Handbook 130, Item 237-3: Engine Fuels and




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L&R Committee 2011 Interim Report

Appendix E – Item 237-3: Engine Fuels and Automotive Lubricants



Appendix E


Handbook 130, Item 237-3: Engine Fuels and

Automotive Lubricants Regulation


Section 3.15. Biodiesel and Biodiesel Blends


Table of Contents

Page


API L&R - E3

Arizona Department of Weights and Measures L&R - E7

Arizona Petroleum Marketers Association L&R - E9

Missouri Petroleum Marketers Association and Convenience Store Association (MPCA) L&R - E11

NATSO L&R - E14

Petroleum Marketers Association of America (PMAA) L&R - E16


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September 7, 2010

Fuels and Lubricants Subcommittee

c/o Ronald G. Hayes, Chairman

National Conference on Weights and Measures PO Box 630

1616 Missouri Boulevard

Jefferson City, MO 65102

Re: Publication 16: 237-3 — Engine Fuels and Automotive Lubricants Regulation, Section 3.15

Biodiesel and Biodiesel Blends

Dear Fuels and Lubricants Subcommittee:

I write today to clarify and expand on comments made in a January 20, 2010 email to the FLS regarding changes to Handbook 130 Section 3.15 Biodiesel and Biodiesel Blends. The comments also reflect and expand upon API positions that were orally presented during the July 2010 NCWM Annual Meeting.

API Position

API agrees with NCWM that consumers must be protected from unknowingly purchasing diesel fuel containing greater than 5 percent biodiesel by volume. However, API opposes requirements on fuel suppliers to determine and convey the exact percentage of biodiesel in ASTM D975 diesel fuel. API supports with caveat the amended proposal included on L&R 24 in Publication 16 and opposes the draft substitute on L&R 25 in Publication 16. API would like to see the amended proposal on L&R 24 in Publication 16 further amended to say,

3.15.3. Documentation Required on Transfer Documents. The retailer shall be provided, at the time of delivery of the fuel, a declaration of the volume percent biodiesel on an invoice, bill of lading, shipping paper, or other document. It is the responsibility of any potential blender to determine the amount of biodiesel in the diesel fuel prior to blending.

3.15.4. Exemption.

(c) Diesel fuel containing not more than 5% by volume biodiesel fuel is exempt from disclosing the actual percent by volume of biodiesel as required in Section 3.15.3. However, the term "May contain up to 5% biodiesel" shall be used.

API offers the following arguments in support of our request that NCWM not require fuel producers and suppliers to provide the percent biodiesel by volume in D975 diesel fuel to retailers:

• ASTM D975, Standard Specification for Diesel Fuel Oils, allows for up to 5 percent biodiesel by

volume in petroleum diesel without altering the existing specifications. If a fuel contains above 5

API

Brian Knapp

Marketing Policy Advisor, Downstream

1220 L Street, NW

Washington, DC 20005-4070 USA

Telephone 202-682-8172

Fax 202-682-8051

Email knappb@api.org

www.api.org






10 API Comments on Publication 16: 237-3 — Biodiesel and Biodiesel Blends (Sept. 7, 2010)

percent biodiesel by volume and up to 20 percent biodiesel by volume, then the fuel is to comply with ASTM D7467, Standard Specification for Diesel Fuel Oil, Biodiesel Blend (B6 to B20).

  • Blenders of biodiesel should be responsible for confirming the biodiesel content of the finished fuel and that the fuel complies with the appropriate ASTM specification.

  • 16 CFR 306 - Automotive Fuel Ratings, Certification and Posting - explicitly states that "biodiesel blends and biomass-based diesel blends that contain less than or equal to 5 percent biodiesel by volume and less than or equal to 5 percent biomass-based diesel by volume, and that meet American Society for Testing and Materials ('ASTM') standard D975 ('Standard Specification of Diesel Fuel Oils') are not automotive fuels covered by the requirements of [16 CFR 306]."

  • If a party desires tax and/or RIN credits for blending biodiesel, then they should be responsible for determining the biodiesel content of the fuel that they are blending.

