EMPIRE STATE PETROLEUM ASSOCIATION, INC.

Serving the Petroleum Industry Since 1941

Empire State Petroleum Association, Inc.80 Wolf Road, Suite 308Albany, New York 12205(518) 449-0702 (Telephone)(518) 449-0779 (Facsimile)www.espa.net

Executive Vice President/CEOThomas J. Peters

Legislative Regulatory A g e n d A&

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EMPIRE STATE PETROLEUM ASSOCIATION, INC.

80 Wolf Road, Suite 308Albany, new York 12205

Telephone: (518) 449-0702 Facsimile: (518) 449-0779www.espa.net

Established in 1941, the Empire State Petroleum Association (ESPA) is the statewide not-for-profit trade association representing petroleum marketers, convenience store operators and propane dealers in New York. We are also members of the Petroleum Marketers Association of America, a national federation representing petroleum interests. ESPA marketers are responsible for the storage and distribution of gasoline, diesel, aviation, heating and industrial fuels that are vital to the energy infrastructure of the state.

The petroleum industry in New York employs many people through wholesale and retail operations, and in allied trades necessary to support the industry infrastructure. In addition to thousands of industries and small businesses, our industry provides heating fuels service to over 2.6 million New York households. We also supply gasoline and diesel fuel for the millions of automobiles, trucks and buses operating in New York.

Chairman dean L. Smith

Scott Smith & SonOwego, nY

PresidentRichard M. SpiegelM. Spiegel & Sons

Tuxedo, NY

donald MazzulloHarter, Secrest & emery

Albany, NY

emilio PetroccioneColwell, Ferrentino & Petroccione,

LLP Albany, NY

About ESPA

ESPA REPRESENTATIVES

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Heating Oil Issues

REINSTATEMENT OF BIOHEAT® TAX CREDIT

New York State has encouraged an increase in the use of alternative liquid fuels for economic development, environmental, and security reasons. Among the alternative liquid fuels being promoted for both transportation and heating purposes are biofuels that include biodiesel and Bioheat®. ESPA’s members have spearheaded efforts to introduce these biofuels to New York consumers. The incentive provided by a tax credit for consumers using Bioheat® ensures the continued growth and viability of this space heating fuel in New York State.

ESPA urges the Legislature and Governor to reinstate the Bioheat® tax credit for consumers purchasing this fuel for space heating.

ENERGY STAR TAX CREDIT

ESPA has long supported New York State’s efforts to encourage energy efficiency in all appliances, particularly home space heating systems. Our members have taken leadership roles in encouraging consumers to upgrade their heating systems to high efficiency and Energy Star labeled products. Providing a financial incentive in the form of tax credits to homeowners encourages the installation of high efficiency heating systems which typically cost thousands of dollars and also sends a strong message that New York State supports the use of high efficiency equipment. The resulting benefit from the installation of these systems includes fewer emissions, reduced fuel consumption and an overall increase in the energy efficiency of the State.

ESPA urges the Legislature and Governor to restore tax credits for

EMPIRE STATE PETROLEUM ASSOCIATIONLEGISLATIVE & REGULATORY AGENDA

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homeowners who purchase and install high-efficiency oil heating equipment.

PETROLEUM BUSINESS TAX (PBT) ON HEATING OIL

ESPA calls for the elimination or phase-out of the Petroleum Business Tax (PBT) on heating oil used for non-residential heating. Over 75,000 small businesses in New York State rely on heating oil for space heating and are subject to this tax. Currently, these businesses are paying a tax rate of 4.8 cents per gallon just to heat their business establishments.

By eliminating the PBT on non-residential space heating, the state will help lower the operating costs for thousands of small businesses.

