[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]


 
                 A DISCUSSION DRAFT PROVIDING FOR A REDUCTION 
                                    IN THE 
                           NUMBER OF BOUTIQUE FUELS


                                   HEARING

                                  BEFORE THE


                           COMMITTEE ON ENERGY AND 
                                   COMMERCE

                          HOUSE OF REPRESENTATIVES


                         ONE HUNDRED NINTH CONGRESS

                                SECOND SESSION


                                 JUNE 7, 2006

                              Serial No. 109-106

         Printed for the use of the Committee on Energy and Commerce



Available via the World Wide Web:  http://www.access.gpo.gov/congress/house




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                      COMMITTEE ON ENERGY AND COMMERCE
                        JOE BARTON, Texas, Chairman
RALPH M. HALL, Texas                      JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida                  Ranking Member
  Vice Chairman                           HENRY A. WAXMAN, California
FRED UPTON, Michigan                      EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida                    RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                     EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                      FRANK PALLONE, JR., New Jersey
ED WHITFIELD, Kentucky                    SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia                  BART GORDON, Tennessee
BARBARA CUBIN, Wyoming                    BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois                    ANNA G. ESHOO, California
HEATHER WILSON, New Mexico                BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona                  ELIOT L. ENGEL, New York
CHARLES W. "CHIP" PICKERING,  Mississippi ALBERT R. WYNN, Maryland
  Vice Chairman                           GENE GREEN, Texas
VITO FOSSELLA, New York                   TED STRICKLAND, Ohio
ROY BLUNT, Missouri                       DIANA DEGETTE, Colorado
STEVE BUYER, Indiana                      LOIS CAPPS, California
GEORGE RADANOVICH, California             MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire            TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania             JIM DAVIS, Florida
MARY BONO, California                     JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                       HILDA L. SOLIS, California
LEE TERRY, Nebraska                       CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey                 JAY INSLEE, Washington
MIKE ROGERS, Michigan                     TAMMY BALDWIN, Wisconsin
C.L. "BUTCH" OTTER, Idaho                 MIKE ROSS, Arkansas                       
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee

                        BUD ALBRIGHT, Staff Director
                       DAVID CAVICKE, General Counsel
       REID P. F. STUNTZ, Minority Staff Director and Chief Counsel


                                   CONTENTS


                                                                      Page
Testimony of:
        Harbert, Hon. Karen A., Assistant Secretary, Office of 
              Policy and International Affairs, U.S. Department of 
              Energy	                                               27
        Meyers, Robert J., Associate Assistant Administrator for 
              Air and Radiation, Environmental Protection Agency       33
        Murphy, Edward, Group Director, Downstream and 
              Industry Operations, American Petroleum Institute	       53
        Dinneen, Bob, President and CEO, Renewable Fuels 
              Association	                                       58
        Slaughter, Bob, President, National Petrochemical & 
              Refiners Association	                               62
        Becker, S. William, Executive Director, State and 
              Territorial Air Pollution Program Administrators/
              Association of Local Air Pollution Control Officials     70
        Hubbard, Sonja, CEO, E-Z Mart Stores, Inc., on behalf of 
              National Association of Convenience Stores and 
              Society of Independent Gasoline Marketers of America     77
Additional material submitted for the record:
        Murphy, Edward, Group Director, Downstream and 
              Industry Operations, American Petroleum Institute, 
              response for the record	                             106
        Hubbard, Sonja, CEO, E-Z Mart Stores, Inc., on behalf of 
              National Association of Convenience Stores and 
              Society of Independent Gasoline Marketers of 
              America, response for the record	                     108
        Becker, S. William, Executive Director, State and 
              Territorial Air Pollution Program 
              Administrators/Association of Local Air Pollution 
              Control Officials, response for the record	     111
        Harbert, Hon. Karen A., Assistant Secretary, Office of 
              Policy and International Affairs, U.S. Department of 
              Energy, response for the record	                     113
        Slaughter, Bob, President, National Petrochemical & 
              Refiners Association, response for the record	     115
        Dinneen, Bob, President and CEO, Renewable Fuels 
              Association, response for the record	             117
        Meyers, Robert J., Associate Assistant Administrator for 
              Air and Radiation, Environmental Protection Agency, 
              response for the record	                             121


                A DISCUSSION DRAFT PROVIDING FOR A REDUCTION 
                       IN THE NUMBER OF BOUTIQUE FUELS


                           WEDNESDAY, JUNE 7, 2006

                           HOUSE OF REPRESENTATIVES,
                      COMMITTEE ON ENERGY AND COMMERCE,
                                                          Washington, DC.


        The committee met, pursuant to notice, at 10:28 a.m., in Room 
2123 of the Rayburn House Office Building, Hon. Joe Barton 
[Chairman] presiding.
        Present:  Representatives Barton, Hall, Gillmor, Deal, 
Shimkus, Wilson, Shadegg, Fossella, Blunt, Bass, Walden, Terry, 
Sullivan, Murphy, Burgess, Blackburn, Dingell, Waxman, Eshoo, 
Stupak, Green, Allen, Schakowsky, Inslee, and Baldwin.  
        Staff Present:  David McCarthy, Chief Counsel for Energy and 
Environment; Margaret Caravelli, Counsel; Peter Kielty, 
Legislative Clerk; Sue Sheridan, Minority Senior Counsel; Bruce 
Harris, Minority Professional Staff Member; and Lorie Schmidt, 
Minority Counsel.  
        CHAIRMAN BARTON.  The committee will come to order.  
Today we are going to do several things.  We are going to consider 
a discussion draft on boutique fuels that would reduce the number 
of boutique fuels in the country, and it would expand the EPA's 
authority to waive fuel specifications granted under the Energy 
Policy Act of 2005, to include unexpected problems with 
distribution or delivery equipment necessary for transportation 
delivering fuel or fuel additives.  This discussion draft is another 
step in trying to create a greater energy security for this country. 
        A month ago the committee held a 2-day long hearing on 
gasoline supply, price, and specifications, and the reasons why 
gasoline prices are skyrocketing.  Crude oil prices, increased 
demand, transition from winter to summer fuels, removal of 
MTBE from the Nation's fuel supply, logistical issues with 
delivery of ethanol, and the brittleness of the distribution system 
have all contributed to the increasing price at the pump. 
        The committee is going to keep looking at the causes, but we 
are also continuing to look for solutions.  Today, we are here to 
focus on one of the solutions, which would be streamlining in the 
boutique fuel system.  Blending special fuels for different parts of 
the country serves a good purpose, there is no question about that, 
but it adds dramatically to the complexity of the gasoline 
distribution system if every part of the country chooses a unique 
fuel. 
        When gasoline was simply gasoline, it was fungible, it could be 
sold anywhere.  But when we began deciding that Alabama 
gasoline should be different from Illinois gasoline--you cannot 
substitute one with the other--we began to set the stage for some of 
the problems that we have experienced today and the last several 
years. 
        There may be a sufficient supply of gasoline generically in the 
country, but if it is not the exact kind for a specific region of the 
country, you are going to have a problem in that region. 
In the Energy Policy Act of 2005, we took initial steps to 
simplify the complexity of the boutique fuel system, begin the 
process by capping the number of fuels allowed to those approved 
by the EPA as of September 1st, 2004.  We also gave EPA the 
authority to waive fuel specifications in the event of a natural 
disaster, an act of God, pipeline refinery equipment failure, or any 
other reasonably unforeseeable event.  
        EPA utilized this authority 21 days after the signing of the bill, 
when Hurricane Katrina hit the Gulf Coast.  Originally criticized as 
unnecessary, this authority proved to be vital.  Within a month of 
enactment in staving off even greater price spikes and supply 
disruptions, we also directed EPA to conduct two studies:  one that 
would examine the harmonization of the Nation's fuel supply; the 
other that would require the EPA, in coordination with the 
Department of Energy, to develop a fuel system that maximizes the 
fuel fungibility and supply, addresses air quality requirements on a 
regional basis, and reduces fuel price volatility.
        The discussion draft before us takes another step forward in the 
simplification process.  The draft would move up the completion 
of certain elements of the studies, making it possible for the 
Environmental Protection Agency and the Department of Energy 
to utilize that information when developing what the draft refers to 
as the Approvable State Fuels List. 
        Each of the fuels included on this list of preapproved boutique 
fuels must satisfy all the prerequisites outlined in the draft.  Each 
fuel must have the ability to reduce emissions, thereby assisting the 
State in attaining the National Ambient Air Quality Standards, 
provide net benefits to the United States or a region of the 
country's fuel supply, and not result in reduction of supply 
producibility.  States in turn may choose from a fuel on the list 
provided that no more than two of the approved fuels may be used 
in each Petroleum Administration for Defense District, or PADD. 
        The fuels included on the Approvable State Fuels List ensure 
continued protection of air quality, while helping to reduce the 
strain on the distribution system by eliminating the fuel island 
effect that makes States vulnerable to supply disruptions today. 
        Some may ask if the draft would limit the ability of the States 
to protect their citizens' air quality.  I would say the answer to that 
question is no.  Let's keep in mind that boutique fuels are but one 
tool in a large collection of resources for improving air quality.  
The language in the discussion draft does not eliminate boutique 
fuels.  It does not eliminate the reformulated gasoline program or 
the ability of the States to opt in.  The language does not eliminate, 
for example, the State of California's unique carveout under the 
Clean Air Act to develop and implement its own motor vehicle and 
fuel emission standards.  The language seeks to provide options 
without putting the Nation's air quality or fuel supply at risk. 
        The discussion draft is just that, a discussion draft.  It is a 
compilation of ideas to provide a basis from which to learn more 
about a complicated issue.  Today, we are going to ask the 
witnesses how best to craft the language to reduce the number of 
boutique fuels.  How do we accomplish such a reduction while 
ensuring air quality, fuel producibility and supply, and lessening 
price volatility is the $64 question.  I have no doubt that each of 
you will have some valuable input on that question.  
        In addition, it is my understanding that we are going to learn 
more about the potential effects State PADD mandates may have 
on fuel supply.  In advance, I want to thank our witnesses today, in 
particular Karen Harbert who is the Assistant Secretary, Office of 
Policy and International Affairs at the Department of Energy, and 
Mr. Bob Meyers, who is a former Committee on Energy and 
Commerce Counsel who is now serving as Associate Assistant 
Administrator for Air and Radiation at the Environmental 
Protection Agency.  It is good to see both of you. 
        [The prepared statement of Hon. Joe Barton follows:] 

PREPARED STATEMENT OF THE HON. JOE BARTON, CHAIRMAN, 
COMMITTEE ON ENERGY AND COMMERCE

	Good morning. Today the Committee will consider a 
discussion draft that would do two things:
	 provide for the reduction in the number of boutique fuels in 
this country and 
	 expand EPA's  authority to waive fuel specifications, 
granted under the Energy Policy Act of 2005, to include 
unexpected problems with distribution or delivery 
equipment necessary for transportation and delivery of fuel 
or fuel additives. 
	This discussion draft is another step in our plan towards energy 
security .
	Four weeks ago, this Committee held a two-day long hearing 
on gasoline supply, price, and specifications, and the reasons why 
gasoline prices have skyrocketed became painfully clear.   Crude 
oil prices, increased demand, transition from winter to summer 
fuels, removal of MTBE from the nation's fuel supply, logistical 
issues with the delivery of ethanol, and the brittleness of the 
distribution system all contribute to the increase in the price at the 
pump.   Some say that these are penny-ante issues, at least in their 
effect on the price of a single gallon of gasoline, but as every 
driver in America can tell you, they add up fast.  The Committee is 
going to keep looking at the causes and solutions, and we're here 
today to focus on one of them -- boutique fuels.   
	Blending special fuels for different parts of the country serves a 
good purpose, but it adds dramatically to the complexity of the 
gasoline distribution system.  When gasoline was simply gasoline, 
it could be sold anywhere.  But when we began deciding that 
Alabama gasoline should be different from Illinois gasoline, and 
you could not fill in one with the other, we set the stage for 
problems.  There may be plenty of gas around in America, it just 
isn't the kind that is permitted to be sold in certain states.  
	In the Energy Policy Act of 2005, we took initial steps to 
simplify the complex system of boutique fuels. We began this 
process by capping the number of boutique fuels allowed to those 
approved by the EPA as of September 1, 2004.  We also gave EPA 
authority to waive fuel specifications in the event of a natural 
disaster, an Act of God, a pipeline or refinery equipment failure or 
any other reasonably unforeseeable event.  EPA utilized this 
authority 21 days after the signing of the bill when Hurricane 
Katrina hit the Gulf Coast.  Originally criticized as unnecessary, 
this authority proved to be vital, within in a month of enactment, in 
staving off even greater price spikes and supply disruptions.  
	We also directed EPA to conduct two studies, one that 
examines the harmonization of the nation's fuel supply, and 
another that requires EPA, in coordination with DOE, to develop a 
fuels system that maximizes fuel fungibility and supply, addresses 
air quality requirements, and reduces fuel price volatility.
	The discussion draft before us today takes another step forward 
in the simplification process.  This draft would move up the 
completion of certain elements of the studies making it possible for 
the EPA and DOE to utilize that information when developing 
what the draft refers to as the Approvable State Fuels List.  Each of 
the fuels included on this list of "pre-approved" boutique fuels 
must satisfy all prerequisites outlined in the draft.  Each fuel must 
have the ability to reduce emissions thereby assisting the state in 
attaining the National Ambient Air Quality Standards, provide net 
benefits to the United States or a region of the country's fuel 
supply, and not result in a reduction in supply or producibility. 
	States, in turn, may choose a fuel from the list, provided that no 
more than two of the approved fuels may be used in each 
Petroleum Administration for Defense District (PADD).   The fuels 
included on the Approvable State Fuels List ensure continued 
protection of air quality while helping to reduce the strain on the 
distribution system by eliminating the "fuel island" effect that 
makes States vulnerable to supply disruptions.
	Some may ask if the draft would limit the ability of States to 
protect their citizens' air quality.  However, let's keep in mind that 
boutique fuels are but one tool in a large collection of resources for 
improving air quality.  The language in the discussion draft does 
not eliminate boutique fuels. It does not eliminate the reformulated 
gasoline program, or the ability of a State to opt in.  The language 
does not eliminate the State of California's unique carve out under 
the Clean Air Act to develop and implement its own motor vehicle 
and fuel emission standards.  The language seeks to provide 
options without putting the nation's air quality or fuel supply at 
risk.
	The discussion draft is just that, a compilation of ideas that 
provide a basis from which to learn more about a complicated 
issue. Today, I will ask each of the witnesses how best to craft 
language to reduce the number of boutique fuels. How do we 
accomplish such a reduction while ensuring air quality, fuel 
producibility and supply, and lessening price volatility.  I have no 
doubt each of you will be ready to provide such input.  In addition, 
it is my understanding we will learn more about the potential effect 
state additive mandates may have on fuel supply and price. 
	In advance, I want to thank our witnesses here today, in 
particular, the Honorable Karen Harbert, Assistant Secretary, 
Office of Policy and International Affairs, Department of Energy 
and Mr. Bob Meyers, a former Committee on Energy and 
Commerce Counsel, now serving as Associate Assistant 
Administrator for Air and Radiation, Environmental Protection 
Agency.  Bob, it is good to see you again.

        CHAIRMAN BARTON.  Mr. Dingell has arrived for an opening 
statement. 
        MR. DINGELL.  Good morning, Mr. Chairman.  Thank you.  
I want to thank you and commend you for holding this hearing 
today.  I must note that this process stands in rather remarkable 
contrast to that used on the refinery bill, which was moved to the 
House floor without the benefit of consideration by the committee. 
        I hope today's process will lead us to a more cooperative and a 
better result. 
        This discussion draft to reduce the number of boutique fuels 
raises a number of important questions.  Most importantly, what 
has changed since last August when we enacted the Energy Policy 
Act of 2005?  We agreed to substantive provisions in the bill to 
address what some believed were problems with State clean air 
fuels or boutique fuels. 
        First, in response to the concerns about proliferation of State 
clean air fuels, we adopted a provision to prohibit any increase in 
the number of State clean air fuel programs. 
        Second, in response to concerns about decreased fungibility of 
the fuel supply, which could exacerbate price spikes or supply 
disruptions during emergencies, we adopted language that gave the 
Environmental Protection Agency authority to waive State 
requirements in emergencies.  This new provision was used 
extensively and proved to be most helpful in the wake of 
Hurricanes Katrina and Rita.  
        Third, EPAct 2005 repealed the oxygenate requirement for 
Federal reformulated gasoline, eliminating one of the main drivers 
for States to adopt their own clean air fuels--concern about MTBE 
in the drinking water. 
        Lastly, the Department of Energy and EPA are required under 
EPAct 2005 to jointly prepare and send a report to Congress by 
early August so that we can evaluate the effect of these changes 
and determine whether further action would be appropriate.  The 
report also would recommend further legislative changes if the 
Administration deemed that were necessary.  EPAct 2005 
contained a comprehensive approach to solve many of the known 
problems of boutique fuels and required reports to evaluate the 
effect of these legislative changes. 
        Now we find ourselves in a rather curious position.  We are 
attempting to legislate without the very information we agreed 
would allow us to evaluate its impact and to legislate in an 
enlightened fashion.  Have new facts come to light that indicate a 
need for us to change the law that was passed less than a year ago?  
Is there evidence that the State clean air fuels have contributed to 
the run-up in gas prices?  Is there evidence that the waiver 
authority in EPAct 2005 was insufficient?  And why is the 
administration only now beginning to implement these boutique 
fuel provisions?  For example, EPA was directed to issue a list of 
State clean air fuel programs 90 days after enactment of EPAct 
2005.  Instead, EPA, some 7 months late, only yesterday published 
a proposed list for comment. 
        I suspect that the two matters--that is, that publishing and this 
hearing--are intimately entwined. 
        I would also note that within 180 days of enactment, EPA was 
to publish regulations governing the waiver authority for State 
clean air fuels in extreme and unusual emergencies.  These 
regulations have not yet been proposed.  I must hope and assume 
that your leadership, in having this hearing today, will stimulate 
some action on the part of the agency. 
        EPA has been slow in meeting their responsibilities as set forth 
by the Congress, perhaps due in part to insufficient congressional 
oversight.  I hope that this oversight will wake up an agency which 
appears to be rather sleepy on these matters. 
        But I note that EPA has moved on this matter quickly only 
when the President became interested in the issue of boutique fuels 
last April. 
        I suggest that we take advantage, then, of EPA's awakening 
and that we spend our time overseeing the implementation of the 
statute we labored so mightily to enact, and that we do this instead 
of legislating before we get the information being gathered under 
the 2005 Act.  We do need this information before we can legislate 
intelligently.  And I hope that your leadership in having these 
meetings will perhaps encourage EPA to do some of the things that 
they are supposed to do with other government agencies so that we 
can, in effect, carry out our responsibilities properly.  I thank you, 
Mr. Chairman. 
        [The prepared statement of Hon. John D. Dingell follows:] 

PREPARED STATEMENT OF THE HON. JOHN D. DINGELL, A 
REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

	Mr. Chairman, thank you for holding this hearing today.  I 
must note that this process stands in marked contrast to that used 
on the refinery bill, which moved to the House floor without the 
benefit of this Committee's consideration.  I hope today's process 
will lead us to a better result.
	This discussion draft to reduce the number of boutique fuels 
raises several important questions, most importantly:  What has 
changed since last August, when we enacted the Energy Policy Act 
of 2005 (EPACT)?  We agreed to substantive provisions in that bill 
to address what some believed were problems with State clean air 
fuels or "boutique fuels."
	First, in response to concerns about a proliferation of State 
clean air fuels, we adopted a provision to prohibit any increase in 
the number of State clean air fuel programs.
	Second, in response to concerns about decreased fungibility of 
the fuel supply, which could exacerbate price spikes or supply 
disruptions during emergencies, we adopted language that gave the 
Environmental Protection Agency (EPA) authority to waive State 
requirements in emergencies.  This new provision was used 
extensively and proved helpful in the wake of Hurricanes Katrina 
and Rita.
	Third, EPACT 2005 repealed the oxygenate requirement for 
Federal reformulated gasoline, eliminating one of the main drivers 
for States to adopt their own clean air fuels - concerns about 
MTBE in drinking water.
	Lastly, the Department of Energy (DOE) and EPA are required 
under EPACT 2005 to jointly prepare and send a report to 
Congress by early August so we can evaluate the effect of these 
changes, and determine whether further action would be 
appropriate.  The report would also recommend further legislative 
changes, if the Administration deemed that necessary.
	EPACT 2005 contained a comprehensive approach to solve 
many of the known problems of boutique fuels and required 
reports to evaluate the effect of those legislative changes.
	Now we find ourselves in the curious position of attempting to 
legislate without the very information we agreed would allow us to 
evaluate its impact.  Have new facts come to light that indicate a 
need for us to change the law that was passed less than a year ago?  
Is there evidence that State clean air fuels have contributed to the 
run up in gas prices?  Is there evidence that the waiver authority in 
EPACT 2005 was insufficient?
	And why is the Administration only now beginning to 
implement these boutique fuel provisions?  For example, EPA was 
directed to issue a list of the State clean air fuel programs 90 days 
after enactment of EPACT 2005.  Instead EPA, some seven 
months late, only yesterday published the proposed list for 
comment.  Also, within 180 days of enactment, EPA was to 
publish regulations governing the waiver authority for State clean 
air fuels in extreme and unusual emergencies.  These regulations 
have yet to be proposed.
	EPA has been rather slow in meeting their responsibilities set 
forth by Congress, perhaps due in part to insufficient 
Congressional oversight.   But I note that EPA moved on this 
matter quickly when the President became interested in the issue of 
boutique fuels last April.
	I suggest that we take advantage of EPA's awakening, and 
spend our time overseeing the implementation of the statute we 
labored so mightily to enact, rather than rushing to legislate before 
we get the information being gathered under the 2005 Act.

        CHAIRMAN BARTON.  We thank the gentleman for his 
leadership on this issue.  
        The distinguished Whip, Mr. Blunt, who has been a leader on 
this issue for a number of years, is recognized for an opening 
statement. 
        MR. BLUNT.  Mr. Chairman, thank you for holding this hearing 
today on our discussion draft.  As you know, the high price of 
gasoline is one of the major issues facing the people we work for 
as they drive to work every day, as they enter the summer driving 
season.  Gas prices have continued to rise at a steady pace.  In fact, 
according to gas-watch.com, the average price of gasoline is 2.86 
per gallon, with the highest being $4.09 per gallon in Bridgeport, 
California.  
        Gas prices in several cities, including Washington, are well 
above $3 per gallon.  It is my belief that the number of boutique 
fuels exacerbate this problem.  And as you said, this has been an 
issue that I have been concerned about for some time. 
        Boutique fuels are specialized blends produced in a specific 
State or area of the country to meet State and local air quality 
requirements.  I have been very concerned about the proliferation 
of these fuels.  The number of fuels has expanded, and we now 
have an uncoordinated and overly complex set of fuel rules that I 
believe is leading to increased cost and price spikes. 
        In an editorial in USA Today, on May the 5th of this year, that 
newspaper equated boutique fuels to coffee at Starbucks, 
unnecessarily complex and pricey, according to the editorial.  And 
while that may be fine for coffee, it is not fine, in my view, for 
gasoline.  We need more fungibility in the marketplace.  We need 
this product to be as much of a commodity as possible.  
        It is my hope that this hearing will provide us the opportunity 
to look at the draft, to have the kind of input that your decision to 
have this hearing on draft legislation would create as we move 
forward with this issue. 
        As both you and the Ranking Member have pointed out, last 
year during the debate on the Energy Policy Act, we worked very 
hard to secure a cap on existing boutique fuels to ensure that this 
problem would not worsen.  We also gave the EPA authority to 
temporarily waive certain fuel specifications during unforeseeable 
fuel supply emergencies. 
        This was a great first step towards solving the problem, and, 
Mr. Chairman, as you just stated, these measures were extremely 
important during the aftermath of Hurricane Katrina.  Without this 
additional waiver authority, refiners would not have been able to 
redirect fuel supplies to the area.  We were able to maximize the 
supply delivery system by making gasoline a commodity again 
under the time period that we had given the President in the Energy 
Policy Act.  It turned out to be incredibly important in that review 
of unforeseeable circumstances. 
        This also now looks further at the system that develops when 
you have shortages, whether that is transitioning from one fuel 
additive to another, or whatever else might create a shortage that is 
not necessarily created by a natural disaster but clearly impacts the 
system.  
        I believe we need to take the next step in simplifying our fuel 
system.  We need to ratchet down on the number of existing 
boutique fuel blends.  While cities clearly can and do have air 
attainment challenges, it is unreasonable to assume, as we did for 
the first few years of this act, that every city somehow has a blend 
of fuel that is perfect just for them. 
        This Act moves further in establishing a number of fuel blends 
that cities can choose from, but not allowing the refineries to 
become the Starbucks of the delivery system.  And, Mr. Chairman 
I really do appreciate your leadership on this issue, the great work 
that you and your staff have done on this issue, and your decision 
to have a hearing on this discussion draft today, and I yield back.
        [The prepared statement of Hon. Roy Blunt follows:] 

PREPARED STATEMENT OF THE HON. ROY BLUNT, A 
REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSOURI

	Mr. Chairman, thank you for holding this hearing on our 
discussion today.  As we know, the high price of gasoline is one of 
the major issues facing our constituents as they drive to work every 
day.  Gas prices have continued to rise at a steady pace.  In fact, 
according to Gaspricewatch.com, the average price of gasoline is 
$2.86 per gallon, with the highest being $4.09 per gallon in 
Bridgeport, California.  Gas prices in some cities, including 
Washington, are well above $3 per gallon.  It is my belief the 
number of boutique fuel blends are exacerbating this problem. 
	Boutique fuels are specialized blends produced for a specific 
state or area of the country to meet state and local air quality 
requirements.  These unique fuels present serious challenges to the 
fuel distribution system and, especially in times of disruption, may 
have the potential to result in local supply shortages.  This 
discussion draft relies on a simple concept: creating a larger market 
for a greater amount of gasoline.
	I have been very concerned about the proliferation of boutique 
fuels for several years.  The number of fuels has expanded and we 
now have an uncoordinated and overly complex set of fuel rules 
that I believe is leading to increased costs and price spikes.  An 
editorial in USA Today, dated May 5, 2006, equated boutique fuels 
to coffee at Starbucks - unnecessarily complex and pricy.  We 
need to restore fungibility to the market by harmonizing our fuel 
system.
	It is my hope this hearing will provide us with an opportunity 
to discuss not only what led to this present situation but, more 
importantly, to develop a viable solution.  Mr. Chairman, I think 
this is a step in the right direction and I appreciate the effort you 
and other colleagues on the Committee have given this problem.
	Last year during debate of the Energy Policy Act of 2005 we 
worked very hard to secure a cap on existing boutique fuels to 
ensure this problem could not worsen.  We also gave the EPA the 
authority to temporarily waive certain fuel specifications during 
unforeseeable fuel supply emergencies.  This was a great first step 
toward solving the problem.  Mr. Chairman, as you stated, these 
measures were extremely important during the aftermath of 
Hurricane Katrina.  Without this additional waiver authority 
refiners would not have been able to redirect fuel supplies to the 
area.  Without supply to fuel vehicles, emergency responders 
would not have had the ability to bring needed supplies to Gulf 
Coast communities nor would buses would have been able to 
evacuate victims.
	I believe we need to take the next step in simplifying our fuel 
system.  We need to ratchet down on the number of existing 
unique fuel blends.  The language in this discussion draft will 
encourage states to look among an approved list of fuels instead of 
creating a new unique blend, which would only contribute to price 
spikes and fuel supply problems.  We also need to look at the 
ability of the EPA to deal with temporary waivers and at enhancing 
that authority.  Additionally, we need to encourage the EPA to 
finish the studies required by the Energy Policy Act of 2005 in a 
timelier manner. 
	Mr. Chairman, once again thank you for opportunity to offer 
this opening statement and I look forward to working with you and 
the Committee on this complex issue.
	I yield back.

        CHAIRMAN BARTON.  I thank the distinguished Whip.
        Does the gentlelady from California, Ms. Eshoo, wish to make 
an opening statement?  
        MS. ESHOO.  I do.  Good morning, Mr. Chairman, thank you 
for having this full committee legislative hearing on the discussion 
draft of legislation to limit the number of boutique fuels. 
        I have been concerned about the so-called balkanization of the 
gasoline supply where too many blends of fuels make us 
susceptible to supply interruptions and price hikes.  But I think that 
at this point the bill is unnecessary and is a somewhat dangerous 
attempt, I think, to address an issue that is on its way to being 
resolved.  I say "dangerous" because it could limit States' abilities 
to clean up the air. 
        I think it is important to recognize what boutique fuels are.  
They are fuel programs adopted by States or regions, with the 
approval of the EPA, in order to help them come into compliance 
with national air quality standards.  Boutique fuels are adopted in 
the interest of protecting public health and they are not chosen 
frivolously. 
        States that choose to use them have to demonstrate that no 
other measure will help them comply with air quality standards in 
a timely fashion or that alternative measures are unreasonable or 
impracticable.  These fuels have been effective in reducing 
pollution.  The GAO reports that boutique fuels have reduced 
smog-forming emissions by up to 25 percent. 
        These benefits have been achieved at less than 3 cents a gallon.  
I want to repeat that:  These benefits have been achieved at less 
than 3 cents a gallon. 
        So the issue of boutique fuels, I think--everyone should go 
back and appreciate this was addressed by the Energy Policy Act 
that was signed into law by the President last year.  The Act 
capped the number of boutique fuels to the number approved for 
use in 2004.  
        Last week, after almost 6 months of delay, the EPA published 
the list of those fuels.  There are seven.  Once this list is adopted, 
there will never be any more than seven fuels. 
        I don't know what is in the bill that is going to reduce it from 
seven, or how you are going to come up with that, but that is what 
is in place now.  
        During Hurricane Katrina, the EPA's new authority to waive 
certain clean air requirements for fuel was used more than 30 times 
and helped get supplies where they were needed. 
        Now, I have several concerns with this bill, but particularly that 
we are discussing the bill, I think, without all the facts.  Maybe we 
will get them today, but I am concerned about it.  
        The EPA, the DOE, and the Governors are studying how to 
reduce the number of fuels in a way that improves fuel supplies but 
does not hamper the effort to improve air quality.  That report will 
not come out until next month.  The Energy Policy Act requires an 
even more extensive review by June 2008. 
        So my question, Mr. Chairman:  Wouldn't it make more sense 
to have at least one of these reports before considering a bill?  I am 
also concerned that arbitrarily limiting the number of boutique 
fuels will make it more difficult for States to achieve their air 
quality standards and could force them to undertake other 
measures that are not as effective or as efficient.  We all want to 
see lower gasoline prices and avoid supply interruptions, but as I 
read it, this bill could hamper the ability of States to improve air 
quality.  
        Thank you, Mr. Chairman and I yield back the balance of my 
time.
        [The prepared statement of Hon. Anna G. Eshoo follows:] 

PREPARED STATEMENT OF THE HON. ANNA G. ESHOO, A 
REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

	Mr. Chairman, thank you for allowing a full committee 
legislative hearing on the discussion draft of legislation to limit the 
number of boutique fuels.
	I've been concerned about the so-called balkanization of the 
gasoline supply, in which too many blends of fuels make us 
susceptible to supply interruptions and price spikes.  
	However, I think this bill is an unnecessary and dangerous 
attempt to address an issue that is on its way to being 
resolved.dangerous because it could limit state's ability to clean 
up the air.
	First, I think it's important to recognize what boutique fuels 
are.  They are fuels adopted by states or regions with the approval 
of EPA in order to help them come into compliance with national 
air quality standards.  
	Boutique fuels are adopted in the interest of protecting public 
health and they are not chosen frivolously.
	States that choose to use them must demonstrate that no other 
measure will help them comply with air quality standards in a 
timely fashion or that alternative measures are unreasonable or 
impracticable.
	These fuels have been effective in reducing pollution.  GAO 
reports that boutique fuels have reduced smog-forming emissions 
by up 25%.  These benefits have been achieved at less than three 
cents a gallon.
	The issue of boutique fuels was addressed by the Energy Policy 
Act signed by the President last year.

The Act capped the number of boutique fuels to the number 
approved for use in 2004.  Last week, after over six months 
of delay, the EPA published the list of those fuels.  There 
are seven.  Once this list is adopted, there will never be any 
more than seven fuels.

During hurricane Katrina, the EPA's new authority to 
waive certain clean air requirements for fuel was used thirty 
times and helped get supplies where they were needed.

	I have several concerns with this bill, particularly that we are 
discussing a bill without all the facts:

The EPA, DOE, and Governors are studying how to reduce 
the number of fuels in a way that improves fuels supply but 
does not hamper the effort to improve air quality.  That 
report will not come out until next month.  

The Energy Policy Act requires an even more extensive 
review by June 2008.  

	Wouldn't it make sense to have at least one of these reports 
before considering a bill?
	I'm also concerned that arbitrarily limiting the number of 
boutique fuels will make it more difficult for states to achieve their 
air quality standards and could force them to undertake other 
measures that are not as effective or efficient.  
	We all want to see lower gasoline prices and avoid supply 
interruptions, but as I read it, this bill could hamper the ability of 
the states to improve air quality.

        CHAIRMAN BARTON.  I thank the gentlelady.
        Mr. Terry.  
        MR. TERRY.  I will waive until we get to the panel. 
        CHAIRMAN BARTON.  Dr. Burgess. 
        MR. BURGESS.  Thank you, Mr. Chairman, and I will be brief.  
        We have learned through our series of hearings the past several 
months that there are a number of factors contributing to our high 
gasoline prices that we see today, including the crude oil price and 
tight refinery capacity as well as environmental regulations.  This 
morning we are going to examine a discussion draft of legislation 
that seeks to modify price spikes associated with the environmental 
premium imposed on the price of gasoline.  
        In my home State of Texas, we literally produce oil and 
gasoline to send to our friends elsewhere in the country because 
they can't make those things for themselves.  But we pay more per 
gallon at the pump because of our generosity.  The emissions from 
our refineries have a negative impact on our air quality, which 
means that we must fill our tanks with more expensive 
reformulated gasoline.  
        Mr. Chairman, again I thank you for holding this hearing this 
morning and I look forward to the testimony of our witnesses. 
        [The prepared statement of Hon. Michael G. Burgess follows:] 

PREPARED STATEMENT OF THE HON. MICHAEL G. BURGESS, A 
REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

	Mr. Chairman, thank you for convening this hearing this 
morning.  And thanks to our panelists for coming before us today.  
	As we have learned through a series of hearings over the last 
few months, there are a number of factors that contribute to high 
gasoline prices, including crude oil prices, tight refinery capacity, 
and environmental regulations.  
	Last week, we passed legislation on the floor that would 
increase domestic oil supply by allowing oil and gas exploration in 
ANWR.  
	Later today on the floor we will consider legislation that would 
streamline the permitting process for new fuel refining capacity by 
eliminating needless bureaucratic delay and giving federal courts 
the authority to keep projects on schedule.  
	And here this morning, we will examine a discussion draft of 
legislation that seeks to reduce price spikes associated the 
environmental premium imposed on the price of gasoline by 
boutique fuels in a time of supply disruption.  
	Non-federal fuel specification requirements reduce the 
fungibility of gasoline, especially in a supply shortage situation.  
That means that gasoline that can be used in Lubbock cannot be 
used in Fort Worth.  Gasoline used in Utah cannot be used in 
Chicago.  This limited inability to move gasoline across the 
country in response to local demand results in increased prices at 
the pump.  
	In my home State of Texas, we willingly produce oil and 
gasoline to send to our friends in the Northeast because they don't 
make those things for themselves.  But we pay more per gallon at 
the pump because of our generosity.  The emissions from our 
refineries have a negative impact on our air quality, which means 
we must fill our tanks with more-expensive reformulated gasoline.  
	Studies have shown that air quality has an impact on public 
health, and as a physician, public health is paramount to me.  I am 
certainly not suggesting that we reduce our air standards in order to 
lower the price of gas.  But we should employ some common 
sense.  It does not make sense to have 15 different approved fuels 
in use across the country, as EPA indicated in their May 31st 
report.  
	The Government Accountability Office has said that boutique 
fuels add anywhere between three tenths to 3 cents per gallon of 
gasoline.  While this may not seem like a lot, with gasoline at 
$3.09, this can add up very quickly.  
	A supply shortage in one of the "fuel islands" created by the 
use of boutique fuels, is exacerbated by the area's inability to 
import fuel from a neighboring area, which can lead to price 
volatility, commonly referred to as "price spikes".  
	In addition to increased prices at the pump, the logistical 
complications of transporting and distributing boutique fuels to the 
"fuel islands" could intensify supply shortages if the source of the 
fuel is not nearby.  
	In North Texas recently, the logistical problems associated 
with the transition between MTBE and ethanol caused price spikes 
that make gasoline in the Dallas Fort Worth area some of the most 
expensive in the country.  
	In EPAct, we capped the number of boutique fuels to that 
number already approved by the EPA; with this discussion draft, 
we are looking to reduce the number of boutique gasoline fuels in 
use across the country.  
	I am looking forward to hearing from our panelists about the 
approach taken in the discussion draft and I'd like to thank you all 
for taking the time out of your busy schedules to be with us today.  
	Mr. Chairman, I yield back.

