1 Council of the District of Columbia Committee on Government
Operations and the Environment Draft Report 1350 Pennsylvania
Avenue, N.W., Washington, D.C. 20004 To: Members of the Council of
the District of Columbia From: Mary M. Cheh, Chairperson Committee
on Government Operations and the Environment Date: July 11, 2011
Subject: Bill 19-299, the Retail Service Station Amendment Act of
2011 The Committee on Government Operations and the Environment, to
which Bill 19-299, the Retail Service Station Amendment Act of 2011
was referred, reports favorably on the legislation, which the
committee revised to better achieve the aims of the original act,
and recommends its approval by the Council of the District of
Columbia. Statement of Purpose and Effect Page 2 Legislative
History Page 2 Background and Committee Reasoning Page 2
Section-by-Section Analysis CONTENTS _____ Page 14 Fiscal Impact
_____________ _____ Page 14 Analysis of Impact on Existing Law
_____ Page 15 Committee Action _____________ _____ Page 15
Attachments ____________ _____ Page 15 2 Bill 19-299, the Retail
Service Station Amendment of 2011, was introduced on May 17, 2011.
The legislation would prohibit gasoline distributors from operating
retail service stations in the District, clarify that marketing
agreements may not preclude competition by prohibiting the purchase
of competitively priced fuel from third parties who are not part of
the agreement, provide franchisees with the right of first refusal
when a sale, assignment, or transfer is set to take place, and
empower the Attorney General of the District of Columbia to bring
legal actions in Superior Court for violations of this chapter.
STATEMENT OF PURPOSE AND EFFECT May 17, 2011 Introduction of
B19-299 by Councilmembers Cheh, Evans, Mendelson, and Wells May 17,
2011 Referral of B19-299 to the Committee on Government Operations
and the Environment May 27, 2011 Notice of Intent to Act on B19-299
is published in the District of Columbia Register June 3, 2011
Notice of Public Hearing on B19-299 is published in the District of
Columbia Register June 17, 2011 Public Hearing on B19-299 held by
the Committee on Government Operations and the Environment July 11,
2011 Consideration and vote on B18-521 by the Committee on
Government Operations and the Environment LEGISLATIVE HISTORY I.
Background A. Retail Service Station History in the District
BACKGROUND/COMMITTEE REASONING The District has a long history of
regulating the retail service station industry dating back to the
passage of the Retail Service Station Act of 1976 (RSS). Out of
concern over domination of the market by major oil companies like
BP or Exxon, the District passed the RSS, which is a divorcement
law preventing refiners from operating retail stations.1 1 D.C. Law
1-123. The Retail Service Station Act of 1976. During the same time
period, several other states passed divorcement laws as well. In
1979, the District amended the RSS, enacting the first of several
laws establishing a moratorium on conversions of full-service
retail 3 service stations without a waiver from the Mayor.2 In
2004, the Council again amended the RSS by enacting the moratorium
permanently and adding jobbers into the divorcement law with a
two-year phase-out period. By 2007, however, the jobber divorcement
provision had not yet been fully implemented.3 The Committee report
on the 2007 legislation noted that the provision adding jobbers to
the divorcement law in 2004 had not been included in the introduced
version of the bill, which deprived potential opponents of the
measure an opportunity to speak against it.4 Taken together, the
lack of adoption and less visible notice of the change prompted
Councilmember Mary Cheh and then-Councilmember, now-Chairman Kwame
Brown to introduce a measure removing jobbers from the divorcement
law, so all interested parties would have an opportunity to testify
on the matter.5 The Committee on Public Services and Consumer
Affairs conducted a full hearing on the amendment to remove jobbers
from the statute on May 24, 2007. The Committee report concluded
that any expansion of the divorcement statute would only create
further disincentives for new competitors to enter the marketplace.
6 With these pieces of legislation and with changing market
conditions, the gasoline industry has changed significantly in the
District. Over the years, the total number of retail service
stations has steadily decreased. According to a September 2008
report prepared by the District Department of the Environment
(DDOE), the total number of service stations fell from 270 (1977)
to 108 (2006). More recent data shows that number to have dropped
to 105. Subsequently, the Council passed the 2007 legislation, and
jobbers were once again free to operate service stations. The
Council then amended the RSS in 2009. In that year, the legislation
added new restrictions on converting full-service stations and
provided franchisee station operators with a right of first refusal
if a franchisor sought to sell, transfer, or assign his interest in
a station to a third party. The added protections also included a
duty to negotiate a lease in good faith. Although the enhanced
requirements for converting a full-service station remain, the
other protections sunset on January 1, 2011. 7 2 D.C. Law 3-44.
Also, because the Act contained a two-year sunset clause, the
Council was forced to reexamine the issue in 1981. The Council
passed nine subsequent emergency and temporary measures, keeping
the moratorium in place until 2004, when the moratorium was finally
made permanent. 3 Committee on Public Services and Consumer Affairs
Report on Bill No. 17-142, the Retail Service Station Amendment Act
of 2007, September 25, 2007, at 3. 4 Id. 5 Id. at 4. 6 Id. 7 Robert
W. Doyle Testimony, Committee on Government Operations and the
Environment Hearing on B19-299, June 17, 2011, at 4. As of 2006,
only 47 full-service stations were left in the District. Those that
do remain have engendered significant goodwill from their
respective communities. Notably, the Committee received dozens of
letters, emails, and calls praising the service provided by one
local operator, whose station has been serving a District
neighborhood for years. The letters and support demonstrate that in
spite of any changes to the industry, the community still values
independent operators, who are able to devote time and energy to
develop a relationship with the neighborhoods they serve. 4 B.
Market Shifts The RSS set out the following goals in the regulation
of service stations through divorcement: (1) the further
deterioration of free and open competition in the retail motor fuel
market by increases in the number of directly operated retail
service stations will be prevented; (2) competition in the motor
fuel market will be enhanced by a dispersion of the concentration
in control and economic power inherent in existing directly
operated retail service stations; (3) the competitive position of
independently operated retail service stations will be
strengthened; and (4) a downward pressure on retail motor fuel
prices will be created.8 During the 1970s, a few oil refiners like
BP, Shell, and Exxon controlled the vast majority of stations in
the District. Unfortunately, market shifts seem to have frustrated
the Councils purpose. 9 In 2004, the Council recognized that
jobbers had begun to resemble large oil refiners in the way that
they interacted with the retail service station market and passed
legislation adding jobbers into the divorcement statute. The
corresponding committee report explained: jobbers instead of the
oil companies are the entities exerting pressure to convert and
otherwise threatening the independence of the local retail
operators. The legislative intent undergirding divorcement is being
undermined. In cases where the refiners also operated stations, a
refiner could serve as the landlord, supplier, and competitor of a
station it supplied. That situation threatened the competitive
viability of an independent service station operator. 10 Currently,
fewer companies actually control a larger share of the market than
in 2007. During that year, five jobbers owned 68 of the Districts
108 service station, with the two largest jobbers owning a combined
47 stations. The concern was justified. Reversing the 2004
legislation by removing jobbers from the divorcement statute in
2007 has led to greater market concentration and reduced
competition. 11 Today, the two largest jobbers account for 72 of
the Districts 105 service stations, which is nearly 70%.12 District
customers are paying the second highest prices in the nation for
gasoline. Moreover, the pricing gap between the District and other
jurisdictions has increased, sharply. The prediction that removing
jobbers from the divorcement law would reduce disincentives to
market entry made in the Committees 2007 report has not come true.
