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Some 60 convenience store operators and fuel marketers concerned about the implications of potential data security breaches on their businesses, as well as logistical impediments to fuel supplies and other key issues, played a little politics in Washington, D.C., this summer.
SIGMA: America?s Leading Fuel Marketers hosted a legislative briefing July 15 by the government affairs firm Steptoe & Johnson, whose executives briefed attendees in preparation for their face-to-face meetings July 16 with some 200 members of the U.S. House of Representatives and U.S. Senate.
In addition, a July 15 panel discussion sponsored by The Fuel Foundation focused on industry trends and financial opportunities. The panel consisted of Joe Petrowski, founder and managing partner, Mercantor Partners and former Gulf Oil CEO; Michael Johns, managing director, Food and Consumer Group, BMO Capital Markets; and Ron Gale, director, KeyBanc Capital Markets.
?Congress has the authority to shape public policies that directly affect our members? ability to compete within the motor fuel industry,? said Tom Gresham, chairman of SIGMA?s legislative committee and president and CEO of Double Quick Inc.
?It was important for SIGMA members to participate in our Day on the Hill to make our positions known on issues that affect the way we do business,? he added. ?Educating Congressional members about situations we face daily and offering our experience as a resource is the best way for SIGMA members to ensure our voice is heard on Capitol Hill.?
Members of the trade organization met with lawmakers on their turf, and expressed their views and concerns about the following key issues:
- Legislative initiatives that could place unfair burdens on retailers for data security, including credit card information;
- The need for credit card interchange transaction fee reform to reduce unfair burdens on retailers;
- Logistical constraints that prevent plentiful fuel supplies from reaching the consumer;
- The Renewable Fuel Standard and a proposal by the Environmental Protection Agency (EPA) to adjust the standard?s requirements;
- The need for adequate funding for transportation and infrastructure improvements;
- Support for a bill to increase the definition of ?full-time employees? from 30 hours per week to 40 hours per week for employer-required coverage under the Affordable Care Act; and
- Internal Revenue Service (IRS) gasoline equivalence standards for natural gas that are lower than those established by the National Institute of Standards and Technology.
?The reason I?m here, and the reason why RaceTrac brings a team of people here, is because we have an opportunity to interface with members of Congress in a centralized, highly effective way,? explained attendee Max McBrayer, chief supply officer for Atlanta-based RaceTrac Petroleum Inc., who was joined by his colleagues AJ Siccardi and Jamie Benton.
McBrayer and other SIGMA members taking part in the legislative meeting and Day on the Hill event said the issue they believe poses the biggest threat to their companies and the industry is cybersecurity, specifically potential breaches of credit and debit card data.
?Debit and credit cards are a huge part of our business,? McBrayer told Convenience Store News. ?Maintaining a secure credit card data environment is expected by our customers, but the problem is we are not in control of the entire chain. Our customers expect RaceTrac to keep their data secure; they don?t see it as the responsibility of the data processor or the bank.?
Tim Columbus, a partner in Steptoe & Johnson?s Washington, D.C., office and a member of the firm?s Government Affairs & Public Policy Group, declared that ?data security is a serious problem and it is escalating.?
Several bills have been proposed to deal with the issue, and Columbus stressed that any governmental standards established must cover all components of the transaction chain, including the processing companies, card issuers and banks ? not just retailers.
Noting that Visa and MasterCard are ?pushing? new EMV (Europay, MasterCard and Visa) smart chip technology, Columbus said retailers would be burdened collectively with roughly $30 billion in added costs for installing the necessary readers. Requiring a simple PIN code for all credit and debit card transactions instead would cut fraud by 84 percent with a ?tiny? investment required by retailers.
?Our big ?ask? of lawmakers,? said Columbus, ?is that they should be aware and everybody involved, from the merchant up to the bank and back, needs to be required to do everything possible to stop these data breaches. It?s a fairness argument.?
On another topic related to credit and debit cards ? interchange fees ? SIGMA and its members told lawmakers they object to the central ?price-fixing process? of setting fees (which make them too high) and the lack of choice in accepting cards due to the market power of the card associations. SIGMA is working with the Merchants Payment Coalition for solutions to the interchange problem and to discourage any Congressional action that would undo recent debit card fee reform, according to Steptoe & Johnson?s Doug Kantor.
FUEL SUPPLY CONSTRAINTS
Legal and logistical impediments are artificially increasing the retail price of motor fuels in the United States. Even though U.S. crude oil output surpassed the production of Saudi Arabia and Russia at more than 11 million barrels per day in the first quarter of 2014, Steptoe & Johnson?s Columbus said consumers are still paying roughly 20 cents per gallon more than a year ago.
New pipelines are ?desperately needed,? he said, because current pipelines are at full capacity. However, the process to site and permit new pipelines is ?prohibitively burdensome.? Thus, producers use rail to transport crude oil and other fuel products ? a process that Columbus said adds to the price and displaces other goods from the rail lines.
Another problem is the Jones Act, which requires the use of U.S. flagged vessels between U.S. ports, Columbus noted, with this adding about 7 cents per gallon to the cost of transporting product via ship.
