More on Hot Gas Lawsuit

I really love my Site Meter at the bottom of the page. I check it most days, and it gives me a lot of good information about who is linking to the site and where they are coming from. Incidentally, you can access the same information I can see by clicking on it.

Anyway, a few days ago I wrote Hot Gas Lawsuit in Utah. It is about a class action lawsuit that claims that oil companies are making a killing from overcharging customers because gas expands in the summer. According to my Site Meter, I was getting some hits on this article, which I ultimately tracked back to here. The discussion was fine, until one of my beloved fringe elements weighed in:

Rapier works for an industry that lobbies against temperature sensing smart pumps in the United States, but lobbied FOR regulatory changes requiring these devices in Canada in the 1990’s. I don’t believe they got the regulation they wanted, but in any case the market did its job and about 95% of retail outlets now have these devices installed.

Why? Because they were losing money in Canada because of cold fuel; i.e. selling more energy per volumetric unit because of shrinkage due to cold temperatures.

Rapier’s line on ground temperatures is a crock.

I have engaged this guy before. He reads a few websites, and thinks he is an expert. You see it all the time. Now, I have no idea about the claim on the situation in Canada, and I guarantee you that neither does he. He read it on a web site, and it became fact. But in this case, the troll actually provided the very evidence that showed that my “line on ground temperatures” was spot on. Here is what I wrote previously:

In fact, those tanks are probably pretty close to 60 degrees year round, which means the class action lawsuit is just a waste of the court’s time.

Now, recall the reasoning behind the lawsuit. From the original article:

When a gallon of gasoline is 60 degrees it exactly will fill a one gallon container. But that same gasoline at 90 degrees would spill over the sides of the container. It is that spillage that represents the energy drivers allegedly paid for, but didn’t get, when they purchased a gallon of “hot gas.”

But, my troll, following his charge that my line was a crock, provided the link that showed that it wasn’t:

Technology, new rules a hot-fuel fix

The Star’s $2.3 billion estimated annual cost to consumers from hot fuel is based on fuel storage tank temperature data, the impact of varying temperatures on fuel volumes, and state-by-state consumption data.

The fuel temperature data was gathered by the National Institute of Standards and Technology from storage tanks at 1,000 gas stations and truck stops in 48 states and the District of Columbia during a period from 2002 to 2004.

The NIST data revealed that the average temperature of fuel across the country and year-round was 64.7 degrees Fahrenheit — almost 5 degrees higher than the government standard of 60 degrees.

As a liquid, gasoline expands and contracts depending on temperature. At the 60-degree standard, the 231-cubic-inch American gallon delivers a certain amount of energy to your engine. But that same amount of gas or diesel fuel expands at higher temperatures, to about 235 cubic inches at 90 degrees. Yet consumers still get only the 231 cubic inches at the pump.

As I said, pretty darn close to 60. Definitely not close to 90. So what does this really cost consumers? I suspect the Star made a math error in their calculation. Here is why. The average gasoline consumption from 2002 to 2004 was 8.9 million barrels per day. You can get all of that data here. That translates into an average over that time period of 136.5 billion gallons per year. The average spot price of gasoline, which can be retrieved from here, was only $0.93/gallon over that time period. Don’t believe me? Look it up at the link. We forget that it wasn’t want that long ago that gasoline was still quite cheap relative to today. Also remember that these are spot prices, which don’t include taxes. This is an indicator of what refineries got for their gas during the 2002-2004 period that the Star investigated.

Now, note the change in going from 60 degrees to 90 degrees. The difference is 4 cubic inches, an increase of 1.7%. (My chemical engineering handbook says it is more like 1%, but we will give them the benefit here). But the average wasn’t 90 degrees, was it? It was 64.7 degrees. Interpolating, the change for that is going to be 0.27% (based on their 1.7% for the full range). That’s right, between 2002 and 2004, consumers were ripped off to the tune of 0.27%. That means that for every gallon of gas sold during this period, consumers were getting ripped off by less than 1/4th of a cent per gallon. So, each time you put 4 gallons of gas in, you lost almost a penny on average (and some fraction of a penny more to the government for taxes). And as I have pointed out, the energy difference from blend to blend can easily amount to more variation than this.

So, what was the total lost? Was it $2.3 billion per year as the Star claimed? Not even close. The actual number is about a tenth of what the Star claimed. I suspect their error was to assume the entire expansion to 90 degrees, instead of using the average annual number of 64.7%.