        CHAIRMAN BARTON.  We thank the gentleman.  
        Mr. Stupak. 
        MR. STUPAK.  Thank you, Chairman Barton, Ranking Member 
Dingell, and thank you for holding today's hearing.  I would like to 
thank our witnesses.  I am pleased this committee has been holding 
hearings on the burden of high gas prices.  It is encouraging that 
the Chairman has finally realized that these hearings are needed, 
and I hope that Congress can produce real solutions to reduce the 
high energy prices.  
        Unfortunately, this committee seems to be relying on the oil 
companies to provide excuses and scapegoats rather than investing 
problems and finding serious solutions.  Today the excuse is 
boutique fuels, even though this committee and this Congress has 
already addressed boutique fuels through the Energy Policy Act of 
2005.  As part the energy bill approved last summer, Congress has 
already capped the number of boutique fuels and has directed the 
EPA to study whether additional boutique fuels need additional 
regulation.  I cannot find any merit in advancing additional 
legislation until these studies are completed.  
        Furthermore, it is widely accepted that boutique fuels have not 
caused the recent increase in gas prices.  According to the EPA, 
boutique fuels only add up to 3 cents per gallon, usually less.  
Several of our witnesses here today will confirm that this 
legislation will not have significant effect on the current gas prices.  
        While there is potential for increased cost should a production 
or supply disruption take place, Congress has already granted EPA 
authority to issue boutique fuel waivers should such a situation 
arise.  These waivers have already proved to be efficient and 
effective.  
        Instead of boutique fuels, this Congress and this committee 
should be investigating whether substantial profits currently being 
made by oil and gas companies are warranted, or whether these 
profits are a result of unfair pricing and market manipulation.  
Congress should pass a real price-gouging bill to prevent this.  
        We should also hold hearings on my legislation, the Prevent 
Unfair Manipulation of Prices, or PUMP Act, to bring oversight 
and transparency to over-the-counter trading of energy 
commodities which are currently unregulated.  It is estimated that 
through the PUMP Act, a barrel of oil could be reduced by $20.  
Then, as previous hearings have shown, regulate the crack spread 
and we could lower the price of oil converted to gasoline by 
another $12.  We could lower gas prices in this country by 40 to 
50 percent through sound legislative proposals.  
        Also we could have the foresight to investigate natural gas 
prices.  High natural gas prices are already affecting farmers, 
manufacturing, the electrical and utilities, among other industries.  
Rather than wait until this winter for natural gas prices to be even 
higher, we should address the issue now.  
        Our constituents are waiting for Congress to address high 
energy prices.  I fail to see how this bill we are discussing today 
would accomplish this.  I welcome our witnesses and yield back 
the balance of my time. 
        CHAIRMAN BARTON.  Does Dr. Murphy wish to make an 
opening statement?  
        MR. MURPHY.  Yes.  Thank you, Mr. Chairman.  I thank you 
for holding this hearing and continuing your emphasis on 
providing a number of important directions for Congress moving 
in lowering fuel prices.  It is an ongoing battle; we have to increase 
the supply.  Every American understands the issues of supply and 
demand.  We simply do not have enough supply to meet the 
demands currently and in the future.  
        The moves that you and this committee have done to increase 
such things as conservation are important and we need to be much 
more vigorous in that.  However, several issues, that is, building 
more refineries in America is important.  Every American 
understands we have lost refineries from the hurricanes and we 
need more.  And yet there is a split in this committee in terms of 
building those.  The boutique fuel issue is also incredibly 
important because we recognize these plants have to stop and start 
in building new fuels.  
        It reminds me, I am one of 11 children, I remember at times all 
11 kids would come in the kitchen and ask for something different; 
and my mom would respond and say, I am not making you all what 
you want.  You are all going to get the same thing.  I don't have all 
night to cook.  
        And it is a matter here as these issues go on, the oil refineries 
don't have the luxury of starting and stopping, creating all these 
things and then be able to keep prices down.  
        The American people also understand we need to be drilling 
for our massive oil supplies and natural gas supplies we have 
throughout our country in the Rocky Mountains, in Alaska, and the 
Pacific Coast and Atlantic Coast.  We have oil around this Nation 
and we need to be getting it. 
        So as you put together these packages of things, Mr. Chairman, 
I think it is important and I support you in continuing to push 
forward on these issues to lower gas prices, to get our economy 
moving in these directions to stop the price increases which are 
destroying our chemical industry, our agricultural industry, as 
prices of fertilizer go up, et cetera.  And I am looking forward to 
hearing from the witnesses today to hear more ways that we can 
move forward to increase the supply and lower prices. 
        Thank you very much. 
        CHAIRMAN BARTON.  I thank the gentleman.  
        Mr. Green of Texas. 
        And let me announce that the President of Latvia is addressing 
a Joint Session at 11:00 a.m. this morning.  The results require that 
we stand in recess while that Joint Session is underway. 
I am going to ask unanimous consent in a minute to bend the 
rules and at least allow everybody here, all Members present, to 
give their opening statements so that everybody that has waited 
patiently for an hour gets to give their statement. 
        Mr. Green. 
        MR. GREEN.  Thank you very much.  Thank you, Mr. 
Chairman.  Our committee has been extremely active on fuel 
supply issues and I hope our members on both sides realize we 
need to think long term and see the whole field.  There are plenty 
of ways to criticize the current state of fuel content regulations in 
our country.  A complex web of multipurpose regulations on the 
State and Federal level leads to supply vulnerability in some areas 
during unexpected events like fires, breakdowns, and hurricanes.  
        There are also some benefits in the current system, because the 
multiple fuels allow for flexibility in pursuit of environmental 
goals while maximizing the overall supplies. 
        If we are going to move to fewer cleaner fuels, we will 
probably see more areas using low vapor pressure.  And the DOE 
tells us that fuel supply will decrease in the short run.  As a result, 
the committee should allow for plenty of lead time to adapt to an 
altered fuel system if we make any further changes.  
        The fact that we are considering legislation on boutique fuels 
for the second time in 2 years does cause some regulatory 
uncertainly.  We probably can make some improvements in the 
patchwork of fuel content standards over the medium term, but we 
must be careful.  If you pull one string of these fuel regulations, 
you don't know what else may come loose.  The Chairman is wise 
to have thorough hearings on the topic before legislating because 
we definitely want to do no harm when gas prices are at the levels 
they are today.  And I yield back my time. 
        CHAIRMAN BARTON.  Does Mr. Shadegg wish to make an 
opening statement?  
        MR. SHADEGG.  I do, Mr. Chairman.  Thank you very much for 
holding this hearing on the draft legislation to combat the 
proliferation of boutique fuels.  
        As you know, Mr. Chairman, the committee included 
provisions in the Energy Policy Act of 2005 to essentially hold the 
line on boutique fuels, restricting the approval of new blends and 
requiring several studies of the issue.  I strongly supported that 
legislation as a necessary first step and believe the draft bill before 
us would further strengthen our efforts to increase flexibility and 
fungibility to our fuel delivery infrastructure.  
        While I believe the bill before us is strong, and I support it, I 
believe we may wish to consider expanding the definition of 
boutique fuels to truly capture the actual market.  
        My concern here specifically is diesel fuel.  Mr. Chairman, I 
understand we are all concerned about the price of gasoline and we 
need to be doing everything we can to ensure that there is a 
constant supply of gasoline and that it comes to our market at the 
lowest possible price.  I would like to point out that diesel fuel 
moves our economy.  We ship tons of goods every year with diesel 
fuel.  That industry right now, the trucking industry, is embracing 
ultra-low sulfur diesel.  But I am concerned that the definition of 
boutique fuels adopted or proposed by the EPA will open us to 
essentially a whole new market of boutique fuels.  By categorizing 
biodiesel as merely an additive, we face the prospect of all 50 
States, or at least a substantial number of them, enacting a 
biodiesel mandate creating an individual market in State after State 
essentially in a boutique diesel fuel structure.  
        I think it is important to understand that today's trucks move 
thousands of miles without refueling, and so this is not so much an 
issue of local concern, but rather an issue of national concern.  A 
truck fueled in California, for example, only burns one quarter of 
its tank of fuel before it is out of the State, say back in my State of 
Arizona and vice versa.  So it seems to me the diesel fuel is a 
national issue.  And we need to make sure that we do not damage 
the market in diesel fuels by essentially, as we are eliminating 
boutique fuels for gasoline, nonetheless allowing essentially new 
boutique fuels in the diesel area by embracing biodiesel.  
        Let me make it clear.  I am not opposing biodiesel.  What I am 
doing is expressing concern that as we move to try to create a 
uniform market, as we move to try to limit boutique fuels because 
of their impact on the marketplace, we need to be sure we are not 
causing additional damage in the diesel area by allowing State after 
State to adopt their own unique and burdensome on-the-market 
biodiesel requirements.  
        Indeed, I think it may be that we should be looking at a 
definition which would embrace biodiesel in the definition of 
boutique fuels and create, as much as we can, a single clean fuel in 
the country for the diesel industry, because these are truly 
interstate trucks.  
        With that qualification, Mr. Chairman, I appreciate the hearing 
and look forward to the testimony of the witnesses. 
        CHAIRMAN BARTON.  We thank the gentleman.  
        The Chair would ask unanimous consent that the committee 
continue in session to hear the remaining opening statements of the 
Members present.  
        Is there objection?  Hearing none so ordered.  
        Gentleman from Maine, Mr. Allen. 
        MR. ALLEN.  Thank you, Mr. Chairman.  I should always 
welcome, I suppose, any hearing on a topic before this committee, 
but I am having some trouble understanding why this hearing and 
this legislation is really necessary at this time. 
        The Energy Policy Act we passed just 10 months ago 
addressed most of the major concerns with boutique or State clean 
fuels.  The number of new fuels is capped.  EPA has been given 
authority to grant waivers in the event of emergencies, the 
oxygenate mandate has been dropped from the Federal 
reformulated gasoline program.  Further, EPA and DOE are 
preparing an extensive report on State clean air fuels, due to 
Congress in June of 2008. 
        The President has convened a task force of Governors to study 
the issue of State clean air fuels, and it has been working for 
approximately 1 month.  I think we should receive these reports 
and then decide if further action is necessary.  
        State clean air fuels allow States to deal creatively with air 
quality standards and to meet their State implementation plans.  
The use of these fuels is often the most cost-effective way to meet 
a State's SIP. 
        The cost of producing a State clean air fuel adds somewhere 
between .3 and 3 cents to the cost of a gallon of gasoline, or, at 
today's prices, between one-tenth of 1 percent and 1 percent. 
        The American Petroleum Institute's prepared testimony today 
says, and I quote, "The patchwork of localized boutique fuels is 
not principally responsible for the recent higher gasoline prices and 
an enactment and implementation of this legislation would not 
address the most important drivers of the gasoline price increases 
we have experienced over the last several months." 
        I really don't believe that this legislation will help consumers 
deal with high gas prices, and I do suggest we stop referring to 
boutique fuels. 
        That evokes images of costly expensive shopping districts and 
unnecessary luxury items; even, in the words of our distinguished 
whip, coffee at Starbucks.  State clean air fuels are not expensive, 
and clean air is certainly not a luxury. 
        States cannot use a State clean air fuel unless there is no other 
way to meet this SIP that is reasonable or practicable.  So if States 
are denied the use of State clean air fuels, then they will be forced 
to resort to measures that would be unreasonable or impractical.  
        Seven Maine counties, six of which are in my district, are 
required by our SIP to use a State clean air fuel in the summer.  
That is not due to traffic on the Maine Turnpike, but because 
atmospheric conditions transport significant amounts of pollution 
to Maine.  If Maine could not use a State clear air fuel, then it 
would be forced to meet its SIP with measures that would 
significantly affect Maine industries in order to address a problem 
that is largely generated by out-of-state polluters.  Or, of course, 
my constituents could simply settle for dirty air.  
        We should not act on the issue of State clean air fuels until we 
have the benefits of the reports this committee asked for in the 
Energy Policy Act, and we should not sacrifice a useful tool for 
meeting our clean air goals. 
        And with that, Mr. Chairman, I yield back. 
        CHAIRMAN BARTON.  The distinguished Chairman of the 
Energy and Air Quality Subcommittee wish to make an opening 
statement?  Mr. Hall. 
        MR. HALL.  Mr. Chairman, I make a very brief opening 
statement, and I thank you for holding this hearing and for the 
work that you have done leading up to it and for the input of the 
folks that are here.  And the first panel is very important that 
regulate what happens and guide us in what is happening.  
        I just want to say a word, if I might, about one of my 
constituents that are going to be on the second panel, Sonja 
Hubbard with E-Z Mart Stores.  And, Mr. Chairman, if you will 
remember, Bill Douglas, her associate, helped us point out that at 
one time it was not the convenience stores and other local service 
stations that caused the escalating cost of fuel, it was at the refinery 
level.  And I think they pointed that out pretty clearly. 
        Sonja has been named to the Fortune 500, her company, E-Z 
Mart, and she operates locations in four States:  a major one in 
Texas, of course, and she is serving first term as the Chairman of 
the National Association of Convenience Stores.  I just want to 
honor her and welcome her to the panel in case I have to run and 
go like everybody else seems to be doing today.  Thank you Mr. 
Chairman. 
        CHAIRMAN BARTON.  Thank you, Mr. Chairman.  
        Does the gentlelady from Chicago, Mrs. Schakowsky, wish to 
make an opening statement?  
        MS. SCHAKOWSKY.  I do, Mr. Chairman, thank you.  As 
American consumers suffer pain at the pump, the committee is 
again heading down the wrong track, I believe.  This legislation is 
a poor answer to a problem that may not exist.  It could prevent 
States from finding cheap and readily available means of meeting 
clean air standards and actually raise gasoline prices.  In his 
testimony before the committee on May 10th, EIA Deputy 
Administrator Gruenspecht said that limiting boutique fuels could 
raise gasoline prices.  The EIA predicted that the Energy Policy 
Act would raise gas prices, and it did, over last year's record 
prices.  
        My constituents who pay an average of $2.96 for a gallon of 
regular gasoline--although I think over the weekend actually I saw 
it spike, I can't find a gas station under $3.10, $3.05 right now--
will be outraged to learn that instead of limiting profits and 
bringing down prices, we are considering legislation that could 
raise the price of gasoline.  
        Handcuffing the ability of States and localities to develop clean 
fuels in the cheapest possible way, using local resources, is not 
sound or sensible policy.  The Energy Policy Act limited the 
number of boutique fuels to seven.  This legislation prohibits 
States from developing their own clean air fuels; instead, limiting 
their choice to one of two options authorized by the EPA.  
Allowing States that develop their own clean air fuels in order to 
meet Federal standards has led to a negligible price increase, on 
average, 0.3 and 3 cents per gallon.  Forcing States to produce a 
nationally mandated fuel blend or import that blend from another 
State could lead gasoline prices to increase significantly.
        The legislation also gives the EPA authority to grant a fuel 
waiver in quote "the event of unexpected problems with 
distribution or delivery equipment that is necessary for 
transportation and delivery of fuel or fuel additives," unquote.  
        Since the Energy Policy Act already granted a fuel waiver that 
dealt with natural disasters, this new waiver authority could allow 
the Administration to limit the supply and distribution of clean 
fuels and biofuels for much lesser reasons.  
        This legislation, flawed in its content, is also premature.  After 
dragging its feet to take action since the Energy Policy Act became 
law last August, the Bush Administration has recently begun to 
enact it by directing the EPA to develop an approved list of 
boutique fuel types and convened a boutique fuel task force.  Led 
by a bipartisan coalition of Governors, we are now considering 
legislation that would further limit boutique fuels both before the 
task force has issued its recommendations and before we have seen 
the effects of limiting boutique fuels to seven. 
        In the written testimony, our witnesses from the National 
Petrochemical and Refiners Association and the American 
Petroleum Institute encouraged the committee to consider limiting 
State biofuel mandate.  Let's be clear.  Biofuels such as ethanol are 
not boutique fuels and they are not responsible for rising gas 
prices.  Biofuels like ethanol actually increase supply.  And if we 
invest in a sufficient supply network, their proliferation could bring 
gasoline prices down and keep our air clean.  That, I believe, is 
why big oil opposes this.  
        I plan to ask Mr. Murphy from the American Petroleum 
Institute who says in his testimony, quote, "Integrating ethanol and 
other biofuels into the gasoline marketplace is too important to be 
approached in an individual state-by-state manner."  
        Well, would he then support stronger Federal clean fuel 
mandates, like requiring all fuel nationwide to be at least E-10 and 
supporting making the ethanol supply more readily available?  I 
don't think so. 
        The use of ethanol expands our gasoline supply by increasing 
the volume of finished product typically by about 10 percent.  
According to the Department of Agriculture, ethanol also increases 
efficiency.  For every unit of energy that goes into growing corn 
and turning it into ethanol, we get back about one-third more 
energy as automotive fuel.  
        This legislation will not bring down gasoline prices.  We have 
seen no economic analysis demonstrating boutique fuels would 
mean lower prices and no industry representative has said they 
would lower prices if we pass this bill.  
        Legislation could also produce a roadblock to keeping our air 
clean and reducing our oil demand.  We must get our arms around 
the problem before proposing a solution.  I look forward to 
continuing to work with all the stakeholders, including Governors, 
to determine whether further Federal legislation is necessary, and 
necessary at this time, to prescribe how States develop clean air 
fuels.  Thank you, Mr. Chairman. 
        CHAIRMAN BARTON.  Thank you.  
        Does Mr. Bass wish to make an opening statement?  
        MR. BASS.  No opening statement. 
        CHAIRMAN BARTON.  Mr. Sullivan. 
        MR. SULLIVAN.  Thank you, Mr. Chairman, for holding this 
important hearing today on the discussion draft bill to provide for 
the reduction in the number of boutique fuels.  The Energy Policy 
Act, which was signed into law in August of 2005, enacted a 
renewable fuels mandate that will grow by 7.5 billion gallons by 
the beginning of the next decade.  I voted for the renewable fuels 
standard when it passed through this committee last year, as did 
many of my colleagues.  One of the reasons for this is because 
flexibility provisions were built into the renewable fuels standard 
which permit ethanol and biodiesel to be used where it makes 
economic sense, rather than where the Federal or State government 
requires it to be used. 
        This is one of the biggest reasons why I am concerned with the 
expansion of the State alternative fuel mandates over the past year 
or so. 
        In this year alone, 20 States have considered such ethanol or 
biodiesel mandates and several States have enacted new 
requirements.  These State actions concern me because they 
undercut the flexibility that Congress purposely built into the 
renewable fuels standard in the Energy Policy Act.  Rather than 
allow market forces to dictate when renewable fuels are to be used, 
these State mandates restrict normal market forces and substitute 
minimum content standards for every gallon of gasoline or diesel 
fuel sold in the State.  
        I am not against increased use of biofuels.  In fact, there are 
several companies starting up in my home State of Oklahoma that 
plan to produce biodiesel.  I welcome their innovative business 
plans and the economic benefits they will bring to Oklahoma.  My 
State legislature has had conversations about providing incentives 
for renewable fuel, but I am concerned that the specific mandate 
could harm other technology.  
        I am also concerned that these State ethanol and biodiesel 
mandates undercut the flexibility we built into the renewable fuels 
standards, and, at the same time, undercut the cap on the number of 
boutique fuels we adopted under the Energy Policy Act.  I look 
forward to the hearing and testimony today of these States' 
alternative fuel mandates.  Thank you, Mr. Chairman. 
        CHAIRMAN BARTON.  We thank the gentleman from Oklahoma. 
        Does the gentlelady from Wisconsin wish to make an opening 
statement?  
        MS. BALDWIN.  Yes, thank you.  
        Mr. Chairman, a few years ago, in 2001, hardworking 
Wisconsin families saw a sudden surge in gas prices.  Historically, 
these gas price spikes were attributed to the approach of summer 
and high demand.  But this particular price surge was the result of 
a pipeline rupture.  Unfortunately, this disruption in service could 
not be easily resolved by simply turning to nearby urban areas for 
supplemental supply of gasoline.  Rather, because southeast 
Wisconsin opts into the Federal reformulated gasoline program, a 
special formula had to be pumped from Texas, resulting in price 
hikes and headaches. 
        It is because of this unfortunate situation that I am aware of 
problems caused by varying standards for fuel.  And I am 
concerned about price spikes that occur during times of disrupted 
service.  
        However, I am also aware that the Energy Policy Act, which 
was passed into law less than 1 year ago, addresses a number of 
ways that we can ease price spikes and limit the number of fuel 
formulas.  For instance, the law grants temporary waivers of fuel 
requirements in unusual and emergency circumstances, such as the 
pipeline rupture that effected areas in Wisconsin. 
        The law also capped the number of State clean air fuels that 
can be used nationwide, and on June 1st, just 7 days ago, the EPA 
released a proposed rule on State fuels in compliance with the 
Energy Policy Act.  The agency proposes to limit to seven the 
number of fuel types. 
        Further, it proposes the new State fuels cannot be adopted 
unless the new fuel is already being used within the geographic 
region. 
        Despite EPA's new guidelines, we are here today examining a 
bill that will further restrict State fuels.  And I am concerned that 
the ink on the proposed rule is barely dry, yet we are already trying 
to alter the underlying law.  If we move forward with today's draft 
legislation and further reduce the number of boutique fuels 
available, we will never know the effect of our efforts in the 
Energy Policy Act. 
        More importantly, we will be taking a step backwards in our 
efforts to improve air quality standards through clean fuels, and at 
stake are the millions of Americans who will potentially be 
exposed to unhealthy levels of air pollution. 
        Additionally, today's legislation focuses on State clean air 
fuels.  It does not consider Federal fuel formulas such as the 
reformulated gasoline used in southeastern Wisconsin.  As such, 
reducing the number of boutique fuels will have no effect on 
lowering prices and increasing supply in regions of the country 
using federally formulated gasoline programs. 
        Moreover, the Energy Policy Act helped ease problems that 
resulted from disruptions in supply, like the pipeline break in 
southeastern Wisconsin in 2001, through its emergency waiver 
provisions.  Therefore, I urge the committee to reconsider moving 
forward with boutique fuels reduction legislation now.  Let's give 
the boutique fuel provisions in the Energy Policy Act a chance to 
operate and let's allow the EPA to move forward with the job that 
Congress tasked the agency to perform.  
        Thank you, Mr. Chairman.  And I yield back the balance of my 
time. 
        CHAIRMAN BARTON.  We thank the gentlelady.  
        If no other Member present seeks to give an opening statement, 
all opening statements are concluded.  All Members not present 
shall have the requisite number of days to put their written 
statement in the record at the appropriate time.  
        [Additional statement submitted for the record follows:] 

PREPARED STATEMENT OF THE HON. CLIFF STEARNS, A 
REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

	Mr. Chairman, thank you for once again focusing our attention 
on boutique fuels.
	Government mandates for specially-formulated gasoline across 
the country have led to a proliferation of "boutique" fuel 
requirements -- each region or metro area demanding a different 
blend in order to meet certain air pollution goals under the Clean 
Air Act's National Ambient Air Quality Standards, particularly for 
ozone. 
	In the Energy Policy Act we passed into law last year, we gave 
EPA the authority to temporarily waive a control or prohibition for 
a fuel or fuel additive because of supply problems -- natural 
disasters, equipment failures, or general unforeseeable events.  The 
legislation we are discussing today further outlines such waiver 
circumstances, providing more flexibility to the Department of 
Energy and EPA.
	The Energy Policy Act also capped the number of boutique 
fuels.  Today's legislation would continue to constrict the number 
of such fuels, in order to give States as much flexibility as possible 
in meeting environmental goals, without unnecessarily driving up 
the costs of gas and limiting its supply.
	Mr. Chairman, it is important that we continue to refine our 
environmental regulations.  However, I also think it is appropriate 
to pause to appreciate the progress we have already made in 
environmental equality.  For instance, the past three years have 
been the three lowest-ozone years on record, based on the 8-hour 
ozone standard. As a result of these three record-low ozone years, 
the national 8-hour ozone attainment rate skyrocketed from 57 
percent of monitoring sites in 2003 up to 88 percent by the end of 
2005. While 2005 was one of the hottest years on record, ozone 
levels remained at historic lows for the third year in a row. The 
result was an unprecedented increase in compliance with federal 
clean air standards. 
	I look forward to hearing from our witnesses today as to how 
we can best provide States and fuel providers the flexibility needed 
to build on such successes.

        CHAIRMAN BARTON.  The President of Latvia is speaking on 
the floor.  We are going to stand in recess until 5 minutes after her 
speech concludes.  I have not seen the text of the speech, but I am 
guessing that we will reconvene about a quarter to noon, so we 
stand in recess until approximately 11:45.
        [Recess.] 
        CHAIRMAN BARTON.  The meeting will come to order.  We 
need our witnesses.
        We are going to go ahead and start now.  It is now almost noon 
time.  
        So the Chair announces that a quorum is present and welcomes 
our first panel.  We have the Honorable Karen Harbert, who is the 
Assistant Secretary of Policy and International Affairs of the 
Department of Energy.  We have Mr. Robert J. Meyers, who is the 
Associate Administrator for Air and Radiation at the 
Environmental Protection Agency.  
        Your statements are in the record in their entirety.

STATEMENTS OF THE HONORABLE KAREN A. HARBERT, ASSISTANT SECRETARY, OFFICE OF 
POLICY AND INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF ENERGY; AND ROBERT J. 
MEYERS, ASSOCIATE ASSISTANT ADMINISTRATOR FOR AIR AND RADIATION, 
ENVIRONMENTAL PROTECTION AGENCY  

        CHAIRMAN BARTON.  We recognize you, Ms. Harbert, for 7 
minutes and then Mr. Meyers.  Welcome to the committee.
        MS. HARBERT.  Thank you, Mr. Chairman.  
        I really appreciate the opportunity to come before you to talk 
about this discussion draft and the status of the gasoline market 
currently in the United States.  It is obviously a topic of great 
interest to the Administration.  We are very concerned about the 
impact of high prices on consumers, on businesses, on 
homeowners.  
        On April 25th, 2006, as you know, the President made a 
speech, made a proposal and in a 4-Point Plan to Confront High 
Gasoline Prices; and in that, as part of that 4-point plan, he did 
direct EPA Administrator Johnson to establish a governor's task 
force to confront the large problem of too many localized fuel 
blends.  
        First, just a teeny bit of background on the fuel distribution 
system.  As you know, the U.S. petroleum supply system is an 
intricate production, distribution, and storage system designed to 
carry a limited number of fuels, but over time and as the number of 
fuels have increased the industry has accommodated the changes in 
various ways.  
        Variations in fuel types have strained the distribution and 
storage systems and have contributed to price spikes when the 
supply system has been disrupted for a variety of reasons.  The 
number of distinct fuels being used in areas geographically distant 
from supply sources has strained the motor-fuel distribution 
system.  Concurrently, these systems have also been challenged by 
the large growth in U.S. gasoline and diesel demand and the 
limited expansion of  pipeline capacity and product storage and 
lack of investment.  The collective result of all of these factors has 
been an increasingly sensitive supply system that has little room 
for error.  Any supply problem can create a localized motor-fuel 
shortfall with consequent price spikes.  
        To date, fuel type proliferation has from time to time created 
problems during supply interruptions.  However, today's high 
gasoline prices are not the result of boutique fuels but are a result 
of a variety of a multitude of factors.  Boutique fuel problems arise 
most often during supply disruptions such as a pipeline break or as 
we saw in the recent hurricanes.  
        In general, it might be worthwhile to reduce the number of fuel 
types that can be used to meet local environmental requirements.  
Moving to fewer fuel types would reduce strain on the distribution 
system.  However, depending on what specific fuel types were 
required, there is a potential to increase challenges for the refining 
sector, that sector that we are asking to expand currently.  
        The consequences of requiring a generally cleaner fuel are not 
limited to higher fuel costs but also include loss of gasoline 
blending components that can be used during the peak gasoline 
season.  Given the complexity of this issue, obviously thoughtful 
and informed solutions are needed; and discussions like today are 
part of that effort.  
        The bill that we are here to discuss would broaden the basis for 
granting fuel waivers and require the reduction in the number of 
approved boutique fuels, once a previous fuel ceases to be used.  
Another section of the bill would then change what fuels would be 
considered to be, quote, unquote, "approvable" as part of a State 
request for incorporation into a State Implementation Plan.  This 
section, which is Section 3(b), might have uncertain consequences 
on the resulting boutique fuel requirements by States.  While it is 
possible that it will produce boutique fuels and no additional 
burden on refiners, it is possible that the resulting fuel 
requirements would be more stringent and adversely affect 
refiners' ability to supply fuel.  
        Due to the complexity of this issue and the associated 
complications, it would be helpful to further review this section to 
better understand its possible consequences to help ensure that it 
achieves its desired outcomes.  As my colleague from EPA will 
indicate and I would like to indicate, the Administration has not 
fully analyzed this legislation and is not yet prepared to offer a 
position on this amendment.  And, of course, it is still in the 
discussion stage, as you pointed out earlier. 
        A note about regulatory stability.  The motor fuel industry has, 
since the Clean Air Amendments of 1990, responded to a variety 
of regulatory initiatives including reformulated gasoline, 
low-sulfur gasoline and diesel fuel, changes in oxygenate 
requirements, shifts from ethers to biofuels and the proliferation of 
boutique fuels to meet air quality standards.  Over the past 
9 months, natural disasters have constrained refinery output and, 
when combined with a strong economy and a growing demand for 
U.S. transportation fuels, refiners are hard pressed to keep up with 
demand.  
        I don't need to remind the committee the number of challenges 
which we are facing on the energy front which are straining on the 
demand situation, but I can address those.  
        The Department would encourage Congress to consider 
regulatory stability as a factor that could contribute to greater fuel 
supplies.  An additional factor that should be considered is whether 
the current system of regulation could be enhanced by accounting 
for fuel supply and distribution issues in the development and 
approval of new fuel types.  
        As you know, the Energy Policy Act of 2005 recognized the 
fuel harmonization issue is larger than just the boutique fuel issue.  
Section 1541 will help limit the proliferation of the boutique fuels 
and also require DOE/EPA to provide a report to Congress this 
summer that will help determine how to develop a Federal fuel 
system than maximizes fuel fungibility and supply.  Section 1509 
requires a more broadly defined Fuel Harmonization Study, which 
is due to Congress in June of 2008.  
        The Administration is carrying out the boutique fuel 
requirements required by EPAct, and we are working both on 
Sections 1509 and 1541.  We will continue to collaborate with 
EPA on all regulatory matters, especially the evaluation of any fuel 
supply problems that may require fuel waivers.  
        Mr. Chairman, the Administration is really focused on 
addressing our Nation's energy challenges.  The current gasoline 
market is affected by numerous factors, including rising demand, 
limited spare capacity, a number of planned regulatory changes 
and lingering problems from last year's hurricanes.  We must 
address our energy challenge in a multi-faceted manner by 
increasing supply, increasing refining capacity, and improving 
efficiency. 
        The authorities provided in EPAct 2005 have laid out a 
sequential and thoughtful course to address the number of boutique 
and unique fuels.  We are committed to complying with these 
provisions.  
        As indicated above, since the legislation is at an early stage, we 
have not undertaken a formal review process.  But I would like to 
add that we and the Department are very grateful that the 
committee is undertaking efforts to improve the Nation's fuel 
supply; and we, of course, stand ready to assist the committee in 
the consideration of these important national issues.
        Thank you, Mr. Chairman.
        CHAIRMAN BARTON.  Thank you. 
        [The prepared statement of Hon. Karen A. Harbert follows:] 

PREPARED STATEMENT OF THE HON. KAREN A. HARBERT, 
ASSISTANT SECRETARY, OFFICE OF POLICY AND INTERNATIONAL 
AFFAIRS, U.S. DEPARTMENT OF ENERGY

	Mr. Chairman, and Members of the Committee, I appreciate 
the opportunity to come before you today to testify concerning 
draft legislation on boutique fuels.  This is a topic of great interest 
to the Administration.  The Department of Energy has been 
working closely with the Environmental Protection Agency on this 
issue for several years.  More recently, since the enactment of the 
Energy Policy Act of 2005, we have continued to collaborate with 
EPA to fulfill the many provisions of the Act affecting motor fuels 
including the boutique fuel requirements.  On April 25, 2006, the 
President addressed boutique fuels in his 4-Point Plan to Confront 
High Gasoline Prices directing Administrator Johnson to establish 
a Task Force to "confront the large problem of too many localized 
fuel blends."   

Background on the Fuel Distribution System
	The U.S. petroleum supply system comprises major refinery 
centers on the East, West, and Gulf Coasts, as well as some in the 
upper Midwest.  Gasoline, diesel, heating oil and other petroleum 
products leave these refineries and enter a long and complex 
network of pipelines that distribute the products throughout the 
country.  Pipelines move different products in separate batches, 
one right after the other.  The separate products are then deposited 
in separate terminal tanks near to where they will be consumed.   
Tank trucks pick up the products from the terminals and deliver 
them to retail outlets, consumer businesses, and even homes in the 
case of heating oil.  This production, distribution and storage 
system was designed to carry a limited number of fuels, but as fuel 
types have increased, the industry has accommodated the changes 
in various ways.  For example, at many terminals where premium, 
midgrade, and regular gasoline were once stored, midgrade 
gasoline storage was eliminated, and blending equipment was 
added to combine the appropriate volumes of premium and 
conventional gasoline into tank trucks or at retail outlets when 
midgrade gasoline was needed.   
	Variations in fuel types have strained the distribution and 
storage systems and have contributed to price spikes when the 
supply system has been disrupted.  The number of distinct fuels 
being used in areas distant from supply sources has strained the 
motor-fuel distribution system.  Concurrently, these systems have 
also been challenged by the large growth in U.S. gasoline and 
diesel demand and limited expansion of pipeline capacity and 
product storage.  The collective result of all of these factors has 
been an increasingly sensitive fuel-supply system that has little 
room for error.  Any supply problem can create a localized motor-
fuel shortfall with consequent price spikes. 
	To date, fuel type proliferation has generally been an 
exacerbating problem to supply flexibility and potential supply 
problems.  However, today's high gasoline prices are not the result 
of boutique fuels.  Boutique fuel problems arise most often during 
supply disruptions such as a pipeline break or the recent 
hurricanes.   In general, it may be worthwhile to limit or reduce the 
number of fuel types that can be used to meet local environmental 
requirements.  Moving to fewer fuel types would tend to reduce 
strain on the distribution system.  However, depending on what 
specific fuel types were required, there is a potential to increase 
challenges for the refinery sector.  The consequences of requiring a 
generally cleaner fuel (for example, gasoline with a RVP of 7 lbs. 
instead of 7.8 lbs.) are not limited to higher fuel cost but also 
include loss of gasoline blending components that can be used 
during the peak gasoline season.  Consequently, if reducing the 
number of boutique fuels that can be used to meet State 
Implementation Plans results in a regulatory regime that requires 
more low-RVP gasoline, this could reduce the availability of 
gasoline in the short term and thus offset any advantages gained by 
having fewer boutique fuels.  Given the complexity of the fuel 
system and the factors cited above, then, thoughtful and informed 
solutions are needed 

Fuel Harmonization Involves other Issues besides Boutique 
Fuels
	The Energy Policy Act of 2005 (EPAct) recognized that the 
fuel harmonization issue is larger than the "boutique fuels" 
required by State Implementation Plans.  Section 1541 will help 
limit the proliferation of these boutique fuels.  This section is 
discussed in some detail by my EPA colleague.  Section 1541 also 
requires that the Department of Energy and the Environmental 
Protection Agency submit a report to Congress in August of this 
year.  This study shall be to determine how to develop a Federal 
fuels system that maximizes fuel fungibility and supply including 
that which results from a proliferation of boutique fuels and to 
recommend to Congress what legislative changes are necessary to 
implement such a system.  Section 1509 requires a more broadly 
defined "Fuel Harmonization Study" that reflects all fuel 
requirements and requires a broader range of issues to be 
considered than the Section 1541 report. As defined in EPAct 
Section 1541, boutique fuels are those distinct fuels required by 
States to meet their State Implementation Plans.  These fuels are a 
subset of the broader number of distinct fuel types, which will be 
addressed in the Section 1509 study.  This study is due to Congress 
in June 2008.

State Biofuel Programs
	In considering the broader question of fuel harmonization, it 
will also be important to consider the role of biofuels.  As you 
know, the Administration has long promoted biofuels to achieve 
reduced oil imports and alleviate fuel-supply problems.  We 
supported the national Renewable Fuel Program in the EPAct.  In 
doing so, we strongly endorsed the flexibility provided by the 
credit and trading program and considered it to be an essential part 
of the proposed Renewable Fuel Standard.
	Many States are enacting biofuels programs.  States should 
design their programs to consider the potential consequences on 
State and regional fuel supplies, especially during possible supply 
interruptions.  States should also consider whether State mandates 
might work to undermine the flexibility provided in credit and 
trading system specified by EPAct to be incorporated into the 
federal Renewable Fuels Standard.  An additional factor to be 
considered is that ethanol-blended gasoline cannot be commingled 
with other gasolines due to the adverse effect commingling has on 
vapor pressure.   

Fuel Islands
	While reducing the number of boutique fuels would tend to 
reduce the burden on the distribution and storage system, it is also 
important to consider "fuel islands" that could be difficult to 
supply during a fuel-supply interruption.  The fuel islands, by 
regulation, are limited in ability to draw supply from nearby 
surrounding counties due to the variations in product 
specifications.  

Motor Vehicle Emission Technologies and Motor Fuels Have 
Changed
	Following the successful implementation of the many fuel and 
vehicle programs required in the Clean Air Act, the US market is 
significantly different than it was in the late 1980s and early 1990s.  
Changes since 2000, such as the Tier II vehicle and low-sulfur 
gasoline program and the implementation of the RFS have further 
changed the national market.  When the proposed second phase of 
the Mobile Source Air Toxics Rule is also considered, 
conventional gasoline emissions are being reduced to levels much 
closer to RFG emissions. There is reason to believe that the 
emissions consequences of RFG and low-RVP fuels in the 
changing Tier II vehicle fleet may be substantially different than 
those estimated in the early 1990s.  Ongoing research could reveal 
important relationships between fuels and emissions that might 
point the way to a more harmonized clean fuel that is easier to 
produce and distribute.

Regulatory Stability  
	The motor fuel industry has, since the Clean Air Amendments 
of 1990, responded to a variety of regulatory initiatives including 
reformulated gasoline, low-sulfur gasoline and diesel fuel, changes 
in oxygenate requirements, shifts from ethers to biofuels and, as 
discussed above, the proliferation of boutique fuels to meet air 
quality standards.  Over the last 9 months, natural disasters have 
constrained refinery output and, when combined with a strong 
economy and growing demand for U.S. transportation fuels, 
refiners are hard pressed to keep up with demand.  The U.S. 
refining industry has announced plans to expand distillation 
capacity at existing refineries by over 1.5 million barrels per day 
by 2010.  These plans often include increased capacity to use 
heavier crude oils and increased ability to produce clean light 
products.  Consequently, the Department would encourage the 
Congress to consider the virtue of regulatory stability as a factor 
that could contribute to greater fuel supplies.  An additional factor 
that should be considered is whether the current system of 
regulation could be enhanced by accounting for fuel supply and 
distribution issues in the development and approval of new fuel 
types.

