Oil Companies Are Using a Simple Trick to Bilk Consumers out of Billions
It's probably intuitive to most people that the gasoline in their fuel tank expands in the heat -- just like doorframes and cookware and everything else on the planet. What's probably less intuitive is that, in the United States, this physical phenomenon pumps a nearly $2 billion annual windfall out of consumers' pockets and into oil company coffers, according to numerous calculations, including a recent House of Representatives study.
The North Carolina-based company Gilbarco Veeder-Root manufactures a device -- a temperature-sensitive chamber for fuel -- that, if affixed to gasoline pumps across the country, would return that money to consumers and help relieve some of our storied gas-price pressures. The device -- and others like it -- is simple, functional and, in fact, already in widespread use at gas stations all across Canada. Last month, Democratic presidential hopeful and Ohio Rep. Dennis Kucinich, chair of the Domestic Policy Subcommittee, held the second in a series of hearings to investigate why the technology has never made it into the American market.
Temperature is just one of the many variables that determine how much energy one tank of gasoline contains, and therefore how many miles it will pull your car. But the effects of temperature change are easier to calculate than, say, ethanol content or petroleum grade -- and are therefore also easy to correct for. Here's how it works.
A gallon of gasoline contains a certain number of molecules, which combust in your car's engine to provide it with energy. If you heat up that gallon of gasoline it will expand, leaving you with a larger volume of gas than the gallon with which you started. But your new volume will contain the same number of combustible molecules and therefore will provide the same amount of energy as it did prior to the heating. That means a tank full of "hot" gas will provide a car with less energy than will the same tank full of "cool" gas, which is why you've probably been advised (correctly) not to buy gasoline when it's hot outside. Simple, right?
It is if you live in Canada, at least. There, gasoline retailers install metering systems in their pumps to determine how much the fuel they sell has cooled or heated from its standardized refinery temperature, and then adjust the price accordingly. If the fuel has become warmer, it also becomes cheaper. If it has cooled, it becomes more expensive. Which is to say that Canadians -- to a greater extent than Americans -- pay for the energy they get out of the gasoline and not for the volume of liquid fuel they purchase.
Of course, on average, Canada is pretty cold and the United States is pretty hot. So it benefits both retailers and oil companies to correct for temperature in Canada, but to price by volume in the United States But the idea of correcting price for temperature has deep roots in the industry: oil companies have done so for gasoline wholesalers for nearly a century. The only ones in the North American energy chain who pay by volume rather than by energy value are U.S. consumers.
Kucinich's hearings were designed to shed light on this and other double standards. Oil company executives, testifying under threat of subpoena, told the subcommittee that gas retailers in the United States don't use heat meters -- known as "automatic temperature compensation" -- because state regs don't let them. "State weights and measures regulations have not adopted temperature correction," said Hugh Cooley, a Shell Oil Company vice president, in answer to Kucinich's inquiries. Ben Soraci, Director of General Sales for ExxonMobil, echoed Cooley, insisting that "across the U.S. a gallon is still defined as 231 cubic inches by law."
But Kucinich offered evidence to the contrary. His subcommittee asked the National Institutes of Standards and Technology to survey all 50 states and the District of Columbia about their weights and measures rules. "Most states permit the use of temperature compensation at both the wholesale and retail level," Kucinich said the survey found. "In fact, NIST could find that automatic temperature compensation is only expressly prohibited in nine states for retail."
Further, Kucinich found that Gilbarco Veeder-Root sought certification for its automatic temperature compensation equipment in California. Gilbarco was responding to what it has said was the stated interest of California gas retailers, but it found no buyers when the state gave its product the OK.
Cooley and Soraci say that's unsurprising because the cost for implementing devices like Gilbarco's, an investment estimated to be about $2,500 per unit, would be borne by retailers -- the majority of which are affiliated only loosely with big oil companies -- and then ultimately passed on to the consumer. The oil execs' contention is true as far as it goes, but belies the fact that oil companies maintain funds -- called "image" and "development" funds -- meant to help so-called arms-length retailers pay for modifications and improvements to their gas stations. The money is there to extend to consumers the same fair deal wholesalers get, but the companies don't particularly want to spend it.
Kucinich's subcommittee is now also investigating whether that's the reason California retailers balked when given the chance to use Gilbarco Veeder-Root's system, and whether states should be encouraged to mandate pricing by amount of energy bought rather than volume of gas sold.