Instead, removing jobbers from the divorcement statute has created
rather than eliminated disincentives to enter the gasoline market
in the District. C. Prices 13 8 Committee on Transportation and
Environmental Affairs Report on Bill No. 1-133, the Retail Service
Station Act of 1976, September 10, 1976. 9 Subcommittee on Public
Interest on Bill No. 15-914, the Retail Service Station Amendment
Act of 2004, October 27, 2004, at 5. 10 Id. 11 Ralph McMillan
Testimony, Committee on Public Services and Consumer Affairs
Hearing on B17-142, June 12, 2007 (contained in attachment I), at
2. 12 Doyle Testimony on B19-299, at 5. 13
http://www.washingtoncitypaper.com/articles/41082/why-does-gas-cost-so-much-in-dc-joe-mamo/
More troubling is the fact that the gap between prices in the
District and the rest of the nation, 5 including nearby suburban
Virginia and Maryland, is growing. Gas prices will invariably rise
and fall with crude oil prices, but those variations do not explain
the growth of the pricing gap. Although opinions vary over the
extent of the increase, no evidence presented to the Committee
disputes that the gap has grown. In a May 27, 2011 editorial, a
local paper attributed the Districts historically higher gas prices
to the higher insurance and rents paid in town.14 Nevertheless, AAA
reports that the price gap between the District and national
average stood at just five cents in 2007.15 On June 17, 2011, the
price gap stood at 28 cents, according to AAA.16 On the same day,
gas could be purchased for an average of 41 cents per gallon less
in Virginia than in the District.17 Higher rents and insurance
costs may explain the smaller, historical pricing gap that had
existed for years in the District, but they do not explain the gaps
rapid growth over the past four years, as AAA testified in the
Committees hearing.18 The same local paper argued that the growth
over the past two years, which it reports has increased by seven
cents since 2009, between the District and nearby Virginia and
Maryland suburban areas is attributable almost entirely to tax
increases. 19 That argument is questionable and premised partially
on an error. While the Districts excise tax on fuel did increase
3.5 cents per gallon in 2010, that change accounts for only half of
the reported seven-cent increase. The newspapers report errantly
relies on a sales tax increase of 0.25 percent to account for the
remainder of the growth. The District, however, does not apply
sales tax to motor vehicle fuels; it applies only an excise tax to
them.20 Currently, neither the District nor Maryland applies any
sales tax to motor vehicles fuels. In contrast, Virginia imposes a
2.1% sales tax on motor vehicle fuels sold in Northern Virginia.21
The Committee notes the value of objective expert testimony,
particularly in complex economic matters such as this one. When the
Committee on Public Services and Consumer Consequently, ifas AAA
reported at the hearinga gallon of gas is approximately a dollar
more expensive than it was a year ago, the gap between the District
and Northern Virginia should have actually decreased by two cents
as the result of sales tax, significantly offsetting the Districts
excise tax increase. The District and Maryland apply identical
excise taxes to unleaded fuels, and the District applies a lower
excise tax to diesel fuels. Virginia applies a smaller excise tax
than does the District, but adds the 2.1% sales tax in Northern
Virginia. Taxes may help explain some very small fluctuations, but
they do not account for anything approaching the price gap growth
the District has experienced since 2007. D. Expert Testimony 14
http://www.washingtonpost.com/opinions/pumped-up-for-gas-price-scapegoating-in-dc/2011/05/26/AGkamyCH_story.html
15 John B. Townsend II Testimony, Committee on Government
Operations and the Environment Hearing on B19-299, June 17, 2011,
at 4. 16 Id. at 1. 17 Id. 18 Id. at 5. 19
http://www.washingtonpost.com/opinions/pumped-up-for-gas-price-scapegoating-in-dc/2011/05/26/AGkamyCH_story.html
20 D.C. Code 47-2005 (20) 21 Va. Code 58.1-1720 6 Affairs moved
forward with a provision removing jobbers from the divorcement
statute in 2007, the corresponding report relied on a
recommendation from the Federal Trade Commission (FTC) and analysis
from the Districts Office of the Attorney General.22 In 2007, the
FTC concluded that removing jobbers from the statute would increase
competition and eliminate a potential double markup resulting from
both a distributor and a retailer earning profits for their
efforts.23 According to the FTC, prices would likely drop as a
result of the legislation.24 The Attorney General, without taking a
firm position on the legislation argued that entry into the jobber
market was not difficult and predicted that removing jobbers from
the divorcement statute would not lead to further market
concentration.25 The Attorney General, along with other neutral
experts, argued at the June 17, 2011 Committee hearing that adding
jobbers back into the divorcement statute is the right course of
action and would to help to restore competitive balance to the
market. Those predictions, however, did not bear out. 26 David A.
Balto, a current senior fellow at the Center for American Progress,
a former policy director at the FTC, and a long-time antitrust
attorney, testified in strong support of the bill. He argued that
removing jobbers from the divorcement law and allowing vertical
integration from the distribution level to the retail level has
created a market that is not competitively healthy. 27 Mr. Balto
also explained that the FTC study offered in 2007 was flawed in
several critical ways. The study began with a faulty premise,
failing to examine the Districts specific market and instead
examining the retail service station industry as a whole
nationally. The mistake prevented the FTC from taking into account
the high levels of market concentration already present in the
District in 2007 and how a partial repeal of divorcement would
affect a market The retail service station market has been harmed
in three primary ways, he explained. First, the retail service
station industry suffers from weak competition, particularly at the
wholesale level. Mr. Balto referred to the current market structure
as a tight duopoly. With two major jobbers controlling 70% of that
market, competition for price and business simply isnt sufficient
to drive prices down. Second, high barriers for entry into the
wholesale market preclude conditions from improving. He explained
that the presence of integrated stations, which are owned by a
distributor, limits the number of stations looking to competitively
purchase fuel. Consequently, little business is available for a
jobber interested in entering the Districts wholesale gasoline
market. Third, as the landlord, supplier, and competitor of station
operators, jobbers control rent prices, gasoline prices, and have
access to sensitive business data for competing stations. With
knowledge of overhead costs and profit margins, Mr. Balto warned
that jobbers can manipulate prices to maximize profits at the
expense of fair competition. 22 See generally Committee Report on
B17-142 23 Comment from United States Federal Trade Commission,
Office of Policy and Planning (June 8, 2007) (contained in
attachment I) at 5. 24 Id. at 6 25 Committee Report on B17-142, at
7 26 The Districts Attorney General did not appear in person at the
June 17, 2011 hearing, but the office submitted a letter detailing
its views, which Councilmember Cheh read into the record. 27
Committee on Government Operations and the Environment Hearing on
B19-299, June 17, 2011 (available at:
http://oct.dc.gov/services/on_demand_video/on_demand_June_2011_week_3.shtm).
7 structured in that specific way.28 Mr. Balto concluded by stating
that he strongly supports the legislation because it would break
the ownership bind over service stations and help to restore
competition at both the retail and wholesale levels. He also noted
concern that the District is losing excise tax revenues as
consumers choose to purchase gasoline outside the District due to
higher pricesa proposition supported by a drop in excise tax
revenues from 2009 to 2010. Next, the study examined the effects of
refiner divorcement while failing to address the specific issue of
jobber divorcement in any meaningful way. Refiner ownership of
stations offered the District some benefits that jobber ownership
has not. Refiners like Exxon or BP not only wished to sell fuel,
they also wished to protect the value of a trademark. For example,
Mr. Balto noted that a major oil company like Exxon might seek to
ensure that all its stations were in good repair to maintain a
uniformly positive image of its branded stations. In contrast,
jobbers do not have a visible brand name to protect and may devote
fewer resources to leased stations. Finally, Mr. Balto argued that
whatever the basis for the FTCs study in 2007, it is clear in 2011
that they were simply wrong. Prices are higher, and competition has
decreased. 29 Robert W. Doyle, a former trial attorney at the FTC
and a long-time antitrust practitioner, also testified in support
of the legislation. He identified concerns over market
concentration with ownership ties, particularly after a large
merger in 2009, and potential sales of gasoline stations to
developers. Mr. Doyle presented a study of the gasoline service
stations in the District concluding that 46% of all stations in the
District and 53% of all branded stations in the District are owned
by one jobber. 30 Mr. Doyle argued that the jobbers share of the
market, which had increased considerably since acquiring 30
stations in 2009, had allowed jobbers to set prices irrespective of
the competition. For example, if the jobber owned a Shell station
on one corner and its only nearby competitor is an Exxon station
across the street, the jobber, who owns both stations, could simply
set both stations prices at higher levels because the jobber could
no longer be pressured into lowering prices through competition.