HOMEOWNER TAX CREDIT FOR TANK REPLACEMENT

The 2000-01 New York State budget included a $500 personal income tax credit for the replacement of an existing aboveground or underground heating oil storage tank for one to four family residences within New York State. ESPA advocated and supported this tax credit because it provided a direct financial incentive for homeowners to voluntarily replace an existing aboveground or underground storage tank to enhance environmental protection against the possibility of discharges. Given that the expense of replacing a tank can approach several thousand dollars, the tax credit goes a long way towards offsetting a sizable portion of the upgrading costs. This tax credit expired at the end of 2003.

ESPA supports the reinstatement of this credit to benefit New York State residents and to help protect the environment.

INTERRUPTIBLE GAS USERS

Since the winter of 1989-90, ESPA has been proposing that interruptible gas users who rely on heating oil as a secondary fuel

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when natural gas is no longer available be required to have adequate on-site storage and supplies of their secondary fuel. These occasional users increase distillate supply/demand volatility and drive up prices since the oil retailer has no way to plan for these usually peak demand deliveries.

In August 2000, the New York State Public Service Commission (PSC) ordered interruptible gas customers to have 7 to 10 day storage of their alternate fuel. By this action, the PSC leads the nation in dealing with the the interruption of gas service and the protection of the distillate inventories used as the alternate fuel. In October 2003, the PSC modified its order to improve the ability of the oil industry to supply these customers when their natural gas supply is interrupted. In November 2004, the PSC and NYSERDA commissioned a study of the petroleum infrastructure in New York State which was submitted in September 2006. The PSC is currently considering whether to modify its current regulations regarding interruptible gas customer backup storage and supplies in light of the study’s findings.

ESPA supports the PSC’s continued enhancement of its requirements to protect the reliability and stability of all fuels and to ensure that oil heat consumers do not bear the burden of an unanticipated demand on distillate supplies from non-traditional distillate users.

OIL HEAT BURNER REBATE PROGRAM

In 1987, 1993, and 1998, New York State established an oil heat burner rebate program that provided a rebate to consumers who purchased and installed a high-efficiency oil burner. The last program, administered by the New York State Power Authority (NYPA), expired in December 2000. Nearly 10,000 oil burners were replaced under this program with more modern, energy efficient oil burners.

ESPA urges the Legislature and the Governor to reinstate the oil burner rebate program and continue to encourage customers to upgrade to more energy efficient equipment.

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OILHEAT DEALER LIENS FOR COMMERCIAL CUSTOMERS

Heating oil dealers are having difficulty collecting payments from a number of commercial establishments, particularly large volume customers, who have discovered a way to successfully avoid paying their heating bills. These customers with delinquent accounts sell their businesses and the new owner, with whom the dealer has no prior contractual relation, refuses to pay the seller’s past debts and switches to a new oil heat distributor. Dealers are forced to absorb losses if they fail in their attempts to track down and obtain payments from their former customers.

An amendment to the Lien Law to enable heating oil dealers to put a lien on commercial property for unpaid fuel delivered to the premises will ensure payment of the outstanding bill when title to the commercial property is transferred.

ESPA urges the Legislature and the Governor to enact amendments to the New York State Lien Law to allow heating oil dealers to place a lien on commercial property for the amount of unpaid fuel delivered to the property.

HEATING FUELS PRICE SURVEY

To aid government and consumers in understanding the average overall price of heating fuels in different regions of the State, ESPA has worked closely with the New York State Energy Research and Development Authority (NYSERDA) to establish a State Heating Oil and Propane Price Survey.

ESPA remains committed to this program and will encourage the continued participation of fuel oil distributors in providing NYSERDA with necessary pricing information.

ALLIANCE FOR FAIR COMPETITION

ESPA continues to support the efforts of the New York Alliance for

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Fair Competition in its fight to prevent the natural gas and electric utilities from cross-subsidizing their unregulated marketing subsidiaries with ratepayer funds.

Propane Issues

Many ESPA members provide propane to consumers throughout New York State and believe that fair competition among all heating fuels in the energy marketplace benefits consumers and offers them true purchasing choices.

ESPA will continue to monitor the propane marketplace and be active participants in the Legislature and various State agencies on propane-related issues.

