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EXXONMOBIL AND SHELL ANSWER QUESTIONS

ABOUT HOT FUEL

HEARING

BEFORE THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JULY 25, 2007

Serial No. 110–158

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

TOM LANTOS, California

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

DAVID MARIN, Minority Staff Director

SUBCOMMITTEE ON DOMESTIC POLICY

DENNIS J. KUCINICH, Ohio, Chairman

TOM LANTOS, California

ELIJAH E. CUMMINGS, Maryland

DIANE E. WATSON, California

CHRISTOPHER S. MURPHY, Connecticut

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

BRIAN HIGGINS, New York

BRUCE L. BRALEY, Iowa

DARRELL E. ISSA, California

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

CHRIS CANNON, Utah

BRIAN P. BILBRAY, California

JARON R. BOURKE, Staff Director

(III)

C O N T E N T S

Page

Hearing held on July 25, 2007 ............................................................................... 1

Statement of:

Soraci, Ben, U.S. retail sales director, ExxonMobil Fuels Marketing Counsel; and Hugh Cooley, vice president and general manager, National

Wholesale and Joint Ventures, Shell Oil .................................................... 21

Cooley, Hugh .............................................................................................. 28

Soraci, Ben ................................................................................................. 21

Letters, statements, etc., submitted for the record by:

Cooley, Hugh, vice president and general manager, National Wholesale

and Joint Ventures, Shell Oil, prepared statement of ............................... 30

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland:

Letter dated August 14, 2007 ................................................................... 74

Letter dated August 16, 2007 ................................................................... 77

Issa, Hon. Darrell E., a Representative in Congress from the State of

California:

Prepared statement of ............................................................................... 15

Prepared statements of the Ohio Petroleum Marketers and Convenience Store Associations ........................................................................ 12

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio:

Letter dated February 5, 2008 ................................................................. 57

Prepared statement of ............................................................................... 4

Soraci, Ben, U.S. retail sales director, ExxonMobil Fuels Marketing Counsel, prepared statement of ............................................................................ 23

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EXXONMOBIL AND SHELL ANSWER

QUESTIONS ABOUT HOT FUEL

WEDNESDAY, JULY 25, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON DOMESTIC POLICY, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 10:05 a.m. in room

2154, Rayburn House Office Building, Hon. Dennis J. Kucinich

(chairman of the subcommittee) presiding.

Present: Representatives Kucinich, Cummings, Davis of illinois,

Watson, Higgins, Issa, and Bilbray.

Staff present: Jaron R. Bourke, staff director; Charles Honig,

counsel; Jean Gosa, clerk; Evan Schlom, intern; Leneal Scott, information systems manager; Natalie Laber, press secretary, Office of

Congressman Dennis J. Kucinich; Larry Brady, minority senior policy advisor; and Alex Cooper, minority professional staff member.

Mr. KUCINICH. Good morning. The Subcommittee on Domestic

Policy of the Committee on Oversight and Government Reform will

now come to order.

Today’s hearing will continue the subcommittee’s examination of

hot fuels and effects they have on consumers and dealers. This

time we will hear from two oil companies and get their views on

thermal expansion of gasoline and the possibility of automatic temperature compensation at the retail level in the United States.

I ask unanimous consent that all opening statements, written

statements, and other materials be able to be placed in the record.

Without objection, the Chair and ranking minority member will

have 5 minutes to make opening statements, followed by opening

statements not to exceed 3 minutes by any other Member who

seeks recognition. Without objection.

Without objection, Members and witnesses may have 5 legislative days to submit a written statement or extraneous materials for

the record.

I want to thank the ranking member, Mr. Issa of California, for

his presence here today, and I look forward to our participation and

cooperation in this hearing. Mr. Issa, I have always appreciated the

opportunity to work with you. Thank you.

Good morning, gentlemen and ladies. This is the second half of

our June 8th hearing on Hot Fuels. We had invited ExxonMobil

and Shell to testify at that hearing; unfortunately, they refused. So

at my request, the full committee chairman, Mr. Waxman, sent

ExxonMobil and Shell invitation letters asking again for their testimony before our committee, but this time it was in order to avoid

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the necessity of a subpoena. We are happy that ExxonMobil and

Shell reconsidered their earlier reluctance to testify.

The oil industry has known for 100 years that gasoline expands

and contracts with temperature. As it warms, gasoline expands by

volume but not by weight or energy content. As it cools, gasoline

contracts.

At the turn of the last century, the oil industry developed a

standard and method for compensating for temperature variations,

and they use it to this day in most wholesale transactions.

Regardless of the actual temperature of the gasoline, its volume

is adjusted mathematically prior to sale, according to the known

physical properties of gasoline. If the actual temperature of the

gasoline is above a reference temperature of 60 degrees fahrenheit,

its volume is adjusted downward. If the actual temperature is

below 60 degrees Fahrenheit, the volume is adjusted upward. As a

result, neither the seller nor the buyer receives an advantage in

wholesale transactions of gasoline due to the temperature. That

has been the standard for wholesale transactions—wholesale transactions—since the 1920’s.

But retail sales of gasoline are a very different story. The oil industry does not compensate for temperature in retail sales to consumers. In fact, it refuses to do so. One of the leading manufacturers of automatic temperature compensation equipment applied for

and received certification for sale in the State of California. No oil

company would buy it.

This is the first apparent double standard we hope to clarify

today. How do the oil companies justify opposing temperature compensation at retail while conducting most wholesale transactions

with temperature compensation?

But that is not the only apparent double standard. While they

refuse to use temperature compensation for retail sales in the

United States, this subcommittee has learned that the industry

does the opposite in Canada, where nearly all the gasoline sold at

retail is measured in temperature compensated volumes.

The majority of gasoline pumps in Canada are equipped with

technology that adjusts the volume dispensed according to temperature. We have, furthermore, learned that the industry moved

voluntarily to install temperature-compensating equipment in Canada. This is the second instance of what appears to be a double

standard. How does the oil industry justify refusing to use temperature compensation for retail sales in the United States while

universally and voluntarily embracing temperature compensation

at retail in Canada?

But even that is not where the apparent double standards end.

We have learned that the oil industry applies one standard to the

retail sale of some hydrocarbons, while applying a different standard to others. Throughout the United States today, liquified petroleum gas, such as propane, is dispensed for retail sale using automatic temperature compensation. Liquefied petroleum gas is a fossil fuel product like gasoline. Large, integrated oil companies like

those represented by our witnesses, produce liquefied petroleum

gas, as well as gasoline, and they sell those products. But, as we

don’t need now to be reminded, when it comes to selling gasoline

as opposed to liquefied petroleum gas, the industry refuses to use

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temperature compensation. So here is the third instance of an apparent double standard.

It has long been the position of the National Institute on Standards and Technology—and they testified to this effect at our last

hearing—that compensating for temperature ensures the most accurate way of measuring volume. So what could be the industry’s

reason for opposing accurate measurement of retail gasoline sales

in the United States? Well, maybe it is all a wash. Maybe the effort

involved in using temperature compensation is not necessary because, on average, gasoline temperatures would average over the

course of a full year to be 60 degrees Fahrenheit, exactly the same

as the reference temperature that the industry uses for its wholesale standard.

Well, it turns out that their averages are at a higher temperature than the industry wholesale standard. At our last hearing, one

of our witnesses testified that his company routinely monitors the

temperature of gasoline in underground storage tanks. They do it

at gas stations as part of an EPA enforcement program to detect

leaking underground storage tanks.

My staff tallied the past year of temperature data from nearly

every State, and weighted it by the amount of gasoline sold in that

State. Here is the result of that arithmetic: 66.7 degrees Fahrenheit. The industry standard is 60 degrees Fahrenheit. So the actual national average temperature for gasoline is higher than the

standard temperature the industry uses in most wholesale transactions. So it is not a wash. Temperature variation of gasoline in

the United States consistently tilts to the industry’s advantage,

where retail gallons of gasoline have less energy than wholesale

gallons. That creates a potential for less than accurate measurement and the sale of ghost gallons to consumers during the summer driving season.

We hope that today’s witnesses will be able to clarify the issues

for us. Consumers and dealers alike have an interest in accurate

measurement. Both would appreciate answers. ExxonMobil and

Shell are large oil companies in both the United States and Canadian markets, so who would be better positioned to explain to the

committee the industry’s view of these apparent double standards.

Thank you very much.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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Mr. KUCINICH. With that, the Chair recognizes the distinguished

ranking member from California, Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman.

I have only the greatest respect for you as a chairman and as a

friend. Today, however, we are going to agree to disagree on some

aspects of today’s hearing.

I believe the issue we are addressing here today is an important

one, but not because it is a legitimate issue on the question of temperature correction of gasoline. As I said on June 8th, when we had

our first hearing on this subject, it is important, but it underscores

the Democrat majority’s preference to focus on the tangential matters instead of the real discussion on oil and gas supplies and demand situation and economic catastrophe that we will face if we do

not squarely come to a real understanding of how we get more gasoline, more natural gas, how we save natural gas for better uses,

how, in fact, we get to a lower-carbon environment.

Today I suspect that along the way, as we talk about whether

or not temperature compensation devices being added to pumps is

legitimate, we are also going to touch on the question of whether

the Democrat leadership needs to focus on the legitimate issues of

providing greater amounts of raw petroleum and greater refining

capacity so that we can, in fact, reduce the high prices that Americans are paying at the pump today.

I don’t believe we would be having a discussion on something

that has been known since 1920 if, in fact, gasoline prices were

$1.89 a gallon. We are dealing in the 1 percent because of, in fact,

we have had a 40 percent rise in fuel in a relatively short period

of time. That is why I appreciate the hearing we are having today,

because I believe that, in fact, we need every opportunity to talk

about the 40 percent, even if it is while discussing tangentially the

1 percent.

Last year back in June our hearing concentrated, quite frankly,

on those least in the position to control the price of gasoline, those

who make, to a great extent, some of the least amounts on gasoline. We brought up in our press release the fact that MasterCard

and Visa make more on gasoline than the retailer does. Again, let’s

remember it is the retail location that we are dealing with here to

day. No matter what price Shell, Exxon, or others supply gasoline

to the retailer for and how much correction there will be, it will

have no effect on the net earnings of ExxonMobil, Shell, or anyone

else. In fact, what we are talking about is a new burden for the

retailer. As far as I can understand, a single-source burden for the

retailer. An acceptable design? Yes, an acceptable design that if

mandated would be paid at whatever price the patent holder and

device certifier would like to charge.

I do believe there is always an opportunity to bash big oil. I suspect that we will do it here today.

Thank you for representing big oil. It is always brave of you to

do so.

I believe, though, that, in fact, we are going to have an opportunity to have a lively and positive discussion. I believe that the

Washington Post has already done a good job by doing their article,

‘‘A Full Tank of Hypocrisy.’’ I thought that was aimed at people not

in this room, but I think we will take it.

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I certainly think that Senator Schumer’s suggestion that breaking up big oil, in fact, is legitimately in play here to day, that there

are people who feel that if we had smaller oil companies somehow

we would have lower prices. Can you imagine a smaller oil company trying to get through the bureaucracy of the deep sea oil drilling permit, or even, in fact, building a new refinery here in America?

I also believe that today is a unique opportunity for us to discuss

this particular subject, and I will do so in two quick inclusions. One

is, in fact, recognizing that the National Conference on Weights

and Measures recently said this was not necessary. They didn’t say

it wouldn’t be nice. They didn’t say that if we chose to do it, let’s

say, 20 years from now when every pump will have been replaced

and could simply turn on a feature on a given day to where every

corner in America 1 day would be not compensated, and every corner in America the next day would be compensated, so that nobody

would be able to gain the system between one pump and another.

I hope we all understand here today that if one pump had temperature compensation at 90 degrees and the other didn’t, then

there would be legitimate gaming, because, I fact, somebody would

be able to shave a point on that transaction.

I hope today when we are finished that we will agree that, in

fact, a phase-in over the logical period of time of the capability and

then a single-day turn-on in America, if this is to be chosen both

by ourselves and the agencies that review this, is, in fact, the only

legitimate goal. Having dispensed with the legitimate goal here

today, I certainly want to talk about big oil, the high cost of fuel,

and how we get to it, and how we are going to get out of it.

Mr. Chairman, in addition to that, I would like to include in the

record a statement by the Ohio Petroleum Marketers and Convenience Store Associations who have also written on this.

Mr. KUCINICH. Without objection, so ordered.

[The prepared statements of the Ohio Petroleum Marketers and

Convenience Store Associations follow:]

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Mr. ISSA. Thank you, Mr. Chairman. Mr. Chairman, I know that

is tough rhetoric. It is not aimed at you. It is aimed at the fact that

I believe we both owe to America a cleaner environment, one that

delivers energy at a good price, it delivers the appropriate energy

from the appropriate source, and I know that with your leadership

we will be able to work together toward that. This may not be the

neatest way to do it. This may be a little messy, but I know at the

end of the day we will be heading in the right direction, and I

thank you for holding this hearing and yield back.

