Yet another federal regulation is responsible for recent gasoline price spikes and localized supply shortages: Truck drivers’ “hours-of-service” limits.
On April 24, 2006, Sen. Jeff Bingaman (D-NM) wrote Transportation Secretary Norman Mineta asking him to temporarily waive regulatory limits on the number of hours per day truck drivers can legally work. A copy of this letter is reproduced below.
According to Bingaman, the same trucks and drivers who haul gasoline also must transport ethanol. The number of trucks and drivers is constrained, at least in the short run, so any truck and driver hauling gasoline cannot simultaneously transport ethanol. The current supply crisis is caused by federal environmental regulations that require only “summer-grade” gasoline be sold on or after May 1st.
Bingaman says that federal hours-of-service rules were suspended after Hurricane Katrina, and he is asking Sec. Mineta to treat current gasoline shortages in the same manner. A waiver would reduce current shortages to the extent that they are caused or exacerbated by hours-of-service rules. However, it would have no effect if the underlying problem is too few trucks and drivers to transport both gasoline and ethanol.
In a recent post, Neutral Source quoted from a Renewable Fuels Association fact sheet in which RFA claimed that its “virtual pipeline” delivered ethanol to market “more effectively than shipping by pipeline.” We were agnostic about this claim, pointing out only that “more effectively” is not synonymous with “more efficiently”:
According to RFA, “the ethanol industry has developed a ‘virtual pipeline’ consisting of rail, truck and barge options to deliver ethanol to market more effectively than shipping by pipeline” (our emphasis), but it isn’t clear that “more effectively” is synonymous with “more efficiently,” which is necessary for it to also be lower cost. A fair inference from all this is that the conversion from MTBE to ethanol will raise the price of gasoline, at least in the short run–which, of course, is where we stand today.
There is increasing evidence suggesting that RFA’s “virtual pipeline” is neither efficient nor effective.
President Bush recently directed EPA Administrator Stephen Johnson to waive these rules. Sen. Bingaman did not request that action, but it is likely to have more effect on eliminating supply shortages and lowering prices than waiving hours-of-service rules on truck drivers. The reason is that federal environmental regulations are the underlying cause of the excessive demand for truck drivers’ hours. If environmental rules are waived, excess demand for truck drivers’ hours will vanish.
Neutral Source invites comments from readers knowledgeable about how the various entities in the gasoline supply chain have responded to the current supply crisis. All comments are posted automatically, but their source is kept confidential as long as you enter a “screen name” instead of your own. Neither Neutral Source nor its readers will know your identity unless you reveal it.
April 24, 2006
The Honorable Norman Y. Mineta, Secretary
U.S. Department of Transportation
400 Seventh Street, S.W.
Washington, D.C. 20590
Dear Secretary Mineta:
Energy prices have reached record highs. Oil is trading above $75 per barrel and gasoline prices have risen 25 cents per gallon over the past two weeks to a national average of $2.91 per gallon. This sudden rise has been felt by all consumers as they fill up at the gas pump. In the Mid-Atlantic Region, consumers have also experienced fuel shortages at some retail outlets. These price rises, accompanied by a visible shortage of product, can lead consumers to hoard gasoline in anticipation of a wider shortage.
Nationally, terminal operators are currently in the process of switching to summer-grade gasoline. This transition is required by regulation to be complete by May 1, 2006. Many terminal operators are also switching their tanks from MTBE-blended gasoline to gasoline containing ethanol, and we expect that this process has affected the availability of supply. We understand that the supply shortages seen to date are due in part to the tank switching, limited fueling bays, and the long hours that tank truck drivers are waiting to fill up their tanks with product.
Under the circumstances, I believe it may be appropriate to waive the caps placed on driver service hours to address or prevent spot shortages during this transition period. This might be done either on a regional basis or nationwide, as developments in the market warrant. Last August, in the wake of Hurricane Katrina, the Federal Motor Carrier Safety Administration took unilateral action to waive driver service hour regulations nationally in order to expedite fuel distribution. I request that you consider taking such action again in order to minimize disruptions to our nation’s fuel system. Thank you for your attention to and consideration of this request.
Ranking Democratic Member
[U.S. Senate Committee on Energy & Natural Resources]