Judge considers ‘hot fuel’ settlement from Costco

| 4/22/2010

A U.S. District judge has taken a settlement offer from Costco Wholesale Corp. under advisement in the consolidated lawsuit over “hot fuel.”

About a year ago, Costco made the offer to install devices on fuel pumps in 14 states to account for changes in temperature and adjust fuel prices accordingly. There are currently no federal or state laws requiring retailers to account for temperature during the sale of retail fuel.

Hot fuel typically refers to retail fuel sold above 60 degrees that may have expanded, thereby allowing the retailer to profit from the added volume.

The 60-degree standard defines a gallon of fuel as 231 cubic inches, and containing a certain amount of Btu. Warmer fuel expands, which in effect dilutes the energy content, or Btu.

Chief Judge Kathryn Vratil of the U.S. District Court for the District of Kansas took Costco’s settlement offer under advisement earlier this month after Costco filed an affidavit stating that the company had notified thousands of its customers about the issue of hot fuel and the offer of settlement.

Plaintiffs – a list that includes truckers and OOIDA members – began filing lawsuits in 2006 against dozens of fuel companies and retailers, contending that consumers were being ripped off because of  hot or expanded fuel. OOIDA members were among the first consumers to notice discrepancies in the number of gallons they were purchasing and the mileage they could drive on a tank.

Since then, temperature compensation has been the topic of proposed legislation, congressional hearings, and weights and measures meetings, but the road to change has been slow.

At every level of sale except retail, fuel transactions are based on a 60-degree standard created a century ago to ensure that buyers get what they pay for and sellers get accurate payments.

The plaintiffs want that changed. They want new laws that require automatic temperature compensation – or ATC – at all pumps, which would ensure pricing based on energy content, not volume. Plaintiffs are also seeking financial damages in the case.

Most fuel and oil companies and their trade associations have resisted the push to change.

Costco is the first company to offer settlement and correction of the temperature issue. More companies are now placing disclaimer decals on their pumps stating that the price of fuel is not adjusted for temperature.

– By David Tanner, associate editor