[The prepared statement of Hon. Darrell E. Issa follows:]

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Mr. KUCINICH. Thank you very much, Mr. Issa. I have no question that cooperation on this will find a way to benefit American

consumers. I thank you.

Does Mr. Bilbray wish to make a statement? We have a few minutes if you wish to do so.

Mr. BILBRAY. Thank you, Mr. Chairman.

Mr. Chairman, I am really thankful that you are having this

hearing, because I think that it is an opportunity for us not to just

talk about one segment of the issue of what may or may not help

the consumer at the end of the process. I think it also gives some

of us an opportunity to talk about not only what is the private sector doing or not doing to protect the consumer, but what are those

of us in Government doing and what have we done in the last 30

years that has severely impacted the price of fuels for the American people.

So I hope to highlight the fact that, though we may be to pointing fingers at certain private sectors that may tweak the numbers

1 or 2 percent, I hope at the same time that we are brave enough

to look in the mirror and look in our own face and see that what

Government has done in the last 30 years has jacked up the price

of gasoline at the pump in such extraordinary numbers that I will

show you exactly what the Federal Government has done with misguided policies and not only hurt the consumer, hurt the environment under the guise of protecting the consumer and protecting the

environment.

As you know, our local government experience, I had the privilege of serving for 6 years on the State Air Resources Board of California, one of the premier environmental groups that worked with

the fuel industry. Frankly, the Federal Government’s history of addressing the issue of affordable, clean energy is dismal, to say the

least.

I hope in this hearing that we are able to point fingers at the

oil industry and say where they can do better, and then by doing

that open ourselves up to pointing fingers at ourselves and saying,

physician, heal thyself, and do not find the speck in your neighbor’s

eye when you have a log in your own.

As this testimony goes over, I hope that we can work together

at going back to the new majority and say, Hey, we really have

screwed up, and we screwed the consumer and the environment at

the same time, and good intentions do not make fuel any more affordable or any cleaner.

I hope to be able to engage in this discussion and I hope you join

us in taking the leadership of going back and taking a look at those

mistakes we have made and the things we have done wrong or

haven’t done right that can really help both the consumer and the

environment if we do them right.

Thank you very much.

Mr. KUCINICH. Thank you, Mr. Bilbray. I will respond to the

points that you made. I think that it is important that this committee always be open to examining the role that Government plays.

In this particular case, part of the work of this committee has been

to examine the role of those who set the standards to see if Government actually is in some way, directly or indirectly, through commission or omission, playing a role in the high price of gasoline.

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I commit to you that this committee is not simply about probing

the decisions of the private sector, but it is important to look at the

inter-relationship between the private sector and the public sector,

and also the public sector’s policies as they reflect upon and impact

upon the private sector. Thank you.

If there are no additional statements, the subcommittee will now

receive testimony from the witnesses before us today. I want to

start by introducing our panel.

Mr. Ben Soraci is the U.S. retail sales director for ExxonMobil

Fuels Marketing Co., a position that he has held since May 1, 2007.

Prior to his current position, Mr. Soraci was manager of the U.S.

company-operated retail sites for 31⁄2 years. Mr. Soraci joined Mobil

in its U.S. Marketing and Refining Division in 1984, and has held

various positions in many divisions, including Resale Marketing,

Marketing Real Estate and Retail, as well as management positions with Mobil’s International Division in Japan, Africa, and Europe. Along with his duties at Exxonmobil, Mr. Soraci is co-chair

of the American Petroleum Institute’s General Marketing Committee.

Mr. Hugh Cooley is vice president and general manager of National Wholesale and Joint Ventures for Shell Oil Co. Mr. Cooley

has been with the Shell Oil Co. for more than 35 years. He has

held numerous positions in the areas of sales, marketing, and operations management. He became vice president and general manager of National Wholesale in March 2002, and became responsible

for retail joint ventures in 2006. In his current position, Mr. Cooley

is in charge of managing Shell’s sale of Shell-branded gasoline at

the wholesale level. Mr. Cooley also serves on a number of industry

boards and is co-chair of the American Petroleum Institute’s General Marketing Committee.

In introducing the members of this panel, I think we have established that these are people who have high qualifications and are

certainly here to be able to answer our questions.

I want to welcome you for being here. Please let those who you

work with at your respective companies know that this subcommittee does very much appreciate your presence.

Gentlemen, it is the policy of the committee on oversight and

Government Reform to swear in all witnesses before they testify.

I would ask if you would rise and raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Thank you. Let the record reflect that the witnesses answered in the affirmative.

At this time I would ask the witnesses to give an oral summary

of your testimony, and to try to keep that summary under 5 minutes in duration. I want you to know that your written statement

will be included in the hearing record, and any other extraneous

materials that you wish to supply. Our committee will cooperate

with you in facilitating the inclusion of those materials in the

record.

Mr. Soraci, thank you for being here. We would like to begin

with you. You are recognized to proceed. Thank you.

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STATEMENTS OF BEN SORACI, U.S. RETAIL SALES DIRECTOR,

EXXONMOBIL FUELS MARKETING COUNSEL; AND HUGH

COOLEY, VICE PRESIDENT AND GENERAL MANAGER, NATIONAL WHOLESALE AND JOINT VENTURES, SHELL OIL

STATEMENT OF BEN SORACI

Mr. SORACI. Chairman Kucinich, Ranking Member Issa, distinguished subcommittee members, I appreciate the opportunity to be

with you today to talk about automatic temperature compensation.

Let me start by saying that I know people are concerned about

energy costs and they are looking for answers. The question that

is before us today is whether we should change the way we dispense fuel at the gas pump.

As indicated, my name is Ben Soraci. I am the U.S. retail sales

director for ExxonMobil Corp. My testimony today will address

three key points which reflect ExxonMobil’s view on automatic temperature compensation. From here on out, I will refer to it as ATC.

First, ExxonMobil’s sale of motor fuel to consumers is fully compliant with the law, and selling temperature compensated motor

fuel at retail would violate current laws and regulations.

Second, ExxonMobil supports a comprehensive study regarding

the use of ATC at retail.

Third, and very importantly, the investment cost associated with

implementing ATC at retail will primarily be borne by the independent retailers.

Now, with regard to my first point, as required by law, retailers

in the United States sell motor fuels by the volumetric gallon

measurement. With the exception of Hawaii, a gallon is defined

across the United States as 231 cubic inches; in other words, no

different than any other liquid. This volume measurement method

for retail transactions is governed by State laws and regulations,

based on guidelines from the National Conference on Weights and

Measures [NCMM]. Therefore, if ATC is to be permitted, new laws

and regulations would need to define a gallon of motor fuel on a

temperature compensated basis. ATC equipment would need to be

certified for retail stations, and calibration and special protocols

will need to be developed and adopted.

My second point is that ExxonMobil supports a comprehensive

study to evaluate whether a basis exists to change the current retail measurement standard. States such as New York and Minnesota have considered and expressly prohibit the sale of motor

fuel on a temperature compensated basis at retail. On the other

hand, California and Arizona appear to desire a permissive or optional approach.

At the national level the NCMM considered permissive ATC

guidelines at its annual meeting the week of July 8th, and they

voted not to adopt new guidelines pending further study. In Congress, the House Science and Technology Committee has asked the

National Academy of Sciences to conduct a nationwide study to determine whether a problem exists and whether widespread use of

ATC equipment was warranted.

So there are differences of opinion regarding ATC, and there are

unanswered questions. This is why we believe a comprehensive

study will provide an appropriate basis for evaluating any potential

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change to current NCMM guidelines and the associated laws and

regulations have governed the use of ATC.

There are several fundamental questions that should be addressed in such a study. For example, if a change in the measurement standard is deemed appropriate, should implementation be

mandatory or permissive? Should the measurement method vary

according to the choice of each State, or should there be a national

standard? And, most importantly, what are the costs versus benefits for the consumers and the independent retailers?

ExxonMobil believes a comprehensive study is an important prerequisite for making an informed decision with regard to ATC at

retail.

My third point is that the investment cost associated with the

implementation of ATC at retail stations would primarily be borne

by independent retailers. You heard Tim Columbus, who represents

the interests of independent retailers through the SIGMA and

NACS industry associations, makes this same point in his recent

testimony.

The fact is, ExxonMobil owns a very small percentage of the retail motor fuel stations in the United States. Of the approximately

170,000 retail stations throughout the country, less than 2 percent

are owned by ExxonMobil. Furthermore, of the stations that are

branded Exxon or Mobil, over 80 percent are owned by independent

retailers, who would be directly impacted by the implementation of

ATC. This is a very important point to keep in mind. Why? Because as owners of existing equipment, they would directly incur

the cost of the new equipment or any retrofits that might be required.

As you also heard Mr. Columbus say, many of these independent

retailers would struggle to make this investment. ExxonMobil concurs with his assessment.

In summary, the three key points of my testimony are: first,

ExxonMobil’s sale of motor fuel to consumers is fully compliant

with the law, and selling temperature-compensated motor fuel at

retail would violate current laws and regulations.

Second, ExxonMobil supports a comprehensive study regarding

the use of ATC at retail.

And, third, the investment cost of implementing ATC at retail

would be primarily borne by the independent retailer.

I thank you for your time, and I would be happy to answer any

questions on this subject.

[The prepared statement of Mr. Soraci follows:]

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Mr. KUCINICH. I thank the gentleman.

The Chair recognizes Mr. Cooley.

STATEMENT OF HUGH COOLEY

Mr. COOLEY. Good morning, Mr. Chairman and members of the

subcommittee. My name is Hugh Cooley, and I am Vice President

and General Manager of National Wholesale and Joint Ventures

for Shell Oil Products Co. in Houston, TX.

I am here to testify because for several years I have been responsible for managing the relationship with our wholesalers. Wholesalers supply most of our local independent Shell stations in the

United States by independent stations, I mean stations which Shell

does not own or operate.

Now let me begin by summarizing Shell’s position on some of the

central concerns and questions about this issue. Shell does not believe that the American consumers are harmed in any way by not

having temperature adjustment at retail dispensers. The standard

applied by State weights and measures authorities for fuel cells to

consumers has long been the volumetric gallon, a standard that is

easy to understand and easy for State regulators to enforce.

This way of measuring gasoline just makes good sense. When a

consumer purchases a gallon of gasoline, the consumer is assured

each and every time, winter or summer, that a true volumetric gallon of gasoline is being pumped into their car. Consumers understand and depend on this methodology, and local weights and

measures officials easily and uniformly enforce regulations requiring that a gallon is, indeed, a gallon.

If all sellers use the same unit of measure in a given local market, then the market will settle on the most competitive price in

that place, time, and circumstances. The idea that temperature adjustment will somehow get people more for their money simply

does not take into account the realities of the retail gasoline market. If gasoline were temperature adjusted at the retail level, the

intense competition in the market would adjust prices to take that

into account, as well. In other words, if retailers sell larger gallons,

you should expect they will charge more for larger gallons.

Now let’s talk about energy content. The notion that automatic

temperature adjustment would guarantee that every gallon of gasoline has the same energy content, as well.

The EPA recognizes that the energy content of gasoline is affected by numerous factors in addition to temperature, including

the percentage of ethanol it contains, the grade of crude oil from

which it was refined, and the processes used at the refinery.

Another misconception is that all wholesale transactions are temperature adjusted. The reality is that temperature adjustment does

not occur at all wholesale transactions. Some States forbid it, some

States require it, and some States give the buyer a choice. In fact,

most of Shell’s sales at the wholesale level in the warmer States

are temperature adjusted, and most sales in the colder States are

not. This is exactly the opposite of what you would expect if the

proponents of temperature adjustment were correct that it is used

only when it benefits the oil companies.

Furthermore, companies like Shell exchange large volumes of

gasoline between terminals that are often far apart, often in markVerDate 11-MAY-2000 14:08 Jun 01, 2009 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 U:\DOCS\49623.TXT KATIE PsN: KATIE
29

edly different climates, and at varying times of the year. All of this

does require accounting for the impact of temperature variation.

Now, regarding the question of why most Canadian retailers

temperature adjust in retail sales, the government of Canada legally permitted temperature adjustment for retail gasoline approximately 15 years ago, and apparently at the urging of the manufacturer of a temperature adjustment device. We believe that some

Canadian retailers thought that the use of temperature adjustment

devices would provide them with a competitive advantage over

other retailers. When their use became an industry trend, most

other retailers, including Shell, followed to avoid a competitive disadvantage.

After most stations had converted and the market essentially

had transitioned to automatic temperature adjustment, basic economics lead us to believe that the price at the street level would

have adjusted to take into account the new temperature adjusted

unit of measure.

Finally, the cost of installing automatic temperature adjustment

equipment would hit the independent retail stations, which are not

owned or operated by the integrated oil companies. Independent

stations are the major player in selling gasoline to consumers, accounting for more than 90 percent of such sales.

As Mr. Columbus testified in the committee on behalf of NACS

and SIGMA, the temperature adjustment debate is not about integrated oil companies; it is about the independent retailers and the

consumers.

In summary, Shell believes that the fundamental economic principles that dictate the cost of temperature adjustment would be incurred predominantly by local, independent retailers and passed on

to consumers without any economic benefit to the consumer.