  • Due to the nature of how fuels are delivered to terminals, it is unrealistic to expect terminal
    operators to provide exact biodiesel content of each transport of fuel being transferred.

  • The requirement to disclose the exact biodiesel content on all transfer documents places an undue burden on the distribution system and does not allow for the flexibility needed by the operators of these systems.

Quality Assurance

Product integrity and quality assurance are essential for API member companies to ensure customer satisfaction. API members assure consumers that branded diesel containing up to 5 percent biodiesel by volume sold from their retail stations meets the ASTM D975 specification as required by law. If a party, who is authorized to do so, chooses to materially change the properties of the fuel offered by suppliers by adding biodiesel downstream of their fuel receipt from their supplier, it is the responsibility of that party to ensure that every gallon of the biodiesel blend offered to consumers meets the ASTM D975 specification and/or is in compliance with federal, state and local laws and regulations.

Requiring suppliers to determine the specific volume percentage of biodiesel in the fuel they offer to marketers who wish to then alter the fuel places an unreasonable burden on suppliers. If marketers wish to blend biodiesel into fuel, they should be the responsible party for determining the biodiesel content of the fuel.

Federal Trade Commission Regulation

16 CFR 306 - Automotive Fuel Ratings, Certification and Posting - explicitly states that "biodiesel blends and biomass-based diesel blends that contain less than or equal to 5 percent biodiesel by volume and less than or equal to 5 percent biomass-based diesel by volume, and that meet American Society for Testing and Materials ('ASTM') standard D975 ('Standard Specification of Diesel Fuel Oils') are not automotive fuels covered by the requirements of [16 CFR 306]." Therefore, refiners, importers and producers are not required to "determine" automotive fuel ratings for D975 diesel fuel before they transfer it. Additionally, refiners, importers and producers are not required to "certify" the automotive fuel rating for D975 diesel fuel for each transfer. The automotive fuel rating for diesel fuel containing over 5 volume percent is the biodiesel content.




10 API Comments on Publication 16: 237-3 — Biodiesel and Biodiesel Blends (Sept. 7, 2010)

Some supporters of requiring that the percent biodiesel by volume in D975 diesel fuel be included on transfer documents cite tax benefits that are allowed to blenders based on the amount of biodiesel per gallon of diesel. These same supporters also cite the Renewable Identification Number (RIN) credit retailers can receive for blending biodiesel downstream of the supplier. These benefits that encourage biodiesel blending reward the party performing the blending, which API supports. However, it should not be the responsibility of a third party, namely fuel suppliers, to aid a downstream blender's assessment of their tax benefit without compensation; nor should it be that third party's responsibility to assure the quality of the final product made in the interests of receiving that credit. This is an undue burden and by no means equitable treatment.

Implementation Concerns

Adequate timing to test and determine the percent biodiesel by volume is an issue that may hinder implementation of a requirement to certify exact biodiesel content for D975 diesel fuel. Some terminals do not necessarily know that their D975 diesel fuel receipt contains up to 5 percent biodiesel because all D975 diesel fuel containing up to 5 percent biodiesel by volume is fungible product and thus may be mixed with other D975 diesel fuel without the need to retest for quality. In some terminals, fungible D975 diesel fuel containing up to 5 percent biodiesel by volume can enter a terminal without the terminal operator's knowledge because it warrants no attention.

D975 diesel fuel, with up to 5 percent biodiesel by volume, may be placed in the same storage tanks as other D975 diesel fuel shipments potentially creating an amalgamation of D975 diesel fuel with differing amounts of biodiesel concentrations. To be clear, this would never result in a D975 diesel fuel surpassing 5 percent by volume in the storage tank. Should the terminal operator be aware of the biodiesel content, the shipment would still be placed in storage with other fungible D975 diesel fuel for efficient use of available storage tank capacity, rather than devoting an existing tank to the D975 diesel fuel with known biodiesel content or constructing a new tank for this purpose. Terminal tank space is currently at a premium, and any efforts to require additional tank space will be opposed by API members. Terminal operators do not have spare capacity to devote to different blends of fungible product nor the acreage to build new tanks. In short, because they optimize their use of existing storage tanks consistent with ASTM standards and Federal code, terminal operators, with the exception of those in jurisdictions with regulations requiring a specific biodiesel volume percentage in the diesel fuel offered, do not know the precise biodiesel content of D975 diesel fuel offered.

