FTC Examines Allegations That Oil Industry Blocks Greater Ethanol Use

Source: By TENNILLE TRACY CONNECT, Wall Street Journal • Posted: Thursday, August 22, 2013

The Federal Trade Commission said it was looking into assertions by some members of Congress that oil companies are using their influence over retail gas stations to block consumers from accessing gasoline blended with extra ethanol.

The inquiry underscores the deepening divide between the renewable-fuels industry, which wants to promote “E15” gasoline containing 15% ethanol, and the oil industry, which says consumers don’t want E15. Oil producers and refiners are pressing Congress to repeal the U.S. law that requires refiners to use ever-greater amounts of corn ethanol and renewable fuels.

Sen. Amy Klobuchar (D., Minn.) and Sen. Chuck Grassley (R., Iowa) called for the FTC inquiry, saying they had reports of oil companies pressing independent gas stations to sell premium gasoline in addition to regular gasoline.

Since most stations own only two storage tanks, such a demand would make it impossible for gas stations to offer higher ethanol blends without installing a new tank, said the senators, both of whom are from states where ethanol is produced.

“Given the implication these alleged activities…could have on competition in the marketplace, we urge you to investigate them and consider whether any action is necessary,” they said in an Aug. 2 letter to the FTC that described the oil companies’ alleged actions as a possible antitrust violation

The FTC said in a letter released Wednesday that it would look into the issue. It didn’t indicate it was opening a formal investigation. The Justice Department hasn’t yet responded to the lawmakers’ request, according to Mr. Grassley’s staff.

A spokesman for the American Petroleum Institute, which represents oil producers, said the allegations are “a distraction from the fact that the [renewable fuels standard] is broken.”

The American Fuel & Petrochemical Manufacturers, which represents refiners, said it is reviewing the senators’ letter and didn’t have immediate comment.

A 2007 renewable fuels law forces refiners to blend a certain number of gallons of renewable fuel into gasoline each year. The 2013 standard requires the use of nearly 17 billion gallons of renewable fuel, most of which is corn ethanol.

The oil industry and other critics have questioned the wisdom of the law in recent months as overall gasoline consumption fails to keep pace with lawmakers’ expectations. Refiners say the law forces them to use more renewable fuel than is physically possible given that most gasoline contains only 10% ethanol—a problem known as the blend wall.

The Environmental Protection Agency has approved the use of 15% blends for newer cars but E15 hasn’t become popular with consumers. According to the Renewable Fuels Association, roughly 30 stations in eight states offer the 15% blend.

Renewable fuels companies say oil companies are trying to block the use of E15. The Renewable Fuels Association, a lobbying group for the industry, says it knows of at least one Kansas station owner who was allegedly pressured by an oil company to stop offering E15.

Oil companies say E15 hasn’t taken off because consumers don’t want it and because they say it poses a risk of damage to cars in some cases. The American Petroleum Institute says the renewable-fuels law is “broken beyond repair” and has urged Congress to repeal it. The group has also asked the EPA to lower the mandate for ethanol use in 2014, and the EPA has said the mandate is under review.

House lawmakers are considering bills to amend the renewable fuels law but it is unclear what they will propose or whether there is enough support in Congress to pass a measure.