Comments on the Discussion Draft Bill to Reduce the Number 
of Boutique Fuels 
	This bill would broaden the basis for granting fuel waivers and 
require the reduction in the number of approved boutique fuels, 
once a previous fuel ceases to be used.   Another section of the bill 
would then change what fuels would be considered to be 
"approvable" as part of a State request for incorporation into its 
SIP. This section (Section III(b)) might have uncertain 
consequences on the resulting boutique fuel requirements by 
States.  While it is possible that that it will produce fewer boutique 
fuels and no additional burden on refiners (even enhancement of 
fuel supplies), it is also possible that the resulting fuel 
requirements would be more stringent and adversely affect 
refiners' abilities to supply fuel.  Due to the complexity of this 
issue it would be helpful to further review this section to better 
understand its possible consequences to help ensure that it achieves 
its desired outcomes.  As indicated by my colleague from EPA, 
however, the Administration has not fully analyzed the legislation 
and is not offering a formal position on the legislation.  

Administration Plans
	The Administration is carrying out the boutique fuel 
requirements of the Energy Policy Act of 2005.  In particular, the 
Department of Energy is moving forward on the Section 1509 and 
1541 studies and reports discussed above.  Collaborating closely 
with EPA we intend to employ detailed analyses of the refining 
industry, employ new methodologies to estimate the consequences 
of different supply scenarios and consult with industry and other 
stakeholders to produce findings and recommendations that could 
be of use to the Congress.  The Boutique Fuel Task Force, 
described in some detail by my EPA colleague, is part of that 
process.   DOE and EPA will be providing the Section 1541 report, 
focusing on boutique fuels (resulting from State Implementation 
Plans) on schedule in August of this year and will continue to 
study the broader issue of fuel harmonization as required by 
section 1509.  DOE will continue to collaborate closely with EPA 
on all regulatory matters, especially the evaluation of any fuel-
supply problems that may require fuel waivers.

Concluding Remarks
	In conclusion, the Administration is focused on addressing our 
nation's energy challenges.  The current gasoline market is being 
affected by numerous factors including rising demand, limited 
spare capacity, a number of planned regulatory changes this year 
and lingering problems from last year's hurricanes.  We must 
address our energy challenge in a multifaceted manner by 
increasing supply, increasing refining capacity, and improving 
efficiency.  The authorities provided in EPACT 2005 have laid out 
a sequential and thoughtful course to address the number of 
boutique and unique fuels.  DOE is committed to complying with 
these provisions.  As indicated above, since the legislation is at an 
early stage in the legislative process and has not been reviewed by 
our normal interagency procedures, the Department of Energy does 
not have a position on the proposed bill. I would only add that I 
would like to thank the Committee for undertaking efforts to 
improve the Nation's fuel supply system and the Department of 
Energy stands ready to assist the Committee in consideration of 
these important National issues.



        CHAIRMAN BARTON.  We now will hear from Mr. Meyers who, 
as we pointed out, is a former Counsel for the committee and one 
of the real experts in the Clean Air Act.  Your testimony is in the 
record, sir; and we recognize you for 7 minutes to elaborate on it.  
        MR. MEYERS.  Thank you very much, Mr. Chairman. 
        CHAIRMAN BARTON.  Say that like you mean it.  It's a pleasure 
to be here.
        MR. MEYERS.  It really is.  It really is a pleasure to be here.  I 
truly mean that.
        CHAIRMAN BARTON.  All right. 
        MR. MEYERS.  I have my oral statement and my written 
statement in the record under committee rules, but I want to first 
start out by pointing out the progress that we made on fuels over 
the last few years.  
        You may have noted last week the Bush Administration rolled 
out the first phase of the Ultra Low-Sulfur Diesel program, and 
that fuel is a major accomplishment when you combine it with the 
technology of the engines to reduce emissions by 97 percent.  
        We have also promulgated rules on the off-road sector.  They 
will be phased in over time, and they are going to produce similar 
results in that sector.  All of this follows the Tier II program which 
we have been implementing on gasoline from gasoline standards 
for sulfur and equipment and for cars like heavier duty trucks.  
        On top of all of that, the agency has also pioneered a number of 
voluntary cooperative programs like our diesel retrofit program.  
        So when you add this all up with stationary programs like the 
CAIR, the Clean Air Interstate Rule, what we are really doing is 
producing attainment for a large part of the country with the ozone 
and particular mass standards.  That is no mean accomplishment.  
That is a major undertaking, and I wanted to point that out before 
we get into a specific issue. 
        Now when we look at boutique fuels we have mentioned the 
President's directive on the task force, and we have set that up with 
all 50 Governors to participate.  That has been important because 
the views of the States are important to this issue, and that task 
force has served as a forum for that to happen.  The task force has 
also been open and transparent.  
        We have developed a Web site that includes presentations on 
relevant technical issues, handouts, and other information.  We are 
working under an aggressive schedule, but we should have a report 
to provide to the President by the end of the month.  
        When you look at EPAct implementation, obviously, the 
agency had a number of different tasks to do under EPAct, but if I 
concentrate on the first issue in this hearing, I would first note that 
when Congress provided for a specific peak fuel subtitle in the 
Energy Policy Act it put this subtitle under Section 211(c)(4)(C) of 
the Clean Air Act so that part of the Clean Air Act is where we 
approve individual State fuels that vary from Federal standards.  
And I think it was referenced earlier we have operated under that 
for some time, on the necessity to have a determination that the 
fuels necessary for timely attainment of national ambient air 
quality standards are met.  
        EPAct amended this provision in several important respects.  
        First, under EPAct, the law that is in place right now, EPA 
would not approve of boutique fuels if it will cause an increase in 
the total number of fuels approved in State implementation 
programs as of September 1, 2004.  
        Second, EPAct requires EPA to remove a fuel from the list 
under certain circumstances such as when a fuel is no longer used 
or becomes identical to a Federal fuel control.
        And third, and probably one of the more forceful parts of 
EPAct, EPA can only approve boutique fuel if the fuel is currently 
approved and at least one SIP in the applicable petroleum defense 
district.  I know there is a chart number 1 which sort of illustrates 
the PADD districts outlined in color, and the boutique fuels have 
border patrol approved by EPA under 222(c)(4)(C).  So, 
essentially, States would be limited to those fuels that are in the 
colored areas that already exist.  So it freezes everything in place, 
and that is the basic aspect of it.  
        Now we mentioned earlier and my testimony includes a little 
more detail on the boutique fuels list which the Administration 
signed last--I think was published either yesterday or today.  We 
have preferred interpretation of seven fuel types in that list.  We 
are also taking comment.  
        I have on one slide.  Slide 1 is the seven fuels--or slide 2 is the 
seven fuels.  A little bit hard to see.  They are distinguished by 
PADDs and then slide 2 is we are making comment on the 
alternative interpretation on 15 State individually approved fuels.  
        But this is the first effort here in terms of going forward and 
putting the fuels in place as of 2004.  
        Turning quickly to the discussion draft, basically, this makes 
several additional changes to the existing law. 
        With respect to waivers that have been mentioned, the 
legislation adds a new criteria to the existing law of unexpected 
problems with distribution or delivery equipment; and with respect 
to boutique fuels, the legislation amends laws to include a new 
requirement that EPA reduce the total number of boutique fuels 
that are authorized to be approved in the event a boutique fuel 
ceases to be included in a SIP or becomes identical to a Federal 
fuel.  
        Now that sounds pretty identical to what I said in terms of what 
the existing law provides, and, in fact, it actually is almost 
identical.  Because of the operation of the existing law, we cannot 
approve a fuel that doesn't currently exist.  
        So, in effect, under existing law there is a ratchet that applies 
on the situation where States decide not to continually use fuels or 
fuels become essentially identical to Federal fuels.  Since we can't 
approve a fuel that doesn't exist, obviously, we can't approve a 
new fuel. 
        Second, and more importantly, the draft legislation provides for 
the current boutiques fuels list to be replaced with an Approvable 
State Fuels List.  To implement this provision, EPA and DOE are 
required to complete several studies within 9 months.  The 
Administration or the agency is required within 18 months to 
produce an Approvable State Fuels List based on the information 
contained in the studies.  
        The legislation then specifies that the list shall consist of no 
more than three gasoline fuels with different volatility levels, and 
the legislation then provides the Administrator may not approve 
more than two volatility controlled fuels in any one PADD. 
After promulgation of the new list, the approval of boutique 
fuels would be limited to the fuels contained on the list; and then 
this legislation would further require an evaluation of currently 
approved State fuels as well, State requests that would cause 
supply or distribution, disruptions in the area that is requesting the 
fuel, contiguous areas or within the region.  
        A third major change made by the legislation requires that all 
boutique fuels essentially conform to the fuels on the new list.  
Then the legislation requires that EPA inform the States if their 
fuels are not functionally identical to allowed fuels, and States that 
don't meet the test will be required to submit a revised SIP with 18 
months.  
        Finally, the legislation provides the opportunity for a governor 
to request that EPA either add to the Approvable State Fuels List 
or replace a fuel on the list as long as certain conditions related to 
air quality, fuel supply, distribution, and producibility are met.  
Approval of any such fuel, however, cannot result in more than 
four fuels on the list.  
        This completes my testimony for the committee; and, again, I 
want to thank you for being here and for the opportunity.  As my 
colleague from DOE mentioned, since we are at this early stage in 
the legislative process, we do not have a formal position, but we 
stand ready to work with the committee on this matter.  It is an 
important and vital issue, and we are happy to be here and assist 
that effort.
        CHAIRMAN BARTON.  Thank you. 
        [The prepared statement of Robert J. Meyers follows:] 

PREPARED STATEMENT OF ROBERT J. MEYERS, ASSOCIATE 
ASSISTANT ADMINISTRATOR FOR AIR AND RADIATION, 
ENVIRONMENTAL PROTECTION AGENCY

	Mr. Chairman, and members of the Committee, I appreciate the 
opportunity to testify today concerning draft legislation on 
boutique fuels.  As you know, EPA has worked closely with states, 
industry and other stakeholders to implement a number of federal 
mobile source programs that will provide cost-effective solutions 
for states and localities to address air quality.  Just last week, the 
Bush Administration rolled out the first phase of the Ultra Low 
Sulfur Diesel (ULSD) program with the requirement that refiners 
begin production of this new clean diesel fuel.  ULSD represents a 
97 percent reduction in the sulfur content of highway diesel fuel.  
Once this fuel program and the related emissions standards for 
heavy-duty diesel trucks and buses is fully implemented, it will 
reduce 2.6 million tons of nitrogen oxide emissions and 110,000 
tons of particulate matter emissions each year.
	The Bush Administration has also promulgated rules to reduce 
air pollutants from off-road vehicles, engines and fuels.  These 
rules will require low-sulfur fuel for off-road engines starting in 
2007 to be followed by ULSD in 2010 and fuel requirements for 
locomotive and marine engines in 2012.  These diesel programs 
follow the implementation of Tier II standards for gasoline, cars 
and light and heavier duty gasoline trucks which began its phase-in 
during 2004.  EPA has also pioneered a number of voluntary 
programs as part of its national clean diesel campaign.  This effort, 
in cooperation with state and local partners, includes promoting the 
reduction in emissions from existing engines through retrofitting, 
repair and idling reduction.  These efforts, along with stationary 
source programs like the Clean Air Interstate Rule, will provide 
federal assistance to states as they prepare local plans to meet the 
National Ambient Air Quality Standards (NAAQS).  The 
attainment benefits are substantial - these programs will bring 
most of the country into attainment with the current ozone and PM 
standards.  For areas that will not meet the standards, their burden 
will be lighter.
	My testimony today serves, in part, as a supplement to 
information that Acting Assistant Administrator William Wehrum 
shared with this committee at last month's boutique fuels hearing.  
In this regard, I will first provide an update on the Agency's 
implementation of certain fuels provisions in the Energy Policy 
Act of 2005 (EPAct) and our recent action to publish for public 
comment a draft list of state boutique fuels.  I will also address the 
President's directive to the Agency to convene a Task Force on 
Boutique Fuels.  Against this background of activity, I will then 
provide some initial analysis of the draft boutique fuels legislation 
prepared for this hearing, including comparison of the draft bill's 
provisions to current law.
	As a final introductory comment, it is important to note that at 
the Committee's previous hearing on boutique fuels held on May 
10, 2006, Acting Assistant Administrator Wehrum discussed what 
constitutes a boutique fuel.  The simple answer contained in his 
testimony was that a boutique fuel is a unique fuel specification 
that is developed by a state or local air pollution control agency 
and approved by EPA as part of the State Implementation Plan 
(SIP) for an affected area.  In this regard, although states other than 
California are  in many cases preempted from establishing 
individual fuel standards for purposes of motor vehicle emission 
control, the Clean Air Act (CAA) has  a specific provision, section 
211(c)(4)(C), that allows the Agency to approve state fuels as part 
of a SIP submission if the relevant statutory requirements were 
met.  (Indeed, when Congress provided for a specific subtitle of the 
Energy Policy Act of 2005 on Boutique Fuels, it was this 
subparagraph of the CAA that Congress amended).  Therefore, 
boutique fuels  do not include other clean fuel requirements that 
Congress established under other parts of the CAA for other 
purposes.  Boutique fuels do not include the federal reformulated 
gasoline requirements, the state wintertime oxygenated fuels 
program, California's clean fuel requirements, and area-specific 
fuels required by state law for purposes other than air quality (e.g., 
the State of Minnesota's requirement for a 10% ethanol blend).  

Energy Policy Act of 2005
	As discussed at last month's hearing, the Agency is 
implementing the fuel provisions in  Subtitle C of Title 15 of the 
Energy Policy Act of 2005 (EPAct).  This subtitle provides new 
authority for temporary waivers of federal and state fuel and fuel 
additive requirements.  It also amends the CAA provisions 
governing EPA's consideration and approval of state boutique fuel 
programs, adding new restrictions on EPA's authority to approve 
state boutique fuels into State Implementation Plans (SIPs).   
	Before the EPAct provisions were added, EPA could only 
approve an otherwise preempted state fuel into the SIP under 
section 211(c)(4)(C) if the state demonstrated that the fuel was 
necessary for the timely attainment of a National Ambient Air 
Quality standard (NAAQS).  The state had to show that the 
emissions reductions from the fuel control would still be needed 
even after accounting for emissions reductions from all of the 
reasonable and practicable non-fuel measures available to the state.   
	EPAct further limits EPA approval of a state fuel control:
	 EPA may not approve a state fuel program into the SIP if it 
would cause an increase in the "total number of fuels" 
approved into SIPs as of September 1, 2004.  That is, 
EPAct effectively placed a cap on the total number of 
boutique fuels allowed, based on the number already 
approved into SIPs as of that date.  In order to facilitate the 
implementation of this cap, EPA is required to publish a list 
of boutique fuels.   Administrator Johnson signed a notice 
regarding this list last week.
	 Second, EPAct allows EPA to remove a fuel from the list 
under certain circumstances, such as where the state fuel 
becomes identical to a federal fuel control.  EPAct also 
allows for the approval of new state boutique fuels.  
However, before EPA can approve another fuel, there must 
be "room" on the boutique fuel list and EPA has to find that 
the state boutique fuel will not cause supply or distribution 
problems or have significant adverse impacts on fuel 
producibility in the affected area or areas contiguous to 
where the fuel would be used.
	 Third, EPA can only approve a state fuel if the fuel is 
currently approved in at least one SIP in the applicable 
Petroleum Administration for Defense District (PADD).  
That is, if a fuel does not already exist in any state within a 
PADD, EPA cannot approve this fuel for any other state 
within the same PADD.   In some ways, as I will discuss 
more fully below, this is the most significant limitation in 
the current EPAct provisions.  It severely restricts EPA's 
ability to approve new state fuels.  

	In addition, EPAct required several studies concerning federal, 
state and local fuel programs and boutique fuels.  One joint 
EPA/DOE study, addressed by Assistant Administrator Wehrum 
during his testimony last month, requires a report on boutique fuels 
by this August.  A broader study, contained in section 1509 of 
EPAct, is due June 1, 2008.  

Boutique Fuels List
	The first step to implement the new EPAct restrictions on 
boutique fuels is publication of the boutique fuels list.  
Administrator Johnson signed this notice on June 1st providing a 
draft boutiques fuel list for public comment.   It will be published 
in the Federal Register shortly.  Prior to this notice, EPA 
conducted extensive outreach with stakeholders to assist in our 
deliberations regarding the interpretation of the statutory language.  
EPA also discussed with stakeholders how such an interpretation 
would impact the fuels system.
	EPA has proposed a list of "fuel types" that we believe best 
balances various concerns that have been expressed concerning the 
boutique fuels program.  This results in a list of seven different 
fuel types.  These seven fuel types were approved in 12 different 
states as of 2004.  EPA's notice also discusses ambiguity that is 
contained in the statute and the terms utilized.  Therefore, our 
boutique fuels list notice invites comment on another possible 
interpretation which would rely instead on the number of 
individual state SIP fuel approvals.  This interpretation would 
effectively result in 15 different state fuels.  Charts indicating the 
fuels contained under both interpretations of the statute are 
attached to this testimony.
	EPA believes that seven different fuel types is the more 
appropriate interpretation of the statute.  This interpretation would 
consist of four different state fuel types (including one diesel 
program) that are used in only one state and three fuel types 
(consisting of different controls on summertime gasoline Reid 
Vapor Pressure, or volatility) which are used in eight different 
states.
	Interested parties are given the opportunity to comment on this 
list within a 60-day comment period following publication of the 
notice in the Federal Register.  Once the Agency reviews any 
comments, we intend to quickly act to complete this action.   As 
noted above, under other provisions of EPAct, states seeking 
approval of new boutique fuels would be limited to fuel types 
already in existence within the PADD in which the state was 
located.

Task Force on Boutique Fuels
	On April 25th, President Bush directed Administrator Johnson 
to convene a Boutique Fuels Task Force.  All 50 Governors were 
invited to participate in the Task Force and since the initial May 4 
kickoff meeting, EPA and state representatives, with DOE and 
USDA, have been working to better understand and characterize 
the current status of state boutique fuels and develop 
recommendations and findings for the President from this 
information.  The task force has also heard from a wide range of 
stakeholders on their views about boutique fuels.
	To facilitate public information about the Task Force activities, 
EPA has developed a web site which includes EPA presentations 
on relevant technical issues, handouts and information provided by 
stakeholders, and other information.  This collective effort is 
working under an aggressive schedule, with a report expected to be 
provided to the President by the end of this month.  
	We are pleased by the participation we have seen throughout 
the task force process.  States and the stakeholders have been very 
helpful in characterizing their views on the need, impact and future 
of state boutique fuel programs.  Since deliberations of the task 
force are ongoing, I am hesitant to project or characterize in any 
way what final recommendations may result from the work of this 
group.  This being said, task force discussions have mirrored some 
of the same concerns Congress has reviewed with respect to 
boutique fuel programs.  
	For example, there have been concerns expressed regarding the 
important and cost-effective role of fuels in the achievement and 
maintenance of air quality standards.  There has also been 
recognition that opportunities may exist to improve the fungibility 
of the nation's fuel and to avert disruptions in fuel supply.  Finally, 
there has been a general recognition of the need for up-to-date 
information and technical analysis.  Much has transpired since 
EPA last analyzed this issue in 2001 - such as the removal of the 
oxygenate standard for RFG, imposition of new gasoline and diesel 
sulfur rules, market de-selection of MTBE, fleet turnover and 
operation of fuels in Tier II vehicles, tightened refinery and 
pipeline capacity margins and experience with the major 
disruptions in the 2005 hurricane season.
	We look forward to working with the task force in the next few 
weeks to provide additional clarity to the boutique fuel questions.  
We expect that information from the Task Force Report will 
provide useful guidance as DOE and EPA continue to address 
EPAct requirements.

Boutique Fuels Discussion Draft
	The draft legislation, the Boutique Fuels Reduction Act of 
2006 that was provided to EPA and other witnesses for today's 
hearing, makes several changes to existing law affecting fuel 
waivers and boutique fuels.  
	With respect to waivers, the legislation clarifies the criteria for 
granting 20 day waivers of certain Clean Air Act requirements. 
Under the current law, waivers may be granted for extreme and 
unusual fuel supply circumstances that are the result of a natural 
disaster, an Act of God, a pipeline or refinery equipment failure or 
another circumstance that could not reasonably have been foreseen 
or prevented.  The legislation would add to the list of 
circumstances "unexpected problems with distribution or delivery 
equipment that is necessary for transportation and delivery of fuel 
or fuel additives."  
	As the Committee may be aware, EPA, in coordination with 
the DOE, utilized the new waiver authority granted by the Energy 
Policy Act on 30 separate occasions following the occurrence of 
Hurricanes Katrina and Rita.  The legislation would clarify the 
circumstances that could be the basis for the exercise of this 
discretionary authority.
	With regard to boutique fuels, the legislation would make 
several significant changes to existing provisions enacted as part of 
the Energy Policy Act of 2005.  First, the legislation amends 
existing law to include a new requirement that the Environmental 
Protection Agency reduce the total number of boutique fuels that 
are authorized to be approved by the Agency under section 
211(c)(4)(C) in the event that a boutique fuel ceases to be included 
in a State Implementation Plan or becomes identical to a federal 
fuel control.  Under current law, EPA is required to revise the 
boutique fuel list in such circumstances, without changing the cap 
on the total number of fuels allowed.  This theoretically makes 
room for another fuel as long as the cap on the total number of 
state fuels is not violated.  The draft legislation would change this 
by reducing the number of boutique fuels that are authorized to be 
included on the boutique fuels list.  When a fuel is removed, the 
cap on the total number on fuels is also lowered, leaving no room 
for addition of another fuel.   
	This first change in existing law, however, may not result in 
any practical difference in what boutique fuels may be approved by 
the EPA in the future.  This is because other parts of current law, 
as described above in my discussion of EPAct, only allow EPA to 
approve any state boutique fuel if it is already currently approved 
in a state SIP in an applicable Petroleum Administration for 
Defense District (PADD).  This provision significantly limits the 
ability of states to add any "new fuels" to the boutique fuels list 
since the fuel must, in fact, already exist.  Thus, current provisions 
contained in section 1541(b) of EPAct appear to serve as a de facto 
reduction in the total number of available state boutique fuels.
	Second, and more importantly, the draft legislation provides for 
the current statutory boutiques fuel list and related restrictions to 
be replaced with an "Approvable State Fuels List."  Under the 
legislation, EPA is required within nine months to complete certain 
elements of currently required EPAct studies that relate to boutique 
fuels.  The Agency is then required, within 18 months, to 
promulgate by rule an Approvable State Fuels List based on the 
information contained in such studies, an analysis of a fuel's 
ability to reduce emissions, an analysis of other cost-effective 
options to attain air standards and analyses by the DOE regarding 
the fuel supply effects and the potential costs and benefits of a fuel.  
In selecting fuels for the list, EPA is directed to give preference to 
fuels previously included on the boutique fuels list.
	The legislation specifies that the Approvable State Fuels List 
shall consist of no more than three gasoline fuels with different 
volatility levels, one of which is specified to have a Reid Vapor 
Pressure of 7.0 pounds per square inch.  This is a change from 
current law, as previously described, that effectively limits or 
"freezes" fuels on the boutique fuels list to those previously 
approved (i.e., the seven different fuel types under EPA's 
provisional interpretation of the statutory language).  In a further 
restriction on the approvability of a state fuel, the legislation 
provides that the EPA Administrator may not approve more than 
two volatility controlled fuels in any one PADD.   This additional 
restriction is not contained in current law.
	The legislation provides that upon promulgation of the new 
Approvable State Fuels List, previous limitations resulting from 
the publication of the boutique fuels list would no longer apply.  
Instead, approval of any boutique fuels by EPA would be limited 
to those fuels contained on the new list.  In addition, a state could 
only receive approval for a fuel or change from one fuel on the list 
to another based on an evaluation by EPA, with the DOE, as to 
whether approval of a state's request would cause fuel supply or 
distribution disruptions in an area requesting a boutique fuel, 
contiguous areas or within a region.
	A third major change made by the legislation is the 
requirement that all boutique fuels essentially conform to the fuels 
on the new Approvable State Fuels List whether or not they were 
previously approved into a state SIP.  To implement this provision, 
the legislation requires that EPA inform states if previously 
approved fuels are functionally identical to the fuels included on 
the list.  If a previously approved fuel is not functionally identical, 
a state must submit a revised SIP within 18 months.  This revised 
SIP can (but is not required to) include one of the fuels contained 
on the list.  The draft legislation provides exceptions to the 
requirements pertaining to the new Approvable State Fuels List, 
including the requirement to revise a state SIP, for three state fuels 
previously approved by EPA. 
	Finally, the legislation provides the opportunity for a governor 
to request that EPA either add to the Approvable State Fuel List or 
replace a fuel on the list as long as certain conditions related to air 
quality, fuel supply, distribution and producibility are met.  
Approval of such a fuel, however, cannot result in more than four 
fuels on the Approvable State Fuels List.  As noted above, this 
would constitute a change to current law that in effect does not 
allow for the approval of new fuels.

Concluding Remarks
	This completes my testimony before the Committee and I am 
ready to answer any questions.  Since the Boutique Fuels 
Reduction Act is at an early stage in the legislative process and has 
not been reviewed by our normal interagency procedures, the 
Administration currently does not have a position on the bill.  EPA 
and the Administration want to thank the committee for 
undertaking evaluation of legislation in this area and the Agency 
stands ready to assist the committee in its consideration of any 
legislation



        CHAIRMAN BARTON.  The Chair is going to recognize himself 
for the first question period.  
        First, I don't have so much a question as a comment.  I noticed 
that in the report for the Federal Register about the total number of 
fuels that, after quite a bit of agonized teeth gnashing, the EPA 
decided to go with the seven definitions and that there was some 
concern about the intent of the Congress.  
        When I was Chairman of the committee and the Chairman of 
the conference, nobody ever asked me what the legislative intent 
was.  But you can report back to Mr. Johnson that he made the 
right decision.  We did not intend to require an enumeration of the 
number of SIP-approved fuels.  We wanted to know how many 
fuels were out there by fuel type, which apparently is seven, which 
is what you all did.  
        So, in the future, if you have a question about congressional 
intent, pick up the phone and call us, and call Mr. Dingell, and 
Mr. Waxman, and not just the Majority side.  But certainly the 
majority of the conferees that signed the conference report, I think 
we can help the Executive Branch if you will just ask us. 
        So I think that decision was the right decision.  
        My first question is to you, Mr. Meyers.  Since the purpose of 
the discussion draft would be to reduce further the number of fuels 
and we have had a lot of concern that we maybe shouldn't be 
going further in reduction until we hear what some of these reports 
that are going to come out this summer are, is it your opinion 
possibly to reduce the number of boutique fuels further and still 
give sufficient flexibility for States and local governments to meet 
their Clean Air Act requirements under the Clean Air Act law if, 
instead of having seven, we had four or five or three?  
        MR. MEYERS.  As we have indicated, when EPA did look at 
that issue in 2001, we did a fairly comprehensive review in the 
boutique fuels report as part of the MTBE at that time.  What that 
report shows, it depends on the option you choose.  Smaller fuel 
slates can result in increased production, although slight, and offer 
obviously some benefits in terms of fungibility of the fuel.  
        At the sort of more restrictive end of things, we analyzed an 
option where we would sell California gasoline across the country.  
That caused reduction in production of capacity and increases in 
the price.  So the basic answer, it depends on how you do it. 
        CHAIRMAN BARTON.  Let me ask the question a different way.  
Are there sufficient unique characteristics in different non-air 
attainment areas that you need a large number of boutique fuels?  
        MR. MEYERS.  Well, I think it was mentioned during 
discussion earlier that boutique fuels and fuels in general are one 
portion of the area's approach to nonattainment other controls 
going on stationery sources and different or other items.  
        So, basically, they serve a role in terms of providing certain 
tonnage reductions.  If you don't get the nth degree out of the 
fuels, you will have to get it somewhere else.  It is a matter of 
evaluating all of the fuel control measures and all of the other 
measures and try to make the most intelligent choice.  
        But, instantaneously, I guess I would say it this way:  Most of 
the fuels are RVP controlled.  You have 7-0, 7-2, and 7-8.  There 
will be some differences in what you get out of each, and we 
haven't analyzed how those fuels work in the new vehicles.  But 
the differences may not be astoundingly large between a 7-0 and 
7-2 RVP.  That is just distinctially a reaction. 
        CHAIRMAN BARTON.  Okay. 
        Ms. Harbert, you talked about regulatory stability.  Do you 
want to define that?  
        MS. HARBERT.  Yes, Mr. Chairman.  
        I think as we look at this very important issue we have to look 
at the back group or the environment in which we find ourselves at 
the moment.  As you pointed out earlier in your opening statement 
about the razor-thin spare capacity that we have, we have a fairly 
volatile market and we are looking at where are the structures in 
our supply system.
        We know we need more refining capacity, we know we need 
more investment, and at the same time we have changes 
happening.  We have MTBE existing in the system, increasing the 
ethanol, introduction of ultra-low sulfur detail, and we have a 
changing fleet.  All of that adds additional measures of uncertainty 
into the market.  As we are looking for ways to really maintain an 
environment conducive to investment, those people that are putting 
capital at risk to make those investments need to look where we are 
going, and we need to take that into account.  
        As we look for ways to improve supply, improve fungibility, 
and really reduce our vulnerability, that has to be taken into 
account as those investors are looking down the road at these very 
complex long-term investments, that we need to know where we 
are going from that point of view.  And that was my point, that we 
have to take these considerations and these competing interests 
into account.
        CHAIRMAN BARTON.  Mr. Shadegg in his opening statement 
was concerned that, by definition, my classifying certain fuels as 
additives is a loophole that needs to be addressed in this boutique 
fuel section or the draft discussion.  Mr. Meyer, can you elaborate 
on what is the difference between a specific boutique fuel under 
the Clean Air Act and an additive?  
        MR. MEYERS.  Sure. 
        CHAIRMAN BARTON.  Is that a concern that, s Mr. Shadegg 
raised, we need to address?  
        MR. MEYERS.  I am aware that some concerns have been raised 
in terms of fuel fungibility with a multiplication of State-renewable 
fuel requirements.  
        But just to address the specific question, boutique fuels are 
those who have approved into a SIP.  So by definition 222(c)(4)(C) 
there is administrative action.  In this case of some current 
renewable fuels or biofuels, that action is not required under the 
Act.  They may be registered already.  
        E-10 is a good example.  It is already a registered fuel.  If the 
State is adopting that fuel and it is not for mission control purposes 
for a motor vehicle, then they are free to do that under the Clean 
Air Act. 
        CHAIRMAN BARTON.  Could a State use E-10 in its State 
Implementation Plan proposal and that be classified as a boutique 
fuel because they view it in that fashion?
        MR. MEYERS.  If it was approved into a SIP, yes, it could also 
go that route.  A State could request that it be part of the SIP, yes.  
That would be at the State option.  
        What I was saying is the presumption in the statute that 
requires special approval boutique fuels is limited to those 
situations where we are dealing with emissions for motor vehicles 
and when a State is preempted generally in that area, but they are 
not preempted from all fuels generically or from all fuel choices.  
That is the way the Act is structured. 
        CHAIRMAN BARTON.  I am not sure I understand what you just 
told me.
        MR. MEYERS.  There is a preemption of State but it is not for 
adoption of fuels for any and all purposes.
        CHAIRMAN BARTON.  Do we need in statute the definition to be 
more explicit on what a boutique fuel is?  And, if so, are these 
additives like E-10 or E-85 or some of those, are those fuels that 
we need to define in a specific way for inclusion as a boutique 
fuel?  
        MR. MEYERS.  That would be a choice of the Congress.  Right 
now, both E-10 and E-85 are legally registered fuels and can be 
sold in this country. 
        CHAIRMAN BARTON.  But for definitional purposes, if you want 
to count them, if --
        MR. MEYERS.  In the concept you want to restrict the ability.  
Yes, I would have to give you a formal opinion, and I would do 
that for the record.  But, essentially, it would appear, from my 
understanding of the Act, that additional legislative authority 
would be required. 
        CHAIRMAN BARTON.  Would be required.
        MR. MEYERS.  Yes. 
        CHAIRMAN BARTON.  My time has expired.  
        Mr. Walden is recognized for 5 minutes.  
        MR. WALDEN.  Thank you, Mr. Chairman.  
        I just wanted to ask both of you in sort of real person's terms, if 
we approve this legislation as proposed, we will get criticized that 
somehow we are going to hurt air quality.  Do you see that 
occurring?  Do we diminish air quality by the action we are 
proposing to take?  
        MR. MEYERS.  No.  I think a few weeks ago Acting 
Administrator Warren answered about the same question in the 
same way.  No, we are not affecting air quality.
        MS. HARBERT.  It depends on how you do it.  The intent here is 
certainly not to harm air quality.  It is to improve air quality.  It is 
all about balance and timing and how we do that to maximize the 
benefits in all of the categories that this legislation and all overall 
policies seek to address, which is improving supply and, at the 
same time, preserving air quality. 
        MR. WALDEN.  Because that I think is the Chairman's--I won't 
presume to speak for him, but it is certainly my goal.  I don't want 
to see dirtier air, but, on the other hand, I have got people who are 
running out of budget on their farms, their ranches and trying to 
commute in a very rural and big district; and $3 gas and over is not 
very becoming to their budgets. 
        So I am trying to figure out--each of these I look at as 
individual pieces of a puzzle that got us where we are at, and we 
need to figure out what can we do to change them, modify them, to 
try and reduce those costs for our consumers, none of which is 
going to happen quickly. 
        Where States have put mandates in place, I guess like 
Minnesota--I was reading some testimony where they are using far 
more biofuels which I am an advocate of.  Are you seeing any kind 
of price differential between a State that uses more biofuels and a 
State that doesn't?  Or is it even a fair comparison at that point 
because of the regional nature of the supply?  
        MS. HARBERT.  I don't have a State-by-State comparison for 
you, but we can certainly look at what we have available to get 
back to you.  We don't collect data by fuel type in our Energy 
Information Administration, so we might not be able to answer in a 
way that would be as helpful to you as possible. 
        But, that being said, going back to your supply issue, we need 
to make sure that all along the supply chain that nothing is 
disrupting that supply chain, which gets to your price issue; and 
that needs to be taken into account as we progress.
        MR. WALDEN.  Thank you.  
        Mr. Meyers.
        MR. MEYERS.  We defer to the DOE and EIA to get that on the 
pricing information.
        MR. WALDEN.  Let me ask you a different question.  
        I was doing some town meetings last week and someone raised 
the issue on the ethanol, that it doesn't produce as much energy per 
gallon as gasoline.  What is that ratio and what effect does that 
have as you enter it into the supply, and compare that if you would 
against MTBE taken out of the supply.  How does all of that work?  
I was told it was something like two-thirds of the power production 
of gasoline.
        MR. MEYERS.  I think two-thirds is a general number.  What 
we are talking about is energy content on a volume metric basis.  
So I guess the way to think of it is if you--well, the good example 
is E-85 cars.  If you have the same size tank and you put gasoline 
in it, you are going to go quite a bit further than if you put E-85 in 
it because of the energy content of 85 percent ethanol blend.
        MR. WALDEN.  Is that the same information you have?  
        MS. HARBERT.  I was trying to get some exact statistics.  When 
you are switching from MTBE to ethanol, you are losing that 1 
percent.  You are looking at the BTUs in the fuel.  We are talking 
about two-thirds, really, when you are looking at the difference 
between ethanol and gasoline. 
        MR. WALDEN.  So, in other words, if we think you can replace 
sort of gallon for gallon with ethanol versus gasoline, that is not 
accurate.  So as we look at adding ethanol in, you are going to have 
to buy more fuel overall to get the same energy output as if you 
bought straight gasoline.
        MS. HARBERT.  More volume.
        MR. WALDEN.  And can you --
        MS. HARBERT.  But it would be less gasoline because ethanol 
would be displaced.
        MR. WALDEN.  I have got a 40-gallon tank.  It is coming into it 
at 4 --
        MS. HARBERT.  You will be filling up more often but using less 
gasoline.
        MR. WALDEN.  That is what I am trying to get to.  What helps 
the bottom line here?  
        MS. HARBERT.  We are looking at cost comparisons of ethanol 
and gasoline.  And at the moment, as ethanol is coming into the 
market and being used more, MTBE is fading out at a price point 
here where ethanol is above gasoline; and we expect that to be 
coming down.  
        There are new ethanol production facilities that are coming on 
line.  The whole supply chain is working out its system as ethanol 
can't be commingled with other components.  So it is a different 
supply delivery system.  That is working itself out; and as it works 
itself out over the summer I think we will see ethanol, as the 
supply goes up and the system evens out, we will see the prices 
come down, and it will make it a more affordable solution.
        MR. WALDEN.  Of that price decline, how much of that is being 
subsidized by taxpayers?  I know we have got some incentives 
built into the system.  
        MS. HARBERT.  The tax credit for ethanol is $.51 per gallon.
        MR. WALDEN.  So at $.51 per gallon subsidy we are still above, 
with ethanol, the price of gasoline today, but you would expect it 
to come down.
        MS. HARBERT.  Correct.  Some.
        MR. WALDEN.  Do you see it getting to the point where it will 
get below that $.51 subsidy?  In other words, by building out, 
getting the volume, getting the market working and everything 
else, do you see a day where a price for that ethanol will not need 
that subsidy?  I am not advocating for that, but I am trying to 
figure out here the dynamics of this economic model.  
        MS. HARBERT.  There is a little bit of hypothetical in there.  It 
is a new market and we certainly--in the Energy Information 
Administration's Outlook that they published in 2006 they see the 
production of ethanol exceeding what has been called for in 
EPAct.  So the market forces are at work and there is more supply 
and there was more demand for this.  We certainly do see the price 
going down; and, ultimately that will then cause some discussion 
about this subsidy.  
        MR. WALDEN.  Thank you very much.  
        CHAIRMAN BARTON.  The gentleman's time has expired.  
The gentleman from Georgia is recognized, Mr. Deal.  
        MR. DEAL.  Mr. Meyers, in looking at your testimony, you had 
a map attached to it.  Do you have that in color here for us?  
Because, mine, I can't tell what the difference is.
        MR. MEYERS.  We do have it.  We should be able to pull it up 
on the monitor.
        MR. DEAL.  Will you tell me what the dark green area is?  A 
45-county section in Georgia that is the metro area expanded, and 
it has the 7 PSI sulfur content.  Is that correct?  
        MR. MEYERS.  That is correct.  That area represents Georgia 
State fuel, which is a combination of 7-0 Reid vapor pressure and a 
30 PPM limit on sulfur.
        MR. DEAL.  I am going to ask you a technical question that I 
am going to read in a minute.  But before I do that let me ask, as a 
preface to that, this part of Georgia, as I understand it, has been 
designated as a nonattainment area.  Am I correct on that?  
        MR. MEYERS.  I do not know the exact county barriers--yes, 
Atlanta--but I am not sure if this area exactly conforms to the 
current nonattainment area.
        MR. DEAL.  Being a nonattainment area it puts restrictions on 
what the State can do in terms of building roads, expanding travel, 
et cetera.  
        MR. MEYERS.  I guess my answer is yes.  The roads and other 
activities have to conform to the State Implementation Plan, so 
building a new road, say, can't basically exacerbate the air quality 
problems.
        MR. DEAL.  So the point is that the reason that Georgia has this 
boutique fuel is because it has been designated a nonattainment 
area by EPA, and a part of the solution to try to get us out from 
being a nonattainment area, is to use this low sulfur boutique fuel 
as a part of the overall State Implementation Plan.  Is that the 
general overall view of it?  
        MR. MEYERS.  That is absolutely true.  The fuel prices for 
emissions reductions which are credible in the State 
Implementation Plan.  
        MR. DEAL.  Now for my technical question that I am going to 
read to you.  
        As you note, my home State under our State Implementation 
Plan uses a boutique fuel with a Reid vapor pressure of 7 and 
restricts the sulfur content of the gasoline to the average of 30 parts 
per billion for the 45 county Atlanta area, eight of which are in my 
congressional district.  However, in the discussion draft, the 
Administrator of the Environmental Protection Agency is 
prohibited from controlling fuel sulfur, quote, beyond levels 
otherwise required by regulations of the Administrator in the 
Approvable State Fuels List. 
        What would be the impact on Georgia's sulfur provisions if 
this legislation were enacted is the first question.  
        Secondly, would Georgia still be allowed to mandate that the 
gasoline sent to the 45 counties surrounding Atlanta contain an 
average sulfur content of 30 parts per million or is this considered 
beyond levels otherwise required by regulations of the 
Administrator?  
        MR. MEYERS.  That is a technical question, and I would like to 
respond more fully in writing for the record.  But I will give you a 
general sense of my impression of the answer here.  
        The way the legislation works is that the Approvable State 
Fuels List cannot have on it a specific State sulfur control.  
However, it allows for--in the process where a fuel is functionally 
identical to one on the list, then that would allow for that fuel to 
continue to exist would be my current read.  And, again, we will 
provide a written response.  
        So it depends on the analysis of what happens with respect--
since the Federal sulfur level is now 30 PPM, which is generally 
identical--there are some differences between the way Georgia 
applies 30 PPM and the Feds do.  The question is, really, is a fuel 
in that area basically identical to the Federal requirement.  But we 
will provide a more fully developed answer for the record.
        MR. DEAL.  I would appreciate that. 
        As you can see, we could be in a catch-22 situation where, in 
order to comply with what the EPA is requiring us to do as a 
nonattainment area, we then are now undoing that legislatively; 
and the consequences, of course, are significant to my State and to 
my congressional district and that is my concern.  
        Mr. Chairman, thank you very much. 
        CHAIRMAN BARTON.  Mr. Meyer gave straighter answers when 
he was Counsel to the committee.  He has been in the Executive 
Branch too long.  He wrote that Section of the law, too, probably, 
or drafted it, anyway.  
        All right, Mr. Walden, do you have any questions for this 
panel?  
        I have one generic question for each of you. 
        In general, if we were to reduce the number of boutique fuels, 
would that tend to lower prices, raise prices, or stay about the 
same?  Just generally, either one of you.  That is not a trick 
question.  
        MS. HARBERT.  It is still a difficult question, even though it is 
not a trick question.  
        It depends on which fuels and the time frame, I think is the 
right answer.  If a certain select few were put into force in a very 
short time frame and the refineries were forced to make fairly 
dramatic changes with a significant amount of costs, that very 
likely could be passed on to the consumer.  If it was done in a 
longer time frame so that they could understand what they were 
being required of and it would be done in a phased manner and 
fuels that were easily produced, it would have very little impact on 
the consumer.  
        So I think there are a variety of scenarios, which is why 
certainly this task force report and the study that we are doing with 
EPA in August and the longer one in 2008 is looking at a variety of 
certain areas to see what would be the impact on air quality and 
price. 
        CHAIRMAN BARTON.  Mr. Meyers.
        MR. MEYERS.  I think the essence of it depends on what fuels 
replace what is there.  
        As indicated previously, we are looking at an RVP fuel.  We 
are looking at production cost differential point 323.  However, 
that is just production costs.  The cost of other boutique fuels can 
be higher if you require something approximating the California 
standards.  That is obviously a much more expensive fuel than a 
simple RVP control in terms of production costs.  Additionally, 
their other costs are not subsumed in that cost which involved the 
distribution system and an additional package and separation 
which will not be a production item but will cost the consumer.  
        When we looked at this issue back in 2001, it depended on the 
options selected.  There were options on 3-fuel, 2-fuel options 
under various scenarios that we modeled that showed increase in 
the production and virtually no price impact.  There are other 
options like the California fuel option across the country which are 
very expensive and seriously constrained production.  So bottom 
line answer is, as my colleague from DOE said, it depends on the 
options that you are talking about and depends somewhat on the 
number of options each State would have and as well as you need 
to look at the distribution system where fuel is produced, how it is 
distributed and the pipeline system and a lot of other factors. 
        CHAIRMAN BARTON.  Thank you.  
        There will be some additional questions for the record for each 
of you.  But at this point in time we are going to release this panel 
and bring the next panel forward.  Thanks each of you for being 
here. 
        We would now like our second panel to come forward. 
        On our second panel we have Dr. Edward Murphy, who is with 
the American Petroleum Institute.  We have Mr. Bob Dinneen, 
who is the President and CEO of the Renewable Fuels Association.  
We have Mr. Bob Slaughter, who is President of the National 
Petrochemical and Refiners Association.  We have Mr. William 
Becker, who is the Executive Director of the State and Territorial 
Air Pollution Program Administrators, the Association of Local 
Air Pollution Control Officials; and  Ms. Sonja Hubbard, who is 
Chief Executive Officer of E-Z Mart Stores, who is testifying on 
behalf of the National Association of Convenience Stores and the 
Society of Independent Gasoline Marketers of America. 
        We are going to put each of your statements in the record, and 
we are going to recognize each of you for 7 minutes to elaborate 
on your statements.

