SIGMA Issues Book (July 2019)

ISSUES BRIEFING BOOK

PREPARED IN ANTICIPATION OF THE July 16, 2019

SUMMER LEGISLATIVE CONFERENCE

July 9, 2019

Prepared by: Steptoe & Johnson LLP 1330 Connecticut Avenue, N.W. Washington, D.C. 20036 (202) 429-3000 Table of Contents I. Renewable Fuels Standard: Renewable Volume Obligations and Point of Obligation ... 6 II. E15 and Higher Ethanol Blends ...... 12 III. Mobile Fueling of Individual Consumers ...... 17 IV. Automatic Temperature Compensation Efforts ...... 18 V. EPA Underground Storage Tank Regulations ...... 19 VI. National Ambient Air Quality Standards – Ozone ...... 22 VII. EPA Definition of “Waters of the United States” ...... 25 VIII. Climate Change ...... 27 IX. Corporate Average Fuel Economy (CAFE) and Greenhouse Gas (GHG) Standards ... 30 X. Electric Vehicles ...... 31 XI. Credit and Debit Card Swipe Fees ...... 35 XII. Payments Security and EMV ...... 38 XIII. Data Breach Security and Privacy ...... 40 XIV. NCWM Skimmer Proposal ...... 42 XV. Tax Matters ...... 44 XVI. Funding of the Highway Program...... 49 XVII. Rest Area Commercialization ...... 50 XVIII. Tolling ...... 51 XIX. Revisions to Rules Governing Overtime Pay ...... 54 XX. The Joint Employer Standard - Efforts to Reform the Franchisor-Franchisee Relationship ...... 56 XXI. Trucker Hours of Service Rules ...... 59 XXII. Comprehensive Healthcare Reform ...... 60 XXIII. Americans with Disabilities Act ...... 64 XXIV. FDA Regulation of Tobacco ...... 67 XXV. E-Cigarettes...... 69 XXVI. SNAP / Food Stamps ...... 71 XXVII. Legalization of Marijuana ...... 74 XXVIII. Menu Labeling ...... 76 XXIX. Internet Lotteries ...... 77 XXX. Patent Troll Legislation...... 77 XXXI. EPA Proposed Regulation on Refrigerants and Insulation ...... 78 XXXII. Genetically Modified Organisms (GMO) Labeling ...... 79

Acronym List

ADA Americans with Disabilities Act ALJ Administrative Law Judge AMT Alternative Minimum Tax AMA American Medical Association Amex American Express ANPRM Advance Notice of Proposed Rulemaking API American Petroleum Institute ATC Automatic Temperature Compensation CAA Clean Air Act CAFE Corporate Average Fuel Economy CNG Compressed Natural Gas CTMV Cargo Tank Motor Vehicle CTP Centers for Tobacco Products CWA Clean Water Act DAB Departmental Appeals Board DGE Diesel Gallon Equivalent DOJ Department of Justice DOL Department of Labor DOT Department of Transportation DPU Department of Public Utilities EBT Electronic Benefit Transfer EEOC Equal Employment Opportunity Commission EISA Energy Independence and Security Act EMV Europay, MasterCard, Visa EPA Environmental Protection Agency EPA-SNAP Significant New Alternative Policy EV Electric Vehicle FDA Food and Drug Administration FFV Flex-Fuel Vehicle FMCSA Federal Motor Carrier Safety Administration FNS Food and Nutrition Service FOIA Freedom of Information Act FRA Federal Railroad Administration FTC Federal Trade Commission FTE Full-Time Equivalents GAO Government Accountability Office GDF Gasoline Dispensing Facilities GGE Gasoline Gallon Equivalent GMO Genetically Modified Organisms GND Green New Deal HFC Hydrofluorocarbon HHFT High-Hazard Flammable Trains HHFUT High-Hazard Flammable Unit Train HRA Health Reimbursement Arrangements HTF Highway Trust Fund IBTTA International Bridge, Tunnel and Turnpike Association 3

LIFO Last-In, First-Out LNG Liquefied Natural Gas LUST Leaking Underground Storage Tank MTBE Methyl Tertiary-Butyl Ether MPC Merchants Payments Coalition NAAQS National Ambient Air Quality Standards NACS National Association of Convenience Stores NCWM National Conference on Weights and Measures NLRA National Labor Relations Act NLRB National Labor Relations Board NRF National Retail Federation NTSB National Transportation Safety Board ODS Ozone-Depleting Substances OMB Office of Management and Budget OPEC Organization of the Petroleum Exporting Countries ORVR Onboard Refueling Vapor Recovery OTR Ozone Transport Region PCI Payment Card Industry PHMSA Pipeline and Hazardous Materials Administration PIR Potentially Invalid RIN PPACA Patient Protection and Affordable Care Act PTD Product Transfer Document QAP Quality Assurance Program REGS Renewable Enhancement and Growth Support RFA Renewable Fuels Association RFG Reformulated Gasoline RFS Renewable Fuel Standard RIN Renewable Identification Number RON Research Octane Number RVO Renewable Volume Obligation RVP Reid Vapor Pressure SIP State Implementation Plan SNAP Supplemental Nutrition Assistance Program SPCC Spill Prevention, Control and Countermeasures SPP Secure Payments Partnership SWDA Solid Waste Disposal Act UL Underwriters Laboratories USDA U.S. Department of Agriculture UST Underground Storage Tank VMT Vehicle Miles Traveled VOC Volatile Organic Compound WOTC Work Opportunity Tax Credit WOTUS Waters of the United States

FUELS, ENERGY, AND ENVIRONMENTAL MATTERS

I. Renewable Fuels Matters

II. E15 and Higher Ethanol Blends

III. Mobile Fueling

IV. Automatic Temperature Compensation Efforts

V. EPA UST Regulations

VI. National Ambient Air Quality Standards-Ozone

VII. “Waters of the United States” (WOTUS) Rule

VIII. Climate Change

IX. Corporate Average Fuel Economy (CAFE) and Greenhouse Gas (GHG)

Standards

X. Electric Vehicles

I. Renewable Fuels Standard: Renewable Volume Obligations and Point of Obligation

1. Level of SIGMA Activity –– Active Lobbying – top priority issue (1)

2. SIGMA’s Interest SIGMA’s members sell approximately 80 billion gallons of motor fuel each year. The integration and regulation of renewable fuels into the motor fuels marketplace presents a number of opportunities and legal challenges for fuel marketers and retailers. As Congress and the regulatory agencies consider renewable fuels issues, it is important for them to consider SIGMA’s experience and knowledge of the marketplace.

3. Current Status The Renewable Fuel Standard (RFS) program requires the Environmental Protection Agency (EPA) to establish Renewable Volume Obligations (RVOs) each calendar year by November 30 for volumes in the following year. On July 5, 2019, EPA proposed its RVOs for 2020 (and biomass- based diesel for 2021). In the proposed rule, EPA said it would use its waiver authority to lower the volumes of cellulosic biofuels, advanced biofuels, and total renewable fuels below the statutory targets. Biomass-based diesel for 2021 was held steady at the 2020 level. EPA has also sent its so- called “reset” rule to OMB. As EPA has used its waiver authority to set renewable fuel blending targets below statutorily-mandated levels for two consecutive years, the reset rule is expected to propose to modify the cellulosic biofuel, advanced biofuel, and total renewable fuel volume targets for the years 2020-2022. The reset rule may make additional changes to the RFS program but EPA has not indicated what those changes might be.

With regard to the point of obligation, some merchant refiners and others had previously petitioned EPA to change the definition of “obligated party” under the RFS program from refiners, manufacturers, and importers to the entity that owns the product immediately before it is dispensed from a terminal, the “position holder.” These merchant refiners also urged Congress to reexamine the point of obligation under the Program. On November 22, 2017, EPA officially denied the petitions seeking to change the point of obligation. This final action is in line with SIGMA’s long- held opposition to changing the definition of “obligated party” from refiners, manufacturers, and importers to “position holders.” SIGMA had filed detailed comments with EPA opposing a change in the definition in August 2016 and has been educating lawmakers about the negative consequences of such a change. In response to a notice EPA published on November 22, 2016, proposing to deny these petitions to move the point of obligation, SIGMA and many SIGMA members filed comments supporting the proposed denial on February 22, 2017. (See additional information below under Definition of “Obligated Party” under the RFS Program, Section I. 4. v)

Furthermore, the refining community, led by the American Petroleum Institute (API), is actively lobbying for the repeal of the RFS. Some of these groups are also advocating for legislation that would cap the total volume of ethanol in the transportation fuel supply at no greater than 9.7%.

In November 2018 during the last Congress, Representative John Shimkus (R-IL) and Representative Bill Flores (R-TX) released a discussion draft of their legislative proposal to reform the RFS, which included a provision that would require new cars to be manufactured to use higher octane gasoline. SIGMA Counsel Tim Columbus testified before the House Energy and Commerce

on the draft bill, stating that while SIGMA had no official position on the bill at the time, fuel marketers look forward to working with Congress on RFS reform.

On the regulatory side, EPA finalized a rule to provide Reid Vapor Pressure waivers for fuel blends containing gasoline and up to 15 percent ethanol and include Renewable Identification Number (RIN) market reforms. The initial proposed rule requested comment on: 1. Requiring public disclosure when holdings of separated D6 RINs held by an individual actor exceed specified limits; 2. Requiring the retirement of RINs for the purpose of compliance be made quarterly, instead of annually. 3. Prohibiting entities other than obligated parties from purchasing separated RINs (this would not apply to blenders who have “contracts to deliver separated RINs to an obligated party for the purpose of compliance”); and 4. Limiting the length of time a non-obligated party can hold separated D6 RINs. Specifically, “a non-obligated party would be required to sell or retire as many RINs as it obtained in a quarter.”

In the final rule, however, EPA only finalized reform one, regarding disclosure, and did not make any of the other reforms. The limited reforms mirrored SIGMA’s suggestion in the association’s filed comments.

4. Background

i. The Renewable Fuel Standard (RFS2)

The Renewable Fuel Standard RFS2 program imposes significant obligations on those affected by the rule, which took effect on July 1, 2010. Under the RFS2, EPA sets an annual benchmark representing the amount of renewable fuels that each fuel refiner, manufacturer, and importer (collectively, “obligated parties”) is responsible for generating. Obligated parties must attain a particular number of renewable fuel credits, known as Renewable Identification Numbers (RINs), to show that they are in compliance with the RFS2 program. Therefore, RINs remain the currency for trading and compliance.

The RFS2 program specifies four separate categories of renewable fuels, each with a separate volume mandate. The categories are renewable fuel, advanced biofuel, biomass-based diesel, and cellulosic biofuel. Unless EPA lowers the annual obligations, the applicable volume determined for the future must not decrease below the volume for the last year listed below:

The following is a list of congressionally established RVOs:

Calendar Year (billions of gallons) Applicable Volume of Renewable Fuel 2016 22.25 2017 24.0 2018 26.0 2019 28.0 2020 30.0 2021 33.0 2022 36.0

Calendar Year (billions of gallons) Applicable Volume of Advanced Biofuel 2016 7.25 2017 9.0 2018 11.0 2019 13.0 2020 15.0 2021 18.0 2022 21.0

Calendar Year (billions of gallons) Applicable Volume of Cellulosic Biofuel 2016 4.25 2017 5.5 2018 7.0 2019 8.5 2020 10.5 2021 13.5 2022 16.0

While the RFS2 program provides for RVOs through 2022, it does not specify the annual targets after 2022. Instead, it gives EPA discretion to set the RVOs based on a list of criteria.

Although EPA must review and analyze factors for each type of renewable fuel provided for by the mandate, the statute limits EPA’s authority to reduce post-2022 RVOs for biofuel, cellulosic ethanol, and biomass-based diesel. Specifically, the applicable volume for advanced biofuel cannot be less than the mandated volume in calendar year 2022 (in the absence of a waiver, the RVOs for advanced biofuel cannot be less than 21 billion gallons). For cellulosic ethanol, the applicable volume after 2022 is to be based on the assumption that there will not need to be a waiver of the requirement. And for biodiesel, there cannot be an applicable volume below the 2012 calendar year volume (1 billion gallons). Based on the analysis conducted—and the specific requirements for each type of renewable fuel—the EPA Administrator is required to promulgate rules establishing the applicable RVOs no later than 14 months before 2023 (November 2021), assuming that no action is taken by Congress in the interim.

As is evident by the numbers listed above, when the RFS was enacted, Congress believed that fuel demand would increase and that advanced biofuels would enter the market within the first few years of the program. However, since the recession and with the advent of more fuel efficient vehicles, gasoline consumption has generally declined and is significantly below the levels anticipated when Congress expanded the RFS Program in 2007. Furthermore, advanced biofuels have been slower to enter the market than anticipated.

Because the overall gallons consumed are lower, the statutory volumes in the RFS for 2014 and subsequent years exceeded the market’s ability to accommodate the required renewable fuels and SIGMA urged EPA to adjust the volume requirements to avoid the so-called “blend wall.”

ii. RFS Liability Legislation & Possible RFS Adjustments

In the past, SIGMA has supported legislation that would authorize a new pathway for retailers to ensure their equipment is safe and legally recognized as compatible to sell new fuels. Meanwhile, the refining community, led by API, is actively lobbying for the repeal of the RFS. Refiners are also advocating for legislation that would cap the total volume of ethanol in the transportation fuel supply at no greater than 9.7%. In previous congresses, the House Energy and Commerce Committee conducted a comprehensive review of the RFS. In the 115th Congress, the House Energy and Commerce Subcommittee on Energy and Power held two hearings on RFS reform and a possible octane solution at which SIGMA testified.

iii. Annual Renewable Volume Obligations (RVOs)

On November 30, 2018, EPA published its most recent final rule establishing renewable volume obligations for 2019 (2019 RVOs and prior years are listed in the chart below). In setting those numbers, which are lower than the statutory requirements, EPA exercised its “waiver authority” to set a more realistic level to avoid hitting the blend wall. EPA increased the final RVOs over the proposed RVOs, but they remain lower than the statutory levels set by Congress. It remains to be seen whether EPA’s decision to preserve the current bank of carryover RINs as a compliance “buffer,” the space found within the “nested standards,” and the anticipated growth in the biodiesel market will ensure that EPA’s projections accurately avoid colliding with the blendwall. But the fact that EPA has recognized the existence and importance of the blendwall and has utilized its waiver authority to lower RVOs is a positive development for the fuel marketing community.

Volumes Used to Determine the Final Percentage Standards 2015 2016 2017 2018 2019 2020 Cellulosic 123 mill 230 mill 311 mill 288 mill 418 mill gal n/a biofuel gal gal gal gal Biomass-based 1.73 bill 1.90 bill 2.0 bill gal 2.1 bill gal 2.1 bill gal 2.43 bill gal diesel gal gal Advanced 2.88 bill 3.61 bill 4.28 bill 4.29 bill 4.92 bill gal n/a biofuel gal gal gal gal Total 16.93 bill 18.11 bill 19.28 bill 19.29 bill 19.92 bill n/a renewable gal gal gal gal gal fuels Please note: all volumes are ethanol-equivalent, except for biomass-based diesel which is actual.

SIGMA’s position consistently has been that EPA possesses and should exercise its statutory waiver authority to adjust future volume obligations to avoid hitting the blend wall. When Congress enacted the RFS, it included a safety valve for EPA to waive provisions of the RFS when the RFS would lead to severe economic harm in a state, region, or the United States as a whole. Accordingly, SIGMA has advocated that EPA should exercise its waiver authority to lower future volume obligations to ensure they do not exceed the volume of renewable fuel that the market can reasonably absorb.

With regard to what the market can reasonably absorb, SIGMA has long explained that beyond insufficient demand, retailers’ liability concerns act as a disincentive to selling fuel blends with higher concentrations of ethanol. Regulations require retailers to use equipment that has been listed by a nationally recognized testing laboratory as compatible with the fuel it stores and dispenses. These regulations impose significant burdens on retailers. Justifiably, many retailers are disinclined to dispose of functional and modern equipment in order to sell a new fuel for which demand is at best uncertain. Moreover, SIGMA has told EPA that retailers are still exposed to liability for customer misfueling, engine damage, or for selling a fuel that voids the consumer’s warranty, which further deters them from offering higher ethanol blends at retail.

On the legal side, an ongoing dispute stems from a July 28, 2017 ruling from the U.S. Court of Appeals for the District of Columbia. The court ruled that EPA improperly reduced the 2016 RVOs based on an incorrect interpretation of its “inadequate domestic supply” waiver authority, which lets the agency adjust for the RVOs if there is an inadequate domestic supply of biofuels available for blending. EPA, however, had determined there was “inadequate domestic supply” by using both supply and demand-side factors. The court found that the demand-side factors were not relevant in determining domestic supply, stating that EPA may not “consider the volume of renewable fuel that is available to ultimate consumers or the demand-side constraints that affect the consumption of renewable fuel by consumers.” In addition, several stakeholders have sued about whether the RVOs from previous years are too high or not high enough.

iv. RFS Reform Efforts

The statutorily-mandated blending targets under the RFS program are scheduled to sunset in 2022. At this point, EPA will have almost unlimited discretion—subject to certain statutory requirements—to determine annual RVOs, which will lead to uncertainty in the program. In light of that impending deadline, there have been RFS reform efforts in both the House and Senate, led by Senator John Cornyn (R-TX) and Representative John Shimkus (R-IL). A number of provisions have been under consideration as a part of the RFS reform efforts, including an “octane solution.”

Also at issue in RFS reform discussions is the issue of small refinery waivers, which have been granted by EPA in increasing numbers for the past several years. The waived gallons are not reallocated to other refiners, which critics have called “demand destruction” for renewable fuels. Aside from reallocation, the waiver process itself is significantly lacking in transparency, as SIGMA noted in its comments on the proposed 2019 RVOs. On September 20, 2018, in an attempt to provide more transparency, EPA published a dashboard on its website that includes data on how many small refinery waivers it has granted.

On the regulatory side, on June 10, 2019, EPA finalized a rule that would provide a Reid Vapor Pressure waiver for fuel blends containing gasoline and up to 15 percent ethanol (a 1 lb. waiver for E15) thus allowing for the year-round sale of E15 in non-reformulated gasoline markets. In addition, the rule would make certain transparency reforms to the RFS renewable identification number (RIN) market. (See Sections I. 3 and II. 3 for more information on the proposal).

v. Definition of “Obligated Party” under the RFS Program

The RFS program requires “obligated parties” to generate and retire a sufficient number of Renewable Identification Numbers (RINs) to show they are in compliance with the program. When

EPA implemented the expanded RFS program, EPA established the point of obligation on those refining or importing transportation fuels.

Some entities have petitioned EPA to change the definition of “obligated party” under the RFS program from refiners and importers to blenders or the entity that owns the product immediately before it is dispensed from a terminal, the “position holder.” These entities have also urged Congress to reexamine the point of obligation under the Program.

SIGMA opposes changing the definition of “obligated party” from refiners and importers to blenders and/or “position holders.” SIGMA, and many SIGMA members, filed detailed comments with EPA in August 2016 opposing a change in the definition and educated lawmakers about the negative consequences of moving the point of obligation to blenders. Such a change, SIGMA noted, would subject those entities to obligations that they would not necessarily be capable of satisfying. Their ability to satisfy their obligations would be dictated by their upstream counterparts, who would then have significant leverage and incentive to raise prices. Changing the point of obligation would lead to increases in the retail price of fuels and would create an obligation on a substantial number of parties who today are NOT obligated parties.

On November 22, 2016, EPA published a notice proposing to deny these petitions to move the point of obligation. With its proposed denial, EPA effectively tried to reaffirm that the proper placement of the point of obligation is where it currently resides. SIGMA and many SIGMA members filed comments supporting the proposed denial on February 22, 2017.

In an “unprecedented” display of solidarity, associations representing the vast majority of participants in the U.S. transportation fuels chain wrote to EPA on November 30, 2016, opposing efforts to change the “point of obligation” under the RFS Program. Signatories to the letter included the fuels marketing community, petroleum producers, and renewable fuels producers. While each association had varying perspectives on the RFS as a whole, the groups were unified in their opposition to change the point of obligation under the RFS. Another similar letter was sent to EPA Administrator Scott Pruitt on March 2, 2017—that letter was signed not only by the fuel marketing community, petroleum producers, and renewable fuels producers but also by major fuel end-users including truckers and railroads.

In addition, on April 13, 2017, EPA issued a request for comments regarding regulations that may be appropriate for repeal, replacement, or modification. The request was a result of President Trump’s executive order 13777, ‘‘Enforcing the Regulatory Reform Agenda,’’ which aimed to identify unnecessary and burdensome regulations. In response, on May 15, 2017, SIGMA submitted comments noting that the point of obligation has already been placed correctly on refiners, manufacturers, and importers of motor fuels, and urging EPA to retain the current point of obligation.

On November 22, 2017, EPA officially denied the petitions, which would have made downstream entities – rather than refiners and importers – “obligated parties.” Specifically, EPA stated that the agency “has concluded that it is appropriate to retain the current regulatory requirement designating refiners and importers as the parties responsible for compliance with RFS standards because we again believe refiners and importers are the appropriate obligated parties.” Since then, some refiners have challenged EPA’s denial in court. On July 3, 2018, SIGMA filed an amicus brief to Alon Refining Krotz Springs, Inc. v. EPA—litigation regarding the denial of petitions to change the point of obligation under the RFS—that supported EPA’s setting of the point of obligation. 11

II. E15 and Higher Ethanol Blends

1. Level of SIGMA Activity –– Active Participation (3)

3. Current Status On June 10, 2019, EPA finalized a rule granting a 1 lb. waiver of the Reid Vapor Pressure (RVP) limits on gasoline containing up to 15 percent ethanol, allowing the year-round sale of E15 in non-reformulated gasoline markets. It is unclear, however, if the agency has legal authority for granting the waiver—many believe that Congress would have to grant such a waiver. As such, the rule has been challenged in court by some in the refining community.