Prior to the 2009 acquisition, brands were forced to compete. After
the merger, though, as Mr. Doyle put it, that jobber, who now owns
multiple brands, would be disinclined to go head to head with
himself.31 28 Mr. Balto noted in oral testimony that the District
has one of the highest concentrations of jobber ownership in the
nation. 29 Excise tax revenues from gasoline dropped more than $1.5
million from 2009 to 2010. Source: Districts Office of Revenue
Analysis. Nevertheless, the consumption of finished motor gasoline
nationally increased over that same time period, according to the
U.S. Energy Information Administration.
http://www.eia.gov/dnav/pet/pet_cons_psup_dc_nus_mbblpd_a.htm 30
Prior to one jobbers acquisition of the Districts 30 Exxon stations
in 2009, the market had been less concentrated. 31 Committee
Hearing on B19-299. He argued that the situation could be magnified
throughout the city, leading to much higher comparative prices. Mr.
Doyle also emphasized the danger that a jobber might simply begin
to sell stations, particularly given the two-year phase-out period
required by the legislation. He noted that Capitol Petroleum had
already sold one station on Capitol Hill and had obtained permits
to sell another. He then said that he supported adding a right of
first refusal to the legislation to prevent jobbers from selling
stations without giving operators the right to buy it and retain it
as a service station for the benefit of District residents. 8 In
summation, Mr. Doyle supports the legislation because he believes
that it will break the ownership tie present in integrated
stations. Breaking the tie, he argued, should inject some needed
competition into the retail and wholesale markets.32 John B.
Townsend II, Manager of Public and Government Affairs for AAA
Mid-Atlantic, discussed changes in pricing over the past four
years, since the jobber divorcement was repealed. Mr. Townsend
explained that, historically, District gas prices were only
marginally higher than the national average and than in neighboring
suburban areas in Maryland and Virginia. He also explained that
divorcement should offer more opportunities for small businesses,
as stations will each need an independent operator to run them. 33
Since 2007, however, the pricing gap has widened rapidly.34 He
testified that taxes, rents, and insurance costs could not account
for the price gap growth, noting that the District and Maryland
applied identical excise taxes to unleaded fuels and that rents in
the District are not necessarily higher than in surrounding areas
such as Bethesda, Maryland.35 The Attorney General for the District
of Columbia, Irvin B. Nathan, also submitted testimony strongly
supporting this legislation. Mr. Nathan acknowledged that this
support represented somewhat of a reversal from 2007 when a
representative from his office testified, [b]y allowing jobbers to
operate their own retail stations in D.C., Bill 17-142 ha[d] the
potential to encourage retail competition by increasing the number
of stations that [were] not controlled and supplied by the major
oil companies." Moreover, distributors in the District purchased
gasoline at the same rack prices as distributors traveling to
stations in nearby Maryland and Virginia. Mr. Townsend reported
that his research showed delivery costs for gasoline to be
somewhere around 4 cents per gallon nationally and less than 3.5
cents per gallon locally. He said that neither rack prices nor
delivery costs could account for the price gap growth either. He
argued that the only significant change over the past four yearsand
the only plausible explanation for the price gap increaseis the
change in market concentration at the jobber level. 36 The reversal
comes out of recognition that [s]ince 2007, the landscape has
changed dramatically in D.C.'s retail gasoline market.37 Whereas in
2007, the retail gasoline market was shared by oil companies and
jobbers, the current market is dominated by two jobbers.38In
contrast to 2007, when the Office of the Attorney General suggested
in its written testimony that the Council might "consider
additional statutory changes in order to allow D.C.'s independent
[gasoline station] operators to operate more independently of
particular oil companies" (emphasis added), now the primary Mr.
Nathan also notes that: 32 Although fully supportive of the
legislation, Mr. Doyle went further and argued that full
divestiture might be needed to ensure adequate competition at the
retail level. 33 Mr. Townsend testified that prices were generally
2-5 cents per gallon higher in the District. 34 Mr. Townsend
testified that prices in the District were 40 cents per gallon
higher than in Virginia as of June 17, 2011, the day of the
Committee hearing. 35 Committee Hearing on B19-299. 36 Letter from
the Attorney General for the District of Columbia, Irvin Nathan
(June 17, 2011) (contained in Committee Report, attachment G at 2).
37 Id. 38 Id. 9 concern at the retail level is the high proportion
of D.C. gasoline stations owned by particular wholesalers.39 The
proposed bill would prohibit distributors from operating retail
service stations in the District. The change is needed to help
restore a competitive balance in the retail service station market
in the District. Market concentration allows jobbers to use market
power to increase prices to the detriment of consumers. Thus, the
Attorney General strongly supports enacting B19-299 because he
argues that it will reduce the risk that jobbers could use market
power to increase prices. In 2007, the Committee relied on the FTCs
recommendation and the Attorney Generals analysis, in no small
part, because they lacked a pecuniary interest in the outcome of
the legislation. However valuable and informative testimony from
supporters of station operators or supporters of jobbers may be,
their positions remain essentially unchanged since 2007 because
their pecuniary interests remain largely the same. Each side
presented illuminating facts, but the conclusionssupporting or
opposing the legislationwere foregone. In contrast to 2007, though,
the weight of expert testimony supports the passage of jobber
divorcement. Mr. Balto, Mr. Doyle, Mr. Townsend, and Attorney
General Irvin Nathan lack pecuniary interest in the outcome of the
legislation. In fact, as stated before, the Attorney Generals
position represents a partial reversal from 2007 because of changes
in the gasoline industry. Taken with rising prices, declining
station numbers, and increased market concentration, the experts
recommendations for jobber divorcement, along with accompanying
measures, are well justified. II. Legislative Action: Description
& Analysis As experts testified, the retail service station
industry in the District is no longer structurally competitive. The
result is fewer service stations in the District and higher prices
at those that remain. Legislative changes are needed to restore a
competitive balance in the industry and to achieve the
long-established and accepted goals of the RSS. Bill 19-299 will
make the needed changes to achieve both of these objectives. A.
Divorcement 40 Approximately 70% of stations in the District are
controlled by two jobbers. This structure has led to more rapid
price growth in the District than has been experienced in
surrounding jurisdictions and creates significant barriers to
market entry, preventing meaningful competition from entering the
market.41 In 2007, the Council removed jobbers from the divorcement
statute, enabling a more vertically integrated market to take
shape. At the time, the FTC argued that vertical integration 39 Id.
40 See generally David A. Balto Testimony, Committee on Government
Operations and the Environment Hearing on B19-299, June 17, 2011;
Doyle Testimony on B19-299. 41 Balto Testimony on B19-299, at 2. 10
would lower prices because the price at the pump would reflect
fewer markups.42 The FTCs analysis, however, relied on the
assumption that wholesale and retail markets would be structurally
competitive.43 In the Districtwith two jobbers controlling a large
majority of the wholesale marketthis assumption is unsound.44
Although vertical integration offers the potential to maximize
efficiencies and lower prices, prices have increasedand industry
representatives report that service from distributors has
deteriorated.45 For any potential benefits vertical integration
offers, it presents dangers as well. In the District, vertical
integration has permitted three significant issues to develop.
First, barriers to entry into the Districts wholesale or retail
gasoline markets have become very tough to overcome. 46
Nonintegrated jobbers report that it is extremely difficult to
enter the District market, given the prevalence of integrated
stations.47 Second, current law permits a jobber to too easily
manipulate the prices of competing stations by allowing jobbers to
serve as landlord, supplier, and competitor of independent station
operators. As landlord and supplier, a jobber has access to
sensitive information such as overhead costs, volume, and sales
trends. Jobbers can use that information to modify prices in a way
that is anticompetitive, such as through the use of zone pricing.