Motor Fuels & Convenience Store Issues

BELOW COST SALES

The New York Motor Fuels Marketing Practices Act was enacted in 2003 to prohibit the sale of motor fuels at less than ninety-five percent of the seller’s cost. The Act has successfully prevented the predatory pricing of motor fuel where the intent is to drive out competitors and gain market share. When market share is gained and competition is driven away, the long-term effects on consumers are increased motor fuel prices and little or no purchasing choices.

The Motor Fuels Marketing Practices Act is set to expire in October of 2008. ESPA urges the Governor and the Legislature to make the law permanent and to amend the law to make sales below 100% of the seller’s cost unlawful.

CURTAILMENT OF TAX EVASION ON MOTOR FUELS

The motor fuel tax disparity with neighboring states encourages bootlegging across NYS borders and results in lost revenues for the State that some believe total several million dollars annually. Moreover, businesses paying full NYS taxes are at a competitive disadvantage when bootlegged product shows up in the marketplace. This also adversely impacts many businesses’ ability to maintain business investments and jobs in New York.

ESPA fully supports legislation to curb tax evasion through increased enforcement, monitoring and the state’s authority to seize tanks of illegally transported petroleum products. We also support legislation that will allow the state to close retail outlets that receive and sell bootlegged products.

NATIVE AMERICAN COLLECTION

Under government-sanctioned treaties, Native Americans benefit from a tax-exempt status when they purchase products from Native American entrepreneurs. Over the years, many Native American entrepreneurs have extended their tax-exempt sales to non-Native American sales claiming that as Native Americans, they have no responsibility to collect or remit state taxes. Estimates bring the total state and local government revenue loss to over $500 million per year.

The legitimate taxpaying businesses operating motor fuel outlets, convenience stores and truck-stops in close proximity to Indian reservations have been

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severely financially damaged due to the Native American tax advantage the state has allowed to persist. It is impossible for non-Indian retailers to compete in such a marketplace.

ESPA advocates the immediate implementation of state Tax Law and Department regulations to collect the taxes due on sales to non-Indians while assuring tax-free sales to tribal members.

UNIFIED PETROLEUM TAX

Currently, petroleum products are subject to multiple taxes all based upon the same gallon of product sold. These taxes include the Petroleum Business Tax, NYS Motor Fuel Tax and Diesel Motor Fuel Tax, Petroleum Testing Fee and NYS Sales Tax.

Administratively, each tax requires separate calculation and data entry forms. In April 2001, the state Tax Department simplified the Petroleum Tax (PT) reporting forms marketers must complete in order to cut down on duplicative paperwork and extraneous information. While this has helped the situation, the preferable solution is for the state to combine all these taxes.

ESPA supports legislation to merge all petroleum related taxes into one single petroleum excise tax calculated on a per gallon basis, reportable on one form. Simply stated: One Gallon = One Tax = One Reporting Form.

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ELIMINATION/REDUCTION OF THE PBT ON DIESEL FUEL

In March 1999, the final stage of the reduction of the PBT on diesel fuel took effect. New York must go further to make the State more competitive in the trucking industry. In 1991, the State of Connecticut reduced their diesel fuel tax and the revenue loss by this tax reduction was offset by an immediate and significant increase in gallons sold within 5 years. The cost of diesel fuel has a direct impact on the cost of consumer goods and on general business operations in the state.

ESPA believes that all businesses and consumers in New York State will benefit from a lowering of the diesel fuel tax.

ALTERNATIVE FUELS

The advocation of non-petroleum based motor fuels, and the implementation of regulations requiring low and zero emission vehicles has resulted in New York State’s subsidization of these fuels through various tax exemptions and public funding.

As the state continues to encourage alternative fuels, any subsidies and tax exemptions must be made available to all businesses, including petroleum marketers.

