The Kansas City Star
Troy Hopkins seemed an unlikely figure to take on Big Oil over hot fuel.
But as an owner of an Alabama gas station, he knew a change was needed when his accountant told him he was being shortchanged by purchasing wholesale gasoline not adjusted for temperature.
He urged BP, his supplier, to sell him fuel with the adjustment. When nothing happened, he wrote another letter and lobbied the company’s employees. A lawsuit was filed.
Finally, after three years, the oil company agreed. Hopkins would later tell a jury how he felt when he looked at an invoice for wholesale fuel and realized he was no longer being shorted on the number of gallons he was buying.
“I was happy,” he said.
Today, the debate over hot fuel is flaring again, but now it is about consumers buying temperature-adjusted fuel at the retail pump. And this time, dealers across the country are fighting the idea, saying that the way consumers now buy fuel is the one they understand best and that any change would not benefit them anyway.
“We have a great system that has worked well for 90 years,” Billy Vollenweider, a vice president of a truck stop, told a conference of weights and measures officials in Chicago in July.
But it turns out that most dealers did not always think so well of the system. In an unheralded dispute that climaxed in the 1980s when gas prices were on the rise, dealers filed lawsuits and lobbied state legislatures to win the right to buy wholesale fuel adjusted for temperature.
In the end, the dealers were largely successful. Today, except for a handful of states in the north, retail fuel dealers can buy wholesale gasoline and diesel with the adjustment.
They also left behind an extensive written record that belies the friendly relationship dealers now have with Big Oil in fighting temperature-adjusted fuel at the pump.
Back then, dealers called the oil companies greedy for refusing to sell them wholesale fuel with the adjustment. The oil companies bit back by fighting the lawsuits and the legislation. One dealer testified that he was told to stop whining about hot fuel.
But the dealers did not back down, holding fast to positions that are similar to arguments now made by consumer groups to extend the adjustment to retail sales.
The dealers, according to court and legislature records, argued that it was unfair that they were unable to buy fuel adjusted for temperature. They also rejected industry arguments that it did not matter whether they were shorted in the gallons they were sold, because any change in the volume would ultimately be reflected in the price.
Hot fuel, dealers across the country claimed, was costing them money.
It’s a striking case of wanting it both ways, said Judy Dugan, research director for The Foundation for Taxpayer and Consumer Rights, in Santa Monica, Calif. What was fair for the dealers should be fair for consumers, Dugan said.
“The only people denied fairness are motorists buying fuel in the U.S.,” she said.
Put simply, fuel expands and contracts depending on temperature — wholesale or retail. At the longtime industry standard of 60 degrees, the 231-cubic-inch U.S. gallon puts out a certain amount of energy. But fuel is often sold at higher temperatures, causing the fuel to expand and the amount of energy to decline for each gallon dispensed.
At other stages in the fuel-delivery chain, the industry routinely adjusts volume for temperature change using the 60-degree industry standard. But retail pumps in America make no such adjustment, so consumers get only 231 cubic inches per gallon, regardless of temperature.
In a series of stories beginning last year, The Kansas City Star estimated that hot fuel costs consumers an estimated $2.3 billion annually — a number that also accounts for any offset of fuel sold below 60 degrees.
Big Oil and trade groups representing retail dealers have called the overcharges illusory, since prices would go up for a “larger” fuel adjusted gallon. Add on the costs to retrofit pumps, and the prices that consumers would pay for fuel would go up, they say.
But while most dealers can today buy fuel adjusted for temperature, that was not always the case. They were automatically billed for 231-cubic-inch gallons, so whenever the fuel was warmer than 60 degrees, they ended up paying for more gallons.
Then after the fuel was purchased, the fuel was stored in a station’s underground tanks which, they said, cooled it to 60 degrees. That assured, the dealers said, they were buying more gallons than they were selling, and consumers were not being harmed, because they were already purchasing 60-degree fuel, according to lawsuits and legislative testimony by dealers.