The lack of nonintegrated systems means that fewer stations are
seeking to competitively purchase fuel from third-party
distributors. Vertical integration has allowed significant barriers
to restrict entry into the jobber market in the District. 48 Zone
pricing establishes a station or a group of stations as part of a
zone that will pay the same thing for gasoline. Station operators
report that the gap in what they pay for gasoline versus some
closely situated competitors has grown significantly. One operator
reported to Anacostia Realty, a subsidiary of Capitol Petroleum, I
have been advised by other dealers in Northwest Washington that I
am paying a premium of about ten cents per gallon over [their
dealer tank wagon prices].4950 Third, a system permitting vertical
integration and encouraging concentrated ownership is generally
detrimental to small businesses, who wish to establish
relationships with the community. Vertical integration and market
concentration may, in some situations, benefit consumers if
efficiencies and economies of scale are used to drive down prices.
Other station operators reported at the hearing that stations in
Virginia and Maryland were charging less at the pump than they were
paying for wholesale gasoline. The existing statute has contributed
to a competitively unhealthy gasoline marketand higher prices. 51
42 [W]hen both suppliers and station operators have the ability to
price above cost, each will add a mark-up to the final price. This
double mark-up problem reduces supplier profits because retail
prices are higher than they would be if the supplier set them,
causing business to be lost to lower-priced retailers. Comment from
Federal Trade Commission at 5. 43 Balto Testimony on B19-299 at 4.
44 Id. 45 Id. at 3. 46 Id. at 2. 47 Id. 48 Id. 49 Letter from Stacy
Milford, Circle Exxon, to Anacostia Realty (Feb. 17, 2011)
(contained in attachment F) 50 Dealer tank wagon price is the price
paid by a dealer to a distributor when gasoline is delivered to the
station. 51 Comment from FTC on B17-142, 4-6. Even when they
benefit consumers in terms of the prices paid, thoughwhich they
have not done for the 11 Districts gasoline pricesthe system
prefers larger businesses positioned at several layers of the
market to the detriment of smaller ones. Unlike the larger
businesses, single station operators cannot, for example, raise
prices at one isolated station as a way to lower them at a station
facing greater competition. Particularly when faced with
anticompetitive practices, independent station operators will find
it difficult to compete. Protecting the viability of independent
station operators is one of the four stated goals of the RSS.52
District residents continue to find the protection of independent
station operators to be a worthy goal. As stated earlier, dozens of
community members contacted the Committee to express support for
the continued operation of an independent service station operator.
53 His excellent service and connection to the community are
greatly valued by nearby residents. Mat Thorp, who testified on
behalf of the Palisades Citizens Association (PCA), reiterated the
importance of full-service stations to the community. PCA testified
at the Committee Hearing because it seeks to protect its
neighborhoods last remaining full-service station. This legislation
would ensure that stations are operated by independent operators.
This will mean that the Districts 105 stations will support the
development of small community businesses, which is an aim of the
RSS and a desire of District residents.54 Reinstituting jobber
divorcement will break the vertical control that jobbers currently
exercise over individual stations. By breaking the ownership bind,
more stations will be in position to competitively select their
suppliers and negotiate the lowest possible price. 55 With more
stations free to purchase fuel from their preferred supplier, more
jobbers may choose to enter the market.56 The proposed bill would
reinstate the right of first refusal. The right of first refusal
allows franchisees the opportunity to purchase the franchisors
interest in a station if the franchisor seeks to sell, assign, or
transfer its interests to third party. Such a right had been added
to the RSS as an amendment in 2009the provision, however, sunset on
January 1, 2011. More jobbers in the market will mean better
competition at the wholesale level. At the retail level, all market
entrants should, after the passage of B19-299, be similarly
situated. No longer will some participants have access to
competitors sensitive business information or the ability to
control their pricing. This will lead to lower comparative prices
for consumers and help to ensure the continued viability of
independent station operators. B. Right of First Refusal 57 In
2009, the Committee explained that action was needed to protect the
interests of retaining service stations in the long term.58 52
Committee Report on B1-133. 53 Letters from Community (contained in
attachment H) 54 Doyle Testimony on B19-299. Mr. Doyle explained at
the hearing that divorcement would open up additional opportunities
for small businesses because all stations would need to be run by
independent dealers. 55 Balto Testimony on B19-299, 3-4. 56 Doyle
Testimony on B19-299, at 1. 57 The right of first refusal included
in the 2009 legislation applied to sales, assignments, or transfers
by a refiner. 58 Committee on Government Operations and the
Environment Report on Bill No. 17-142, the Retail Service Station
Amendment Act of 2009, April 2, 2009, at 6. Many district service
stations are located on valuable pieces of propertyoften property
coveted by a developer. This issue was explored in a February 18,
2011 Washington City Paper article. When discussing the future of
his stations, Capitol Petroleum 12 owner Joe Mamo noted, We are
really a real estate company . . . . [l]ong term, the real estate
is where the value is.59 Capitol Petroleum already converted and
sold one station on Capitol Hill, which is now the site of
condominiums.60 Mr. Mamos company has reportedly obtained permits
to convert another as well. Protecting the viability of
independently operated, neighborhood service stations is a
well-established goal of the RSS, which the reinstitution of a
right of first refusal would help to accomplish.61 The District was
not the first jurisdiction to enact a right of first refusal for
dealers. California has extended this right to dealers for more
than twenty years. 62 New Jersey recently extended this right to
dealers as well.63 Courts have found Californias law to be
Constitutional and not preempted by the Petroleum Marketing
Practices Act, which regulates the termination and non-renewal of
franchise agreements.64 The Committee finds that as in 2009,
extending the right of first refusal is consistent with federal law
[] and is a proper exercise of the legislature.65 B19-299 would
clarify that existing District law prohibits marketing agreements
that preclude the purchase of fuel from any person or entity who is
not a party to the marketing agreement. C. Clarification of
Nonwaiverable Conditions 66Prohibit a retail dealer from purchasing
or accepting delivery of, on consignment or otherwise, any motor
fuels, petroleum products, automotive products, or other products
from any person who is not a party to the marketing agreement or
prohibit a retail dealer from selling such motor fuels or products,
provided that if the marketing agreement permits the retail dealer
to use the distributor's trademark, the marketing agreement may
require such motor fuels, petroleum products, and automotive
products to be of a reasonably similar quality to those of the
distributor, and provided further that the retail dealer shall
neither represent such motor fuels or products as having been
procured from the distributor nor sell such motor fuels or products
under the distributor's trademark[.] The language in the statute is
straightforward and states that no marketing agreement shall: 67 59
http://www.washingtoncitypaper.com/articles/40430/joe-mamo-dc-gas-station-master/page5/
60
http://www.washingtoncitypaper.com/articles/40430/joe-mamo-dc-gas-station-master/page5/
61 See generally Committee Report on 1-133. 62 Cal Bus. & Prof.
Code 20999 et seq. 63 N.J. Stat. 56:10-6.1 64 Forty-Niner Truck
Plaza, Inc. v. Union Oil Co. of Cal., 589 Cal. App. 4th 1261 (Cal.
Ct. App. 1997). 65 Committee Report on B18-89, at 7. 66 Marketing
agreement is defined broadly as a contract, lease, franchise, or
other agreement, which is entered into between a distributor and a
retail pertaining to, inter alia, the sale or distribution of
gasoline, the use of a trademark for the purposes of selling
gasoline, and the occupancy of property for the purposes of selling
gasoline. D.C. Code 36-301.01 (7). 67 D.C. Code 36-303.01 13 The
provision, as the Attorney General explains, means that a
distributor may seek to secure a station operator's loyalty through
better prices or better service, but not through contractual
restraints on the station operator's ability to buy gasoline from
other suppliers.68 Recent decisions out of the Superior Court of
the District of Columbia reiterate that the provision applies to
franchise arrangements and preclude exclusivity agreements.
Kazemzadeh v. Eastern Petroleum Corp., 2006 CA 009077, at 15 (D.C.