Also of relevance for SIGMA members, under the E15 rule, the Agency says that E15 blended from “E85 that contains hydrocarbons not certified as gasoline or blendstock for oxygenate blending (BOB) (e.g., the natural gas liquids that are often used at ethanol plants to denature ethanol and make E85) would not be entitled to the 1-psi waiver.” In other words, under the rule, in order for E15 made at blender pumps to receive the proposed 1-psi waiver, it must be made from certified gasoline (or CBOB) with E85 made from ethanol and certified gasoline (or CBOB). E15 made from uncertified gasoline blendstock will not be granted a 1-psi waiver.

Legislatively, bills have been introduced in past Congresses to allow the sale of E15 year- round, though no such bills have become law. Instead, many of the recent actions on this issue have been instigated by the executive branch.

The RVP limitations on E15 have been particularly apparent during hurricane season. In 2017, hurricanes in the South and associated refinery closures and fuel shortages led EPA to issue an emergency waiver that allowed the sale of fuel with a RVP of up to 11.5 psi (including E15) through the end of the low-RVP season, temporarily suspending E15 prohibitions in 38 states and the District of Columbia.

4. Background

i. E15 Regulations

On March 6, 2009, Growth Energy and 54 ethanol manufacturers submitted an application for a waiver (the “Waiver”) of the prohibition of the introduction into commerce of certain fuels and fuel additives set forth in section 211 of the Clean Air Act. The application essentially sought a waiver for ethanol blends of up to 15 percent by volume ethanol (E15). EPA solicited comments on the request, and SIGMA formally commented in opposition to the proposal.

The Waiver raises core issues regarding how the motor fuels marketplace will be governed under the RFS mandates of the Energy Independence and Security Act (EISA). SIGMA members have expressed several concerns: (1) the compatibility with existing equipment for dispensing E10+ blends; (2) liability associated with “misfueling;” (3) liability associated with voiding vehicle manufacturer warranties; and, (4) liability associated with E10+ blends being deemed “defective products,” as occurred in the case of methyl tertiary-butyl ether (MTBE).

In November 2010, EPA proposed a rule to better facilitate the introduction of E15 into the marketplace. In comments to EPA that were filed in December 2010, SIGMA expressed various concerns with the proposed rule. For example, the proposal did not insulate retailers who comply with the labeling requirements from liability for consumer misfueling. In addition, the proposal did not acknowledge that retailers who store and sell E15 using existing infrastructure—most of which is not certified for E15 by Underwriters Laboratories (UL)—could violate any number of federal, state, and local statutes or regulations (as well as local fire codes and bank/insurance agreements).

In June 2011, EPA released its final rule to facilitate the introduction of E15 into the marketplace. The rule, among other things, requires fuel pumps dispensing E15 to contain a warning label, and provides for additional information to be contained on product transfer documents. The rule does not insulate retailers who comply with its requirements from liability for consumer misfueling, and retailers that store and sell E15 using existing infrastructure could still be in violation of the law. In addition to EPA regulations, the Federal Trade Commission (FTC) also prescribes regulations on how fuel ratings are displayed at fuel pumps.

EPA’s failure to address these issues highlights the need for legislation to protect marketers from liability related to the sale of E15. SIGMA advocates in favor of legislation that would rectify these issues.

ii. Reid Vapor Pressure

Under EPA regulations, the Reid Vapor Pressure (RVP) of gasoline cannot exceed 9.0 psi in “volatility attainment areas” and 7.8 psi in “volatility non-attainment areas” during summer months. (For more information on attainment versus non-attainment areas, see the section on National Ambient Air Quality Standards for Ozone, Section VI.) Federal law includes an important exception to these RVP limitations, providing that E10 can exceed the applicable RVP limitation by 1.0 psi. This is known as the “one pound waiver.” When 10 percent ethanol is added to conventional 9.0 psi gasoline, the RVP of the mixture will rise to approximately 10 psi. Absent the one pound waiver, gasohol would have required a base gasoline with a lower RVP – approximately 8.0 psi – to stay below the 9.0 psi statutory maximum. Producing a special low-RVP blendstock presents a number of expenses and logistical problems.

The EPA had previously said that the one pound waiver does not apply to E15. Thus, the various complexities associated with producing a low-RVP blendstock made it particularly challenging to sell E15 during the summer months. Specifically, parties were not able blend E15 with conventional 9.0 psi gasoline in the summer months because the resulting fuel’s RVP will be too high. E15 is now allowed to be sold year-round per the rule finalized by EPA on June 10, 2019 (see Sections I.3 and II.3 for more on the rule).

Prior to the passage of the rule allowing year-round E15, certain ethanol advocates (and retailers) had supported selling E15 as a flex fuel during the summer months. Flex fuels are not

subject to EPA’s RVP limitations. However, given the previously proposed Renewables Enhancement and Growth Support (REGS) Rule, while the legality of this approach was dubious in years past, it is clear that EPA believed it is illegal to do so (See Section II. 4. iii for more on the REGS rule). The Agency had consistently recognized that E15 did not qualify for the one pound waiver and must meet the summertime RVP requirements to be legally sold as gasoline during the summer months. The Agency had also promulgated labeling requirements stipulating that any pump dispensing E15 must advise customers that the fuel can only be used for flex-fuel vehicles and vehicles manufactured after 2001.

With finalization of the E15 rule discussed above, EPA will allow the year-round sale of E15 unless the courts block the rule allowing it (See Section II. 3).

iii. Renewables Enhancement and Growth Support (REGS) Rule

On November 10, 2016, EPA published its “Renewable Enhancement and Growth Support” proposed rule. The proposal is designed to update the RFS and other relevant fuel regulations in order to “support the increased use of higher-level ethanol blends such as E85” and “promote increased production of cellulosic and other advanced biofuels.” The proposal would:

 Define all mid-to-high level ethanol blends (E16-E83) that may be used only in flex fuel vehicles as “Ethanol Flex Fuel” (EFF).

Under existing regulations, E16-E50 fuel blends are considered gasoline and subject to gasoline quality standards and other gasoline regulations while E51-E83 blends are not. This has generated considerable confusion and complexity for fuel marketers. For those ethanol blends that are defined as gasoline, retail fuel locations that produce the blends with blender pumps are required to comply with relevant reporting, recordkeeping, and per-batch quality testing requirements. This proposal would clarify that those mid-level blends (as well as higher-level blends) are not gasoline, but EFF. By defining all mid and higher level ethanol blends as EFF, EPA is attempting to make the quality, testing and compliance regime for those blends much simpler in order to facilitate their sale and consumption. In addition, EPA is also proposing to allow the use of natural gasoline blendstock to produce EFF, which the Agency believes could lower the cost and increase the use of EFF.

EPA proposes to establish EFF quality standards that provide an “equivalent level of emissions control when used in flex fuel vehicles as compared to the use of gasoline in conventional gasoline vehicles.” Specifically, EFF would be required to meet a 10 parts per million (ppm) annual average sulfur standard (in line with EPA’s final Tier 3 program), 0.62 volume percent annual average benzene standard, and be comprised solely of Carbon, Hydrogen, Oxygen, Nitrogen, and Sulfur. With regard to Reid Vapor Pressure, EPA proposes that EFF produced at a blend pump would meet RVP requirements provided it is produced from blendstocks that were certified by their upstream producers to meet relevant RVP requirements.

The proposal seeks to simplify compliance requirements, including certification, registration, recordkeeping, and testing. For example, EPA proposes to allow fuel marketers to use product transfer documents to prove fuel quality (in lieu of batch testing).

With regard to E15, EPA also proposes to allow retail blenders of E15 to demonstrate compliance with gasoline requirements from September 16 through May 31 by maintaining PTDs showing that the parent blends used to make E15, such as E0 and E85, were certified for sale

upstream of the retailer. From June 1 through September 15, the Agency proposes to allow retailers – who operate in conventional gasoline areas where the 1 psi waiver does not apply and in reformulated gasoline areas – to demonstrate compliance with E15 summer volatility requirements by keeping PTDs for the E0 and EFF used as parent blends to prove that those blends were certified upstream of the retailer as meeting local requirements. In other words, E15 can only be sold during the RVP control periods if it meets the designated RVP levels without a 1lb waiver. In light of EPA’s E15 final rule (See Section II. 3), however, the finalized REGS rule will be different than proposed.

In addition to the elements listed above, EPA proposes to allow biofuels that are produced at one facility and processed at another to qualify as renewable fuels under existing approved renewable fuel production pathways. The Agency is also proposing to approve new pathways for cellulosic biofuel production. With both of these provisions, EPA aims to enhance and improve the efficiency of biofuel production. Finally, the Agency is seeking comment on several other renewable fuels matters, including, but not limited to, RIN generation for renewable electricity used as transportation fuel. SIGMA filed comments on the proposal on February 15, 2017.

iv. Product Transfer Documents

EPA’s final rule on E15 included new Product Transfer Document (PTD) language for Ethanol and Reid Vapor Pressure (RVP) content of gasoline. These new requirements took effect on November 1, 2011. There are two separate sets of requirements depending on the point of oxygenation. For gasoline or blend stock transferred before oxygenates are blended, PTDs must contain:

1) The name and address of the transferor. 2) The name and address of the transferee. 3) The volume of conventional blendstock for oxygenate blending or gasoline. 4) The location of the conventional blendstock for oxygenate blending or gasoline at the time of the transfer. 5) The date of the transfer.

For gasoline or blend stock transferred after oxygenates are blended, PTDs must contain:

1) The name and address of the transferor. 2) The name and address of the transferee. 3) The volume of gasoline being transferred. 4) The location of the gasoline at the time of the transfer. 5) The date of the transfer. 6) One of the following statements, depending on the gasoline-ethanol blend (where “X” equals the percent ethanol):

 For gasoline containing no ethanol: EO: Contains no ethanol. The RVP does not exceed [fill in appropriate value] psi.

 For gasoline containing less than 9.0 volume percent ethanol: EX – Contains up to X% ethanol. The RVP does not exceed [fill in value] psi.

 For gasoline containing between 9.0 and 10.0 volume percent ethanol (E10): E10: Contains between 9 and 10 vol % ethanol. The RVP does not exceed [fill in appropriate value] psi. The 1.0 psi RVP waiver applies to this gasoline. Do not mix with gasoline containing anything other than between 9 and 10 vol % ethanol.

 For gasoline containing greater than 10.0 volume percent and not more than 15.0 volume percent ethanol (E15): E15: Contains up to 15 vol % ethanol. The RVP does not exceed [fill in appropriate value] psi.

 For all other gasoline that contains ethanol: EXX – Contains no more than XX% ethanol.

v. Misfueling Mitigation Measures

EPA also has said it will require all consumers to buy at least four gallons of gasoline per purchase from gas pumps that dispense both E10 and E15. Retailers also have the option of having a separate E10/E0 fuel pump in lieu of imposing a 4 gallon minimum requirement. Retailers who utilize this option are required to have a label on the blender pump that reads: “Passenger Vehicles Only. Use in Other Vehicles, Engines and Equipment May Violate Federal Law.” Such retailers are also required to have signs indicating the location of the dedicated E10-or-lower fuel pump. There would be no minimum-fuel-purchase requirement at that pump.

Finally, retailers who want to sell E15 also have the option of having a dedicated E15 pump or hose, or a pump that dispenses E15 and higher ethanol blends through a single hose. If a blender pump dispenses multiple fuels that include E15 and higher ethanol blends, EPA may mandate a minimum purchase requirement.

EPA was concerned that small fuel tanks used on non-road vehicles are too small to hold the minimum volume of E10 necessary to blend down leftover E15 left in a blender pump hose from a previous purchase. Such vehicles—which are not compatible with E15—could thus end up with a blend between E10 and E15, which could violate EPA’s partial waiver. Testing of ethanol blends has found that placing blends greater than E10 into the tank of a non-road vehicle or engine could lead to system damage and thus potential liability for retailers.

In addition, EPA requires E15 manufacturers to participate in a survey, approved by EPA, of compliance with the E15 content and labeling requirements at fuel retail facilities conducted by an independent surveyor. An EPA-approved survey plan must be in place prior to introducing E15 into the market. The Renewable Fuels Association (RFA) has partnered with the RFG Survey Association to develop a compliance option that retailers can utilize to fulfill this requirement.

vi. FTC Fuel Rating Rule

On January 14, 2016, the FTC published final amendments to its Fuel Rating Rule, which governs (1) the fuel rating that appears on fuel dispenser labels, (2) how octane levels are calculated, and (3) generally assists consumers in selecting the appropriate fuel type for their vehicles. Among other things, the Rule requires motor fuel retailers to post at the point of sale a notice indicating a fuel’s octane ratings, cetane ratings (for diesel fuel), or other rating that the FTC determines is more appropriate. It includes specific requirements for rating and certifying fuels, as well as posting the ratings at the point of sale.

Generally, the final amendments relate to gasoline-ethanol blends with greater than fifteen volume percent ethanol and are intended to update the Rule to accommodate the sale of ethanol blends above E15 until E85 (such as E50). Under the final amendments, fuel retailers would be required to:

 Post a label on all retail fuel pumps that dispense ethanol blends greater than E15 stating: “USE ONLY IN FLEX FUEL VEHICLES/MAY HARM OTHER ENGINES”;

 Label pumps dispensing mid-level blends (ethanol concentrations above E15 but no greater than E50), with a label noting the fuel’s ethanol content (either the exact percentage of ethanol in the fuel, or the percentage rounded to the nearest factor of ten).

 Label pumps dispensing high-level blends (ethanol concentrations between E50 and E83). These label requirements are less rigid than those for mid-level blends. Retailers may post the exact percentage of ethanol concentration, the percentage rounded to the nearest multiple of ten, or may simply indicate that the fuel contains “51% to 83% Ethanol.”

 Ethanol blends that meet EPA’s E15 waiver are exempt from the FTC’s labeling requirements since they are already required under EPA rules to have a similar label.

These final amendments adjust the FTC’s traditional means of rating ethanol blends according to the commonly used name of the fuel as well as the minimum percentage of the principal component of the fuel. Under the FTC’s old methodology, pumps dispensing ethanol blends with less than 50 volume percent ethanol contained labels noting the percentage of gasoline in the fuel, even though such fuels are generally categorized in market parlance based on their percentage of ethanol (e.g., E15 contains 15% ethanol, E30 contains 30% ethanol, etc.). Now the Rule requires labels for ethanol blends to be based on the percentage of ethanol rather than the percentage of the principal component of the fuel. The amendments do not alter the current labeling requirements for E10, biomass-based diesel or biodiesel.

In its comments to the FTC, SIGMA explained that requiring exact ethanol percentages on pump labels was an unworkable and untenable requirement for many retailers, who often do not blend their own fuel and are therefore unable to “know with certainty how much ethanol is in any specific gallon of fuel—even to the nearest factor of ten.” While SIGMA is pleased that the FTC took this into consideration to give retailers greater labeling flexibility for high-level blends, the FTC’s decision to require exact percentage labeling for mid-level blends will create significant burdens for SIGMA members. SIGMA members were required to begin complying with the updated Fuel Rating Rule on July 14, 2016.

III. Mobile Fueling of Individual Consumers

1. Level of SIGMA Activity – Active Monitoring (4)

2. SIGMA’s Interest SIGMA favors a level regulatory playing field and therefore opposes mobile fueling of individual consumers’ vehicles unless it meets the fire, safety, and other regulatory requirements that

are in place at retail outlets. If not done correctly, mobile fueling could cause harm to individuals, vehicles, businesses, and the environment.

3. Current Status The National Fire Protection Association has revised its standards related to mobile fueling (Standard 30 A, “Code for Motor Fuel Dispensing Facilities and Repair Garages”). The standards provide some information regarding the need for driver training, restrictions on where mobile fueling can occur, and certain environmental protections that must be in place during fueling. SIGMA continues to examine these standards, as well as other actions in the mobile fueling space, to ensure that all possible hazards—such as mobile gas dispenser fires, technical and mechanical issues related to the tanker trucks and dispensers, specific driver training requirements, and environmental concerns—are being considered.

4. Background Mobile fueling of individual consumers is an emerging industry that, in theory, involves having trucks travel to homes and offices to refill individuals’ vehicles where they’re parked, as opposed to at a retail fuel outlet. However, unlike fleet fueling—which is an established and regulated industry allowing direct-to-equipment fueling, usually via tanker trucks—the regulatory space surrounding the individuals and startups that are pursuing mobile fueling is less defined. These new businesses may use trucks with mobile fuel tanks, or simply carry fuel in a small fuel can, among other methods. Each different way of handling mobile fueling, however, raises safety, regulatory, and legal concerns.

Today, retail fuel outlets are required to comply with a number of regulations intended to protect consumers, businesses, and the environment. It is frequently unclear how these requirements would translate in a mobile fueling capacity, introducing significant risk into fueling and potentially creating an unlevel playing field between mobile fueling operators and brick-and-mortar stores.

IV. Automatic Temperature Compensation Efforts

1. Level of SIGMA Activity – Active Participation (3)

2. SIGMA’s Interest - SIGMA members have advocated against the use of automatic temperature compensation (ATC) at retail due to the widespread confusion it would cause within the market. Historically, SIGMA has aligned with other stakeholders within the retail fuels industry to combat efforts by the National Conference on Weights and Measures (NCWM) to permit or require the use of automatic temperature compensation technology at retail.

3. Current Status In November 2018, the California Department of Food and Agriculture, Division of Measurement Standards, noticed a pre-rulemaking workshop to develop language pertaining to the use of automatic temperature compensation devices at the retail motor fuel dispenser. Representatives from SIGMA and other motor fuel industry trade associations signed a joint letter, which was submitted to the state of California, explaining the concerns the industry has with

allowing ATC at retail. In addition, SIGMA counsel participated in a webinar with representatives from the California Weights and Measures Office to discuss the proposed regulation and the industry’s concerns with its implementation.

4. Background When consumers purchase a gallon of gasoline, they receive exactly what they expect. ATC lawsuits allege that consumers are misled. This assertion is untrue. Not only do customers receive exactly what they expect, but they do so in the most competitive market in the United States. SIGMA has defended the status quo with respect to retail motor ATC based on several factors, including: the fact that consumers will obtain no benefit from its installation; The plaintiffs’ desired outcome would result in nothing but consumer confusion and higher gasoline prices due to the high cost of retrofitting dispensers for temperature correction; and the varying impacts such a mandate would have in different areas of the country.

In 2006, the Kansas City Star newspaper ran a story that implied that “big oil companies” were “ripping off” consumers by opposing retail temperature compensation proposals that were pending at the NCWM. SIGMA counsel subsequently received numerous inquiries from legislative staff on Capitol Hill on this issue and made several contacts with staff and national consumer organizations to head off any type of federal legislative reaction to this story. Once the full context and impact of retail temperature compensation were understood on Capitol Hill, interest in any legislation largely disappeared.

In 2009, the NCWM withdrew two proposals to mandate or permit the use of ATC devices on retail fuel dispensers. The recommendation to withdraw was supported by an overwhelming majority. The primary reasons for the decision by NCWM were economic cost factors, lack of benefit to consumers, absence of uniformity in the marketplace, and additional cost to Weights and Measures officials and service companies.

V. EPA Underground Storage Tank Regulations

1. Level of SIGMA Activity – Reporting Issue (5)

2. SIGMA’s Interest Regulations pertaining to underground storage tank (UST) systems have a direct effect, both in terms of compliance costs and potential liability, on those in the retail fuel industry. EPA’s regulations place various requirements on UST owners and operators, including operator training requirements, maintenance inspections, and design standards when replacing or installing USTs.

3. Current Status EPA’s updated regulations for USTs were published in the Federal Register on July 15, 2015, and went into effect on October 13, 2015 although retailers had until October 13, 2018, to come into compliance with certain requirements.

This rulemaking represents the first substantial revisions to UST regulations since they were first promulgated in 1988. It is the culmination of a multi-year review of existing regulations and technological advances, as well as data regarding substance releases that have occurred over the past

twenty years. The revisions are designed to provide universal applicability for tank regulations, establishing federal requirements similar to certain key provisions of the Energy Policy Act of 2005 (“Energy Policy Act”). The provisions of the Energy Policy Act apply to all states that receive federal money for their state programs, but do not apply to other states or Indian country. The Final Rule imposes these requirements throughout the country.

Since finalizing the UST regulations, EPA released a study on July 20, 2016, stating that many underground diesel fuel tanks may be at risk of leaking due to high corrosion levels. EPA discovered moderate or severe corrosion at 35 out of 42 USTs storing diesel nationwide, despite less than one-quarter of those tank systems reporting corrosion prior to the EPA inspections. According to EPA, the diesel may cause metal components inside both steel and fiberglass UST systems to corrode. Such corrosion can possibly shorten the lifespan or affect the serviceability of components, including limiting the movement of floats on automatic tank gauging systems, operability of mechanical devices designed to prevent tank overfill, or efficacy of shut off valves in cutting off the flow of product in the case of a release. According to the report, this corrosion may cause dispenser filters to clog and, therefore, need to be replaced more frequently. In addition, corrosion may also impede the proper functionality of sheer valves and other equipment designed to test for leaks in fuel product lines.

EPA recommends UST owners check for corrosion in their tank systems storing diesel fuel, and if they find corrosion, repair or replace equipment as necessary make sure they are operating as intended. SIGMA has always supported its members adopting and implementing best practices for the maintenance of underground fuels storage systems and will be monitoring this issue closely.

