I doubt that this issue is only in Wisconsin.
- - - - -
From the Milwaukee Journal/Sentinel:
Some high-octane gas really isn't, and state isn't really checking
By RAQUEL RUTLEDGE
rrutledge@journalsentinel.com
Posted: April 10, 2005
Drivers pumping premium into their gas tanks aren't always getting high-octane fuel and instead get swindled by service station owners and delivery drivers, a Journal Sentinel investigation has found.
High Octane
Intertek Caleb Brett lab tech employee Joe Stack mixes chemicals on an octane engine machine to prepare a standard gas sample in Bridgeview, Ill. About 10 standard gas samples are made a week.
By The Numbers
$300,000
Approximate amount state spent on 14 fuel testing units in 1995.
$200,000
Amount state spent over the years maintaining the machines.
Result
Machines could not be kept in working order.
No one can say exactly how prevalent fraud at the pumps is because the state's octane testing program has been dysfunctional for years, regulators concede. But industry insiders and state petroleum inspectors say it is common.
"Gas is being mixed in the tanks improperly when it's delivered," said Marty Kehrein, president of Wisconsin State Inspectors Local 333, which represents Wisconsin's petroleum inspectors. "The octane might not be what it's stated to be, and they (inspectors) have been told by supervisors they can't investigate."
According to industry sources, corrupt station owners strike when they know the price of gas is going up the next day. Some watch the futures crude market on the Internet, others keep in close contact with distributors, still others watch for oil companies to post the following day's price hours before it takes effect.
Ordering too much
The station owners want to buy as much as they can before the new price kicks in, so they intentionally order too much regular no-lead gasoline, and when the trucks arrive to deliver it, there is not enough room in the station's storage tanks to handle it. Station owners or employees then tell the truck drivers to dump the extra into the premium tanks, which often aren't kept as full. They may even offer the drivers a tip for the switch.
"People make mistakes, but it's obvious some people are scheduling mistakes," said Greg Klimek, president of Klemm Tank Lines, Wisconsin's largest transport company. "The opportunity is definitely there."
The delivery drivers do not have to comply. They can call their company's dispatcher - as required - and seek another station to take the remaining load. But drivers are usually paid per delivery and rush to make as many drops as possible. Seeking another station slows them down and, ultimately, there may not be one that can take the blend or amount of fuel they're carrying.
In addition, if the driver objects, the station owner may find a new hauler.
"It's too much of a whore's market," said the owner of one petroleum transport company, referring to competition among haulers. "There are too many guys that will truck their fuel." The transport company owner - who feared that having his name published would peg him as a rat and destroy his business - said he has lost contracts for not going along with the deception.
"I've worked hard to try and maintain integrity, but the industry and the people driving it make it almost impossible," he said. "Some of them are just . . . crooked. They can get away with it. There's nobody policing it."
Testing problems
Officials with the state Department of Commerce, which regulates petroleum, said they didn't find any octane fraud in Wisconsin last year. But that isn't saying much.
In 1995, the state spent nearly $300,000 on 14 fuel testing units, but there were "major problems" keeping the equipment calibrated and maintained, said Phil Albert, director of the bureau of petroleum products and tanks. Documents show the state spent more than $200,000 over the years servicing the machines but could not keep them consistently working.
"We called it the $20,000 nightlight," said one inspector who did not want his name published for fear of retribution from managers. "It was plugged in. There was a light on. But it just didn't work. . . . For nine years, these people (administrators) spent money on stuff they knew didn't work."
One former section chief acknowledged the problems in a February 2000 e-mail to all inspectors.
"For some time I have been concerned over your reports of poor data from the Midac analyzer," wrote Darla LeGrave, who is no longer with the Commerce Department.
The memo informed the staff that Midac Corp., the Costa Mesa, Calif.-based manufacturer of the fuel analyzers, would again be re-calibrating the equipment.
But the problems continued.
A September 2001 complaint signed by inspectors Steve Mertens and Glenn Peterman said that if managers were "serious about a quality operation they would correct the million dollar fraud they are perpetuating on the Wisconsin taxpayer using a faulty product screening process."
And an e-mail from inspector Kathleen Strasser to the division administrator dated Feb. 21, 2002, said "knowing that the Midacs don't really work as is, it seems kind of ridiculous to 'fix' them."