On behalf of Shell, I look forward to answering your questions

today. Thank you, Mr. Chairman.

[The prepared statement of Mr. Cooley follows:]

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Mr. KUCINICH. I thank the gentleman.

We are going to go into questions right now. I am going to begin

the first round with 5 minutes, and then we will go to my colleagues, and then we will come back for a second round and a third

round, if necessary.

I would like to begin with Mr. Cooley. When new pumps are ordered, who determines which pumps with what specifications may

be bought? You, the oil company, or the dealer?

Mr. COOLEY. Our requirement is that the dispensers, we meet all

legal requirements, so we do not specify specific manufacturers for

dispensers. We do specify that they meet the legal requirements by

different States and Federal authorities.

Mr. KUCINICH. If pumps equipped with temperature compensation were to be installed at your branded stations, wouldn’t you

have to agree to that?

Mr. COOLEY. If they were installed in any stations in the United

States today, we do not believe that the State weights and measures people would allow them to utilize temperature correction at

this time. All the State weights and measures are still based on a

volumetric gallon.

Mr. KUCINICH. I understand that, but if the pumps equipped

with temperature compensation were to be installed at your branded stations, wouldn’t you have to agree to that?

Mr. COOLEY. If they were not activated I would agree with that.

That is correct.

Mr. KUCINICH. And wouldn’t you probably specify which pump

and which pump maker would get the business? Wouldn’t that be

up to Shell to determine?

Mr. COOLEY. No. We would not determine which pump manufacturer gets the business. I think, as the gentleman from Gilbarco

testified last time, the majority of their purchases or sales are to

third-party independents, not to the major oil companies.

Mr. KUCINICH. Now, at our last hearing on this hot fuels issue

we heard from the president of a manufacturer of pumps and automatic temperature compensation equipment. He said that after his

company applied for and received certification to sell his equipment

from the State of California, there was no demand from the industry for the automatic temperature compensation device. So, just so

that I am clear, would the decision to purchase ATC have been effectively made by or required your approval?

Mr. COOLEY. No, sir.

Mr. KUCINICH. I am going to ask Mr. Soraci, would that decision

have been effectively made by or required your approval?

Mr. SORACI. The purchase decision is the independent retailers’

decision.

Mr. KUCINICH. And was your company in any way involved,

ExxonMobil in any way involved in that kind of decisionmaking?

Mr. SORACI. No, sir.

Mr. KUCINICH. Now, what about the case of stations which are

company owned and operated? I will ask the question again: would

the decision to purchase ATC have been effectively made by or required your approval?

Mr. SORACI. Yes, it would. For company-owned and operated locations it would be.

43

Mr. KUCINICH. Mr. Cooley.

Mr. COOLEY. No. It would have required my concurrence, which

is very similar to approval under our authorities.

Mr. KUCINICH. So is your answer yes or no?

Mr. COOLEY. No.

Mr. KUCINICH. So you say, Mr. Soraci, yes; and Mr. Cooley says

no, it wouldn’t apply.

Mr. COOLEY. Right.

Mr. KUCINICH. Whose approval would it have required?

Mr. COOLEY. We have a global engineering group, network group,

and that is the group that technically has the responsibility for developing the order standards and would approve that or disapprove

it. They would ask for my concurrence.

Mr. KUCINICH. Let me be more specific. I don’t mean you, personally. I mean your company.

Mr. COOLEY. Yes. I am sorry. You said you.

Mr. KUCINICH. Right. We will accept in your capacity, you are

representing Shell, so would it have required Shell’s approval?

Mr. COOLEY. Yes.

Mr. KUCINICH. OK. So now we are in concurrence here. OK. So,

Mr. Cooley, the reason that Shell’s branded stations in California

don’t have ATC is because Shell decided they shouldn’t have them?

Mr. COOLEY. I don’t know how many dispensers have been installed in southern California since the period which you reference

which a State official said they could be allowed. We would not

order that equipment unless the State weights and measures folks

said that we could utilize that equipment to dispense gasoline.

They have not said that is allowable.

Mr. KUCINICH. But as far as a policy decision with respect to

Shell, the reason your branded stations in California do not have

ATC, you are saying that is because of the State, or is that because

of Shell?

Mr. COOLEY. The State weights and measures officials have not

changed their certification to allow temperature corrected devices

on dispensers as a measure that you use. It is a cubic inch, 231

cubic inch, measure which they use.

Mr. KUCINICH. I am going to come back to Mr. Cooley and Mr.

Soraci on the same question, but my 5 minutes have elapsed, and

so, in keeping with the fairness that we have in this committee, I

am now going to go to Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman. Hopefully, as we go back

and forth, we will pick up each other’s questions and answers and

get a fuller understanding.

Staying on the core subject of 231 cubic inches—which always reminds me of an engine, but I guess in this case we are only talking

about fuel, although if we could change it to a 289 it would be popular in Ford families—if we take the temperature from 60 degrees

to 80 degrees we go up to, what, 232, 233 cubic inches?

Mr. COOLEY. Roughly.

Mr. ISSA. OK. So less than 1 percent from a typical ground fuel

to a truly hot fuel. We are going to go up less than 1 percent.

Well, let me just understand something here today, because I

want to put it in perspective for the record. If temperature compensation achieves one thing, it achieves fair amounts of BTUs

44

being delivered at different temperatures. It is not about how much

fuel you get; it is about how much benefit you get. So if we compensate as the temperature rises, then is there a device today that

either one of you are aware of—and I am assuming in your capacities you would at least be aware of them—that would allow us to

compensate when we go from 5 percent ethanol to 10 percent ethanol, depending upon summer and winter? Obviously, that is a drop

of far greater than 1 percent of effective BTUs for the purpose of

moving vehicles. Is there any device that can make those kinds of

differences?

Mr. COOLEY. I am not aware of one.

Mr. SORACI. I am not aware of any, sir.

Mr. ISSA. Now, you both do business in California. We have,

what, 28 boutique fuel mixtures?

Mr. COOLEY. A large number.

Mr. ISSA. OK. Well, we will just use 28 as a number that is

thrown around. So those 28 different fuel mixtures, depending

upon time of year, temperature, depending upon the micro-climate

you are in, the Los Angeles Basin where the full committee chairman is, or San Diego, each of those has a different effective value

of BTUs, doesn’t it, as you mix fuels, they don’t have the same

amount of fuel capability if you are talking about how many miles

per gallon you would get over 100,000 miles?

Mr. COOLEY. Yes.

Mr. ISSA. And we don’t have any way of compensating. Do you

deliver to your retailers when you change mixtures? Do you deliver

any kind of an analysis that this fuel isn’t as good, or it is better?

Mr. COOLEY. No, sir. All our Shell quality fuels are good fuels,

but we do not differentiate them.

Mr. ISSA. And I appreciate the fact that you don’t determine the

mixture except as to meet compliance, and that those boutique

fuels are directly as a result of certain compliance issues.

So let me just put this in perspective. You have less than 1 percent difference between 60 degrees and 80 degrees, but we have far

more than 1 percent difference based on government-mandated

changes to the fuels just in driving distance, just in 100 miles of

southern California, and there is no effective way to determine

that, so the consumer may be getting a 2, 3, 4, 5—Lord knows,

with E85 he is getting a 30 percent cut in the effective BTUs, and

we don’t have any warning, do we, in California?

Mr. COOLEY. Not that I am aware of.

Mr. ISSA. Mr. Chairman, I am hoping that we can expand this.

If the goal is to make sure that the consumer gets the fair share,

we can look. Maybe we can have that gentleman back that developed the device and he can develop a device that would calculate

the BTUs, so that when I buy E85, which I think is great, it is a

clean-burning, renewable fuel, but I only get 30 percent less in

miles per gallon off of E85, then I understand that I am not getting

231 cubic inch equivalent of gasoline. Is that right?

Mr. COOLEY. Yes, sir.

Mr. ISSA. OK. Now let me go through one more analysis, because

I think this is important. I have a dollar bill here. I know it is not

much any more, but we can still use it. It has a breakup, and it

really goes—it was designed, really, to talk about the earnings of

45

retailer. I know these guys want this really badly. Hopefully, you

have it. It shows 19 percent is taxes.

I am just fixating on the part the State and the Federal Government gets. If you move your fuel average temperature, or your temperature for base compensation, if you moved it from 60 degrees to

68 degrees or 70 degrees or 80 degrees and said this is it, and the

consumer got 80 degrees, 233 cubic inches, and then we go the

other direction so that you give them 1 percent extra, since the

Federal Government taxes based on a gallon of gasoline, if you

gave everyone an extra two cubic inches, even if you charged them

more, wouldn’t the revenue to the Federal Government drop off

pretty precipitously by that ratio, that 1 percent? In other words,

the billions of dollars that we take in in highway taxes would, by

definition, drop off if you recalibrated to a higher temperature?

Isn’t that roughly right, because we only collect on gallons?

Mr. COOLEY. If you sell fewer larger gallons, on a gallon tax you

would collect less revenue.

Mr. ISSA. Perhaps we can score that but, Mr. Chairman, my time

has expired.

Mr. KUCINICH. We can pursue that later. I thank the gentleman.

The Chair recognizes Mr. Bilbray.

Mr. BILBRAY. Yes. I would just like to correct the gentleman from

California that ethanol may be beneficial for tailpipe emissions, but

it is a gross polluter from evaporative emissions because of its

vapor pressure problems. Since 1992, our Resources Board in the

State of California has formally requested a waiver from the mandate of ethanol use for environmental reasons and haven’t been

able to get as much response on that. We have been able to lower

our percentage. But I just think we need to make it clear that

when we talk about ethanol’s environmental benefits, it is a tailpipe emission reduction but a gross polluter from evaporative emission problems.

My question is this: we are talking about the possibility of a 1

percent reduction to the consumer. According to the Harvard study

that came out a few years ago, ethanol had a carbon chain problem

to the fact that you need almost—is it a gallon and a half of ethanol to every gallon to get the same mileage?

Mr. COOLEY. It is 30 percent less energy content, and E85

would——

Mr. BILBRAY. So 70, 75 percent?

Mr. COOLEY. Right.

Mr. BILBRAY. Mr. Chairman, in California, with the ethanol mandate, the consumers are required to have to basically pay what is

comparable to $6 for a comparable amount of ethanol to match

what they would rather could have gotten with gasoline. So I think

we have to say quite sincerely, if we are looking at consumer protection here, this is a huge hit, especially when you talk about the

wholesale price of gasoline in California is about $2.20, when the

comparable ethanol price in California would be about $6. That is

something that no one has talked about. If we want to talk about

protecting the consumer, we need to reconsider a terrible mistake

we have made and be willing to address this issue.

Ethanol is costing the consumers around this country through

the nose. They are getting ripped off by it. It is not helping the enVerDate 11-MAY-2000 14:08 Jun 01, 2009 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 U:\DOCS\49623.TXT KATIE PsN: KATIE
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vironment. And when they talk about going to green fuels, it is interesting that the U.S. Government taxes imported ethanol at

$0.54 a gallon to be imported. Why? Because we don’t want imported ethanol? If it is such a great fuel, why don’t we import that

rather than gasoline?

The fact is, where the consumer is being shafted is by a mandate

by the Federal Government that says you, the oil company, cannot

sell gasoline in many parts of this country without putting 10 percent of a boutique fuel that causes evaporative emissions, causes

operational problems, and rips the consumer off, and then we wonder why the price of gasoline is up.

I would just say: how many cities and how many regions are we

talking about right now aren’t using ethanol in their gasoline?

Mr. ISSA. It is a national mandate.

Mr. BILBRAY. It is a national mandate, right? Can you legally sell

gasoline in California or in Arizona without ethanol?

Mr. SORACI. To my knowledge not in those States, but there are

States or areas where there is not an ethanol mandate.

Mr. BILBRAY. I think the air pollution regs were changed recently

to where you got into it.

Here is the sad part about it: nobody forces that gasoline be in

the fuel, but the Federal Government is mandating that ethanol be

in the fuel.

For us to be looking at a 1 percent reduction, Mr. Chairman,

when those kind of numbers have grown, so I would ask you to join

with us in saying, when it comes to this kind of mandate, it has

been a terrible mistake that not only may be hurting the environment, according to the Air Resources Board in California and the

EPA, but is ripping off the consumer for a certain, small special interest group. I don’t think we want to change a monopoly by one

industry with a monopoly from another industry, and I don’t think

we want to be able to justify the fact that we are looking at reduction to the consumer of 1 percent when we are talking about maybe

we ought to be reducing some of the cost by mega-times over that

by just changing our mandates and our regs.

But I appreciate the information, gentlemen.

Mr. ISSA. Would the gentleman yield?

Mr. BILBRAY. I would yield to the gentleman from California.

Mr. ISSA. You know, the gentleman kept saying 1 percent, but to

get 1 percent isn’t that only if the fuel is incredibly hot? If the average fuel is 67 degrees, which is the Chair’s assertion, and I very

much take him at his word, what reduction would that be? In other

words, how much would fuel expand? You may have to get it back

for the record. How much would fuel expand between 60 and 67 degrees, Mr. Cooley?