In May 2017, SIGMA submitted comments to EPA on the UST regulations in accordance with President Trump’s executive order (EO) 13777, which sought to identify and alleviate burdensome regulations. The Agency opened a comment period following the issuance of this EO and SIGMA took the opportunity to raise three concerns with the 2015 rule. Specifically, SIGMA noted that 30-day walkthrough regulations are excessively frequent, encouraged the Office of Underground Storage Tanks (OUST) to review and revise requirements for spill prevention equipment and monitoring, and asked that EPA consider retaining ball float valves as a viable legal method for overfill prevention.

On May 31, 2019, EPA announced that it had revised its standard test procedures to help UST owners and operators demonstrate that release detection methods meet performance requirements in the 2015 UST regulations. SIGMA members are encouraged to review the updated procedures at https://www.epa.gov/ust/standard-test-procedures-evaluating-various-leak-detection- methods.

On June 24, 2019, EPA issued a compliance advisory to “remind owners and operators of their compatibility regulatory requirements” in light of the final E15 rule (See Section II. 3).

4. Background

In 2013, EPA proposed substantial revisions to its underground storage tank (UST) regulations. Although SIGMA supported certain aspects of the proposal—specifically the provisions regarding demonstrating UST compatibility with new fuels such as E15—SIGMA was concerned with aspects that would have placed excessive burdens and costs on retailers.

EPA’s Final Rule represents the first substantial revisions to UST regulations that were finalized in 1988. Although the 1988 UST requirements, which set minimum standards for new tanks, compel owners and operators to have spill, overfill, and release detection equipment in place, they do not contain operation and maintenance standards for some of that equipment. The Final Rule contains such operation and maintenance requirements, accounting for technological improvements such as the ability to detect releases from deferred UST systems.

The Final Rule also establishes federal requirements that are similar to certain key provisions of the Energy Policy Act. These provisions (such as secondary containment and operator training) apply to all states that receive federal money under the Solid Waste Disposal Act (SWDA) to implement their state UST programs, regardless of their state program approval status, but do not apply in Indian country or states that do not meet EPA’s operator training or secondary containment grant guidelines. Part of EPA’s goal in revising the 1988 regulations is to ensure parity in program implementation among states and Indian country, and establish federal UST requirements that are similar to the UST secondary containment and operator training requirements of the Energy Policy Act.

Beyond providing universal applicability for UST regulations, EPA is also seeking to reduce the number of new hazardous substance releases from UST systems into the environment. Approximately 5,000 to 7,000 new releases are discovered each year. A main cause of new releases is lack of proper operation and maintenance of UST systems, EPA says. Further, according to EPA, data show that release detection equipment is only detecting approximately 50 percent of releases it is designed to detect.

Thus, while the 1988 UST regulations require owners and operators to use equipment that can help prevent releases, the revisions focus on operating and maintaining such equipment in a manner that minimizes releases and detects releases early to avoid or mitigate soil and groundwater contamination.

Below is a brief overview of the Final Rule’s key components:

 Operator Training Requirements – Owners and operators must now designate at least one individual for each of three “classes” of operators. Designated operators must be trained on minimum defined areas and may need to be retrained if the UST system is not in compliance. UST owners and operators must be in compliance with this rule no later than October 13, 2018.

 Secondary Containment – EPA now requires: (1) all new and replaced tanks and piping be secondarily contained with interstitial monitoring systems; and (2) new dispenser systems must be equipped with under-dispenser containment. Also, owners and operators must replace the entire piping run when 50 percent or more of the piping is removed and other piping is installed. These requirements only apply to new and replaced systems – there are no retrofit requirements.

 Operation and Maintenance – The regulations require periodic walkthrough inspections to prevent and quickly detect releases, as well as additional requirements for periodic spill, overfill, and secondary containment.

 Deferrals – EPA has extended its regulatory authority to certain underground storage systems that were previously exempt from regulation.

 Other Changes – The final rule contains a number of other miscellaneous changes to the 1988 UST regulations:

o Overfill Prevention – EPA has eliminated flow restrictors, or ball float valves, in vent lines as an option for owners and operators to meet the overfill prevention equipment requirements for newly installed UST systems and when flow restrictors in vent lines are replaced.

o Internal Lining – Under the new rules, owners and operators must permanently close tanks that use internal lining as the sole method of corrosion protection when both (a) the internal lining fails the periodic inspection required under the rule, and (b) the lining cannot be repaired according to a code of practice developed by a nationally recognized association or independent testing laboratory.

o Notification Requirements – The final rule requires owners and operators to notify the implementing agency within 30 days of bringing an UST system into use or when there is a change in ownership, among other changes. Generally, the implementing agency will be the state agency enforcing the tank program, but for certain areas (such as Indian Country) it may be the U.S. E.P.A. The 1988 regulations required the state or local agency to be notified (regardless of whether that was the implementing agency).

o Tank Compatibility with Alternative Fuels – EPA is requiring that owners and operators storing any regulated substance blended with greater than 10 percent ethanol or 20 percent biodiesel must demonstrate compatibility by relying upon certification of a nationally recognized testing laboratory (such as Underwriters Laboratories) or upon written certifications of the equipment manufacturer. EPA also allows owners to demonstrate compliance by a method determined by the implementing agency.

o Leak/Overfill Detection Revisions – EPA is retaining vapor monitoring and groundwater monitoring as methods of acceptable release detection for tanks installed before the regulations go into effect provided the owners and operators maintain a site assessment that demonstrates the release detection method meets requirements.

VI. National Ambient Air Quality Standards – Ozone

1. Level of SIGMA Activity – Reporting Issue (5)

2. SIGMA’s Interest Stricter standards for ground-level ozone may lead to enhanced ozone control measures, including the introduction of reformulated gasoline (RFG) in what are now conventional gasoline areas. It could also prompt more states and/or localities to impose stricter Reid Vapor Pressure

(RVP) requirements in order to satisfy the lower standards. This could increase the level of heterogeneity in the gasoline market, introducing new complexities and ultimately increasing the price consumers pay at the pump.

3. Current Status EPA has said it does not plan to revise the 2015 NAAQS for ozone, and will instead work towards the next round of ozone NAAQS in October 2020.

On December 6, 2018, EPA published in the Federal Register final nonattainment area and ozone transport region (OTR) implementation requirements for the 2015 ozone NAAQS. Previously, on July 17, 2018, EPA announced that seven areas in Texas were in compliance with the 2015 national ambient air quality standards (NAAQS) for ozone, while one was out of compliance.

In Congress, the House has twice passed legislation (in the 114th and 115th Congresses) to delay or otherwise adjust implementation of EPA’s updated ozone standards. In both Congresses, legislation passed the House, but stalled in the Senate.

4. Background NAAQS are standards that apply to ambient (outdoor) air. Section 109 of the CAA established two types of national air quality standards: Primary standards set limits to protect public health, including the health of “sensitive” populations such as asthmatics, children, and the elderly. Secondary standards set limits to protect public welfare, including protection against decreased visibility, damage to animals, crops, vegetation, and buildings. The pollutants to which NAAQS apply are generally referred to as “criteria” pollutants. Six pollutants are currently identified as criteria pollutants: ozone, particulates, carbon monoxide, sulfur dioxide, nitrogen oxides, and lead.

NAAQS are at the core of the CAA, even though they do not directly regulate emissions. In essence, they are standards that define what EPA considers to be “clean air” for the pollutant in question. Once a NAAQS has been set, the Agency, using monitoring data and other information submitted by the states, identifies areas that exceed the standards and must reduce pollutant concentrations. This designation process is often delayed by litigation over the standards, by EPA’s agreement to reconsider aspects of them, or by consultations with the states over the specifics of the areas to be designated. (For reference, designation of nonattainment areas for ozone for the 1997 NAAQS took seven years; under the 2008 standards it took four years.)

After nonattainment areas are designated, state and local governments have up to three years to produce State Implementation Plans (SIPs), which outline the measures that will reduce emission levels and attain the standards. Finalizing SIPs, through EPA review and approval, is also a lengthy process. Under the CAA, actual attainment of the standards is allowed to stretch over a 3-year to 20- year period, depending on the severity of the area’s pollution. Ozone nonattainment areas are designated as Marginal, Moderate, Serious, Severe, or Extreme, depending on the level of pollution. Each of these classifications comes with required pollution control measures (the more severe the pollution, the more stringent are the required controls and the longer the area is allowed before it must demonstrate attainment). RFG is required in areas designated as being in at least “severe” ozone nonattainment; a lower 7.8 RVP is required in all ozone nonattainment areas during summer months.

To be reclassified from nonattainment to attainment, the CAA outlines several conditions that must be met, one of which is the development and EPA-approval of a maintenance plan. The plan must specify measures that will be used in the area to maintain compliance with the NAAQS. The plan must include controls the area will employ to ensure emissions remain below certain levels, and contingency measures to ensure prompt correction of any NAAQS violations.

Thus, establishment or revision of a NAAQS is not an event that requires immediate compliance with an air quality standard; rather, it sets in motion a long and complicated implementation process which may ultimately have far reaching impacts.

As states continue to develop their SIPs, they will consider a wide variety of controls on emissions from both mobile sources, such as motor vehicles, and stationary sources, such as motor fuel outlets, factories, refineries, and other sources. For mobile sources, the most likely emissions control strategies in state SIPs will be provisions to reduce the number of vehicles on the road, encourage carpooling, and centralized motor vehicle inspection and maintenance. In addition, states may consider options to reformulate gasoline further for a state’s non-attainment areas, either in the form of a low-RVP summertime fuel or a year-round cleaner gasoline such as reformulated gasoline or a CARB-type gasoline. Such fuels controls could give rise to additional “boutique” fuels and the further balkanization of the nation’s gasoline markets.

In response to EPA’s request for public comments on revised ozone NAAQS, SIGMA formally submitted comments highlighting the significant negative impact the proposal would have on the retail motor fuels market in the United States. Specifically, SIGMA stated that lower ozone NAAQS will trigger more stringent control measures such as the introduction of RFG in what are now conventional gasoline areas, more states and/or localities imposing lower RVP requirements, and certain states retaining costly and unnecessary “Stage II” vapor recovery requirements. These stringent control measures would inevitably lead to further balkanization of the nation’s motor fuels market, making it more complex and expensive to supply gasoline to consumers.

i. 2008 NAAQS

The 2008 ozone NAAQS were set in March of that year and implemented a standard of 75 ppb. Implementation of February 2018 when the D.C. Circuit Court of Appeals ruled that in 2015, the Obama Administration wrongly waived compliance deadlines for areas that had not yet met the 1997 ozone standards when it revoked them as part of the process of implementing the more stringent 2008 standards. Specifically, the court said EPA “failed to introduce adequate anti- backsliding provisions” to ensure that states actually meet the 1997 standards. As such, the court vacated portions of the 2015 implementation rule, meaning EPA could have to review implementation of the 2008 ozone NAAQS.

ii. 2015 NAAQS

The 2015 standards were finalized on October 26, 2015, when EPA approved revisions to the NAAQS for ground-level ozone (often referred to as “smog”). The updated standard set more stringent air quality standards, lowering both the primary (health-based) and secondary (welfare- based) standards from the current 75 parts per billion (ppb) to 70 ppb. The proposed rule initially suggested setting the standard somewhere in a range of 65 to 70 ppb. The ozone NAAQS are among EPA’s most far-reaching standards.

The Trump Administration’s EPA attempted to delay the standard’s effective date; on June 28, 2017, EPA had published a notification that it was delaying the deadline for implementing the 2015 ozone standards by one year. The agency had previously announced the delay in a June 6, 2017, letter to governors. The delay aimed to give states more time to submit state implementation plans to ensure they can come into compliance with the 2015 ozone standard, which had lowered the ozone NAAQS to 70 parts per billion (ppb) from 75 ppb. The updated rule generated widespread concern about the ability of states and localities to come into compliance with the new 70 ppb threshold. Compliance determinations were set to begin in June 2017 and would have been finalized in October, but under EPA’s proposal, the agency would not have made final decisions on noncompliance until October 1, 2018. States still would have had to submit implementation proposals to EPA by October 2018 on how to prevent pollution from interfering with downwind states’ ability to meet the 2015 standards. However, EPA reversed the one-year delay after 16 states sued.

EPA released final nonattainment classifications on May 1, 2018. The agency announced that 51 areas of the country have been determined as not in attainment with the 2015 ozone NAAQS. The attainment designations were supposed to be promulgated by October 1, 2017, but the deadline passed without any such designations. In response, environmental groups, as well as 13 Democratic attorneys general sued the Agency. EPA did not explain the reason for the delay, but on November 16, 2017, EPA ultimately issued attainment designations for about 85% of the country. Subsequently, the U.S. Court of Appeals for the District of Columbia Circuit ordered EPA to file a status report by January 12, 2018 specifying how it will complete ozone designations that were required by law to be completed by October 1, 2017. On January 5, 2018, EPA announced that it expected to complete work on the designations for the remaining 15% of the counties by April 30, 2018.

In order to meet this deadline, EPA on February 13, 2018, withdrew its proposed rule to categorize ozone pollution in areas that are not in compliance with the 2015 ozone standards, relying instead on a 2016 proposal developed under the Obama Administration to rank the severity of ozone pollution across the United States. On March 9, 2018, EPA published its final ozone threshold designations and associated deadlines. On March 12, 2018, a federal judge ordered EPA to issue most of its ozone non-attainment designations by April 30, 2018, with remaining designations for areas in Texas to be determined by July 17, 2018.

VII. EPA Definition of “Waters of the United States”

1. Level of SIGMA Activity – Reporting Issue (5)

2. SIGMA’s Interest Waters protected under the Clean Water Act (CWA), are commonly referred to as “Waters of the United States” or WOTUS. Waters that are “jurisdictional” are subject to the CWA’s various, often cumbersome regulatory requirements. This is particularly significant for the oil and gas industry because many of the nation’s energy resources, including natural gas and petroleum, are often located in or near water-based environments. Thus, any change in the definition of “waters of the United States,” may impact Spill Prevention, Control and Countermeasures (SPCC) requirements, spill reporting obligations, construction permitting requirements, and effluent discharge monitoring and reporting requirements. Certainly, if upstream oil producers face more

regulatory requirements, those costs will be passed along to downstream retailers and ultimately, the consumer. More significantly for retailers, enlarged CWA jurisdiction will likely lead to augmented SPCC requirements as they relate to the creation or improvement of underground storage tanks and storm water retention basins.

3. Current Status On February 14, 2019, EPA and the U.S. Army Corps of Engineers jointly published their revised Waters of the U.S. (WOTUS) proposed rule, which defines which rivers, streams, lakes, and marshes fall under the jurisdiction of EPA and the Corps and are thus regulated by the federal government and subject to various permitting requirements under the CWA. The new proposed rule would significantly reduce the number of streams and wetlands protected under the Clean Water Act and would reduce the regulatory burden on many construction projects throughout the nation. This is the second step in EPA’s two-step process to repeal and replace the Obama-era WOTUS rule. SIGMA filed comments on April 15, 2019.

On the legal front, the Final Rule had been stayed pending legal challenges to it by over 30 states, including a petition before the U.S. Supreme Court (SCOTUS) over which court – federal or appellate – is best suited to hear those challenges. The SCOTUS heard oral arguments on the case on October 11, 2017 and on January 22, 2018 ruled that legal challenges to the WOTUS rule should have been heard by federal district courts first, before proceeding to the appellate level. On February 6, 2018, EPA published a rule delaying the effective date of the WOTUS rule for two years (until February 6, 2020), preventing the WOTUS rule from going into effect as a result of the Supreme Court decision and the Sixth Circuit’s subsequent decision on February 28, 2018, to formally lift its nationwide stay of the Final Rule. That two-year delay was challenged in court and struck down. EPA has since dropped an appeal. Overall, the 2015 WOTUS rule is in effect in 22 states and on hold in 28.

Legislatively, lawmakers have tried to incorporate different provisions into the various appropriations bills that would allow the WOTUS rule to be withdrawn “notwithstanding any other provision of law” or would make it easier for the Administration to move forward with repeal and limit the ability of opponents to challenge that repeal in court. Thus far, neither of those provisions has been successfully attached to larger appropriations legislation.

4. Background In April 2014, the EPA and the Corps jointly proposed a rule redefining the scope of waters protected under the Clean Water Act (CWA), commonly referred to as “Waters of the United States” or WOTUS. The EPA and Corps proposal faced significant bipartisan resistance in Congress: numerous committees held hearings to review the rule and its potential impact and members introduced legislation which would require the agencies to rewrite the proposed rule with a number of modifications to limit the rule’s potential impact on affected individuals and businesses. SIGMA filed comments opposing the proposed rule on November 14, 2014.

On June 29, 2015, EPA and the U.S. Army Corps of Engineers (Corps) jointly published their Final Rule. While the Final Rule did not alter areas that have traditionally fallen under federal water jurisdiction – navigable waters, interstate waters, territorial seas and impoundments of these types of waters – it did establish some new definitions and standards and the was immediately challenged in court.

The Final Rule, which spurred significant bipartisan backlash, is a response to the legal and regulatory uncertainty that arose after two Supreme Court rulings in 2001 and 2006, where the Court narrowed the interpretation of the CWA’s regulatory scope and rendered the jurisdictional status of certain types of water ambiguous. Despite congressional opposition, however, President Obama resisted efforts to block the rule’s implementation. In November 2015 and January 2016, the Senate and House of Representatives, respectively, passed a joint resolution of disapproval under the Congressional Review Act that would block implementation of the Final Rule. However, the resolution was vetoed by President Obama. The Government Accountability Office also released a report, which found that EPA’s campaign promoting the Waters of the U.S. rule violated legal provisions barring federal agencies from engaging in congressional and grassroots lobbying.

On July 27, 2017, EPA and the Corps had published a proposed rule to withdraw the WOTUS rule. The repeal of the WOTUS rule would return the definition of waters of the U.S. to its pre-2015 definition. This does not change the current legal landscape significantly as the Obama-era rule was only briefly in effect before it was halted by the 6th Circuit Court of Appeals. On September 27, 2017, SIGMA filed comments on the proposed rule to rescind WOTUS, agreeing with the Administration’s decision to withdraw WOTUS and re-codify the pre-2015 standard.

EPA’s announcement to withdraw the rule followed President Trump’s February 28, 2017, executive order that sought to begin unwinding the Final Rule, which he called “one of the worst examples of federal regulation” that showed the government had “truly run amok.”

VIII. Climate Change

1. Level of SIGMA Activity – Active Lobbying – important issue (2)

2. SIGMA’s Interest As fuel marketers, SIGMA members will be directly affected by policies that seek to address climate change by reduction in the consumption of fossil fuels.

3. Current Status Having reclaimed the House, Democrats are looking to push an agenda with an environmental focus. To help focus their efforts, House Democrats created the House Select Committee on the Climate Crisis. Though the committee has no mandate or subpoena power (it cannot compel witnesses to testify), the committee has already held a number of hearings focused on the issue of climate change and how to address it.

Some Democrats—led by Representative Alexandria Ocasio-Cortez (D-NY) and Senator Ed Markey (D-MA)—including several 2020 Presidential candidates, have been supportive of legislation called the Green New Deal (S.J.Res.8/H.Res.109), which contains a number of environmental and social justice principles such as moving towards cleaner energy, providing “high- quality union jobs,” guaranteeing affordable health care, etc. The resolution received opposition from both sides of the aisle and ultimately failed a political vote in the Senate: 43 Democrats voted “present,” while four Democrats and all Republicans opposed. In the House, Representative Paul Tonko (D-NY), Chairman of the House Energy and Commerce Subcommittee on Environment and

Climate Change, announced his goals for future legislation to address climate change. Specifically, Representative Tonko released nine principles to guide the development of a bill to put a price on carbon and bring net U.S. emissions to zero by 2050. The principles also call for protecting low- income individuals during the economic transition, investing in a sustainable economy, creating policy certainty, and empowering state and local governments.

In addition, House Energy and Commerce Committee Chairman Frank Pallone (D-NJ) included language in an infrastructure bill he released that would encourage states to consider having public utility companies fund EV charging stations by increasing what they charge all of their customers for electricity (see Section X.3 for more on this issue).

With regard to areas of focus on climate change, see below for legislation that has been introduced in the 116th Congress on issues like a carbon tax, cap and trade, and subsidies for green technology:

Bill Chamber Title Sponsor Summary Topic Number

S.1128 Senate American Sen. Place a fee on carbon and Carbon Opportunity Sheldon provide a refundable tax Tax Carbon Fee Act Whitehouse credit to workers (D-RI)

H.R.763 House Energy Reps. Ted Price carbon and pay out the Carbon Innovation and Deutch (D- revenues as a rebate to Tax Carbon FL) and Americans Dividend Act Francis Rooney (R- FL) S.940 Senate Healthy Sen. Chris The legislation would cap Cap and Climate and Van Hollen carbon emissions at Trade Family (D-MD) increasing percentages below Security Act 2005 levels and return revenues to Americans every quarter as a “Healthy Climate Dividend.” H.R.1960 House Healthy Rep. Don The legislation would cap Cap and Climate and Beyer (D- carbon emissions at Trade Family VA) increasing percentages below Security Act 2005 levels and return revenues to Americans every quarter as a “Healthy Climate Dividend.” S. 1288 Senate Clean Energy Sen. Ron Makes a number of changes Green for America Wyden (D- to the tax code and existing Subsidies Act OR) tax credits to make those credits more technology neutral and get rid of certain tax provisions for fossil fuel companies. However, one provision the bill aims to 28

phase out is certain tax treatment of Master Limited Partnerships for fossil fuel companies.

H.R.2741 House LIFT America Rep. Frank Makes a number of changes Green Act Pallone (D- intended to decarbonize Subsidies NJ) America’s economy, including encouraging public utility companies to build EV charging stations and fund them off the rate base.

