Shell, BP, ConocoPhillips Settle 'Hot Fuel' Class Action

Others in class-action lawsuit soldier on

Published in CSP Daily News

By
Carole Donoghue, Petroleum Editor

KANSAS CITY, Mo. -- Three major oil companies--BP, Shell and ConocoPhillips--have reached a binding settlement agreement with class-action attorneys who sued more than 100 refiners, convenience store operators and truckstop marketers for failing to temperature-correct fuel sales to 60 degrees Fahrenheit.

The lawsuits, filed five years ago on behalf of consumers in 28 states, allege that fuel retailers pocket extra profits to the tune of $3.5 billion a year by selling so-called "hot fuel."

Chief Judge Kathryn H. Vratil, sitting in a Kansas City, Mo., federal court, disclosed the settlement in a two-sentence announcement, but gave no details of the deal. Since the three companies market mainly through wholesaler-owned stations, the burden of complying with the settlement terms is expected to fall largely on marketers.

"I can verify that a preliminary settlement has been reached in the temperature correction cases around the country," Kayla Macke, a spokesperson for Shell, told CSP Daily News. "The settlement agreement is designed to fully resolve the cases against the parties to the settlement."

There is no word of settlements involving other refiners or retailers in the case so far. The class-action trial is currently scheduled to start on May 7.

Retailers involved in the litigation include The Pantry, Circle K Stores, Pilot Travel Centers, QuikTrip and RaceTrac Petroleum.

Gasoline and diesel fuel expand and contract depending on the ambient temperature. Pump prices in the United States are pegged to a 60-degree standard, which delivers a 231 cubic-inch gallon and thus a set amount of energy. But for every degree that fuel expands in the heat, some of that energy is lost.

"The warmer the fuel, the less BTU and fewer miles to the gallons a vehicle will receive. Consequently, if a vehicle averages six miles per gallon, 200 gallons of 98-degree fuel is going to take a truck 36 fewer miles than 60-degree fuel," according to the Owner-Operator Independent Driver Association, whose truck driver members were one of the driving forces behind the litigation.

The class-action plaintiffs claim that not only is the oil industry cheating consumers, but retailers also benefit by collecting extra tax dollars because they collect sales tax based on a 60-degree gallon but will pay less to state governments if the temperature of the fuel is higher than 60 degrees when they sell it.

Click here for previous CSP Daily News coverage of the "hot fuel" issue.

The plaintiffs want retailers to install temperature-compensation equipment that would ensure that fuel is sold at or near a temperature of 60 degrees, but U.S. regulators have yet to approve such equipment for retail use, although it has been installed at stations in Canada.

"The basic allegation is that marketers should have offered temperature compensation at the pump when they couldn't legally do it. This case has never been about consumers, but about a group of lawyers trying to get a fat settlement down the line," Dan Gilligan, president of the Petroleum Marketers Association of America (PMAA), told CSP Daily News.

The only other company to settle the class-action lawsuit has been Costco, which agreed in 2009 to retrofit its pumps in 14 warm-weather states to adjust for the ambient temperature within two years of the final settlement, with its remaining pumps switched over within five years. In cooler climes, Costco promised not to buy fuel adjusted to a 60-degree temperature. An expert witness for the plaintiffs said the net benefit to consumers would exceed $100 million within five years. The Costco agreement has yet to be finalized, however.

The deal that Shell, BP and Conoco have struck must still be approved by the court and members of the class represented in the cases, noted Macke. "The terms and provisions of the agreement will be made public through the court process for the approval of the settlement."

Speculation is that the three majors will pay a lump cash sum in damages will make further concessions, perhaps requiring retailers to display decals on dispensers warning about the energy content of their fuel. Some refiners, including ExxonMobil, have been posting such warnings on their pumps in western states for the past four years.

At a later date, however, the settlement could become more costly for marketers if automatic temperature compensation (ATC) is approved for U.S. dispensers. California flirted with the concept four years ago, leading Gilbarco to ask regulators to approve an ATC device for its Encore dispenser. Both Gilbarco and the state later backed away from the issue after a sustained campaign by the California Independent Oil Marketers Association.