But it turns out that the fuel is no longer cooling to 60 degrees — if it ever did — in large part because of double-walled storage tanks and quicker turnover of the fuel.
The National Institute of Standards and Technology in a recent report said the annual average fuel temperature year-round and nationwide was 64.7 degrees. Moreover, a volume-adjusted average puts the average even higher, since much more fuel is sold in heavily populated Sun Belt states. For example, the annual average retail fuel temperature in Florida is 82 degrees. In Texas, the average temperature is 78 degrees.
Retailers and their representatives, however, were once absolutely convinced that they were the ones taking a financial hit from hot fuel and that the oil companies were profiting from their misfortune.
“He’s asking not to unjustly enrich the seller,” Tim Herman, an attorney for Texas independent dealers, told the Texas Legislature in the early 1980s. The state quickly enacted a law that required temperature-adjusted wholesale fuel to be sold to retailers.
Hot fuel gadfly
Hopkins, the Alabama dealer, also thought the oil companies were profiting from hot fuel. He, along with other independent BP dealers, filed a lawsuit against BP, which the company settled after agreeing to sell them temperature-adjusted fuel. Hopkins and a few other dealers, however, opted out of the settlement and continued the case, seeking additional damages.
A self-made businessman, Hopkins had dropped out of high school when he was a junior. He joined the Army, and back in civilian life did a stint as a truck driver before eventually becoming an owner of a gas station. He also served two years as president of the Alabama Service Station Association.
By 1985, he could be found at the BP gas station he owned in Mobile. It was there that he was told by his accountant that hot fuel was costing him money. Hopkins quickly sent a letter to BP requesting a change in how he was billed.
BP, it would eventually be revealed, closely monitored the temperature of wholesale fuel it sold at its terminals — including the one at Mobile. The temperature of each truckload was then sent to BP‘s Cleveland headquarters. Some wholesale customers, including a trucking company, were allowed to purchase temperature-adjusted fuel. The company’s managers and attorneys said during the trial that independent dealers were used to buying fuel that was not adjusted.
“They had always been paying for their gasoline measured the way everybody understands gasoline to be measured,” said Linda Friedman, a BP attorney.
BP dispatched a dealer representative to see Hopkins within weeks of his sending the letter. The BP official reassured Hopkins that there was no need to worry, because fuel temperatures evened out over a year.
A couple of months later, the BP official told him that a review of two months of Hopkins’ sales and inventory found that he had 409 more gallons to sell than he had purchased. If he had temperature-adjusted billing, he would have had fewer gallons to sell.
“He told me I would lose gallons,” Hopkins recalled.
But Hopkins and other dealers were told of another study that BP would soon complete. The internal memo with the results would emerge during the trial.
It told a starkly different story.
“Dealer complaints in Alabama, Florida and Mississippi that gross (not temperature adjusted) delivery result in product shortages appear valid,” wrote Lonnie Johnston, a BP manager.
He recommended that BP sell temperature-adjusted fuel to the dealers to avoid negative publicity and litigation and to provide a “delivery system that neither benefits nor penalizes the company or our dealers for temperature variations.”
The memorandum, which The Star obtained, also included figures on how much money BP terminals gained from selling fuel to dealers that was not temperature-adjusted. The company would later say the figures were used to determine how much to adjust the price.
A federal judge rejected that argument, declaring that BP had a policy of computing additional profits from the volume discrepancies. A jury would eventually award damages to Hopkins and the other dealers.
In the end, however, BP won when it appealed the decision by arguing that the law had been incorrectly interpreted by the lower court.
Hopkins eventually left the retail gas business. He died in January. His widow said that he never wavered in his views about temperature-adjusted fuel and that he remained proud of his part in the matter.
“This was about right and wrong,” Augusta Hopkins said.
For more information on the hot fuel debate, as selected by Johnson County Library, go to KansasCity.com and click on Business.
To reach Steve Everly, call 816-234-4455 or send e-mail to [email protected].