4. Background Public concern for the environment and climate change have pushed lawmakers to consider proposals that would reduce the nation’s reliance on fossil fuels, decrease carbon emissions, and promote environmental benefits. Policy proposals to address “climate change” may incorporate the following concepts:

Carbon Tax: A carbon tax is a fee or tax imposed on the production, distribution, and consumption of carbon-based fossil fuels (e.g., oil, gas, coal). In a carbon tax scheme, the government will set a price for carbon, which is used to set the tax on a particular fuel, such as gasoline, natural gas, or electricity depending on how much carbon the fossil fuel emits when it is burned. The theory behind the carbon tax is that by making fossil fuels more expensive to consume (because of the carbon tax that is levied when they are consumed), businesses, utilities, and consumers are incentivized to reduce their overall consumption of those fuels and increase their energy efficiency. The carbon tax encourages energy efficiency in part by encouraging the consumption of so-called “alternative green” energy by making those alternatives more cost- competitive with carbon-based fuels. Economists, consumers, and businesses tend to favor a carbon tax over cap-and-trade schemes because it is easier to impose and enforce and the cost to businesses is much more straightforward (and thus easier for a business to calculate and prepare for).

Cap-and-Trade: Cap-and-trade (also referred to as emissions or carbon trading) schemes function by “trading” carbon emissions for credits that pay for or otherwise offset emissions. Under a cap-and-trade system, the government would impose a cap on total permissible carbon emissions while simultaneously allocating or auctioning off emissions “allowances’ that add up to the cap. Companies that emit more than their government allowance permits must either (1) reduce their emissions or (2) purchase another company’s extra emission credits. In this way, the cap-and-trade scheme incentivizes energy efficiency because businesses that are more efficient – and thus have “extra allowances” to sell or save for future use – are rewarded. Unlike a carbon tax, where the amount of the tax is widely known, the price of emissions allowances (or credits) can vary widely in a cap-and-trade scheme, making it difficult for businesses to plan for expenditures.

Subsidies for green technologies: Benefits could include spurring investments in renewable energy and incentivizing new technologies to come to market. However, lawmakers must be sure that any incentives do not create an unlevel playing field by favoring one technology over another in the market. In addition, lawmakers should ensure that costs are borne fairly.

Other regulations and mandates: There could be regulations mandating a reduction in fossil fuels or further use of renewable energy sources. For example, some utility companies—either of their own accord or in response to certain market or governmental signals—have begun expanding their portfolio of renewable energy sources in advance of a possible government mandate. In general, SIGMA favors a diverse free market that allows for competition among fuels. The government should not pick winners and losers in the energy market.

IX. Corporate Average Fuel Economy (CAFE) and Greenhouse Gas (GHG) Standards

1. Level of SIGMA Activity – Active Lobbying – important issue (2)

2. SIGMA’s Interest The 2012 EPA and National Highway Traffic Safety Administration (NHTSA) rule that set greenhouse gas (GHG) emissions standards for model year (MY) 2017-2025 light-duty vehicles disproportionately favors electric vehicles (EVs). As part of a mid-term review process, EPA may reexamine whether to treat light-duty natural gas vehicles (NGVs) as equivalent to EVs. Given SIGMA members’ interest in a liquid motor fuels market, SIGMA favors parity in incentives for all relevant fuels and technologies, including NGVs and EVs.

3. Current Status On August 24, 2018, the Trump Administration published the Safer Affordable Fuel- Efficient (SAFE) Vehicles Rule for Model Years 2021-2026 Passenger Cars and Light Trucks. The proposed rule suggests freezing CAFE standards at the 2020 levels through 2026. SIGMA submitted comments on the rule advocating for equal treatment of all fuels – including petroleum-based fuels, natural gas fuels, and electric fueling - under the standard.

Legislatively, Senator Jim Inhofe (R-OK) introduced the Light-Duty Natural Gas Vehicle Parity Act of 2018 (S. 3226) on July 17, 2018. The bill was intended to provide regulatory equality for NGVs and electric vehicles (EVs). On August 16, 2018, SIGMA wrote a letter to Senator Inhofe supporting the bill, which would help provide regulatory equality.

On June 21, 2019, the House Energy and Commerce Committee held a hearing on the fuel economy standards. During the hearing, Mary Nichols, chairwoman of the California Air Resources Board, and Andrew Wheeler, the EPA Administrator, blamed each other for the failure of negotiations surrounding California’s fuel economy waiver. California currently has a waiver allowing it to set its own fuel economy standards that are stricter than the federal standards. The Trump Administration’s proposed SAFE Vehicles Rule would remove California’s authority to set its own fuel economy standards, though the rule has not yet been finalized. However, that rule is expected to face litigation both with regard to the freezing of the standards at 2020 levels and removing California’s waiver.

4. Background In 1975, Congress established the CAFE program to reduce energy consumption by improving fuel efficiency in vehicles. As part of the program, EPA and NHTSA collaborated to establish fuel economy standards for cars and trucks sold in the United States that would also reduce

GHG emissions. The intent is to reduce U.S. fuel use and dependence, as well as cut GHG emissions to minimize pollution.

On October 15, 2012, the Obama-era EPA and NHTSA published a final rule setting GHG emissions and fuel economy standards for MYs 2017 through 2025 light-duty vehicles. Under the 2012 rule, incentives for EVs were maintained. This disadvantaged vehicles that use other fuels including petroleum and natural gas. In comments filed with the agencies, SIGMA urged the agencies to provide parity for all types of fuels and not favor one type of technology over the other. As part of the rulemaking, EPA and NHTSA planned to conduct a midterm evaluation to ensure the standards were functional. The Obama-era EPA issued its midterm evaluation on January 12, 2017, finding that the standards were appropriate.

On March 22, 2017, however, the Trump EPA issued a notice that it planned to conduct its own midterm evaluation of the GHG standards and coordinate its process with a parallel process to be undertaken by NHTSA on the CAFE standards. In August 2017, EPA put out a request for public comment regarding the reconsideration and held a public hearing on the issue. This information was used in midterm evaluation, which was completed on April 2, 2018. At that time, EPA found that the Obama-era standards were too stringent and ought to be revised. EPA and NHTSA are now revising the rules.

X. Electric Vehicles

1. Level of SIGMA Activity – Active Lobbying – top priority issue (1)

2. SIGMA’s Interest SIGMA takes the position that its members should be able to sell any transportation fuels the market demands in a competitive market on a level playing field. This includes the sale of electricity. Fuel marketers will invest in the alternative fuel marketplace, including the refueling of electric vehicles (EVs), in order to meet consumer demand presuming a return on investment is possible.

3. Current Status Utility companies are seeking approval to enter the vehicle recharging business for EVs and have their costs paid for by increased electric bills for all of their customers (sometimes referred to as ratepayers). If a utility company is able to enter the EV marketplace – and fund that entry on the backs of ratepayers – the utility’s market entry costs are essentially zero and states will be surrendering to utilities a monopoly on the service of EV refueling. This raises serious concerns as it will likely result in a monopoly on EV charging stations, which will undercut the competitive nature of the refueling marketplace, ultimately harming consumers.

Senator Tom Carper (D-DE) and Rep. Mark DeSaulnier have also introduced a bill—the Clean Corridors Act, S.674/H.R.2616—to give grant funding for EV charging stations, though SIGMA is concerned it does not provide a level playing field with regard to the creation of charging stations. Specifically, the bill allows retailers and public utility companies to receive grant funding, but it does not specify that the utility companies cannot also use the rate base to fund charging stations. This puts SIGMA’s members at a competitive disadvantage vis-à-vis the public utility companies.

Most recently, Representative Frank Pallone (D-NJ), Chairman of the House Energy and Commerce Committee, released the LIFT America Act (H.R.2741). The bill does many things in the energy infrastructure space but important to SIGMA members, the bill contains language (Section 34304) instructing states to consider letting public utility companies fund electric vehicle (EV) charging stations and pay for that infrastructure investment by increasing the electricity rates of all ratepayers. SIGMA has argued that this is socially inequitable (all ratepayers would pay for chargers that only some wealthy people typically use) and it also will prevent the development of a free market for EV charging. Fuel retailers – who are significant ratepayers – are happy to compete with public utilities in the EV refueling marketplace if they compete on a level playing field. Public utilities must be required to make their money from what they can charge EV drivers, just like private companies do. To make the market competitive, utilities also must charge their competitors a price for electricity which is no higher than the price at which they transfer power to their own refueling facilities. Competition in the fuels marketplace results in lower prices for all types of fuel (liquid or electric) for consumers as well as more refueling options. SIGMA opposes granting a de facto monopoly on the provision of refueling services, which will likely lead to an increase in costs for consumers in the long-term.

Similarly, the federal government has been offering incentives to individuals that purchase EVs by offering a federal tax credit. More information on the EV tax credit can be found in Section XV.

In November 2018, National Grid, a public utility company, filed a petition with the Massachusetts Department of Public Utilities (DPU) seeking approval to recover the funds it would use to build private EV charging infrastructure from its ratepayers. SIGMA, along with Cumberland Farms, Inc., Global Partners LP, the New England Convenience Store and Energy Marketers Association (NECSEMA), and the National Association of Convenience Stores (NACS), filed a petition to intervene in the DPU’s consideration of the filing. The group was allowed to intervene and the case is ongoing.

4. Background EV Charging Infrastructure States grant utility companies a monopoly over the provision of electricity in a particular marketplace because it is inefficient for multiple companies to build overlapping infrastructure in order to service the same (immobile) building or home. In exchange for the loss of market freedom, utility companies are guaranteed a rate of return from ratepayers—they can even recover their investment costs if those costs are included in the rate base. This model is the exact opposite of the retail fuels industry in which robust competition drives greater efficiency, diversified options, and lower costs for mobile consumers.

EVs and the Highway Trust Fund (HTF) The Highway Trust Fund (HTF) is funded primarily by the 18.4 cents/gallon motor fuel excise tax and 24.3 cents/gallon diesel excise tax, which are paid by motorists when they purchase fuel. The HTF is used to fund investments in U.S. infrastructure, such as highways and bridges. Owners of EVs, however, do not pay these taxes (and hybrid owners only pay a percentage), despite using the roads in the same manner as gasoline and diesel-powered vehicles. (See Section XVI. Funding of the Highway Program, for more on the HTF)

EV Mandates and Unfair Treatment Several states have or are considering aspirational policies to mandate certain numbers of EVs. These mandates are often based upon an inaccurate comparison of emissions characteristics including an assumption that running EVs does not produce carbon emissions. These references in state laws to “zero emission vehicles” are inaccurate because electricity generation emits carbon into the atmosphere – often in larger amounts than do internal combustion engines in vehicles. Fair and complete analyses of the carbon footprints of these different vehicles are needed to have sensible policy in this area.

PAYMENT SYSTEM MATTERS

XI. Credit and Debit Card Swipe Fees

XII. Payments Security and EMV

XIII. Data Breach Security and Privacy

XIV. NCWM Skimmer Proposal

XI. Credit and Debit Card Swipe Fees

1. Level of SIGMA Activity – Active Lobbying – top priority issue (1)

2. SIGMA’s Interest Banks and credit card companies collect fees from retailers on transactions involving virtually every consumer product. Historically, for gasoline marketers, this fee has been about two percent of every credit and debit card sale, though many marketers pay higher effective rates. SIGMA is a member of a broad coalition of retail interests, the Merchant’s Payments Coalition, which explores all avenues for solutions to this problem.

In most instances, the credit card industry is making far more money on the sale of each gallon of gasoline than retailers. Not only is the amount of the fees too high, but marketers have no opportunity to negotiate these fees with the card companies or issuing banks, and they have no realistic choice as to whether to accept most cards due to the market power of the card associations.

3. Current Status

i. Legislation and Regulation

To date, legislation that impacts credit card or debit card swipe fees has not been introduced in the 116th Congress. SIGMA continues to meet with both House and Senate offices to make them aware of significant problems that still exist with credit card swipe fees and the card companies’ anticompetitive rules. In particular, SIGMA is working with the Secure Payments Partnership, which includes other merchants groups as well as debit networks, on restricting the ways that the credit card companies use standards and claims of card security concerns to increase their market share and push costs and fees onto merchants. Retailers are working with relevant federal policymakers to ensure that federal competition law and policy limits the card industry’s anticompetitive practices.

During the 115th Congress, former House Financial Services Chairman Jeb Hensarling (R- TX) introduced the Financial CHOICE Act, legislation that would repeal the Dodd-Frank Wall Street Reform Act, including debit swipe fee reform. In response to grassroots opposition from SIGMA and other retail groups, House Republicans removed the debit swipe fee reform repeal provision from the bill prior to its consideration on the House floor. Subsequently, the House passed the bill without a provision to repeal the Durbin amendment’s debit swipe fee reforms.

Similarly, the Senate passed legislation that would ease certain Dodd-Frank Wall Street Reform Act (Dodd-Frank) regulatory burdens on smaller financial institutions. Like the final version of the Financial CHOICE Act that passed the House, the Senate legislation would not repeal the Durbin amendment or otherwise affect debit swipe fee reform. Senate Majority Leader Mitch McConnell (R-KY) indicated the Senate did not have an appetite for another fight over debit swipe fees. Subsequently, the House passed the Senate’s legislation.

ii. Litigation

On September 18, 2018, the defendants and class action lawyers in the interchange fee litigation (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation) filed a new settlement with the U.S. District Court for the Eastern District of New York. Visa and

MasterCard agreed to pay as much as $6.2 billion to settle the claims in the case. On December 6, 2018, the judge in the case held a hearing on preliminary approval of the proposed monetary settlement and subsequently granted preliminary approval of the settlement on January 24, 2019. Merchants have until July 23, 2019 to opt-out of the class or object to the settlement.

The settlement, however, does not resolve the outstanding issues with swipe fees. The only relief of any kind is the monetary payment. SIGMA joined an objection to preliminary approval of the settlement because some of the major oil brands contend that they, and not their branded marketers, should be entitled to the funds in the settlement. The judge denied the objection and stated that the claims administrator would decide any disputes between marketers and their brands during the claims process in the case. SIGMA counsel is monitoring this issue closely.

The class case seeking changes to the Visa and MasterCard rules has not settled. Those claims, as well as claims brought by many individual merchants that opted out of the 2012 settlement (which was eventually overturned), are continuing to be litigated in the District Court. The litigation may continue for years, though the lawyers bringing those claims may also seek to settle.

4. Background

i. Legislation and Regulation

In July 2010, an amendment by Senator Dick Durbin (D-IL) to reform the debit swipe fee market was enacted as part of Dodd-Frank. The Durbin amendment instructed the Federal Reserve Board (“Fed”) to write regulations ensuring that debit card swipe fees are “reasonable and proportional” to the banks’ cost of processing debit transactions. The law also promotes competition among debit networks by requiring banks to allow merchants to choose a network routing option for each debit transaction. The Durbin amendment also allows merchants to offer customer discounts based on the form of payment used (credit, debit, cash, or check) and to set minimum amounts of up to $10 for credit card payments. While the Durbin amendment did not address every aspect of the swipe fee problem, it was a major win for merchants and an important step forward in addressing the banks’ and card companies’ anticompetitive practices with regards to electronic payments.

On June 29, 2011, the Fed issued its debit card swipe fee final rule. Under the final rule, the limit on centrally fixed debit card swipe fees (for banks with more than $10 billion in assets) is: 21 cents, plus 0.05% of the transaction amount. Additionally, the Fed issued an interim final rule allowing covered banks to collect 1 cent on every debit transaction for fraud-prevention expenses. The final rule also provides for limited routing competition: for every debit card transaction there must be at least two unaffiliated routing options. On average, merchants now pay more in swipe fees for PIN debit than they did before (the Fed itself estimated that prior to reform the average PIN-debit swipe fee charged across merchants was 23 cents). On the whole, however, retailers across all industries did see some savings under the Fed’s final rule (prior to reform, the average debit swipe fee—including signature and PIN—for all retailers across all sectors was 43 cents per transaction).

ii. Litigation

NACS v. Board of Governors of the  A lawsuit over the Fed’s misinterpretation of the Durbin Federal Reserve System amendment.  On July 31, 2013, the U.S. District Court for the District of Columbia ruled in favor of the plaintiffs, finding that 36

the Fed did not comply with the law in setting fee levels and failed to ensure merchants get choices to drive competition among networks carrying debit transactions.  March 21, 2014, the D.C. Circuit overturned the lower court’s decision stating that the Fed’s rule “generally rests on reasonable constructions” of the Durbin amendment. Retail associations appealed to the Supreme Court.  The Supreme Court denied the writ of certiorari on January 20, 2015. In re Payment Card Interchange Fee  A class action antitrust case against Visa, MasterCard and Merchant Discount Antitrust and the major banks. Litigation  Fact discovery and expert depositions are scheduled to be completed by August 2019.  Separately, the judge in the case granted preliminary approval of the monetary settlement.  Merchants have until July 23, 2019 to opt-out of the class or object to the settlement. In re: American Express Anti-Steering  A class action antitrust lawsuit against American Rules Antitrust Litigation Express (AmEx).  Individual lawsuits in the case settled on April 12, 2019.  The class claims remain unresolved. Department of Justice consent decrees  A lawsuit filed to address the anticompetitive practices with MasterCard and Visa of the card networks in relation to credit and debit cards.  In July 2011, the Department of Justice (DOJ) and Visa and MasterCard filed a consent decree that prohibits the card companies from preventing merchants from offering discounts and other incentives to customers for using lower-cost credit cards or other payments. Ohio v. American Express Co.  A separate case against AmEx over its merchant contracts, which prevent merchants from steering customers to credit cards with lower fees.  In September 2016, the Second Circuit found in favor of AmEx.  In 2017, the Supreme Court upheld the Second Circuit’s ruling that found that the case against AmEx had not been proven. The decision means that AmEx can continue to enforce provisions of its contracts with merchants preventing merchants from discounting other payment cards and not AmEx. Expressions Hair Design v.  A lawsuit over a New York law that restricts the Schneiderman disclosures retailers can make to customers about credit card surcharges.  In December 2017, the Second Circuit determined that a merchant complies with the New York surcharge

disclosure law so long as the merchant posts the total dollars and cents price charged to credit card users.  The litigants in the case agreed to dismiss it in January 2019 given that the new interpretation by the Attorney General’s office allows merchants to surcharge for credit as long as the credit price is disclosed.

XII. Payments Security and EMV

1. Level of SIGMA Activity – Active Lobbying – important issue (2)

2. SIGMA’s Interest Payments security is a serious concern for retailers who spend over $6.5 billion each year trying to protect against card fraud. However, fraud rates continue to rise in the United States because it still uses outdated payment card technology. Because of this and despite retailers’ significant security investments, merchants bear the brunt of fraud costs.

The Payment Card Industry (PCI) Data Security Standards Council and EMVCo have established a series of requirements for retailers to implement regarding the security of credit and debit card transactions and data. These requirements cost retailers tens of thousands of dollars per location, yet will not yield a secure system and will provide the retailer with no protection against liability in the event data is breached and stolen, despite the cost and effort the retailer invests in compliance. And retailers—unlike consumers whose liability for fraudulent charges on credit cards is capped at $50 by law—are not protected from getting hit with chargebacks connected with fraudulent transactions. Thus, payments security is extremely important to the fuel retailing industry and its technology providers.

3. Current Status SIGMA is working with a new coalition of retailers and debit networks, the Secure Payments Partnership (SPP), that was formed to improve security across the U.S. electronic payments system.

i. EMV Transition

EMV or “Europay, MasterCard, Visa,” is a proprietary chip technology owned by Visa and MasterCard. Visa and MasterCard established rules to shift liability for fraudulent transactions between merchants and banks based upon which of them has upgraded for EMV. That shift went into effect for most point-of-sale systems in October 2015. On December 1, 2016, Visa and MasterCard announced that they were delaying the EMV liability shift date for fuel pumps from October 1, 2017 to October 1, 2020. Since the October 2015 EMV liability shift, there have been many issues and problems, including a significant increase in the number of fraud chargebacks that merchants are required to pay for—even though they have the proper chip-enabled equipment.

SIGMA and the Merchants Payments Coalition (MPC) have been working to get Congress to oversee the EMV transition. These efforts have not gone unnoticed. On June 16, 2016, Visa and MasterCard announced that they would speed up the certification process for check-out terminals and

limit the costs that retailers will have to incur for counterfeit transactions. Several days later, American Express announced similar changes to its EMV chargeback policy.

ii. PCI Standards and “Chip and PIN”

The current round of PCI mandates requires retailers to certify compliance to an ambiguous and highly technical list of requirements. These mandates are complex and costly for merchants, and require strong technical support. For petroleum retailers, compliance with current PCI standards costs an average of $10,000 - $20,000 per location.

Analysts say one of the major challenges with the current PCI standards is that they are trying to protect an old technology. The United States is one of the only countries in the industrialized world still relying on magnetic stripe credit cards, which are based on 1970s technology. “Magstripe” cards are easy to counterfeit; the card networks frequently cite this as support for the transition to smart cards manufactured with a read-write microchip, which stores and transmits encrypted data and is widely used abroad. Often, people refer to “chip” cards as “EMV” cards, however, EMV or “Europay, MasterCard, Visa,” is a proprietary chip technology owned by Visa and MasterCard and should not be used as the general default term for “chip” cards.

In addition to more secure card technology, there are other technology solutions that would improve current security standards: tokenization, a system that replaces sensitive payment data with proxy information, and end-to-end encryption, which would require uninterrupted encryption- protected data along all points in the payments chain. Significantly, the use of a PIN number to authenticate a card transaction would also be a simple way to reduce the occurrence of fraud. Despite the security benefits to be found in “chip and PIN” cards, while card networks and card issuers have moved towards “chip” cards, they are not requiring PIN authentication because it would likely shift fraud liability onto them from retailers. And, it could force card networks to compete for transactions with other PIN networks thus giving merchants some choice over routing options.