Midac executives blamed the Commerce Department for not properly maintaining their equipment. Jerry Auth, president of Midac, recalled his staff calibrating Wisconsin's equipment. It would work fine, he said "then you'd turn your back and it would all go to hell."
"The State of Wisconsin was not doing what was required," he said."(The Midac machine) is reliable if you run it and treat it right. If you take a fine camera or a watch and whack it on the ground, what do you expect?"
In July 2004, the state traded the old testing equipment for five new machines, one for each of five labs. In a cost-cutting measure, it eliminated testing at seven other labs.
Inspectors said in February and again in March that the new machines - Irox 2000s manufactured by Petrolab Co., which cost the state $100,000 - also don't work. Like the old machines, they need frequent upgrading, inspectors said.
Albert, of the Commerce Department, defended the latest purchase.
"I may have heard complaints, but that doesn't mean I don't have faith in the machinery," he said. "It's the best piece of equipment out there."
But the best isn't good enough, at least for the courts. In fact, neither of the state's equipment purchases in the last decade has been sufficient to legally pursue suspected cases of octane fraud. The only method approved by the American Society for Testing Materials, a non-profit agency that creates standards for a variety of industries worldwide, is running samples through actual test engines. Some states have test engines, which can cost more than $250,000 each. Wisconsin is not one of them.
In order to pursue litigation for octane fraud, the state would have to contract with a private company and possibly pay $200 to $250 per sample, Albert said.
The state attorney general's office said the Department of Commerce has not referred an octane case for prosecution in recent memory.
Wisconsin lags
The State of Michigan does have test engines, and it nailed 26 retailers for octane fraud in 2004 and levied fines of more than $34,000.
"That's the largest problem we deal with right now," said Celeste Bennett, the Michigan Department of Agriculture's motor fuel quality program manager.
Bennett said roughly 40% of all violations are octane-related and that as the price of gasoline soars, the issue becomes even more important.
"Nobody's buying it (premium) anymore because they think it's better for their car," she said. "They're buying it because their cars need it."
Nationally, premium sales have dropped to about 11% of total retail fuel sales. In Wisconsin that number is down to roughly 6%.
Indiana launched an aggressive octane testing program in 1991, after legislators there suspected widespread fraud. The first year of testing showed corruption was even worse than lawmakers thought. Half of all the gasoline tested did not contain the reported levels of octane, said Larry Stump, director of the Indiana Division of Weights and Measures.
"It was a nightmare," he said.
The state now tests about a third of all stations every year, still not as much as Stump would like but all the state can afford, he said.
"We're not finding (problems) like we were," he said. "Enforcement does work."
Robert Bartlett, executive vice president of the Petroleum Marketers Association of Wisconsin, said he doesn't believe octane fraud is common in Wisconsin. Bartlett's agency represents roughly 2,500 stations in the state, and he meets with owners regularly. Honest owners would be complaining if their competitors were undercutting them illegally, he said.
"I haven't heard much about it," he said. "There's pretty good self-regulation. If it was widespread I would have heard more about it."
Bartlett said station owners are being squeezed on several fronts and are constantly seeking ways to boost revenues. When motorists pay at the pump, as about 75% now do, they don't shop for snacks, sodas or other goods that raise revenues. In addition, credit card fees climb along with the price of gas. When gas cost $1 per gallon, for example, the station might pay three cents to Master Card or Visa. When gas hit $2 a gallon, the fee doubled to six cents, even though the markup per gallon remained the same, typically 10 cents.
"That creates incredible pressure on retailers," Bartlett said.
Plus, with the higher cost of gas, motorists have less disposable cash in their pockets to spend even if they do pay inside, he said.
Dick Hock left the gas station business last July after 37 years. He said the jump in credit card use and popularity of paying at the pump nearly crippled his business.
"When you put pencil and paper to it, it was, how much was I losing per gallon, not how much was I making," said Hock, whose Dick's North Shore Mobil station sat at N. Port Washington Road and W. Silver Spring Drive in Glendale.
Many customers believe gas stations are owned by the hugely profitable oil giants whose name the station bears, when in reality 95% are locally owned by small-business owners, Hock said.
"Customers don't come in. You never get to meet them," he supposed. "There's no loyalty anymore."
Honest station owners are struggling to survive, he said.
Crooked station owners trying to offset their shrinking margins illegally only make it worse, he said.
"It's no myth," he said. "They're out there. It just makes you sick."
