Big Oil Sues Tennessee Over Gas Blending

NASHVILLE (CN) - The American Petroleum Institute, a trade association heavyweight that represents 400 oil and natural gas corporations, claims the Tennessee Renewable Fuels Blending Act is unconstitutional, and wants a federal judge to enjoin it before it takes effect on New Year's Day.

The Act requires refiners to sell unblended gas to wholesalers in Tennessee; the wholesalers can blend it with ethanol or biofuels if they choose.

The API says the Tennessee Renewable Fuels Blending Act of 2009 conflicts with just about everything Congress has done to encourage API members to use biofuels, and violates three federal laws: the renewable fuel standard program, the Lanham Act and the Petroleum Marketing Practices Act.

The federal renewable fuel standard program was established by the Environmental Protection Agency and requires refiners to use more biofuel. Under the program a refiner or importer can get tax credits, such as the Volumetric Ethanol Excise Tax Credit and the Biodiesel Mixture Excise Tax Credit, for using more biofuels, and can be penalized for not using enough biofuels.

The Act violates Congress' intent to increase the use of biofuels, the API says. It claims that if enforced, the "refiner has no way to know how much unblended and how much blended gasoline will be sold at a given terminal in any given week."

Without better tracking, refiners will have a hard time figuring out demand and whether they are complying with the federal mandate, the API says. It claims that a lot of money has been put into equipment that allows refiners to blend fuels safely and accurately: equipment from which Tennesseans will not benefit if forced to use dated blending methods.

Many API members are big-name refiners that want to know the quality of the gas or diesel they supply, according to the complaint. In violation of the Lanham Act, they are not allowed to ensure the quality of the product sold under their trademarks, the API claims.

"By giving wholesalers the right to purchase unblended gasoline and blend it with biofuels not purchased from, or manufactured by, the refiner, the Tennessee Renewable Fuels Blending Act prevents refiners from exercising this federally protected right," according to the complaint.

Unauthorized blending violates the Petroleum Marketing Practices Act, which gives refiners the right to terminate a franchise for "willful adulteration, mislabeling or misbranding of motor fuels or other trademark violations by the franchisee," the API says.

It all boils down to "discrimination against interstate commerce by favoring wholesalers over refiners," according to the complaint. API says that wholesalers are "overwhelmingly in-state companies," and the Tennessee law will help them gain federal tax credits though they are not the ones burdened by federal or state law.

"On the other hand, Tennessee law forces refiners, suppliers, and permissive suppliers ... who are overwhelmingly out-of-state companies-to sell unblended gasoline to wholesalers, despite their obligation under federal law to blend vast amounts of biofuels, even if they can blend the gasoline themselves more efficiently."

There is not even any local benefit, API contends; it's "economic protectionism" pure and simple.

Under the Act, the Tennessee Commissioner of Agriculture can fine violators $5,000 per day.

API wants the Act declared null and void. It seeks declaratory relief for violations of the Energy Policy Act, the Energy Independence and Security Act, the Lanham Act, the Petroleum Marketing Practices Act and the Constitution's Commerce Clause.

It is represented by Wallace Dietz, David Esquivel and M. Jason Hale with Bass, Berry & Sims.

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