There are two ways a terminal operator could determine the biodiesel content of D975 diesel fuel before sale; both of which are costly and time-consuming. The method of greatest burden and cost involves testing the D975 diesel fuel in storage after each delivery to obtain an up-to-date accounting of the biodiesel content. The density of D975 diesel will vary between different fuel deliveries and will often leave different strata of D975 diesel fuel blends within the tank. A stratified tank means that a

Additionally, 16 CFR 306.4 states that, "no State or any political subdivision thereof may adopt or continue in effect...any provision of law or regulation with respect to such act or omission, unless such provision of such law or regulation is the same as the applicable provision of this title." In other words, the FTC regulation preempts state laws that are not the "same" as FTC rules. Thus, any NCWM efforts to require the determination and/or certification of the automotive fuel ratings for D975 diesel fuel would be advancing efforts that would be in violation of 16 CFR 306.4.

Tax Benefits




10 API Comments on Publication 16: 237-3 — Biodiesel and Biodiesel Blends (Sept. 7, 2010)

There are many issues associated with requiring fuel suppliers to determine and label the amount of biodiesel in D975 diesel fuel. In summary, API supports NCWM efforts to inform retailers that D975 diesel fuel may contain up to 5 percent biodiesel by volume, but API opposes requirements to convey the exact percentage under or equal to 5 percent. Additionally, API supports the original wording of 3.15.3 which allows the fuel supplier flexibility in determining on which document to disclose biodiesel content.

Thank you very much for your consideration of our comments. I'd be happy to answer any questions the Fuels and Lubricants Subcommittee may have.

Sincerely, Brian Knapp

terminal operator would not able to determine the biodiesel content of a tank by performing a simple weighted average calculation. Physical testing would be required to determine the specific biodiesel concentration at substantial burden and cost to the terminal operator. Further, the frequency with which some terminals receive deliveries of diesel fuel could require testing more than once daily.

Some tanks have stirring capabilities which would alleviate the potential stratification of D975 diesel fuel, but these capabilities are rarely installed on tanks holding fungible grade fuels. Tank stirrers are very expensive and, once installed, require a time consuming process to operate.

The second method requires the terminal operator to test each load delivered to the tank truck. This method requires the time and expense to complete the test, both of which result in no benefit to the fuel supplier.

It is for all of the reasons above that API supports the disclosure of ranges of biodiesel content consistent with the FTC pump labeling rules: (1) up to 5 percent biodiesel by volume, (2) greater than 5 percent and up to 20 percent biodiesel by volume, and (3) greater than 20 percent biodiesel by volume. However, until FTC amends the Automotive Fuel Ratings, Certification and Posting rule (16 CFR 306) to allow for certification of automotive fuel ratings for biodiesel in these ranges, the NCWM cannot enact a similar change consistent with the requirements of FTC's preemption authority (16 CFR 306.4). Should FTC amend their regulation to reflect API's preferences for disclosure of biodiesel content in accordance with the ranges above, API would urge the NCWM to amend Publication 16 to mirror the FTC regulation consistent with the requirements of 16 CFR 306.4.

Documentation Flexibility

Regarding Section 3.15.3, API opposes efforts to mandate the disclosure of biodiesel content on all transfer documents. Fuel providers need the flexibility to determine on which document this information will be included given that the recipient of the order knows which document contains the information. Requiring disclosure on all transfer documents is entirely too inclusive and would be burdensome to fuel providers with no identified benefit.

