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Ethanol Cronies Seek Antitrust Help Against Gasoline Company

Ethanol Cronies Seek Antitrust Help Against Gasoline Company

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March 21, 2013

Scott Zaremba has been trying to use gasoline as one ingredient in an ethanol product that competes with gasoline. Ethanol lobbyists say his gasoline supplier isn’t cooperating—and they’re invoking antitrust law to try to force Phillips 66 to help Zaremba reduce demand for the kind of product it makes.

Zaremba owns a chain of convenience stores called Zarco 66 . Last summer, he introduced a new ethanol blend called “E15,” which, he said, the government had just approved for cars made since 2001. Zaremba stores gasoline in one tank and ethanol in another, and he uses special pumps to blend them. (He’s received federal funding for such equipment, though over the years he’s also bought some independently.)

But while E15 is 15 percent ethanol, it’s 85 percent gasoline, and Zaremba, as a Phillips 66 franchisee, was using Phillips gas as part of his E15. And according to the Renewable Fuels Association, when Zaremba introduced his E15, Phillips promptly issued a demand: Start carrying premium gasoline, or lose your franchise and face hundreds of thousands of dollars in penalties under your franchise agreement.

What does premium gasoline have to do with ethanol? It takes a tank. And according to the RFA, fuel stations typically have only two tanks. If you have two tanks, and you put premium gas in one and regular gas in the other, you don’t have anywhere to put your ethanol. Thus, the RFA says, “the oil industry is effectively eliminating ethanol competition by tying the sale of premium to regular gasoline.” It argues that this violates the Sherman Antitrust Act.

And the RFA makes this case in a letter to several regulatory agencies , including the Federal Trade Commission, which has the power to launch an antitrust case.

Phillips 66 declined to talk about its reasons, but presumably if it does not want to cooperate with Zaremba’s plans to offer E15, that’s because it sees its interest in continuing to sell gasoline. Indeed, the government has been pushing ethanol for years, and according to the RFA, the fuel industry has been resisting.

Zaremba told me he believes in ethanol as one way to reduce America’s need for oil, and especially Middle Eastern oil. Trying to sell a product you believe in is generally a good thing, whatever the merits of “energy independence.” But Phillips 66 is in the business of oil: Zaremba is trying to get Americans to use less of its core product. They are, in effect, selling competing products—and Zaremba is using Phillips’s product (straight gasoline) to make his (gasoline mixed with ethanol).

An antitrust case against Phillips for demanding that Zaremba carry premium gasoline would be based on the notion that Phillips is making it harder for Zaremba to compete with it, and more generally that Phillips is making it harder for gasoline retailers to sell ethanol blends. But by the ethanol advocates’ own claims, all Phillips is doing is trying to avoid giving franchisees who want to compete with it the supplies they need to do so. It is trying to avoid working against its own goal of continuing to sell straight gasoline.

An antitrust case would be an effort to force Phillips to work against itself.

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