Jane Van Ryan
Posted March 25, 2010
Here's an analogy that helps to describe how a bill in the Connecticut legislature could cause problems for the state's consumers.
As you read this, you're likely to ask, "What's the connection between oil and gumballs?" I'll explain, so please keep reading.
Suppose your family owns a company that makes gumballs. For several decades, your product has been shipped to coin-operated gumball machines in restaurants and stores in prominent locations where children are likely to see the gumballs and beg their parents for pocket change.
Now suppose that one state in your distribution area decides gumballs are too large and must be reduced in size. Because you want to continue supplying gumballs to the state, you have to buy new equipment to make smaller gumballs, purchase boxes with new labels to distinguish the state-mandated gumballs from the standard-sized gumballs, change your inventory and distribution system, find a company that can provide new dispensers that can handle the smaller gumballs without dispensing too many at one time, and try to keep everybody happy, from the state legislature to the consumer.
As a gumball manufacturer, your job has become more complicated and costly, when all you're trying to do is supply gumballs to people who enjoy them.
The oil industry is facing a similar challenge in Connecticut, where legislation being considered would change the recipe for heating oil. Today, Connecticut allows up to 3,000 parts-per-million (ppm) sulfur in heating oil, and the product is interchangeable from state-to-state.
Connecticut, however, might lower the sulfur content to 50 ppm starting July 2011, dropping it to 15 ppm in July 2014, while mandating the use of a 2 percent biodiesel blend in July 2011, climbing to a 20 percent blend by 2020.
Steve Guveyan of the Connecticut Petroleum Council testified last week against the heating oil change for several reasons:
- Reducing the sulfur level to 15 ppm would put homeowners in direct competition with motorists and truckers who vehicles require diesel fuel. This could "place extreme pricing pressure on diesel fuel and home heating oil," he explained.
- Statistics for the past three years show that diesel fuel has "almost always" been more expensive than home heating oil, "ranging up to 18 cents a gallon more."
- Regulators normally provide "a minimum of four years when changing fuel specifications" to provide enough time for refiners to get permits, start construction and buy or develop new equipment--but this bill would provide only 14 months. Furthermore, Connecticut's heating oil recipe would be the only one like it in the country, a fact which could complicate the fuel's delivery.
- Significant cold-weather problems have occurred with biofuels, and there is no large supplier of biofuels in the Connecticut area.
Steve testified that the bill could be amended to reduce the sulfur level to 500 ppm by July 2014, thus reducing the impact on consumers and refiners. But enacting a 15 ppm standard would put Connecticut "out-of-sync with the rest of the country (and world!)." Steve argued that a 500 ppm-standard would help the environment and could greatly minimize the risk of supply and price problems.
The heating oil bill has been passed by the Connecticut General Assembly's joint environmental committee. If it is passed by the energy committee and the full Senate, it could become law this spring--possibly creating unintended consequences for Connecticut's consumers.
By the way, gumballs and oil do have a lot in common. Oil-derived polymers are used to give gum its elasticity.
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