STATEMENTS OF EDWARD MURPHY, GROUP DIRECTOR, DOWNSTREAM AND INDUSTRY 
OPERATIONS, AMERICAN PETROLEUM INSTITUTE; BOB DINNEEN, PRESIDENT AND CEO, 
RENEWABLE FUELS ASSOCIATION; BOB SLAUGHTER, PRESIDENT, NATIONAL 
PETROCHEMICAL AND REFINERS ASSOCIATION; S. WILLIAM BECKER, EXECUTIVE DIRECTOR, 
STATE AND TERRITORIAL AIR POLLUTION PROGRAM ADMINISTRATORS/ASSOCIATION OF 
LOCAL AIR POLLUTION CONTROL OFFICIALS; AND SONJA HUBBARD, CEO, E-Z MART 
STORES, INC., ON BEHALF OF NATIONAL ASSOCIATION OF CONVENIENCE STORES AND 
SOCIETY OF INDEPENDENT GASOLINE MARKETERS OF AMERICA 
        
	CHAIRMAN BARTON.  We will start with Dr. Murphy.  
Welcome to the committee.
        MR. MURPHY.  Thank you very much, Mr. Chairman.  
        My name is Edward Murphy, and I am Group Director for 
Industry and Downstream Operations at API.  I am testifying on 
behalf of our more than 400 member companies, and I am 
delighted to be here today.  API welcomes the opportunity to 
comment on the boutique fuels issue.  
        Most boutique fuels were meant to address local or regional air 
quality issues that were well-intentioned, but the laws and system 
fungibility have occasionally led to serious unintended 
consequences, including tight supplies and price volatility; and the 
number of both chief fuels is increasing, especially as the result of 
State and local biofuel mandates.  
        It is important to know, however, that the patchwork of 
localized boutique fuels is not principally responsible for the 
current recent higher gasoline prices, and this legislation would not 
address the most important driver of the gasoline price increases 
we have recently experienced, which is the rising cost of crude oil.  
        The Energy Policy Act of 2005 required that EPA and the DOE 
complete two studies regarding boutique fuels, one this year and 
one in 2008.  We look forward to the results of these studies and 
their recommendation regarding how the number of boutique fuels 
may be reduced while balancing environmental needs and supply 
capability.  
        This legislation does address an issue of critical concern to the 
petroleum industry and that is reliability of supply.  A rigid system 
of State-specific boutique fuels can reduce that reliability at times 
when supplies are already short.  This legislation recognizes the 
importance of maintaining flexibility in our fuel manufacturing and 
distribution system by limiting the number of boutique fuels. 
        But while limiting the boutique fuels is important, that step 
alone is not a silver bullet as new areas consider fuels programs.  It 
is critical that EPA should still require a demonstration of a need 
by States.  Also, EPA should be required to review potential 
supply impacts of any fuel in consideration for approval.  
        Although reducing the number of fuel choices available will 
add fungibility to gasoline supplies, it will lead to more stringent 
formulations as States and localities seek to maintain 
environmental performance.  Thus, a reduction in the number of 
fuels and possible increased overall stringency could cause some 
loss of production capacity as some gasoline components are 
removed in the refining process.  This loss in production capacity 
needs to be closely balanced against the positive effects of 
fungibility on supply.  
        The legislation before this committee contains several very 
positive provisions that would help to increase gasoline supply 
reliability.
        These include grandfathering and walling off the Texas low 
emission diesel program and the Phoenix, Arizona, and Clark 
County, Nevada, Clean Burning Gasoline programs, preventing 
adoption in other States.  
        It includes, as an interim step, a PADD-specific cap with a 
ratchet-down feature which would reduce the number of available 
fuels that may be required once air quality improvements are 
attained.  
        Disallowing the inclusion in the State fuels slate of controls for 
sulfur and toxic parameters beyond Federally required levels; and, 
lastly, limiting growth in State highway diesel programs to avoid a 
parallel boutique problem for diesel fuel.  
        However, the biggest challenge now facing us is the recent 
proliferation of biofuel boutiques that our justices instructed to 
supply for the lack of basis in improving air quality.  We feel 
strongly that the addition of provisions restricting State biofuel 
mandates would substantially strengthen what has been proposed.  
        Additional State biofuel mandates could undo or offset the 
benefits of this legislation and the benefits EPAct 2005 promises to 
provide.  Biofuel mandates are increasing in number.  Despite the 
RFS program, several States have either implemented or passed 
varying forms of biofuel mandates in 2006; these are often justified 
on the basis of their supposed contributions to energy security.  But 
individual States should not be permitted to force the use of 
ethanol by devising and mandating the wrong gasoline or diesel 
biodiesel blends, particularly since they will jeopardize fungibility 
and thus detract from energy security.  We are each to consider 
extending restrictions on State-mandated fuels to include 
renewables or biofuels.  
        Given the existence of the Federal office mandating the use of 
minimum volume of biofuels each year and a trading program and 
send it to provide flexibility where the biofuels are used, all State 
biofuel mandates should be federally preempted.  We recommend 
that this legislation amend EPAct 2005 to require study of the 
supply distribution impacts of States' biofuel mandates.  We also 
recommend that the legislation be strengthened to further limit 
diesel boutiques, except for the existing Texas program, by 
preempting all State diesel programs, including those that address 
non-road fuels.  
        Thank you, and I will be happy to answer any questions you 
may have.
        CHAIRMAN BARTON.  Thank you, sir. 
        [The prepared statement of Edward Murphy follows:] 



PREPARED STATEMENT OF EDWARD MURPHY, GROUP DIRECTOR, 
DOWNSTREAM  AND INDUSTRY OPERATIONS, AMERICAN 
PETROLEUM INSTITUTE

	Most of the existing boutique fuels were meant to address local 
or regional air quality issues.  They were well-intentioned - but 
have occasionally led to serious unintended consequences.  State 
and local bio-fuel mandates are rapidly adding to the number.   
	The patchwork of localized boutique fuels is not principally 
responsible for the recent higher gasoline prices, and enactment 
and implementation of this legislation would not address the most 
important drivers of the gasoline price increases we have 
experienced over the past several months including the high price 
of crude oil.
	The Energy Policy Act of 2005 (EPACT05) required that EPA 
and the DOE complete two studies regarding boutique fuels (one 
this year and one in 2008). We look forward to the results of this 
study and its recommendation regarding how the number of 
boutique fuels may be reduced while balancing environmental 
needs and supply capability. 
	This legislation contains positive provisions that deal with the 
air-quality boutiques and builds on measures addressing boutique 
fuels included in last year's EPACT05.  However, the bigger 
challenge now facing us is the recent proliferation of bio-fuel 
boutiques that are just as disruptive to supply but lack a basis in 
improving air quality.  Bio-fuels mandates are rapidly increasing in 
number.  Several states have either implemented or passed varying 
forms of biofuel mandates in 2006. 
	We urge consideration of extending restrictions on state-
mandated fuels to include renewables or bio-fuels.  Given the 
existence of the federal RFS all state biofuel mandates should be 
federally preempted.  Moreover, existing state biofuel mandates 
should become subject to review by EPA and DOE to determine 
whether they are likely to adversely impact the supply of fuel to 
the mandated area, or surrounding areas. 
	Also, the legislation should be strengthened to further limit 
diesel boutiques (except for the existing Texas program) by 
preempting all state diesel programs, including those that address 
non-road fuels.
	We strongly recommend that this legislation amend EPACT05 
to require study of the supply/distribution impacts of state bio-fuels 
mandates.   Also, EPA should be required to review potential 
supply impacts of any fuel under consideration for approval.  
Simply reducing the number of fuels is not sufficient if it means 
moving to more stringent formulations that reduce producibility 
which could also have adverse supply impacts.  
	Limiting the number of boutique fuels is not a silver bullet as 
new areas consider fuels programs.  EPA should still require a 
demonstration of need by the state.  There also needs to be 
sufficient lead time to ensure that companies are all able to 
produce the new fuel.  Moreover, supply considerations must be 
taken into account as a more stringent formulation will result in a 
reduction in fuel producibility. 


	My name is Edward Murphy.  I am the Group Director for 
Downstream and Industry Operations at the American Petroleum 
Institute and am testifying on API's behalf.  API is a national trade 
association representing more than 400 companies involved in all 
aspects of the U.S. oil and natural gas industry, including 
exploration and production, refining, marketing and transportation, 
as well as the service companies that support our industry. 
	API welcomes the opportunity to comment on the boutique 
fuels issue. "Boutique" fuels are specialized fuel formulations 
unique to a particular market, imposed by federal, state or local 
laws, and that cannot be obtained from other markets in the same 
regional distribution system.  
	Most of the existing boutique fuels were meant to address local 
or regional air quality issues.  They were well-intentioned - but 
have occasionally led to serious unintended consequences.  State 
and local bio-fuel mandates are rapidly adding to the number.  
Boutiques can contribute to tight supplies and price volatility, 
particularly in the event of a supply disruption or stress.  
	Nothing is more important in our business than the reliability 
of supply, and a rigid system of state-specific boutique fuels can 
reduce that reliability at times when supplies are already short.  
This legislation recognizes the importance of maintaining 
flexibility in our fuel manufacturing and distribution systems  
	It is important to note, however, that the patchwork of localized 
boutique fuels is not principally responsible for the recent higher 
gasoline prices, and enactment and implementation of this 
legislation would not address the most important drivers of the 
gasoline price increases we have experienced over the past several 
months.  The rising cost of crude oil has been the dominant factor.  
At $70 a barrel, crude oil costs account for $1.67 of the price of a 
gallon of gasoline.  Crude costs plus taxes - an average of 46 cents 
per gallon - account for about three-fourths of pump prices.  The 
boutique fuel problem manifests itself most often as geographically 
and temporally localized shortage, not always accompanied by 
price increases. 
	Nevertheless, the proliferation of boutique fuels, which 
resulted from the Clean Air Act Amendments of 1990, in recent 
years has presented significant challenges to U.S. refiners and 
resulted in a fuel system too encumbered to quickly respond to 
unavoidable events.  That has contributed to fuel unavailability 
and/or price volatility that has hurt consumers. 
	It is important to understand that limiting the number of 
boutique fuels is not a silver bullet as new areas consider fuels 
programs.  EPA should still require a demonstration of need by the 
state.  There also needs to be sufficient lead time to ensure that 
companies are all able to produce the new fuel.  Moreover, supply 
considerations must be taken into account as a more stringent 
formulation will result in a reduction in fuel producibility. 
	Fuel providers need the flexibility to get fuel to where it is 
most needed and to quickly adjust to changes in demand.  
Additionally, marketers need some assurance that, if they are 
unable to secure the type of fuel they need at a particular supplier 
or terminal, they will be able to go elsewhere for product.  
However, a rigid system of state-specific boutique fuels reduces 
the reliability of supply and increases the risk of spot shortages and 
price volatility.  
	The Energy Policy Act of 2005 (EPACT05) included a 
provision setting some restrictions on EPA for approval of states' 
fuels intended for reducing air pollution.  In addition, Congress 
required that EPA and the DOE complete two studies regarding 
boutique fuels (one this year and one in 2008). We look forward to 
the results of this study and its recommendation regarding how the 
number of boutique fuels may be reduced while balancing 
environmental needs and supply capability. In particular, we need 
such a careful study to weigh the impact of increased fuel 
fungibility from a reduced number of fuels with the reduction in 
production capability that will occur if the overall fuel 
specifications are made more stringent in the process of insuring 
continued environmental performance. 
	Policy-makers clearly recognized the harmful effects of 
widespread adoption of boutique fuels. But more needs to be done 
and we commend the Chairman for his willingness to address the 
problem. 
	The legislation before this committee builds on measures 
addressing boutique fuels included in last year's EPACT05.  This 
legislation contains positive provisions that deal with the air-
quality boutiques, however, the bigger challenge now facing us is 
the recent proliferation of bio-fuel boutiques that are just as 
disruptive to supply but lack a basis in improving air quality. We 
feel strongly that the addition of provisions restricting state bio-
fuel mandates would substantially strengthen what has been 
proposed.  More state bio-fuel mandates could undo or offset much 
of the benefit your legislation as well as EPACT05 promises to 
provide. 
	Provisions in the legislation before us today could help further 
limit the spread of boutique fuels by:
	 Grandfathering and walling off the Texas low emission 
diesel program and the Phoenix, Arizona and Clark County, 
Nevada Clean Burning Gasoline programs, preventing 
adoption in other states.  
	 Including, as an interim step, a PADD specific cap with a 
ratchet-down feature that would reduce the number of 
available fuels that may be required once air quality 
improvements are attained.
	 Disallowing the inclusion in the state fuels slate of 
controls for sulfur and toxics parameters beyond federally required 
levels, and
	 Limiting growth in state highway diesel programs to avoid 
a parallel boutique problem for diesel fuel.

	We think it is important that EPA carefully evaluate the impact 
of a reduced slate of fuels, in order to prevent a reduction in supply 
capability resulting from a tightening of fuel specifications without 
corresponding environmental benefits. Most importantly, this 
legislation does nothing to limit state-mandated bio-fuel programs.     
	This is a serious omission.  If the issue is fuel fungibility and 
distribution, boutique fuels include all gasolines and diesel fuels 
mandated at any government level.  Whether the fuel requirement 
is imposed at the federal, state, or local level, for environmental or 
other reasons, if the result is a different fuel - conventional or bio-
fuel - it adversely impacts the system fungibility and raises the 
potential for market volatility.  
	Moreover, bio-fuels mandates are increasing in number.  
	It was anticipated that the passage of a federal Renewable 
Fuels Standard (RFS) program, mandating 7.5 billion gallons of 
renewables by 2012, would eliminate the need for additional state 
mandates.  However, just the opposite has occurred.  Despite the 
federal RFS program several states have either implemented or 
passed varying forms of biofuel mandates in 2006.  Of those, 
Hawaii's mandate took effect, Washington passed legislation and 
lawmakers in Missouri and Louisiana have passed bills which are 
now with their governors for final consideration.  Iowa enacted 
legislation that will have the effect of a mandate, and Colorado's 
Governor vetoed a mandate bill passed by that legislature earlier 
this year.  Moreover, several other state legislatures have passed a 
mandate in at least one house and many others have actively 
considered such legislation.  Minnesota already had a mandate in 
effect, and Montana has passed mandate legislation but it won't be 
implemented until the state reaches a certain production threshold.
	Bio-fuels can contribute to our motor fuel pool and will 
continue to expand their market share to the extent they meet 
consumers' needs.  Equally important, the federal RFS will ensure 
continued growth in renewables, especially ethanol.    
	Unlike potential state mandates, the RFS builds in flexibility.  
Its credit banking and trading component, when established 
through regulations by EPA, should allow refiners to use 
renewables where they are most efficient.  This is critical for the 
reliable supply of fuels.  
	State mandates undermine that flexibility and create obstacles 
to the achievement of Congress' goals.  Individual states should 
not be permitted to force the use of ethanol or biodiesel by 
devising and mandating their own gasoline/ethanol and/or 
diesel/biodiesel blends. The last thing our nation needs now is an 
expansion of the boutique fuels patchwork of state-by-state laws 
mandating ethanol and/or biodiesel use at different concentrations 
and/or under different terms.  
	Here are examples of the kind of problems that state bio-fuels 
mandates could create: 
	 A per gallon mandate requires that E10 be available at all 
times. Thus, a shortage of ethanol for any reason means 
that gasoline could not be sold. 
	 If the governor has chosen to eliminate the 1 pound waiver 
or if the state has a low rvp fuel requirement, refiners may 
need to produce a low RVP blendstock (BOB) for 
conventional gasoline. 
	 For areas requiring RFG, refiners would be required to 
produce a lower RVP blend of RFG, i.e. a reformulated 
BOB, for blending with ethanol.  While most are choosing 
to do this now, it is possible that in the future some will 
choose to produce RFG with no oxygenates.  This would 
not be possible in a mandate state. 

	Integrating ethanol and other biofuels into the gasoline 
marketplace is too important - and presents too many challenges - 
to be approached in an individual, state-by-state manner.  In order 
to meet consumer fuel needs, we want to produce more, refine 
more, and distribute more - but state bio-fuel mandates would 
make this difficult. For example, ethanol cannot be moved by 
common carrier pipeline, unlike more than 70 percent of U.S. fuel 
production, and requires a long supply chain to serve consumers.  
That means a longer reaction time when problems occur.  State 
ethanol mandates would significantly add to that reaction time.  
We oppose this patchwork approach, whose adverse impacts are 
felt most by individual gasoline consumers.  This is particularly 
important as we continue to see record ethanol futures prices.  (The 
Chicago Board of Trade's June 2006 contract set a record on June 
2, 2006 of $3.68 per gallon.  This is equivalent to $154.56 per 
barrel.) 
	This legislation contains provisions that are positive.  But we 
urge consideration of extending restrictions on state-mandated 
fuels to include renewables or bio-fuels.  Given the existence of the 
federal RFS mandating the use of a minimum volume of biofuels 
each year, and a trading program intended to provide flexibility in 
where the biofuels are used, all state biofuel mandates should be 
federally preempted.  Moreover, existing state biofuel mandates 
should become subject to review by EPA and DOE to determine 
whether they are likely to adversely impact the supply of fuel to 
the mandated area, or surrounding areas. 
	Also, the legislation should be strengthened to further limit 
diesel boutiques (except for the existing Texas program) by 
preempting all state diesel programs, including those that address 
non-road fuels.
	At a minimum, we strongly recommend that this legislation 
amend EPACT05 to require study of the supply and distribution 
impacts of state bio-fuels mandates.   Also, EPA should be 
required to review potential supply impacts of any fuel under 
consideration for approval.  Simply reducing the number of fuels is 
not sufficient especially if it means moving to more stringent 
formulations that reduce producibility which, in turn, could also 
have adverse supply impacts.  

	CHAIRMAN BARTON.  Welcome, Mr. Dinneen.  Your statement 
is in the record.  You are recognized for 7 minutes.
	MR. DINNEEN.  Good afternoon, Mr. Chairman, members of 
this committee.   
        My name is Bob Dinneen.  I am President of the Renewable 
Fuels Association, representing the U.S. ethanol industry, the 
fastest growing renewable energy resource in the world, and, 
Mr. Chairman, I am thrilled to be here.  
        I am also proud to report that just since the last time I testified 
before this committee our industry has continued to grow.  We 
have opened four additional biorefineries just in the last 3 weeks, 
bringing the total number of ethanol plants across the country to 
101, with a total capacity of more than 4.8 billion gallons.  There 
are still 32 plants under construction, and we believe we will end 
the year with more than 115 biorefineries in operation and more 
than 5.7 billion gallons of production. 
        I am pleased to be here today to discuss the complex issue of 
boutique fuels.  A boutique fuel is one that reduces gasoline 
fungibility because its fuel specifications differ from Federal 
standards.  As noted in the EPA's proposed list, examples of 
boutique fuels include low RVP or low sulfur programs States 
have adopted as opposed to Federal RFG.  
        It is important to understand that simply adding ethanol to 
gasoline does not constitute a boutique fuel.  Indeed, ethanol is 
measured in 40 percent of the Nation's fuel.  It is hardly a boutique 
fuel.  Ethanol is an additive that is either blended with a fully 
fungible RBOB in Federal RFG  areas or with a fungible gasoline, 
which adds volume and octane to the motor fuel supply.  Blending 
ethanol with conventional gasoline requires no unique blend from 
refineries and does not add to the complexity of the fuel 
distribution system. 
        Now I understand that some are indeed concerned about the 
proliferation of State biofuel programs because they believe these 
programs may undermine the flexibility intrinsic to the national 
RFS adopted as part of last year's Energy Policy Act.  I am 
sympathetic to that concern.  The RFA worked in good faith with 
the API and others--and I will suggest continues to work in good 
faith in the implementation of that program--to pass a national RFS 
that gives refiners maximum flexibility to blend ethanol and other 
biofuels wherever the market place determined.  To an extent, 
certainly, State mandates do chip away at that flexibility.  But that 
is an issue affecting RFS implementation, one that States should 
appropriately weigh when contemplating such programs.  It is not 
a boutique fuel issue.  
        Even from an RFS implementation standpoint, however, the 
concerns about State biofuels programs appear to be a bit 
overstated.  First, only two State programs are currently in place, 
Minnesota and Hawaii, and those areas where such have been 
adopted or are proposed are largely in areas where refiners would 
be likely to utilize biofuels to meet RFS requirements in any case, 
that is, States with significant existing or potential ethanol 
production capacity.  Indeed, several of the proposed State 
programs wouldn't even become effective until there is meaningful 
biofuels production in the State.  
        Second, not all of the State biofuels programs rely upon 
mandates.  Iowa just enacted a very aggressive 25 percent oil 
displacement program by 2019 that relies squarely on tax 
incentives to motivate gasoline marketers to install biofuel 
infrastructure allowing for greater ethanol, E-85, and biodiesel use.  
The Iowa legislation had support from the local petroleum industry 
and is likely to become a model for other States to follow.  
        EPA's authority to regulate fuels is rooted in the impact fuel 
specifications have on air quality.  EPA has no authority to 
preempt State programs or other public policy objectives, such as 
rural economic development or fuel diversity.  
        Such is the case with State biofuels programs.  The State of 
Minnesota, for example, was the first State to enact an ethanol 
mandate, and the ethanol program has been a remarkable success.  
From just one producing about 50 million gallons of ethanol in 
1995, the State last year had 16 ethanol refineries producing 420 
million gallons of ethanol, generating more than $1.5 billion in 
economic output and supporting almost 6,000 jobs.  
        Congress should not impinge upon a State's ability to pursue 
such economic development.  
        To the extent that the committee determines that boutique fuels 
are indeed contributing or could contribute to gasoline price 
volatility, the RFA supports the Chairman's boutique fuels 
legislation.  The bill would reduce the number of fuels refiners 
must produce and improve overall gasoline fungibility.  That 
would be helpful in the event of any disruption in any gasoline 
production or distribution.  At the same time, the bill appropriately 
preserves the ability of States to pursue biofuel programs that do 
not burden either refiners or the gasoline distribution system.  
While I will continue to support the flexibility inherent in a 
national RFS, States should continue to have the right to weigh the 
concerns of refiners against their own economic development 
objectives.      
        Thank you, Mr. Chairman.
        CHAIRMAN BARTON.  Thank you. 
        [The prepared statement of Bob Dinneen follows:] 

PREPARED STATEMENT OF BOB DINNEEN, PRESIDENT AND CEO, 
RENEWABLE FUELS ASSOCIATION

	Good morning, Mr. Chairman and Members of the Committee.  
My name is Bob Dinneen and I am president of the Renewable 
Fuels Association, the national trade association representing the 
U.S. ethanol industry, the fastest growing renewable energy 
resource in the world.
	In fact, I am proud to report that just since the last time I was 
privileged to testify before this Committee, less than a month ago, 
four more ethanol biorefineries have opened, bringing the total 
number of operational facilities to 101, and annual production 
capacity to more than 4.8 billion gallons.  There are 32 plants 
under construction, and we anticipate ending the year with at least 
115 biorefineries in operation and more than 5.7 billion gallons of 
production capacity.  

	I am pleased to be here today to discuss the complex issue of 
"boutique fuels."  A boutique fuel is one that reduces gasoline 
fungibility because its fuel specifications differ from federal 
standards.  As noted in the Environmental Protection Agency's 
proposed list, examples of boutique fuels include low RVP or low 
sulfur programs several states have adopted as alternatives to 
federal reformulated gasoline.  
	It is important to understand that simply adding ethanol to 
gasoline does not constitute a "boutique fuel."  Indeed, ethanol is 
blended in 40% of the nation's fuel.  Ethanol today is either 
blended with a fully fungible RBOB (reformulated gasoline 
blendstock for oxygenate blending) in federal RFG areas to meet 
appropriate emissions standards or with a fungible conventional 
gasoline, which adds volume and octane to the motor fuel supply.  
Blending ethanol with conventional gasoline requires no unique 
blend from refiners and does not add to the complexity of the fuel 
distribution system.

State Biofuels Programs
	I understand that some are concerned about the proliferation of 
state biofuels programs because they believe these programs may 
undermine the flexibility intrinsic to the national renewable fuels 
standard (RFS) adopted as part of last year's Energy Policy Act 
(EPAct).  I am sympathetic to that concern.  The Renewable Fuels 
Association worked in good faith with the American Petroleum 
Institute and others to pass a national RFS that gave refiners 
maximum flexibility to blend ethanol and other biofuels wherever 
the market place determined.  To an extent, state biofuels mandates 
do chip away at that flexibility.  But that is an issue affecting RFS 
implementation; one that states should appropriately weigh when 
contemplating such programs.  It is NOT a "boutique fuel" issue. 
	Even from an RFS implementation standpoint, however, the 
concerns about state biofuels programs might be overstated.  First, 
only two state programs are currently in place (Minnesota & 
Hawaii); and those areas where such programs have been adopted  
or are proposed  are largely in areas where refiners would be likely 
to utilize biofuels to meet RFS requirements in any case, i.e., in 
states with significant existing or potential ethanol production 
capacity.  Indeed, several of the proposed state programs would not 
become effective until there is meaningful biofuels production in 
the state. 
	Second, not all of the biofuels programs rely upon mandates.  
Iowa just enacted a very aggressive 25% oil displacement program 
by 2019 that relies entirely upon tax incentives to motivate 
gasoline marketers to install biofuels infrastructure allowing for 
much greater ethanol, E-85 and biodiesel use.   The Iowa 
legislation had support from the local petroleum industry and it is 
likely to become a model for other states to follow.
	It is also important to note that EPA's authority to regulate 
fuels is rooted in the impact fuel specifications have on air quality.  
EPA has no authority to preempt state programs that are imposed 
in pursuit of other public policy objectives, such as rural economic 
development or fuel diversity, particularly when the programs are 
not included in a State Implementation Plan.  

	Such is the case with state biofuels programs.  I certainly 
understand why states are contemplating programs to stimulate 
biofuels production and use in their states.  They are anxious to 
capture the tremendous economic benefits local ethanol and 
biodiesel production will provide.  Consider the local economic 
impact of just one 100 million gallon ethanol plant:
	 Generate $406 million for the local community;
	 Increase the state's Gross Output by $223 million;
	 Increase household income by more than $50 million; and
	 Create nearly 1,600 local jobs.  

	The State of Minnesota was the first state to enact a biofuels 
mandate, and it remains the most progressive state in terms of 
promoting renewable fuels today.  Minnesota enacted an ethanol 
mandate ten years ago and implemented a biodiesel requirement 
earlier this year.  Every gallon of gasoline sold in Minnesota today 
is blended with 10% ethanol.  The state's diesel fuel is blended 
with 2% biodiesel.  Ethanol is added to conventional gasoline.  
Biodiesel is added to conventional diesel.  No refinery 
modifications are necessary with either program and they do not 
inhibit fuel fungibility.  By extending conventional gasoline and 
diesel supplies, the Minnesota ethanol and biodiesel programs 
likely reduce consumer motor fuel costs in other states as well.  
	Minnesota's ethanol program has been a remarkable success.  
From just one plant producing about 50 million gallons in 1995, 
the State last year had 16 ethanol biorefineries producing 420 
million gallons, generating more than $1.5 billion in economic 
output and supporting 5,840 jobs.   With ongoing expansions, 
Minnesota anticipates producing more than 550 million gallons of 
ethanol this year, resulting in even greater economic benefit to the 
State.  
	Congress should not impinge on a state's ability to pursue such 
economic development.  
	Consider this statement by Missouri Governor Matt Blunt upon 
the passage of a new state ethanol requirement last month, "I am 
proud your elected leaders have met my call for an E-10 standard. 
This important legislation will benefit our farm families, provide a 
lasting boost to our state's economy, improve our air quality and 
help secure Missouri's position on the top tier of ethanol 
production and utilization."
	Iowa Governor Tom Vilsack echoed that sentiment as he 
signed an aggressive incentive-based biofuels program last week, 
"Today is an extraordinarily important day in the state of Iowa for 
anyone who cares about economic development, for anyone who 
cares about the environment, for anyone who cares about energy 
independence and making more out of what we grow."

Conclusion
	If the Committee concludes "boutique fuels" are a contributing 
factor to rising consumer gasoline prices, the Renewable Fuels 
Association would support the Committee's draft legislation.  The 
bill would reduce the number of fuels refiners must produce and 
improve overall gasoline fungibility.  That would be helpful in the 
event of any disruption in gasoline production or distribution.  At 
the same time, the bill appropriately preserves the ability of states 
to pursue biofuels programs that do not burden either refiners or 
the gasoline distribution system.  While I will continue to support 
the flexibility inherent in a national RFS, states should continue to 
have the right to weigh the concerns of refiners against their own 
economic development objectives.
	Thank you.
        CHAIRMAN BARTON.  We now want to hear from 
Mr. Slaughter, and you are recognized for 7 minutes.
        MR. SLAUGHTER.  Thank you, Mr. Chairman.  
I am Bob Slaughter, and I am President of the National 
Petrochemical and Refiners Association.  We appreciate the 
continuing interest of this committee in the national energy policy, 
and we thank the committee for the opportunity to appear today.  
        The committee draft bill regarding boutique fuels is a reasoned 
and modest approach to address concerns that have been expressed 
by many about fuel proliferation.  I am looking forward to working 
with the committee as you consider that legislation.  It should be 
understood, however, that no change further limiting fuel 
requirements or other fuel specifications is likely to affect the 
gasoline market situation this summer.  
        Since Congress enacted other legislation affecting this area as 
part of the Energy Policy Act, this bill does present the limit that 
should be considered this year.  It would be wise to await the 
results of the EPA study that is now being conducted pursuant to 
last year's legislation before taking any additional action.  
        Further restrictions on the total number of fuels currently 
allowed by the Energy Policy Act of 2005 could possibly lessen 
the frequency of episodic fuel challenges.  However, this action 
would result at the cost of a higher average price than currently 
experienced since the substitute fuel would be required to meet a 
more stringent environmental specification.  
        Refiners have made significant capital expenditures in order to 
comply with the requirements imposed for these particular fuel 
blends.  Last-minute changes will increase uncertainty and upset 
expectations based on current law.  
        We do believe that when and if legislation to limit boutique 
fuels goes forward that it should cover all boutique fuels, including 
Federal and State mandates as well as CARB gasoline.  No 
potentially problematic fuel should be exempted because of its 
political constituency, however powerful. 
        NPRA believes that the emphasis on the impact of boutique 
fuels on gasoline markets in this and recent years has been 
overstated, and, in general, we think that attempts to limit the 
flexibility of the political system to respond to future market 
conditions are unwise and doomed to fail. 
        In general, we are concerned that a rush towards judgment on 
the boutique fuels issue could result in a mandatory unreasonably 
small fuel slate that fails to reflect the diversity when it comes to 
geography, climate, population, and air quality.  
        Howard Greenspeck, the Deputy Administrator of the EIA, 
appeared before the committee in May and laid out better than 
anyone else I have seen about this type of legislation and what 
needs to be taken into account and its consideration.  He said, in 
addition to the difficulty of balancing environmental and fuel 
supply concerns, actions to ease distribution problems by reducing 
the number of gasoline formulations could increase average 
gasoline production costs and reduce overall gasoline supply 
capacity.  
        For example, moving the entire country to a single very clean 
gasoline standard would certainly enhance fungibility, but it would 
also impact refiners' ability to produce enough gasoline to meet 
demand.  Considerable investment in what might otherwise be 
devoted to capacity expansion would be diverted to building the 
system for more intensive processing.  
        A single product standard for product gasoline, if set at 
stringent levels, could also choke off imports of gasoline from 
other sources.  Even though greater fungibility would reduce the 
potential for short-term regional supply shortages and price spikes, 
consumers could end up facing a higher average national price for 
gasoline than they would under the present regime.  Timing, 
balance between supply and distribution, potential further fuel 
specification, and vehicle changes all need to be considered when 
trying to address this issue.  
        We agree with the points that were made by EIA in that 
testimony.  We do think that failure to consider and balance supply 
implications, air quality impacts, and fuel choices together risks 
making the situation worse and perhaps much worse.  A 
precipitous reduction in the number of boutique fuel blends now 
could have the unintended effect of actually reducing the overall 
supply of gasoline.  
        We do again appreciate the opportunity to appear today, and 
we look forward to the committee's questions.  
        CHAIRMAN BARTON.  Thank you, sir. 
        [The prepared statement of Bob Slaughter follows:] 

PREPARED STATEMENT OF BOB SLAUGHTER, PRESIDENT, NATIONAL 
PETROCHEMICAL & REFINERS ASSOCIATION

 NPRA fully understands the impact that higher than usual 
gasoline and diesel prices are having on the nation's 
consumers.  However, NPRA is concerned that boutique fuels 
have been taken out of perspective and identified by some as a 
primary cause of the current fuels market. 
 The Congressional interest in "boutique fuels" is 
understandable.  There is little doubt that fungibility of fuel is 
related to supply.  It should be clearly understood that no change 
further limiting boutique fuel requirements or other fuel 
specifications will affect the supply situation this summer.  