Conclusion



ARIZONA DEPARTMENT OF WEIGHTS AND MEASIMES

4425 West Olive Avenue, Suite 134 Glendale, AZ 85302
602-771-4920 FAX 623-939-8586 800-277-6675
www.azdwm.gov

January 21, 2011

John Gaccione

Committee Chair

Law &Regulation Committee

Ronald Hayes

Committee Chair Fuels and Lubricant Subcommittee

Re: L&R Committee 2011 Interim Agenda Appendix — Item 237-3: Engine Fuels and Automotive Lubricants

Dear Committee Chairs:

I am writing you today to put forth Arizona's position on the Engine Fuels and Automotive Lubricants issue (item 237-3) being considered by your committee. This agenda item specifically deals with the requirements for Product Transfer Documents, ("PTDs") and biodiesel blending. The State of Arizona Department of Weights and Measures strongly supports this requirement as critically necessary information for customers who receive the product. Without the biodiesel amount information customers will be subjected to unnecessary new costs to determine the levels and be required to conduct laboratory analysis which are currently avoided by capturing levels on the PTDs. Arizona Revised Statutes ("ARS") states that:

ARS 41-2083(M)

"M. For biodiesel blends that contain more than five percent by volume of biodiesel, a

person shall prepare product transfer documents in a manner that notifies the transferee of the percent by volume of biodiesel in the product. For diesel fuel that contains five per cent or less by volume of biodiesel, a person shall prepare product transfer documents in a manner that notifies the transferee of any volume percent of biodiesel intentionally added to or known by the transferor to be in the product."

Note the statute calls for report the amount of biodiesel both for over 5% and for under 5%. The requirement for reporting less than 5% only applies when the amount is known to be present. We know of an instance where biodiesel is being added to diesel as a lubricity additive. In this case, it can be added in concentration up to 5% without changing its regulatory status under ASTM 975. The key here is "intentionally". If a person intentionally blends biodiesel into diesel they should take responsibility for it and let their customer know that it is in there. There should

JANICE K BREWER GOVERNOR



KEVIN TYNE INTERIM DIRECTOR






be nothing to hide. This information can be important to the person receiving the product especially if they are going to blend additional biodiesel into it.

I understand that the Fuels and Lubricant subcommittee of the L&R committee is in the process of addressing this issue.

The State of Arizona Department of Weights and Measures has reviewed the American Petroleum Institute's, ("API") comments. It appears that API's position is that the FTC regulation also covers so called "labeling" on PTDs. We do not agree that the labeling in the FTC regulations apples to PTDs. Clearly the FTC regulations do apply to dispensers at which biodiesel is dispensed. The Department has adopted the FTC regulations relating to dispenser labeling. They are found in ARS 41-2083 which states the following:

ARS 41-2083(L)

"L. A person shall label dispensers at which biodiesel or biodiesel blends are dispensed

in conformance with 16 code of federal regulations part 306 and 40 Code of Federal Regulations sections 80.570, 80.571, 80.572, 80.573 and 80.574. This section does not preclude a person form labeling a dispenser that dispenses diesel fuel that contains up to five per cent biodiesel, with a label that states "may contain up to five per cent biodiesel"."

The Department also agrees the diesel fuel is not regulated under the fuels rating rules, however, the Department believes that PTDs and language requirements are clearly regulated by The Environmental Protection Agency, ("EPA"). EPA in 40CFR 80.1453 entitled 'What are the product transfer document (PTD) requirement for the RFS program?" fully lays out the PTD requirements for the Renewable Fuels Standard, ("RFS") in this section it states:

"The number of gallon-RINs being transferred"

We also would point out regarding 16CFR (306), nowhere in the regulations do they talk about the PTDs and the required language. They talk about certification. Certification can be done through the use of documents used for PTDs.

It is the Department's position in the interest of transparency and full disclosure to the consumer that this information, if known, should be disclosed on the PTD. To do otherwise adds significant costs and burdens to the process. Thank you for taking the time and allowing us to present our position. We apologize for not being there in person but as you are aware state budgets will not allow for travel.

