RFA Requests Multi-Agency Investigation into Oil Industry’s Discriminatory and Unlawful Conduct

March 19, 2013

RFA Requests Multi-Agency Investigation into Oil Industry’s Discriminatory and Unlawful Conduct

(March 19, 2013) WASHINGTON — In a letter sent today to the Environmental Protection Agency (EPA), the Federal Trade Commission (FTC), the Department of Energy (DoE) and the Department of Agriculture (USDA), the Renewable Fuels Association (RFA) requested a multi-agency investigation into “the oil industry’s highly discriminatory and unlawful conduct — conduct that is impeding the delivery of renewable fuels to the American marketplace.”

The focus of this letter is a recounting of recent events at Zarco 66, the first marketer in the United States to offer E15.

“The story of a Lawrence, Kansas, fuel station illustrates just how far Big Oil will go to obstruct congressional purposes in enacting the RFS, limit the availability of renewable fuels in the American marketplace, and, not coincidentally, bolster their campaign to repeal the RFS altogether.  For many years, a ConocoPhillips franchisee, Zarco 66 Inc. (“Zarco 66”), offered E85 at its fueling station.  One of the station’s fuel tanks contained “regular” gasoline and a second tank contained straight ethanol—a tank that might have otherwise been reserved for “premium” gasoline at a more antiquated station.  Zarco 66 offered customers E85 by blending the appropriate mixture of gasoline and ethanol straight at the pump—using “blender” pumps that it obtained through a grant administered by the Department of Energy.  Because only certain vehicles can use E85, the oil industry likely viewed this alternative fuel as a gimmick—one that posed no real threat to the industry’s monopoly.  But shortly after Zarco 66 became the first fueling station in the nation to offer E15—a fuel that can be used in any light-duty vehicle manufactured over the last decade—the oil industry suddenly changed its tune.  ConocoPhillips quickly threatened to terminate Zarco 66’s franchise agreement and charge Zarco 66 hundreds of thousands of dollars in penalties unless Zarco 66 started offering “premium” gasoline—gasoline that would replace the ethanol housed in one of Zarco 66’s fueling tanks, and a gasoline that is likely to result in far fewer sales than the ethanol blends that would be available if Zarco 66 maintained the current ethanol contents.

“For franchisees like Zarco 66, the message that the oil industry is delivering is loud and clear:  Stop selling renewable fuels, or face the consequences.”

There are several concrete examples of Big Oil running afoul of U.S. laws.  For instance, in the Zarco 66 situation, the oil industry is enforcing the unlawful act of “tying” agreements which violate Section 1 of the Sherman Antitrust Act. 

“Here, the oil industry is forcing fuel stations to purchase and carry a product that they otherwise do not wish to carry (premium gasoline) as a condition for purchasing and carrying the tying product (regular gasoline).  Because franchisees are locked into franchise agreements (and such a lock-in effect is magnified when, as in the case of Zarco 66, the oil franchisor changes the terms of the relationship midstream), an oil franchisor holds appreciable economic power over the franchisee, which it is using to force franchisees to purchase premium fuel that they might not otherwise wish to carry.  Moreover, because  premium gasoline requires a separate tank that would otherwise hold the ethanol necessary to offer gasoline-ethanol blends (and the oil industry is well-aware that most fuel stations have only two tanks devoted to gasoline), the oil industry is effectively eliminating ethanol competition by tying the sale of premium to regular  gasoline. 

“In addition, the oil industry’s conduct is contrary to the Gasohol Competition Act of 1980.  That legislation makes it unlawful to “unreasonably discriminate[] against or unreasonably limit[] the sale, resale, or transfer of gasohol or other synthetic motor fuel of equivalent usability.”  15 U.S.C. § 26a(a)(2).  By enforcing a premium requirement to the exclusion of ethanol blends, the oil industry is unreasonably limiting the sale of E15,…

“Similarly, the oil industry’s actions violate the policies that underlie the Petroleum Marketing Practices Act.  By forcing franchisees to purchase premium gasoline, franchisors are acting to preclude franchisees from ‘converting an existing tank or pump on the marketing premises of the franchisee for renewable fuel” in violation of that legislation.  See 15 U.S.C. § 2807(b)(1)(B).  What is more, the Act was intended to allow franchisees to sell “a renewable fuel in lieu of 1 . . . grade of gasoline.’  Id. § 2807(c).  As a result, the oil industry is directly subverting this legislation by making it impossible for franchisees to offer gasoline-ethanol blends higher than E10, such as E85 and biodiesel.”

When Big Oil isn’t busy violating laws, it is busy mocking the intent of others, such as the Energy Policy Act of 2005 and expanded in the Energy Independence and Security Act of 2007 which details the requirements of the Renewable Fuel Standard (RFS).  “The oil industry has claimed that it cannot meet these standards—in part, because few stations are offering E15 or greater gasoline.  But the oil industry need only look in the mirror to determine why that is the case.  It is the industry’s own behavior that is limiting E15’s availability.  Like a child who breaks all of his pencils and then tells his parents he can’t do his homework, the oil industry should not be permitted to claim the RFS is not achievable when it is deliberately taking steps to stifle the introduction of E15.” 

In closing, Bob Dinneen, RFA’s President and CEO, wrote, “Americans want choice at the pump.  For all of these reasons, we respectfully request that each of you direct your agencies to investigate and put an end to the oil industry’s highly discriminatory and unlawful conduct—conduct that is impeding the delivery of renewable fuels to the American marketplace.  Otherwise, Zarco 66 will simply represent the first casualty in the oil industry’s war against the marketing and delivery of cheaper, more sustainable renewable fuels.”

Read the letter in full.