Frankly, I hate wasteful spending, but if they force the equipment to be installed, that’s just one more thing that will drive up the price of gas (you don’t think there’s a free lunch, do you?). I am all for things that drive up the price of gas and spur conservation. Of course Jamie Court, president of the FTCR, claims he is waging war on this issue to keep consumers from getting ripped off. He has got to be one of the most naïve individuals I have ever seen. He seems to have in his mind that he is going to “sock it to” the oil companies and score one for consumers. And the lawyers are also out trying to make sure the consumers are protected. I just wonder if any of them actually believe that any of this is going to bring down the cost of gasoline?

10 thoughts on “More on Hot Gas Lawsuit”

  1. Bring down the cost? Of course not! How can anyone possibly think that after paying 1/3 of the damages to a bunch of rich lawyers, the cost will do anything other than go up to compensate? Hey, using your math, even if the damages are only $230 million, that’s $77 million for the lawyers, times the number of years covered by the suit. Ka-ching! The lawyers of course walk away with actual cash, while consumers will collect their $153 million in the form of coupons for free car washes or something.

  2. Robert said, In fact, those tanks are probably pretty close to 60 degrees year round, which means the class action lawsuit is just a waste of the court’s time.

    Correct. With underground tanks, the temperature should be close to 60^ F year round. When I was in high school, I pumped gas at my Dad’s gas satation in the summer, and even on the hottest days, the gas was surprisingly cold. Underground houses maintain a temperature close to 58^ or 60^ F most of the year also.

    Hot temperatures would be an issue for those few places that have above ground tanks.

    When a gallon of gasoline is 60 degrees it exactly will fill a one gallon container. But that same gasoline at 90 degrees would spill over the sides of the container. It is that spillage that represents the energy drivers allegedly paid for, but didn’t get, when they purchased a gallon of “hot gas.”

    Robert,

    The real question isn’t volume, but energy density. Gasoline at 90^ F contains less energy per gallon than gasoline at 60^ F.

    When I flew jet fighters in the Air Force, the temperature of the fuel was a factor in determining range. The colder the fuel when you filled the jet, the farther you could fly, and vice-versa.

    I guess to be perfectly fair, a fuel pump should meter fuel by energy content instead of by volume. When you rolled up to the pump, instead of buying 10 gallons, you might instead buy one million Btus. (That would be about 8.8 gallons of gasoline, or 12.2 gallons of E85. In fact, that would be a good way to compare the actual price and value of the two fuels — price them per 100,000 Btu instead of by volume.)

    I’m not quite sure how a pump would meter fuel by energy content instead of by volume, but it could be done — at a cost of course.

    By the way: E85 is really E79

    Did you realize that E85 is not really E85 when measured by energy content? In a gallon of E85, the 15% that is gasoline by volume contributes 21% of the energy, while the 85% of the volume that is alcohol contributes only 79%.

    In the interest of honesty, I think the ethanol industry should start calling their fuel E79. 😉

    Regards,

    Gary Dikkers

  3. On the original post about the hot gas lawsuit, I stated that I was sure that the average year round fuel temperature would be less than 60F. You have shown me data which suggests that I was wrong. I still think that the difference is meaningless, this type of lawsuit is a waste of time and the only potential winners would be the lawyers bringing the suit, but with regard to the average fuel temperature, I was wrong.

    As Elmer Fudd Gantry once said, “It takes a big man to admit when he’s wrong, and I am not a big man.”

  4. Well, I’ll accept all your figures–the delta between as advertised is _on average_ only .27%. (And I’ll assume that you refer to mean when you say average, rather than the median.)

    But what does _on average_ mean to the consumers in the Southerly latitudes? I think that there may be more to this than first appeared, although it’s certainly a problem that can be minimized by using averages when, in particular instances (states), the delta and resulting economic consequence might be substantially greater.

    As an aside, courts like to look at what people do for themselves as a guide for what is reasonable for when they are dealing with others. So if the assertion about gas dealers correcting for temperature when buying truckloads of gas is true, then that might improve prospects for the plaintiffs.

    And I have no idea if stations do that today–when I worked in a gas station as a kid, all I had to do when the truck came was use a stick fo make sure that the driver had, in fact, filled the tank. But, as I say, if true, then it would probably help a court reach a conclusion that temperature correction is commercially reasonable behavior for anyone buying gas (and, therefore, that the dealer should be required to do it when selling, as well as buying).

    The alternative to thinking about it in terms of 4 cubic inches is to think about the total volume of gas that a dealer in a hot state–whose own individual average ground temperature might run closer to 70F (if the mean is 64F and change, there must be some states where the mean is up there pretty high, given the really cold temperatures we enjoy in the upper midwest and northeast).