On October 17, 2014, then-President Obama signed Executive Order 13681 which established chip and PIN technology as the standard for Federal government payment cards, and also called on Congress to protect consumers and businesses by passing data breach and cybersecurity legislation. Unfortunately, the Obama Administration’s decision to adopt “chip and PIN” technology for the Federal government has not pushed the card networks to similarly require PIN authentication for card transactions now that EMV cards are more prevalent in the marketplace since the formal October 2015 liability shift has occurred.

iii. EMV Transition

After announcing their plans to shift to EMV cards in 2011, Visa and MasterCard both established rules to shift liability for fraudulent transactions between merchants and banks based upon which of them has upgraded for EMV. As mentioned above, the shift went into effect for most point-of-sale systems in October 2015, with gas pumps having until 2020 (originally 2017). Concerns, however, remain with the transition. First, the EMV transition was cost prohibitive for many merchants—especially implementing the necessary system changes by the October 2015 deadline. Second, EMV technology is already 20 years old. Third, although it may provide another layer of security, EMV is not the most advanced technology that could be implemented in the United States. In fact, EMV has already been breached in the United Kingdom. Fourth, Visa and

MasterCard’s approach is to require smart cards without allowing merchants to require PIN-based user authentication when they choose even though studies show that requiring a PIN to authorize a transaction reduces fraud 6-fold. Finally, there is a concern that since EMV is basically the only “chip” technology used in the United States, Visa and MasterCard will effectively block new competitors from entering the mobile payments space.

The EMV transition has been fraught with difficulties. Visa, for example, used the EMV chip card rollout as a means to grab more market share, by essentially obligating retailers to route debit transactions over Visa’s proprietary network—which it is prohibited from doing by law. On November 22, 2016, in a win for SIGMA’s members and their customers, Visa agreed to change its EMV rules and stop blocking competition in debit routing. The decision came after both the Federal Trade Commission (FTC) and Federal Reserve Board of Governors examined Visa’s anticompetitive practices after being alerted to the problem by SIGMA and other stakeholders.

In related news, in early March 2016, a group of retailers filed an antitrust class action lawsuit in California against Visa, MasterCard, and several major banks, where they allege that the card networks and banks conspired to unlawfully shift fraud liability to merchants despite complications in the switch to the EMV system. On May 4, 2017, after the retailer plaintiff filed a statement of non-opposition, the judge overseeing the case in California granted a motion by the defendants to consolidate the case with the class action litigation in the Eastern District of New York (See Credit and Debit Card Swipe Fees, Section XI for information on that litigation).

XIII. Data Breach Security and Privacy

1. Level of SIGMA Activity – Active Lobbying – important issue (2)

2. SIGMA’s Interest Over the past several years, many businesses and government agencies have suffered security breaches that have resulted in the theft of personal information from millions of customers. Banks, the government, technology companies, and credit reporting agencies in addition to retailers have all suffered security breaches affecting millions of people. Meanwhile, financial institutions are calling for retailers to bear the costs of card reissuance after a data breach.

Concerns have also been mounting about the voluntary sharing and selling of consumer information by businesses. These privacy concerns have led to state legislation including, significantly, the California Consumer Privacy Act (CCPA). Congress, in turn, is examining privacy issues along with data breach and data security issues.

The increasingly frequent number of data breaches involving the personal data of millions of Americans have brought the topic of data security—or the digital measures that are applied to prevent unauthorized access to computers, databases, websites and the general protection of data from corruption, destruction, or unauthorized access—to national attention. Of particular concern to retailers, organized crime groups use stolen data to commit identity theft, the fraudulent use of a person’s private identifying information for financial gain, and payment fraud, the fraud that occurs when someone uses a payment instrument or information from a payment instrument to complete a transaction that is not authorized by the legitimate account holder.

SIGMA supports data security legislation that would (1) ensure breached entities have notice responsibility; (2) ensure data security standards are reasonable; (3) establish a uniform nationwide law; and (4) maintains an appropriate Federal Trade Commission (FTC) enforcement regime. SIGMA is working with a broad coalition on these issues and, as part of that group, has also endorsed a set of principles on data privacy to ensure (1) industry neutrality so that data is covered by privacy rules no matter what type of business handles it; (2) legal obligations for service providers including technology, telecommunications, and payment companies; (3) preservation of customer rewards and benefits programs; (4) transparency and consumer choice; (5) accountability for business’s own actions but not that of others; (6) uniform nationwide rules; and (7) reasonable data breach and security requirements.

3. Current Status Data breach security and privacy remain top issues for legislators. SIGMA counsel continues to monitor any congressional action in this arena and advocate for privacy and data security laws to cover every business sector based upon the sensitivity of the data handled without loopholes. At this time, legislation has not been introduced in the 116th Congress. However, multiple congressional committees, including the Senate Judiciary Committee, the Senate Banking Committee, the Senate Commerce, Transportation, and Science Committee, and the House Energy and Commerce Committee, have convened hearings to examine the privacy and data security issues. A bipartisan working group of Senate staff from a number of these committees have been trying to come up with consensus legislation but, thus far, have not been able to agree on legislative language. In addition, the Federal Trade Commission has held a series of hearings on these issues.

4. Background In the 115th Congress, the former House Financial Services Committee Data Security and Consumer Protection Subcommittee Chairman Blaine Luetkemeyer (R-MO), along with Rep. Carolyn Maloney (D-NY), circulated draft legislation to establish a federal standard for data security and breach notification. SIGMA opposed Chairman Luetkemeyer’s bill as it was drafted since it failed to address retailers’ concerns on notification requirements (i.e., ensuring that all breached entities have notice obligations so that retailers are not held responsible for another companies’ breach) among other concerns. Subsequently, Chairman Luetkemeyer introduced a bill that would have created data breach notification standards for the financial services industry and preempted state-by-state requirements. Of significance to SIGMA members, the bill’s data security requirements would not have applied beyond the financial services industry.

Other congressional Committees (including the House Energy and Commerce Committee, the House Financial Services Committee, the Senate Banking Committee, and the Senate Judiciary Committee) held several hearings in 2018 on the SEC and Equifax breaches, examining breach disclosure standards and company reporting responsibilities. Lawmakers also introduced single-issue bills that focus on data security-related issues, but Congress did not advance any of these efforts.

XIV. NCWM Skimmer Proposal

1. Level of SIGMA Activity – Active Monitoring (4)

2. SIGMA’s Interest As mentioned previously, data security in the payments space is a serious concern for retailers who spend over $6.5 billion each year trying to protect against card fraud. One type of card fraud occurs when a third-party card-reading device is installed either outside or inside a fuel dispenser, known as “skimming.” Skimmers allow a thief to capture a customer’s credit and debit card information.

3. Current Status The National Conference on Weights and Measures (NCWM) is considering a proposal that would impact the equipment that collects financial information at a fuel dispenser. The proposal, which is an attempt to deter skimmers, would require retailers to take some steps, such as ensuring there are locks on pumps, to help prevent skimmers either from being installed or limit their effectiveness in stealing card data. NCWM created a subgroup to examine this issue. Currently, the subgroup is reviewing the proposal.

TAX AND HIGHWAY FUNDING MATTERS

XV. Tax Matters

XVI. Funding of Highway Program

XVII. Rest Area Commercialization

XVIII. Tolling

XV. Tax Matters

1. Level of SIGMA Activity – Active Lobbying – important issue (2)

2. SIGMA’s Interest: There are a number of provisions in the U.S. tax code that significantly impact fuel marketers’ operations. Sweeping tax reform legislation signed into law in December 2017 contains a number of provisions impacting the motor fuel retailing industry (highlights in the recently-enacted tax reform legislation are outlined below). In addition, pending tax extenders legislation could reinstate incentives beneficial to SIGMA members, such as the biodiesel blenders’ tax credit.

3. Current Status

i. Tax Extenders

On February 9, 2018, Congress passed and the President signed the Bipartisan Budget Act of 2018, a government funding bill that included a retroactive reinstatement of the biodiesel blenders’ tax credit through December 31, 2017. The credit will not be available for 2018 unless Congress passes new legislation. The Bipartisan Budget Act of 2018 also reinstated the oil spill liability trust fund financing tax through 2018.

a. Biodiesel Blenders’ Tax Credit

On February 28, 2019, Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) released their tax extenders bill, which would provide a two- year, partially retroactive extension for the biodiesel blenders’ tax credit (2018 and 2019). Rep. Mike Thompson (D-CA) also released a tax extenders package including a three-year extension of the biodiesel tax credit through 2020. That bill was reported favorably out of Ways and Means on June 20, 2019. It now awaits consideration by the full House. On April 4, 2019, Representative Abby Finkenauer (D-IA) also introduced a standalone bill (H.R.2089) to extend the credit for two years (2018 and 2019).

b. Oil Spill Liability Tax

The oil spill liability tax (OSLT) was set at 9 cents per barrel in 2018 and generally applied to:

a) Crude oil received at a U.S. refinery;

b) Petroleum products entered into the U.S. for consumption, use, or warehousing; and

c) The exportation of domestic crude oil.

The tax—which is paid by refiners and imposed when crude oil is received at a refinery (not when it crosses the rack)—is the primary funding source for the Oil Spill Liability Trust Fund, which is used to pay for costs associated with oil spills when the party responsible for the spill is unknown, refuses to pay, or cannot pay. Specifically, the Fund usually pays for state and local assessments and

removal of damage, as well as some research and development. As discussed above, the OSLT expired on December 31, 2018, and has yet to be reinstated. The extenders bill introduced in February 2019 by Senators Grassley and Wyden would prospectively extend the tax through 2019. Representative Thompson’s bill would also prospectively extend the tax through 2020.

ii. Electric Vehicle Tax Credit

The Electric Vehicle Tax Credit grants a federal credit of $2,500 to $7,500 per new EV purchased for use in the U.S. The amount of the tax credit depends on the size and battery capacity of the vehicle. The tax credit remains available until 200,000 qualified EVs per manufacturer have been sold in the United States, at which point the credit begins to phase out for that manufacturer. Currently, some manufacturers have begun (or will soon begin) to phase out. In the 116th Congress, Senator John Barrasso (R-WY) again introduced a bill (S. 343) to repeal the credit and ensure EVs pay their fair share of infrastructure funding. A companion bill (H.R. 1027) was introduced by Representative Jason Smith (R-MO) in the House.

Several Democrats, however, support extending the EV tax credit. Senator Jeff Merkley (D- OR) and Rep. Peter Welch (D-VT) introduced the Electric CARS Act (S.993/H.R.2042), which would extend the credit through 2029 and make other changes to the calculations. Senators Debbie Stabenow (D-MI), Lamar Alexander (R-TN), Gary Peters (D-MI), and Susan Collins (R-ME) along with Congressman Dan Kildee (MI-05) also introduced the Driving America Forward Act (S.1094/2256), which would expand the EV tax credit.

4. Background On December 22, 2017, President Trump signed broad tax reform legislation, titled the “Tax Cuts and Jobs Act,” into law. The legislation passed the House by a vote of 224 to 201 and the Senate by a vote of 51 to 48. Both votes split down party lines, with all Democrats present in both chambers voting “no,” and all Republicans present voting “yes,” except for some House Republicans from high-tax states who opposed the bill due to limits it places on the deduction for state and local taxes. Highlights of the TCJA applicable to SIGMA members are outlined below:

Corporate Income Tax – For tax years beginning after 2017, the legislation permanently lowers the corporate income tax rate from 35% to 21% and eliminates the corporate alternative minimum tax.

Taxation of Pass-through Entities – The TCJA generally allows a taxpayer “other than a corporation” (including trusts and estates; generally excluding specified service businesses, though exceptions may apply) a deduction in an amount equal to the combined qualified business income (QBI) amount for the taxable year, which is equal to the sum of (1) the deductible amounts determined for each qualified trade or business carried on by the taxpayer and (2) 20% of the taxpayer’s qualified REIT dividends and qualified publicly traded partnership income.

Qualified business income (QBI) is defined, on a business-by-business basis, as the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. If the net amount of such qualified items of income, gain, deduction, and loss with respect to qualified trades or businesses of the taxpayer for any taxable year is less than zero, such amount shall be treated as a loss from a qualified trade or business in the succeeding taxable year.

The deductible amount for each qualified trade or business is the lesser of (a) 20% of the taxpayer’s QBI with respect to the trade or business, or (b) the greater of (x) 50% of the W-2 wages with respect to the trade or business or (y) the sum of 25% of the W-2 wages with respect to the trade or business and a capital component (2.5% of the unadjusted basis, immediately after acquisition, of all qualified property).

“Qualified property” means tangible depreciable property held by, and available for use in, the qualified trade or business at the close of the taxable year, and which is used in the production of QBI, and for which the “depreciable period” has not ended before the close of the taxable year. The “depreciable period” with respect to qualified property generally means the greater of 10 years or the applicable depreciation period for such property.

The W-2 wage limit does not apply in the case of a taxpayer with taxable income not exceeding $315,000 (if married filing jointly) or $157,500 (for all other taxpayers). The W-2 wage limit is then phased in for taxpayers with taxable income exceeding $315,000/$157,500 over the next $100,000 of taxable income (if married filing jointly) or $50,000 (for all other taxpayers) (i.e., the full W-2 limitation applies at $415,000/$207,500). For this limit, taxable income is determined without regard to the deduction itself, and the thresholds will be inflation adjusted.

In the partnership and S corporation context, the rules generally apply at the partner and shareholder levels.

The deduction does not reduce adjusted gross income, and it can be taken by taxpayers, regardless of whether they itemize or take the standard deduction. However, the deduction cannot exceed the taxable income of the taxpayer (after reduction for qualified capital gain).

The pass-through deduction is not added back for purposes of the individual AMT.

The pass-through deduction sunsets after December 31, 2025.

On August 8, 2018, the IRS proposed regulations regarding the pass-through deduction setting out the income limits by which the deduction may be applied, as well as guidelines for other calculations. SIGMA filed comments on October 1, 2018.

Depreciation and Expensing – The TCJA increases the bonus depreciation rate to 100% through 2022, at which point the rate is phased down by 20% each year until 2026. Thus, under the TCJA, businesses may (temporarily) deduct investment costs immediately rather than depreciating those assets over a fixed time period. The legislation allows bonus depreciation for used property as well as new property.

The legislation increases the section 179 expensing limit to $1,000,000 and the phase-out amount to $2,500,000 (both amounts indexed for inflation). It also expands the definition of section 179 property to include certain improvements to nonresidential buildings.

The depreciation and expensing provisions generally apply to property acquired and placed in service after September 27, 2017. A transition rule provides that, for a taxpayer’s first taxable year ending after September 27, 2017, the taxpayer may elect to apply a 50% depreciation allowance instead of the 100% allowance. 46

Since the legislation eliminates the corporate AMT, it also repeals the election to accelerate AMT credits in lieu of bonus depreciation.

Recovery Period for Real Property – The TCJA maintains the present law general modified accelerated cost recovery system (MACRS) recovery periods of 39 and 27.5 years for nonresidential real and residential rental property, respectively.

The legislation eliminates the separate definitions of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property, consolidating them into a new “qualified improvement property” category. Qualified improvement property is generally defined as an improvement to the interior of a nonresidential building that is placed in service after the date on which the building was placed in service.

While the conference report accompanying the Tax Cuts and Jobs Act indicates that Congress intended to grant qualified improvement property a MACRS recovery period of 15 years and make it eligible for bonus depreciation, a drafting error in the legislation has left most qualified improvement property with the default 39-year MACRS recovery period for nonresidential real property, and ineligible for bonus depreciation. IRS officials have said that technical corrections legislation is necessary to fix this error. This error does not impact the depreciation period for retail motor fuel outlets.

Work Opportunity Tax Credit – The TCJA retains the Work Opportunity Tax Credit.

Net Operating Losses (NOLs) – Under the TCJA, use of NOL carryforward would be limited to 80% of the taxpayer’s taxable income (determined without regard to the NOL deduction and the 20% QBI deduction) for losses arising in taxable years after 2017. The TCJA repeals carrybacks, but permits indefinite carryforward of NOLs (no mention of interest factor).

Deduction Limit on Net Business Interest Expense – Under the TCJA, the amount of net interest that can be deducted by any business with gross receipts of $25 million or more (measured based on average over a three-year period) is generally limited to 30% of the adjusted taxable income for the year. A real property trade or business may elect to be exempted from the business interest expense deduction limit, but businesses making this election must use the longer alternative depreciation system (ADS) recovery periods rather than MACRS recovery periods. This election, once made, is irrevocable. The amount of any business interest not allowed as a deduction may be carried forward and used as a deduction in a subsequent tax year.

State and Local Tax Deduction - For taxable years beginning after December 31, 2017, and before January 1, 2026, a taxpayer would be allowed to deduct up to $10,000 of any combination of state and local property, income, and sales taxes.

Estate Tax – The TCJA doubles the estate, gift and generation-skipping transfer tax exemption to approximately $11 million for individuals and $22 million for joint filers (adjusted for inflation occurring after 2011) with respect to estates of decedents dying, generation-skipping transfers, and gifts made after December 31, 2017, and before January 1, 2026. In addition, it maintains the basis step up under IRC § 1014 for property received from a decedent.

Individual Income Tax Brackets –

Joint filers:

10% < $19,050 12% $19,050 22% $77,400 24% $165,000 32% $315,000 35% $400,000 37% $600,000+

Single filers:

10% < $9,525 12% $9,525 22% $38,700 24% $82,500 32% $157,500 35% $200,000 37% $500,000+

Standard deduction – $12,000 (individuals); $24,000 (joint filers)

Individual AMT – For tax years beginning after December 31, 2017 and ending before January 1, 2026, the TCJA increases

(A) the exemption amounts for the individual AMT to (1) $109,400 for joint filers; (2) $70,300 for single taxpayers; and (3) $54,700 for married taxpayers filing separately.

(B) the exemption phase-out amounts in IRC § 55(d)(3) to (1) $1,000,000 for joint filers or surviving spouses; and (2) $500,000 for taxpayers who are single or married filing separately.

For tax years beginning in a calendar year after 2018, amounts under both (A) and (B), above, are indexed for inflation.

Last-In First-Out Accounting – The TCJA does not address LIFO.

ACA Individual Mandate – The TCJA reduces to zero the individual mandate penalty on individuals who fail to maintain healthcare coverage under the Affordable Care Act, effective for years after December 31, 2018.

Defining the Terms GGE and DGE for sales of CNG and LNG – The TCJA does not address the definitions of “gasoline gallon equivalent” and “diesel gallon equivalent” for sales of compressed natural gas (CNG) and liquefied natural gas (LNG).

XVI. Funding of the Highway Program

1. Level of SIGMA Activity – Reporting Issue (5)

2. SIGMA’s Interest SIGMA supports long-term, sustainable funding for federal highway programs, even if such funding requires raising the federal motor fuel excise tax. However, SIGMA only supports such increases as long as the revenue generated is directed to fund highway infrastructure projects. SIGMA also supports all vehicles, including electric vehicles, paying their share of infrastructure costs. There are several other matters of concern to SIGMA that arise within the context of federal highway reauthorization.

3. Current Status As Congress considers infrastructure legislation or reauthorization of the highway bill, SIGMA supports an effective, efficient and well-funded federal highway program. SIGMA’s position is that if a government, state or federal, determines that the funding of these projects must be “user based” then:

1) All energy sources must pay an equivalent “fair share” amount to support the vehicles powered by that source for use of the road.

2) Whenever possible, government should seek to broaden the base that pays for the roads beyond user based sources.

3) In any “user based” system, transparency with respect to taxes is essential. Specifically, the consumer must be able to understand the amount he or she is being charged by a taxing entity in the price of motor fuel.

4) Funds raised in the name of supporting infrastructure maintenance must be dedicated to infrastructure.

4. Background In December 2015, after a decade of short-term authorizations, Congress passed a five year, long-term highway authorization bill. The Fixing America’s Surface Transportation (FAST) Act extended highway authorization for five years through September 30, 2020. The legislation provided $305 billion over those five years for highway and other surface transportation projects and reauthorized the various motor fuel excise taxes without an increase in the per gallon tax rate. The excise tax extension included an extension of the 0.1 cent per gallon tax attributable to the Leaking Underground Storage Tank (LUST) Trust Fund.

With respect to interstate tolling, the FAST Act did not expand the number of states currently participating in the existing Interstate System Reconstruction and Rehabilitation Pilot Program. The FAST Act required those states to have the authority for the tolling project to proceed. Further, each state has three years to move forward with its tolling project before losing its slot in the pilot. Importantly, the legislation does not allow states to divert tolling funds to other transportation projects.

In addition, the FAST Act allows government agencies to construct and operate – for the benefit of those agencies’ employees for their private vehicle use – battery recharging stations on federal parking areas at those agencies and departments. This provision is significantly less extensive than similar language introduced in 2014, which would have allowed government agencies to operate “alternative fuel infrastructure” in a manner in which the private sector could not compete. SIGMA successfully fought the inclusion of that provision.

A number of states are beginning to confront the impending Highway Trust Fund (HTF) shortfall by exploring a variety of different solutions. Some states and cities are raising fuel and other highway-related excise taxes to generate more money in the traditional manner, proposing infrastructure fees on utility bills to capture more users of even sidewalks and bike lanes, and looking for ways to expand or create other user fees despite pressure from conservatives who have signed anti-tax pledges.