- - - - -
From the Milwaukee Journal/Sentinel:
Some high-octane gas really isn't, and state isn't really checking
By RAQUEL RUTLEDGE
rrutledge@journalsentinel.com
Posted: April 10, 2005
Drivers pumping premium into their gas tanks aren't always getting high-octane fuel and instead get swindled by service station owners and delivery drivers, a Journal Sentinel investigation has found.
High Octane
Intertek Caleb Brett lab tech employee Joe Stack mixes chemicals on an octane engine machine to prepare a standard gas sample in Bridgeview, Ill. About 10 standard gas samples are made a week.
By The Numbers
$300,000
Approximate amount state spent on 14 fuel testing units in 1995.
$200,000
Amount state spent over the years maintaining the machines.
Result
Machines could not be kept in working order.
No one can say exactly how prevalent fraud at the pumps is because the state's octane testing program has been dysfunctional for years, regulators concede. But industry insiders and state petroleum inspectors say it is common.
"Gas is being mixed in the tanks improperly when it's delivered," said Marty Kehrein, president of Wisconsin State Inspectors Local 333, which represents Wisconsin's petroleum inspectors. "The octane might not be what it's stated to be, and they (inspectors) have been told by supervisors they can't investigate."
According to industry sources, corrupt station owners strike when they know the price of gas is going up the next day. Some watch the futures crude market on the Internet, others keep in close contact with distributors, still others watch for oil companies to post the following day's price hours before it takes effect.
Ordering too much
The station owners want to buy as much as they can before the new price kicks in, so they intentionally order too much regular no-lead gasoline, and when the trucks arrive to deliver it, there is not enough room in the station's storage tanks to handle it. Station owners or employees then tell the truck drivers to dump the extra into the premium tanks, which often aren't kept as full. They may even offer the drivers a tip for the switch.
"People make mistakes, but it's obvious some people are scheduling mistakes," said Greg Klimek, president of Klemm Tank Lines, Wisconsin's largest transport company. "The opportunity is definitely there."
The delivery drivers do not have to comply. They can call their company's dispatcher - as required - and seek another station to take the remaining load. But drivers are usually paid per delivery and rush to make as many drops as possible. Seeking another station slows them down and, ultimately, there may not be one that can take the blend or amount of fuel they're carrying.
In addition, if the driver objects, the station owner may find a new hauler.
"It's too much of a whore's market," said the owner of one petroleum transport company, referring to competition among haulers. "There are too many guys that will truck their fuel." The transport company owner - who feared that having his name published would peg him as a rat and destroy his business - said he has lost contracts for not going along with the deception.
"I've worked hard to try and maintain integrity, but the industry and the people driving it make it almost impossible," he said. "Some of them are just . . . crooked. They can get away with it. There's nobody policing it."
Testing problems
Officials with the state Department of Commerce, which regulates petroleum, said they didn't find any octane fraud in Wisconsin last year. But that isn't saying much.
In 1995, the state spent nearly $300,000 on 14 fuel testing units, but there were "major problems" keeping the equipment calibrated and maintained, said Phil Albert, director of the bureau of petroleum products and tanks. Documents show the state spent more than $200,000 over the years servicing the machines but could not keep them consistently working.
"We called it the $20,000 nightlight," said one inspector who did not want his name published for fear of retribution from managers. "It was plugged in. There was a light on. But it just didn't work. . . . For nine years, these people (administrators) spent money on stuff they knew didn't work."
One former section chief acknowledged the problems in a February 2000 e-mail to all inspectors.
"For some time I have been concerned over your reports of poor data from the Midac analyzer," wrote Darla LeGrave, who is no longer with the Commerce Department.
The memo informed the staff that Midac Corp., the Costa Mesa, Calif.-based manufacturer of the fuel analyzers, would again be re-calibrating the equipment.
But the problems continued.
A September 2001 complaint signed by inspectors Steve Mertens and Glenn Peterman said that if managers were "serious about a quality operation they would correct the million dollar fraud they are perpetuating on the Wisconsin taxpayer using a faulty product screening process."
And an e-mail from inspector Kathleen Strasser to the division administrator dated Feb. 21, 2002, said "knowing that the Midacs don't really work as is, it seems kind of ridiculous to 'fix' them."
