Weighing In On Retail Fuel Sales

“You shall do no wrong in measurement of weight or capacity.”
                                                                       — Hebraic law, circa 2500 B.C.

By Richard S. Bradley Jr.

The equitable sale of goods is a problem that has existed since before the time of the Egyptian Pharaohs. Whether the exchange is done by weight or volume, the problem remains the same: how to ensure that the buyer receives from the seller the amount mutually agreed to before the transaction occurs.

The current volumetric method for selling fuels in the United States presents several obstacles to achieving this goal. Gasoline and other fuels expand and contract as temperatures rise or fall. What was sold yesterday during the hot afternoon as ten gallons of fuel may shrink to a volume slightly less than ten gallons if the temperature drops several degrees during the evening hours.

For example, ten gallons of gasoline sold at 75° will equal 9.91 gallons at 60°F. If, on the other hand, the temperature of the gasoline were to rise to 90°F, then that same ten gallons sold at 75°F increases to 10.09 gallons[1]. The debate regarding whether these changes in temperature result in actual losses or gains in the sale of fuels for the buyer or seller remains unresolved. Those believing the problem to be real emphasize that meters in dispensers located in the United States do not currently compensate for changes in the temperature of the fuels being dispensed. They propose using automatic temperature compensation (ATC) as the solution for resolving this problem.

At the National Conference on Weights and Measures in July 2007, 23 state chapters voted in favor of a proposal to implement ATC of retail motor fuels. Sixteen states voiced the belief that further development of the issue was needed before they could make a commitment either for or against the proposal.

If the Weights & Measures Committees in the states eventually adopt ATC and recommend that legislation be passed to mandate the conversion of fueling dispensers, significant repercussions would be felt throughout the industry. Such legislation would probably call for a multi-year phase-in implementation of ATC. Considerable financial impact would be felt by everyone from retail gasoline outlet (RGO) owners and operators to the equipment manufacturers, distributors and contractors hired to install and service the equipment.

Mandating such a change would require that virtually every dispenser used for the retail sale of fuels in the United States would have to be upgraded or replaced. That cost would ultimately be passed on to the consumer through increased prices at the pump. The average cost to implement such a change has been estimated to be between $8,000 and $12,000 for upgrades at a four-dispenser RGO. Replacement costs would be significantly higher for that same RGO, with costs between $36,000 and $54,000.

Counting only RGOs, there are more than 700,000 affected dispensers across the United States, potentially causing the industry to face a price tag between $2.5 billion and $3.5 billion to implement ATC, a substantial investment cost. The changeover would also have a major impact upon the dispenser supply-chain network. Manufacturers would have to significantly increase production to handle the demand for new dispensers and ATC components. Even allowing for a ten-year phase-in period to implement ATC, this would require the manufacture of enough ATC dispensers and components to handle the demand for the changeover. On average, more than 70,000 dispensers would need equipment changes per year. In addition to RGO owners and operators, this kind of demand would impact several sectors of the retail fuels industry.

Manufacturers
Makers of dispensers and components, as well as suppliers of materials and components, would need to increase manufacturing capacity. This would involve setting aside the time and resources needed to:

• Conduct reviews and analysis of assembly processes to identify opportunities for improving efficiencies.
• Negotiate new supplier contracts.
• Analyze and adjust lead times in order to account for the increased demand of raw materials and components.
• Expand inventories and increase the requisite storage space (Just-In-Time
• practices excluded).
• Assess existing quality assurance and control (QAQC) practices to ensure that current levels of quality can either be maintained or improved with the increased manufacturing capacity.
• Install, test and debug new assembly equipment.

Resolving the above issues may require physical plant expansions. This would involve hiring an architect and general contractor, conducting plant design reviews, attending zoning hearings and plan review board meetings, possible disruption to existing operations during construction and the purchase of additional land.

The above points could require increased effort and involvement from engineering, procurement, legal and tax, inventory control, production, QAQC departments and sales representatives. This increased demand could also necessitate the hiring of additional personnel, resulting in higher payroll and healthcare costs.

