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With the Jun 29 passage by the Senate of its version of comprehensive energy legislation, Congress now proceeds to conference negotiations to resolve the considerable differences between the packages of the two chambers. There are several issues of significant importance to the petroleum marketing community at stake in these negotiations. A summary of the critical issues facing the industry and the relevant positions of the Senate and the House of Representatives include: 1. renewable fuel standard, 2. oxygenate requirement, 3. fuel safe harbor, 4. underground storage tanks, and 5. use of MTBE.

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WITH THE JUNE 29TH PASSAGE BY THE SENATE OF ITS VERSION OF COMPREHENSIVE ENERGY legislation, the Congress now proceeds to conference negotiations to resolve the considerable differences between the packages of the two chambers. The President has requested that an energy bill be on his desk before Congress leaves for its summer recess in August, but as many Congressional aides have noted, what kind of August recess would it be without an energy conference to mess up vacation plans? Negotiations last Congress failed to produce sufficient support in the Senate to pass the bill. The question this year then is: will a package be developed that can be signed into law, or will this energy bill go wee-wee-wee all the way home?

There are several issues of significant importance to the petroleum marketing community at stake in these negotiations. Below is a summary of the critical issues facing the industry and the relevant positions of the Senate and the House of Representatives:

Renewable Fuels Standard - Also known as the ethanol mandate, this provision forms the backbone of the motor fuels section in each bill and makes several other key provisions possible. The House passed an RFS requiring 5 billion gallons of renewable fuels be blended into the motor fuel supply by 2012. The Senate, however, increased this provision to require a minimum of 8 billion gallons by 2012.

Oxygenate Requirement - Both the House and the Senate, in exchange for establishing the RFS and guaranteeing a market for ethanol, provide for the elimination of the oxygenate requirement of the Reformulated Gasoline program. This requirement has led to the widespread use of ethanol, especially in light of individual state actions to ban MTBE, the only other additive available to satisfy the requirement. Both bills provide for the repeal of the oxygenate requirement for California upon enactment and in 270 days for the rest of the country.

Fuels Safe Harbor - In connection with the RFS, the Senate approved a provision stipulating that motor fuels containing a renewable fuel shall not be considered a defective product. This same provision has appeared in every energy bill considered thus far. The House expanded this provision to include motor fuels containing MTBE. This extension is widely blamed for the failure of the energy bill last Congress and represents one of the major hurdles to enactment this year.

Underground Storage Tanks - The House enacted comprehensive reforms to the federal Leaking Underground Storage Tank program that had been advocated by NACS for years. Among these are expanding the use of LUST Trust Fund resources to include inspections and enforcement activities, requiring states to inspect every tank with a certain level of frequency, requiring states to close non-compliant tanks until brought into compliance, exposing government owned tanks that are out of compliance, and greatly increasing the authorized expenditure of LUST Trust Fund dollars. The Senate, however, only provides for limited reforms such an authorizing money for inspections and enforcement activities. Both provide $200 million for MTBE remediation in 2005, but the House makes this an annual authorization for an additional four years.

Use of MTBE - The Senate bill provides for a federal ban on the fuel additive MTBE within four years of enactment and allows states to opt out of the ban. The House does not ban MTBE until 2014 and also allows states to opt out. The House further calls for a National Academy of Sciences study of the effects of MTBE on fuel supply, prices and human health and the environment. It also authorizes the President, after review of the NAS study, to vacate the MTBE ban. Both bills provide substantial resources to help merchant MTBE producers convert their operations to alternative fuel additive products. The Senate provides for $1 billion over four years, while the House provides $2 billion over eight years.

Blending of Reformulated Gasoline - Under current regulations, retailers selling ethanol-blended RFC cannot replace this produce during periods of supply disruption with MTBE-blended RFC because the reaction between MTBE and ethanol results in a slight increase in emissions. However, this can cause more significant market volatility than necessary as retailers must completely drain their tanks to receive an alternative product. The House will allow retailers to blend these two products in their storage tanks for two 10-day periods during the summer. The Senate bill provides limited authority as well, although it requires that such blending does not result in any increase in emissions from the resulting mixture.

Boutique Fuels - The Senate energy bill includes the same study language that was considered in the previous Congress. While the House retained that study language, it also adopted language to stop the spread of boutique fuels by capping the number of blends in the nation at the current level. The House also established parameters around the Environmental Protection Agency's ability to issue motor fuel waivers during periods of supply disruption and protected retailers from potential private party litigation when abiding by the Agency's decisions.