Judge Says No to 'Hot Fuel' Hush

Court rejects Costco bid to keep marketing data secret

Published in CSP Daily News

By  Carole Donoghue, Petroleum Editor

KANSAS CITY, Mo. -- Costco Wholesale Corp. has failed in an attempt to get a federal court to seal records showing how much it will cost the company to install temperature-compensation devices on its dispensers.

Judge Kathryn H. Vratil, presiding over automatic temperature compensation class action cases in Kansas, has refused to redact information from one of her rulings, saying the public has a right to know.

The information Costco wanted sealed involves a settlement it has signed with class action plaintiffs who have sued more than 120 refiners and marketers for failing to install automated temperature compensation (ATC) devices at retail. The plaintiffs claim that consumers are overcharged for fuel during hot weather, when fuel expands in volume at the station only to shrink later in the car's tank.

Under a settlement approved by the U.S. District Court in April, Costco committed to equip new and existing dispensers in warm-weather states with ATC within five years of the equipment being available on the market. The agreement covers Costco sites in 14 states--Alabama, Arizona, California, Florida, Georgia, Kentucky, Nevada, New Mexico, the Carolinas, Tennessee, Texas, Utah and Virginia.

Costco was the first company to sign a settlement agreement in order to get out of the litigation, which is now in its fifth year. Other companies have also negotiated deals, including ExxonMobil, BP, Casey's General Stores, CITGO, ConocoPhillips, Shell and its subsidiaries Motiva Enterprises and Equilon Enterprises, Wal-Mart, Sam's East Inc. and Sam's West Inc. and Sinclair Oil and Valero.

Costco wanted to redact gasoline revenue and transaction data which it contended was "confidential and competitively sensitive." It not only suggested that the court black out the information concerned, but also asked that the fact that it was making such a request be kept secret too.

While Costco discloses some information on an aggregate basis in its annual report, it does not share the information by state or by transaction. Allowing the public and, more specifically Costco's competitors, to access the information "poses a substantial risk to Costco's interests and could adversely impact Costco's ability to compete in future," the company claimed in a court filing.

According to the documents, Costco wanted to keep hidden the fact that its cost of converting to ATC pumps is estimated to be $7.77 million--or roughly 0.02% of its total revenue in the 14 states.

Costco's total fuel revenue in the conversion states was approximately $4.044 billion in 2010, reaped from a total of 118.73 million separate transactions. If the number of sales Costco makes over the next five years were to remain static in those states, Vratil calculated that Costco's total cost of implementing ATC would amount to 1.3 cents per transaction.

Judge Vratil noted that she had cited some of the information already in coming to her decision about objections made by to the Costco settlement by some consumers who claimed that Costco would simply adjust the price of its fuel so that the public would end up paying the same amount for temperature-compensated fuel as they did for non-ATC fuel.

Judge Vratil said Costco had provided no evidence to support its assertions of competitive harm and had cited no law to support its position that the information should be sealed. The information was important in her decision-making and the company's interests do not outweigh those of the public, which has "a fundamental interest in access to that information," she ruled.

Marketers have little sympathy for Costco's position.

"We have been disapproving of Costco's behavior throughout this whole issue," said Dan Gilligan, president of the Petroleum Marketers Association of America (PMAA). "Costco has tried to gain a competitive advantage in the minds of consumers by suggesting that it will install ATC at retail. They took that risk and now must live with the consequences of their competitive information being made public."