Meanwhile, a recent GAO report argues that a “pilot program could help determine the viability of mileage fees for certain vehicles” and whether they could lead to new transportation- linked revenue to bolster the HTF. One key conclusion the GAO reached was that “Consideration of new revenues—whether through mileage fees, fuel taxes, or other fees—would benefit from accurate and up-to-date information on the damage different vehicles impose on the roadways” (i.e., the amount of miles the vehicles of driven”), “and whether all vehicles are currently paying their fair share.” To that end, former House Transportation and Infrastructure Chairman Bill Shuster (R-PA) released an infrastructure discussion draft in 2018 that included provisions to raise the federal gas tax while also exploring alternative programs to collect a user fee. It remains to be seen if similar provisions will be introduced in the 116th Congress.

Furthermore, a number of state motor fuel officials are considering adopting—informally or formally—policies to require the collection of origin state motor fuel tax at the terminal rack on “flash-title” buy/sell transactions despite the bill of lading clearly showing the export of the motor fuel products. SIGMA counsel prepared a memo detailing many of the state proposals.

XVII. Rest Area Commercialization

1. Level of SIGMA Activity – Active Participation (3)

2. SIGMA’s Interest SIGMA opposes rest area commercialization as the ban on such activities has been critical to the livelihood of businesses that are located near the highway and the communities that depend on their tax dollars. SIGMA members have made substantial business decisions relying on the prohibition on rest area commercialization. Overturning the ban would result in commercial activity being diverted from off-highway communities to on-Interstate locations, killing off-highway business and taking needed tax revenue from localities.

3. Current Status The Trump Administration, on February 12, 2018, released its Legislative Outline for Rebuilding Infrastructure in America, which urges Congress to craft legislation that would generate a

$1.5 trillion investment in infrastructure. The Administration’s plan, however, only includes $200 billion in direct federal spending —with much of the funding coming as the result of regulatory permit reform, public-private partnerships, state and local government contributions and other incentives to leverage an overall investment in infrastructure. The Administration’s proposal explicitly advocates for overturning the longstanding ban on the commercialization of rest areas on the Interstate right-of-way. In addition to the Administration’s interest in commercialization, some Members of Congress are evaluating the notion of allowing electric vehicle charging stations at interstate rest areas.

SIGMA, as part of a coalition opposed to commercialization, is working to educate members of Congress about the dangers rest area commercialization poses to off-highway business, localities and consumers.

4. Background As Congress created the Interstate Highway System in the 1950s, policymakers feared that undercutting off-highway businesses and redirecting consumer transactions onto the Interstate right- of-way would do irreparable harm to local governments and communities that depend on off- highway businesses as an integral part of their tax base. These communities would receive no tax benefit from transactions that take place on the right of way. To that end, Congress prohibited states from offering commercial services, such as food and fuel, at commercial rest areas on Interstates built after Jan. 1, 1960, with an exception for vending machines operated by businesses owned by vision-impaired entrepreneurs.

If state governments lease Interstate rest areas to private companies to operate commercial services, it would undo a 60-year ban on commercialized rest areas that formed the foundation for Interstate travel in the United States. Furthermore, state-owned commercial rest areas would establish virtual monopolies on the sale of services to highway travelers due to their location. Off- highway communities – which rely on the motoring public for survival – derive much of their commercial activity and tax revenue from healthy off-highway businesses. Thousands of off- highway businesses would effectively vanish if Congress were to commercialize rest areas. Moreover, tens of thousands of jobs would be lost and communities would be devastated.

On November 6, 2017, Arizona Governor Doug Ducey (R) requested that the Trump Administration work with Congress to overturn the ban on the sale of food, fuel and other commercial services at Interstate rest areas, but his request was denied. Similarly, Rep. Jim Banks (R-IN) introduced legislation in the 115th Congress which would overturn the long-standing ban on rest area commercialization.

XVIII. Tolling

1. Level of SIGMA Activity – Active Participation (3)

2. SIGMA’s Interest SIGMA is strongly opposed to tolling on existing Interstates as a means of raising infrastructure revenue. The privatization of highways could dangerously alter the playing field for

many business-owners along the nation’s highways. Congress should reject ineffective, inefficient methods of raising money for the highway program.

3. Current Status In February 2018, the Trump Administration released its infrastructure proposal, which contains language that would allow for the tolling of existing Interstates. Similarly, the Trump FY18 budget proposal indicated President’s Trump’s desire to “liberalize tolling policy.”

Toll owners and operators view the lack of funding and quest by Congress to find alternative revenue sources to fund infrastructure projects as an opportunity to promote increased tolling and privatization. The International Bridge, Tunnel and Turnpike Association (IBTTA) is urging Congress to lift the ban on interstate tolling, allowing states and cities to generate their own revenue. SIGMA is a member of the Alliance for Toll-Free Interstates which opposes lifting the ban.

4. Background As motor vehicles become more fuel efficient, it is increasingly difficult to fund highway programs solely through a motor fuels excise tax. Tolls, however, are an inefficient way to collect revenue. Approximately 30% of revenue raised via tolling is spent on administrative costs while more than 99% of revenue raised from federal motor fuel excise taxes is invested in surface transportation projects. Many of the country’s crumbling roads and bridges are in less populated areas that are not traveled frequently enough to generate sufficient toll revenue. Furthermore, taxpayers should not be charged again for roads they have already paid for and had built with their tax dollars.

Tolls divert interstate-level traffic to local and secondary roads as drivers seek to avoid them, thereby greatly diminishing the value of businesses that line the highways. The secondary roads were not built to handle interstate-level traffic volume – this diversion contributes to traffic accidents, increased maintenance costs, and delays for first responders. It also impacts communities and businesses that rely on the unrestricted flow of people, such as fuel marketers.

EMPLOYMENT MATTERS

XIX. Revisions to Rules Governing Overtime Pay

XX. The Joint Employer Standard

XXI. Trucker Hours of Service Rule

XXII. Comprehensive Healthcare Reform

XIX. Revisions to Rules Governing Overtime Pay

1. Level of SIGMA Activity – Active Participation (3)

2. SIGMA’s Interest As employers, SIGMA members will be affected by any changes to current labor laws. This is particularly true in the case of rules governing overtime pay, since many SIGMA employees work unpredictable hours doing a variety of different types of work.

3. Current Status

On March 22, 2019, the U.S. Department of Labor (DOL) proposed its overtime rule, which would set the minimum salary level below which workers are guaranteed overtime compensation to $679 per week ($35,308 per year). This is $12,000 lower than the threshold set by the Obama Administration in its final rule from 2016, which had been blocked by a federal district court judge from going into effect.

In establishing this new salary threshold, DOL returned to the methodology that was used the last time the overtime rule was adjusted back in 2004. In addition to the updated salary threshold, the proposal would permit nondiscretionary bonuses and commissions, which are paid yearly or more frequently, to count towards up to 10 percent of an employee’s salary. To ensure the salary threshold does not become outdated, DOL proposed to update the salary level every four years through a formal notice-and-comment rulemaking. Notably, the proposal did not propose to alter the “duties test,” which is part of the existing overtime rule and helps employers determine if their employees are performing tasks that would exempt them (or not) from overtime. This is all in alignment with SIGMA’s comments filed in response to the Obama Administration’s 2015 proposal and in response to the Trump Administration’s request for information in September 2017. SIGMA filed comments on May 20, 2019 supporting the new salary threshold, the methodology used to calculate it, and the inclusion of bonuses for calculation purposes. The Department, however, had proposed capping inclusion of bonuses at 10 percent, which SIGMA disagreed with and rebutted in its comment letter noting there is no reason not to include the full value of all bonuses in calculating the salary threshold..

4. Background The Fair Labor Standards Act requires employers to pay certain employees one and one half times the employees’ regular pay rate for hours worked in excess of 40 in a workweek. The law’s so-called “white collar exemption,” however, provides an exemption from overtime pay for certain employees, including those that are bona fide executive, administrative, professional, or outside sales employees. To qualify for the white collar exemption, employees generally had to have been paid at least $455 per week on a salary basis, and their job duties must meet certain tests, such as including managerial or supervisory responsibility, requiring advanced knowledge, or the exercise of discretion or independent judgment with respect to matters of significance.

On March 13, 2014, President Obama signed a presidential memorandum instructing the Secretary of Labor to revise regulations governing worker overtime protections. On July 6, DOL published a proposed rule to update and revise regulations implementing overtime pay exemptions. Specifically, DOL proposed to update the salary threshold triggering the overtime exemption to the 40th percentile of earnings for full-time salaried workers: $970 per week, approximately $50,440 for a full-year worker. DOL also proposed establishing an “automatic update mechanism” that will automatically update the salary and compensation thresholds on an annual basis to prevent the level from becoming outdated between rulemakings. DOL also considered revising the duties tests. SIGMA filed comments on the proposed rule, which were due September 4, 2015. The final rule was issued in May 2016.

That rule doubled the minimum salary threshold required to qualify for the Act’s “white collar” exemptions to $47,476 per year ($913 per week), substantially greater than the yearly salary of $23,660 per year ($455 per week) contained in current regulations. The new salary threshold was slated to go into effect on December 1, 2016, and would then have been updated automatically every three years beginning on January 1, 2020. The DOL expected the final rule to reduce the number of employees exempt from overtime pay requirements by nearly 4.2 million people within the first year of its implementation.

In Fall 2016, the rule was stayed due to ongoing litigation. On August 31, 2017, a U.S. District Court Judge struck down the rule, finding that DOL improperly used a salary-level test to determine which workers are exempt from overtime compensation. Judge Mazzant said that the “significant increase” in the annual salary level from $23,660 to $47,476 would all but invalidate the duties test, a test that is supposed to be used in conjunction with the salary test to determine which employees are overtime exempt.

Subsequently, DOL published a Request for Information (RFI) on the Obama Administration’s overtime rule on July 26, 2017. SIGMA filed comments supporting the following in any new rule:

 Updating the salary threshold, though not as high as the 2016 final rule;

 Scheduled updates of the salary threshold every three to five years (preferably every five years) via a formal notice-and-comment rulemaking; and

 Including nondiscretionary bonuses to satisfy the overtime salary threshold.

XX. The Joint Employer Standard - Efforts to Reform the Franchisor-Franchisee Relationship

1. Level of SIGMA Activity – Active Monitoring (4)

2. SIGMA’s Interest Whether or not an employer is considered a “joint employer” with respect to a specific employee is particularly important in the petroleum marketing space. When a “joint employer” business relationship exists, two or more companies would be jointly liable for federal labor law violations. Questions about what constitutes joint employment often arise under the franchisee- franchisor business model, which is extremely common in the fuel marketing business and the retail space in general. Many SIGMA members utilize this business model, and SIGMA closely monitors all government efforts to substantially rework the relationship between franchisors and franchisees.

3. Current Status

i. Agency Status

•Obama-era National Labor Relations Board (NLRB) issued new joint Aug. employer standard, under which two or more entities are joint employers of 27, a single work force if they exercise indirect or potential control over terms of 2015 employment. This was stricter than the previous standard of direct or immediate control.

•The DOL under the Obama Administration issued an administrator’s Jan. interpretation designed to make it easier for employers to be found to be 2016 “joint employers” under the Fair Labor Standards Act (FLSA).

June •DOL under Trump Admin. withdrew its 2016 guidance related to the 7, expanded definition of “joint employer.” 2017

Dec. •The NLRB overturned its 2015 expanded standard in a 3-2 vote, 14, returning to the pre-2015 standard that required employers to have actual or 2017 direct control over employees in order to be considered a joint employer.

Feb. 26, •The 2015 definition re-entered into force after a conflict of interest issue 2018 led to the vacating of the NLRB’s Dec. 2017 ruling.

Sep. •The NLRB released a proposed rule establishing that a company would 13, have to possess substantial control over the hiring, firing, and supervision of 2018 another firm’s employees to be considered a joint-employer. SIGMA filed comments in support of the proposal. •DOL under Trump Admin. issued a proposed rule to revise and clarify Apr. the definition of joint employment under the Fair Labor Standards Act 1, (FLSA). The rule generally adheres56 to the traditional definition where 2019 employers must actually control terms of employment. SIGMA filed comments that were generally in support of the proposal on June 25, 2019.

ii. Litigation Status

Since the NLRB decided the Browning-Ferris case, which established the new joint employer standard, there has been ongoing litigation. On March 9, 2017, the U.S. Court of Appeals for the District of Columbia Circuit heard oral argument on the case and remanded it back to the NLRB on December 22, 2017. Subsequently, the NLRB asked the D.C. Circuit Court to restart its consideration of Browning-Ferris—and on December 28, 2018, the D.C. Circuit Court of Appeals found that the NLRB’s 2015 expansion of the joint employer standard, despite having an approach that was inconsistent with “common-law limitations,” had an acceptable legal basis. As such, the Browning-Ferris standard remains law—and will remain on the books until NLRB finalizes its proposed rule to update the definition of joint employment.

iii. Legislative Status

During the 115th Congress, bills were introduced to roll back the 2015 standard and return it to the previous standard, as well as help mitigate potential effects of the 2015 rule on franchises. None of the bills became law.

4. Background On August 27, 2015, in a 3-2 decision (Browning-Ferris decision), the National Labor Relations Board (NLRB) announced a new standard for determining joint employer status under the National Labor Relations Act (NLRA). Several months later, on January 20, 2016, the Department of Labor’s (DOL) Wage and Hour Division (WHD) issued Administrator’s Interpretation (AI) No. 2016-1, a guidance document designed to clarify what constitutes “joint employer” status under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). Both of these actions resulted in significant changes to the tests for determining joint employer status, essentially making it easier to find that a joint employment relationship exists.

As mentioned, however, the guidance documents have been withdrawn (see Section XX. 3. i). The guidance documents were withdrawn in June 2017, while the standard was reversed by NLRB in mid-December. The reversal followed a memo by the NLRB’s General Counsel, Peter Robb, instructing that cases regarding the joint employer standard be submitted to the NLRB’s Division of Advice for “appropriate guidance on how to present the issue to the Board.” While the memorandum did not formally rescind the NLRB’s position on the issue, it indicated that the Board planned to tread carefully on the issue and may have been seeking to reverse the 2015 ruling, which it ultimately did two weeks later (even though that effort subsequently failed).

On the litigation front, in 2014, the NLRB’s general counsel named McDonald’s as a joint employer with some of its franchisees in several cases involving alleged unfair labor practices. That move, along with the Board’s Browning-Ferris decision, had many large franchisors and companies with shared workforces justifiably concerned that they may be subjected to employer obligations under the NLRA.

The NLRB’s 2015 standard, the McDonald’s case, and the DOL’s AI have all drawn scrutiny on Capitol Hill, with Republicans sharply denouncing the notion that franchisors should be treated as “joint employers” with their franchisees.

i. NLRB Standard and Related Litigation

On August 27, 2015, in a 3-2 decision, the National Labor Relations Board (NLRB) announced a new standard for determining joint employer status under the National Labor Relations Act (NLRA). Under the new joint employer standard, the NLRB could find that two or more entities are joint employers of a single work force if:

1) they were both employers within the meaning of the common law, and

2) they shared or codetermined those matters governing the essential terms and conditions of employment.

Undergirding the second prong of the standard was an employer’s level of control over employees’ employment terms and conditions—the analysis of which the NLRB substantially altered with the Browning-Ferris decision.

Previously, to find joint employer status, the NLRB required that an employer possess the authority to control essential terms and conditions of employment, and exercise that authority directly and immediately and not in a limited or routine manner. Under the Board’s 2015 approach, however, the right to control, along with the actual exercise of control (direct or indirect) was probative of joint employer status. According to the NLRB, “[r]eserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry.”

The practical effect of the Board’s 2015 joint employer standard was that more employers could be held liable for unfair labor practices under the NLRA. Whereas under the old approach only the supplier firm may have been held liable for labor violations, as of 2015 the user firm was more likely to be deemed a joint employer and be on the hook as well. This was thought to have a dramatic impact on the way businesses would structure their contracts insofar as they include any employment terms for shared or joint work forces.

The Browning-Ferris joint employer standard required a fact-specific analysis in every case. It was often unclear how far the decision would reach into other types of business relationships and contractual terms governing business dealings (e.g., franchisor-franchisee relationships, product quality control specifications, advertising and branding requirements, etc.).

An ongoing case against McDonald’s could have proven instructive regarding how the Browning-Ferris decision relates to franchisor-franchisee relationships. On March 30, 2015, an unfair labor practice hearing against McDonald’s Corporation opened before an Administrative Law Judge in New York City. The proceedings stem from labor complaints at numerous restaurant locations nationwide. The McDonald’s corporation was named a “joint employer” in the suit along with its franchisees. The suit is far from finished and any resulting decision could be appealed to the NLRB board, with further appeals moving to federal courts. On April 7, 2017, McDonald’s franchise workers appealed to the Ninth Circuit a federal judge’s decision to reject their argument that the company and franchise owners were joint employers. On September 15, 2017, workers were granted a $235,000 settlement while they continue to pursue the appeal. The company also separately agreed to pay $3.75 million to settle a wage-and-hour suit brought by workers at five California franchisee locations in October 2016. On March 19, 2018 McDonald’s announced that it reached a settlement with the NLRB in its joint employer case. Under the terms of the settlement, the question of whether 58

McDonald’s and its franchisees are joint employers will not be decided, but employees who brought claims against the company will receive “satisfaction of their claims.” On July 18, 2018, however, an NLRB Administrative Law Judge denied the settlement agreement. Parties are requesting an appeal.

ii. DOL Standard

In addition to the NLRB, the DOL has also been active in the joint employer space. As mentioned above, the DOL issued a guidance document in 2016 clarifying what constitutes “joint employer” status under the Department’s governing statutes. The administrative interpretation (AI) purportedly responded to modern labor market structure where work is often outsourced from larger companies to smaller ones, and is designed to ensure that joint employers cannot escape their obligations under the fair labor laws. While an AI does not have the same legal weight as a regulation, it is clear that DOL intended to expand coverage of the FLSA and the MSPA. As mentioned above, the AI was retracted by Trump’s DOL. On April 1, 2019, DOL released a proposed rule providing information on how to interpret joint employment under the FLSA. The proposal would return to a more traditional interpretation of joint employment whereby two (or more) employers would actually have to exercise control over an employee in order for a joint employment relationship to exist. SIGMA filed comments on the proposal on June 25, 2019.

XXI. Trucker Hours of Service Rules

1. Level of SIGMA Activity – Reporting Issue (5)

2. SIGMA’s Interest Federal Motor Carrier Safety Administration (FMCSA) regulations restricting truck drivers’ hours of service (HOS) directly impacts SIGMA members. The regulations could require members that employ truck drivers to alter drivers’ schedules to ensure that drivers do not violate the rules.

3. Current Status

i. ELD Mandate

On December 18, 2017, FMCSA’s electronic logging device (ELD) mandate went into effect. The regulation requires motor carriers and some other commercial drivers to use ELDs, which synchronize with a vehicle engine to automatically record hours of service instead of utilizing paper logs. Under the rule, carriers must select ELDs and ensure they are installed by the deadline. Furthermore, carriers are responsible for the training of drivers and administrative staff.

ii. Meal and Break Requirements

California has enacted a law that requires employers to provide their employees with an “off duty” 30-minute break for meals after every five hours worked and an additional 10-minute break for every four hours worked. On September 21, 2018, the Pipeline and Hazardous Materials Safety Administration (PHMSA) declared that federal law preempts California’s meal and rest break requirements for all drivers that transport hazardous materials. Subsequently, FMCSA similarly

declared federal law preempts the California meal and break requirements for all commercial truck drivers in December 2018.

iii. Hours of Service

On August 23, 2018, FMCSA published an Advance Notice of Proposed Rulemaking (ANPRM) requesting input from stakeholders on four areas of the HOS requirements: the short-haul HOS limit; the HOS exception for adverse driving conditions; the 30-minute rest break provision; and the split-sleeper berth rule to allow drivers to split their required time in the sleeper berth. FMCSA has not released a proposed rule at this time.

4. Background

Legislation enacted at the end of 2014 suspended enforcement of the federal 34-hour restart regulations that were adopted in July 2013 until the Department of Transportation (DOT) conducted a field study on driver fatigue. On March 9, 2017, after reviewing the completed study, FMCSA announced that its restart regulations would not go back into effect.

As a result, drivers may continue using the more flexible 34-hour restart provisions that were in place before July 1, 2013. This is a positive development for fuel marketers, as the new more strict regulations effectively reduced the maximum number of hours a commercial truck driver could drive during a work week from 82 hours to 80 hours.

XXII. Comprehensive Healthcare Reform

1. Level of SIGMA Activity— Reporting Issue (5)

2. SIGMA’s Interest SIGMA members are interested in how healthcare reform affects businesses, especially with regard to the revenue raisers and the individual and employer mandates. SIGMA counsel continues to monitor healthcare reform developments, including efforts to repeal and replace—or otherwise weaken—the Affordable Care Act (ACA), in Congress and at the implementing agencies.

3. Current Status In December 2017, Republicans successfully repealed the individual mandate as part of their tax reform package (meaning that beginning in 2019, individuals without minimum essential coverage will not face a tax penalty). Subsequently, Congress delayed implementation of several ACA taxes, including the medical device tax (2020), the so-called Cadillac tax (2022), and the health insurance providers’ tax (2020). All other parts of the ACA, including the employer mandate, remain in place.

The White House, via various actions by the ACA implementing agencies (the Departments of Labor, Treasury, and Health and Human Services), is seeking to “promote choice and competition” in the healthcare arena through regulatory means (e.g., new rules on association health plans, short-term limited duration insurance, health reimbursement arrangements, and state waivers under Section 1332 of the ACA). These non-legislative efforts likely will continue. Additionally,

more states are requesting – and are expected to receive – waivers from certain ACA provisions in order to stabilize their individual and small group healthcare markets and better tailor their healthcare rules to their respective populations’ characteristics and needs.