Super. Ct. R. Civ. August 19, 2010) (holding that D.C. Code
36-303.01(a)(6) precludes exclusivity arrangements even when
franchise agreements are present). Despite the seemingly plain
language, local jobbers are not complying, according to testimony
provided at the Committees June 17 hearing. 69 The Attorney General
explains, []while District law does not permit a gasoline station
operating under the Brand "X" trademark to purchase Brand "Y"
gasoline and dispense it from a Brand X pump, the law does give the
Brand X gasoline station the right to purchase Brand X gasoline
from any available supplier.70 Finally, B19-299 would expressly
empower the Attorney General to bring actions in the name of the
District of Columbia for violations of the RSS. This comes at the
request of the Attorney General and is a logical extension of the
RSS. Available legal interpretations and the plain language of the
statute all point to the same thing: District law permits dealers
to purchase gasoline from any available source. Nonetheless,
testimony provided at the hearing demonstrates that marketing
agreements do not adhere to the law as written or are being
implemented in a way that does not adhere to the law as written. A
jobber and station operators indicated that their marketing
agreements precluded the purchase of fuel from anyone but that
jobber. Consequently, the Committee finds that clarifying language
is necessary to underscore the original meaning and purpose of the
statute. D. Empower Attorney General to Bring Actions 71 As
explained, the legislation sought to encourage competition and
drive prices down, for the benefit of consumers. If the law is not
being adhered to, however, consumers are not well equipped to
either detect a violation or to bring an action as result of one.
Unless a consumer could assemble a suitably large class, individual
damages would likely prove quite small and prohibitive to bringing
a complicated lawsuit.72 Station operators are also poorly situated
to bring an action against owners. Although the operators are in
much better position to detect violations of RSS, the operators
would be forced to bring a suit against their landlord, supplier,
and competitor. Whatever the legal protections in place to prevent
retaliation, most station operators have not brought actions
against their The Attorney General is best situated to bring an
action on behalf of District residents and consumers. 68 Letter
from Attorney General on B19-299, at 2. 69 See also, Kazemzadeh v.
Eastern Petroleum Corp., 2006 CA 009077, at 15 (D.C. Super. Ct. R.
Civ. July 18, 2007). 70 Id. at 3. 71 Letter from Attorney General
on B19-299, at 3. 72 Hypothetically, if a consumer drives 12,000
miles per year and consumes one gallon of gasoline per 25 miles,
that consumer would pay an extra $96 per year as a result of a
20-cent per gallon pricing gap. 14 respective distributors, despite
documented concern surrounding pricing, as discussed earlier in
this report. Bringing legal action is also a financial drain on
operators, who may not have the resources to bring a complex legal
action against a much wealthier adversary. The Attorney General can
pursue actions against any party violating this act to the
detriment of District residents and consumers without fear of
reprisal or significant concern over being priced out of pursuing
the action. The Committee notes that empowering the Attorney
General to bring actions on behalf of the District in no way
extends or removes existing protections. It merely enables the most
appropriate agency in the District to ensure that a consumer
protection law is implemented as written. SECTION-BY-SECTION
ANALYSIS Section 1 provides the long and short title of the
legislation. Section 2 amends the Retail Service Station Act of
1976 as follows: Subsection (a) adds jobbers back into the
divorcement statute, prohibiting jobbers from operating service
stations in the District. Subsection (b) provides jobbers with two
years to come into compliance with subsection (a). Subsection (c)
clarifies the meaning of D.C. Code 36-303.01 (a)(6) to include
franchise agreements and branded fuel. Subsection (d) empowers the
Attorney General of the District of Columbia to bring legal actions
in the name of the District against parties who violate this act.
Subsection (e) creates a right of first refusal in the event that a
franchisor sells, transfers, or assigns its interest in the
premises of a retail service station to a third party. It also
establishes a judicial remedy for failure to provide a right of
first refusal. Section 3 contains the fiscal impact statement.
Section 4 contains the effective date. FISCAL IMPACT A fiscal
impact statement prepared by the Chief Financial Officer and dated
July 5, 2011 is attached to this report. The fiscal impact
statement notes that B19-299 would have no fiscal impact. 15 IMPACT
ON EXISTING LAW Bill 19-299 would amend the Retail Service Station
Act of 1976 (D.C. Law 1-123; D.C. Official Code 36-301.01 et seq.).
The bill will (1) prevent jobbers from operating service stations
in the District after a two-year phase-out period, (2) clarify the
meaning of D.C. Code 36-303.01 (a)(6), so that it is clear that
operators may purchase branded fuel from any available supplier,
(3) empower the Attorney General to bring actions on behalf of the
District for violations of this Act, and (4) creates a right of
first refusal for station operators. [to be added] COMMITTEE ACTION
LIST OF ATTACHMENTS (A) Bill 19-299, as introduced (B) Notice of
Intent to Act, published in the District of Columbia Register (C)
Public Hearing Notice, published in the District of Columbia
Register (D) Public Hearing Agenda and Witness List (E) Committee
Print of Bill 19-299 (F) Testimony (G) Letter from Attorney General
for the District of Columbia (H) Letters from Community (I)
Testimony from Previous Hearings (J) Fiscal Impact Statement
Attachment A _______________________ ________________________ 1
Councilmember Phil Mendelson Councilmember Mary M. Cheh 2 3
_______________________ ________________________ 4 Councilmember
Tommy Wells Councilmember Jack Evans 5 6 7 8 9 A BILL 10 11
_________ 12 13 14 IN THE COUNCIL OF THE DISTRICT OF COLUMBIA 15 16
_______________ 17 18 19 Councilmembers Mary M. Cheh, Phil
Mendelson, Jack Evans, and Tommy Wells 20 introduced the following
bill, which was referred to the Committee on 21 ___________. 22 23
To amend the Retail Service Station Act of 1976 to prohibit
gasoline distributors from 24 owning and operating retail service
stations in the District of Columbia. 25 26 BE IT ENACTED BY THE
COUNCIL OF THE DISTRICT OF COLUMBIA, 27 That this act may be cited
as the Retail Service Station Amendment Act of 2011. 28 Sec. 2.