Independent Energy Marketing Issues

As the New York State Public Service Commission (PSC) continues to implement the deregulation of the natural gas and electric industries, ESPA’s mission is to ensure that petroleum marketers are afforded a fair and equal opportunity to participate in newly restructured energy markets as total energy service providers. In this regard, ESPA supports the general principles of deregulation as well as the specific legislative efforts that eliminate the merchant function for all utility companies and all obstacles to

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competition. ESPA will continue to participate in proceedings affecting the future of competitive markets.

General Petroleum Issues

STRICT LIABILITY - OIL SPILL FUND

The New York State Oil Spill Fund was established as an industry funded mechanism to aid the state in the clean-up of petroleum discharges on sites where the owner or responsible party cannot be immediately identified. Once remediation is undertaken or is complete, the state Attorney General will seek restitution and penalties on behalf of the Fund against the “responsible party” under the “strict liability” standard in the state Navigation Law (NL).

The state’s view of who is a discharger has grown so expansive that persons who are not in any way responsible for causing a discharge are nonetheless held strictly liable. In some cases, petroleum marketers have been held responsible for discharges on property not because they caused the discharge but simply because they delivered petroleum to the site. In other cases, they have simply been the owners of a piece of property when a discharge was found even though they never delivered to or received petroleum products at the site. Regardless of fault, these innocent parties end up in litigation over who should pay the clean-up costs to replenish the Oil Spill Fund for monies paid to a clean-up contractor.

ESPA continues to support changes to the Navigation Law and approaches to enforcement that allow for common sense to be applied in cases where a party truly bears no responsibility for a discharge.

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ELECTRIC GENERATING FACILITY PLANT SITING

As the state seeks to encourage the development of new electric generating facilities in New York State to meet electricity demands, greater stress is placed on the capacity of the natural gas pipeline system and ultimately distillate inventory and storage. In most cases, generating facilities will have dual fuel systems that allow for fuel switching from their primary fuel (natural gas) to an alternate fuel (usually distillate fuel oil). Backup fuel use occurs when these facilities are interrupted either by their utility supplier or switch on their own due to market prices of natural gas. In either case, their entrance into the distillate market needs to be orderly and properly planned for in terms of adequate backup fuel storage capacity and supplies. The PSC’s rulings on interruptible customers do not address large volume electric generating facilities.

ESPA supports requirements that mandate back-up storage facilities and fuel supplies for new dual fueled electric generating facilities.

ELIMINATION OF THE INDEXING OF THE PBT

Under current law, the Petroleum Business Tax (PBT) indexes each year based on the change in producer price indices of refined product over the past year. This is a built-in tax increase/decrease without Legislative approval. The removal of the indexing provision will assist the business climate of New York, as well as provide lower energy costs for all New York residents.

ESPA urges the removal of the annual “indexing” provisions of the PBT.

DELEGATION OF BULK STORAGE REGULATIONS

ESPA is concerned with a provision in the State Petroleum Bulk Storage Regulations that allows the Department of Environmental

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Conservation (DEC) to delegate enforcement of these regulations to a county. At present, four out of the five counties that have received delegation of the regulations have chosen to enforce requirements which are significantly different and more onerous than the State regulations, and which differ from each other. If this continues, the State could end up with a different standard in each county, creating confusion and significant conflicts with the State regulations.

ESPA encourages DEC to only approve delegation to those counties who agree to enforce the State Regulations as written without any modification to promote uniformity in the regulations of petroleum bulk storage facilities.

STATE ENERGY PLANNING

The New York State Energy Plan provides policy guidance to state agencies for energy-related decisions to be made in the public and private sectors. ESPA was, and remains, an active participant in the energy planning process and advisor to the New York State Energy Research and Development Agency (NYSERDA).

As New York State implements policies for energy conservation, production and consumption, as well as for federal clean air compliance standards, ESPA will continue its active involvement to ensure that petroleum products are treated fairly.

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NOTES

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visit us on the web at: www.espa.net

Empire State Petroleum Association, Inc.80 Wolf Road, Suite 308Albany, New York 12205

(518) 449-0702 (Telephone)(518) 449-0779 (Facsimile)

www.espa.net