Manufacturers of dispensers may have to undergo some form of third-party certification of their ATC dispensers for proof of accurate temperature compensation per any standard established by the Weights and Measures division of the National Institute of Standards and Technology for product densities.

If ATC is implemented, the resultant regulations would almost certainly contain a provision making the sale of non-ATC dispensers for retail use unlawful after a specific date. Consequently, orders for these dispensers would decrease dramatically even before the enactment of the regulations. Dispenser manufacturers would need to convert non-ATC dispensers over to ATC. They would also have to begin modifying their production lines and manufacturing processes to handle the increased demand for ATC dispensers. These types of disruptions would add significant costs to the manufacturer, a cost that they might or might not be able to fully recover from their customers.

New sales literature may have to be written, published and shipped to distributors along with additional service manuals and technical bulletins.

Manufacturers of point-of-sale (POS) equipment may need to revise and update firmware and software for their equipment, depending upon the type of communications protocol that currently exists between their equipment and the dispensers.

Automatic tank gauge (ATG) equipment manufacturers that provide fuel management services to the industry might have to update the firmware and software installed in the equipment and/or the programs on their servers to account for temperature-compensated sales volume figures provided by the ATC dispensers.

Distributors
Distributors could be required to expand their stock to include ATC dispensers and associated upgrade components. This would impact distributors in several ways, beginning with a review and analysis of current storage capacity.

Results may indicate that limited warehouse space may need to be expanded. This would require addressing similar issues such as expanding manufacturing plants.

New part numbers would have to be entered into inventory databases. New sales literature and service manuals would need to be stocked and distributed to customers and contractors.

Personnel may need to attend new sales and training seminars that explain the features and operation of ATC dispensers and upgrade components developed by manufacturers.

Sales and service-related calls could increase with both existing and potential new customers desiring to purchase ATC dispensers and upgrade components.

Updated training may need to be coordinated with manufacturers for contractor technicians. Additional staff could be required to handle the increased workload.

Contractors
Technicians would need to attend manufacturers' training courses to become certified in order to service the new ATC dispensers and install upgrade components.

Additional components may need to be stocked on service trucks and in shops.

Additional technicians may need to be hired to handle the increased demand for dispenser installations and upgrades.

Additional permits would need to be pulled for the installation of ATC dispensers and upgrade components. This could require permits from various regulatory agencies from the state, county or municipality where the RGO is located.

Managing the Risk
Beyond all of these impacts, one of the greatest risks for manufacturers, distributors and contractors would be the drop in demand once implementation of ATC is completed. The retail fuels industry experienced its share of business failures after it passed the 1998 deadline for upgrading underground storage tank systems. The downturn in demand for services caught a portion of the industry unawares. Hopefully, manufacturers, distributors and contractors will be better prepared to face the challenges that could come with a conversion to ATC.

Implementing change is rarely as simple or easy as the pundits of change would want us to believe. A changeover of the magnitude required for ATC would be complex and costly for everyone involved. Although there were not enough votes to pass the resolution to adopt ATC at this year's convention, in the arena of public opinion it is rapidly becoming the preferred method for resolving the problem of the equitable sale of retail motor fuels. If it is implemented at a later date, the industry's ability to plan for and manage the risks involved may prove to be the key difference between realizing financial success or facing significant financial challenges.

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[1] The above calculations are based on a temperature coefficient for gasoline of 0.0006. Some manufacturers reference 0.0007 as the temperature coefficient for gasoline. The calculation to determine net expansion or contraction of the gasoline is as follows: 10 Gals x the temperature coefficient for gasoline, (in this case 0.0006) x number of °F of change (in this case 15 degrees) = 0.09 gals. If the change in the temperature of the gasoline decreases from 75°F to 60°F then subtract 0.09 from the 10 Gals to arrive at 9.91 Gals. If the temperature of the gasoline increases from 75°F to 90°F then add 0.09 to the 10 Gals to arrive at 10.09 Gals.

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The PEI Journal • Fourth Quarter 2007 • Volume 1, No. 4 • Contents are Copyright © Data Key Communications, Inc.
All rights reserved. • Nothing may be reproduced in whole or part without written permission of the publisher.