Mr. KUCINICH. The gentleman’s time has expired, but we will

permit the witness to answer the question.

Mr. COOLEY. To me this is the big misconception. People need to

be clear. While temperature adjustment will recalibrate the size of

a gallon, the consumer who pulls into a service station the day

after temperature adjustment is enacted on those pumps, their gas

tank is absolutely no larger. The amount of fuel that goes in that

car is absolutely the same. It is the same temperature as it was

the day before. They get no more or no less BTUs. They get no

47

more, no less mileage. They get exactly what they got the day before, except the unit of measure is redefined into a smaller or a

larger gallon. That is, I think, the most misunderstood part. People

actually think they are getting more gallons; it is just the unit of

measure that changes.

Mr. KUCINICH. I thank the gentleman. Of course, the purpose of

these committee hearings has been to determine whether or not the

consumers are actually paying for gasoline they are not getting.

Now, what I would like to do is to begin my questions by asking

both of the gentlemen here to basically acknowledge that you have

both stated that, even if you wanted to use temperature compensation at retail, in many cases State law wouldn’t let you. Did you

both say that? Did you say that? is that a fair characterization?

Mr. COOLEY. What I stated was State weights and measures regulations have not adopted temperature correction.

Mr. SORACI. And our understanding is that across the United

States a gallon is still defined as 231 cubic inches by law.

Mr. KUCINICH. Well, at the request of this subcommittee, the National Institute of Standards and Technology conducted a survey of

the 50 States and the District of Columbia. The National Institute

of Standards and Technology contacted the lead officials in the

States responsible for weights and measures. This is what the National Institute found: by and large, most States permit temperature compensation at both the wholesale and the retail level. In

fact, NIST could find that automatic temperature compensation is

only expressly prohibited in nine States for retail.

So isn’t it correct to state that automatic temperature compensation could be used right now in retail sales in up to 42 States if

you only chose to utilize it? I mean, there is no law against it. Mr.

Soraci.

Mr. SORACI. Our understanding, Mr. Chairman, is that there

aren’t any States in the United States that define a gallon of gas

as something other than 231 cubic inches, so it would be unlawful

for us to sell a gallon on a temperature compensated basis.

Mr. KUCINICH. So are you disputing the findings of the National

Institute of Standards and Technology?

Mr. SORACI. Our understanding is different. Yes, sir.

Mr. KUCINICH. And Mr. Cooley.

Mr. COOLEY. We have the same. State weights and measures

still, in all but Hawaii, when they come to a station to check the

independent retailer’s dispensers, they measure 231 cubic inches as

a standard gallon.

Mr. KUCINICH. I just wanted it to be made a matter of record

that, based on our subcommittee request to the National Institute

of Standards and Technology [NIST] that NIST contacted the lead

officials in the States who are responsible for weights and measures. These are the people that your colleagues deal with on a regular basis. We are hearing something a little bit different at that

State level than what we are being told here, so we need to reconcile that.

Now, our committee has heard from dealers that the cost of installing automatic temperature compensation equipment or pumps

built with ATC will be costly to them, but isn’t it true—we will

start with Mr. Soraci—isn’t it true that if you, the refiner, agreed

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to pay for it, we have the mechanism and the precedent for doing

so through your development funds, image funds, or other supplementary means of financing improvements at gas stations that you

may so desire?

Mr. SORACI. The agreements that we have with our distributors

and our dealers are arm’s length agreements only, contracts. There

are certain obligations that the independent retailer has, and there

are obligations that we have.

The assets in these cases are owned by independent retailers,

and the way the relationship works, it is their responsibility to

maintain those assets.

Mr. KUCINICH. I understand in your testimony, ‘‘The investment

cost of implementing ATC at retail would primarily fall upon independent motor fuel retailers.’’ You just stated it is a contract issue.

Now, I would like to ask you then, I understand that it is fairly

routine that the refiner would establish a development fund or

image fund which would pay for certain alterations and upkeep of

a retail gas station; isn’t that right?

Mr. SORACI. We do have funds for certain items, and it is primarily around branding of the facility to carry the Exxon and

Mobil brands.

Mr. KUCINICH. And what are the kinds of things that a development or image fund would pay for?

Mr. SORACI. Signage, branding-related activities, and sometimes

different general investment costs if it is a new location that is

being built or location that is being rebuilt.

Mr. KUCINICH. OK. Then who decides what the development fund

or image fund may pay for, you or the dealer?

Mr. SORACI. It is the dealer. We would typically agree on a fund,

a level of money to be able to secure that business as a supplier,

and it would ultimately be their decision outside of the signage and

the branding piece. As I understand that would be their decision.

Mr. KUCINICH. And who determines what exactly are the specifications of the materials and equipment that can be bought with

the proceeds of the development fund, you or the dealer?

Mr. SORACI. Again, if it is related to our brand, it would be

ExxonMobil. If it the equipment at the facility, it would be the

independent retailer.

Mr. KUCINICH. Mr. Cooley, I would like to go back to you with

this question. Isn’t it true that if you, the refiner, agreed to pay for

automatic temperature compensation equipment, or pumps built

with ATC, that you have the mechanism and precedent for doing

so through your development funds, image funds, or other supplementary means of financing improvements at gas stations as you

may so desire?

Mr. COOLEY. We similarly have a building incentive fund, which

is only utilized each year by a few hundred at the most out of our

14,000 locations that are out there. We also work through wholesalers, so we make this fund available to wholesalers in order to

attract new Shell business, but it is not specified down to all the

details of what it might be spent for. It would typically be a wholesaler who would be asking us to help them acquire new business.

How they form a relationship then with the retailer is up to them.

They could or could not elect to utilize that for equipment. It is preVerDate 11-MAY-2000 14:08 Jun 01, 2009 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 U:\DOCS\49623.TXT KATIE PsN: KATIE
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dominantly around branding such as signage. Dispensers are not

specifically included or excluded for how they spend the money.

Mr. KUCINICH. OK. My time has expired. I have actually gone a

minute over, so I would give Mr. Issa 6 minutes.

We are going to have a third round.

Thank you.

Mr. ISSA. Thank you, Mr. Chairman. I am going to followup on

this.

First of all, I would like to ask unanimous consent that Robert

Samuelson’s column from a couple of weeks ago in the Washington

Post be included in the record.

Mr. KUCINICH. Without objection.

Mr. ISSA. Now, Samuelson is an economist. I know the two of you

probably are not economists, but I am going to push the window

for a second on big financial calculations.

If you spent $1 billion of your corporate money changing over all

the pumps and you didn’t pass it on in higher fuel prices, then the

only two places I can understand it comes from is you wouldn’t do

research and development somewhere else, you wouldn’t do advertising, you wouldn’t buy new signs, you wouldn’t pay for new buildings, or the stockholders, which include union pensions and other

retirement funds and so on, would simply get less money. Your dividend would fall. One of those two things—you would either have

to spend less somewhere else, including research, or you would

have to pay a lower dividend and, as we always like to say, the

widows and orphans would be the losers.

Is that basically the only two places, if you gave away that

money, that it could go?

Mr. COOLEY. Some combination of those factors.

Mr. ISSA. So I think what we have to ask is not could somebody

pay for this. Somebody could. But if it is not passed on in higher

prices, then we have to assume that, in fact, a potentially frivolous

expense could lead—because I am calling it frivolous. I am calling

it frivolous because we are not going to do the compensation for all

the other things that might have an effect. That expense, both initial and ongoing, would be basically passed on to the consumer in

all likelihood. I don’t expect you to tell your union pension funds

that you are going to cut the dividend this year. I don’t think that

is what they want. They certainly plan on retiring like the rest of

us.

Mr. Chairman, I think that we should followup with the NIST

and we should go through another round of questioning there and

with local municipalities, but my colleague to my right, Mr.

Bilbray, has good experience with watching them pump three gallons of fuel out into a fixed container. If we did temperature compensation—and I am looking at it from the county level, because

the county would have to certify this—they couldn’t just pump

three gallons into a container and look at the line; you now would

have to read the temperature of the fuel and calculate it. In a

sense, you would need your own, independent little computer,

which I suspect the automatic machine calibrator would sell to the

counties for a lot of money; you, in fact, would need to have a very

sophisticated device to check the device which we are asking to be

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sophisticated. Isn’t that one of the considerations your companies

have?

Mr. COOLEY. It is an ongoing more complex procedure that would

cost more money for the inspectors in the counties or the States.

Mr. ISSA. And if we are going to spend that much money, would

you say that we ought to figure out what the offset is for ethanol

and everything else? In other words, if we are going to go to a BTU

value based and we are going to have an expensive computer to figure out whether you are, as a barkeeper might say, watering down

your liquor—because ethanol and other additives at times could be

watering down your gasoline because of value—then wouldn’t we

need to have that? Wouldn’t we need to have sort of the burn test,

the way you figure calories where you actually burn some and you

find out the value? That would be the only fair way to find out

whether a fuel at one station, and across the corner selling for the

same price, who was giving a better value? Is that pretty well

agreeable? Is there any research you know of that would lead to

that capability?

Mr. COOLEY. I hate to say it. I think it is actually more complex,

because even if you had that, you would have to have the ability

to look at the price and factor it in and understand which is the

best value. So you couldn’t just look at the sign price and look at

an energy content; you would have to take the combination of the

two to understand what the best value is.

Mr. ISSA. So when Senator Schumer suggests that if we break up

your companies into lots of little companies that would benefit us,

is that going to go anywhere toward us developing that very complex BTU capability and understanding exactly how much value we

get in the fuel by the milliliter we receive?

Mr. COOLEY. I don’t believe so.

Mr. ISSA. OK. I just want to understand, because I remember at

the start of this Congress the first and most important hearing

that was held by this committee, we started off on global warming,

and it is amazing to me that we have completely left global warming and we are now trying to make sure that people get another

tenth of a gallon into their tank at whatever the cost is, and we

seem to have lost track of a lot of other issues related to this.

I guess we haven’t given you much time to make your statements

fully, but let me just ask——

Mr. KUCINICH. Excuse me. Are we not providing them——

Mr. ISSA. No, sorry, Mr. Chairman. What I wanted to say was:

are there areas that we should be getting out here, because from

what I can tell today we are arguing over 1 percent and we are not

dealing with any of the others. Are there issues we are not talking

about altogether, like what would happen if ANWR and two million

barrels of oil a day were coming down? Would that reduce the likely cost of fuel in America by 1 percent or more? Just a guess. I

mean, I know you are not experts on that, but would two million

barrels a day more coming into America be favorable in knocking

that $74 a barrel down?

Mr. COOLEY. Well, I am here to talk about ATC. I will tell you

on supply and demand and my understanding of economics, more

supply and/or less demand would absolutely do that.

51

Mr. SORACI. And, again, on the issue of ATC, I think there are

a lot of complexities in that area and a lot more has to be looked

at, and that is why we are suggesting that we look at it in a comprehensive way to make sure that we make the right decision on

ATC.

Mr. ISSA. Thank you both. If we have a third round, I will be

back for more clarification.

Thank you, Mr. Chairman.

Mr. KUCINICH. We will. I thank the gentleman.

Mr. Bilbray.

Mr. BILBRAY. Thank you.

Mr. Issa, I am sure that when the chairman joins with us in

eliminating the rip-off of the consumers by the Federal mandate to

burn alcohol in our gasoline we will have more than enough savings to be able to investigate all kinds of devices.

For the record, I want to make it clear that I didn’t sit and watch

somebody do this. As chairman of the county, I went out and

worked 1 day a month in the different departments, small county

of three million people. There were a lot of different departments,

but one of them was to go out to every gas station and pour the

three gallons and make sure that it is at least more than three gallons.

The concern there is that, as a supervising agency, if we have

now I show up in February and I pour the three gallons, and because of the temperature drop—it gets cold in San Diego. It actually gets down in the 50’s sometimes. [Laughter.]

Mr. KUCINICH. Back in Cleveland they will be really mourning

that news.

Mr. BILBRAY. Yes. But the fact is, during the February period it

might show below, and that would trigger our enforcement on the

retailer. So then I am trying to figure out, do we now have to have

each county—and we did do it State by State. Actually, the counties do this directly. How do we regulate a measurement device and

how do we tool up for that?

I am sure with our local government background you recognize

that the oversight by the local agencies is something we have to

figure into this in how we do it, and right now we are not tooled

up for this.

I look forward to talking to my Department of Weights and

Measurements to specifically see that, because right now it is a

simple system based on averaging three gallons. As long as you

make sure the consumer gets more than the gallon on that day of

whatever the temperature is, it qualifies. We can measure that. We

start getting into a hard formula, my question is: is there a portable device that we could purchase, that we could acquire for local

government to be able to do this monitoring?

Mr. COOLEY. I don’t know if there is a portable device today. I

am sure one could be put together. As previously stated, it would

be a factor of changing the calculations, understanding the temperature of the fuel that was being dispensed, to then make the

calculation of what that would represent in cubic inches.

Mr. BILBRAY. So it looks like we are going to have to have a

much more sensitive measurement, a larger volume, and then try

to then have a fixed financial management that probably could be

52

fed into a hand-held computer that would calculate what measurement equates to what at a certain temperature, because you would

have that all Federal in.

