$1.5 Billion 'Hot Fuel Premium' Hits Summer Drivers

June 7, 2007 — -- That tank of gas bought for a carefree summer road trip might not get you as far as you'd think. A congressional report released Thursday says consumers pay more than the advertised price for gasoline as the temperature climbs in the summer months.

Rising mercury means "consumers will pay a hot fuel premium in the range of $1.5 billion," according to a House Oversight and Government Reform subcommittee report. That estimate is based on the prediction that drivers will buy more than 500 million gallons of gas this summer that will be affected by the hidden hike.

Drivers in warmer states like California and Texas could be hit the hardest, with each of those states showing a projected "hot fuel premium" greater than $210 million.

The reason behind the rise is simple physics: "As it warms, gasoline expands by volume but not by weight or energy content," said the report. In effect, hotter weather means consumers pay the same amount as they do in the winter, but drive away with less fuel.

One example in the report states that if the temperature is 90 degrees Fahrenheit, gasoline advertised at $3.50 per gallon ends up costing seven cents more a gallon because of its expanded volume.

The oil industry already accounts for differences.

"Since the 1920s, oil companies have taken into account temperature's effect on the volume of gasoline in transactions among one another at the wholesale level," the report says.

Wholesalers base prices on a standard of 60 degrees and adjust the cost if the fuel temperature is higher or lower than that mark.

"But the oil industry does not adjust for temperature in retail sales to consumers," the report says. "As a result, consumers pay a hot fuel premium when gasoline temperatures exceed 60 degrees, as they do during the summer."

The report points out that technology already exists for retail stations to adjust price to account for the temperature, and that equipment "has been accepted for near universal use in Canada."