Midac executives blamed the Commerce Department for not properly maintaining their equipment. Jerry Auth, president of Midac, recalled his staff calibrating Wisconsin's equipment. It would work fine, he said "then you'd turn your back and it would all go to hell."
"The State of Wisconsin was not doing what was required," he said."(The Midac machine) is reliable if you run it and treat it right. If you take a fine camera or a watch and whack it on the ground, what do you expect?"
In July 2004, the state traded the old testing equipment for five new machines, one for each of five labs. In a cost-cutting measure, it eliminated testing at seven other labs.
Inspectors said in February and again in March that the new machines - Irox 2000s manufactured by Petrolab Co., which cost the state $100,000 - also don't work. Like the old machines, they need frequent upgrading, inspectors said.
Albert, of the Commerce Department, defended the latest purchase.
"I may have heard complaints, but that doesn't mean I don't have faith in the machinery," he said. "It's the best piece of equipment out there."
But the best isn't good enough, at least for the courts. In fact, neither of the state's equipment purchases in the last decade has been sufficient to legally pursue suspected cases of octane fraud. The only method approved by the American Society for Testing Materials, a non-profit agency that creates standards for a variety of industries worldwide, is running samples through actual test engines. Some states have test engines, which can cost more than $250,000 each. Wisconsin is not one of them.
In order to pursue litigation for octane fraud, the state would have to contract with a private company and possibly pay $200 to $250 per sample, Albert said.
The state attorney general's office said the Department of Commerce has not referred an octane case for prosecution in recent memory.
Wisconsin lags
The State of Michigan does have test engines, and it nailed 26 retailers for octane fraud in 2004 and levied fines of more than $34,000.
"That's the largest problem we deal with right now," said Celeste Bennett, the Michigan Department of Agriculture's motor fuel quality program manager.
Bennett said roughly 40% of all violations are octane-related and that as the price of gasoline soars, the issue becomes even more important.
"Nobody's buying it (premium) anymore because they think it's better for their car," she said. "They're buying it because their cars need it."
Nationally, premium sales have dropped to about 11% of total retail fuel sales. In Wisconsin that number is down to roughly 6%.
Indiana launched an aggressive octane testing program in 1991, after legislators there suspected widespread fraud. The first year of testing showed corruption was even worse than lawmakers thought. Half of all the gasoline tested did not contain the reported levels of octane, said Larry Stump, director of the Indiana Division of Weights and Measures.
"It was a nightmare," he said.
The state now tests about a third of all stations every year, still not as much as Stump would like but all the state can afford, he said.
"We're not finding (problems) like we were," he said. "Enforcement does work."
Robert Bartlett, executive vice president of the Petroleum Marketers Association of Wisconsin, said he doesn't believe octane fraud is common in Wisconsin. Bartlett's agency represents roughly 2,500 stations in the state, and he meets with owners regularly. Honest owners would be complaining if their competitors were undercutting them illegally, he said.
"I haven't heard much about it," he said. "There's pretty good self-regulation. If it was widespread I would have heard more about it."
Bartlett said station owners are being squeezed on several fronts and are constantly seeking ways to boost revenues. When motorists pay at the pump, as about 75% now do, they don't shop for snacks, sodas or other goods that raise revenues. In addition, credit card fees climb along with the price of gas. When gas cost $1 per gallon, for example, the station might pay three cents to Master Card or Visa. When gas hit $2 a gallon, the fee doubled to six cents, even though the markup per gallon remained the same, typically 10 cents.
"That creates incredible pressure on retailers," Bartlett said.
Plus, with the higher cost of gas, motorists have less disposable cash in their pockets to spend even if they do pay inside, he said.
Dick Hock left the gas station business last July after 37 years. He said the jump in credit card use and popularity of paying at the pump nearly crippled his business.
"When you put pencil and paper to it, it was, how much was I losing per gallon, not how much was I making," said Hock, whose Dick's North Shore Mobil station sat at N. Port Washington Road and W. Silver Spring Drive in Glendale.
Many customers believe gas stations are owned by the hugely profitable oil giants whose name the station bears, when in reality 95% are locally owned by small-business owners, Hock said.
"Customers don't come in. You never get to meet them," he supposed. "There's no loyalty anymore."
Honest station owners are struggling to survive, he said.
Crooked station owners trying to offset their shrinking margins illegally only make it worse, he said.
"It's no myth," he said. "They're out there. It just makes you sick."