Section 3-102 of the Retail Service Station Act of 1976, effective
April 19, 29 1977 (D.C. Law 1-123; D.C. Official Code 36-302.02),
is amended as follows: 30 (a) Subsections (a) and (b) are amended
by striking the phrase no producer, 31 refiner, or manufacturer
wherever it appears and inserting the phrase no jobber, 32
producer, refiner, or manufacturer in its place. 33 (b) Subsection
(c) is amended to read as follows: 34 (c) Any jobber in violation
of subsections (a) or (b) of this subsection as of the 35 effective
date of this Act, shall have 2 years following the effective date
to come into 36 compliance.. 37 2 Sec. 3. Fiscal impact statement 1
The Council adopts the fiscal impact statement in the committee
report as the 2 fiscal impact statement required by section
602(c)(3) of the District of Columbia Home 3 Rule Act, approved
December 24, 1973 (87 Stat. 813; D.C. Official Code 1- 4
206.02(c)(3)). 5 Sec. 4. Effective date 6 This act shall take
effect following approval by the Mayor (or in the event of veto 7
by the Mayor, action by the Council to override the veto), a 30-day
period of 8 Congressional review as provided in section 602(c)(1)
of the District of Columbia Home 9 Rule Act, approved December 24,
1973 (87 Stat. 813; D.C. Official Code 1- 10 206.02(c)(1)), and
publication in the District of Columbia Register. 11 Attachment B
Attachment C Attachment D C O U N C I L O F T H E D I S T R I C T O
F C O L U M B I A 1 3 5 0 P ENNS YL VANI A AVENUE, N. W. S UI TE 1
1 1 WAS HI NGTON, DC 2 0 0 0 4 T EL EP HONE: ( 2 0 2 ) 7 2 4 - 8 0
6 2 F AX: ( 2 0 2 ) 7 2 4 - 8 1 1 8 COMMITTEE ON GOVERNMENT
OPERATIONS AND THE ENVIRONMENT MARY M. CHEH, CHAIRWITNESS LIST
COUNCILMEMBER MARY M. CHEH, CHAIRPERSON COMMITTEE ON GOVERNMENT
OPERATIONS & THE ENVIRONMENT ANNOUNCES A PUBLIC HEARING ON
B19-299, the Retail Service Station Amendment Act of 2011 June 17,
2011 11:00 AM Room 412 John A. Wilson Building 1350 Pennsylvania
Ave., N.W. WITNESSES David Balto, Law Offices of David A. Balto
Robert Doyle, Doyle, Barlow & Mazard PLLC Melvin Sherbert, The
Washington, Maryland, Delaware Service Station and Automotive
Repair Association Kirk McCauley, The Washington, Maryland,
Delaware Service Station and Automotive Repair Association Lynn
Cook, Parkers Exxon John Connor, BP Station Operator John Townsend,
AAA Mid-Atlantic Matt Thorpe, Palisades Citizens Association John
Ray, Partner, Manatt Phelps & Phillips Joe Mamo, President,
Capitol Petroleum Group, Inc. David L. Calhoun, Senior RAM, Capitol
Petroleum Group, Inc. Al Alfano, Partner, Bassman, Mitchell &
Alfano Steven Smith, Representative, Rainbow PUSH Coalition Pete
Horrigan, Mid Atlantic Petroleum Dealers Association Pierpont
Mobley, Private Citizen Bruce Bereano, Offices of Bruce Bereano
John Distad, BP Station Operator James Giles, Former Shell Station
Operator John Johnson, Exxon Station Operator Alma Gates, Neighbors
United Trust Petros Kiflu, Commission Operator, Shell Station @
3355 Benning Road NE Alexander Anenia, Commission Operator, Shell
Station at 1830 Rhode Island Ave NE Dawit Habte Selasie, Commission
Operator, Shell Station at 6201 New Hampshire Ave NE Redi Hassan,
Commission Operator, Shell Station @ 4140 Georgia Ave NE Frank
Wilds, Private Citizen Robert Vinson Brannum, President, DC
Federation of Civic Associations, Inc. Attachment E Draft Committee
Print, B19-299 1 Committee on Government Operations and the
Environment 2 July 11, 2011 3 4 5 A BILL 6 7 _________ 8 9 10 IN
THE COUNCIL OF THE DISTRICT OF COLUMBIA 11 12 _______________ 13 14
15 To amend the Retail Service Station Act of 1976 to prohibit
gasoline distributors from 16 operating retail service stations in
the District of Columbia, to clarify that 17 marketing agreements
may not prohibit the purchase of fuel from any nonparties 18 to the
agreement, to empower the Attorney General of the District of
Columbia to 19 bring legal actions in Superior Court for violations
of this chapter, and to provide 20 franchisees with the right of
first refusal if a sale takes place. 21 22 BE IT ENACTED BY THE
COUNCIL OF THE DISTRICT OF COLUMBIA, 23 That this act may be cited
as the Retail Service Station Amendment Act of 2011. 24 Sec. 2. The
Retail Service Station Act of 1976, effective April 19, 1977 (D.C.
25 Law 1-123; D.C. Official Code 36-301.01 et seq.), is amended as
follows: 26 (a) Section 3-102 is amended as follows: 27 (1)
Subsection (a) is amended by striking the phrase no producer,
refiner, 28 or manufacturer wherever it appears and inserting the
phrase no jobber, 29 producer, refiner, or manufacturer in its
place. 30 (2) Subsection (b) is amended by striking the phrase no
producer, 31 refiner, or manufacturer wherever it appears and
inserting the phrase no jobber, 32 producer, refiner, or
manufacturer in its place. 33 (b) Subsection (c) is amended to read
as follows: 34 2 (c) Any jobber in violation of subsections (a) or
(b) of this section as of the 1 effective date of this Act, shall
have 2 years following the effective date to come into 2
compliance.. 3 (c) Section 4-201(f) is amended by adding new
paragraph (1) to read as follows: 4 (f)(1) this subsection shall
apply to all marketing agreements, including 5 marketing agreements
under which a retailer would sell a particular brand of fuel under
a 6 trademark. Marketing agreements shall not prohibit a retailer
from purchasing any brand 7 of fuel from any person not a party to
the marketing agreement. 8 (d) Section 4-206 is amended by adding
new (d) to read as follows: 9 (d) (1) The Attorney General for the
District of Columbia, or any of his 10 assistants, is hereby
empowered to maintain an action or actions in the Superior Court
for 11 the District of Columbia in the name of the District of
Columbia to enjoin any refiner, 12 distributor, or retail dealer,
and those acting in concert with such refiner, distributor, and 13
retail dealer, from violating this subchapter, to recover a civil
penalty of not more than 14 $5,000 for each violation, and to
recover the costs of the action and reasonable attorneys 15 fees.
16 (2) If the Attorney General, in the course of an investigation
to determine 17 whether to bring a court action under this section,
has reason to believe that a person may 18 have information, or may
be in possession, custody, or control of documentary material, 19
relevant to the investigation, the Attorney General may issue in
writing and cause to be 20 served upon the person or entity, a
subpoena or subpoenas requiring the person or entity 21 to give
oral testimony under oath, or to produce records, books, papers,
contracts, 22 electronically-stored data and other documentary
material for inspection and copying. 23 3 (3) Information obtained
pursuant to this authority to subpoena is not admissible 1 in a
later criminal proceeding against the person who provided the
information. 2 (4) The Attorney General may petition the Superior
Court of the District of 3 Columbia for an order compelling
compliance with a subpoena issued pursuant to this 4 authority to
subpoena.. 5 (e) A new title III-A is added to read as follows: 6
III-A. Franchisee Purchase Rights. 7 Sec. 5A-301. Definitions. 8
For the purposes of this title, the term: 9 (1) Distributor means
any person, including any affiliate of such person, who 10 either
purchases fuel for sale, consignment, or distribution to another,
or receives fuel on 11 consignment for consignment or distribution
to his or her own fuel accounts or to 12 accounts of his or her
supplier, but shall not include a person who is an employee of, or
13 merely serves as a common carrier providing transportation
service for, such supplier. 14 (2) Franchise means any contract
between a refiner and a distributor, between 15 a refiner and a
retailer, between a distributor and another distributor, or between
a 16 distributor and a retailer, under which a refiner or
distributor authorizes or permits a 17 retailer or distributor to
use, in connection with the sale, consignment, or distribution of
18 gasoline, diesel, gasohol, or aviation fuel, a trademark which
is owned or controlled by 19 such refiner or by a refiner which
supplies fuel to the distributor which authorizes or 20 permits
such use. The term "franchise" includes the following: 21 (A) Any
contract under which a retailer or distributor is authorized or 22
permitted to occupy leased marketing premises, which premises are
to be employed in 23 connection with the sale, consignment, or
distribution of fuel under a trademark which is 24 4 owned or
controlled by such refiner or by a refiner which supplies fuel to
the distributor 1 which authorizes or permits such occupancy; 2 (B)
Any contract pertaining to the supply of fuel which is to be sold,
3 consigned, or distributed under a trademark owned or controlled
by a refiner or 4 distributor; and 5 (C) The unexpired portion of
any franchise, as defined by this paragraph, 6 which is transferred
or assigned as authorized by the provisions of such franchise or by
7 any applicable provision of District law which permits such
transfer or assignment 8 without regard to any provision of the
franchise. 9 (3) Franchisee means a retailer or distributor who is
authorized or permitted, 10 under a franchise, to use a trademark
in connection with the sale, consignment, or 11 distribution of
fuel. 12 (4) Franchise relationship means the respective fuel
marketing or distribution 13 obligations and responsibilities of a
franchisor and a franchisee that result from the 14 marketing of
fuel under a franchise. 15 (5) Franchisor means a refiner or
distributor that authorizes or permits, under 16 a franchise, a
retailer or distributor to use a trademark in connection with the
sale, 17 consignment, or distribution of fuel. 18 (6) Leased
marketing premises means marketing premises owned, leased, or 19 in
any way controlled by a franchisor and which the franchisee is
authorized or permitted, 20 under the franchise, to employ in
connection with the sale, consignment, or distribution 21 of fuel.
