Ethanol fuel case may settle legislative ‘bob-tailing’ issue

By Nick Needham
Morning News
Published: January 6, 2009

COLUMBIA — You’ve probably seen one while filling your car up at the pump, that little sign that says, “This product may contain up to 10 percent ethanol.”

Until now, local gas distributors in the state have pre-mixed gasoline and ethanol — a process called blending — themselves. For every gallon of fuel they blend, they received a 4.9 cents per gallon federal tax credit.

But in April, energy giant British Petroleum notified its distributors it would start pre-blending its gasoline in June, allowing BP to set the price of E10 fuel and eliminating the tax incentive for local distributors. Many distributors in the state said they relied on the tax incentive to help keep their gas prices competitive.

The state Legislature fought back with a bill that required gas companies like BP to offer an unblended product to its distributors in the state. Gov. Mark Sanford vetoed the bill saying it was unconstitutional because it dealt with more than one subject, or “bob-tailed” to the bottom of an unrelated law. According to the state constitution , each bill filed in the Legislature may deal with only one subject.

The General Assembly overrode the veto in June and BP sued the day after it was to take effect, agreeing with the governor that the law was unconstitutional.

The S.C. Supreme Court, which heard arguments in the case Tuesday, expressed frustration over the bob-tailing of the law and several justices questioned whether the case was a chance to define once and for whether unrelated items can be in the same act.

When the court agreed to hear the case last year, it placed a temporary injunction on the law in question, allowing BP to keep selling its pre-blended product.

Michael Fields, secretary for the S.C. Petroleum Marketers Association, said the case is about protecting small business owners in the state from big oil.

“It’s a matter of keeping money in South Carolina,” Fields said. “When the major oil companies took over, it (the price) could be anything they wanted. They have a monopoly.”

The association is an intervenor in the case, only offering its opinion to the court.

Representatives from BP argued the constitutionality of the law, but when pushed by Chief Justice Jean Toal admitted the price of ethanol can fluctuate dramatically sometimes and buyers will opt for pure gasoline instead of the blended product.

Assistant Deputy Attorney General J. Emory Smith, who argued on behalf of the state, said the law should be removed from the books because it deals with a different subject than the one stated in the title of the act.

Attorneys for the leaders of the General Assembly agreed, saying any sections found to be unconstitutional should be removed.

But Fields warns if BP is allowed to pre-blend its fuel, other major oil companies will follow suit.

“When blending was allowed among South Carolina distributors there was competition,” Fields said. “This is a fairness issue.”

BP has three major filling terminals in South Carolina as well as one of the largest terephthalic acid plants in the world located on the Cooper River near Charleston.

The battle over who can blend E10 fuel in the state is the latest in a series of cases involving bob-tailed laws. North Carolina and as many as 20 other states are drafting legislation to protect local distributors who blend their gas.

History shows no clear pattern of how the court decides these cases — something that frustrates several of the justices.

“I can’t recall the court ever striking down an entire bill because of bob-tailing,” Toal said. “Maybe we need to put our foot down once and for all.”