Three Big Oil companies agree to settle ‘hot fuel’ lawsuits

Kansas City StarApril 6, 2012 

Three of the biggest oil companies in the country have agreed to settle lawsuits accusing them of profiting from “hot fuel” — gasoline and diesel sold without adjusting the volume for temperature.

Gasoline and diesel expand in warmer months, so a gallon of fuel contains less energy than what consumers pay for at the pump.

In a series of stories in 2006, The Kansas City Star estimated that hot fuel cost consumers $2.3 billion a year, a price tag that is now roughly $3.5 billion at current gasoline and diesel prices.

After The Star’s stories, class-action lawsuits accused dozens of companies, from oil giants to fuel-station chains, of being involved in the practice. The first of the lawsuits, after five years of pretrial proceedings, is to go to trial next month in federal court in Kansas City, Kan.

But three prominent members of Big Oil now have plans to get out of the legal fight.

This week attorneys for BP Products North America Inc., ConocoPhillips Co. and Shell Oil Products US told the U.S. District Court that “they have reached a binding settlement agreement” with the plaintiffs who filed the lawsuits, according to a court document signed by Judge Kathryn H. Vratil.

The settlement could contribute to a fix for hot fuel in which pumps adjust the amount of fuel pumped depending on its temperature. But details of the settlement, which would apply to all the class-action lawsuits filed in various states, weren’t available. It still has to be approved by Vratil before taking effect.

Attorneys for the plaintiffs who sued the companies would not comment. A spokeswoman for Shell Oil said more information would be disclosed as the settlement made its way through court.

“I can verify that a preliminary settlement has been reached in the temperature-correction cases around the country,” said Kayla Macke, the spokeswoman. “The settlement agreement is designed to fully resolve the cases against the parties to the settlement.” Judy Dugan, research director for Consumer Watchdog, a California public interest group, said the settlement could be a victory for consumers, but it depended on the details and whether it actually got temperature-adjusted fuel to the market. She said she hoped that it indicated a dramatic shift in the entire oil industry’s opposition to a hot-fuel fix.

“They did not want consumers to get the savings,” she said.

One other company offered to settle in 2009, but the deal had to be redone and is now waiting for judicial approval. Costco Wholesale Corp. agreed to retrofit its fuel pumps to adjust for temperature in warm-weather states. In cool-weather states, Costco promised to not purchase wholesale gasoline adjusted for temperature and sell it to consumers unadjusted. Many fuel retailers sell fuel that way.

The lawsuits seek a remedy such as retrofitting pumps so that they would automatically adjust volume of a gallon of fuel depending on the temperature, which has been done for decades in Canada.

But a settlement that would require the three companies to make that specific improvement seems unlikely. They have sold off most of their retail stations, although those stations still sell their brands.

Still, the settlement will presumably include provisions for the companies to facilitate the adoption of a hot-fuel fix, a change for the industry.

As a liquid, gasoline expands and contracts depending on temperature. The volume of fuel is pegged to a 60-degree standard, at which the 231-cubic-inch American gallon puts out a certain amount of energy. But if the temperature of that gasoline rises to 90 degrees, it expands to more than 235 cubic inches. But at the pump, consumers still get only 231 cubic inches.

Put simply, every degree over the 60-degree standard diminishes the energy a 231-cubic-inch gallon delivers to the nation’s fleet of cars, trucks, boats, buses and heavy equipment — and forces drivers to consume more and thus pay more for fuel.

It is basic physics that, depending on the temperature, can amount to just a few cents per gallon. But it adds up to big money.

Judge Vratil has overseen a consolidation of hot-fuel lawsuits from around the country and has ruled on various pretrial matters. Those cases are expected to be sent back to the respective states, and she is now presiding over the lawsuit affecting Kansas consumers.

She recently rejected a conspiracy claim sought by the plaintiffs, while in another order she rejected a last-ditch effort by the defendants to get the case thrown out of court.

The trial also could provide an unusual opportunity to see how the oil industry wields its influence, especially with government regulators.

Questions have been raised about the independence of California Energy Commission, that state’s primary energy policy and planning agency.

The commission did a study, now widely cited by the oil industry, that concluded that though the hot-fuel problem was real, it would not be worth fixing, a recommendation that stalled action in the state.

At the time concerns were raised about James Boyd, a commissioner who was pushing for not doing the fix and whether he had a conflict of interest. His wife, Catherine Reheis-Boyd, was president of the Western States Petroleum Association with a membership list that includes ConocoPhillips and ExxonMobil.

Boyd was indignant, saying that Western States “is not a party to this proceeding in any way, shape or form.”

But emails now part of the court docket in Kansas City, Kan., show that Reheis-Boyd was in regular contact with the director of the commission’s hot-fuel study. Among other things, she requested meetings and the status of a revised draft.

“What direction we heading?” she asked in one email.

Neither Boyd, who left the commission when his term ended in January, nor Reheis-Boyd responded to requests for comment.


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