 NPRA believes that the Committee draft is a reasoned and 
modest approach to boutique fuels representing the absolute 
limit that policymakers should consider this year.
 The use of low-RVP conventional gasoline rather than RFG 
represented the environmentally sound, economically 
justifiable option available for areas requiring additional 
emissions controls.
 Limiting the number of low-RVP fuels that can be used, may 
do very little to reduce price volatility.  
 Further, restrictions on the total number of fuels currently 
allowed by the Energy Policy Act of 2006 could possibly lessen 
the frequency of episodic fuel supply challenges.  However, 
this action would result at the cost of a higher average price 
than currently experienced since the substitute fuel would be 
required to meet a more stringent environmental specification.  
 Refiners have made significant capital expenditures in order to 
comply with the requirements imposed for these particular fuel 
blends.  Last minute changes will increase uncertainty and 
upset expectations based on current law.
 Failure to consider and balance supply implications, air quality 
impacts, and fuel choices together risks making the situation 
worse, perhaps much worse.  A precipitous reduction in the 
number of boutique fuel blends now could have the unintended 
effect of actually lessening the overall supply of gasoline.  
 Because the draft legislation intends to improve fuel fungibilty 
and alleviate adverse air quality impacts, it should also cover 
other fuels such a state ethanol and biodiesel mandates.  At the 
very least, the legislation should require EPA to study the 
impact of these mandated fuels.


        Chairman Barton, Ranking Member Dingell, and members of 
the Energy & Commerce Committee, NPRA, the National 
Petrochemical & Refiners Association, appreciates this opportunity 
to present its views on the subject of boutique fuels and, more 
specifically, on draft legislation entitled the "Boutique Fuels 
Reduction Act of 2006."  Our testimony today will concentrate on 
emphasizing the realities and dispelling certain myths that 
surround the debate about boutique fuels.  We will also discuss the 
factors impacting the current and projected transportation fuels 
supply and the specifications which refiners have already met or 
will be obligated to meet.  I am Bob Slaughter, NPRA's President.  
As you know, NPRA is a national trade association with 450 
members, including those who own or operate virtually all U.S. 
refining capacity, as well as most of the nation's petrochemical 
manufacturers with processes similar to those of refiners. 

HOW WE VIEW THE BIG PICTURE
        NPRA fully understands the impact that higher than usual 
gasoline and diesel prices are having on the nation's consumers.  
We congratulate the Committee for holding this and other hearings 
regarding the current transportation fuels market.  NPRA believes 
that the discussion that results will help separate fact from fiction 
in this important policy area.
        We hope that the Committee will keep in mind that there are no 
short-term solutions to problems that have been building for over a 
decade.  As we  stated in our May 11th testimony before the 
Committee:  "Rather than engaging in a fruitless search for 
questionable quick-fix solutions, or even worse, taking actions that 
could be harmful, we urge Congress, the Administration, and the 
public to exercise continued patience with the free market system 
as the nation adjusts to a volatile global energy market.  The 
nation's refiners are working hard to meet rising demand while 
complying with extensive regulatory controls that affect both our 
facilities and the products we manufacture."


OUR VIEW OF THE PROPOSED LEGISLATION
        Congressional interest in "boutique fuels" is understandable.  
There is little doubt that fungibility of fuel is related to supply.  
However, NPRA is concerned that boutique fuels have been taken 
out of perspective and identified by some as a primary cause of the 
current transportation fuels market.  We would make three key 
points: 1) We believe that boutique fuels use resulted from a 
collision between the need for more state/local emissions 
reductions and shortcomings in the federal RFG program; 2) It 
appears unlikely that any change affecting boutique fuel 
requirements or other fuel specifications will affect the supply 
situation this summer, and 3) Congress must try to avoid the law of 
unintended consequences which often afflicts its forays into energy 
legislation.  And while Congress considers this legislation, the U.S. 
refining industry must and will continue to do its job of optimizing 
the production and distribution of gasoline and other petroleum 
products this summer. 
        Regarding the specific subject of this hearing, NPRA believes 
that the Committee draft is a reasonable and modest approach to 
the boutique fuels issue, representing the absolute limit that 
policymakers should consider this year.  We do suggest that it 
would be wise to add four additional items: 1) to include in the 
definition of boutique fuels all state ethanol and biodiesel 
mandates, as well as CARB fuel; 2) to require EPA to make a 
finding on the impact of state biofuel mandates and CARB fuel on 
fuel supply fungibility and air quality; 3) to require a study of the 
impact of a 1-3 fuel national fuel slate on concentration and 
competition in the U.S. refining industry, and 4) to determine the 
impact of this bill on the average consumer costs for gasoline, 
compared to the current system.  Beyond that, action on this 
delicate subject should await completion of the reports mandated 
by the recent EPACT legislation.  Given those reservations, NPRA 
offers its support for the limited bill drafted by the committee.

BACKGROUND
        In past testimony before this and other Congressional 
Committees, NPRA pointed out that the prime factor increasing the 
number of fuel blends throughout the nation was The Clean Air 
Act Amendments of 1990 provision that requires certain areas to 
use federal reformulated gasoline (RFG).  As you know, RFG 
containing a 2% by weight oxygenate was required in the most 
heavily polluted areas of the country.  Historically, the primary 
driver leading local areas to opt for boutique fuels was emission 
reduction needed to attain the 1-hour ozone NAAQS.  These areas 
often sought to avoid RFG when considering fuel controls, due to 
concerns about 1) its cost, and/or 2) the presence of MTBE or 
ethanol.  As states developed their specific State Implementation 
Plans (SIPS) to address their particular air quality concerns, some 
(who were not required to use RFG) realized that they could 
achieve significant reductions in air emissions by using a low-RVP 
conventional gasoline, while avoiding the perceived problems 
associated with RFG.  These states usually adopted low-RVP 
conventional gasoline programs only after consultation with 
refiners, the environmental community, and other stakeholders.  
The new fuel requirements went into effect only after approval by 
EPA.  The upshot?  Areas adopted boutique fuels only when they 
offered comparable emissions reductions at a reduced cost to 
consumers, and many stakeholders and regulators were involved in 
the process.  

WHAT IS A BOUTIQUE FUEL?
        A great deal of attention has been given to national maps 
showing the varied gasoline specifications required across the 
nation.  Those maps were prepared to explain two things: the 
logistical realities involved in serving gasoline markets, and the 
fact that certain areas have chosen a special fuel offering the most 
environmentally sound and economically justifiable approach to 
their specific clean air and consumer needs.

        In the May 11th hearing before this Committee, Acting EPA 
Assistant Administrator for Air and Radiation, Bill Werhum, 
offered the following definition: "a boutique fuel is a unique fuel 
specification that is developed by a state or local air pollution 
agency and approved by EPA as part of the State Implementation 
Plan (SIP) for the affected area.  It is worth noting that boutique 
fuels do not include other clean fuel requirements, such as Federal 
fuel controls (e.g., reformulated gas, winter oxygenated fuels), 
California clean fuel requirements, and area-specific fuels required 
by state law for purposes other than air quality (e.g., Minnesota's 
ethanol mandate)"  (emphasis in the original)  NPRA believes this 
is an incomplete definition of boutique fuels.  It does not include 
California's unique gasoline (CARB), RFG, nor mandated federal 
or state ethanol and biodiesel blends.  These fuels walk, talk and 
act like all other boutique fuels, but they have not been defined as 
such frankly because of political considerations.  Given the history 
of the past ten years, it seems unlikely that federal statutes will be 
permitted to recognize the truth about these political favorites.  The 
latest evidence: EPA's recent draft Boutique Fuels list does not 
include these fuels.   

BOUTIQUE FUELS AND PRICE VOLATILITY
        Much discussion has focused on the rare occasions in which 
events such as refinery outages, pipeline failures, or weather 
related circumstances arise, causing brief supply disruptions in 
limited geographic areas.  In these instances, higher prices serve 
for a brief period to balance supply and demand while eliciting 
additional supplies from sources outside the affected area.  It is 
important to note that gasoline meeting stricter specifications than 
those in the affected area can immediately be supplied to that area 
in nearly all cases. If the situation requires additional, focused 
actions, EPA responds by issuing fuel specification waivers.  
These waivers allow otherwise non-compliant fuel to be used until 
such time as the initial episode is corrected.  
        NPRA's position continues to be that these waiver requests 
should be granted only when a high burden of proof has been met.  
EPA, in our opinion, has met this burden of proof before acting, 
and the system has worked.  As a prime example, in the aftermath 
of last summer's hurricanes EPA, with added authority provided to 
it by EPACT, worked closely with the entire fuels production, 
transportation, and distribution system to stretch the available 
supplies of transportation fuels in the affected area.  The system 
operates much the same way in an area using boutique fuels on the 
very rare occasions when supply problems arise.
        EPACT restrictions on the total number of fuels currently 
allowed should even further reduce the frequency of the need for 
such actions-actions that are even now strictly episodic in nature.  
However, since boutique fuels were adopted because they were 
equally effective in reducing emissions but were cheaper, even the 
changes under EPACT may result in a higher average fuel price for 
affected consumers.  Under EPACT, a substitute fuel seems to 
include a more stringent environmental specification.  NPRA 
therefore suggests that Congress should direct DOE to perform 
such a cost comparison analysis to determine whether this is in fact 
the case.  This analysis should include the economic impact that 
California's adoption of CARB fuel has had on consumers in that 
state due to increased fuel costs and supply problems.

FURTHER DISCUSSION OF A LIMITED FUEL MENU
        The Committee draft represents a modest, do no harm approach 
to addressing the concern with the fuel formulations available 
throughout the nation.  Limiting the number of low-RVP fuels that 
can be used, however, may do very little to reduce price volatility.  
History shows that the main regions of price volatility have been 
California and the Chicago-Milwaukee areas made themselves into 
"fuel islands" due to their own choices.  In fact, other than the 
large area and overall large volumes of fuel involved, California 
fuel is a classic example of a boutique fuel, although EPA does not 
characterize it as such.  Refineries outside of California have little 
or no incentive to make the investments necessary to provide 
California with additional supplies of CARB fuel on a sporadic 
basis.  Chicago's reliance on ethanol as a blendstock for its RFG 
requirements, especially at the outset of RFG II implementation, 
was a major factor in fuel-volatility related problems in the early 
part of this decade.  There have been brief problems in some parts 
of the country with low-RVP fuels, but far less often than has been 
the case with California and ethanol-blended RFG.
        While the committee draft takes a more balanced approach to 
the boutique fuels debate and does not suggest adoption of a 
significantly reduced fuel slate, some propose such an action.  
Reducing allowable fuels to a very limited (4, 5 or even less) 
number, as some have suggested, would require adoption of 
California RFG or Federal RFG.  This result would occur since the 
obvious choice would be the "cleanest" fuel available, not the fuel 
with higher air emission potential.  Adoption of such a strategy 
could very well reduce price volatility, but significantly increase 
the cost of gasoline manufacture.  
        Given current and anticipated requirements facing the domestic 
refining industry, an additional change to more stringent 
specifications at this time would undoubtedly be difficult and 
disruptive.  Marginal refineries could be closed if the owners 
believe that better investments should be made elsewhere, since 
attractive alternative uses for scarce capital always exist.  And 
imports could be more difficult to attract since additional 
investments would have to be made by importers to meet new 
specifications.  In short, an "all RFG" or "all CARB" market 
would make it much more difficult for remaining refiners to 
produce compliant fuel than it is to produce a combination of RFG 
and conventional gasoline, and available imports could be affected.

NEED FOR REGULATORY CERTAINTY
        Refiners have made significant capital expenditures in order to 
comply with the requirements for existing fuel blends.  These 
investments were made at a time when refiners also faced the 
additional regulatory requirements of Tier 2 gasoline sulfur 
reductions, preparation for implementation of ultra low sulfur 
diesel regulations for both highway and non-road applications, and 
implementation of the renewable fuel standard (RFS) in 
conjunction with the elimination of the 2% oxygenate standard for 
RFG.  Further complicating this picture by adding new programs, 
or even eliminating existing ones, at this time will not benefit 
consumers.  Last minute changes will increase uncertainty and 
upset reasonable expectations based on current law.
        Also, failure to consider and balance supply implications, air 
quality impacts, and fuel choices together risks making the current 
situation worse, perhaps much worse.  A precipitous reduction in 
the number of boutique fuel blends now (so that only the most 
environmentally stringent fuels would be left) would probably 
translate into reduced supplies.  This is because cleaner fuels 
require more crude to produce them, given the need for additional 
processing.  This also adds cost to the ultimate product, which 
consumers who do not need these special fuels should not have to 
pay.  NPRA is pleased, however, to see that Section (3)(B)(II)(aa) 
through (ff) provide for studies that are at least intended to prevent 
such occurrences.  We are concerned, however, that they may not 
be effective.

BOUTIQUE OR NOT BOUTIQUE?
        The Committee draft attempts to control the total number of 
boutique fuels as defined in section 211(c)(4)(C) of the Clean Air 
Act in an effort to minimize fuel marketplace volatility and 
maintain air quality gains.  However, while the draft legislation 
focuses on the purely legal definition of boutique fuels, it expressly 
allows the proliferation of state mandated fuels using renewable 
additives such as ethanol and biodiesel.  
        The federal preemption provisions in the Clean Air Act 
preserve a rational motor fuel supply because states are precluded 
from unilateral adoption of unique specifications unless EPA 
grants a waiver. EPA explains the merits of federal preemption in 
the preamble for the federal RFG and anti-dumping final rules, 
which includes the following statements: 

                "The regulations proposed here will affect virtually all 
of the gasoline in the United States.  As opposed to commodities that 
are produced and sold in the same area of the country, gasoline 
produced in one area is often distributed to other areas.  The 
national scope of gasoline production and distribution suggests 
that federal rules should preempt State action to avoid an 
inefficient patchwork of potentially conflicting regulations."

        Because the draft legislation intends to improve fuel fungibility 
and alleviate adverse air quality impacts, it should also cover other 
fuels, such as state ethanol and biodiesel mandates-whether or 
not these fuels fall under the requirements of section 211(c)(4)(C) 
of the Clean Air Act.  At the very least this legislation should 
require EPA to make findings regarding the impact of these 
mandated fuels upon fuel supply and fungibility and air quality.

FUELS OF THE (NEAR) FUTURE
        It is clear to NPRA that implementation of current and 
proposed regulatory programs will tend to reduce existing 
"proliferation" of transportation fuels.  For example, EPA 
published the Mobile Source Air Toxics Phase 2 proposal (71 FR 
15804; 3/29/06).  The primary feature is a proposed reduction in 
the average annual benzene content in all gasoline (conventional as 
well as RFG) to 0.62 vol%.  This eliminates a current distinction 
between conventional gasoline and RFG in toxics control.  In 
addition, recent repeal of the oxygen content requirement for 
federal RFG narrows the differences between winter RFG and 
winter CG and between summer RFG and summer 7.0 RVP CG.  
In addition, the average sulfur content of RFG and CG is identical 
because of the federal Tier 2 Gasoline Sulfur program.  This means 
that areas requiring VOC and toxics emissions reductions may now 
be content with RFG or CG rather than a new boutique fuel.
        NPRA believes that attempts to limit the number of viable 
motor fuels in various regions or even nation-wide beyond those 
already contained in EPACT may prove unnecessary.  That is why 
we think that the draft proposal should be the outer limit of action 
taken on this issue.  After all, why add substantial additional 
burdens on refiners when the objective of reducing fuel blends will 
most likely be met in a more rational way in the coming years?

CURRENT STUDIES
        NPRA supports the EPA review process and the expansion of 
the scope of its analysis of boutique fuels in section 1541 of last 
year's energy bill.  Clean Air Act section 211(c)(4)(C) was 
amended by the Energy Policy Act of 2005 to give EPA and DOE 
joint authority to review motor fuel control selections by states and 
require that both agencies consider the regional supply 
implications of such choices.  EPA has expanded the effort to 
include a "Governor's Task Force" to aid in this process.  It seems 
to us not only premature but also wasteful to short-circuit this 
process by legislating additional limitations on boutique fuels 
before the studies are complete.  

SUMMARY
        NPRA's members are dedicated to working cooperatively with 
government at all levels to ensure an adequate supply of 
transportation fuels at reasonable prices.  But we feel obliged to 
remind policymakers that action should only be taken to improve 
energy policy in order to increase supply and strengthen the 
nation's refining infrastructure.  We appreciate the invitation to 
appear at this hearing and look forward to answering the 
Committee's questions.

        CHAIRMAN BARTON.  We now want to hear from Mr. Becker.
        MR. BECKER.  Good afternoon, Mr. Chairman, members of the 
committee.  I am Bill Becker of the State and Territorial Air 
Pollution Program Administration and the Association of Local Air 
Pollution Control Officials, which are the two national associations 
of State and local clean air agencies representing 53 States and 
territories and more than 165 major metropolitan areas around the 
country.  Thank you for inviting us back today to talk about State 
clean air fuel programs and the discussion draft your committee 
has developed.  
        Given our testimony at last month's hearings, I suppose it 
should come as no surprise that our associations oppose the 
discussion draft.  We believe that any legislation further restricting 
the ability of States and localities to adopt their own clean air fuel 
programs is not only unwarranted but could jeopardize public 
health and clean air.  
        We often hear about the so-called proliferation of boutique or 
State clean air fuel programs.  Let's be clear about the facts here.  
Today, there are just seven State clean air fuels used in portions of 
12 States, and most of these were adopted at the urging of the 
refining industry.  Less than a year ago, Congress not only barred 
States from increasing the number of clean air fuels beyond seven, 
but also prohibited any State from adopting one of the seven fuels 
unless the fuel was already in use in another State in the same 
petroleum district.  
        On top of these new restrictions, States remain preempted by 
the Clean Air Act from ever adopting any clean air fuel program 
unless every other reasonable and practicable measure to attain a 
health-based air quality standard has been exhausted. 
        Therefore, it is extremely troubling to us that the discussion 
draft essentially eliminates what little ability remains for State and 
local agencies to design and implement innovative clean air fuel 
programs to protect public health.  Air pollution poses a very 
serious public health problem.  One hundred and sixty million 
people, more than half of our population, live in areas of the 
Nation with unhealthful levels of ozone and/or fine particulate 
matter.  
        Over the next 2 years, States will be developing State 
Implementation Plans to demonstrate to EPA's satisfaction how 
these States will attain and maintain health-based air quality 
standards, and cleaner fuels will continue to be an important 
regulatory option for States to consider.  If authorities to adopt 
these fuels are further curtailed, States may not be able to submit 
approvable plans to EPA, which could lead to sanctions under the 
Clean Air Act, including the withholding of hundreds of millions 
of dollars of Federal highway funds and what is, in effect, a ban on 
new construction. 
        In addition to these concerns, it is unclear to us what problem 
this legislation seeks to resolve.  Any claims that State clean air 
fuels contribute to high gasoline prices are totally unsubstantiated.  
According to EPA, the cost of these fuels are minimal, ranging 
from three-tenths of 1 cent to 3 cents per gallon.  
        To the extent that there is concern over potential supply and 
distribution problems, Congress addressed this in EPAct by 
authorizing EPA to temporarily waive requirements during supply 
emergencies.  
        And finally, as has been discussed, there are several ongoing 
initiatives analyzing State clean air fuel programs, including two 
studies under EPAct and a Governors' Fuels Task Force.  It is 
premature to consider further restrictions before these studies are 
concluded.  
        Turning to your draft bill, I would like to highlight a few of our 
greatest concerns. 
        First, the bill reduces the total number of clean air fuel options 
available to States from seven to just three. This will force States 
to choose from among lowest common denominator fuels listed 
because they are most advantageous for fuel supply and 
distribution, not because they have the greatest potential for 
helping an area meet public health standards. 
        Second, although the bill provides for the potential addition of 
just one more fuel, for a total of no more than four fuels 
nationwide, the hurdles for making such an addition are forbidding 
and subjective, as are those that apply if a State simply wishes to 
replace one fuel from the approved list with another from the list. 
        Third, in no case may more than two approvable State fuels be 
adopted within the same PADD.  This will pit States against one 
another in determining which two of the three fuels will be allowed 
in their PADD. 
        And, finally, by establishing a landscape of changing ground 
rules, the bill creates tremendous uncertainty at the exact time 
States are developing their State Implementation Plans for meeting 
air quality and public health goals. 
        If Congress is interested in taking legislative action, it should 
expand States' authorities, not limit them, and allow increased 
flexibility to adopt clean air fuel programs that will meet public 
health needs in the future.  
        We recommend that Congress consider expanding the list of 
clean air fuels available under EPAct to include California clean 
burning gasoline, allowing all areas of the country, attain and 
nonattainment, to opt into the Federal Reformulated Gasoline 
Program, and facilitating the ability of States and localities to 
adopt cleaner regional fuels, including allowing attainment areas to 
participate in such regional programs. 
        Thanks for the opportunity to testify.  I am happy to answer 
any of your questions. 
        CHAIRMAN BARTON.  Thank you. 
        [The prepared statement of S. William Becker follows:] 

PREPARED STATEMENT OF S. WILLIAM BECKER, EXECUTIVE 
DIRECTOR, STATE AND TERRITORIAL AIR POLLUTION PROGRAM 
ADMINISTRATORS/ASSOCIATION OF LOCAL AIR POLLUTION 
CONTROL OFFICIALS

1.	STAPPA and ALAPCO are the two national associations of 
clean air agencies in 54 states and territories and over 165 major 
metropolitan areas across the United States.  
2.	STAPPA and ALAPCO oppose the "Boutique Fuel Reduction 
Act of 2006." The associations are concerned by assertions that 
there has been a "proliferation" of state clean air fuels programs 
and that these programs are responsible for fuel price increases 
and could potentially compound fuel supply disruptions should 
they occur.  State clean air fuels programs have been wrongly 
targeted as the cause, and that further curtailment of state and 
local authorities to pursue such programs could unnecessarily 
jeopardize public health and clean air. We strongly urge that 
Congress not further limit the ability of states and localities to 
adopt state clean air fuels programs.
3.	There is widespread agreement that cleaner fuels have been, 
and will continue to be, critical to reducing air pollution and 
protecting public health.  They are also cheap, ranging from 
0.3-3 cents per gallon.
4.	The Clean Air Act allows states to adopt their own clean air 
fuels programs, provided they meet two exceptions. In essence, 
a state can only adopt a clean air fuel if no other more 
reasonable or more practicable measure exists, and only if EPA 
approves. Congress placed additional restrictions on states by 
prohibiting the number of state clean air fuels from increasing 
beyond the seven on EPA's proposed list.
5.	States and localities have adopted their own clean fuels 
programs generally at the urging of the fuel suppliers, who were 
"willing partners."
6.	Congress should consider expanding state authorities by 1) 
including California  Clean Burning Gasoline as part of the 
EPAct fuels list, 2) expanding the eligibility criteria for opting 
into federal reformulated gasoline, and 3) facilitating the ability 
of states and localities to adopt cleaner regional fuels.
7.	Conclusion--There are safeguards in place that allow EPA to 
respond swiftly and effectively should fuel supply disruption 
ever become an issue. EPAct prohibits the number of types of 
boutique fuels to expand.  EPA has yet to report to Congress on 
the results of its boutique fuels study under EPAct. The 
President has convened a special task force to study this issue 
and make recommendations.  In light of all this, STAPPA and 
ALAPCO urge that Congress not further limit the ability of 
states and localities to adopt clean air fuels programs.


	Good morning, Mr. Chairman and members of the Committee.  
I am Bill Becker, Executive Director of STAPPA - the State and 
Territorial Air Pollution Program Administrators - and ALAPCO - 
the Association of Local Air Pollution Control Officials - the two 
national associations of clean air agencies in 54 states and 
territories and over 165 major metropolitan areas across the United 
States.  Our associations' members are responsible for achieving 
and sustaining clean, healthful air throughout the country and hold 
primary responsibility under the Clean Air Act for implementing 
our nation's air pollution control laws and regulations.
	STAPPA and ALAPCO were pleased to be invited to testify 
before this Committee a month ago as you evaluated gasoline 
supply, price and specification issues, and we appreciate being 
invited back today to offer our perspectives on the legislation you 
have drafted.  Given the testimony our associations provided at last 
month's hearing, it should come as no surprise that STAPPA and 
ALAPCO oppose the draft bill, the "Boutique Fuel Reduction Act 
of 2006." As we have consistently expressed, our associations 
continue to believe firmly that any legislation to further restrict the 
ability of states and localities to adopt clean air fuel programs 
(often referred to as "boutique fuels") is not only unwarranted, but 
could unnecessarily jeopardize public health and clean air.
	It is important to put the issue of state clean air fuels in the 
appropriate context.  
	A state clean air fuel is one developed and included by a state 
or locality in a  State Implementation Plan (SIP) approved by the 
U.S. Environmental Protection Agency (EPA) to reduce motor 
vehicle emissions and improve air quality.  Authority for these 
programs is provided under Section 211(c)(4) of the Clean Air Act.  
As EPA announced last week, there are just seven distinct types of 
these fuels in 12 states.  These include three low-volatility fuels, 
one low-volatility fuel with sulfur provisions, one low-emission 
diesel fuel, one cleaner burning gasoline and one wintertime 
gasoline.  State clean air fuels do not include any federal fuel 
program, such as low-sulfur gasoline, ultra-low sulfur diesel or 
reformulated gasoline (RFG); they do not include any state-
mandated programs for ethanol-blended or oxygenated fuels; and 
they do not include California's clean-burning gasoline.  
	States pursue clean air fuels for various reasons.
	Some states are not eligible to opt into the federal RFG 
program and, therefore, adopt a clean air fuel in order to obtain 
cleaner-than-conventional gasoline in a particular area.  Others, 
who are eligible to opt into federal RFG, have elected to pursue a 
low-volatility fuel (i.e., one with a low Reid Vapor Pressure, or 
RVP) instead, as a less expensive alternative to RFG.  It is 
especially significant that in a number of instances, a state or 
locality seeking to reduce smog-forming emissions pursued a clean 
air fuel over opting into the federal RFG program at the urging of 
the refining industry.  Although federal RFG would have reduced 
not only ozone precursors, but toxic air pollutants as well, the 
industry argued instead for a low-volatility fuel with more limited 
air quality benefits and a lower price tag.  In the President's 2001 
National Energy Policy Report, EPA concluded that fuel suppliers 
were "willing partners" in advancing state clean air fuel programs 
over the uniform federal RFG program.
	It is also important to understand the very limited scope of 
states' authority with respect to fuels.  The Clean Air Act gives 
primary authority for regulating the environmental impacts of fuels 
to EPA, preempting states and localities from controlling or 
prohibiting any characteristic component of a motor vehicle fuel or 
fuel additive.  However, recognizing that there may be extenuating 
circumstances warranting a state or local fuel program, Congress 
provided, in Section 211(c)(4) of the Clean Air Act, two specific 
exceptions to the otherwise general preemption - specifically, if 
the EPA Administrator finds that a special state or local fuel 
standard is necessary to attain the National Ambient Air Quality 
Standards (NAAQS) because 1) no other measures exist to bring 
about timely attainment or 2) other measures exist, but are 
unreasonable or impracticable.  In other words, a state can only 
adopt a clean air fuel if no other more reasonable or more 
practicable measure exists, and only if EPA approves.  Congress 
also placed additional restrictions on these fuels when it enacted 
the Energy Policy Act of 2005 (EPAct) last summer.  In particular, 
EPAct prohibits the number of state clean air fuels from increasing 
beyond the seven on EPA's proposed list and restricts states from 
adopting any fuels not already adopted in the same Petroleum 
Administration Defense District (PADD).
	So why are clean air fuels so important to states and localities? 
	Cleaner fuels have been, and will continue to be, critical to 
reducing air pollution and protecting public health.  EPA has 
concluded these fuels "deliver substantial air quality and public 
health benefits at minimal costs," and has indicated that "fuel 
controls can often be implemented quickly and, once implemented, 
produce benefits immediately, typically reducing emissions from 
each vehicle in the fleet with no need for vehicle fleet turnover.  
This fleet-wide impact distinguishes fuels control from most other 
mobile source emission control options available to state and local 
areas."  In addition, the Government Accountability Office, in a 
June 2005 study, reported that state clean air fuel programs have 
reduced smog-forming emissions by up to 25 percent over 
conventional gasoline.
	This is especially important because at least 160 million people 
- more than half our population - still live in areas with 
unhealthful levels of 8-hour ozone, fine particulate matter or both.  
Ozone contributes to lung disease, irritation of the respiratory 
system and cardiovascular symptoms, while fine particulate matter 
can lead to damage to lung tissue, impaired breathing, 
cardiovascular disease and even premature mortality.
 	To address these health problems, states are required by the 
Clean Air Act to develop, beginning next year, approvable SIPs for 
attaining and maintaining the NAAQS for 8-hour ozone and fine 
particulate matter.  And cleaner fuels will continue to be an 
important regulatory option for states and localities to consider.  If 
authorities to adopt these fuels are further curtailed, states may not 
be able to submit approvable SIPs to EPA, which could lead to 
sanctions under the Clean Air Act, including the withholding of 
hundreds of millions of dollars of federal highway funds and what 
is, in effect, a moratorium on new construction.
	Before providing our specific comments on the draft bill, we 
wish to raise a fundamental concern with the legislation; namely, 
that it is unclear what problem this legislation seeks to resolve.
	First, any claims that state clean air fuels contribute to high 
gasoline prices are totally unsubstantiated.  According to EPA, the 
costs of these fuels are minimal, ranging from 0.3 to 3 cents per 
gallon.  The average national price for a typical gallon of regular 
gasoline today is almost $2.90; state clean air fuels are responsible 
for only a fraction of 1 percent of this cost.  Yet, the price 
differential between two gas stations supplied by the same fuel 
company, located just blocks away from each other, can be many 
times higher than the cost attributed to a clean air fuel.  So what 
does account for a typical gallon of gasoline?  According to the 
U.S. Department of Energy's (DOE's) Energy Information 
Administration, over half (55 percent) is for domestic and foreign 
crude oil.  About 22 percent is for refining (processing the crude to 
make gasoline, diesel fuel and other products for sale to refiners).  
Almost 20 percent goes for taxes or fees that are paid to federal, 
state or local governments, while 4 percent is for distribution and 
marketing, including shipping by pipeline, storage at terminals and 
delivery by trucks to retail stations.
	Second, to the extent there is concern over the potential for 
state clean air fuels to exacerbate a future supply disruption caused 
by a natural disaster or unexpected circumstance, such as a 
pipeline break or refinery shutdown, Congress addressed this issue 
last summer when it adopted EPAct.  The law includes a provision 
that authorizes the EPA Administrator to temporarily waive fuel 
requirements during supply emergencies.  EPA was able to use this 
authority swiftly and effectively following the devastation of 
Hurricanes Katrina and Rita.
	Finally, it seems premature for this Committee to be 
considering further restrictions on state clean air fuels before 
several ongoing studies on this issue are completed.  EPAct 
requires EPA and DOE to undertake two studies and report their 
results to Congress, along with recommendations.  The first, due in 
August of this year, is to focus on the effects of state-adopted fuel 
programs on air quality, the number of fuel blends and the 
availability, cost and fungibility of fuel; the second, due in June 
2008, is to focus on fuel system harmonization.  And last month, 
President Bush directed EPA Administrator Stephen Johnson to 
convene a Governors Fuels Task Force to review clean air fuels 
across the country and make recommendations.  The Task Force 
has had several conference calls and expects to issue its report in 
the next several weeks.
	Now that I have explained why STAPPA and ALAPCO 
oppose any further limitation of states' rights to adopt clean air 
fuels, I would like to outline some specific concerns with the 
provisions of the draft bill being contemplated by this Committee, 
which reduces, even further than EPAct, the number of clean air 
fuels, and places additional restrictions, beyond those of EPAct 
and the Clean Air Act, on states' abilities to adopt even the very 
limited number of fuels to be allowed.
	The draft bill reduces the total number of clean air fuels 
allowed in the nation from seven, under EPAct, to just three - each 
with a different RVP and none of which may control sulfur or 
toxics beyond levels already required by EPA.  One of the three 
fuels on the "Approvable State Fuels List" is to have an RVP of 
7.0 pounds per square inch (psi), with the remaining two to be 
determined based on EPA and DOE's consideration of a number of 
undefined, subjective criteria.  Likewise, although the bill provides 
for the potential addition to the list of just one more fuel - for a 
total of no more than four fuels nationwide - the hurdles for 
making such an addition are forbidding and subjective, as are those 
that apply if a state wishes simply to replace one fuel from the 
approved list with another from the list.  
	Keeping in mind that the Clean Air Act requires adoption by a 
state of a clean air fuel program to be the measure of last resort in 
meeting the NAAQS, we find it unacceptable that the very short 
list from which states will be forced to choose will be comprised of 
lowest-common-denominator fuels listed because they are most 
advantageous for fuel supply and distribution, not because they 
have the greatest potential for helping an area meet public health 
standards.
	Also troubling is the bill's requirement that in no case may 
more than two of the three approvable state fuels be approved 
within the same PADD, thus pitting states within the same PADD 
against one another in determining which two of the three fuels 
will be allowed.  Additionally, restricting fuels according to PADD 
completely ignores the fact that the design of PADDs has nothing 
at all to do with states' air quality circumstances and that states 
within the same PADD can have vastly different needs regarding 
the achievement of clean air goals.  Moreover, the draft bill 
essentially eliminates what little ability remains under EPAct for 
state and local agencies to design and implement innovative clean 
air fuel programs that could play a truly meaningful role in 
meeting those goals.
	Further, this bill is not only untenable, it is unworkable.  
During the exact period of time when states and localities across 
the nation face the daunting challenge of developing 
comprehensive SIPs to achieve and sustain clean air and public 
health goals - 8-hour ozone SIPs are due by June 2007 and fine 
particulate matter SIPs are due by April 2008 - the draft bill not 
only severely constricts states' authorities, it creates tremendous 
uncertainty.  In the first 18 months after the bill is signed into law, 
a state could adopt any of the seven fuels listed under EPAct as 
long as it is already approved in another state in the same PADD; 
however, if a fuel is dropped from the EPAct list during this time, 
the draft bill would prohibit replacing it with another fuel, thus 
reducing the number of options available to states.
	After 18 months, once EPA and DOE promulgate the 
Approvable State Fuels List under the draft bill, the ground rules 
change.  The number of clean air fuels from which states can 
choose shrinks to three, no more than two of which would be 
allowed in the same PADD.  Not knowing which three fuels would 
ultimately be listed under the bill, states could conceivably adopt a 
fuel under EPAct, only to find that it is no longer acceptable once 
the bill takes effect or that there are more than two fuels in place in 
the same PADD.
	In PADD 2, for example, there are currently three different 
RVP fuels approved in four states - 7.0 psi in Kansas and 
Missouri, 7.2 psi in Missouri and Illinois and 7.8 psi in Michigan.  
Although the draft bill stipulates that 7.0 psi fuel will be one of the 
three listed as approvable, it is unclear whether 7.2 psi and 7.8 psi 
will be on the final list and, in any event, no more than two of the 
three can be adopted in the PADD.  Thus, at least one, if not two, 
states in PADD 2 will be compelled to drop their fuel requirement.
	Finally, just a word about Section 2 of the draft bill, which 
expands the circumstances under which EPA may exercise its 
authority to issue temporary waivers.  We question the need for 
this expansion.  In explicitly providing in EPAct for temporary 
waivers during supply emergencies, beyond the enforcement 
discretion authority the agency has always had, Congress gave 
EPA broad authority to waive fuel requirements, including for 
events "that could not reasonably have been foreseen or prevented" 
and those that are not the result of "the lack of prudent planning on 
the part of the suppliers."  The draft bill would add language to 
allow for waivers in the case of "unexpected problems with 
distribution or delivery requirement that is necessary for 
transportation and delivery of fuel or fuel additives."  We find this 
language unclear and, given the broad authority already provided 
to EPA, unnecessary.
	STAPPA and ALAPCO oppose any further restrictions on 
states' abilities to adopt clean air fuels programs and urge 
Congress to instead take steps to expand states' authorities to 
pursue the cleanest fuels available today.  We offer three 
recommendations in this regard.
	First, Congress should consider expanding the list of clean air 
fuels available under EPAct to include California Clean Burning 
Gasoline.
	Second, Congress should consider expanding the eligibility 
criteria for opting into the federal RFG program.  Today, areas that 
violate the 8-hour ozone standard (but not the 1-hour standard) are 
not allowed to opt into the RFG program.  And attainment areas 
have never been eligible to opt into this program.  Since the RFG 
program was the product of an extremely successful regulatory 
negotiation over a decade ago, and was supported by every one of 
the major stakeholders - including the American Petroleum 
Institute, the National Petrochemical and Refiners Association, the 
Renewable Fuels Association, the states and the environmental and 
health communities - Congress should consider expanding the 
eligibility criteria to allow additional areas (e.g., 8-hour ozone 
nonattainment areas and even attainment areas) to opt into the RFG 
program.  This would allow for an expansion of the cleaner federal 
fuels program to more areas of the country, obviating the need for 
states to adopt their own clean air fuel programs.
	Third, Congress should help facilitate the ability of states and 
localities to adopt cleaner regional fuels.  Today, states in the 
Ozone Transport Region and in the Midwest have been discussing 
ways in which they can coordinate efforts to adopt cleaner fuels on 
a regional basis.  However, because of statutory limitations, certain 
jurisdictions (i.e., attainment areas) would not be able to participate 
in such a regional approach.  Allowing attainment areas to 
participate in regional clean air fuel programs would not only assist 
in achieving air quality goals, but would also address concerns 
related to fungibility. 
	In conclusion, STAPPA and ALAPCO urge the Committee not 
to pursue this bill or any measure that would place further limits on 
states' abilities to adopt clean air fuels.  We firmly believe these 
state clean air fuel programs have been wrongly targeted and that 
further curtailing them will serve only to impede state and local 
efforts to achieve and sustain clean, healthful air.  Claims that 
these fuels contribute to high gasoline prices or irresolvable supply 
or distribution problems remain unsubstantiated.  Further, EPACT 
gives EPA specific authority to respond swiftly and effectively 
should fuel supply or distribution ever become an issue.  If 
Congress is interested in taking legislative action, it should expand 
state authorities by allowing increased flexibility to adopt clean air 
fuel programs that will meet public health needs in the future.

