MPCA fervently hopes that the Missouri Department of
Agriculture will not be too strict in their interpretation and enforcement of
the new law and rule during the year or more initial break-in period when all
parties are doing their very best to comply.
IX. FINAL THOUGHTS. The 10% ethanol mandate is a law
and thus by definition is imperfect and imprecise. Neither the regulators, the
regulated community nor MPCA will be able to answer all of your questions until
we have all been implementing the rule in the “real world” for a full year or
more.
In the meantime, we all need to be patient, reasonable and
flexible.
Finally, there may be a push in the 2008 or 2009 Legislative
Session to remove the “price triggers” in the law which would effectively
require a 10% ethanol mandate all the time regardless of the price of the E-10
blend.
MPCA believes that this would be a disaster for consumers,
who will be forced to pay higher than necessary pump prices, and for
MPCA STAFF
Ronald J. Leone, Esq., Executive Director, ron@mpca.org
Karen Antweiler, Asst. Executive Director, karen@mpca.org
Angie Rickard, Administrative Assistant, angie@mpca.org