South Carolina fuel distributors must have access to pure gasoline needed to make their own ethanol blends under a law that supporters say is first in the nation and will save customers at the pump.
Industry experts say other states could enact similar laws. More than a dozen states, largely in the South, will likely consider such legislation next year, said Daniel Gilligan, spokesman for Virginia-based Petroleum Marketers Association of America.
But oil companies moved quickly to stop it here and vow to do so elsewhere: They filed a lawsuit in the state's Supreme Court on Thursday _ one day after the measure became law _ claiming it violates the state constitution.
Supporters say oil companies want to sell the gas pre-blended so they can keep federal ethanol credits, which can top 8 cents a gallon, and prevent competition from distributors who would pass some of those savings onto customers.
The new law requires oil companies to offer raw gasoline to South Carolina distributors so they can blend it themselves into E10, or 90 percent gasoline and 10 percent ethanol.
Distributors began pushing for the law after BP surprised them this spring with a letter denying them the ability to blend the product themselves. Other oil companies began to follow suit.
"What the oil companies attempted to do is a travesty to the consumers of South Carolina," said Sen. Greg Ryberg, R-Aiken, a former fuel distributor and gas station owner. "I have never seen such an unfair pricing strategy. By blending it and selling a blended product, they're trying to take what should belong to the retailer."
Oil industry advocates deny the accusations and say the law will result in higher gas prices.
The lawsuit, filed by American Petroleum Institute and BP Products North America Inc., argues the law would prevent refiners from complying with federal law that requires annual increases in ethanol use from 9 billion gallons by the end of this year to 36 billion gallons by 2022.
The law "will likely require BP Products to change the manner in which it had planned to comply with federal mandates," the company claims in the suit. Failure to meet the mandates could bring daily penalties of $32,500.
The suit asks the court to prevent the law from being enforced pending a decision.
"In light of the legal challenge, we won't be offering unblended gasoline at our terminals and have no comment," said BP spokesman Scott Dean.
An executive for American Coalition for Ethanol agreed suppliers are under certain mandates but said that doesn't mean they can completely shut out market competition.
Even before the tax credits, ethanol is cheaper per gallon than gasoline. But where oil companies have sold only pre-blended fuel, they're not passing along the savings, said Ron Lamberty, a vice president of the South Dakota-based group.
"We want to stop the big oil takeover of ethanol," Lamberty said. "We need an independent product to keep the refiners honest. If they buy ethanol and overcharge, it hurts our sales."
Fuel suppliers contend South Carolina's law is illegal because it was tacked on in late May to an unrelated bill establishing sales tax holidays.
Senate President Pro Tem Glenn McConnell warned legislators as they overrode Gov. Mark Sanford's veto Wednesday that it violated the single-subject rule and would end up in court. The state Supreme Court has previously struck down such "bobtailing" measures, most recently last week.
"This was the clearest example of bobtailing I've seen in 18 years here," said Rep. Doug Jennings, D-Bennettsville.
Supporters of the law said they didn't have time to get a separate bill through legislative committees after BP's letter to distributors. If the state Supreme Court strikes the measure down, the distributors and retailers are ready for round two.
"We will have bill ready to go before the session opens in January," said Sam Bell, president of Echols Oil Co. and the South Carolina Petroleum Marketers Association. "I hope the oil companies work with us over the next few months to come up with something that will work. That would be the smart thing."