    Moreover, the scale of the problem increases as the price of gas goes up, does it not? That is, the same volumetric delta results in twice the unjust enrichment when the price of gas doubles.

    Given that it appears we’re in for a long ride of ever-increasing gas prices, I would say that anything that makes it look like the dealers have a thumb–however slightly–on the scale is not a good thing for them.

    Another aside: you portray the damage to any individual consumer as de minimus, a trifle that the law should simply ignore–but that’s the case with all class action litigation: it’s about providing a way to vindicate the rights of people who are all individually being nicked for a trifle that would never be worth litigating, but that adds up to a decidedly non-trifling sum in aggregate.

    I very much like the suggestion for shifting to an energy-content pricing system, rather than a volumetric one.

    This would also allow us to imagine taxing electric vehicles on an equal basis; right now, hybrids and all-electric vehicles are driving highway budgets into the red, because we built a highway budget on gas taxes applied to the volume of fuel metered at the delivery pump. But the gas tax was intended as a road use tax, not a fuel tax; fuel was simply the proxy for road use. (A number of states make this explicit by exempting farm vehicles not driven on the roads from the gas tax.)

    If we taxed all motor vehicles based on energy consumption (inputs) then we could, if we chose, begin to grapple with the effect that very-high mileage and all-electric vehicles are having on highway budgets.

  5. Another aside: you portray the damage to any individual consumer as de minimus, a trifle that the law should simply ignore–but that’s the case with all class action litigation: it’s about providing a way to vindicate the rights of people who are all individually being nicked for a trifle that would never be worth litigating, but that adds up to a decidedly non-trifling sum in aggregate.

    And that’s what makes these class actions – frivolous or not – so attractive to many lawyers. If I can sue on behalf of every American and recover $5 for each of them, I haven’t done much for them. It might buy them lunch at McDonald’s. But boy have I ever managed to enrich myself. It might buy me a yacht and a mansion. There is a strong incentive for the lawyers to sue. The incentive is there even if the suit is frivolous. Unless there is a strong “loser pays” system in place, this will continue to be the case.

    The other issue is that there is no assurance that if temperature compensation was installed that gas prices wouldn’t have averaged 0.27% more. The assumption here is that this is just gravy for the seller. There is one state that does have temperature compensation. Well, they actually define a gallon of gas at 80 degrees. So, their gallon is slightly larger than average. Do you believe this would have no effect on price? Of course it is Hawaii, and they do have the highest gasoline prices in the country, but there are multiple reasons for that. But it should be clear that even if you say “Hey, from now on we are going to define 1.5 gallons of gasoline to be equivalent to 1 gallon”, then the price will rise accordingly. So, in fact there may have been no actual damage at all to consumers.

    I saw a pretty detailed analysis on this recently that suggested that this was the case. I can dig it up if you like.

    I very much like the suggestion for shifting to an energy-content pricing system, rather than a volumetric one.

    I agree with that. That’s another thing I have noted about this whole deal: Gasoline blends vary by more than 0.27% in the energy content from blend to blend.

    Cheers, Robert

  6. I don’t have any problems with anything that drives up the price of gas. If I’m appointed king, we put a floating tax on gas immediately so that it’s uniformly $4 a gallon to the motorist (i.e., no matter what the price does, the tax floats on it and brings the delivered cost to $4/gallon). Then, next year, it’s $4.25, then $4.50, …

    So any objections to temperature correction based on increased gas prices don’t carry any weight with me.

    (With the resulting revenue to the general fund to pay for dropping the payroll tax on earned income and rebuilding the rail infrastructure. None of it would go to the highway trust fund, as I would fund that with an annual tax on each vehicle by weight.)

  7. Anyone know if stations BUY gas on a temp-compensated basis? The gas going into their underground tanks from a truck that’s been on the highway in the hot sun a few hours could be well above 100 degrees F.

    –doggydogworld

  8. Back on TOD there used to be a poster/commenter who went by “Jack”

    Of all the people I’ve ever read, Jack was by far the best. I don’t know how to put it except by saying he was the shit.

    He was the real fuckin’ deal. But he seems to have left after TOD’s latest house-clearing.

    Any clues as to where Jack is or where he’s writing would be greatly appreciated.

  9. I’m confused, I’ve seen several articles related to this that talk about Gas stations having to install expensive sensors and equipment which will drive the price of gas up … Aren’t we just talking about thermometers/temperature sensors. How pricey can that be compared to the cost of pumps, real state, Building structures, underground tanks, advertising, etc.

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