Sincerely,

Kevin Tyne

Interim Director

Arizona Department of Weights and Measures

















January 20, 2011

Mr. John Gaccione

Chairman, Laws and Regulations Committee

National Conference on Weights and Measures

Director, Westchester County Department of Consumer Protection 112 East Post Road, 4th floor

White Plains, NY 10601

Dear Chairman Gaccione:

On behalf of the NATSO, which represents America's travel plazas and truck stops, I would like to thank you for addressing important issues relevant to the petroleum marketing and fuel retailing industry during the National Conference on Weights and Measures (NCWM) interim and annual meetings.

NATSO is a national trade association that represents highway travel plazas and truck stop owners and operators. The association represents 235 corporate entities that have over 1,200 locations across the nation. It's estimated that the highway travel plaza and truck stop industry sells more than ninty percent of all diesel fuel sold at retail in the United States.

I am writing today to highlight the need to modify language in Item 237-3, Engine Fuels and Automotive Lubricants Regulation, Section 3.15 Biodiesel and Biodiesel Blends (Publication 16). NATSO is concerned that Item 237-3 in Publication 16 may have unintended consequences affecting fuel retailers and consumers if the current language is approved without modification. It is imperative to require the disclosure of the exact volume percent amount of biodiesel blends, even if such blends are believed to contain less than five percent biodiesel. NATSO urges the Committee to modify the language to require the disclosure of the exact volume percentage of biodiesel below five percent on product transfer documents (PTDS).

There are two ways biodiesel can get into the diesel stream. One option is to inject biodiesel into diesel at the downstream terminal. In this case, the terminal knows blending is occurring and should be required to disclose it. The biodiesel content should be indicated on the bill of lading (BOL) because a conscious decision to blend is being made at the local level. The other option is to inject biodiesel into diesel at the refinery before it goes into the pipeline. It's our belief that pipelines already test refinery inputs into their pipeline. Disclosing the amount of biodiesel injected into their system would be the first step in tracking the product from the refinery.

Disclosure of the exact volume percentage of biodiesel on the (BOL) is critical to ensuring that over-blending does not occur. For instance, petroleum marketers could unknowingly purchase a two percent biodiesel blend and then immediately blend an additional five percent biodiesel creating B7. This is a very serious concern to marketers because some standards governing engines, burners and retail infrastructure only permit five percent biodiesel.




It is optional that suppliers put biodiesel into diesel fuel being shipped, but financially attractive to them due to the $1-per-gallon biodiesel blender's tax credit and Renewable Identification Number (RINs), which are currently traded among producers, oil companies, marketers, and banks.

NATSO believes the refiner should know what they are selling and the components therein. Information must be accurate and disclosed at the terminal to ensure that customers are receiving the right mixture of biodiesel product. If refiners choose to blend, there should be a requirement to disclose the amount biodiesel in the fuel as the product is transferred along the distribution chain.

NATSO urges you to take these comments into consideration when the L&R Committee meets in Dallas, Texas in January 2011.

Sincerely,







Vice President, Government Affairs

NATSO

Holly Alfano









3.15.5 Documentation for Product Transfer Document Disclosure — For biodiesel blends that contain more than five percent by volume of biodiesel, a person shall prepare the product transfer documents in a manner that notifies the transferee of the percent by volume of biodiesel in the product. For diesel fuel containing five percent or less by volume of biodiesel, a person shall prepare product transfer documents in a manner that notifies the transferee of any volume percent of biodiesel intentionally added to or known by the transferor to be in the product.

Finally, requiring suppliers to disclose on product transfer documents (PTDs) the exact volume percentage of biodiesel should be at the discretion of the NCWM not the FTC. PMAA does not believe PTD disclosure is in conflict with current

C retail labeling requirements for biodiesel. NCWMs' Fuels and Lubricants Subcommittee continues to refer to FTC's authority to preempt any NCWM or state action on PTDs. However, given Section 205 of EISA, PMAA urges NCWM Laws and Regulations Committee to reconsider requiring the exact biodiesel disclosure on PTDs.

PMAA urges you to take these comments into consideration when the L&R Committee meets in Dallas, Texas in January 2011.

Sincerely,



Dan Gilligan PMAA President




L&R - E

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