22 (7) Refiner means any person engaged in the refining of crude
oil to produce 23 fuel, and includes any affiliate of such person.
24 5 (8) Retailer means any person who purchases fuel for sale to
the general 1 public for ultimate consumption. 2 Sec. 5A-302.
Franchisees right of first refusal. 3 (a) In the case of leased
marketing premises as to which the franchisor owns a 4 fee
interest, the franchisor shall not sell, transfer, or assign to
another person the 5 franchisor's interest in the premises unless
the franchisor has first either made a bona fide 6 offer to sell,
transfer, or assign to the franchisee the franchisor's interest in
the premises, 7 other than signs displaying the franchisor's
insignia and any other trademarked, 8 servicemarked, copyrighted or
patented items of the franchisor, or, if applicable, offered 9 to
the franchisee a right of first refusal of any bona fide offer
acceptable to the franchisor 10 made by another to purchase the
franchisor's interest in the premises. 11 (b) In the case of leased
marketing premises which the franchisor leases from a 12 third
party, following notice by the franchisor to the franchisee of
termination or 13 nonrenewal of the franchise by reason of the
expiration of the franchisor's underlying 14 lease from the third
party, the franchisor shall, upon request by the franchisee and
subject 15 to the franchisee purchasing or leasing the premises
from the third party prior to the date 16 of termination or
nonrenewal of the franchise set forth in the notice, make a bona
fide 17 offer to sell to the franchisee any interest the franchisor
may have in the improvements on 18 the premises, other than signs
displaying the franchisor's insignia and any other 19 trademarked,
servicemarked, copyrighted or patented items of the franchisor, at
a price 20 not to exceed the fair market value of the improvements
or the book value, whichever is 21 greater, or, if applicable,
offer the franchisee a right of first refusal of any bona fide
offer 22 acceptable to the franchisor made by another to purchase
the franchisor's interest in the 23 6 improvements. For the
purposes of this subdivision, "book value" means actual cost less 1
actual depreciation taken. 2 (c) This section shall not require a
franchisor to continue an existing franchise 3 agreement or to
renew a franchise relationship if not otherwise required by federal
law. 4 Sec. 5A-303. Remedy for violation of title. 5 (a) Any person
who violates any provision of this title may be sued in the 6
Superior Court of the District of Columbia for temporary and
permanent injunctive relief 7 and damages, if any, and the costs of
suit. 8 (b) No action shall be maintained to enforce any liability
created under any 9 provision of this title unless brought before
the expiration of 2 years after the violation 10 upon which it is
based or the expiration of one year after the discovery of the
facts 11 constituting such violation, whichever occurs first.. 12
Sec. 3. Fiscal impact statement 13 The Council adopts the fiscal
impact statement in the committee report as the 14 fiscal impact
statement required by section 602(c)(3) of the District of Columbia
Home 15 Rule Act, approved December 24, 1973 (87 Stat. 813; D.C.
Official Code 1- 16 206.02(c)(3)). 17 Sec. 4. Effective date 18
This act shall take effect following approval by the Mayor (or in
the event of veto 19 by the Mayor, action by the Council to
override the veto), a 30-day period of 20 Congressional review as
provided in section 602(c)(1) of the District of Columbia Home 21
Rule Act, approved December 24, 1973 (87 Stat. 813; D.C. Official
Code 1- 22 206.02(c)(1)), and publication in the District of
Columbia Register. 23 Attachment F Statement of Alexander Anenia on
Retail Service Station Amendment Act of 2011 (Bill 19-299) My name
is Alexander Anenia. Like Petros KifIu, I run the convenience store
at the Shell gas station at 1830 Rhode Island Avenue NE. I have
been working at this station for 4 years. There is also a repair
bay at my gas station. A total of eight employees work at these
facilities. As I understand this legislation, it would force Mr.
Mamo to go to the single franchise system. If Bill 19-299 becomes
law, DAG Petroleum may be forced to sell this station. It will
surely have to bring in a franchisee. As for me, the cost to
purchase a service station franchise business is beyond my reach.
So there will be a lot of unknown if the station is sold to someone
else. Bill 19-299 is creating a lot of troubles and worries for me
and my family. A change from DAG to someone else means I will have
to deal with a new operator of the gas station who mayor may not
renew my lease at the mini-market. This is bad. It is bad for me
and my family. It is bad for my employees and their families. I
assume that what you are doing is legal and that you have the power
to do it, but why does the government want to meddle in our jobs? I
along with other tenants at these gas stations ! are small,
hardworking entrepreneurs and employees. We go to work every day
and we provide : a needed and a convenient service to our
customers. At my store, I do not know of any . complaints from our
customers. Madam Chair and other members of the City Council, I
petition: you today not to support such a legislation. Please let
us work in peace. Do not interfere with my business and threaten my
and my employees' livelihoods. I ask for your help. Thank You!
COUNCIL OF THE DISTRICT OF COLUMBIA' COMMITTEE ON GOVERNMENT
OPERATIONS AND THE ENVIRONMENT Mary M. Cheh, Chairperson Friday,
June 17, 2009 RETAIL SERVICE STATION AMENDMENT ACT OF 2011 BILL
19-0299 Testimony of Alma Hardy Gates on behalf of Neighbors United
Trust Good morning Councilmember Cheh and Members of the Committee.
My name is Alma Gates. I live at 4911 Ashby Street, NW. I am
pleased to appear before the committee today in support of Bill
19-0299, the "Retail Service Station Amendment Act of 2011." (The
Bill) I sat before this Committee on March 25, 2009, in support of
an amendment to prohibit converting Washington's full-service
filling stations into gas-and-go stations; and, in particular to
support World Famous Parker's Exxon, located at 4812 MacArthur
Boulevard that has served residents ofthe Palisades for five
generations. When Exxon sold off a group of stations to Joe Mamo
three years ago, he became distributor and owner ofthe stations,
the same role Exxon exercised in the past. Now he wants to operate
his stations, and replace operators who held the station franchise
under Exxon. Lynn Cook, an operator the Palisades community has
come to know and respect, would be replaced by a manager of Mamo' s
choice and : it is safe to assume a similar fate would befall
station operators across the city as well as their employees. This
would allow the jobber to pocket all the receipts. As you are aware
similar legislation was passed by Council in 2004 and then repealed
in 2007 under heavy lobbying on behalf of Mamo. Today John Ray and
Jessie Jackson are actively lobbying on behalf of gas station
magnate Joe Mamo so he might function as distributor, owner and
operator of his many retail service stations. Yes, they oppose the
Bill. There is also the issue of homeland security in the Nation's
Capital. As jobber for his many stations, Mr. Mamo controls whether
or not gasoline is available. The proposed amendment to the Retail
Service Station Act of 1976 would ensure ' the current management
structure at Parker's continues and with it the service uponi which
the Palisades community depends. It would prevent a total monopoly.
Neighbors United Trust supports Bill 19-0299 to prohibit gasoline
distributors from owning and operating retail service stations in
the District of Columbia, and suggests its scope be broadened to
allow existing station operators to hire their replacements,
independent of the and, to divorce station operators from the
requirement they purchase petroleum from a single source
distributor. Please, let's get the legislation right this time!