In all fairness to the men and women I work with, they might

be very good at what they are doing, but I am not so sure that

higher calculus is one of their strong points in school. I know it

definitely wasn’t for myself.

One of the things, Mr. Chairman, in this is we see a problem or

a perceived problem, we perceive that there may be an answer, but

the practical execution of the answer is one of the places that

Washington falls down flat on its face for so long. I mean, where

do we go? Thirty years on war on poverty, and after billions of dollars we have more poverty than we had when we started out. I

want to make sure that the end result reflects the stated goal as

we start reviewing this process.

Gentlemen, I appreciate your time and your dollar.

Mr. KUCINICH. If I may respond to my good friend, Mr. Bilbray,

I am not a mathematician, but the kind of calculus that I am familiar with is the kind that produces pain if consumers are paying for

gasoline they are not getting, which is why we called this hearing.

I also want to say that, with respect to the gentleman, both of

you have spoken of the need for a comprehensive study regarding

the use of ATC at retail. Has ExxonMobil ever done such a study

of what that would cost?

Mr. SORACI. Not that I am aware of, Mr. Chairman. But, as I

mentioned earlier, from an ExxonMobil perspective, less than 2

percent of our stores are company owned. Historically, while we felt

as though the costs associated with this would be significant, it is

not something that would impact us.

Mr. KUCINICH. But you are saying the cost would be significant,

but you have never really done a study to determine what the costs

would have been? ExxonMobil has no such studies?

Mr. SORACI. We have not done a study. What I am referring to is the other testimony that we have heard that is $8,000 to $12,000

per store, and we think for an independent retailer that is fairly

significant.

Mr. KUCINICH. Mr. Cooley, has Shell ever done a study of the

cost of ATC at either the wholesale or the retail level?

Mr. COOLEY. Not that I am aware of.

Mr. KUCINICH. Have you ever done a study of the impact of ATC

in Canada with respect to your profits or your taxes?

Mr. COOLEY. We have in the last 2 weeks, preparing for this

hearing, looked at what we believe the impacts were for Shell Canada and what we believe they would be here in the United States,

which led us to the conclusions that there is no consumer benefit

that would come out of this.

Mr. KUCINICH. And Mr. Soraci, have you ever done a study of the

impact of ATC on your profits or losses in Canada?

Mr. SORACI. No, sir, not that I am aware of.

Mr. KUCINICH. OK. I would like to have my next question be

about Federal excise tax liability. We will begin with Mr. Cooley.

Now, as I understand it, you stated in your testimony Shell’s

choices of where they use temperature compensation, and you

chose to use temperature compensation in the south but not the

53

north. So I want to ask about this Federal tax liability, excise tax

liability.

As I understand it, this tax is assessed at the wholesale level and

paid by the position holder at the terminal rack; namely, the refiner. The question is: would your tax liability be greater or lesser

if the gasoline’s volume were determined in gross gallons that are

not temperature adjusted versus net gallons, assuming the actual

temperature of the gasoline exceeded 60 degrees?

Mr. COOLEY. You have a long question there, so could you just

repeat the question one time?

Mr. KUCINICH. About Federal excise tax liability, tax assessed at

the wholesale level. It is paid by the position holder at the terminal

rack. That is the refiner. Would Shell’s tax liability be greater or

lesser if the gasoline’s volume were determined gross gallons that

are not temperature adjusted versus net gallons, assuming the actual temperature of the gasoline has exceeded 60 degrees?

Let me help you a little bit more. You have excise tax assessed

on a per gallon basis, and gasoline warmer than 60 degrees occupies a larger volume than the same weight of gasoline at a lower

temperature, or adjusted to be as if it was at a lower temperature.

So let’s say the actual temperature of the gasoline was 90 degrees

Fahrenheit. Would a volume of gasoline at 90 degrees be about 2

percent greater than in a temperature adjusted volume? And

wouldn’t that have an affect on your tax liability?

Mr. COOLEY. If you were in a rack situation where the volume

was sold on gross, and if it were in a warmer climate where you

sold warmer gasoline on gross, you would have more gallons.

Mr. KUCINICH. So there is a potential of decreasing your Federal

tax liability. I just wonder if there was ever a reason you would

offer choosing one method of measurement over another.

Mr. COOLEY. Again, Mr. Kucinich, I am not a tax expert, but

what I would say is I believe we comply with all State and Federal

laws as it relates to taxes on gasoline. A significant number of

States mandate how we sell gasoline on the tax bases in which we

sell it. I believe it is around half of the States absolutely mandate

it and in the other States we actually give our wholesalers the

choice of how they purchase the gasoline.

Mr. KUCINICH. Now, it is our understanding that the automatic

temperature compensation at the retail level enjoys wide use in

Canada. This is from both gentlemen. According to Measurement

Canada—that is the government entity that is equivalent to our

National Institute of Standards and Technology—the rate of utilization of automatic temperature compensation is about 90 percent.

To ExxonMobil, according to your affiliate in Canada, ExxonMobil

sells its Esso brand gasoline from 1,960 stations. Now, how many

of them use ATC?

Mr. SORACI. I believe all of them.

Mr. KUCINICH. And then, to Shell, according to your affiliate in

Canada, you have 1,681 stations in Canada. How many of them use

ATC?

Mr. COOLEY. The large majority. I am going to say in excess of

90 percent.

54

Mr. KUCINICH. Do you know the names of the manufacturers of

your pumps in Canada which are mostly outfitted with automatic

temperature compensation?

Mr. COOLEY. I do not recall the name off the top of my head.

Mr. KUCINICH. Mr. Soraci.

Mr. SORACI. I believe Krause was the distributor of the equipment in the early 1990’s.

Mr. KUCINICH. Does Gilbarco Veeder-Root ring a bell?

Mr. COOLEY. I would expect they are selling that equipment

there.

Mr. KUCINICH. And do you have any reason to believe that they

are anything but accurate, Mr. Cooley, the ATC? Do you believe

they are accurate?

Mr. COOLEY. As far as I know.

Mr. KUCINICH. Mr. Soraci.

Mr. SORACI. That is my understanding, as well.

Mr. KUCINICH. And those manufacturers make a product that

temperature compensates accurately; is that correct?

Mr. COOLEY. I believe that is correct.

Mr. KUCINICH. Mr. Soraci.

Mr. SORACI. That is my understanding. Yes.

Mr. KUCINICH. And they voluntarily purchased the equipment

which might have cost a little bit more than pumps without automatic temperature compensation; is that correct, Mr. Cooley?

Mr. COOLEY. Yes, sir.

Mr. KUCINICH. Mr. Soraci? I mean, the Canadian government

didn’t force you to do that? You chose to do it; is that correct, Mr.

Soraci?

Mr. SORACI. Imperial Oil in Canada, yes.

Mr. COOLEY. And Shell Canada.

Mr. KUCINICH. All right. So you have a long history with the

makers of automatic temperature compensation in Canada, and

then in January 2007, the State of California certified a Gilbarco

ATC device for sale and use in California, but ExxonMobil and

Shell did not purchase it. Why was that, Mr. Soraci?

Mr. SORACI. Well, while the State, as we understand it, certified

the equipment, the laws and regulations have not yet changed to

define a gallon of gas as anything other than 231 cubic inches. So

to the point I was making earlier, it is our understanding it would

still be unlawful to sell a gallon of gas on a temperature compensated basis.

To the gentleman’s point earlier, if the laws were to change,

quite a bit would have to happen to be able to actually implement

that change through different inspection protocols, calibration protocols, and all that would need to be done to ensure that it is done

correctly.

Mr. KUCINICH. Staff has just informed me that the State director

in California who enforces this matter has a difference of opinion

with what you just testified to. Do you then acknowledge that you

may be at a variance of opinion with the people in California?

Mr. SORACI. I acknowledge that we have a difference of opinion.

Our understanding——

Mr. KUCINICH. OK. I just wanted to clarify that for the record.

Mr. SORACI. Yes, sir.

55

Mr. KUCINICH. Now, did you purchase or specify the purchase of

pumps by your distributors and dealers without ATC in calendar

year 2007?

Mr. SORACI. I am sorry, sir?

Mr. KUCINICH. Did you purchase or specify the purchase of

pumps by your distributors and dealers without ATC in calendar

year 2007?

Mr. SORACI. No.

Mr. KUCINICH. I have exceeded my time here. We are going to

have one more round, but I am now going to go to Mr. Bilbray for

another 5 minutes of questions, and then we will go to Ms. Watson

from California.

Mr. BILBRAY. Chairman, the gentlelady hasn’t had a round, so I

would yield at this time.

Mr. KUCINICH. The gentleman is correct, and I thank the gentleman for yielding that time, or not yielding the time, but for acknowledging that. With Mr. Bilbray’s indulgence, we will go to Ms.

Watson, the distinguished gentlelady from California.

You may proceed.

Ms. WATSON. Thank you, Mr. Bilbray, for allowing me to go before you. I appreciate that. And thank you, Mr. Chairman, for holding this hearing that will provide, I hope, very essential information, because I find it alarming that, due to gasoline’s hotter temperatures, consumer losses in one State, such as my home State of

California, can be $30 to $50 a car for gasoline. In California, the

average temperature of gas is 75 degrees, 15 degrees about the industry standard. A 25-gallon fill-up at 75 degrees of gasoline

equates to a loss of nearly one quart. The inaccuracy equals about

$0.03 per gallon. However, those pennies add up.

As you know, California consumes most gasoline in the Nation,

and we judge our success by the number of cars we have. So everyone has one, two, three. Our Governor has six Hummers, Mr.

Chairman. [Laughter.]

The cost of consumers for not adjusting gasoline volumes for temperature is more than $500 million per year. Just recently Canada

moved quickly to adopt automated temperature compensation at

the retail pump, but in the United States, where temperatures are

often considerably warmer than the in standard of 60 degrees, the

auto industry has resisted equipping gas stations with temperature

compensating technology.

I would like to read several relevant quotes and show you a slide

and ask that you tell the committee, both of you, if you agree with

them or if you disagree with them. They are up on either side.

‘‘Compensating for temperature in the sale of petroleum products

ensures that the energy content of a gallon of gas is the same, regardless.’’

Now, would you agree or disagree with that statement, Mr.

Soraci, and then Mr. Cooley?

Mr. SORACI. Representative Watson, I would not agree with that

statement because no two gallons of gas have the same energy content. There are a number of factors that influence energy content,

and while temperature could be one it is also items such as the

type of crude that was used to make it, the manufacturing process,

what the formulation is, whether there is ethanol in that product

56

or not. So there are not two gallons of gasoline that have the same

energy content.

Ms. WATSON. Mr. Cooley.

Mr. COOLEY. Ms. Watson, I would say the same thing. We would

not agree with that statement. There are a number of factors that

are much more significant than the temperature that impact the

energy content, particularly ethanol.

Ms. WATSON. We have an authority on this issue, and we have

written testimony, and we had it before our subcommittee on June

8, 2007, by Mr. Richard Suiter. I am going to go on to the next one.

‘‘Selling fuel adjusted to the volume at 15 degrees centigrade or

60 degrees fahrenheit through the distribution system is the most

equitable way fuel can be sold without the buyer or seller gaining

a competitive advantage.’’

Would you agree or disagree with that statement? Let’s start

with Mr. Cooley and back with Mr. Soraci.

Mr. COOLEY. I do not agree that is the most equitable way a fuel

could be sold. I would refer to the earlier questions regarding BTU

content as the value of a gallon. This takes none of that into consideration.

Ms. WATSON. Well, this information comes from the National

Conference on Weights and Measures, and would you say that they

are incorrect?

Mr. COOLEY. Yes, ma’am.

Mr. KUCINICH. What about you, Mr. Soraci?

Mr. SORACI. I have some trouble with the statement a little bit

because it is by itself, and maybe I have a bit of context. I think

what it may assume is that, whether you sell a gallon of gas on

the volumetric basis or you sell that volume of gas on a temperature-adjusted basis, the price is constant. We don’t believe that

would be the case.

Ms. WATSON. This is a direct quote from the National Conference

on Weights and Measures, the CWMA and LNR Committee. It was

their 2005 Interim Report of September 19, 2005. So you would

have a disagreement with the Weights and Measures Report?

Mr. SORACI. I would. Yes.

Mr. KUCINICH. The gentlelady’s time has expired. We will come

back for another round.

Ms. WATSON. I just wanted to ask this, Mr. Chairman. Could we

have these statements sent to the two witnesses and have them respond in writing and date it, please.

Mr. KUCINICH. The Chair will take the prerogative of asking the

witnesses, would you be willing to respond in writing to the

gentlelady’s question?

Ms. WATSON. Give your justification.

Mr. SORACI. Yes, ma’am.

Mr. COOLEY. Yes.

Ms. WATSON. And then I would like to send it to Weights and

Measures and Mr. Suiter.

Mr. KUCINICH. The committee thanks the gentlemen for their cooperation.

The Chair now recognizes Mr. Bilbray for his question. Thank

you.

