ND102611

Title: U.S Appeals Court Rejects Claim That Refiners Overcharge Consumers for Premium Gas

Description: Court rules that retailers and oil companies are not breaking the law when a small amount of residue from a unleaded regular or mid-grade fill-up is left in the hose from a previous customer.

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SAN FRANCISCO -- Major oil companies and their retailers are not breaking the law when they sell a small amount of unleaded regular or midgrade as more expensive premium at the pump because of fuel residue left in hoses from the previous customer, a U.S. Appeals Court has ruled.�����

The decision has been welcomed as a ?common-sense ruling? by NACS.�

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?We hope this ruling will deter similar frivolous court cases that do nothing but complicate an already over-stressed distribution system and try to unfairly extract resources from companies seeking only to serve the motoring public,? said John Eichberger, NACS vice president of government relations.�
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Before the�U.S. Court of Appeals for the Ninth Circuit�were claims that six refiners ? BP, Chevron, ConocoPhillips, ExxonMobil, Shell and Valero ? were overcharging customers who buy premium fuel. The ruling sets legal precedent in�California�and eight other western states.�

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The plaintiffs were a group of California consumers. They said the design of some gas dispensers is flawed because when they purchase premium they can receive up to 0.3 of a gallon of fuel that has remained in the system since the last sale, and therefore are overcharged if the previous customer bought unleaded or midgrade gas.

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The problem with residual fuel in dispensing systems involves single-nozzle pumps that are less expensive to install and maintain than multi-nozzle equipment, according to the plaintiffs. �

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They want refiners to remedy the situation by developing a more accurate dispenser or new pricing technology, or by displaying disclosures at the point of purchase.

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If it is not cost-effective to introduce technology that guarantees to deliver 100% of the grade the customer selects, then oil companies should be required to install equipment that charges a lower price for lower-grade fuel pumped from a previous transaction, the suit says.

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Or, as ?a remedy of last resort,? refiners should be required to make disclosures on a dispenser?s electronic display screen that alert the consumer to the residual fuel issue.

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The failure of oil companies to rectify the situation is a breach of contract and fair dealing clauses under consumer protection and business practice laws, the plaintiffs said.

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The consumers sought class action status for their lawsuit but a lower court dismissed their claims because they had failed to give refiners reasonable notice before they filed suit.

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Refiners argued that they have obeyed both state and federal laws and that any requirement mandating new or different disclosures for octane labels would be preempted by the federal Petroleum Marketing Practices Act and Federal Trade Commission rules on posting.
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Additionally, the National Conference on Weights and Measures evaluated the residual fuel issue in the late 1980s and found no basis for changing the method of sale because consumers were not being shorted at the pump, Eichberger notes .�

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The Appeals Court sided with the refiners. It is not reasonable to infer that oil companies have committed any misconduct since they cannot alter their dispenser designs, price computation mechanisms, or octane disclosures ?without running afoul of various legal requirements in this heavily regulated arena,? the court said.

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Requiring refiners to post special notices at dispensers ?would have the effect of challenging the accuracy and undermining the uniformity of federal octane labeling regulations promulgated by the FTC,? wrote Judge Johnnie B. Rawlinson on behalf of a three-judge panel.

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Using dispensers that can cause residual fuel problems is lawful in California because the state has adopted National Conference on Weights and Measures (NCWM) standards on dispenser design, said Judge Rawlinson.�

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NIST has been aware of the issue of residue in single-hose pumps since the 1980s and "nevertheless recommended them over alternative systems," mayor oil companies told the court. Weights & Measures rules advise flushing 0.3 gals of fuel from a dispenser before inspectors draw samples for octane-testing.

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There may well be a better dispenser design available and California regulators could consider adopting that design in the future, but refiners are not in breach of current statutes and regulations, Judge Rawlinson concluded.

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Content Subject: Petroleum Retailing

Formatted Article Date: October 26, 2011

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