        CHAIRMAN BARTON.  We now hear from Ms. Hubbard, who is 
representing the convenience stores.  I think this is your first time 
before the committee, is that correct?  
        MS. HUBBARD.  Yes, sir it is. 
        CHAIRMAN BARTON.  I don't know if you were here, but 
Congressman Hall was very eloquent in his support of you and 
your accomplishments, and I wish he were here to welcome you 
formally to the committee. 
        MS. HUBBARD.  Well, thank you.  I did hear that, and it was 
very much appreciated.  And of course I come with a big Texas 
"Yee Haw," and I am excited to be here. 
        CHAIRMAN BARTON.  We are glad to have you.  Your statement 
is in the record, and you are recognized for 7 minutes.
        MS. HUBBARD.  Okay.  Well, thank you.  
        Good afternoon, Mr. Chairman and committee.  My name is 
Sonja Hubbard, and I represent E-Z Mart Stores, Inc.  I am the 
CEO.  We are a Texarkana, Texas-based operation that has 327 
stores in Texas, Arkansas, Oklahoma, Louisiana, and Missouri. 
        I come here today, as you said, representing NACS and 
SIGMA, and together our members sell over 80 percent of the fuel 
used in the country. 
        For many years, NACS and SIGMA have warned Congress 
about the fragmentation of the fuels market caused by the spread of 
boutique fuels.  Today, however, we want this committee to 
understand that we are more concerned than reassured by the 
prospect of new fuels legislation this year. 
        The motor fuels industry is working very hard to implement the 
significant changes to the market mandated by the Energy Policy 
Act of 2005, and then over the next 6 months we are facing 
significant challenges with ultra low sulfur diesel introduction.  
        We appreciate the opportunity to comment on the discussion 
draft, and we welcome the committee's focus on this issue of 
boutique fuels, but we believe there will be a healthy debate and 
that the additional proposals hopefully will help us enact some of 
the restrictions on the EPAct.  However, we do urge the committee 
to be very careful when considering additional legislation on 
boutique fuels in light of the impact such legislation could have on 
the already volatile gasoline and diesel markets. 
        If the committee feels compelled to consider additional 
boutique fuels legislation, NACS and SIGMA have three 
recommendations:  First, we recommend that you do not establish 
the Federal fuels slate until the EPA and DOE have completed 
their study and reported back to Congress.  Only after completion 
of the study can we reasonably anticipate the market effect on such 
legislative proposals. 
        Second, if the committee determines that we cannot wait for 
the recommendations, then we recommend that you enact only the 
first portion of the discussion draft.  These provisions would 
gradually reduce the number of boutique fuels used across the 
Nation through a so-called ratchet.  The ratchet would force the 
States to confine their existing fuels to a narrow list--or it would 
not force them to comply to a narrow list.  Instead, it would be a 
logical step in addressing the issue of boutique fuels and would 
build upon boutique fuels policy enacted by EPAct.  
        Third, we recommend that you address the issue of State 
biofuel mandates.  We recognize this is a very controversial issue, 
and I want it very clear that we are not attacking the role of 
biofuels in this country, but we do strongly believe that Congress 
must consider the market effects of numerous State mandates.  
Therefore, we suggest that legislation make the adoption of any 
State alternative fuel mandate such as ethanol or biodiesel 
conditional upon the determinations by the Secretaries of Energy 
and Transportation after they confirm sufficient supplies of such 
fuel exists and would satisfy the demand and that such mandate 
will be supported by adequate transportation logistics.  
        Currently, State alternative fuel mandates are the biggest threat 
to gasoline and diesel fuel fungibility confronting the motor fuel 
manufacturing and distribution industries.  This first chart we have 
here graphically shows the proliferation of the new types of 
boutique fuels that are being considered or adopted throughout the 
Nation.  I think you can see, particularly the ones in burgundy, 
where things are actually being considered and the others highlight 
the items or mandates already in effect.  These States' boutique 
alternative mandates are not covered by the EPAct's boutique fuels 
restrictions, but they should be.  
        We are also concerned about the supplies of biofuels.  The 
second chart demonstrates ethanol prices currently, and they are 
trading at over $3.75 a gallon on the spot market, which is double 
the price they were last year.  I think you can see that clearly.  
There can be no clearer indication that there is not enough ethanol 
to meet current demand.  We experienced that personally within 
our own company just this past month in the Dallas market and had 
shortages and price fluctuations.  
        If State biofuel mandates continue to proliferate, the current 
situation will only grow worse.  Our industry will be required to 
move ethanol from one market to another based on artificial 
demand created through State mandates, as opposed to market 
forces.  
        The national standards enacted by Congress just last year 
included important provisions to promote the flexibility for the 
marketplace.  We urge you to stand by these provisions and 
condition the implementation of any State mandate upon findings 
by the relevant Federal authorities that adequate supplies and 
logistics exist to support the demands created by the State 
mandates. 
        In summary, we ask that you not establish the Federal fuels 
slate until the report from the EPA and DOE have been received so 
that an informed action can be made. 
        Secondly, in the meantime, the ratcheted portion of the 
proposal would help ensure supply without disruption within the 
marketplace. 
        And, finally, we feel strongly that there needs to be some 
address of the proliferation of new State biofuel mandates.  
        I appreciate the opportunity to testify and would be pleased to 
answer any questions regarding this testimony. 
        CHAIRMAN BARTON.  Thank you. 
        [The prepared statement of Sonja Hubbard follows:] 

PREPARED STATEMENT OF SONJA HUBBARD, CEO, E-Z MART 
STORES, INC., ON BEHALF OF NATIONAL ASSOCIATION OF 
CONVENIENCE STORES AND SOCIETY OF INDEPENDENT GASOLINE 
MARKETERS OF AMERICA

	Good morning, Mr. Chairman, Ranking Minority Member 
Dingell, and members of the Committee.  Thank you for holding 
this important hearing.  My name is Sonja Hubbard.  I am the 
Chief Executive Officer of E-Z Mart Stores, Inc. of Texarkana, 
Texas.  My company owns and operates over 300 motor fuel 
outlets in five states -- Texas, Oklahoma, Louisiana, Arkansas, and 
Missouri.  Our company sells nearly 200 million gallons of 
gasoline and diesel fuel each year and we employ over 2,200 
clerks, managers, and other personnel in these five states. We sell 
gasoline under our own brand and, at some locations, under the 
brand of our refiner suppliers.
	I appear before the Committee representing the National 
Association of Convenience Stores (NACS) and the Society of 
Independent Gasoline Marketers of America (SIGMA).  I currently 
serve as Vice Chairman for Government Relations on NACS' 
Board of Directors and my company also is an active member of 
SIGMA.  Together, NACS and SIGMA members sell 
approximately 80 percent of the gasoline and diesel fuel purchased 
by motorists in the United States each year.
	NACS is an international trade association comprised of more 
than 2,200 retail member companies operating more than 100,000 
stores.  The convenience store industry as a whole sold 143.5 
billion gallons of motor fuel in 2005 and employs 1.5 million 
workers across the nation.
	SIGMA is an association of more than 240 independent motor 
fuel marketers operating in all 50 states.  Last year, SIGMA 
members sold more than 58 billion gallons of motor fuel, 
representing more than 30 percent of all motor fuels sold in the 
United States in 2005.  SIGMA members supply more than 35,000 
retail outlets across the nation and employ more than 350,000 
workers nationwide.
	NACS and SIGMA have for many years warned Congress 
about the fragmentation of the fuels markets which has resulted 
from various jurisdictions requiring their own boutique fuel blends.  
Nevertheless, it is our straightforward message to this Committee 
today that we are more concerned than reassured by the prospect of 
new fuels legislation this year.  Our industry, and the entire motor 
fuels manufacturing and distribution industries, are still working 
very hard to implement the significant changes in the motor fuels 
markets that have been the result of the legislative mandates 
contained in the Energy Policy Act of 2006 (EPAct).  Over the 
next six months, we also face significant challenges with the 
introduction of ultra low sulfur diesel fuel (ULSD).
	Simply stated, the gasoline and diesel fuel markets, and all of 
the participants in those markets, need time to implement EPAct's 
renewable fuel standard, to complete the phase-out of MTBE as a 
gasoline additive, and to make the changeover to ULSD.  Given 
time, gasoline and diesel fuel supplies will stabilize or increase, the 
nation's motor fuels distribution infrastructure will grow 
accustomed to handling new fuels and fuel blends, and gasoline 
and diesel fuel wholesale and retail price volatility should decline.
	NACS and SIGMA have reviewed the discussion draft of the 
"Boutique Fuels Reduction Act of 2006."  We welcome the 
Committee's focus on the continued proliferation of boutique fuels 
and believe that there should be a healthy debate on any additional 
measures that may need to be undertaken to build on the boutique 
fuels restrictions in EPAct.  We also acknowledge that this draft 
includes provisions that represent significant improvements over 
other legislative proposals that seek to accomplish similar 
objectives and we appreciate the effort the Committee has made to 
address many of the concerns expressed by marketers. 
	However, we urge the Committee to be very careful when 
considering additional legislation on boutique fuels in light of the 
impact such legislation could have on an already volatile gasoline 
and diesel fuel market.  If this Committee's intent is to moderate 
retail gasoline and diesel fuel prices through additional boutique 
fuels legislation, NACS and SIGMA are not convinced that the 
discussion draft will have the desired effect.
	If this Committee feels compelled to consider additional 
boutique fuels legislation, NACS and SIGMA have three 
recommendations.
	First, we recommend that you not act with respect to a fuel 
slate, such as the slate in the discussion draft, before EPA and 
DOE have completed their study and report required under Section 
1541(c) of EPAct.  Without this study, Congress simply can not 
know what effect a fuel slate will have on overall motor fuel 
supplies and thus on wholesale and retail prices.  If, in your desire 
to moderate motor fuel prices, your actions in enacting a fuel slate 
actually reduce overall gasoline and diesel fuel supplies and 
contribute to greater price volatility, then you will have achieved 
the opposite of your stated goal.
	Second, if the Committee feels it can not wait for the 
recommendations of EPA and DOE before it acts, then we 
recommend that you enact the first portion of the discussion draft 
to gradually reduce the number of boutique fuels used across the 
nation through a so-called "ratchet."  The enactment of a ratchet 
would result in a decline in the number of boutique fuels 
nationwide over time.  Such a ratchet would not force states to 
conform their existing fuels to a narrow slate of fuels.  Instead, it 
represents the logical next step in addressing the issue of boutique 
fuels and would build on the boutique fuels policies enacted in 
EPAct:  (1) preserve environmental protection; (2) preserve state 
flexibility while guarding against random proliferation of boutique 
fuels; (3) restore fungibility to the nation's motor fuels markets; 
and, (4) reduce the wholesale and retail price volatility caused by 
boutique fuels.
	Under a ratchet, no state would be forced to change its fuel 
specifications.  Rather, the number of boutique fuels would be 
reduced only when a state removes the fuel from its state 
implementation plan or the fuel becomes identical to a federal fuel.  
New, cleaner, more plentiful, and less expensive fuels would be 
permitted to enter the market under a ratchet either through action 
by EPA or by replacement of an existing fuel on the EPAct 
boutique fuels list.
	Third, we recommend that you condition any state's 
implementation of an alternative fuel mandate, such as an ethanol 
or biodiesel mandate, upon determinations by the Secretaries of 
Energy and Transportation that sufficient supplies of such fuels 
exist to satisfy demand and that such a mandate will be supported 
by adequate transportation logistics.  Currently, state alternative 
fuel mandates are the biggest threat to gasoline and diesel fuel 
fungibility confronting the motor fuel manufacturing and 
distribution industries.  The first chart attached to my testimony 
graphically shows the proliferation of these new types of boutique 
fuels that the states are considering and adopting.   These state 
boutique alternative fuel mandates are not covered by EPAct's 
boutique fuels restrictions, but they should be.
	Do not misunderstand NACS' and SIGMA's position on 
biofuels.  We are not attacking biofuels.  Our industry is set up to 
transport and market liquid motor fuels, and ethanol and biodiesel 
certainly qualify as liquid motor fuels.  Just last year, EPAct 
mandated that the nation use at least 7.5 billion gallons of ethanol 
and biodiesel by 2012.  Our members will be instrumental in 
meeting that goal and we already are working hard to expand 
ethanol and biodiesel use.	However, state ethanol and biodiesel 
mandates undermine our efforts and weaken the flexibility that this 
Committee and this Congress built into the EPAct renewable fuel 
standard.  
	We are also concerned about supplies of biofuels. As the 
second chart attached to my testimony demonstrates, ethanol 
currently is trading at over $3.50 per gallon on the spot market -- 
double its price last year.  There can be no clearer indication that 
there is not enough ethanol to meet current demand.  Currently, as 
the Energy Information Administration has noted on several 
occasions, supplies of ethanol that have historically been blended 
into conventional gasoline supplies are being diverted to 
reformulated gasoline markets to replace MTBE.  This is another 
indication that supplies are currently not sufficient to meet overall 
national demand. 
	If state biofuels mandates continue to proliferate, the current 
situation will only grow worse.  Our industry will be required to 
move ethanol from one market to another, based not on market 
forces but rather on artificial demand created through state 
mandates.  Even worse, our industry will be prohibited from 
supplying markets in need, like those reformulated gasoline 
markets transitioning away from MTBE, because supplies will be 
held hostage by individual states. Clearly, these state mandates 
interfere with the efficient flow of interstate commerce of a very 
important commodity. We urge you to stand by the national 
renewable fuel standard adopted in EPAct and condition the 
implementation of any state mandate upon findings by the relevant 
federal authorities that adequate supplies and logistics exist to 
support the demands created by these state mandates.
	In sum, NACS and SIGMA caution this Committee to move 
with great care in its consideration of the Boutique Fuels 
Reduction Act of 2006.  If you feel compelled to move boutique 
fuels legislation, then we urge you to limit your legislation to a 
boutique fuels ratchet and a restriction on the implementation of 
state alternative fuel mandates.  Once EPA and DOE have 
completed their EPAct report, their conclusions may lead to new 
proposals for the enactment of a fuel slate.  Until that report is 
complete, we believe fuel slate proposals are pre-mature.
	Thank you for the opportunity to testify.  I would be pleased to 
answer any questions you may have.
 
 

        CHAIRMAN BARTON.  The Chair is going to recognize himself 
for the first question round. 
        Mr. Dinneen, you are, as always, the good news guy and 
should be.  Quite frankly, I am a little bit puzzled.  When you 
make the announcement about these new ethanol refineries, that is 
definitely good news, but an ethanol refinery is not the same as a 
petrochemical refinery.  When you say an ethanol refinery, what 
are you really talking about?  I am not being negative.  I want to 
get the terminology down.
        MR. DINNEEN.  It is a facility where you are producing fuel 
ethanol.  But it is a biorefinery, because we are converting biomass 
into a range of products: fuel ethanol, feed products, CO2 for the 
beverage markets, and other things in the future. 
        CHAIRMAN BARTON.  But if I asked Mr. Slaughter what is his 
raw material, it is going to be crude oil. 
        MR. DINNEEN.  Our raw material is corn.  We are extracting the 
starch from the corn to produce fuel ethanol, and the protein and 
vitamins and everything else is going into a feed market.  And we 
will be producing other products as well.
        CHAIRMAN BARTON.  But you take corn and you cook it, crush 
it, cook it and then you--
        MR. DINNEEN.  Distill it.  
        CHAIRMAN BARTON.  And then the end product is ethanol and 
CO2, and I guess you have some biomass that is maybe recycled?
        MR. DINNEEN.  The end product is a high-quality, high-octane 
fuel additive. 
        CHAIRMAN BARTON.  Again, I am very positive that we are 
creating these new facilities.  I am not negative at all.
        MR. DINNEEN.  I know.  That is good. 
        CHAIRMAN BARTON.  Are those subject to the same permitting 
requirements if Mr. Slaughter's group wanted to do an oil refinery?  
        MR. DINNEEN.  Probably not.  Because the process for 
producing ethanol is much cleaner.  But they certainly are subject 
to stringent air quality standards and permitting. 
        CHAIRMAN BARTON.  I haven't set my clock going.  I am sorry. 
        MR. DINNEEN.  I thought your time was up. 
        CHAIRMAN BARTON.  My time is up when I say it is up. 
Obviously, subject to the other Members here, but I can't be 
abusive of that. 
        What would a typical ethanol refinery size be in terms of 
gallons per day?  
        MR. DINNEEN.  Can I give it to you in gallons per year?  
Because I got into politics because I was never very good at math. 
        CHAIRMAN BARTON.  Well, an average oil refinery today in this 
country is probably 300,000 barrels a day.  Now some are as small 
as 50,000 barrels, and there are some as large as 750,000 barrels, 
but the average I think would be around 300,000 barrels per day.  
My guess is that an ethanol refinery is going to be much smaller 
than that.  
        MR. DINNEEN.  Significantly smaller, a fraction of that.  Your 
typical ethanol plant that is being built today is producing about 
100 million gallons a year. 
        CHAIRMAN BARTON.  One hundred million gallons a year at 42 
gallons a barrel, so maybe 2,000 barrels a day?  I would have to 
convert that.  But what is the capital cost?  
        MR. DINNEEN.  The entire industry today is producing about 
300,000 barrels a day.  That is the entire industry. 
        CHAIRMAN BARTON.  Mr. Slaughter, are there refineries today 
that are specific to one particular boutique fuel?  
        MR. SLAUGHTER.  Not to my knowledge, Mr. Chairman.  
        CHAIRMAN BARTON.  Is it a true statement or a false statement 
that any refinery can produce any boutique fuel required for that 
region?  Is that a true statement?  
        MR. SLAUGHTER.  Well, yes, that is pretty much true, Mr. 
Chairman.  One of the things about the boutique fuel area, for 
instance, even if there is a disruption, I mean, gasoline supplies 
that have more stringent environmental standards can come in 
immediately, and I would guess that any refiner that could 
potentially serve that area could manage to make the same fuel as 
is used in the boutique fuel area if it chose to. 
        CHAIRMAN BARTON.  We have anecdotal evidence in the past a 
refinery has shut down that was serving the St. Louis market or the 
Chicago market and that caused a price spike because no other 
refinery could meet that particular specification.  Are those days 
pretty well gone?  
        MR. SLAUGHTER.  Well, the particular problems at the genesis 
of concern about boutique fuel has really involved the Midwest 
and California, but particularly the Midwest around 2002 and 
2001.  At that time, Milwaukee and Chicago, their oxygen of 
choice in reformulated gasoline was ethanol, whereas 87 percent of 
the program was using MTBE as their option of choice.  There 
were pipeline problems in that area, and because there was a basic 
difference in even the RFG that was used in that area, there was 
some problem in resupplying.  But, as you know now, that problem 
is basically going away because, RFG no longer has an oxygenate 
requirement. 
        CHAIRMAN BARTON.  Mr. Becker, the different vapor pressures 
for gasoline, my understanding is the higher the vapor pressure, the 
cleaner it burns.  Is that true or not true?  
        MR. BECKER.  The higher the vapor pressure, the higher 
volatility, the dirtier it burns. 
        CHAIRMAN BARTON.  The dirtier it burns.  So I have it exactly 
wrong.  The lower the vapor pressure, the cleaner it burns.
        MR. BECKER.  Correct.  The cleaner it burns. 
        CHAIRMAN BARTON.  So in a perfect world the group that you 
represent would want a vapor pressure that is clean.
        MR. BECKER.  Clean. 
        CHAIRMAN BARTON.  Five or four, as opposed to eight.  
        MR. BECKER.  I will remind you we are not the environmental 
community.  We would like a vapor pressure that works.  And we 
work with the refining industry and others to identify those that are 
technologically feasible, and vapor pressures down around seven 
and possibly below provide cleaner air than vapor pressures at 
seven, eight, or at nine. 
        CHAIRMAN BARTON.  So why don't we require in 
nonattainment areas everybody go to the lowest vapor pressure 
possible?  
        MR. BECKER.  Well, you actually did that in the 1990 Clean Air 
Act with the Reformulated Gasoline Program.  And that is an 
interesting thought, because what the Clear Air Act did, to your 
credit, is you set up this Reformulated Gasoline Program.  You set 
limits on the amount of vapor pressure, on the amount of volatile 
organic compounds that can be released from gasoline.  
        EPA initiated a stakeholders process.  Every one of us at this 
table but Ms. Hubbard was part of that.  It was unanimously 
approved.  Regulations were set that we all liked.  And we all tried 
to get as many areas in the country to do exactly what you said, to 
go along with this Federal Reformulated Gasoline Program that 
capped emissions of VOCs to a certain level.  Interestingly, soon 
after that was completed, it was the oil industry--and I don't mean 
to be critical of them--
        CHAIRMAN BARTON.  Nobody is ever critical of the oil industry 
before this committee.  It is high time somebody is critical of them.
        MR. BECKER.  I won't be on this point.  The oil industry came 
to the States and they said, rather than go forward with this Federal 
uniform program that would meet your air quality needs, we have a 
better idea.  We have a cheaper idea.  Why don't you go forward 
with a lower volatility fuel--you all call them boutique fuels; we 
call them State clean air fuels--that will get you the reductions in 
smog-forming emissions at a fraction of the cost of reformulated 
gasoline.  And we did in many areas, and that is why we have 
seven, not seventy, but seven.  
        And the disappointment in all of this is that now, today, there 
seems to be a semi-widespread belief that government officials 
have run off wild and developed these so-called boutique fuels that 
are like the lattes that were brought up this morning, when it was 
done with our partners, and it was as a cheaper alternative, and 
now we are being blamed. 
        CHAIRMAN BARTON.  Nobody is blaming anybody.  This is a 
discussion draft and a hearing.  
        MR. BECKER.  I understand.  Just to put a fine point on this, so 
notwithstanding the seven pollutants, the seven fuels, last year, the 
committee, the Congress capped those fuels at seven, and this 
discussion draft wants to continue to ratchet down and reduce 
those seven. 
        CHAIRMAN BARTON.  We are looking at it.  I want there to be 
enough.  I want the Clean Air Act to be implemented in the most 
cost-efficient fashion possible.  I want there to be enough 
flexibility that each nonattainment area can look at a wide variety 
of alternatives and then decide what is the best fit for that region.  
Before the EPAct was passed, there could have been as many as--I 
want to say 43 different boutique fuels.  Now there weren't, but 
you can interpret different provisions so you can have a lot more 
than seven. 
        So there is some viability in limiting the number so you can 
have some fungibility.  But you also want to maintain the 
flexibility so that the local, States, and regions within States can 
fine-tune without an unlimited number--we don't want to make it 
so unlimited, to take the extreme case, 160 regions have 160 
different fuel standards.  There is no magic number.  Seven is 
obviously getting closer to the minimum, and you know we could 
possibly go lower, but we could possibly not go lower.  That is the 
whole purpose of having a hearing.
        MR. BECKER.  And that is a very fair point.  
        The only point I am making is you went to seven.  You capped 
it at seven.  A month ago, no one on this panel was complaining 
about boutique fuels or State clean air fuels being the problem; the 
next thing we see is a draft, a discussion draft--it is a discussion 
draft--that seems to be focusing solely on these State clean air fuels 
and ratcheting them down.
        CHAIRMAN BARTON.  Don't run off, Mr. Inslee, because you 
are about to be recognized.  You have to stay in the room, though. 
        My time is way over, so we will continue this.  I am going to 
recognize Mr. Inslee for 5 minutes. 
        MR. INSLEE.  Thank you.  I appreciate that, Mr. Chairman.  
        This may be a little off the subject, but it will lead to a 
question.  I was talking to some scientists from Stanford the other 
day, and they were telling us they were briefing a bunch of folks in 
Congress about the acidification of the oceans that are coming 
from carbon dioxide.  And it was new.  I thought I knew 
everything about global warming.  It turns out there is this new 
thing going on called the acidification of the oceans where the CO2 
we put out of our tailpipes is going out of the atmosphere into the 
solution of the oceans, which is a good thing because that reduces 
CO2 for global warming purposes.  But it is making the oceans 
more acidic, which makes it much more difficult for any of the 
little creatures that form calcium carbonate like coral, shells, 
plankton to form any of these bony structures.  
        And they basically projected that in about 75 years, if we 
continue on the current path we are on, there will be virtually no 
coral reefs that are healthy, almost on the entire planet, which is 
pretty startling. 
        The reason I bring this up is that many of us believe we need to 
move rapidly into as many alternative fuels as we can to at least 
reduce CO2 emissions; and when we do so sometimes it can cause 
inconvenience, changes, headaches for you all in these industries. 
        And I guess, in the summer particularly, you cautioned us 
about biofuel requirements.  I don't have and as I understand the 
draft bill does not require any sort of restriction on biofuels 
requirement.  It doesn't really consider them a boutique fuel as I 
understand the draft.  
        Listening to you all, I didn't hear any sort of horror story about 
a biofuel requirement creating major impediments for access to 
fuels.  I really didn't hear anything like that.  Is that a fair 
statement as to the current play?  And how do we characterize 
what inconveniences, prices would be too much in order to help us 
move towards more biofuels to try to reduce CO2 to try to keep a 
few coral reefs on the planet Earth?  
        That is a general question.  Anyone?  Ms. Hubbard, maybe you 
want to take a crack at that. 
        MS. HUBBARD.  Sure.  
        First, I would like to address that we talked about the number 
of fuels.  And I think part of the difference, depending upon what 
list you look at, it is 14 or 15 possibly, but based upon the 
definition by Congress as to what qualifies a boutique fuel, a lot of 
the special blends were excluded and certain States' blends were 
exempted.  So there are more fuels out there that we are actually 
dealing with. 
        The example I would give as to problems, while we are not 
contesting biofuels, we want what is best for the country, what is 
best for consumers in the community, and we are happy to sell 
whatever is produced that consumers will buy.  We are not tied to a 
specific product. 
        I will give an example of our area, Texarkana.  We are 
obviously on the State line of Texas and Arkansas.  We are within 
30 miles of Louisiana and Oklahoma, and we pull product from all 
those States into all the other States depending upon the price.  If 
every single State developed their own specific mandate--and 
maybe they are just chemically a tweak off--I still cannot pull it 
into that State.  So then all of a sudden I can't buy the most 
efficient product.  I can't, and then the refineries have to produce 
certain different percentages and maybe they guess wrong today 
and have a different blended quantity and then that would produce 
a shortage maybe in what we needed.  
        So those are our issues related to multiple State mandates. 
        MR. DINNEEN.  Congressman, if I might, there are only two 
States that have biofuels requirements in operation now: 
Minnesota, which has been in place about 10 years, and Hawaii, 
which just began, but there have been no issues with those 
programs, and they have been highly successful.  
        But the reason why I don't think you would see the kind of 
problems that Ms. Hubbard is talking about is because you are 
simply adding ethanol to conventional gasoline.  You are not 
asking the refiners to do anything different.  The conventional 
gasoline that would be sold in Arkansas, which say there isn't an 
ethanol requirement there, could be sold.  If Texas were to ever 
adopt an ethanol requirement, they could blend ethanol on top of 
that very same conventional gasoline.  All it is doing is extending 
the supply of conventional gasoline that would be available for 
everybody.  So it should be lowering the gasoline price. 
        States are looking at these programs with their eyes wide open.  
The programs that are out there are so far very modest.  Louisiana 
is looking at a 2 percent requirement.  With a trading program and 
not required in every single gallon, everything else, what they are 
trying to do in Louisiana is stimulate ethanol production from 
sugar cane in that area.  
        I said in my testimony I understand this complicates the 
refiners' obligations under the RFS, and I believe that there is 
significant benefit to a national renewable fuel standard.  But I also 
understand why States are promoting these programs.  Washington 
State is one where they passed a program and may be passed some 
time soon.  They are obviously looking at trying to stimulate 
biofuels production in that area, because it does have significant 
economic benefit.  
        MR. SLAUGHTER.  Thank you, Congressman Inslee, just to 
discuss your official question, difficulties have occurred with some 
of the biofuel mandates.  For instance, the State of Minnesota has a 
biodiesel mandate.  There have been significant cold start problems 
because that particular mixture of biodiesel and regular diesel 
tended to gel in the winter.  That has had to be worked out.  
Unfortunately, it had to be worked out in the process of the 
mandate and created some difficulties. 
        There are some concerns with quality of biofuels in various 
States.  It is understandable.  This is an industry that is growing 
very fast.  There is concern about what is going into the gasoline 
and is it all of the same quality.  
        Second, when you put ethanol in particular on top of gasoline, 
you increase the Reid vapor pressure and you do get increased 
emissions that are ozone precursors, even on conventional 
gasoline.  Now, traditionally conventional gasoline has gotten a 
one pound exemption on RVP that has allowed this to happen.  
That, however, is being called into question now in recent 
legislation.  If there is an RVP problem, the refining industry 
essentially has to take care of that by creating a special fuel blend 
for that gasoline, for that ethanol to go into. 
        So there are many operational concerns that we have with this 
matter.  Particularly when you look at the chart over there; the 
maroon States and how many States are considering moving in this 
direction.  The potential problems really are considerable.  
        MR. INSLEE.  I hope we do try to reach some greater national 
standard regarding purity and quality.  I think that would be 
important.  
        Just one comment.  In your professional endeavors we need 
your help.  This is many of us believe, a planetary emergency, and 
we are going to have to go through some of these headaches, and 
we need your help to figure out how to resolve them.  I just hope 
you will help us.  
        Thank you. 
        CHAIRMAN BARTON.  I thank the gentleman from Washington 
State.  We now go to the Grand Canyon State, Mr. Shadegg of 
Arizona. 
        MR. SHADEGG.  Thank you, Mr. Chairman.  
        Ms. Hubbard, I would like to pursue a line of questioning with 
you to try to bring a greater layman's understanding of this issue.  
As I understand the discussion, the term boutique fuels or State 
clean air mandate fuels refers to a State's particular formulation of 
fuel to meet its air quality requirements.  And as I understand this 
issue, the concerns that you expressed is the concern that I also 
expressed in my opening statement, which is that more and more 
States are looking at the issue of biofuels and saying, well, look, 
we ought to get off our dependence on foreign fuel; we ought to be 
more reliant on renewable fuels; we ought to be less reliant on 
foreign suppliers of crude oil; and, therefore, an ethanol mandate 
or a biodiesel mandate is in the national interest.  So why don't we, 
as a State, impose that as a mandate?  
        And as I understand your testimony--I want to be sure you and 
I are both in agreement.  We have no opposition to trying to do 
that, to bringing more biofuels into the marketplace, to increase use 
of domestically produced ethanol and to increase the, if there is an 
interest in it, an interest in biodiesel.  The concern I had heard you 
express, and I want to confirm, is that if each of the States were to 
impose its own ethanol or biodiesel requirement, and those 
requirements, State by State, were to vary by some significant 
amount, then will you have, as you mentioned, a border where you 
have four States coming together, each imposing its own different 
requirement for biodiesel or for ethanol content?  That can create a 
problem in the marketplace affecting both supply and price and 
doing damage to consumers in that regard, isn't that correct?  
        MS. HUBBARD.  Yes, sir.  
        MR. SHADEGG.  It seems to me, in discussion with EPA on the 
outside, as I understand it, if a State moves to an ethanol 
requirement or moves to a biodiesel requirement but does not do 
that as a part of its SIP to meet air quality requirements, then that 
doesn't come in within their jurisdiction, is that correct?  
        MS. HUBBARD.  Yes, sir, that is my understanding.
        MR. SHADEGG.  So what you were saying in your testimony is 
perhaps the Congress needs to look at whether or not, if a State is 
going to impose an ethanol mandate or a biodiesel mandate, that 
before it would be allowed to do that that someone at the national 
level, Secretary of Commerce, Secretary of Energy, would be able 
to examine the marketplace in that area and be able to ensure that 
the imposition of that ethanol requirement or of that biodiesel 
requirement separate from their State air quality plan would not 
cause any market disruption.  That is to say, the refiners in the area 
would be able to supply that fuel and would not cause a market 
disruption either leading to gasoline shortages or to unwarranted 
spikes in gasoline as a result of the mandate.
        MS. HUBBARD.  Yes, sir.  No, we would think that, obviously, 
the supply and distribution and the transportation and pricing costs 
need to be considered as part of that.  
        MR. SHADEGG.  And that is an issue here.  Because, for 
example, ethanol isn't readily available, I guess, as I understand it, 
in the Houston area.  There were shortages recently.
        MS. HUBBARD.  We operate in the Dallas area, and Texas does 
not manufacture ethanol, or on a very, very limited supply, so it 
has to be trucked in.  So getting it to the refineries, even though it 
is an additive, just getting it there for the blend was very difficult. 
        MR. SHADEGG.  I am going to make this point completely clear.  
The boutique fuel term or State clean air mandate or State clean air 
fuels is distinct from this in that those are done to meet air quality 
standards.  This is the issue of ethanol or biodiesel being mandated 
not necessarily to achieve clean air standards, but rather just to 
encourage perhaps less reliance on foreign fuel and a greater 
dependence on domestically produced and, incidentally, cleaner 
burning fuels. 
        MS. HUBBARD.  And this was done at this time as part of the 
replacement for the MTBE that was phased out.  That is why the 
ethanol was phased in.  
        MR. SHADEGG.  And it does hold the potential for damaging 
consumers if such a mandate by 40 different States were to create 
either a shortage or perhaps a total lack of supply for a period of 
time and both disrupt supply and increase price.
        MS. HUBBARD.  Yes, sir.  Well, the example within the Dallas 
market where we operate--and we also operate outside that market-
-during the month of May and continuing even now the price is 
higher.  There has been a spike in ethanol, so that made the cost 
higher and, therefore, the retail price, and we have seen an increase 
in our outlying areas.  Our volume is up around 30 percent at all of 
our locations, and it is obviously consumers who live outside and 
work in Dallas they are buying before they go to work.
        MR. SHADEGG.  And at the opposite side of this the comment 
was made, well, all you have to do is add ethanol.  The problem is, 
if one State says, well, you must add 2 percent ethanol but a 
neighboring State says you can't sell gasoline or you can't sell 
diesel that doesn't have 4 percent ethanol or some other similar 
requirement, you can create a situation where literally miles apart 
one fuel is available and a few miles away that same fuel that 
would run the automobile or run the truck could not be sold, 
leading to a shortage or a price spike in that adjacent area.
        MS. HUBBARD.  Yes sir.  It is an additive, so the percentages 
could vary at the rack as it was blended to some extent.  But the 
formulation of that, particularly some of the bioproducts we look 
at, that the mandates would be different in every State.  It 
absolutely could cause distribution and supply problems.
        MR. SHADEGG.  Thank you very much.  Appreciate the 
answers.  
        CHAIRMAN BARTON.  Thank you.  
        The gentleman from California, Mr. Waxman.  
        MR. WAXMAN.  Thank you.  Thank you, Mr. Chairman.
        Mr. Becker, I want to thank you for your testimony.  I wanted 
to discuss this.  Go back to the basics on the Clean Air Act.  
        Federal, State, and local governments all have to work together 
in trying to effectively address air pollution problems, and we have 
established an approach for them to do so.  The Federal 
government sets the standards that determine what clean air is and 
when it should be attained, and State and local governments have 
substantial flexibility to achieve air quality standards in the way 
that makes the most sense for that State or region. 
Mr. Becker, have the States generally been satisfied with this 
approach?  