[The information referred to follows:]

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58

59

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Mr. BILBRAY. Thank you, Mr. Chairman.

Mr. Chairman, I am just going to close my part of this hearing

by requesting that, as we address this issue and the possibility of

up to 1 percent of the consumers’ dollars being led astray, that we

do a hearing about the Government regulations that are impacting

the consumer by much larger percentages. Maybe this committee

will be able to bring some reason to Washington, DC, about the

fuel mandates and the way we are doing oversight with fuel mandates.

As pointed out before——

Mr. KUCINICH. Would the gentleman yield?

Mr. BILBRAY. Go ahead. I yield.

Mr. KUCINICH. I just want the gentleman to know that your

ranking member, Mr. Issa, and I are continuing to cooperate on all

topics that relate to hearings that are appropriate to this subcommittee, just as he and I worked together, even though I wasn’t

a ranking member, in talking about some of the hearing topics in

the past, so let’s work together to figure out how we can satisfy the

concerns that you just addressed. I thank you for bringing it up.

Thank you. I appreciate that.

Mr. BILBRAY. Mr. Chairman, I really got involved in the fuel

issue from the environmental point of view, working on the Air Resources Board. It was the central part of our California policy of

trying to fulfill the Federal mandates for clean air, and was frustrated with the fact that the same agency that was mandating that

we clean up our air was forcing us to use material that was contrary to the environmental clean air strategy.

Hopefully, with your help and your type of leadership, we will be

able to shine some light on this.

I would also like to point out that the ethanol mandate is not

only affecting the consumer at the gas station, but at the grocery

store. Just in last May, directly tied to the ethanol increase, seeing

that production of livestock is 40 percent tied to corn production,

you actually had in 1 month the increase in food prices by 5 percent. This hits the most needy, and it is all part of a strategy to

subsidize one small group with a huge windfall that is hurting the

environment, hurting the consumers who buy gasoline, and now

hurting the consumers who buy food.

With your leadership, I think that we will be brave enough to

say about this issue that, though we want to find a speck in the

oil company’s eye, that we need to find the log in the Federal Government’s eye that has created impacts far beyond what any private sector has done. Hopefully, we will be able to, as the saying

says, physician heal thyself—correct this mistake and move forward with it.

With that, Mr. Chairman, I appreciate it and yield back.

Mr. KUCINICH. Thank you.

The Chair recognizes the distinguished gentleman from Illinois,

Mr. Davis.

Mr. DAVIS OF ILLINOIS. I know, I will go to California.

Mr. KUCINICH. I know that. I have everybody else from California here.

Mr. ISSA. We are confident in time you will retire in California.

Mr. KUCINICH. Mr. Davis.

61

Mr. DAVIS OF ILLINOIS. I had better stay in Illinois.

Thank you very much, Mr. Chairman. Let me thank you for holding this hearing, as well as express my appreciation to your efforts,

your unrelentless efforts, I think, to try and give all of us a better

understanding of this issue and the problems which confront us.

I would like to engage both the gentlemen at the same time and

talk a little bit about the retail sales of branded gasoline. Retailers,

whether they are dealers or distributors, are long-term contracts

with refiners like yourselves. My staff and I have learned that

these contracts are multi-year, and it is not unusual for these contracts to be of four to five, even 10 years in duration. Is that correct?

Mr. COOLEY. Essentially, yes.

Mr. DAVIS OF ILLINOIS. These contracts do not specify the wholesale price of gasoline, though they do tie retailers and distributors

to buying exclusively from you; is that correct?

Mr. COOLEY. Not exactly.

Mr. DAVIS OF ILLINOIS. Could you explain the difference or the

variation there?

Mr. COOLEY. Sure. The contractual arrangement between us is

predominant with our wholesalers. That is the largest portion of

our network. About 85 percent of our network is wholesale supplied. We have a relationship with the wholesalers—some people

call them distributors. That is our relationship. And then they go

out and sign up, build, develop individual service stationsites, so

the individual locations or the vast majority of the network relationship is between the wholesaler we supply and the retailer, not

a contract with us.

Mr. DAVIS OF ILLINOIS. Mr. Soraci, is that——

Mr. SORACI. Congressman, ExxonMobil also has both distributors

and dealers as independent retailers, and our distributor class of

trade could own and operate their own facilities and also sell on to

a dealer of their own.

Mr. DAVIS OF ILLINOIS. Thank you. I also understand that you

would typically inform dealers of wholesale price changes, usually

by e-mail, and that price variations are not the result of negotiation; is that correct?

Mr. COOLEY. In the case of our wholesalers, the bulk of the network, they are notified of price changes via e-mail, and then they

have the responsibility to communicate that to their dealers. For

dealers, then we would have the responsibility to communicate

that, and that would be by electronic means, over the Web or email.

Mr. DAVIS OF ILLINOIS. I also understand that in some cases the

refiners are able to exert control over the retail price of gasoline,

and that you might tell the dealer what price he is to charge on

a daily basis. I understand that is not always the case, but that

it does happen sometimes. Can you tell us in what circumstances

you would tell the dealer what price to charge on the retail basis?

Mr. COOLEY. I am not aware of any circumstances where independent dealers are told what to price.

Mr. SORACI. Congressman, independent dealers make the pricing

decision on an independent basis. We do not direct them in that

area.

62

Mr. DAVIS OF ILLINOIS. What if they are company-owned and operated dealers?

Mr. SORACI. If they are our company-owned and operated stores,

they would not be dealers, they would be store managers and employees of the company, and we set the retail price at the companyowned and operated locations.

Mr. DAVIS OF ILLINOIS. And if there is a commission relationship,

does that still hold?

Mr. SORACI. In the case of ExxonMobil, we do not have a commission relationship with any of our independent retailers that I am

aware of.

Mr. DAVIS OF ILLINOIS. Mr. Cooley.

Mr. COOLEY. We don’t have a commission relationship. We do

have some locations where an independent contractor operates the

location and they sell our gasoline for us. In those cases, we set the

price of the gasoline and they receive a flat fee, a cents-per-gallon

type fee, for selling our gasoline.

Mr. DAVIS OF ILLINOIS. My time is about to run out, but let me

just ask, Mr. Chairman, one additional question. This is for either

one of you. Have you ever reimbursed a dealer for inventory loss

if a dealer is not making money?

Mr. COOLEY. That is an extremely broad question. Have we ever

reimbursed a dealer for inventory loss? I am aware in situations

where someone has had an equipment malfunction where we own

the equipment, that we may have made someone reimburse someone for that loss of product. I am not aware of circumstances other

than that.

Mr. SORACI. I am not aware of any circumstance where we have

reimbursed for inventory loss relating to an operator not making

money.

Mr. DAVIS OF ILLINOIS. Thank you, gentlemen, very much.

Mr. Chairman, I see that my time has ended, so thank you.

Mr. KUCINICH. The Chair recognizes Mr. Issa. Thank you.

Mr. ISSA. Thank you, Mr. Chairman. I appreciate the fact that

this is going so well and so quickly. We are getting a lot of information.

You know, I was looking over the National Conference of Weight

and Measures votes on automatic temperature compensation, and

as I read it, 16 States voiced their support for eventual compensation, but felt that further development of this issue was needed for

successful implementation. Is that your understanding, from what

you know of their meeting? And Ms. Watson I think has very aptly

asked for more detail in your answer, and I would like you to also

give us the detail, because I am interested in sort of over the long

horizon. We are talking, and I have made a little bit of fun of what

would you do about ethanol, what would you do about every mixture, how would you deal with our 28 boutique fuels, but I would

like, with your continued indulgence, Mr. Chairman, ask when you

are answering Ms. Watson’s question to include my concern of over

two decades do you see that we would be able to deliver fuel based

on BTU value potentially, and is that, in the long run, if we are

going to have lots of different fuels—and, by the way, let’s include

in our minds hydrogen, something that is talked about but is not

practical because, to be honest, taking natural gas and turning it

63

into hydrogen isn’t all that much of an improvement today because

of the source stock being so rare. But that basic concept that two

or three decades from now we are going to be delivering on a BTU

basis rather than on a gallon basis.

I would like your thoughts on that for the long run, the leap, because, as somebody who wants to have value, I am personally insulted every time I go to the grocery store and I am comparing two

products and there are two different sized packages and they are

both selling me based on pack rather than based on ounce or some

other common unit.

I realize that today, from the hearing today and from June 8th,

that we are dealing with an effective standard unit that we have

become comfortable with that works for us pretty well, that even

on a 90-degree fuel day a $3.50 gallon of gasoline is only $3.57 effectively, and we are dealing in pennies, and that may not be worth

the dollars to save the pennies that occur only on the hottest day

once in a while.

I do have two other things I want to followup on on this round.

One of them, quite frankly, is double tanking, double hull tanking

that you have underground now. Is it your understanding that

when we had the classical metal fuel tanks in the ground, that the

temperature probably was cooler for the fuel than when they are

sitting in the thermos bottle? I know you are not scientists, but

that is my understanding, that, in fact, we mandated that you put

two sets of hulls of fiberglass to make sure the fuel doesn’t leak

and that we don’t contaminate groundwater, but hasn’t that, in

fact, potentially warmed the fuel by putting it in the thermos instead of in a heat sink?

Mr. COOLEY. That is the influence it would have.

Mr. SORACI. That is my understanding, as well. Yes.

Mr. ISSA. OK. So I think for the chairman who found a six or

seven degree difference, it may very well be that we mandated that

difference without ever looking at a compensation.

And then last, but not least, Canada. Canada is kind of an interesting place for me that they went to this, and I just want to deal

with this. They were approached by the manufacturer, who had a

patent. It was an exclusive company that could provide these temperature compensation devices, and he said, Boy, this is a great

idea. And they went to the government, and the government said,

Yes, we want you to do that.

Now, let me just ask you a question. I know this is conjecture,

but Canada is a cold country, so isn’t it true that his product actually increased the government’s tax revenues as a result of that?

They were often below that temperature, and, in fact, the government benefits by having temperature compensation for their revenue. Isn’t that, in your understanding, part of why Canada thought

this wasn’t a bad idea, that they could get more tax revenue on

cold days?

Mr. COOLEY. I can’t say that was their idea, but, in fact, you

would sell more smaller gallons with that situation.

Mr. ISSA. You know, I would suspect that if it was colder in the

United States, that Members on this side of the dias would probably be much more enthused at the idea of more revenue without

having to do a tax increase. Mr. Chairman, I think we are known

64

for that on a bipartisan basis. Ronald Reagan called it revenue enhancement.

I just want to make it clear that, between the manufacturer

wanting something and the Canadian government getting a benefit, even if it was unintentional, that may have contributed to their

benefit.

In our case, we would get overall no such thing. You would gain

it in one part of the country and lose it in the other part of the

country; is that correct?

Mr. COOLEY. From a tax revenue perspective?

Mr. ISSA. From a tax revenue perspective.

Mr. COOLEY. I don’t know how the balance would work. You

would have to do a weighted average of all the sales and the different taxing authorities probably.

Mr. ISSA. My time has expired, and so I guess I will just make

a prediction: that once that study is done, if it increases revenue

to the Federal Government without a tax increase, you probably

will be asked to put these devices on. And I am quite sure that if

it doesn’t, we will lose interest.

Mr. Chairman, I yield back.

Mr. KUCINICH. Let me say to my good friend that when you were

out of the room I did raise the issue of decreasing the oil companies’ Federal tax liability as being one of the potential reasons why

they would choose one form of measurement over another. So it

could be that, on the one form of measurement, their tax exposure

is more favorable to them, as opposed to another form of measurement. That is one of the many issues that has come up here.

I also want to say that I think that you and I have found agreement on this topic. If I heard you correctly, you said that you are

tired of not being able to compare products because of different

packaging, and that you like products to be sold by weight. So I

hope this means that you and I agree, since ATC ensures that, no

matter the actual temperature of gasoline, a given quantity will always weigh the same.

Mr. ISSA. You know, Mr. Chairman, I would certainly agree with

you up to a point, and the point where I change is I was talking

about, when I am buying a gallon of milk, I want it in ounces. It

is really hard to figure all those different new ones.

No, in all seriousness, it is the fact that they don’t use the same

standard, and if they use ounce rather than package, then at least

you can compare ounces, but ounces aren’t always weight, sometimes they are volume.

Mr. KUCINICH. But what I understand is that milk is actually

temperature compensated at 40 degrees.

Mr. ISSA. So what happens if I get milk that is a little warm, besides it goes bad sooner, Mr. Chairman? [Laughter.]

Mr. KUCINICH. Being a vegan, I can’t help you on that one.

[Laughter.]

Mr. ISSA. Thank you, sir.

Mr. KUCINICH. Now, what I would like to do is to go back to the

question that I asked about Canada. Just to refresh the witnesses’

memories about their answers, both of you agree that you are using

ATC in Canada. Both of you agree that most of your stations in

Canada use ATC. Both of you agree that the manufacturers are

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making a product that temperature compensates accurately. And

both of you agree that you voluntarily purchased the equipment

and that you have a history, a long history, with the makers of

automatic temperature compensation in Canada. That essentially

is what you have testified to.