Notably for SIGMA members, the employer mandate and related penalties are in full effect for employers with 50 or more full-time employees (or full-time equivalents)—this remains the status quo following the 2015 enactment of the PACE Act, which kept the definition of “small employer” under the ACA as those who employ 50 or fewer employees (though it allows states to expand their definition of “small employer” to those with 100 or fewer employees). SIGMA counsel is aware that the exchanges (“Marketplaces”) have begun sending notices to employers whose employees enrolled in an exchange plan and received a subsidy (signaling that the employer may owe a penalty under the employer mandate). The Marketplace notices are separate from IRS notices, which will notify employers of any actual penalty liability. Both Marketplace and IRS notices are appealable.

SIGMA counsel advises members to appeal Marketplace notices if they believe they have offered affordable minimum value coverage to the employee(s) in question (assuming the employer is an applicable large employer subject to the employer mandate and the employee is a full-time employee entitled to an offer of coverage). Appeal instructions are included with the notices. If the Marketplace appeal is successful, the employer may avoid an erroneous penalty determination by the IRS down the road. At the very least, a Marketplace appeal will establish a trackable record for a later appeal to the IRS.

4. The Affordable Care Act’s Employer Mandate & General Background

i. Employer Mandate for Large Employers

Under the ACA, “large” employers that do not offer “affordable” health plans that provide a “minimum value” of coverage to all of their “full-time employees” (and their dependents) may be subject to a penalty if at least one of their full-time employees receives a premium tax credit to purchase coverage on one of the Exchanges. This is often referred to as the “employer mandate,” and is perhaps the most important aspect of the ACA for fuel marketers.

Employers with 50 or more full-time employees are considered “large employers” and are subject to the ACA’s employer mandate requirements. To be considered a “large employer,” an employer must have at least 50 “full-time employees” (defined as any employee who works 30 or more hours per week on average) or a combination of full-time and part-time employees that is equivalent to at least 50 full-time employees. (For example, 100 half-time employees equal 50 full- time employees.) There are two potential penalties under the employer mandate:

 “A Penalty” – Large employers that do not offer coverage to at least 95% of their full-time employees and their dependents will face an annual excise tax of $2,000 times the total number of full-time employees if one or more full-time employees receive a subsidy to purchase coverage through an exchange.

 “B Penalty” – Large employers who offer coverage to full-time employees that does not meet the law’s affordability or minimum value standards will face a penalty of $3,000 times the number of full-time employees who receive tax credits (or “subsidies”) for purchasing health coverage through an exchange.

The IRS issued its final rules implementing the employer mandate provisions of the Patent Protection and Affordable Care Act on February 10, 2014. Those rules contain detailed instructions for identifying “full-time employees,” determining whether employer coverage is affordable, and treatment of part-time and variable-hour workers.

ii. Small Group and Individual Market Provisions

As noted above, on October 7, 2015, President Obama signed into law the Protecting Affordable Coverage for Employees (PACE) Act. The PACE Act preserves the definition of “small employer” under the ACA as those with 50 or fewer employees, but it gives states the option of expanding their definition of “small employers” to include those with 51 to 100 employees.

This development is significant because under the ACA, individual and small-group plans have additional requirements, such as coverage of “essential health benefits” and community rating requirements, which are not applicable to large-group plans. Therefore, beginning in 2016, unless a state expands its definition of “small employer,” there should be no required community rating or adherence to other ACA small group market rules for groups of 51 to 100. Notably, some states, such as California, Colorado, New York, and Vermont, passed legislation to define “small employer” as those with up to 100 employees.

The ACA established new marketplaces, or Exchanges, where individuals and small businesses (through SHOP Exchanges) can buy insurance. Every state has an Exchange, which can be state-run, federally-run, or a partnership endeavor between the state and federal government. Many individuals receive help from the government to purchase coverage through an Exchange (through sliding-scale tax credits that cover much of the cost of premiums). Small businesses also get tax credits to help them provide insurance for workers.

RETAIL MATTERS

XXIII. Americans with Disabilities Act

XXIV. FDA Regulation of Tobacco

XXV. E-Cigarettes

XXVI. SNAP / Food Stamps

XXVII. Legalization of Marijuana

XXVIII. Menu Labeling

XXIX. Internet Lotteries

XXX. Patent Troll Legislation

XXXI. EPA Proposed Regulation on Refrigerants and Insulation

XXXII. Genetically Modified Organisms (GMO) Legislation

XXIII. Americans with Disabilities Act

1. Level of SIGMA Activity – Reporting Issue (5)

2. SIGMA’s Interest The Americans with Disabilities Act (ADA) establishes design requirements for the construction or alteration of facilities in order to ensure that places of public accommodation— including convenience stores and petroleum retail outlets—are accessible to persons with disabilities. These requirements may extend to private businesses’ websites. ADA violations at gas stations and convenience stores are easy targets for trial attorneys. SIGMA members need to be aware of all ADA regulations in order to ensure that their facilities are in compliance with the ADA’s requirements.

3. Current Status Since March 15, 2012, businesses, including retail fuel outlets and convenience stores, have had to comply with the ADA accessibility standards required for all “public accommodations.” These design requirements, adopted by the Department of Justice (DOJ) in 2010, apply to all new construction and alterations, and barriers to accessibility will have to be removed to comply with the standards when doing so is easy to accomplish and can be carried out without much difficulty or expense.

Additionally, the Equal Employment Opportunity Commission (EEOC) issued regulations in 2011 expanding the definition of “disability” under Title I of the ADA, making it easier for employees seeking protection under the ADA to establish that they have a disability within the meaning of the statute.

With respect to private website compliance with the ADA, a new phenomenon akin to well- known “patent troll” activity has begun impacting many in the convenience and fuel retailing industry and other retail channels. A number of retailers have received letters threatening them with lawsuits because their websites allegedly do not comply with Title III of the ADA. ADA requirements with respect to brick and mortar stores are generally well known and well developed, but the Act’s application to private businesses’ websites presents somewhat novel legal questions. In general terms, Title III of the ADA prohibits discrimination against disabled persons in places of public accommodation. The crux of the matter, then, turns on whether and under what circumstances a non-governmental website constitutes a place of public accommodation. Currently, the answers to those questions vary between judicial circuits.

i. Regulation

The DOJ has been slow to finalize regulations relating to websites’ compliance with the ADA and the Trump Administration DOJ moved this issue to “inactive” status. To provide some regulatory context, in 2010, the DOJ issued an advance notice of proposed rulemaking related to the ADA’s application to public accommodation websites. In May 2016, however, the DOJ indicated that it will complete a rulemaking on the ADA’s application to State and local government websites before proceeding with a rulemaking for private company websites (DOJ did issue a supplemental advance notice of proposed rulemaking in 2016 on accessibility of web information and services of State and local government entities).

Now, it is unclear when we can expect to see rules for private websites. On December 26, 2017, the DOJ issued a notice of withdrawal for four previously announced advance notices of proposed rulemaking related to title II and title III of the ADA, including the 2010 advance notice of proposed rulemaking on the accessibility of Web information and services of state and local government and public accommodations and the 2016 supplemental advance notice of proposed rulemaking regarding the accessibility of Web information and services of state and local government.

Since the DOJ has not finalized rules in this area, questions of compliance currently are in the hands of the courts. To date, courts in different judicial circuits have applied varying tests and standards in these cases. And there is no indication that private lawsuits are slowing down in the face of regulatory uncertainty.

ii. Legislation

In the 115th Congress, the House passed the ADA Education and Reform Act, a bill that would amend the ADA to include a requirement that potential plaintiffs notify a business before suing it for noncompliance with the ADA. The legislation would have provided businesses four months to demonstrate their intent to comply with the ADA after receiving a notification. At this time, similar legislation has not been introduced in the 116th Congress.

4. Background

i. Private Website Compliance with Title III of the ADA

The ADA, passed in 1990, lists several examples of public accommodations but does not specifically mention websites (which is understandable given that commercial websites did not exist at that time). Some courts, like those in the Ninth Circuit, have interpreted “place of public accommodation” to mean a physical place. Accordingly, in that circuit, prevailing on a Title III ADA claim requires a showing of discrimination at a physical place or somewhere (i.e., online) with a sufficient nexus to a physical place to establish a violation of the law. Using this so-called nexus approach, someone could file a suit alleging that a company’s website prevents the full and equal enjoyment of the goods and services offered in the company’s stores, but to the extent the website is not necessary to the equal use of the store the suit likely would be unsuccessful.

Other courts, like those in the First and Seventh Circuits, have interpreted the ADA more broadly and maintain that websites, just like brick and mortar stores, may themselves be places of public accommodation. Therefore, in those places, the ADA may apply to private business websites even in the absence of a connection to a physical place.

Once a court determines that the ADA applies to a website, it must decide whether the website is compliant or not. In one case against a large well known retailer, plaintiffs alleged that the business’s website was not accessible to blind individuals because “alternative text” features had not been employed. Other cases have alleged discrimination against deaf individuals based on inaccessibility of video content (i.e., no closed captioning). Litigation in this area continues to be active, despite the fact that regulations on this matter remain unfinished.

ii. DOJ Accessibility Regulations

The ADA regulations adopt standards for “accessible design” in public accommodations and commercial facilities. These provisions generally require convenience stores and petroleum retailers to go to greater lengths to ensure that their facilities are accessible to disabled patrons than is required under current law. Because the specific requirements are far too great to address in detail (there are over 1,000 new requirements applicable to petroleum retailers), below are some of the biggest considerations SIGMA members should keep in mind to ensure that they do not run afoul of the ADA’s requirements.

Barrier Removal – The ADA obligates facilities to remove structural architectural barriers to accessibility if doing so is “readily achievable” (defined under the ADA as “easily accomplishable and able to be carried out without much difficulty or expense”). Thus, facilities not in compliance with ADA standards have a continuing obligation to become compliant when doing so is readily achievable. Since March 15, 2012, facilities have had to remove barriers to comply with the standards.

Safe Harbor Provision – Significantly, the rules include a “safe harbor” provision, under which existing building elements that already comply with the older ADA standards are not required to be brought into compliance with the 2010 standards unless such elements undergo an “alteration.” An alteration is a change to a building or facility that affects or could affect the usability of the building or facility (or a portion thereof). SIGMA members must recall, however, that they have a continuing obligation to remove barriers to compliance when doing so is “readily achievable.”

Additional Accessibility Standards

1) Reach-Range Requirements – The ADA requires the controls for all accessible elements to be within a certain range of the surface where a wheelchair user would sit sideways to operate the controls. The old standards required operable parts to be no more than 54 inches and no less than 9 inches from the ground; the new standards require no more than 48 inches and no less than 15 inches.

2) Accessible Routes  Slope – The standards contain stricter incline requirements than prior ADA regulations, requiring flatter surfaces at various points in and outside of facilities.

 Side Arrival Points – The standards require that at least one accessible route be provided between all site arrival points and the building entrance. In other words, every different entrance to a facility’s land must provide an accessible route to the entrance of the building on the land (except when the only means of access between an entrance point and the building entrance is a vehicular way that does not provide pedestrian access).

 Public Entrances – The standards require that 60% of public entrances to a building be accessible (up from 50%). Thus, where two public entrances are planned in a newly constructed facility, both entrances must be accessible.

3) Toilet and Bathing Facilities – The regulations contain a plethora of requirements pertaining to public restroom facilities, some of which ease the burden on convenience store owners.

The DOJ released a Primer for Small Business intended to help small businesses comply with the new accessibility requirements. The primer is available here: http://www.ada.gov/regs2010/smallbusiness/smallbusprimer2010.htm.

XXIV. FDA Regulation of Tobacco

1. Level of SIGMA Activity – Active Lobbying – important issue (2)

2. SIGMA’s Interest The average convenience store/motor fuel marketer derives nearly 34 percent of its in-store sales from tobacco product sales. The Family Smoking Prevention and Tobacco Control Act of 2009 gives the Food and Drug Administration (FDA) the authority to regulate the manufacture and retail sale of cigarettes and smokeless tobacco. The implementation of legislation or regulations that affect retail tobacco sales will have an impact on many SIGMA members.

3. Current Status

i. Regulatory Actions

In July 2017, FDA announced a comprehensive, multi-year plan by the FDA to reduce tobacco related disease and death. To that end, in March 2018, FDA released a series of Advance Notice of Proposed Rulemakings (ANPRMs) to reduce nicotine levels to minimal, or non-addictive, amounts in tobacco products and regulate flavors, including menthol, in tobacco products. SIGMA submitted comments on the ANPRMs to FDA.

Likewise, in January 2017, the FDA issued a proposal to establish a limit of Nnitrosonornicotine (NNN) in finished smokeless tobacco products. SIGMA filed comments with the FDA on July 10, 2017, to ensure that the FDA is fully aware of the impact the rule could have on the thousands of retailers that sell smokeless tobacco products.

As detailed more extensively below, in 2016, FDA finalized a rule that extends its regulatory authority to cover e-cigarettes as well as traditional cigarettes. While a transition period is applicable, these newly deemed tobacco products must either be “substantially equivalent” to a tobacco product on the market as of February 15, 2007, or undertake a costly and lengthy Premarket Tobacco Application (PMTA). In June 2019, FDA finalized its guidance to assist manufacturers with their PMTAs.

To assist retailers with the deeming regulations, SIGMA counsel prepared a memorandum outlining the regulation’s requirements. The FDA has also issued various guidance documents, available here: http://www.fda.gov/ tobacco-products/products-guidance-regulations.

ii. Enforcement

In the course of tobacco inspections, the Centers for Tobacco Products (CTP) within FDA issues warning letters and complaints alleging violations of tobacco sales regulations. The statute and regulations set out a system where civil money penalties become more severe depending on how many prior violations a store has had in the past.

CTP has argued that the agency could count multiple violations per store inspection/transaction, meaning a single mistake by one store clerk (failing to check ID and selling to a minor) could lead to fines, even without prior violations at that store. A convenience store retailer unsuccessfully contested a civil monetary penalty issued by the CTP to challenge the scope of CTP’s authority. Since the United States Court of Appeals denied the convenience store retailer’s appeal, CTP can continue to assess multiple violations of its regulations for a single failed inspection.

4. Background

The Tobacco Control Act includes provisions requested by retailers to make the legislation fair, including explicit directions that the Act applies to tribal tobacco sales and requires FDA to establish rules for regulating Internet sales. The Act also prohibits the FDA from banning any tobacco product from being sold in a category of retail outlet. In addition, the law provides that when determining whether to impose a “no-tobacco-sale order,” FDA will consider whether the retailer has taken effective steps to prevent violations, including whether the retailers employed a compliance and training program. Finally, the law provides that any civil penalties being paid to a State are taken into consideration (subtracted from) any Federal civil penalty. The House Energy and Commerce Committee also included report language clarifying that all retailers who verify age can sell smoking cessation products.

On May 10, 2016, the FDA finalized a rule to extend its authority to regulate tobacco products, including e-cigarettes, which were previously unregulated at the federal level. In addition to cigarettes, roll-your-own tobacco, and smokeless tobacco, the FDA will regulate the following “newly deemed tobacco products”:

 E-cigarettes, vape pens, and other electronic nicotine delivery systems (ENDS);  All cigars, including premium cigars;  Waterpipe (hookah) tobacco;  Pipe tobacco;  Nicotine gels;  Dissolvable tobacco products;  Novel and future tobacco products; and  Components and parts of newly deemed tobacco products.

The Tobacco Control Act subjects newly deemed tobacco products to several restrictions that are more relevant to tobacco manufacturers rather than retailers. These include registration and ingredient listing requirements, premarket review, and a prohibition against use of modified risk descriptors, such as “light” or “mild.” Newly deemed products are also automatically subject to a prohibition on the distribution of free samples (which currently applies to cigarettes).

Beyond the automatic restrictions that are outlined above, the final deeming rule includes a number of provisions in which retailers should be aware:

1) Prohibition on underage sales (younger than 18); 2) Age verification for any customer who may potentially be younger than 27; 3) Prohibition on free samples, which includes components or parts of covered tobacco products; and 4) Prohibition of vending machine sales (unless the machine is located in a facility where individuals under age 18 are prohibited from entering). These requirements are effective as of August 8, 2016.

While much of the rule affects manufacturers of tobacco products, some changes with respect to product packaging and advertisements may impact retailers. Beginning in May 2018, retailers may not offer, sell, distribute or import covered products, including cigarettes, cigars, and roll-your- own tobacco, with noncompliant packaging, nor may they display any ads that do not contain a proper warning (i.e., without an approved nicotine addictiveness, tobacco, or cigar warning, whichever is applicable to the product).

In recent years, several Members of Congress have introduced legislation to move the “predicate date” to newly deemed products to the date when FDA finalized its rule deeming electronic cigarettes as tobacco products.

XXV. E-Cigarettes

1. Level of SIGMA Activity – Active Lobbying – important issue (2)

2. SIGMA’s Interest The Family Smoking and Prevention Tobacco Control Act of 2009 (Tobacco Control Act) grants the Food and Drug Administration (FDA) authority over significant aspects of tobacco manufacturing marketing and retail practices. SIGMA members are interested in selling legal products in a lawful manner to customers who want to purchase them, including e-cigarettes to legal adults. SIGMA has made clear that the industry supports efforts to limit youth e-cigarette use so long as the efforts ensure a level playing field, are legal, derived from a rulemaking process, and supported by data.

3. Current Status On March 13, 2019, FDA issued draft guidance that would limit the sale of most flavored e- cigarettes to adult-only stores, stores with adult-only sections, or the Internet. FDA issued guidance in an attempt to circumvent limitations on its legislatively granted authority, which would otherwise require a full rulemaking to restrict the sale of certain tobacco products. The guidance effectively bans sales of most flavored e-cigarettes, however, the agency claims it is only going to “prioritize enforcement” at businesses that are not adult-only, such as convenience stores/fuel marketers. FDA’s guidance does not address the issue of underage use of e-cigarettes, but instead chooses regulatory winners and losers. SIGMA submitted comments on the draft guidance on April 30, 2019 and is working with Members of Congress and the White House to try to convince the Administration to change course.

On January 17, Senate Homeland Security and Governmental Affairs Committee Chairman Ron Johnson (R-WI) sent an oversight letter to then-FDA Commissioner Scott Gottlieb asking the FDA to provide its reasoning behind issuing guidance to rather than using the rulemaking process to restrict flavored e-cigarettes. Rep. Richard Hudson (R-NC) led a similar letter with 22 members of Congress that expressed their opposition FDA’s proposal and asked for additional information. In addition, Rep. Trey Hollingsworth (R-IN) led a congressional letter to FDA on April 30 sharing concerns with the proposed restrictions on retailers, which was signed by 46 members of Congress. SIGMA opposes FDA’s guidance that would allow vape shops and Internet sellers to develop a monopoly on sales of most flavored e-cigarettes while banning convenience stores/fuel marketers from that market. Vape shops and Internet sellers are a more frequent source of e-cigarette sales to minors than are convenience stores/fuel marketers, even though there are 15 times more convenience stores than vape shops and tobacco stores combined. To that end, Sens. Dianne Feinstein (D-CA), John Cornyn (R-TX), and Chris Van Hollen (D- MD) introduced the Preventing Online Sales of E-Cigarettes to Children Act (S. 1253), legislation would require that online retailers of e-cigarettes do what the Prevent All Cigarette Trafficking Act (PACT Act) requires online retailers of traditional cigarettes do – ensure that there is age verification at the delivery of their product. The bill would also require the online retailer to pay the appropriate state and local taxes. SIGMA is actively lobbying in support of this legislation and seeking companion legislation in the House.

4. Background

i. Regulatory Actions

Although Congress granted FDA the authority to regulate tobacco products with the passage of the Tobacco Control Act in 2009, the legislation did not apply to e-cigarettes. In 2016, FDA promulgated rules that “deemed” e-cigarettes to be tobacco products and therefore subject to FDA regulations. As a requirement of the Tobacco Control Act, e-cigarettes need premarket approval prior to sale because they entered the market after February 15, 2007. In August 2017, however, FDA issued a compliance policy for e-cigarettes which delayed the requirement that they go through the premarket approval process until August 8, 2022. On May 15, 2019, a Maryland District Court sided with public health groups that sued the FDA, ruling that FDA’s decision to delay the requirement for premarket approval for e-cigarettes was illegal. The ruling requires FDA to impose the original premarket approval deadline. FDA, however, is expected to appeal.

With regard to the sale and marketing of e-cigarettes to minors, FDA announced a series of enforcement actions in September 2018. The agency issued more than 1,300 warning letters and fines to retailers who illegally sold e-cigarettes to individuals that are underage.

Similarly, on March 4, 2019 FDA issued a misleading statement regarding its plans to regulate sales of flavored e-cigarette products to youth, following a meeting with White House officials to present the plan. The statement presents the “violation rates” of several retailers, including several convenience stores, but the numbers cited are not an accurate representation of rates of compliance. Instead, FDA cited inspections and violations of all tobacco products from as far back as 2010. This statement was one of many that former FDA Commissioner Scott Gottlieb made against the convenience store industry.

ii. Legislative Actions

In 2009, Congress passed the PACT Act, which requires online retailers of cigarettes and smokeless tobacco products to ensure in-person age verification when cigarettes and smokeless tobacco products are delivered and pay the required state and local taxes. When the PACT Act was passed in 2009, however, the legislation did not extend to e-cigarettes, a product that was new to the market. Since then, the underage use of e-cigarettes has dramatically increased. S. 1253 would update the law to cover e-cigarettes.