        MR. BECKER.  Yes.  
        MR. WAXMAN.  I am concerned that the legislation before us 
violates this approach.  The States would still have to meet existing 
deadlines for achieving healthy air, but this bill would limit their 
tools to do so.  Could you tell us what this will mean for the States 
as they work hard to clean up the air in the most equitable and 
cost-effective way as possible?  
        MR. BECKER.  As I mentioned in my opening statement, when 
States put together State plans, they are examining every 
opportunity they have that helps them balance their air pollution 
budget, their State Implementation Plan.  And literally a State will 
array the number of control measures necessary to balance that 
emissions budget to demonstrate to EPA's satisfaction that the plan 
shows it is going to attain congressionally mandated standards. 
        A State is not allowed under law to look at any clean fuel until 
it has looked at and adopted every other more practicable or more 
reasonable measure from utilities, from dry cleaners, from coke 
ovens, from every other source of pollution.  Only then can the 
State or local permitting authority then address clean fuels. 
        If the opportunity to adopt a clean fuel is taken away from us, 
then we will have to find some other less effective, costlier 
alternative, and possibly those don't exist, which is why they could 
exacerbate air quality.  So it removes the choices or removes the 
tools that we have in our toolbox to meet the standards, to meet the 
deadlines that Congress imposed upon us. 
        And, worse, not only will air quality suffer, which will 
contribute to health concerns, but States get punished.  These are 
mandatory sanctions that Congress has imposed upon the States, 
and they include, as I mentioned, the withholding of millions of 
dollars of Federal highway funds and what is, in effect, a ban on 
construction of new facilities.  So it is a very serious problem, and 
we like the arrangement we have under the Clean Air Act. 
        MR. WAXMAN.  During the last panel, the witness from the 
Environmental Protection Agency testified that this legislation 
would not harm air quality.  As I understand it, this legislation will 
make it, as you pointed out, harder for States and localities to cost 
effectively achieve clean air.  Moreover, it may politically 
undermine support for clean air by promoting unreasonable or 
impractical pollution controls on small businesses or other sources 
of pollution if they can find other sources to clamp down on, which 
may be more expensive and unfair.  
        As a matter of fact, we even had proposals to extend some 
clean air deadlines.  So making it harder to clean up the air may 
well lead to more calls to weaken the Clean Air Act.  Would you 
agree with that?  
        MR. BECKER.  I agree with your assessment.  Air pollution 
control is a zero sum calculation.  And to the extent that we aren't 
able, as State or local officials, to adopt the most cost-effective, the 
most technologically feasible alternative, then we will have to look 
at less cost-effective, costlier, more impracticable solutions, if they 
exist.
        MR. WAXMAN.  Well, this Congress has consistently moved to 
restrict State and local governments and concentrate more 
authority in Washington, which I have always found amazing.  
Because it seems to me the Republicans have always argued that 
they are more for local decisionmaking, not with Washington 
having all the wisdom; and I released a report yesterday that 
documents that, in the last 5 years, the House and the Senate have 
voted 57 times to preempt State laws and regulations, even at the 
expense of public safety, health, and the environment. 
        It is my hope that we are not going to hinder the States in doing 
their job by further restricting the State authority to address serious 
public health threats.  I fear that is what this bill will do.  And we 
ought to leave it to the States to figure out the most cost-effective 
ways to achieve the goals that are set out in the Clean Air Act, 
which I think the American people support. 
        CHAIRMAN BARTON.  Do you have a unanimous consent 
current request?  
        MR. WAXMAN.  I do have a unanimous consent request to put 
into the record a statement of the American Lung Association on 
boutique fuels, the Boutique Fuels Reduction Act of 2006 
discussion draft. 
        CHAIRMAN BARTON.  Without objection, so ordered. 
        [The information follows:] 

      Statement of the American Lung Association on Boutique Fuels 
      and The Boutique Fuels Reduction Act of 2006 Discussion Draft
                              June 7, 2006

	The American Lung Association comes to the discussion of 
boutique fuels from the perspective that the job of protecting 
Americans from unhealthy levels of air pollution is far from done. 
Recently, we released our annual report State of the Air:2006.  We 
found that over 150 million Americans live in 369 counties where 
they are exposed to unhealthy levels of ozone or particle pollution. 
Included in this population are people who are particularly 
vulnerable to air pollution including: 16 million elderly, 36 million 
children, 3 million children and 8.5 million adults with asthma, 4 
million adults with chronic bronchitis , 15 million with cardio 
vascular disease, and over 3 million with diabetes.
	We know that states are working hard to revise State 
Implementation Plans(SIPs) to adopt needed measures to address 
ozone and fine particulates in order to meet the ozone and fine 
particulate National Ambient Air Quality Standards (NAAQS). We 
know also that clean fuels are an important tool that can be 
effective at reducing both on-road and off-road emissions that 
contribute to these problems.

EPACT 2005 May Limit State Fuels Too Much Already
	We agree with STAPPA/ALAPCO that there is no evidence 
that state clean fuels requirements have contributed to gasoline 
cost or availability in the past. To the extent anything needed to be 
done to curtail state's ability to adopt clean fuel requirements 
EPACT 2005 has done that with a requirement that limits the 
adoption of additional state clean fuel requirements. Indeed, we 
urge EPA to speed its obligations under EPACT to implement and 
study these provisions so we can examine the question whether 
EPACT is already too constraining.
 	In compliance with EPACT requirements, the Administrator on 
May 31, 2006 signed a Federal Register notice identifying a draft 
list of fuels approved into all state implementation plans as of 
September 1, 2004.  As explained in this notice the Administrator 
interpreted EPACT as requiring the indentification of a list of fuel 
types and the establishment of limitations on the approval of any 
additional fuel types. Further, the Administrator finds that state 
fuel programs requiring 9.0 RVP fuels in their current SIP are not 
intended to be on the list since such requirement is identical with 
current federal RVP requirements.  We agree with EPA that this 
interpretation of EPACT prevents the establishment of any 
additional unique fuel "islands" while enabling states developing 
SIPs to meet the NAAQS for ozone to be able to utilize existing 
fuel types as a means of attaining the standard and protecting 
public health.
	The alternative interpretation is that every state's fuel counts as 
a fuel for purposes of listing. Under this interpretation of EPACT, 
no additional state would be able to adopt a clean gasoline program 
because no state currently using a clean gasoline program is likely 
to abandon it which is the only way to make room for another state 
program. This constraint prevails even if a state seeks to adopt a 
clean gasoline program identical to one already being used in the 
Petroleum Administration for Defense District (PADD). Congress 
should not freeze state authority to adopt clean gasoline programs 
at this critical time when so much needs to be done to reduce 
ozone levels.
	The American Lung Association supports states having the 
ability to choose among three fuels: a 7.0 RVP or RFG, 7.8 RVP, 
or 9.0 RVP. This is the three fuel option considered in the EPA 
2001Boutique Fuels Report. States can then choose the clean fuel 
they need to provide important on-road and off-road emissions 
reductions needed to meet air quality standards. Under EPA's 
interpretation of EPACT, states would be able to do this.

The Discussion Draft May Weaken Clean Gasoline Programs 
Where They Are Needed
	Section 3(b) of the Discussion Draft supplants EPACT with a 
very restrictive State Fuels List comprised of only three gasoline 
fuels. Under the provision no more than two of these fuels can be 
used in a PADD. We believe these provisions are unnecessarily 
restrictive and limit the adoption of clean gasoline fuel programs 
even though such adoption will not interfere with gasoline 
distribution or supply. Indeed, some areas, currently using 9.0 RVP 
fuel may choose not to adopt a clean fuel program if the only 
choice is 7.0 RVP or RFG, rather than 7.8 RVP. Further, Section 
3(b) may require the Administrator to force a state to shift a 7.0 
RVP clean gasoline program to a less effective 7.8 RVP in order to 
meet the highly restrictive 2 programs per PADD requirement. 
Congress should not adopt legislation that results in weakening 
clean gasoline programs especially given the lack of solid evidence 
that these programs are contributing to gasoline price spikes or 
other supply and distribution problems. The practical effect will be 
to shift the burden of emissions reduction to local businesses and 
factories in order to meet air quality standards. In essence, section 
3(b) may make Clean Air Act compliance more costly through fuel 
restrictions which will have no measurable benefit on fuel prices.

Legislation to Control Boutique Fuels Should Not Fail to 
Address Statewide Ethanol Mandates
	A statewide E-10 mandate reduces the effectiveness of clean 
gasoline programs while creating "islands" of ethanol demand that 
can interfere with efficient transfer of ethanol from places that 
have it to those that need it. If Congress believes there is a need to 
constrain states from adopting clean gasoline programs, it must, on 
the same basis constrain the adoption of statewide E-10 mandates. 
Four states have adopted state-wide E-10 mandates and such 
mandates have been under consideration in a significant number of 
state legislatures. Such mandates have the potential of having a 
significant impact by increasing on-road and off-road emissions of 
VOCs and NOx.  These mandates also have the potential of 
impeding ethanol distribution and supply by reducing the amount 
of ethanol available to be moved to an area experiencing an 
ethanol shortage. Statewide ethanol mandates deserve the same 
analysis of their impact on the boutique fuel issue as have been 
given to state clean fuel requirements.

The Benefits of E-85
	The best way to avoid the air quality problems associated with 
low blend ethanol use is to promote high blend ethanol use, namely 
E-85. E-85 does not have the high volatility problems of E-10 and 
when used in the flexible-fueled vehicles (FFVs) can meet or 
exceed the reduced emissions of their gasoline-fueled counterparts. 
FFVs have the added benefit of improved fuels systems that will 
reduce the impact of low blend ethanol use when they are 
operating on conventional gasoline with E-10. Any disruption in 
the supply of E-85 that may occur in a given area will not interfere 
with gasoline distribution generally. EPA should evaluate the 
benefit of widespread E-85 use as a means of using ethanol in an 
air quality-friendly fashion. There are about 5 million FFVs on the 
road today but a lack of E-85 pumps destines these vehicles to 
operate primarily on gasoline. An EPA evaluation of the benefits 
of E-85 can help in the effort to make E-85 widely available.

The Discussion Draft Waiver Language Is Unnecessary and 
Weakens the Clean Air Act
	The Discussion Draft adds to the Temporary Waivers adopted 
in EPACT language that would authorize the use of the waiver for 
"unexpected problems with distribution or delivery equipment". 
We believe that this language could be interpreted to change the 
nature of the waiver from one to be used in cases of major disaster 
or disruption, such as occurred during Hurricane Katrina, to 
something much more mundane and common place. If the 
language is not intended to change the nature of the waiver, it is 
unnecessary and causes confusion. Indeed, adoption of this 
language would undoubtedly prompt members of the entire chain 
of gasoline and diesel fuel and fuel additive production and 
distribution to find it necessary for the statute to identify 
"unexpected problems" in their activity to assure that it is covered. 
This will promote much confusion regarding which activities are 
intended to be covered and which are not. We urge Congress not to 
reexamine this issue.

No New Limitations to Clean Gasoline Programs
	We urge the Congress to let EPACT be implemented as 
enacted just 10 short months ago. In our view, the adoption of 
further restrictions can only result in fewer effective clean fuel 
programs at a time when we need to maximize the effort to reduce 
on-road and offroad emissions in order to protect the public health.

        CHAIRMAN BARTON.  And it is always delightful to hear 
Mr. Waxman use the word "cost-effective" in any statement before 
the committee.  That is a good thing, not a bad thing.  
        MR. WAXMAN.  Mr. Chairman, I don't know what that is 
supposed to mean.  I have always thought we ought to be as 
cost-effective as possible.  We ought to leave more to the local 
governments.  We shouldn't waste taxpayers' money. 
        CHAIRMAN BARTON.  I just like to hear cost-effective, or 
cost-benefit analysis would be better. 
        MR. WAXMAN.  I have more trouble saying boutique than I do 
cost-effective.  I want us to be cost-effective; and, unfortunately, I 
don't think your bill leads us to that result. 
        CHAIRMAN BARTON.  All right.  Mr. Shimkus. 
        MR. SHIMKUS.  Thank you, Mr. Chairman.  
        I appreciate having you all here.  
        Mr. Becker, real quick, on this whole debate about the boutique 
fuel issue, I always use this example.  I can land in St. Louis at the 
airport and fill up my vehicle to drive 20 minutes to get across the 
Mississippi to be in a different fuel mix arena, drive 80 miles up 
the road to Springfield, the northern part of my district, and be in 
another boutique fuel arena. 
        It was 4 years ago when we had huge price spikes, and the 
price spikes came because of a supply and demand issue on a 
refinery and a pipeline and the inability to move product to the 
specific fuel areas because of the SIP and the fuel requirements. 
        I think that the SIP call using fuel mixture is an easy out for the 
local governments.  It is easiest thing they can do.  They don't 
have to address mass transportation.  They don't have to address 
new highways.  They don't have to address other types of 
concerns.  In the place they say, well, let's just put it on the 
industry and the refineries to make a particular type of fuel.  
        I can even broaden this in the Midwest and talk about driving 
from Kansas City to Saint Louis to Collinsville, Illinois, to 
Springfield.  Do you know how many fuel areas there are there?  
Four.  Multiply that by three grades of gasoline.  That is 12.  And 
you want to talk about the ease of supply and moving it when you 
have a disruption in refineries and pipelines?  
        So, with all due respect, I think that the SIP call in using the 
reformulated boutique fuels is a recipe for failure and a disaster, 
and that is why we want to try to simplify this, and I think the 
consensus will be by the House that we will.  
        Now my question for Mr. Dinneen. 
        MR. BECKER.  May I comment on that?  
        MR. SHIMKUS.  I would rather just go to Mr. Dinneen.  
        We have heard from discussions and testimony regarding 
States mandating renewable fuel use and the effect of that on the 
ethanol industry.  Can you tell what these mandates are doing to 
your industry?  Is it growing too quickly?  Do you feel like the 
ethanol industry can easily keep up with the pressure that is on 
today?  And I know, in fact, we have this huge refinery debate 
where we can't build any new petroleum refineries, but we are 
having a lot of success in the renewable fuel refineries.  So can you 
address those issues for me?  
        MR. DINNEEN.  Well, the industry absolutely is growing 
extraordinarily fast.  Demand is growing far in excess of what the 
Congress required by the Energy Policy Act last year in which 
only 4 billion gallons of ethanol was required this year.  We will 
likely sell more than 5 billion gallons this year, 25 percent more 
than is required.  The reason for that is, as was discussed at the 
hearing a few weeks ago, is that refiners had made the decision to 
replace MTBE with ethanol, and so the demand has greatly 
exceeded that which was required by the RFS.  
        But our industry is growing at an absolutely phenomenal rate.  
I noted in my testimony that, just since I testified here 3 weeks 
ago, we have opened 4 ethanol plants and there are 32 more under 
construction.  So I think we are doing a very good job meeting the 
increased demand and will continue to do so. 
        The State requirements, there are only two that are currently in 
place.  I don't see them as having a meaningful impact on overall 
demand at this point.  If many more of them get going, it might be 
a different situation.  And I have indicated that I believe a national 
RFS and the flexibility that it provides is the best approach. 
        However, I do certainly understand why some States are 
pursuing these programs to assure that the economic opportunities 
that result from ethanol production are afforded to those States. 
        MR. SHIMKUS.  And the public by far is in a mood to move to 
independence of imported crude oil, and this movement is only 
going to continue to grow unless we have individuals trying to 
delay it.  So let me just ask for a clarification.  Do the State 
mandates--you said there were only two right now.  Do they really 
have any impact on the boutique fuels in this debate?  
        MR. DINNEEN.  None whatsoever.  Because they are requiring 
ethanol to be added to conventional gasoline, and you are not 
requiring a special blend.  You are just adding to gasoline supply.  
You are not impacting at all the fungibility of the blend stock. 
        MR. SHIMKUS.  Thank you, Mr. Chairman.  I yield back. 
        CHAIRMAN BARTON.  I thank the gentleman.  
        Dr. Burgess. 
        MR. BURGESS.  Thank you, Mr. Chairman.  
Let me address this first question to Mr. Slaughter and perhaps 
Dr. Murphy, too, if you would like to add to it.  
        The refinery production capacity that currently exists, is it 
compromised by the number of fuels that a refinery must produce?  
In other words, if we were going to go from four to three mandated 
fuels, would the three fuels production be enhanced because the 
fourth was dropped?  
        MR. SLAUGHTER.  It would depend on what they had to do.  If 
they were new fuels with tighter specifications, Dr. Burgess, even 
though there was a reduced fuel schedule to output, a reduced 
number, there could conceivably be additional capital 
requirements, and that could effect the total output.  It certainty is 
very important in the industry, and a lot would depend on how 
much time the affected refiner would have to react to this before he 
actually had to make the changes.
        MR. BURGESS.  And the degree of certainty that existed 
downstream wouldn't change again next year?
        MR. SLAUGHTER.  That almost never exists, Dr. Burgess.  
        MR. MURPHY.  I think it is important to understand that we are 
assuming that the overall environmental performance of fuels will 
be maintained.  And if we have a reduced number of fuels that 
States and localities are going to have access to, at least the same 
environmental quality of fuel that they do right now, so the effect 
of that would be an increase in the specifications of restriction and 
the specifications of gasoline.  That would detract from gasoline 
producibility.  And the problem and the balance is that the amount 
that you lose there and comparing that with the effect on supply 
that you get from increased fungibility.  That is a difficult question 
to answer and that, in fact, is the exact question that we are looking 
forward to coming out of EPA from the study that was mandated 
last year. 
        MR. BURGESS.  Very well.  
        Mr. Dinneen, and let me include Ms. Hubbard in this question.  
I have a constituent who lives in Justin, Texas.  He said he drove 
from Fort Smith, Arkansas, to Dallas 2 weeks ago and gas prices 
went up 40 cents between Fort Smith, Arkansas, and the 
Dallas-Fort Worth market.  He called me and said that has got to 
be price gouging, Senator.  Is he right?  
        Let me point out that this individual--although he called me 
Senator--lives in a part of Denton County that has the Barnett 
Shale underneath it, and he has at least two producing wells on his 
property.  So he is fairly literate in terms of energy policies.  So 
was he correct about his concern about price gouging?  
        MS. HUBBARD.  Well, I operate stores in both of those areas, 
and I would say, well, obviously they are pulled off of different 
terminals and racks because of the location.  The Dallas market is a 
containment area, and our product is more expensive right now.  
As I looked back since May when this was incepted, it would 
range from 12 to 20 cents.  So absolutely it is not gouging. 
        MR. BURGESS.  Let me just ask you a question.  Did your 
industry do anything as sort of a public service to inform people 
about why there was a discrepancy in price?  We have to assume 
there are going to be people that would drive from Dallas to Fort 
Smith and notice that; perhaps some public service as far as 
educating people as to why the prices were different in different 
parts of the country.  
        MS. HUBBARD.  I think throughout the markets that were 
containment areas I know there were both documents released and 
information.  I saw a lot in the newspapers--Dallas Morning News 
did a big article on that.  As far as the industry publishing to people 
who might be traveling to those areas, that is kind of difficult.  
        MR. BURGESS.  Dallas Morning News, it is in the business 
section.  Not everyone gets that far.  
        Mr. Dinneen, do you have any thoughts on my constituent's 
concern driving from Fort Smith to Dallas and seeing price 
gouging along the route?  
        MR. DINNEEN.  I don't think price gouging is what is going on.  
It is clearly the marketplace in the Dallas area.  It is a different 
fuel.  As MTBE comes out of gasoline and all the things that have 
happened in that marketplace, there have been some disruptions.  
But I don't think it is gouging.  I think it is of the operation of the 
marketplace. 
        MR. BURGESS.  In the bill we have under discussion there is a 
limited waiver for unexpected problems and logistics.  Is that 
going to be helpful?  
        MR. DINNEEN.  I think it would be, yes.  
        MR. BURGESS.  Ms. Hubbard, is it your position it would be 
helpful as well?  
        MS. HUBBARD.  Yes, sir, I do. 
        MR. BURGESS.  Mr. Becker, you heard my comments in the 
opening statement; and I appreciated Mr. Waxman saying that 
States need to bear this burden of clean air equitably.  In Texas, we 
have a lot of refineries.  We send a lot of our gas to other places in 
the country that can't or won't refine gas on their own.  But we 
have to bear the burden of the cleanup of the air from those 
refineries, and that is reflected in higher gas prices in our State.  So 
we are kind of paying the freight.  We are having to pay for our 
good nature and sending gasoline products off to other parts of the 
country.  Does that comport with Mr. Waxman's idea of there 
being equity amongst the States?  
        MR. BECKER.  One of the recommendations we have made is to 
help make reformulated gasoline available to everyone in the 
country so we don't have to necessarily have these pockets of areas 
that are able to use the cleaner gasoline or not use the cleaner 
gasoline.  Our position is to provide as many fuels and tools to the 
States as possible, not to curtail the amount of flexibility the States 
have, so they have everything at their disposal and they are able--
        MR. BURGESS.  But my State that is producing one of those 
tools and then in turn penalized under the Clean Air Act--
        MR. BECKER.  You are penalized because?  
        MR. BURGESS.  Because we end up paying the high 
reformulated gasoline prices, because of issues of air quality 
brought on my refineries, we have to burn cleaner grades of 
gasoline in our automobiles around metropolitan areas that refine 
gasoline.  
        MR. BECKER.  If the air in your district is unhealthy, the Clean 
Air Act requires a partnership between Federal, State, and local 
agencies to find ways to clean it up. 
        To get to Mr. Shimkus' point, because it is relevant here, the 
States don't go willy-nilly into adopting a State clean air fuels 
program.  It is a choice of last resort.  We are preempted under the 
Clean Air Act from doing anything until we have tried everything 
else at our disposal.  Only then, with EPA's approval, can we look 
at a State clean fuel. 
        So we are totally preempted--this is before EPAct--from doing 
anything, unless we have examined every other available 
opportunity.  Only then can we adopt a clean air fuel.
        CHAIRMAN BARTON.  The gentleman's time has expired.  
        The gentlewoman from Tennessee, Mrs. Blackburn is 
recognized.  
        MRS. BLACKBURN.  Thank you, Mr. Chairman, and I thank all 
of you.  I am going to stay right on the same path that Mr. Burgess 
was on, thinking about cost and how that relates to what our folks 
are paying when they are at the pump.  
        And I appreciate, Mr. Becker, what you were saying there.  It 
puzzles me a little bit.  Seems like sometimes we create a problem, 
and then we want to create an answer for a problem and then 
blame the answer for the problem, for the original problem, and 
throw our hands up and say it is not our fault, and turn around at 
look at some of us that sit here and say, figure it out, solve 
problems.  
        But I tell you what.  Dr. Murphy, I will come to you first.  
Mr. Becker had mentioned that it is--and this was in his testimony-
-that it was completely unsubstantiated that clean air fuels 
contribute to high gasoline prices.  And I want to know if you do 
or do not agree with that statement.  
        MR. MURPHY.  I think the issue we are focusing on here is not 
the normal run-of-the-day cost impact of cleaner fuels.  The cost 
impact, the refining system right now, is optimized to produce a 
particular set of fuels.  On a normal basis with no interruptions, no 
pipeline shutdowns, no refinery problems-- 
        MRS. BLACKBURN.  So in a perfect world.
        MR. MURPHY.  The cost of that is pro--
        MRS. BLACKBURN.  And then if it is not in a perfect world, if 
we do hit a hitch, then it is an extra tax, if you will.
        MR. MURPHY.  There was a study which was published last 
month by the Kennedy School of Government at Harvard, and I 
quote from there that they estimate that 72, 92, and 91 percent of 
the price spikes created by refineries in California, Illinois, and 
Wisconsin could be mitigated with Federal RFG.  In other words, 
in those examples, those cases that were studied, anywhere from 
70 to 90 percent of the price spike was due to boutique fuels.
        MRS. BLACKBURN.  So, you know, when our constituents look 
at us and say, you all have caused this problem, then they pretty 
much are right.
        MR. MURPHY.  Again, I don't think we are finding fault.  I 
think what we are recognizing is the actions of State and local 
governments in requiring particular types of fuels do have national 
implications.
        MRS. BLACKBURN.  Thank you very much.  
        Mr. Becker, you want to add any comment to that?  
        MR. BECKER.  Thank you, Congresswoman Blackburn.  
        I would like to add two points.  I think Mr. Murphy said in his 
testimony that boutique fuel program, States' clean air programs 
weren't principally responsible for the spike hikes.  What I cited in 
my testimony, the three-tenths of 1 cent to 3 cents per gallon 
estimate for the total of boutique fuels was not my estimate.  It was 
EPA's estimate of the amount of the cost of boutique fuels.  And 
when we compared that to when I was--
        MRS. BLACKBURN.  Let me interrupt you.  So you are saying it 
is just a little bitty part of the problem, and you are saying it is a 
larger part of the problem. 
        Dr. Murphy, let me come back to you, sir.  Let me go back to 
him for just a moment. 
        What considerations should the committee make in considering 
how we can reduce refinery capacity issues caused by boutique 
fuels?  And I know Secretary Harbert talked a little bit about that 
in testimony earlier. 
        So how do we go about reducing the refinery capacity issues 
while at the same time trying not to create more problems so that 
we don't make the problem worse than it is?  And do you have any 
suggestions, any quick comment on that, before my time is gone?  
        MR. MURPHY.  I think we need to carefully study the effect of 
tighter gasoline specifications which would normally accompany 
the number of fuels, because we would use blending components 
as the overall specifications are further restricted, and to balance 
that against the increased fungibility we would get from being able 
to have a more common set of fuels which make it easier to 
respond to interruptions that are going to occur.  
        MRS. BLACKBURN.  Thank you.  
        With that, I will yield back and submit my questions to Mr. 
Dinneen. 
        CHAIRMAN BARTON.  We thank the gentlelady.  
        The Chair is going to recognize himself for a few follow-up 
questions, and if Mr. Burgess wants some time, that is fine.  
        Before we conclude, I want to try to be a little bit more 
definitive on these prices following up on what both my colleagues 
just asked, and I am going to use real numbers.  
        This is the very unofficial Chairman Joe Barton survey of real 
numbers in the last few weeks.  In Waco, Texas, at the HEB and 
the Wal-Mart right off of Interstate 35 near Lake Shore Drive and 
Waco Drive, self-serve unleaded regular was $2.529 per gallon.  
That same day in Arlington, Texas, at the Minard's self-serve 
outside of a grocery store near where I live, it was $2.82.  So we 
had 30 cents a gallon.  Now, Arlington is in a nonattainment area, 
and Waco, Texas, is not.  So Arlington was having to use ethanol 
additive or reformulated gasoline, and Waco, Texas, was not.  
Ms. Hubbard, could a reasonable person assume that 30 cents 
per gallon difference was because of the added cost in the 
nonattainment area?  
        MS. HUBBARD.  Absolutely.  I mean, I couldn't say. 
        CHAIRMAN BARTON.  Those are real numbers.  I am not making 
these up.
        MS. HUBBARD.  Actually there were periods where we actually 
had 40 cents a gallon cost discrepancies. 
        CHAIRMAN BARTON.  But a reasonable person could say 
someone living in a nonattainment area was paying 30 cents a 
gallon more per gallon of gasoline than somebody living in a 
nonattainment area, someone living in Waco, Texas.  
        MS. HUBBARD.  Yes, sir. 
        CHAIRMAN BARTON.  So there is no difference in the taxation.
        MS. HUBBARD.  No. 
        CHAIRMAN BARTON.  Last week I went to California.  I did not 
see one price on any posted sign less than $3.25 a gallon.  I know I 
saw a point higher.  I saw $3.35, $3.45, and this is for self-serve 
unleaded.  This is not for the premium.  The cheapest price I saw 
was $3.25.  The average price was really closer to $3.35 to $3.40.  
        I am going to ask Dr. Murphy and Mr. Dinneen, maybe 
Mr. Slaughter and Mr. Becker.  California has the most stringent 
requirements for its gasoline.  So, again, a reasonable person could 
assume that the fact that gasoline everywhere in California seemed 
to be at a minimum 50 cents a gallon more expensive than 
anywhere in Texas.  Is that because of the more stringent 
requirements for gasoline in California?
        MR. MURPHY.  As you know, Mr. Chairman, California has 
historically had the highest gasoline prices in the country, and that 
has been because of the very, very tight restrictions on gasoline 
specifications there.  Even before the recent change from MTBE to 
ethanol, they normally average around 20 cents a gallon higher, 
and now they are even higher. 
        CHAIRMAN BARTON.  But it is a heck of a lot more than 
three-tenths of a cent, and California may have a higher State tax.  
It's possible that they have a higher State tax.  That could be part 
of it.  But it is reasonable to assume that a lot of it, and it is not 
necessarily a bad thing, but it is because of the more stringent 
requirements on the gasoline because of air quality, which the 
citizens of California, through their elected officials, chose to 
impose upon themselves.  Again, that is a societal trade-off, not 
necessarily a bad thing.
        MR. MURPHY.  I think that is a fair conclusion. 
        CHAIRMAN BARTON.  Does anybody disagree with that?
        Mr. Becker.  
        MR. BECKER.  I just want to be a little more precise about this 
survey.  
        CHAIRMAN BARTON.  It is unofficial.  
        MR. BECKER.  And your conclusion, what a reasonable person 
might--
        CHAIRMAN BARTON.  Those are real numbers.  Those are not 
made-up numbers.
        MR. BECKER.  I understand.  What is nice about what you are 
doing today, you are having a discussion about a problem.  And 
you did this a few weeks ago, and it was done to seek data and 
information.  And if you hadn't done that and you went on to the 
street and you say, gosh, what is causing this increase in gasoline, 
and they knew there were special fuels there, a reasonable person 
might say that the 30 or 40 cents behind the increase must be 
caused by these crazy States who are adopting boutique fuels.  
        But you are not only reasonable; you are seeking input from 
the experts.  And what the experts who know more about this than 
any of us in this room have concluded, the oil industry who knows 
what is going on, they have concluded that these so-called 
boutique fuels are not the problem, are not responsible for spike 
hikes.  They may be responsible potentially. 
        CHAIRMAN BARTON.  Price hikes.
        MR. BECKER.  They may be responsible potentially for supply 
or distribution problems should there be a catastrophe, but to your 
credit, you have done something with that under EPAct.  
        I did my own Becker survey a few week ago when I testified, 
and what I found is two gas stations literally blocks from one 
another selling the same exact fuel had a price differential of 20 
cents per gallon difference for regular gasoline.  Same company, 
same county, a few blocks from one another.  
        This is not caused by these so-called boutique fuels.  There are 
many other factors that have nothing to do with boutique fuels that 
are causing these price spikes.  So an uninformed, reasonable 
person might reach your conclusion, but someone who is informed, 
a Congressman or woman who is informed-- 
        CHAIRMAN BARTON.  Reclaiming my time.  I understand that 
what goes into the final price is a number of complex variables, but 
I think it is ludicrous to say with a straight face that there is almost 
no cost to complying with some of these air quality standards.  
        And I am not saying it is a bad thing that we have to comply.  
It is a good thing that we comply, and it is a good thing the air is 
cleaner.  That is a good thing.  But to act like there is no cost to it, 
it is just not rational, because these are real-world examples, and 
there can be a difference within a region.  
        I can take you to a gas station two or three blocks away that is 
a little bit more or a little bit less expensive, no question about that, 
but in California there was no gas station anywhere that was lower 
than $3.25, and there were a lot that were higher than $3.35.  And 
in Waco, Texas, there were stations that were 5 cents higher and 10 
cents higher, you know.  But there was no station in DFW that was 
even close to what the price was in Waco.  
        And do you have to look at the totality of the evidence and say 
we are paying considerably more because of these fuels; 
considerably, not 3 cents or 1 cent?  But it looks to me like we are 
paying anywhere from at a minimum of 20 cents up to 
considerably more than that, and that may be a very acceptable 
price.  
        I am not being negative on the price.  To say that it is only 
three-tenths of a cent is just not--that may be the production cost at 
one specific refinery, but by the time it gets to what the individual 
pays, it is considerable.  
        Now, my last question I want to ask Mr. Dinneen something 
because he is just a happy fellow, and we want to end this on a 
happy note.  
        The MTBE that has been taken out of the market in Texas has 
caused the price to go up.  The MTBE was not taken out by 
mandate.  The market decided voluntarily to take it out.  Now, I 
can disagree with the market, but they, the people that make the 
market, the refiners and the pipeliners, decided they weren't going 
to use MTBE anymore when they were going to give them liability 
protection until they took it out.  
        We don't manufacture a lot of ethanol in Texas, so the price 
has gone up as we tried to get the ethanol into the market.  We 
have got a lot more ethanol capacity coming on line, but in the 
short term the spot price shown on Mrs. Hubbard's chart was that 
over $3, $4 a gallon how soon do we get ethanol more in a supply 
and demand balance.  
        One of the benefits of ethanol used to be that it was less 
expensive.  That is no longer a benefit.  Now, that is great news for 
the producers of ethanol, but it is not great news for the consumers 
of ethanol.  When do we expect to see ethanol back down to, say, 
$2.50 a gallon or somewhere where you still make money, but it is 
more cost-competitive with the gasoline that is being piped in?  
        MR. DINNEEN.  Thank you for asking that question.  
        More than 90 percent of the ethanol that is sold in this country 
is sold under long-term contracts that have no relationship 
whatsoever to the chart that Ms. Hubbard put up, which is the spot 
market price.  Ethanol is sold under contracts of 6 months or a 
year, and are sold today typically much below the price of 
gasoline.  With the tax incentive, ethanol is going to be a 
significant savings for gasoline marketers. 
        CHAIRMAN BARTON.  Without being proprietary, these 
long-term contracts, is there an average price?  
        MR. DINNEEN.  It would range from $1.20 to $2 before the tax 
incentive, so the tax incentive, then, it is obviously a huge benefit 
to refiners and marketers and ultimately consumers. 
        Now, for those marketers that perhaps didn't contract up and 
had to rely upon the spot market, quite frankly, the spot market 
price is high.  Ironically, it is high today because a lot of the 
imports that were expected aren't showing up on time.  This 45 
million gallons that is on its way from Brazil, I expect once that 
arrives, I expect you will see a much more moderate price on the 
stock market. 
        CHAIRMAN BARTON.  Mr. Slaughter, do you want to comment 
on that?  
        MR. SLAUGHTER.  We do not have the price information 
outside of the spot market on ethanol prices.  The contracts are 
private, proprietary.  And we hear this time and time again that 
people who go out in the market are having to pay spot market 
prices.  And we have the actual empirical evidence that we see on 
the street corner, which you have been talking about earlier in 
talking about terms that are used--forced now to use ethanol, to use 
significantly higher prices.  
        So I have heard this before.  I am glad to hear that imports are 
on the way.  Again, we think that one of the things that need to be 
done here is suspension of the tariff at least temporarily to make 
sure there is some kind of price regulator in the open market 
everybody can look at for ethanol. 
        CHAIRMAN BARTON.  Okay.  Final comments, Dr. Murphy.
        MR. MURPHY.  I want to point out that the incremental supply 
for the high-cost supplier is the one who sets the price of the 
market, so the spot price for ethanol today is having a significant 
impact on the price of gasoline on the street. 
        CHAIRMAN BARTON.  Well, it certainly has an impact on the 
creation of more of these ethanol refineries.
        MR. MURPHY.  That is true, sir. 
        CHAIRMAN BARTON.  At some point in time, enough 
production should come on line in a free market that the price goes 
down as the production capacity ramps up to meet the demand.  So 
there is a positive side to a high price if the supply results from the 
incentive created by that high price. 
        I am not necessarily negative on a high price for ethanol right 
now, but I just want the record to show that over time, if it stays 
that high, there is no cost advantage to ethanol.  That is all.  
        Did you want to say anything, Ms. Hubbard, before we 
conclude, or are we through?
        MS. HUBBARD.  The only comment I would have is with our 
industry, we are ecstatic if the price of ethanol comes down.  The 
price of gas impacts purchases within the store, which actually are 
where our industry makes money to offset fuel. 
        CHAIRMAN BARTON.  I thought it was interesting that 
consumers in your market, they are rational, and they are more and 
more filling up outside of the nonattainment area if they have any 
opportunity at all as opposed to inside because of this price 
differential in the DFW area seems to be averaging about 20 cents 
a gallon.
        MS. HUBBARD.  Obviously, within the company volume for 
gallons is down this year to very flat.  Just the prices impact that.  
To see that spike, you know, they range from 25 to 35 percent at 
different stores.  
        CHAIRMAN BARTON.  Well, I am going to thank this panel.  
This is a hearing on a discussion draft.  We will take the questions 
and the testimony and cogitate on it and determine whether to 
change the draft and move to a markup.  If we do decide to go to 
markup, it will probably happen sooner rather than later, as early 
as next week.  
        So with that, we are going to adjourn this hearing. 
        [Whereupon, at 2:20 p.m., the committee was adjourned.]

RESPONSE FOR THE RECORD OF EDWARD MURPHY, GROUP 
DIRECTOR, INDUSTRY OPERATIONS AND DOWNSTREAM, 
AMERICAN PETROLEUM INSTITUTE

 

Attachment
Edward Murphy, API Response to Chairman Barton


1. In your testimony you mention there needs to be sufficient lead 
time to ensure that refiners are all able to produce a new fuel. 
Do all refiners, each produce the full slate of fuels in use 
today? What in your opinion is sufficient lead time? What 
factors contribute to the time it takes a refinery to switch from 
producing one fuel to another?

Response:  All refiners do not produce the full slate of fuels in 
use today.  Refinery capabilities vary greatly and reflect the 
company's efforts to optimize the refinery efficiency for the 
particular mix of fuels that it produces.  Because it will be 
difficult or impossible for a refinery to change this mix of fuels 
quickly, boutique fuels can contribute to price volatility by 
limiting the ability of refineries to compensate during periods 
when other refiners may experience interruption in supply.  

API and its members have consistently noted that when 
refinery modifications are required to comply with an 
environmental standard, the industry will need at least 4 years 
lead time.  In fact, the U.S. Environmental Protection Agency 
recognizes this and allows a minimum of 4 years lead time 
when they set new fuel specifications.  The actions necessary 
to comply with the proposed standard will vary, depending on 
the current operation and configuration of each refinery.  Often 
changes in technology and processing configurations are 
needed to meet new environmental standards.  These 4 years 
are needed for the concept reviews, design, engineering, 
permitting and construction of refinery facilities necessary for 
compliance. Less than 4 years would put undue time pressure 
on the industry and would not allow sufficient time for 
optimally developing and integrating environmental changes.

2. Is refinery production capacity compromised by the number of 
fuels a refinery must produce? For example, if a refinery is 
producing 4 specific fuels and then only needs to produce 3 
due to a reduction in the number of boutique fuels, does that 
not free up refining capacity for the remaining fuels produced?

Response:  Reducing the number of fuel choices available will 
add fungibilty to gasoline supplies and, in this manner, 
increase the capability of the production and distribution 
system to adjust to an unexpected interruption.  However, it 
will also lead to more stringent formulations as states and 
localities seek to maintain environmental performance.  Thus, 
a reduction in the number of fuels from 4 to 3 does not mean 
there will be more production capacity.  In fact, the opposite is 
the likely result.  If the number of fuels were reduced from 4 to 
3 with no loss in environmental quality, the change would 
result in an increased overall stringency which would likely 
cause some loss of production capacity as some gasoline 
blending components are removed in the refining process.  
Whether the supply effect of this would be outweighed by the 
increased fungibilty of the overall gasoline system can only be 
determined from careful study. 