Now I want to get back to this point. To start all this, you chose

not to buy ATC in California from the same company you bought

ATC from in Canada. Can you tell the committee why you might

do one thing in Canada and another in the United States? Mr.

Soraci.

Mr. SORACI. I think the first comment there, Mr. Chairman, is

that there is a fundamental difference between the United States

and Canada, and that is in the United States a gallon of gas, with

the exception of Hawaii, our understanding is it is still defined as

231 cubic inches. So if we were to sell a gallon of gas on a temperature-compensated basis in the United States, we would be breaking

the law.

In Canada the laws changed in the early 1990’s, as you have

mentioned, and selling temperature-compensated product in Canada is permissive.

Mr. KUCINICH. Mr. Cooley.

Mr. COOLEY. I would say the same statement. As I understand,

the question was why we might have gone there in Canada and

why we did not in the United States. With the understanding that

the Canadian law changed in the early 1990’s to allow temperature

compensation on a permissive basis, for several years no one put

in temperature compensation, and then some retailers started installing temperature compensation.

As locations started putting in temperature compensation, now

there was the potential for them to gain an advantage over locations that did not have temperature compensation. They were actually selling smaller gallons, but the gallons on the street just

showed a per liter in Canada, so, in fact, the consumer had no way

to know. In fact, if they were paying the same price for a temperature-corrected gallon than someone’s non-temperature-corrected

gallon, then that individual or location could make more money. Or

they could lower their price and keep the same margin and appear

to have a better price than a non-temperature-corrected location.

This caused the industry, as we would see it, to start to swing

toward temperature correction. Once the majority, most of the locations in the industry had shifted to temperature correction devices,

then everyone was back to competing on an equitable basis then.

Mr. KUCINICH. Did anyone from corporate ever come to you and

say, Mr. Cooley, we are losing a lot of money on this temperature

correction device in Canada?

Mr. COOLEY. Mr. Chairman, we have operated as totally separate

companies. Shell Canada was a separate entity on the Toronto

Stock Exchange. We did not correspond on those type items. We

are, at this time, changing and that company is coming into the

Shell group, but we were not involved and they would not have

come to me.

Mr. KUCINICH. So I am sure you have had a chance to talk to

them about it at some point. I want to go back to Mr. Soraci’s answer. Mr. Issa had talked about maybe another hearing where we

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go into the NIST. I really am having trouble understanding where

the National Institute of Standards and Technology conducts a

study, surveys 50 States and the District, talks to the lead officials

in all the States who are responsible for the weights and measures,

and they are saying that most States permit temperature compensation at both the wholesale and the retail level.

Now, this is what I am having trouble understanding. Here are

the enforcers. They are saying one thing and your testimony is saying something to the contrary as to why, for example, in California

you can’t implement it even though our staff has talked to people

in California and they are saying, you know, the oil companies

don’t want to do this.

We are trying to see if this is a decision made by the oil companies that is really frustrating the introduction of temperature controlled devices at the pumps in some of the States that say that

we permit it, most of the States. Mr. Soraci.

Mr. SORACI. Congressman, I am not sure if the enforcers that

you are talking to, the officials, are the same ones that actually

vote in NCMM and are the same ones that actually change the

law. Our understanding of the law, as I stated earlier, is that the

laws and regulations in California have not changed to allow for a

gallon of gas to be sold on something other than a volumetric volume, and for them to do so would be unlawful.

Mr. KUCINICH. Sir, I just want to say this before I go back to my

friend, Mr. Issa. I looked at your testimony, and Mr. Soraci’s testimony says, ExxonMobil’s sale of motor fuel to consumers is fully

compliant with the law, and selling temperature-compensated

motor fuel at retail would violate current laws and regulations.

That is your testimony.

Mr. SORACI. Yes, it is.

Mr. KUCINICH. Now, as you know, an activity that is not expressly prohibited is permitted by law. I am quoting NIST. They

find, first of all, that ‘‘States do permit this compensation, temperature compensation, both at the wholesale and retail level.’’ I just

want to point that out.

Now, I do think again, Mr. Issa, that it is important that we get

NIST up here and go over this, and we will. So to Mr. Issa, it is

now your——

Mr. ISSA. Mr. Chairman, I am looking forward to that. As Mr.

Bilbray said, and I very much agree when you responded, you

know, you and I have worked together for 4 years very, very well.

It has been a real pleasure. Ms. Watson was the ranking member,

but you were every bit as in attendance and supportive, and I believed then as now if something is of interest to one of us it is of

interest to all of us, so I do expect that we will followup on that,

and I hope we will bring in, perhaps as a suggestion, the person

responsible for doing that in my county, in San Diego County, because in California, although you can make something legal, the

counties have to administer it, and they have the ultimate decision.

I think it is important to do, and I want to followup specifically

on——

Mr. KUCINICH. Would the gentleman yield for a response?

Mr. ISSA. Yes, Mr. Chairman.

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Mr. KUCINICH. I would absolutely cooperate with you in holding

our next hearing there. Thank you.

Mr. ISSA. Thank you.

I want to followup because I want to look long run for a moment,

because you are young men, you are at the top of your game, and

you are going to be around in 20 years just like the chairman and

myself. I am predicting it here today. [Laughter.]

Now, which one of us is chairman in 20 years is somewhat in

doubt. [Laughter.]

But we are going to have both of you back as chairmen of your

corporations. Twenty years from now do you believe that, in fact,

further refinements of how we deliver fuel as to its value, potentially including temperature compensation, potentially considering

alternate fuels, all of which go into a single gas tank, do you believe that is likely on the horizon? This is looking forward as oil

companies.

Mr. SORACI. It would be obviously speculation, but I think it is

fair to say that further refinement would continue to happen. Yes.

Mr. COOLEY. When you say that, I think of my grandchildren,

and they are small and young. Twenty years from now they are

going to be in their twenties. I think it is a little more complex.

I don’t disagree with what you said, but I think we as a government, as an institution, have to understand not just energy content

but the environmental tradeoffs, the impacts on our economy.

It is very complex, as this committee knows. I don’t disagree that

BTU content and more specific labeling could be helpful. At the

same time, this committee and others may be making tradeoffs environmentally and in other ways that you would have to take into

consideration.

Mr. ISSA. Mr. Cooley, I appreciate that, and I am going to followup by saying I believe that your point is one that will be very futuristic, which is the greenness of a fuel should and will, I hope,

be something that is available to us at the pump so that we can

weigh comparative fuels, even comparative fuel mixtures, to find

out. When I bought my last automobile, they told me exactly what

the U.S. content was. It didn’t have as much as I would have liked,

but at least I was informed. I hope that we will do both BTU content and the green factor that goes into the entire process.

I want to make another thing clear for the record, because I am

looking at this 1 percent or less that occurs 20 percent of the time,

10 percent of the time, and we know on the average, according to

the staff’s work, we are dealing with 67 degrees, so it is pretty de

minimis in expansion between 60 and 67, and the rest of the time

it is above or below that. So we are dealing with the fraction of

that fraction of 1 percent.

But is it your understanding—and this came out of last month’s

hearings—that the fees paid by Americans, by the station but

passed on in way of the cost of gasoline, is running better than 2

percent to Visa and MasterCard, which the committee next door

has identified as a likely monopoly, that they are making more by

far than we are talking about here to day, aren’t they?

Mr. COOLEY. Merchant service fees on a credit card sale is 2 percent or slightly more, around 2 percent.

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Mr. ISSA. You know, the amazing thing I find here today is that

we are not really thinking in terms of the fact that the consumer

has no awareness of that unless they happen to be watching C–

SPAN today, that there is 2 or more percent hidden cost in the

credit card they are using in that gallon of gasoline.

Mr. COOLEY. Our wholesalers and retailers are very aware of it.

Mr. ISSA. They have come to see me, too. That is not a surprise.

[Laughter.]

And I am concerned and I know the chairman would be concerned because both of us have real concerns about monopolies.

I just want to close by saying, you know, would I like to see 100

little oil companies be able to deliver a better product less expensively? If I thought it would, we would be talking. It is clear that

we do have real competition in the oil and natural gas industry.

There are plenty of independents. There certainly are globally lots

and lots of players. But it is also clear to me here today, and I just

want to make this for the record, even though it is tangential to

what we are talking about here today, that there is only Visa and

MasterCard. For all purposes they work in unison. Their fees have

been growing while their costs of delivering the product have been

going down.

Although this hearing is going to be followed up with lots of

other considerations looking forward on how we deliver fair weights

and measures, I hope that the chairman and I can find ways to

also bring in what we are doing over on the Antitrust Committee

in Judiciary, bring it over here and start looking at whether or not

monopolistic forces such as Visa and MasterCard are affecting the

consumer in hidden ways every day.

Mr. KUCINICH. I want to respond to my colleague. I think that

you have raised an issue that is worthy of this subcommittee. As

we discussed before we took over our respective duties on this subcommittee, this is the one subcommittee that has the broadest jurisdiction of any subcommittee in the entire U.S. Congress. The

only others that we do not have jurisdiction over are Department

of Defense and Department of Homeland Security. Every other single department, agency, board, commission we have jurisdiction.

So, Mr. Issa, I just want to say that you raise a point that needs

to be looked at, and I personally thank you for doing that. Let’s do

this. Let’s get into that issue, because that is something that this

committee has the ability to do, and I think we can work together

well on that.

Mr. ISSA. Excellent. Thank you, Mr. Chairman. Thanks for holding this hearing today.

Mr. KUCINICH. I thank the gentleman.

We are going to go to Ms. Watson.

I want the committee members to know that after Mr. Davis concludes asking his questions, we will have one final round and then

we will have concluded the business of this committee for today.

Mr. ISSA. Mr. Chairman, I apologize, but I will be going over to

Judiciary, so this is going very well. I apologize I won’t be there

for the close, but I very much appreciate your holding this hearing

on a bipartisan basis.

Ms. WATSON. Would you yield for a minute, Mr. Issa. I just want

to thank you, because when he chaired, we agreed that we would

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followup. I am very pleased that the chairman has, and I am

pleased that you have continued your interest in this subject matter and that you are applying that interest to our inquiries, so

thank you very much.

Mr. ISSA. Thank you.

Mr. KUCINICH. We are grateful for having such a dedicated ranking member here, and we are going to work together. Thank you,

Mr. Issa.

The Chair recognizes Ms. Watson.

Ms. WATSON. Thank you, Mr. Chairman.

I just want to make this comment. I am really puzzled at your

earlier disagreements with weights, measures, and so on, so that

is the reason why I asked that you put it in writing. I think we

need to have further debate so that we can be sure of the accuracy

of what they are doing, too. If you find information that we mention here inaccurate, we need to discuss that if we are really going

to get to the bottom of this and suggest some policy.

I would like to, Mr. Chairman, continue on. I think that you have

the quotes up. This is information that was published by Canada’s

measurement, and it comes from the government of Canada. This

is the statement. I will read it: ‘‘Our consumers benefit from the

knowledge that temperature compensation is a more accurate system of measurement, which ensures that the amount of energy

they purchase is not affected by the temperature of the fuel. ATC

allows consumers to make meaningful price comparisons between

retailers. Posted prices at the non-ATC-equipped retailers can be

misleading because of variations in product temperatures.’’

I think it—and we are talking about temperature compensation—is working quite effectively in Canada, and probably, as you

have responded before, you probably would respond the same way,

so let’s start with Mr. Cooley and see what you feel about that

statement.

Mr. COOLEY. And the question is do I agree with this statement?

Ms. WATSON. Yes.

Mr. COOLEY. No, ma’am, I do not.

Ms. WATSON. OK. And Mr. Soraci.

Mr. SORACI. I don’t agree with the statement, either.

Ms. WATSON. OK. And, again, Mr. Chairman, I would ask that

we add these questions to our letter that we send them for a response.

Mr. KUCINICH. So ordered. The gentlemen indicated that they

will cooperate and respond, and we appreciate that.

Ms. WATSON. And, ‘‘The use of temperature compensation to a

common-reference temperature allows retailers to sell product on

the same basis as if it was purchased. This common basis of measurement eases the reconciliation, of product inventories, and permits the early detection of smaller leaks from storage.’’

Would you agree or disagree with that statement? We will start

with Mr. Soraci.

Mr. SORACI. I would disagree with that statement.

Ms. WATSON. OK.

Mr. COOLEY. I would disagree with that statement, also.

Ms. WATSON. All right. We are pulling out what we feel is pertinent information from these reports that are required, and there

70

has been scientific research, and so since you disagree with it we

had better continue these debates.

I would think that——

Mr. KUCINICH. Would the gentlelady yield?

Ms. WATSON. I certainly will.

Mr. KUCINICH. The ranking member and I are both agreed that

we have some of these regulatory agencies and boards that have

had certain findings that appear to be at a variance to the understanding of the gentlemen representing Exxon and Shell, so we are

going to call them in on a subsequent hearing in order to achieve

that kind of reconciliation.

Ms. WATSON. Yes. And I would hope that the witnesses would

come to that hearing, too, because I think we need to have this dialog going on.

Mr. KUCINICH. I am sure they will be represented.