XXVI. SNAP / Food Stamps

1. Level of SIGMA Activity – Active Participation (3)

2. SIGMA’s Interest Convenience stores owned and operated by SIGMA members play an integral role in the Supplemental Nutrition Assistance Program (SNAP), particularly in rural and urban communities where economically challenged Americans have few places to shop for food. In order to participate in SNAP, retailers must meet certain eligibility requirements. Often, the rules that convenience and other small format stores must meet are referred to as the “Depth of Stock” rules because their eligibility rules contain specific requirements about what items and how many items a retailer must stock in order to participate in SNAP.

3. Current Status

i. SNAP Retailer Eligibility

On December 8, 2016, the Department of Agriculture’s (USDA) Food and Nutrition Service (FNS) issued a final rule to update retailer eligibility requirements (namely requirements relating to “Depth of Stock”), pursuant to changes contained in the 2014 Farm Bill. The final rule was scheduled to go into effect for retailers applying for new SNAP licenses on May 17, 2017, and for existing SNAP retailers on January 17, 2018. However, Congress delayed implementation of certain parts of the rule until FNS rewrites the definition of variety (See Variety section below).

In October 2017, FNS began implementing the “hot foods” provision of the final rule. Under the hot foods provision, retailers are ineligible to participate in SNAP (and will be disqualified from the program) if 50% or more of the store’s total gross retail sales, which include fuel and tobacco sales, come from items that are cooked or heated on site before or after purchase. FNS will consider “co-located” retailers, i.e., retailers that “include separate businesses that operate under one roof and share all three of the following commonalities: ownership, sale of similar foods, and shared inventory” to be a single entity for eligibility purposes under this provision. Likewise, the “stocking unit” requirements went into effect on January 17, 2018. Under the “stocking unit” rule, SNAP retailers must have three units on shelves of the three varieties of food in each of the four “staple food” categories (a total of 36 staple food items).

The final rule does the following:

Depth of Stock Requirements

Implementing the 2014 Farm Bill’s stocking requirements, the FNS final rule will require retailers to stock seven different “varieties” of food items in each of the four “staple food” categories. Of those items, retailers must stock at least one “perishable” food item in at least three of the four staple food categories.

Staple food items are items intended for home preparation and consumption. Hot foods are not eligible for purchase with food stamps and, therefore, do not qualify as staple foods. “Accessory food items” including, but not limited to, coffee, tea, cocoa, carbonated and uncarbonated drinks, candy, condiments, and spices are not considered staple foods (though they may be purchased with SNAP benefits).

The four staple food categories are:  Meat, poultry, or fish  Bread or cereals  Vegetables or fruits  Dairy products

The final rule updates USDA regulations pre-dating the Farm Bill pertaining to the definition of “variety” or the types of foods that may count towards a retailer’s stocking requirements. Because Congress directed FNS to rewrite the final rule’s problematic definition of “variety”, FNS issued a proposed rule on April 5, 2019 to rewrite its definition.

In addition to the seven different “varieties” of food items in each of the four “staple food” categories, the FNS final rule requires retailers to stock at least three stocking items for each variety of food, on a continuous basis. To meet the “variety” and “stocking” requirements, retailer must keep on their shelves at least 84 items (3 stocking units of 7 varieties for each of the 4 staple food categories: 3 X 7 X 4=84). In addition, the final rule contains a provision that would allow a retailer to prove he had purchased the proper number of units if he comes up short some units during an inspection.

Variety

On April 5, 2019, FNS published a proposal to update the definition of “variety” as it relates to eligibility requirements for retailers participating in SNAP. In the 2016 final rule, FNS had defined variety so that different items from the same species (e.g., sliced ham and bacon) could not count as two separate varieties because they are both pork. Under the proposal, FNS would permit retailers to count:

 A perishable and a shelf-stable item for any species of meat, poultry, or fish as one discrete variety. (For example, frozen chicken breast (perishable) and canned chicken (shelf-stable) would each count as one variety of food in the meat, poultry, or fish category.)  A (1) fresh cheese (e.g., cream cheese), (2) semi-soft cheese (e.g., mozzarella cheese), (3) hard cheese (e.g., cheddar cheese), and (4) cheese-based product (e.g., canned cheese dipping sauce) as four discrete varieties in the dairy category. (This four category subdivision would apply to other milk-based cheeses as well, such as goat's milk cheeses.)

 A (1) full-fat cow milk, (2) fat-reduced cow milk, (3) a liquid shelf-stable cow milk, and (4) powdered cow milk. (This four category subdivision would apply to other animal milks, such as goat’s milk.)  A (1) cow milk-based yogurt drink (e.g., kefir), (2) full-fat cow milk-based yogurt, and (3) fat-reduced cow milk based yogurt. (This three category subdivision would apply to other animal milk based yogurt.)  In addition to the proposed changes above, FNS is also proposing to expand what counts as variety in the bread or cereals category.

SIGMA filed comments on the proposal on June 4, 2019.

Definition of Retail Food Store

To be eligible to redeem SNAP benefits, a business must be considered a “retail food store”: a store that either (A) sells food for home preparation and consumption and offers, on a continuous basis, a variety of foods in sufficient quantities in each of the four categories of staple foods including perishable foods or (B) has more than 50 percent of its total gross retail sales in staple foods. Under the final rule, however, if more than 50 percent of a retailer’s total gross sales come from foods cooked or heated on-site by the retailer before or after purchase, the retailer will be unable to participate in SNAP.

Establishments that include separate businesses that operate under one roof and have the following three commonalities: ownership, sale of similar foods, and shared inventory, will now be considered to be a single establishment when determining eligibility to participate in SNAP as retail food stores.

ii. SNAP Retailer Application

In January 2018, FNS released an updated application form by which retailers apply to accept SNAP benefits. Previously, the application only required applicants to provide an aggregate estimate of total sales of all ineligible items (e.g. gasoline, tobacco, alcohol, lottery, etc.) in the application, but the updated retailer application requests an itemized list. This change to the retailer application is problematic because the data is irrelevant to whether a store should be able to participate, the data may be at risk for Freedom of Information Act (FOIA) release, the data may be at risk for erroneous sharing by FNS, and the data may be at risk if FNS is hacked. In fact, during the debate of the 2014 Farm Bill, Congress specifically rejected tying retailer SNAP participating to sales of ineligible items.

In response to concerns raised by SIGMA and other groups regarding the manner in which FNS is collecting retailer sales data, FNS issued a proposal that would make changes to the application retail stores must file to participate in SNAP. On April 26, 2019, FNS released a revised application that allows applicants to provide an aggregate percentage of total sales of all nonfood items.

iii. SNAP and Swipe Fees

In 2018, MasterCard reached out to lawmakers attempting to convince them to permit swipe fees on SNAP Electronic Benefit Transfer (EBT) transactions. Essentially, MasterCard was

advocating lifting the legislative prohibition on interchange for SNAP transactions. In 1980, Congress acted to prevent the imposition of these fees on retailers when banks started deducting interchange fees for the redemption of paper food stamps. SIGMA opposes interchange fees on SNAP EBT transactions. To that end, SIGMA submitted a letter to the leadership of the House and Senate Agriculture Committees on October 5, 2017, to express its concerns with MasterCard’s proposal. MasterCard’s proposal did not make it into the 2018 Farm Bill.

iv. SNAP Redemption Data

In 2011, a South Dakota newspaper, the Argus Leader, made a Freedom of Information Act (FOIA) request to USDA, seeking a variety of SNAP data—including SNAP revenue totals for individual retail locations between the years of 2005-2010. USDA declined to release the retailer- specific revenue data, citing certain FOIA exemptions: for information that is specifically protected from release by some other statute (Exemption 3), and for confidential financial information (Exemption 4). The Argus Leader sued USDA in federal court. After the Eight Circuit Court of Appeals determined as a matter of law that Exemption 3 does not apply, the case returned to district court for further proceedings on the Exemption 4 issue.

During this years-long legal battle, SIGMA joined other associations and individual retailers in providing information to assist USDA in its defense. Unfortunately, the district court disagreed; the judge ruled in favor of the Argus Leader and found that USDA did not meet its burden to prove that Exemption 4 applied.

USDA decided not to appeal the decision to the Eighth Circuit. Thus, at the end of January 2017, USDA announced that it would be making retailers’ SNAP revenue totals for individual locations publicly available. On May 8, 2017 the Eighth Circuit Court of Appeals ruled that the public release of SNAP retail sales data is not protected from disclosure under FOIA as it will not cause competitive harm to businesses that participate in the program. Subsequently, FMI filed a certiorari petition with Supreme Court, which agreed to hear the case on January 11, 2019.

On June 24, 2019, the Supreme Court issued its opinion in Food Marketing Institute v. Argus Leader Media. In the 6-3 opinion drafted by Justice Gorsuch, the Supreme Court found that business information that a company treats as private and shares with the government based on an understanding that the data will be kept private is protected from disclosure under FOIA. Previously, public release of confidential data shared with the government was permitted unless a company could show the data’s release would cause a substantial competitive harm, a very high bar to meet.

XXVII. Legalization of Marijuana

1. Level of SIGMA Activity – Active Monitoring (4)

2. SIGMA’s Interest An increasing number of states have legalized, or are considering legalizing, the recreational use of marijuana. Moreover, a majority of states have legalized use of the cannabis plant, including hemp-derived cannabidiol (CBD). The implementation of legislation or regulations that allow for the retail sale of marijuana or other cannabis products will have an impact on many SIGMA members.

3. Current Status In the 116th Congress, various legislation has been introduced that would allow the sale of marijuana. Of note to SIGMA members, Sens. Cory Gardner (R-CO) and Elizabeth Warren (D-MA) and Reps. Earl Blumenauer (D-OR) and David Joyce (D-OH) introduced the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act) that would allow the states to determine their own marijuana policies. In addition, on March 28, 2019, the House Financial Services Committee passed the Secure and Fair Enforcement (SAFE) Banking Act of 2019—legislation that would allow banks and other financial service providers to offer access to marijuana-related business in states with existing regulatory structures or legalization schemes.

For the most part, however, states that have legalized marijuana do not allow convenience stores/fuel marketers to sell the products. They are typically restricted to outlets that only sell marijuana products. Some state associations have been working to try to open those markets so that others can sell the product.

As for hemp-derived cannabis products, former Food and Drug Administration (FDA) Commissioner Scott Gottlieb released a statement on April 2, 2019, announcing a number of steps to advance potential regulations for cannabis-containing and cannabis-derived products. These steps follow recent public statements from former Commissioner Gottlieb indicating FDA will try to provide regulatory clarity around cannabis-containing and cannabis-derived products, including CBD. At the moment, however, the FDA has not approved CBD as an additive in any food or beverage product. Nor can any product containing CBD make a health claim regarding the benefits of its use.

4. Background

Eleven states and the District of Columbia have legalized the use of recreational marijuana, with varying licensing regulations for retailers to sell the products. Despite these advances, marijuana remains illegal under federal law. Marijuana is classified as a Schedule I drug under the Controlled Substances Act, rendering it unlawful for any person or entity to manufacture, distribute or dispense marijuana and compounds derived therefrom (including marijuana-derived CBD).

Under the 2018 Farm Bill, Congress declared that all products made from industrial hemp— including hemp-derived CBD oil and other products—will be legal under the Controlled Substances Act, provided they contain no more than 0.3% THC. However, the FDA has consistently taken the view that additives that are ingested (such as foods and beverages) and any products that make health claims (e.g., lotions, salves and other topicals) containing cannabis and cannabis-derived compounds (like CBD)—regardless of whether the substance is sourced from marijuana or hemp—require the agency’s approval before being marketed in interstate commerce. While there are exemptions from the FDA’s premarket approval authority that may apply and facilitate retail sales in certain circumstances, such determinations often have to be made on a product-by-product basis. The 2018 Farm Bill did nothing to alter the FDA’s existing authority to regulate such products under the Federal Food, Drug, and Cosmetic Act. So, while the Controlled Substances Act is no longer an impediment to the legality of hemp-derived CBD, the FDA most certainly is.

XXVIII. Menu Labeling

1. Level of SIGMA Activity – Reporting Issue (5)

2. SIGMA’s Interest In late November 2014, the Food and Drug Administration (FDA) finalized rules establishing menu labeling requirements for chain restaurants and “similar retail food establishments” with 20 or more locations, including many convenience stores. Generally, establishments that are covered by the rule must post calories for standard menu items on menus or menu boards or, for self-service items and foods on display, on signs adjacent to the items. They are also required to provide additional written nutrition information to consumers upon request.

3. Current Status On May 7, 2018, the federal regulations requiring retailers to provide calorie counts went into effect. That day, FDA also released additional guidance to help businesses comply with the rule. The latest guidance indicates FDA is moving in the direction of providing flexibility in their own enforcement of the menu labeling rules, but many issues with the rule remain. For compliance questions, SIGMA members should review the compliance guide that is available on SIGMA’s website.

4. Background The Affordable Care Act (ACA) included a provision that requires menu labeling for restaurants and “similar retail food establishments.” The provision was included at the request of the chain restaurant industry to create a uniform national menu labeling standard to replace the patchwork of state and local menu labeling laws that had been enacted over the course of the previous decade.

After the ACA was enacted, the chain restaurant industry began encouraging the Obama Administration to expand the menu labeling law’s scope through regulations. Specifically, they encouraged the FDA to apply it not only to chain restaurants, but to convenience stores, grocery stores, movie theaters, and virtually any other establishment that sells hot or prepared food.

Chain restaurants, which generally offer the same food products prepared in the same manner across all of their locations, can comply with the menu labeling rule with little burden. Convenience stores, on the other hand, have more difficulty complying with the menu labeling rules because not all stores within a chain necessarily offer the same food products. The rule did not lend itself to the type of “centralized” compliance regime that chain restaurants utilize, making food service more complex and expensive for convenience stores relative to the chain restaurant industry.

On February 6, 2018, the House passed the Common Sense Nutrition Disclosure Act that would make a number of changes to the existing law that impacts implementation for convenience store operators. Although a companion bill was introduced in the Senate, the legislation ultimately did not move forward.

XXIX. Internet Lotteries

1. Level of SIGMA Activity – Reporting Issue (5)

2. SIGMA’s Interest Most SIGMA members sell lottery tickets in their retail outlets and rely upon the foot traffic that is generated by those sales to increase sales of other items. Online lotteries will detract from in- store ticket sales.

3. Current Status On January 14, 2019, the Department of Justice (DOJ) released an opinion reversing the Obama-era DOJ legal opinion that had opened the door to online lotteries. The January 2019 opinion made clear that all forms of gaming conducted in interstate commerce over the wires, including lotteries, are illegal under the Wire Act. SIGMA has been advocating for DOJ to issue this reversal for approximately seven years. The DOJ, however, is giving time for states to adjust to its new opinion before it enforces the Wire Act. The state of New Hampshire has filed suit challenging the DOJ’s opinion.

4. Background On December 23, 2011, the DOJ – with no public input or congressional involvement – issued a legal opinion reversing its long-held position that the Wire Act bars Internet gambling, opening the door for states to authorize non-sports wagering over the Internet. The legal opinion was flawed in a number of ways. In addition, there are strong arguments that other federal laws prohibit online lotteries even if the Wire Act does not. The DOJ’s legal opinion injected substantial uncertainty into this area. Since then, multiple states have passed legislation authorizing Internet gambling, and some states have put their lotteries online or are considering legislation to do so.

XXX. Patent Troll Legislation

1. Level of SIGMA Activity— Reporting Issue (5)

2. SIGMA’s Interest Patent “trolls” are entities that purchase patents and then send large numbers of letters to companies alleging infringement of those patents. Not only are these letters delivered to manufacturers that might have used the patented technology in making a product, but they are also sent to customers who purchased and used such products—and who had no knowledge and no way of knowing that the particular product they purchased could have a patent issue hidden inside it. The trolls often calculate that regardless of the merits of their claims, companies will not want to spend the money on legal fees to fight them and will settle these cases instead. SIGMA members have received these types of letters and have been sued.

3. Current Status Congress has received significant pressure to do something to rein in so-called “patent trolls.” Despite efforts to change this situation, comprehensive patent reform has stalled in both chambers

due to the power of the opposition (e.g., pharmaceutical companies and universities). Nevertheless, a large coalition of merchant and technology companies and associations, United for Patent Reform, is still hoping to push through reforms. Given what occurred over the past three congresses, however, reform efforts may focus on pushing smaller piecemeal reforms rather than a comprehensive package.

On the litigation side, in an 8-0 ruling on May 22, 2017, the United States Supreme Court decided TC Heartland LLC v. Kraft Foods Group Brands LLC, and curtailed patent trolls from using the Eastern District of Texas as a tool for extorting settlements from alleged infringers. This reversed a lower court decision that allowed companies to choose “friendly” courts for patent-related litigation.

4. Background During the 113th Congress, House Judiciary Committee Chairman Bob Goodlatte (R-VA) introduced comprehensive patent legislation. Ultimately, however, patent reform permanently stalled in late May 2014 after former Senate Majority Leader Harry Reid (D-NV) announced he would not bring any patent reform bill to the Senate floor given opposition from trial lawyers.

Similarly, in early 2015, legislation to try to deal with the problems caused by patent trolls failed to move forward.

XXXI. EPA Proposed Regulation on Refrigerants and Insulation

1. Level of SIGMA Activity – Reporting Issue (5)

2. SIGMA’s Interest Many SIGMA members with convenience stores rely on refrigeration technology to store and maintain products offered for sale. Any effort to restrict the use of certain hydrofluorocarbons (HFCs) as unacceptable for retail food refrigeration should provide sufficient time for retailers to come into compliance, and should minimize the extent to which retailers must (a) retrofit their equipment, (b) purchase new equipment, and (c) pay more for new equipment once current equipment expires.

3. Current Status On July 20, 2015, EPA finalized a rule as part of its Significant New Alternative Policy (EPA-SNAP) program that would render unacceptable various HFCs and HFC-containing blends that were previously listed as acceptable. Most recently, on April 27, 2018, EPA released a notification of guidance stating that, in the near-term, the agency “will not apply the HFC listings in the 2015 Rule, pending a rulemaking.” A number of environmental groups have since sued EPA for allegedly violating the Clean Air Act in essentially revoking the rules.

Previously, on December 1, 2016, EPA published a final rule to expand the list of acceptable substitutes; lists unacceptable substitutes; and changes the status of a number of substitutes that were previously listed as acceptable. Subsequently, on July 21, 2017, EPA published another expanded list of acceptable substitutes.

Additionally, under Section 608 of the CAA, EPA prohibits the knowing release of refrigerant during the maintenance, service, repair, or disposal of air-conditioning and refrigeration equipment. The EPA requires proper refrigerant management practices by owners and operators of refrigeration and air-conditioning systems, technicians, and others. On November 18, 2016, the EPA published a final rule to update and expand the existing requirements for ODS, which includes obligations on owners/operators of commercial refrigeration equipment. Section 608 remains in effect. On August 10, 2017, EPA Administrator Scott Pruitt indicated in a letter to counsel for the Air Permitting Forum and the National Environmental Development Association’s Clean Air Project that the EPA is planning to issue a proposed rule to revisit aspects of the November 18, 2016 final rule’s extension of certain refrigerant management requirements to non-ODS substitutes, such as HFCs.

4. Background Under the EPA-SNAP program, EPA continuously reviews alternatives to ozone-depleting substances to find substitutes that pose less overall risk to human health and the environment and issues updates to the lists of acceptable and unacceptable substitutes.

The EPA has provided information on the Section 608 and EPA-SNAP requirements for owners and operators, available on their website: https://www.epa.gov/section608 and https://www.epa.gov/snap/snap-regulations.

XXXII. Genetically Modified Organisms (GMO) Labeling

1. Level of SIGMA Activity – Reporting Issue (5)

2. SIGMA’s Interest Many SIGMA members with convenience stores sell packaged foods to consumers. Any effort to require labeling for products containing genetically-modified organisms (GMOs) or genetically engineered ingredients can lead to increase costs for retailers, particularly retailers who have in-house food labels, and possible liability risks.

3. Current Status On July 29, 2016, President Obama signed the GMO food labeling bill (S. 764). The legislation creates a nationwide, mandatory labeling system for foods made with GMOs and preempts a patchwork of similar state and local laws. Of importance to SIGMA members, the legislation contains no requirement that retailers provide special readers or scanners to assist consumers in reading electronic or digital disclosure labels.

The United States Department of Agriculture (USDA), the agency tasked with implementing the GMO bill issued a final rule in December 2018 creating a nationwide, mandatory labeling system for foods made with genetically modified organisms (GMOs). The rule requires food companies to disclose information to consumers by either labeling the product packaging or by providing a digital link, such as a QR code.

4. Background Activists opposed to the inclusion of ingredients containing any genetically modified organism and/or genetic engineering in our nation’s food have pushed for a variety of state labeling mandates, which would require foods containing GMO ingredients to be labeled as such. For example, Vermont passed a law that would have required all food containing genetically engineered ingredients in the State of Vermont to contain a GMO label beginning on July 1, 2016. An increasingly complex maze of regulations, which will differ by state, raises serious concerns for businesses. In addition to the concerns regarding the costs of implementing different labeling regimes, there are also concerns that they will provide customers with inaccurate information and create a stigma around GMOs.

For these reasons, many groups, including farmers, manufacturers, and food retailers, pushed for a national GMO labeling rule that will preempt state requirements. These efforts led to the passage of compromise legislation offered by Senate Agriculture Committee Chairman Pat Roberts (R-KS) and Ranking Member Debbie Stabenow (D-MI) that would provide a mandatory uniform national standard for disclosure of GMO food ingredients.

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SIGMA Members should never hesitate to contact counsel with any questions concerning the matters addressed in this briefing, or legislative or regulatory issues affecting them.

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