End sought to overcharges

Oil companies and retailers that sell "hot fuel" are defrauding consumers and costing them billions of dollars per year, according to two lawsuits.

The lawsuits, filed this week in U.S. district courts in California and New Jersey, allege that fuel sold at volumes that aren't adjusted for temperature changes obscures the "true price" paid by consumers.

As a result, the lawsuits allege that consumers are unable to make informed decisions and are often being shorted on the amount of energy that they should be receiving in a gallon of gasoline or diesel.

"To add insult to injury, consumers that are already paying higher prices are being ripped off twice," said Joan Claybrook, former head of the National Highway Traffic Safety Administration and current president of Public Citizen, a consumer group that is supporting the lawsuit.

The lawsuits, filed late Wednesday and Thursday, are seeking class-action status. The list of defendants includes most of the major oil companies, including ConocoPhillips and Shell Oil Co., and several major retailers, including Flying J Inc. truck stops and 7-Eleven Inc.

Shell Oil said it had not received a copy of the lawsuit and wanted time to study it before making a comment. Other defendants that were contacted did not return messages asking for comment.

The American Petroleum Institute, a trade group that represents the oil industry, said as a matter of policy it did not comment on litigation.

But in recent months the institute has said that any fix addressing the hot-fuel issue would require equipping retail pumps with billions of dollars of gear that would outweigh any benefit. Moreover, much the cost would be shouldered by the independent businesses that own most gas stations.

The Mid-Atlantic Petroleum Distributors' Association in Maryland, in a statement delivered to weights and measures regulators at a recent meeting, reiterated the industry's widely held position that "variations in the measured volume of a gallon of motor fuel are minimal and that converting the infrastructure to adjust for temperature would be cost prohibitive and detrimental to the market."

The lawsuits seek to represent consumers in California, Arizona, Texas, Florida, North Carolina, New Jersey and Virginia, contending that consumer-protection laws in those states meant to stop fraud were broken. Besides seeking an unspecified amount of damages, the lawsuits are asking the courts to require retailers to install temperature-correction equipment on their retail pumps.

George Zelcs, an attorney for Chicago-based Korein Tillery, one of seven firms that jointly filed the lawsuits, said Thursday he expected their impact to go beyond the seven states and start a movement to bring equity to motor-fuel purchases in the United States "so that you will know what you are getting."

The lawsuits come nearly four months after The Kansas City Star began publishing stories on the hot-fuel topic. The newspaper reported that fuel was often sold at temperatures hotter than the industry standard of 60 degrees -- a standard agreed to nearly a century ago by the industry and regulators. Although the issue was virtually unknown to the average consumer, the oil industry has long adjusted fuel volumes to the standard through most of the distribution channel -- except at the retail pump.

Gasoline and diesel expand and contract depending on temperature. At the 60-degree standard, the 231-cubic-inch American gallon puts out a certain amount of energy. But that same amount of gasoline expands to more than 235 cubic inches at 90 degrees -- which is fairly common during summer months -- even though consumers still only get 231 cubic inches at the pump, since no adjustment is made.

The Star in August reported that consumers were being overcharged an estimated $2.3 billion a year at then-current prices for gasoline and diesel because of the hot-fuel phenomenon. That figure also accounted for fuel that is sold below 60 degrees in the United States. Even with the recent drop in gasoline prices, hot fuel still amounts to about $1.7 billion a year at current prices.

The named plaintiffs are more than a dozen consumers and truck drivers in the seven states who allegedly were sold fuel that was warmer than the industry standard of 60 degrees, which gave them less energy per gallon. If the lawsuits are granted class-action status by the courts, then other consumers and truckers in those states would also be covered. Potentially, they could recover the extra money they paid for hot fuel.

The cost of hot fuel to a typical California household, for instance, can amount to about $50 a year. For long-haul truckers, who average about 100,000 miles per year, the amount can be several hundred dollars per year.

"It's hard enough for us to make a living out here the way it is," said Becky Rush, the wife of Mark Rush, a Louisiana trucker who is one of the named plaintiffs.

The Owner-Operator Independent Drivers Association in Grain Valley, which represents 147,000 truckers, came out in support of the lawsuit.

"With this suit, reasonable-thinking people will debate the issues surrounding this unfair practice in a free and open debate," said John Siebert, a project manager for the trucking group's foundation.

The case laid out in the two lawsuits describes temperature, price and volume as interdependent in calculating the value of motor fuel and that the oil industry has long been aware of the important role that temperature played in that relationship.

The story of hot fuel traces all the way back to oil magnate John D. Rockefeller.

In the early 1900s, according to the lawsuits, the Standard Oil Trust had difficulty in accounting for inventory credits to partners that owned oil wells because of how temperature affected the volume. Standard Oil financed research by the American Petroleum Institute to create a standard unit to measure petroleum products. The institute then went to the federal National Bureau of Standards for assistance. The outcome of those discussions was the 60-degree standard.

The standard was accepted by the industry and is used by other groups and federal agencies. The U.S. Bureau of Customs, for example, requires that duties on imported petroleum products be calculated on gallons adjusted to the 60-degree standard. And the Federal Trade Commission requires the same measure be used for packaged petroleum products, such as 3-In-One Oil.

But oil companies and retailers have refused to do so for retail sales of gasoline and diesel, even though the technology exists. According to the lawsuits, that is because the oil industry and retailers make more money by not adjusting for temperature at the retail pump in the United States, since the average fuel temperature is above the industry standard.

A database compiled by the National Institute for Standards and Technology found that the average temperature of retail fuel nationwide and year-round averages almost 65 degrees. As a result, consumers and truckers end up spending billions of dollars per year on fuel that they wouldn't have had to pay for if gallons had been adjusted to the 60-degree standard.

"Because the petroleum industry profits from the sale of hot motor fuel to consumers ... the industry has repeatedly fought efforts to require the installation of temperature compensation equipment at retail fuel pumps in the U.S.," according to the lawsuits.

By contrast, in Canada, where fuel averages less than 60 degrees, the industry supported temperature adjustment. It did so because without temperature adjustment retailers would deliver more energy per gallon than the industry standard. Today, about 95 percent of retail motor fuel in Canada is sold temperature-adjusted.

The different approaches used by the oil industry in United States and Canada were done to boost profits, according to the lawsuits.

Claybrook, the president of Public Citizen, who participated in the news conference announcing the lawsuits, said they should jumpstart efforts to bring temperature adjustment to the retail pump to the United States.

"Ultimately, Congress needs to protect U.S. consumers against the industrywide practice of hot-fuel overcharges," she said.

"But in the absence of government protection, the only solution is for consumers to band together and force a remedy through the legal system."

The story so far:

Beginning in August, The Star has reported that "hot fuel" has cost U.S. drivers an estimated $1.7 billion a year at current prices. That's because when gasoline gets hot, it expands. But retail fuel pumps don't account for the bigger volume, which delivers less energy per gallon.

To reach Steve Everly, call (816) 234-4455 or send e-mail to severly@kcstar.com.