Ms. WATSON. OK, because in Canada they feel that it is working

effectively, and so if you want to dispute it I think we ought to

have you sitting face to face and allow for that dialog.

Mr. KUCINICH. That is an excellent suggestion, Ms. Watson. I

think what we will do in structuring the next hearing, our staffs

will get together and provide that there would be representatives

from the oil companies to respond and testify under oath on any

matters that appear to be at variance for the NIST and others, just

to make sure that we have some kind of understanding about how

we would like to proceed.

Thank you, Ms. Watson.

Ms. WATSON. If I can just have one last quote, these slides are

from the NIST presentation of 2004. ‘‘Effective temperature change

on product.’’ You can see that what is depicted here in this slide

prepared by the National Institute of Standards and Technology is

that 100 gallons of fuel occupies different volumes, depending on

temperature. I would imagine that you disagree with these statements?

Mr. COOLEY. I do agree.

Ms. WATSON. You do agree? OK. Mr. Soraci.

Mr. SORACI. I agree that there is——

Ms. WATSON. We got an agreement. With that, thank you very

much, gentlemen, for your patience and your input, and thank you,

Mr. Chairman.

Mr. KUCINICH. Thank you.

The Chair recognizes Mr. Davis.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Chairman.

Gentlemen, let me ask you, is it true that each one of your companies produce liquefied petroleum gas?

Mr. COOLEY. Shell produces LPG gas.

Mr. SORACI. ExxonMobil produces gas, yes.

Mr. DAVIS OF ILLINOIS. And how about propane?

Mr. SORACI. I believe we produce propane, as well.

Mr. COOLEY. And the same for Shell. We also have propane.

Mr. DAVIS OF ILLINOIS. Could you tell us how volume is measured in retail transactions of those hydrocarbons? And is temperature compensation used or not?

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Mr. COOLEY. I would have to give this not as an expert on LPG

or propane. When I buy propane at retail myself, I buy it by

weight.

Mr. SORACI. And in the case of ExxonMobil, Representative

Davis, I don’t believe that we sell propane gas at retail at our company stores.

Mr. DAVIS OF ILLINOIS. Well, let me just read from the NIST

Handbook 130, Section 2.21. ‘‘Liquified petroleum gas: all liquified

petroleum gas, including but not limited to propane, butane, and

mixtures thereof, shall be kept, offered, exposed for sale or sold by

the pound, liter, cubic foot, or vapor, defined at one cubic foot at

60 degrees fahrenheit, or the gallon defined as 231 cubic inches as

60 degrees fahrenheit. All metered sales by gallons shall be accomplished by use of a meter and device that automatically compensates for temperature.’’

So when temperature compensation is used in measuring LPG,

is it true that a result is that the seller and buyer are both assured

that neither one has an advantage, and that, regardless of the actual temperature of the gas, both are assured of accuracy? Would

you agree with that statement?

Mr. COOLEY. I would agree that when selling gasses that is correct and it is essential.

Mr. DAVIS OF ILLINOIS. Good.

Mr. SORACI. I would agree with that portion of it, but I would

also go back to a comment I made earlier, which is you have to be

careful not to assume that if we sell a gallon on a volumetric basis

and we sell it on a temperature-compensated basis, that necessarily

means that the price will remain constant. So we introduce what

is the value to the buyer versus the seller. That is hard to determine.

Mr. DAVIS OF ILLINOIS. Can you tell the committee when propane

started being sold on a temperature-compensated basis?

Mr. SORACI. I am not aware of that, sir.

Mr. COOLEY. I do not know.

Mr. DAVIS OF ILLINOIS. My understanding is that it was in 1986.

Mr. Chairman, I would like to suggest for the record that LPG

is a hydrocarbon product, as is gasoline. When the oil industry sells

liquified petroleum gas and propane to retail customers, they do so

in temperature-compensated volumes, but when the same industry

sells gasoline to retail customers, they refuse to sell in temperature-compensated volumes.

I would like to ask if the witnesses would explain what appears

to be a double standard. I mean, why would it make sense to do

one and perhaps not do the other?

Mr. COOLEY. As I said, I am not a propane or LPG expert. I am

wholesale gasoline in the United States. I do believe I can explain.

It is the fact that one is a liquid. Gasoline is a liquid at the point

we are selling it. The other is a gas that is compressed. A consumer

buying a 5 pound container of propane would not know if someone

had put 21⁄2 pounds, 2 pounds, or 5 pounds in there unless it was

done by weight. So that is a calibration that has to be done by

weight, which is the density measure that we are talking about.

A gas I believe would have to be done that way versus a liquid,

as has been defined as 231 cubic inches.

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Mr. DAVIS OF ILLINOIS. Mr. Soraci, would you agree essentially

with that statement, or would you have other?

Mr. SORACI. Well, I can say that from the retail standpoint for

motor fuel we sell on a volumetric basis the 231 because, as I stated, that is our understanding of what the law requires. I am not

familiar enough with our gas business to be able to comment about

that.

Mr. DAVIS OF ILLINOIS. Is it true that both liquids and gas expand with temperature? So if one is expanding, then the other one

also would expand?

Mr. SORACI. I believe that both products would experience both

thermal expansion and thermal contraction.

Mr. COOLEY. That is my understanding, also.

Mr. DAVIS OF ILLINOIS. Well, would it seem reasonable to treat

both the same way in terms of what you are buying and what you

are selling, or what you are actually getting?

Mr. COOLEY. I would say it is—and this is with all respect—it

is almost like apples and oranges. You know, for all propane sales

I agree they should be calibrated on the same basis. For all fuel

sales, if they are calibrated on the same basis of 231 cubic inches,

then I don’t see that it applies.

Mr. SORACI. You know, our belief on this is that, again, when we

look at retail it is done a certain way because it is what is required

by law today. Wholesale and other products, it is permissive to sell

in a temperature-compensated basis. Our position has been that we

need to look at it in a comprehensive study to determine whether

or not the laws ought to change at retail.

Mr. DAVIS OF ILLINOIS. I thank the gentlemen.

Mr. KUCINICH. The gentleman’s time has expired.

Mr. DAVIS OF ILLINOIS. Thank you very much. Mr. Chairman, I

won’t be here for your finish, but again thank you for raising this

issue and continuing to pursue it.

Mr. KUCINICH. I thank Mr. Davis.

The Chair will recognize the gentleman from Maryland, Mr.

Cummings. I just want to say Mr. Cummings’ questions will be the

last of this particular hearing, and then I will have a brief concluding remark, and then we will adjourn.

Mr. Cummings, you are recognized.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

Gentlemen, first of all thank you for your testimony. I was very

disappointed to learn that the National Conference on Weights and

Measures held its annual meeting, and a proposal to issue a rule

on automatic temperature compensation at retail gasoline pumps

narrowly failed to garner the necessary super majority. As a matter

of fact, at the last hearing that we held on this issue, the chairman

and I and other Members strongly urged them to take that vote as

soon as they possibly could.

During that last hearing, we talked about lobbying the conference. Chairman Cooley talked a bit about that. I am just curious

about something. Did either of your companies have representatives at the conferences here?

Mr. SORACI. ExxonMobil did not.

Mr. CUMMINGS. You did not?

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Mr. COOLEY. I believe Shell Pipeline Co. had a representative at

the last conference.

Mr. KUCINICH. All right. And you are talking about the one

where they voted; is that correct?

Mr. COOLEY. Yes, sir.

Mr. CUMMINGS. Did you have a position on that vote? Did Shell

take an official position on which side you came out on on that?

Mr. COOLEY. Not with the Conference on Weights and Measures,

no.

Mr. CUMMINGS. So you all were just there just hanging out?

Mr. COOLEY. I can’t represent what the pipeline representative—

he is not from retail. He works in the measurements division of our

pipeline entity.

Mr. CUMMINGS. Was this person being paid? Was he being paid

by you all?

Mr. COOLEY. He is on salary. He is a Shell employee, yes.

Mr. CUMMINGS. Well, let me ask a different way. Did you all

sponsor any official events at the conference?

Mr. COOLEY. No, sir. None that I am aware of.

Mr. CUMMINGS. And did you purchase any meals or did you have

any give-aways?

Mr. COOLEY. No, sir. None that I am aware of.

Mr. CUMMINGS. And do you know whether your company has

ever financed any of those type of activities at the conference?

Mr. COOLEY. I do not know and I do not believe we have.

Mr. CUMMINGS. Well, I am going to give you some written questions, and I would like for you to followup on that.

[The information referred to follows:]

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75

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Mr. CUMMINGS. Now what about you, Mr. Soraci? Same questions. I know you didn’t have a representative there, but do you all

sponsor—what is your relationship with the National Conference

on Weights and Measures, because I was shocked, to be honest

with you, that we had a very good hearing and it seemed as if

things were moving in the right direction, said they were going to

vote, they voted, and it was narrowly defeated. I am just wondering, just trying to figure out what part you all play in all this.

Mr. SORACI. I am not aware of any sponsorships of funding that

we have done with the National Conference on Weights and Measures.

Mr. CUMMINGS. And so you all basically don’t have any opinion

that you get to the voting folks of the conference? They don’t hear

from you? Is that it? You don’t take a position?

Mr. SORACI. At this particular conference we did not participate.

Mr. CUMMINGS. Any of them that are dealing with this issue, this

kind of issue.

Mr. SORACI. I am not aware of any positions advocated in——

Mr. CUMMINGS. I will provide you with some written questions,

also, because we would really like to know.

[The information referred to follows:]

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Mr. CUMMINGS. I understand that it is routine that the dealers’

underground tanks are monitored by you electronically for the purposes of scheduling tanker deliveries; is that correct?

Mr. SORACI. In the case of ExxonMobil, yes, it is.

Mr. COOLEY. For those small number of stations that are operated on that basis, you essentially.

Mr. CUMMINGS. Now, isn’t it also true that the monitors report

the temperature of the gasoline in the tanks as well as the levels;

is that right?

Mr. COOLEY. That is my understanding.

Mr. CUMMINGS. Is that yours also?

Mr. SORACI. That is my understanding, yes.

Mr. CUMMINGS. So you are in a strong position, are you not, visa-vis your dealers, to monitor their inventory and to give them a

wholesale price which they are bound to pay as long as the contract

is in force; is that right?

Mr. COOLEY. We do establish the price that we sell to them

under.

Mr. CUMMINGS. And what about you, sir?

Mr. SORACI. I would like to hear that question again, please.

Mr. CUMMINGS. Well, what I said was that you are in a strong

position, vis-a-vis, your dealers to monitor their inventory and to

give them a wholesale price which they are bound by long-term

contract to pay; is that right?

Mr. SORACI. Well, if we are talking about our dealers——

Mr. CUMMINGS. Yes.

Mr. SORACI [continuing]. Our dealers are typically on a 3-year

contract. Yes, we do manage inventories at our dealer locations and

we know what the inventory levels are. But I would add that the

dealer population, the lessee dealer population of our business is a

very small percent of our business.

Mr. CUMMINGS. I see my time is up, but just one last question.

When you price your wholesale gasoline, do you have in mind a

target margin that you want your dealers to be earning, Mr.

Cooley?

Mr. COOLEY. When we price our wholesale gasoline, when we

price to wholesalers we are competing at a rack, and at that rack

we always would like to make the margin, but the marketplace determines if there is a margin there or not. But we do establish the

rack price.

Mr. CUMMINGS. All right. And what about you, Mr. Soraci?

Mr. SORACI. We are in a very competitive market and the market

sets the price based on a number of different factors.

Mr. CUMMINGS. How many?

Mr. SORACI. A number of different factors: supply and demand,

competitive landscape.

Mr. CUMMINGS. All right.

Thank you very much, Mr. Chairman.

Mr. KUCINICH. All right.

I want to thank the gentleman and just say that I would ask the

representatives of ExxonMobil and Shell to be responsive to Mr.

Cummings’ written questions so that the committee will feel that

your cooperation is continuing.

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I also want to thank you for your participation here today. I hope

that you both feel that the process of this committee has been respectful and has been inviting for you to be able to get your testimony on the record so that the opinions, as well as the position,

of both Shell and ExxonMobil have had a hearing.

The purpose of this hearing is to and has been to examine the

views of Shell and ExxonMobil on what appears to be a double

standard in the measurement of gasoline; namely, how do they justify opposing temperature compensation at retail while conducting

wholesale transactions with temperature compensation, and how

do they justify opposing temperature compensation for retail sales

in the United States while universally embracing temperature compensation at retail in Canada. We have had an extensive discussion

here. It has been a bipartisan discussion.

This committee will continue to delve into this matter. We will

do so in cooperation with the industry, regulatory bodies, those who

are involved in weights, measures, and standards.

I want to thank Mr. Issa. I want to thank the staff of the minority as well as the majority for the work that they have done on this

and all my colleagues for participating.

I am Dennis Kucinich, Chairman of the Domestic Policy Subcommittee of the U.S. House of Representatives. This has been a

subcommittee hearing on Hot Fuel, and I want to thank all of you

for participating.

This committee stands adjourned. Thank you.

[Whereupon, at 12:20 p.m., the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]

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