RESPONSE FOR THE RECORD OF SONJA HUBBARD, CEO, E-Z MART 
STORES, INC., ON BEHALF OF NATIONAL ASSOCIATION OF 
CONVENIENCE STORES AND SOCIETY OF INDEPENDENT GASOLINE 
MARKETERS OF AMERICA

NATIONAL ASSOCIATION OF CONVENIENCE STORES
1600 Duke Street
Alexandria, VA   22314

SOCIETY OF INDEPENDENT GASOLINE MARKETERS OF 
AMERICA
11495 Sunset Hills Road
Reston, VA   22090

July 18, 2006


The Honorable Joe Barton
Chairman
Committee on Energy and Commerce
U.S. House of Representatives
Washington, D.C.   20515

Re:  Responses to Written Questions Submitted in Connection 
with the June 7, 2006 Committee Hearing on "H.R. ____, 
Boutique Fuels Reduction Act of 2006"							
				
Dear Mr. Chairman:

	This letter responds to your letter of June 27, 2006 posing a 
written question to me submitted in connection with the June 7, 
2006 Committee hearing on "H.R. ____, Boutique Fuels Reduction 
Act of 2006."  My answer to this question, on behalf of the 
National Association of Convenience Stores ("NACS") and the 
Society of Independent Gasoline Marketers of America 
("SIGMA"), is attached.

	NACS and SIGMA are pleased to submit this answer to the 
Committee.  If the Committee has additional questions, please do 
not hesitate to contact us.

						Sincerely yours,
						 
						Ms. Sonja Hubbard
						Chief Executive Officer
						E-Z Mart Stores, Inc.
						On behalf of 
						NACS and SIGMA

Attachment


Response to Question from the Honorable Joe Barton

Question:  With implementation of the RFS and various state 
biofuels mandates, the marketers and retailers you represent may 
need, in order to satisfy consumer demand, to offer products such 
as E-85 for purchase.  What is the average cost of installation and 
maintenance of an E-85 pump and related infrastructure?  Are 
there properties unique to E-85 that warrant specialized storage 
and infrastructure?  Are there, and if so what, federal or state 
measures exist or have been proposed that would assist marketers 
and retailers in covering such cost?

Answer:  As an initial matter, a growing number of NACS and 
SIGMA members are offering E-85 to their consumers and we 
expect the number to expand as motorist demand grows and the 
economics of E-85 stabilizes.  A review of the Department of 
Energy's Clean Cities website listing E-85 outlets across the nation 
reveals that approximately 80 percent of the sites are operated by 
independent motor fuel marketers -- the core of NACS and 
SIGMA's retailer membership.
	The average cost of installation of an E-85 refueling system, 
including underground storage tank (UST), piping and dispensing 
equipment, varies from $50,000 - $200,000 per system.  This wide 
variation in cost is caused primarily by differing state statutes and 
regulations governing petroleum USTs -- not by the cost of the 
actual equipment itself.  For example, installation of a new E-85 
refueling system in downtown San Francisco -- assuming a permit 
could be obtained to install the system at all -- would entail costs in 
the upper range of that estimate because of California 
environmental controls and permitting costs in that state.  
Conversely, installing a system in rural Iowa would run at the 
lower end of that range in terms of cost.
	There are properties unique to E-85 which generally make it 
incompatible with most existing motor fuel refueling systems.  
Ethanol is highly corrosive to many metals and other substances 
commonly found in motor fuel dispensing systems (copper, brass, 
and aluminum) when those metals are exposed to ethanol in a 
concentrated form.  Thus, E-85 can not be dispensed from most 
existing refueling systems because of the corrosion the ethanol in 
the blend would cause to fittings, piping, and metals in the existing 
system.   Therefore, in order to dispense E-85, a retailer must 
either overhaul its existing refueling system to eliminate materials 
which would react to ethanol or install a new UST system free of 
materials sensitive to corrosion.  It is worth noting that the House 
Science Committee recently adopted legislation (H.R. 5658) 
directing the Department of Energy to conduct research into the 
possibility of adding corrosion inhibitors to E-85 as a means of 
preventing the corrosion difficulties associated with E-85 in 
existing UST systems.
	Finally, the primary federal measure that exists to assist 
marketers in covering the costs of installing E-85 refueling 
infrastructure is Section 1342 of the Energy Policy Act of 2005 
(EPAct).  This section establishes a federal tax credit for the 
installation of alternative fuel infrastructure, including E-85 
infrastructure, at retail outlets.  The tax credit is limited to 30 
percent of the cost of the installation, or $30,000 (whichever is 
lower) and will expire, for E-85 installations, at the end of 2009.
	Several additional incentives for the installation of E-85 
infrastructure have been proposed during the 109th Congress, 
including grant programs for retailers to cover some or all of the 
cost of installation, an expansion of the EPAct credit to cover more 
of the costs, and additional tax incentives to drive down the net 
taxpayer cost of such installations.  None of these proposals, 
besides the EPAct tax credit, has been enacted.

	Based on media accounts reviewed by NACS and SIGMA, 
some states have considered, and a couple of states have adopted, 
alternative refueling infrastructure incentives and tax credits.  
NACS and SIGMA do not have the resources to provide the 
Committee with a survey of those incentives.  We recommend that 
the Committee inquire of the Renewable Fuels Association, the 
trade association for the ethanol industry, about more information 
on such state incentives.
	It is important to note, however, that while incentive proposals 
to reduce the cost of infrastructure investment are valuable and 
most welcome, they are not sufficient to convince all retailers to 
offer alternative fuels. Retailers are very conscious of consumer 
demand, which in the case of E-85 is determined by the presence 
of sufficient flexible fuel vehicles in the market and the price 
competitiveness of E-85. Currently, many retailers would reach the 
conclusion that the number of vehicles capable of running on E-85 
remains limited, thereby constraining the potential market demand 
for E-85. Further, many consumer who drive such vehicles are not 
devoted to refueling with E-85, unless it provides an economic 
benefit.
	For example, retailers with whom I have spoken have reported 
dramatic declines (as high as 96% in monthly volume) in E-85 
sales when its retail price nears that of gasoline. This is 
complicated by the fact that E-85 provides consumers with more 
than 20 percent fewer miles per gallon. Therefore, conscientious 
consumers will determine that E-85 is only competitive with 
gasoline when offered at a significant discount, a scenario that is 
not currently possible in most markets due to the inflated cost of 
ethanol.  
	Motor fuel marketers like me make an effort to maximize the 
return on every item we sell and every inch of retail space 
available. To dedicate a fueling station to an alternative fuel that is 
in low demand and is not price competitive, even if the 
government offset were to cover 100% of the investment, does not 
make sound business sense for many marketers in our channel of 
trade.
	I make this point only to demonstrate that while our industry is 
appreciative of the incentives Congress has provided and is 
considering, we caution Congress against inflated hopes for an 
industry response. Our industry will offer E-85 once there is 
sufficient demand and a price competitive marketplace for it. 
Clearly, the incentives under consideration will hasten the 
attainment of that situation, but a retailer will not take action until 
it determines that the conditions are appropriate for an alternative 
fuels dispenser.

RESPONSE FOR THE RECORD OF S. WILLIAM BECKER, EXECUTIVE 
DIRECTOR, STATE AND TERRITORIAL AIR POLLUTION PROGRAM 
ADMINISTRATORS/ASSOCIATION OF LOCAL AIR POLLUTION 
CONTROL OFFICIALS

 


The Honorable John D. Dingell

I understand that one of your members, the Arizona 
Department of Environmental Quality, has recently taken 
action related to a major new source review permit for the 
proposed Arizona Clean Fuels Yuma refinery.  Please provide 
an update on the status of air permitting for this proposed 
facility.

Congressman Dingell, the Arizona Department of Environmental 
Quality (ADEQ), one of the members of STAPPA/ALAPCO, the 
organization that I represent, informs me that on April 14, 2005, it 
issued an air quality permit authorizing the construction and 
operation of a green field refinery near Yuma, Arizona, to Arizona 
Clean Fuels Yuma, LLC.  If constructed, this refinery would be the 
first built from the ground up in the United States in the last 30 
years.  This permit, which is also the first of its kind, allows for 
this proposed refinery to be built while protecting the environment 
through conditions that require the installation and operation of the 
best available air pollution control technology.

In March of 2006, Arizona Clean Fuels Yuma, LLC, (ACF) 
advised ADEQ  that the company  would be unable to meet the 
requirement in its permit (and federal and state law)  to commence 
construction of the refinery within 18 months of issuance of the  
installation permit.  The 18-month deadline was to expire in 
November 2006.

Because the company approached ADEQ prior to the expiration of 
the 18-month window to commence construction of the facility, 
ADEQ has been working closely with the company to issue a 
complete renewal of the air quality permit for the refinery, which 
would "stop the clock" on the current 18-month deadline and give 
ACF a completely new 18-month period to commence 
construction, which would begin to run when the renewal is 
effective.

On April 28, 2006, ACF submitted its application to renew the 
permit.   According to ADEQ, the renewal permit has undergone a 
mandatory public comment period that ended on July 6, 2006.  
ADEQ explained that it is in the process of drafting responses to 
all public comments, and once the responses are completed, ADEQ 
will send the permit, supporting documentation, and the draft 
responses on to EPA Region IX for its mandatory 45-day review 
period as required by the Clean Air Act.

Under this schedule, ADEQ has determined that the renewed 
permit can be issued by mid-September, prior to the expiration of 
the original installation permit.    ADEQ says that this would mean 
that under the new 18-month period in the renewed permit, ACF 
would have until mid-April 2008 to commence construction.  This 
should give ACF plenty of time to resolve whatever business 
problems it has been experiencing. 

It is important to note that ADEQ has no statutory obligation to 
renew ACF's permit at this time, but it is working very hard to do 
so.  The 18-month deadline to commence construction applies to 
every permit issued under Title V of the Clean Air Act.   The effort 
ADEQ is making to help ACF solve its problems by accelerating 
renewal of the permit to avoid having the l8-month deadline lapse 
is illustrative of the way ADEQ has worked with ACF from the 
very beginning of the permitting process to enable the company to 
build the refinery while meeting all air quality requirements.  Any 
delays experienced by ACF in building its refinery in Yuma, 
Arizona, have been due to business problems experienced by ACF 
having nothing whatsoever to do with the regulatory permitting 
process or ADEQ.

RESPONSE FOR THE RECORD OF THE HON. KAREN A. HARBERT, 
ASSISTANT SECRETARY, OFFICE OF POLICY AND INTERNATIONAL 
AFFAIRS, U.S. DEPARTMENT OF ENERGY

QUESTION FROM CONGRESSMAN DINGELL

Q1 I would like to understand better what affects the price of a 
gallon of gasoline. If we were to compare the price of gasoline 
at two different gas stations in the same State on the same day, 
and find that a gallon of gas costs more (at the hearing, it was 
suggested that individual stations could vary up to $0.30) at the 
station in an area with a State clean fuel program than it does at 
the station selling conventional gasoline in an area without a 
State clean fuel program:

        a) Assuming normal supply circumstances (e.g., no major 
refinery or pipeline failures or disruptions), what factors 
other than the State clean fuel program might account for 
this price difference?

        b) To what extent does each of these factors contribute to the 
price difference?

        c) If you have insufficient information to answer either of the 
above questions, please explain what additional information 
you would need to answer them.


A1 Retail gasoline prices can vary significantly between stations in 
the same State, or even across the street from each other, due to 
a variety of factors other than State clean fuel programs.  These 
can roughly be divided into two types:

 Factors affecting dealer cost:  these are items such as supply 
logistics, taxes, and various costs of operating a retail outlet.  A 
major item is proximity to and type of supply source, such as a 
refinery, pipeline terminal, or bulk plant.  Proximity determines 
the transportation cost to the dealer, and the type of supply 
source, as well as its position in the nationwide supply 
network, will help to determine the dealer's cost of the product.  
The type of outlet has cost implications, as stations may be 
owned and/or operated by refiners, jobbers, individual dealers, 
or any combination of these.  Local taxes may be a factor, as 
well as property values and wages in a particular area.  Finally, 
the volume sold by an outlet is a critical determinant of the per 
gallon amount needed to cover costs of operation that do not 
vary with sales volume.  The higher the volume sold, the lower 
the per-gallon charge that is needed to cover such fixed costs.

 Additional factors affecting retail price:  beyond cost factors, 
retail prices are affected by local market conditions, including 
competition and customer income levels.  Competitive 
differences can be substantial between an area with only one or 
a few outlets, and one with a large number of competitors in 
close proximity.  Geography may be a significant influence, in 
that consumers in remote or isolated areas may face a trade-off 
between higher local prices and the inconvenience of driving 
some distance to a lower-priced alternative.  At the local level, 
a distance of as little as a few blocks can make a significant 
difference, such as between a station on a well-traveled 
highway with many competitors, and one in a less-popular 
location.

Factors other than State clean fuel programs that impact the 
dealer's costs could theoretically be quantified, although they 
would vary for each individual outlet, while differences due to 
competitive conditions are much less quantifiable.  However, it is 
important to recognize that individual sellers are free to set their 
prices at any level, irrespective of their underlying costs.  Thus, in 
some cases, one retailer may charge more than another for reasons 
other than cost, while in other cases a retailer may be unable to 
fully recapture higher costs, because of competitive conditions.


QUESTION FROM CONGRESSWOMAN ESHOO

Q1. Section 1541(c) of the Energy Policy Act requires DOE 
and EPA to conduct a study of the "effects on air quality, on 
the number of fuel blends, on fuel availability, on fuel 
fungibility, and on fuel costs" of state fuel programs.  EPA and 
DOE are required to submit the results of this study to 
Congress within 12 months of enactment of the Energy Policy 
Act requires (i.e. by August 8, 2006).

        (a) What steps have EPA and DOE taken to complete this 
study?

        (b) Will EPA and DOE meet the statutory deadline?  If not, 
when will EPA and DOE provide a final study to Congress 
to comply with section 1541(c) of EPACT?

A1(a).	EPA and DOE are in the final stages of drafting the section 
1541(c) study.  

A1(b).	DOE and EPA have been coordinating closely as we draft 
the study. While we were not able to deliver the study by 
the EPACT-specified deadline, we anticipate that we will 
provide the study to Congress this Fall.


RESPONSE FOR THE RECORD OF BOB SLAUGHTER, PRESIDENT, 
NATIONAL PETROCHEMICAL & REFINERS ASSOCIATION




July 21, 2006

The Honorable Joe Barton
Chairman
Committee on Energy & Commerce
U.S. House of Representatives
Washington, DC 20515

Dear Chairman Barton:

Thank you for the opportunity to appear before the Committee on 
Energy and Commerce at the June 7, 2006, hearing on a discussion 
draft of "The Boutique Fuel Reduction Act of 2006."  I appreciate 
the continuing interest that you and your colleagues give to the 
nation's transportation fuel supplies.  As you know, NPRA, the 
National Petrochemical & Refiners Association, members include 
more than 450 companies, including virtually all U.S. refiners and 
petrochemical manufacturers.  

NPRA has prepared responses to questions for inclusion in the 
official hearing record.  Please find NPRA's responses attached to 
this letter.

Again, I thank you for your continued interest in the critical issues 
surrounding transportation fuels policies.  NPRA appreciates the 
efforts of the Committee to investigate issues of importance to the 
refining industry.

Sincerely,  




Bob Slaughter 


Attached: Responses to Chairman Joe Barton's Questions for the 
Record

Responses to Chairman Joe Barton

1. As reflected in the proposed Boutique Fuels List, the 7 Fuel 
Types recommended by the Environmental Protection Agency, 
it seems states often select a Reid Vapor Pressure (RVP) 
controlled gasoline to be approved as a SIP fuel.  Is it more 
difficult to produce an RVP controlled gasoline versus CARB 
or RFG?  Are the production yields from the same amount of 
crude oil used to produce RVP controlled gasoline versus 
CARB or RFG the same?

Is it more difficult to produce an RVP controlled gasoline versus 
CARB or RFG?

It is less difficult to produce an RVP controlled gasoline versus 
RFG which in turn is less difficult to produce than CARB.

        1. Both RFG and CARB also have RVP production 
limits, but the RVP limits are more stringent for 
RFG and CARB than for an RVP-only controlled 
gasoline.  For example, 2005 RFG Survey 
Association data showed that the Region 1 RFG 
average RVP was 6.84 psi.  CARB typically 
averages 6.8 psi while the lowest controlled RVP 
gasoline has a 7.0 psi maximum specification.

        2. In addition, CARB and RFG have more stringent 
limits on benzene, aromatics and olefins than RVP 
controlled gasoline; this fact also increases CARB 
and RFG production cost relative to lower RVP 
gasoline. 

        3. Finally, CARB gasoline has NOx and VOC emission 
limits, which translate into more stringent 
distillation limits; these require exclusion of the 
back end of reformate and FCC gasoline, further 
increasing CARB's cost and reducing the volume 
produced.  

Are the production yields from the same amount of crude oil used 
to produce RVP controlled gasoline versus CARB or RFG the 
same?

The volume yield of RVP controlled gasoline is higher than for 
RFG which in turn is higher than for CARB.

        1. The lower RVP limit for CARB and RFG compared 
to RVP controlled gasoline results in reduced 
blending of butanes and pentanes in the summer 
and lower gasoline volumes produced.


        2. In addition, CARB and RFG's more stringent 
benzene, aromatics and olefin limits further reduce 
their gasoline yield compared to RVP controlled 
gasoline.

        3. Finally, the exclusion of back-end reformate and 
FCC gasoline from CARB reduces its volume 
yield even further.


RESPONSE FOR THE RECORD OF BOB DINNEEN, PRESIDENT AND 
CEO, RENEWABLE FUELS ASSOCIATION

 

July 24, 2006
The Honorable Joe Barton
Chairman
Committee on Energy and Commerce
U.S. House of Representatives
Washington, D.C.  20515

The Honorable John D. Dingell
Ranking Member
Committee on Energy and Commerce
U.S. House of Representatives
Washington, D.C.  20515

Dear Chairman Barton and Ranking Member Dingell:

The Renewable Fuels Association (RFA) appreciates the 
opportunity to respond to follow up questions from the June 7, 
2006 hearing on the discussion draft of the Boutique Fuel 
Reduction Act of 2006.  

As I stated in my testimony before the Committee, the use 
of ethanol does not create a "boutique fuel."  Boutique fuels stem 
from state fuel programs approved by EPA under a state 
implementation plan that are part of the state's air quality program.  
Boutique fuels can reduce gasoline fungibility because their fuel 
specifications differ from federal standards.  Blending of gasoline 
with ethanol requires no unique gasoline blend from refiners and 
does not add to the complexity of the fuel distribution system.

	Attached please find RFA's responses to questions from 
Members of the Committee.  If there is any additional information 
you would like RFA to provide, please do not hesitate to ask.
Sincerely,
 
Bob Dinneen
President

Questions from Chairman Barton

1. You point to the fact that several state biofuels programs 
would not become effective until there is meaningful 
biofuels production in the state.  If Congress were to seek a 
uniform model for implementation of state biofuels 
programs, what elements in your opinion should the model 
include?

The RFA has not advocated state biofuels mandates because of 
the potential of such efforts to undermine the flexibility of the 
national renewable fuels standard.  Nevertheless, as I stated in 
my testimony, not all state biofuels programs rely upon 
mandates.  Iowa enacted legislation this spring that relies upon 
tax incentives to motivate gasoline marketers to install 
infrastructure and increase the production and use of biofuels.  
The combination of production, infrastructure, retail and 
promotion tax incentives will not only decrease Iowa's use of 
fossil fuels, it will provide flexibility to refiners and blenders, 
as well as stimulate the state's economy and reduce gasoline 
prices for consumers.

2. Various stakeholders recommended that the discussion 
draft include a study of the supply, distribution and air 
quality impacts of state biofuels mandates.  As you 
expressed, you are sympathetic to the undermining of the 
flexibility intrinsic to the Renewable Fuels Standard by the 
proliferation of state biofuels programs, would you support 
such a study?

RFA would support a study of the supply, distribution and air 
quality impacts of state biofuels programs, if it was completed 
as part of a comprehensive effort to analyze the impacts of all 
fuel marketing and refinery decisions affecting boutique fuels. 


Question from Ranking Member Dingell

1. In the hearing, when asked whether ethanol plants were 
subject to the same permitting requirements as oil 
refineries, you stated that ethanol refineries are subject to 
stringent air quality standards and permitting.  I would like 
to explore the comparison of regulatory requirements a bit 
further.

        a) I understand that the Environmental Protection Agency 
(EPA) has proposed to change the permitting 
requirements for ethanol refineries. Am I correct that, 
currently, ethanol refineries producing ethanol for fuel 
that emit more than 100 tons per year of any criteria 
pollutant trigger the major new source review process 
in attainment areas and that oil refineries are subject to 
the same threshold?  Does the Renewable Fuels 
Association (RFA) support EPA's proposal to raise the 
threshold to 250 tons per year for ethanol refineries 
producing ethanol for fuel?   Why or why not?

The first part of your question appears to relate to permit 
requirements under the prevention of significant deterioration 
(PSD) program known as new source review, and EPA's recent 
proposed rule of March 9, 2006 published at 71 Fed. Reg. 
12,240.  Under section 169 of the Clean Air Act, 42 U.S.C. 
 7479, whether a facility is a "major emitting facility" subject 
to new source review depends on whether it is a stationary 
source in one of 28 listed industry categories and, if so, 
whether the facility emits 100 tons per year (tpy) of one or 
more criteria pollutants.  Other industry sources are major 
emitting facilities subject to new source review if they emit 250 
tpy.  Petroleum refineries are among the industry categories 
expressly listed under section 169 as subject to the 100 tpy 
threshold.
	
In the March  2006 proposal, EPA proposed to exclude dry and 
wet corn mills from the definition of "chemical process plants" 
for purposes of the PSD program.  "Chemical process plants" 
is another industry source category subject to the 100 tpy 
threshold.  Certain dry and wet corn mills that produce ethanol 
for industrial uses have been included in the definition of 
"chemical process plants" based on the Standard Industrial 
Classification (SIC) code of the facility, relying on EPA 
guidance defining "chemical process plants."  Other corn mills 
that involve virtually the same production processes have not 
been treated as chemical process plants because they are listed 
under a separate SIC code.

RFA supports EPA's proposal to revise its guidance and move 
away from the SIC code to define chemical process plants for 
corn mills because (a) it is consistent with Congressional intent 
as supported by legislative history, (b) it harmonizes the 
treatment of corn mills under the PSD program, (c) it furthers 
the Congressional purposes of the Energy Policy Act of 2005 
and promotes energy security, and (d) it does not compromise 
air quality.  RFA submitted detailed comments on the proposal 
to EPA, which are available in EPA's docket at 
http:www.regulations.gov (Docket EPA-HQ-OAR-2006-0089, 
Document 0086-0086.18).  A copy can be provided upon 
request.

        b) I understand that most industrial sources are subject to 
New Source Performance Standards that set emission 
limits for new plants, and that the threshold for most of 
these limits is approximately 100 tons per year.  I also 
understand that EPA has not adopted a New Source 
Performance Standard for ethanol plants.  Is my 
understanding correct?  Does RFA support 
establishment of a New Source Performance Standard 
for ethanol plants?  Why or why not?

We would like to make two corrections to the underlying 
premises of the question.  First, New Source Performance 
Standards (NSPS) under Section 111 of the Clean Air Act are 
not limited to "major emitting facilities," and do not have an 
emissions threshold that triggers the requirements.  42 U.S.C.  
7411.  Each NSPS promulgated by EPA identifies the types of 
facilities (e.g., in terms of size and type of process) to which 
the standard applies.  Any new or modified sources constructed 
after a NSPS is promulgated are subject to that standard.  
Typically the applicability criteria for NSPS are not emissions-
based, i.e., not based on the tons per year of pollutant emitted.  
Instead, EPA develops criteria for each source category, e.g., 
the volume of a storage tank, the rating of a boiler, the flow 
rate of a process.  EPA has promulgated nearly 75 NSPS, with 
a variety of applicability criteria tailored to the source category 
in question.

Second, you ask if your understanding that EPA has not 
adopted a New Source Performance Standard for ethanol plants 
is correct.  In fact, there are several NSPS applicable to ethanol 
plants.  These include those found at 40 C.F.R. Part 60, 
Subparts Db and Dc (Boilers/Steam generating units); 40 
C.F.R. Part 60, Subpart DD (Grain handling and storage 
facilities); 40 C.F.R. Part 60, Subpart VV (Leaks from VOC 
equipment); and 40 C.F.R. Part 60, Subparts K, Ka, Kb 
(storage tanks). 

Due to the NSPS already applicable, as well as other federal 
and state requirements, ethanol plants are largely already 
utilizing state-of-the-art emissions control technology.  Still, 
the RFA would be open to a dialogue on this issue if others 
believe additional NSPS are necessary.

RESPONSE FOR THE RECORD OF ROBERT J. MEYERS, ASSOCIATE 
ASSISTANT ADMINISTRATOR FOR AIR AND RADIATION, 
ENVIRONMENTAL PROTECTION AGENCY

The Honorable Joe Barton

1. As you mentioned in your testimony, Congress provided in 
the Energy Policy Act of 2005 for waivers of federal and 
state fuel and fuel additive requirements under Section 
211(c)(4)(C). Do the States remain responsible for those 
potential increased emissions that may occur during the 
waiver period? Is a waiver granted on the federal level 
sufficient to preempt liability on the part of the State for 
potential increased emissions?

	The Agency has recently been investigating what authority 
may be available to address this issue. It is still under consideration 
and no conclusion has been reached.  The Agency is not aware of 
any instances where an exceedance of the NAAQS has occurred 
due to the granting of a waiver. Waivers are usually granted for a 
short period of time.

2. If the Committee were to draft a bill in such a manner as to 
satisfy the goal of permitting boutique fuels to reduce 
through "attrition" how long might it take to get down to 
just 3? In EPA's opinion would each of the 3 aid in 
attaining the National Ambient Air Quality Standards 
(NAAQS) and benefit supply and fungibility?

	In addressing this question, we assume that "attrition" refers to 
the possible reduction in the number of boutique fuels through the 
conditions contained in current law; that is through removal of a 
fuel from the boutique fuels list under section 211(c)(4)(C)(v)(III)  
when a fuel ceases to be included in a State implementation plan or 
if a fuel in a State implementation plan is identical to a Federal fuel 
formulation.
	EPA faces a number of difficulties in attempting to predict 
when these circumstances would occur.  To date, no fuel has 
ceased to be included in a State Implementation Plan.  In addition, 
EPA has not proposed any rulemaking which would have the effect 
of making any approved state boutique fuel identical to a Federal 
fuel formulation.  Therefore, EPA is not aware of current 
circumstances which would allow for the "attrition" of boutique 
fuels 
	With  respect  to  the level of 3 fuels contained in your question 
and the possible effect of this number of fuels, EPA publication 
of a  boutique fuels list for comment offered a preferred 
interpretation  of  statutory  language  which  would specify that 
there are a total of 7 fuel types that were approved by the Agency 
pursuant  to  section  211(c)(4)(C)  that  were in existence as of 
September  1,  2004.   Since the Agency cannot offer a prediction 
based  on  empirical  evidence as to when the number of fuel types 
might,  through  attrition, be reduced to 3 fuels, it cannot offer an  
analysis of their benefit in attaining the NAAQS or benefiting fuel  
supply  or  fungibility.   The original approval of state boutique 
fuels occurred pursuant to Clean Air Act provisions which required 
a determination that approval of the fuel was necessary for 
attaining a NAAQS.

3.	Does the original language in Section 211(c)(4)(C) or as 
amended by the Energy Policy Act of 2005 require the 
Environmental Protection Agency or the Department of 
Energy to take into account fuel supply and fungibility 
when approving a boutique fuel? Does the language in the 
discussion draft require such a consideration?

	Section 211(c)(4)(C), prior to amendment by the Energy Policy 
Act of 2005 (EPAct) allowed the administrator of EPA to approve 
a state-prescribed fuel control or prohibition as part of a State 
Implementation Plan if the Administrator found that the control or 
prohibition was necessary to achieve a national ambient air quality 
standard (NAAQS).  The Administrator was allowed to make this 
finding if no other practicable and reasonable measures were 
available to bring about attainment of the NAAQS.  Section 211 
(c)(4), prior to amendment, did not affirmatively require either that 
EPA consult with DOE or make a finding on fuel supply and 
fungibility with respect to the approval of a state-prescribed fuel.
	Section 211(c)(4)(C), as amended by EPAct, placed several 
constraints and conditions with respect to future approval by EPA 
of state-prescribed ("boutique") fuels.  As indicated during the 
hearing.  EPAct requires EPA to publish a list of boutique fuels 
that were approved under section 211 (c)(4) prior to September 1, 
2004.  The statute then provides that the Administrator may 
approve a "new fuel" subject to certain conditions.  One of the 
conditions provided is that, after consultation with the DOE, a 
finding is made that a boutique fuel "would not cause fuels supply 
or distribution interruptions or have a significant adverse impact on 
fuel producibility in the affected area or contiguous areas."
	As I indicated in testimony before the committee, other 
provisions contained in the amendments to section 211(c)(4)(C) 
made by EPAct prevent the Administrator of EPA from approving 
any "new" boutique fuel unless that fuel is - at the time a request 
for approval is considered - already in existence in the Petroleum 
Administration for Defense District (PADD) where the state 
requesting such fuel is located.  This provision as outlined in our 
notice regarding the boutique fuels list and its interpretation 
regarding "fuel Types", effectively acts to prevent EPA from 
approving any fuel which did not already exist in a PADD as a 
September 1, 2004 (with a separate statutory exception being made 
for a fuel with a summertime Reid Vapor Pressure of 7.0 psi).  
Since the statute requires DOE consultation as to fuel supply and 
distribution effects only with respect to the situation where 
approval is sought with respect to a 7.0 RVP boutiques fuel (if in 
the future 7.0 RVP were to become a "new fuel"), the statute does 
not require EPA to consult with DOE or consider supply and 
fungibility for new programs where the state request is with respect 
to a fuel that is contained on the list of approval fuels.
	The statutory language of the discussion draft amends EPAct 
revisions to section 211(c)(4)(C) in several respects.  With respect 
to the consideration of fuel supply and distribution in connection 
with the approval of a "new" boutique fuel that is not contained on 
the boutique fuels list required by EPAct, the discussion draft, 
similar to current EPAct provisions, would not require a 
consultation with DOE or consideration of fuel supply and 
fungibility.  It should be noted that the discussion draft also 
explicitly provides for a reduction in the number of boutique fuels 
contained in the boutique fuels list when such a fuel ceases to be 
contained in a state SIP or becomes identical to a federal fuel 
control.
	The discussion draft, however, provides for the replacement of 
the boutiques fuel list with an "Approvable State Fuels List" 18 
months after enactment.  Section 3(b) of the discussion draft then 
provides that the Administrator, in making determinations to 
include a fuel on the approvable fuels list, shall consider an 
analysis by DOE as to "whether the adoption of the fuel as part of 
the Approvable State Fuels List will result in an adverse impact on 
fuel supply or producibility, or in a significant disruption of the 
fuel distribution system."  While the discussion draft grants a 
statutory preference to RVP - controlled fuels that are contained 
on the boutique fuels list established pursuant to EPAct, the draft 
requires the determination outlined above with respect to the 
inclusion of any fuel on the new "Approved State Fuels List."




The Honorable John D. Dingell

1. I would like to understand better what affects the price of a 
gallon of gasoline.  If we were to compare the price of 
gasoline at two different gas stations in the same State on 
the same day, and find that a gallon of gas costs more (at 
the hearing, it was suggested that individual stations could 
vary up to $0.30) at the station in an area with a State clean 
fuel program than it does at the station selling conventional 
gasoline in an area without a State clean fuel program:

        a. Assuming normal supply circumstances (e.g., no major 
refinery or pipeline failures or disruptions), what 
factors other than the State clean fuel program might 
account for this price difference?
      
	EPA analyzes the production costs of meeting clean air related 
fuel requirements.   For example,  EPA  has  estimated  that the 
production  costs  associated  with  low Reid Vapor Pressure 
(RVP) gasoline  are  between  0.3  cents/gallon  and that the 
production costs  associated  with  the  federal Reformulated 
Gasoline (RFG) program range from 4 to 8 cents/gallon.  The 
Agency does not track or analyze prices and factors that influence 
the price of motor fuels.   Instead, the Energy Information Agency 
(EIA) plays a leading role in this regard and provides detailed 
information on the Agency's website.
	It is generally recognized that there are a variety of factors that 
affect the price of gasoline apart from direct production costs, 
including crude oil prices, state and local taxes, regional market   
conditions,   etc.   EPA does not attempt to perform independent 
calculations of such factors whether with respect to conventional 
gasoline programs or "clean fuel" programs.

        b. To what extent does each of these factors contribute to 
the price difference?

	According  to  the  Energy Information Agency's July 2006 
Gasoline and Diesel Fuel Update, at $2.98 per gallon of gasoline, 
crude oil costs  make  up  about  52% of the "cost" of refined 
regular grade gasoline.   Federal and state taxes make up 
approximately 15%, refining costs make up approximately 26%, 
with distribution and marketing making up the remaining 6%.


The Honorable Anna G. Eshoo

1. The Energy Policy Act required EPA to publish with 90 
days of enactment a list of the boutique fuels that were 
being utilized as of September 1, 2004.  (Once finalized, no 
state will be able to adopt a clean fuel that is not on this 
list.)  After approximately 300 days of delay, EPA, on June 
1, 2006, published a proposed list of fuels opening a 60-day 
public comment period.  Now that a proposed list of 
boutique fuels has been published, when will EPA publish 
the final list required under the Act?

	The comment period for the list closed August 7, 2006.  We 
will publish a final list as expeditiously as possible.   We will 
carefully consider all comments, and we expect that such a list will 
be published within one to three months after close of the comment 
period.

2. The Energy Policy Act gave EPA authority to issue waivers 
of fuel requirements in unforeseeable or unpreventable 
emergency circumstances. EPA has testified that authority 
was used 30 times in the aftermath of Hurricanes Katrina 
and Rita.  Congress directed EPA, within 180 days of 
enactment (i.e., by February 2006) to issue regulations 
governing this waiver authority. EPA has not yet proposed, 
much less finalized those regulations.  When will EPA 
comply with this obligation?

	EPA is actively implementing a number of different 
requirements contained in the Energy Policy Act of 2005 (EPAct).  
These efforts involve a number of complex and technical 
undertakings, including requirements to provide for the 
implementation of a Renewable Fuel Standard (RFS) applicable to 
gasoline sold and distributed in the continental United States.
	As you note in your question, EPA has already granted waivers 
under the authority of section 1541 of EPAct in an expeditious 
manner   in   order to address emergency situations following 
Hurricanes Katrina and Rita.  The EPA granted such waivers after 
a review of the factual circumstances underlying the waiver 
request and in compliance with the statutory provisions of section 
1541respecting the determinations to be made by the 
Administrator.  We are   considering   how   best  to  address  the  
section  1541(a) requirements   and   have  not  yet  established  a  
schedule  for regulatory action.

3. Section 1541 (c) of the Energy Policy Act requires EPA and 
DOE to conduct a study of "the effects on air quality, on 
the number of fuel blends, on fuel availability, on fuel 
fungibility, and on fuel costs" of state fuel programs.  EPA 
and DOE are required to submit the results of this study to 
Congress within 12 months of enactment of the Energy 
Policy Act (i.e., by August 8, 2006).

        a. What steps have EPA and DOE taken to complete this 
study?

	EPA and DOE are in the final stages of drafting the section 
1541(c) study.

        b. Will EPA and DOE meet the statutory deadline?  If not, 
when will EPA and DOE provide a final study to 
Congress to comply with section 1541 (c) of EPACT?

	EPA and DOE coordinated closely with respect to this 
legislative provision and are in the midst of drafting the study.   
We anticipate that we will be able to provide a final study to 
Congress in the fall.
	

EPAct allowed for limited commingling of Reformulated Gasoline between June 1st and September 
15th to consist of two 10 day periods.   EPA has already implemented this provision by rule.
  A chart which illustrates both the currently approved state boutique fuels as well as the PADD 
structure is attached to this testimony.

    Section 1541(b) of the EPAct required EPA to publish a list of boutique fuels.  The Agency 
published its list on June 1, 2006.  
    Montana, Washington, Missouri and Louisiana have passed various biofuels requirements, but 
they are not yet in effect.  
   California, Delaware, Idaho, Illinois, Kansas, Nebraska, New Mexico, and Virginia have biofuels 
legislation pending in the state legislature.
    Idaho, Lousiana, Montana and Virginia have in-state ethanol production requirements before the 
enacted or proposed biofuels requirement becomes effective.
    Iowa provides retail tax incentives for E-10 dependent upon an RFS schedule, retail tax incentives 
for biodiesel and E-85, and provides grants of up to $30,000 for the installation of biofuels refueling 
infrastructure.  There are no mandates for either ethanol or biodiesel.
    Dr. John Urbanchuk, LECG, LLC, Contribution of the Ethanol Industry to the Economy in the 
U.S. in 2005, February 2006.
   http://www.mda.state.mn.us/ethanol/plantsreport.pdf 
  Copies available at www.lungusa.org.
  See www.epa.gov/otaq/regs/fuels/boutique-fuels-notice.pdf
  ibid, p. 10.
  See Final Report, Emission Reductions from Changes to Gasoline and Diesel Specifications and 
Diesel Engine Retrofits in the Southeast Michigan Area, For: Southeast Michigan Council of 
Governments (SEMCOG), Alliance of Automobile Manufacturers (Alliance) and American 
Petroleum Institute (API), February 23, 2005, p. 11, Figure ES-1and p.12, Figure ES-2.
  It should be noted that most underground storage tanks themselves, typically made of steel or 
fiberglass, are not susceptible to such corrosion; rather, it is the piping and fittings between different 
components of the underground storage tank system that are susceptible to corrosion.