In addition, he stated that increased refining capacity is needed. SIGMA supports H.R. 3301, the North American Energy Infrastructure Act, which would eliminate the current Presidential permit process for energy infrastructure improvements, such as pipelines. This bill was prompted by the controversy over the Keystone XL Pipeline.
Another aspect of fuel supply SIGMA members addressed was the Renewable Fuel Standard. They urged support of the EPA?s proposed renewable fuels volume obligation for 2014, reducing it from the level required by the Energy Independence and Security Act of 2007. That law requires annually higher volumes of renewable fuels.
As of July, SIGMA was urging the EPA to finalize its proposed regulation promptly to foster more certainty in the market. Columbus said SIGMA remains concerned about potential liabilities associated with the sale of E15 and other mid-level blends and possible voiding of vehicle manufacturer warranties, and calls on Congress to address these issues.
With the Highway Trust Fund expected to have run dry by September, Columbus said SIGMA supports proposals to increase the federal excise tax on fuel by 12 cents per gallon to restock the fund. There is a chance that Congress might approve this tax hike following the Congressional elections in November in an expected ?lame duck? session.
?We hope that both [political] teams will hold their nose and do it,? he said.
SIGMA?s board of directors developed a consensus stating that:
- If governments determine funding of highway projects must be ?user based,? then all energy sources must pay the same per-gallon equivalent to support vehicles powered by that source;
- Whenever possible, the government should seek to broaden the base that pays for the roads from just user-based sources;
- Transparency with respect to taxes is essential, and taxes should be itemized so the consumer clearly understands what he or she is paying for; and
- Funds raised in the name of supporting infrastructure maintenance must be dedicated to such maintenance.
40-HOUR WORKWEEK LEGISLATION
The Affordable Care Act (ACA) requires employers with 50 or more full-time equivalent employees to offer health insurance to these ?full-time? employees who work an average of 30 hours or more per week. However, SIGMA and other organizations support H.R. 2575, passed by the House in April, and S. 1188, a bipartisan bill in the Senate, both of which would increase the ACA?s threshold to 40 hours per week. By increasing the requirement for coverage to 40 hours, fewer employees would qualify for coverage.
Under the ACA, beginning Jan. 1, 2015, employers with 100 or more full-time equivalent employees that do not offer ?affordable? health plans to provide a ?minimum value? of coverage may be subject to a penalty if at least one of those employees receives a premium tax credit for purchasing coverage on one of the new Insurance Exchanges. The threshold as of Jan. 1, 2016 changes to 50 full-time equivalent employees.
NATURAL GAS GALLON EQUIVALENCE
The National Conference on Weights and Measures established a gasoline gallon (GGE) standard for compressed natural gas (CNG), which is accepted by the National Institute of Standards and Technology. The accepted standard is that 2.567 kilograms or 5.66 pounds of CNG is equivalent to one gallon of gasoline.
However, the IRS defines one GGE as 126.67 cubic feet of CNG and lists the tax rates for liquid natural gas (LNG) and diesel fuel as $0.243 and $0.244, respectively. Similarly, the IRS equivocates one gallon of LNG with one gallon of diesel fuel by taxing the two fuels at roughly the same rate, even though the energy contained in liquid natural gas (as measured in BTUs) is less than diesel.
?This significant discrepancy may cause consumer confusion and lead plaintiff?s lawyers to initiate costly litigation against fuel retailers and marketers who are simply trying to comply with state requirements set by the National Institute of Standards and Technology,? SIGMA contends.
The trade group believes the IRS should revise its compressed natural gas GGE definition to match that of the National Conference on Weights and Measures and should adopt the National Conference?s LNG standard when it is finalized.
?In order for these fuels to achieve widespread adoption, the marketing community must be able to effectively communicate with consumers accustomed to thinking about fuel purchases exclusively in terms of gasoline or diesel per-gallon prices,? SIGMA stated.
THE FUEL FOUNDATION PANEL
During the panel discussion sponsored by The Fuel Foundation, presentations regarding anticipated industry trends and financial developments were made by the three speakers.
Petrowski shared his prediction that crude oil prices will decline over the next few years, perhaps to as low as $60 per barrel, depending on developments in the Mideast.
Influencing this, he said, is the nation?s continued urbanization, reducing the numbers of cars per household in many cities; the greying of America, with older people driving less; improvements in vehicle fuel economy; and the use of alternative fuels. All of this will mean significant changes in gasoline and diesel consumption in coming years, so Petrowski advised convenience store operators and fuel marketers to be aware and prepare.
Johns of BMO Capital Markets discussed how the credit card companies with their swipe fees are ?taking a big bite out of profits? and that fuel volume is declining, even as consumers are spending more money inside c-stores. The days of ?channel shifting? in cigarette sales are ?in large part over,? he said, noting ?best-in-class retailers are already moving away? from their traditional reliance on cigarettes as their primary source of profit.
With major oil companies divesting themselves of their branded c-stores, Johns said this trend is providing significant investment opportunities. ?The power seems to have shifted into your hands,? he observed.
Gale of KeyBanc Capital Markets also spoke about consolidation trends in the industry, both in wholesale and retail. When it comes to managing capital and considering acquisitions, ?you?ve got to have a plan,? he said. ?Don?t hesitate to reach out for a consultant.?