TESTIMONY OF ALPHONSE M. ALFANO Before The Council of The District
of Columbia Committee on Government Operations And The Environment
Friday, June 17,2011 John A. Wilson Building 1350 Pennsylvania
Avenue, N.W. Room 412 Madam Chairperson and Members of the
Committee F or the past 28 years, I have been engaged in the
practice of law in the District of Columbia. All of my clients are
wholesale distributors of refined petroleum products, sometimes
referred to as "jobbers." The purpose of this hearing is to
determine whether jobbers should be prohibited from selling motor
fuels at retail in the District of Columbia. Jobbers purchase motor
fuels from nlajor oil companies, like Shell, Exxon, and Chevron,
and resell the products at wholesale and retail. In some cases,
they act as middlemen, purchasing from a major oil companies and
selling at wholesale to independent dealers. In other cases, they
own and operate stations and sell motor fuels directly to the
general motoring public. In still other cases, they consign motor
fuels to . an operator who sells the products on their behalf and
the operator is paid a commission for each gallon sold. Jobbers
decide the most economical and efficient means of selling their
motor fuels; if it is most efficient to make a nlajor capital
investment to purchase a service station and sell directly to
consumers, they will do it. Where it is more efficient to sell at
wholesale to independent dealers, they confine their activities to
wholesale sales. They operate in the manner that is most efficient
and economical for the particular geographic market in which they
operate so they can be as competitive as possible. Other than the
District of Columbia, no state or other political subdivision in
the country has ever enacted a jobber divorcement law. That is, no
state or political subdivision prohibits jobbers from selling motor
fuels at retail. Service station dealers, however, and the
organizations that represent them, have been pushing jobber
divorcement for decades. They've pushed it in a number of states
without any success. This lack of success is understandable. The 2
legislatures in the various states saw jobber divorcement for what
it is, special interest legislation (protectionism, if you will)
that eliminates all competition for service station dealers. More
importantly, it is special interest legislation with no benefit to
consunlers in the District of Columbia and with significant
anticompetitive effects. Because of the anti-competitive nature
ofjobber divorcement, the Federal Trade Commission's Bureau of
Economics determined that divorcement regulations would raise the
price of gasoline by about 3 cents per gallon. Speaking to a joint
subcommittee of the Virginia Senate and House of Delegates, Ronald
B. Rowe, Director for Litigation of the Federal Trade Commission's
Bureau of Competition stated: "There appears to be no factual
support for divorcement legislation, but there are compelling
reasons to believe that such legislation would be harnlful to
competition and to Virginia consumers and visitors." The same would
be true in the District of Columbia. In fact, the only benefits
ofjobber divorcement accrue to about 30 independent service station
dealers who may not even be residents of the 3 District. It
eliminates their competition so that they compete only with one
another. The only basis given by these dealers for jobber
divorcement is that jobbers will somehow "get rid of the dealers,"
so that jobbers can engage in direct operations. If this happens,
the dealers argue, District of Columbia residents will be deprived
of the services offered by independent dealers at their stations,
like automotive repairs. This argument has no merit whatsoever. The
Petroleum Marketing Practices Act was enacted by Congress in 1978,
and it prohibits jobbers from terminating a dealer lease or motor
fuel supply contract, or even nonrenewing a lease or supply
contract, except on specified grounds that are explicitly set forth
in the Act. Quite simply, a jobber cannot terminate (or "get rid
of') a dealer unless there are proper grounds therefor and there is
proper notice. Nor can jobbers take other actions to deprive
communities of the automotive repair services that independent
dealers offer at their stations. As you know, the Retail Service
Station Act of 1976 placed a moratorium on the conversion of
service stations from bay operations (that is, automotive repair
facilities) to convenience stores or other 4 methods of operation.
Thus, dealers are fully protected by federal law and by the laws
ofthe District of Columbia. In short, if the jobber divorcement law
is allowed to go into effect, there will be no benefits to the
District of Columbia or its residents. The only beneficiaries would
be a group of service station dealers who would be insulated from
any effective competition. Jobbers, on the other hand, who invested
millions of dollars to purchase service stations with an eye
towards operating them directly, will have to tum them over to
dealers and earn a significantly lower return on the investments
they made and the entrepreneurial risks they took to build,
modernize, and improve service stations in the District. Jobber
divorcement would discourage these types of investments leading to
a deterioration ofthe condition of service stations in the City.
And, of course, with less competition, gasoline prices will rise.
These are true effects ofjobber divorcement and, for these reasons,
Bill 19299 should not be enacted. C:Wfano\2011 Testimony Before DC
Council.doc 5 GOVERNMENT OF THE DISTRICT OF COLUMBIAOFFICE OF THE
ATTORNEY GENERAL***--June 17,2011BY HANDCouncilmember Mary M. Cheh,
ChairpersonCommittee on Government Operations and the
EnvironmentCouncil of the District of Columbia1350 Pennsylvania
Avenue, N.W.Washington, DC 20004Re: Bill 19-299, the "Retail
Service Station Amendment Act of2011"Dear Chairperson Cheh:I am
pleased to provide the Committee on Government Operations and the
Environment with theviews of the executive branch of the District
of Columbia Government ("District") in support ofBill 19-299, the
"Retail Service Station Amendment Act of2011."In recent years, the
Attorney General's office has sought to apply consumer protection
andantitrust laws to protect D.C. consumers from anti-competitive
practices by sellers of gasolinethat result in higher prices to
consumers. Bill 19-299 would provide a major assist to our
efforts.It would amend the provision of the Retail Service Station
Act of 1976 that has prohibitedgasoline producers, refiners, and
manufacturers from opening or operating gasoline servicestations in
D.C. D.C. Official Code 36-302.02. The proposed amendment would
extend thisprohibition to "jobbers," which are defined by statute
as "wholesale supplier[s] or distributor[s]of motor fuel." D.C.
Official Code 36-301.01(6A). Jobbers that currently operate
gasolineservice stations in D.C. would have two years to come into
compliance with the new restriction.The primary benefit of
prohibiting jobbers from operating gasoline service stations in
D.C. is tomake it more difficult for jobbers to use any market
power they may have as the owners ofmultiple D.C.-area service
stations in a way that increases the retail gasoline prices charged
byD.C. stations. The recent trend towards concentration of D.C.
service station ownership in thehands of a few major jobbers leads
the Administration to conclude that additional statutoryprotection
is needed. For this reason, we support Bill 19-299.We point out,
however, an inconsistency between the caption of the bill and the
statute it isamending. The long title says the intent of the bill
is to prohibit gasoline distributors from441 Fourth Street, NW,
Suite 1100S, Washington, D.C. 20001, (202) 724-1301, Fax (202)
741-0580Councilmember Mary M. Cheh, ChairpersonJune 17,2011Page
2"owning and operating retail service stations in the District of
Columbia." The statute, however,as it presently exists, simply
prevents producers, refiners, and manufacturers from "opening"
and"operating" retail gas stations. The premise of the existing law
is that those covered - i. e, theproducers, manufacturers, and
refiners - can continue to own the stations but cannot operatethem;
the stations need to have independent operators. Thus, if jobbers
and wholesalers weresimply added to the list ofthose covered by the
law, they could continue to own the stations butcould not operate
them. If the intent of the legislation is to prevent jobbers from
"owning" thestations and the real estate on which they are located,
as the long title seems to suggest, then thetext of the bill would
need to be amended to reflect that intent.Back in May 2007, at a
Council Committee hearing on Bill No. 17-142, the "Retail
ServiceStation Clarification Amendment Act of2007," the Office of
the Attorney General presentedtestimony that offered some support
for allowing jobbers to own and operate gas stations in D.C.The
focus at that time was to keep producers, manufacturers and
refiners from controlling theprice at the pumps. It was believed
that jobbers would be a pro-competitive force. According tothe
written testimony, "[b]y allowing jobbers to operate their own
retail stations in D.C., Bill 17-142 ha[ d] the potential to
encourage retail competition by increasing the number of stations
that[were] not controlled and supplied by the major oil companies."
Testimony of Bennett Rushkoff(May 24,2007). The Committee also
received a letter from the Federal Trade Commission staffin support
of allowing jobbers to operate gasoline service stations. The FTC
staff stated thatvertical integration of suppliers and service
stations is often "based on efficiency concerns," andthat
"[l]imiting the ability of suppliers to operate service stations
when it is efficient to do so islikely to lead to higher retail
prices." Letter from FTC Office of Policy Planning, Bureau
ofEconomics, and Bureau of Competition (June 7, 2007).Since 2007,
the landscape has changed dramatically in D.C.'s retail gasoline
market. In 2009,Exxon sold all of its D.C. gasoline stations,
resulting in just two major gasoline wholesalersowning a
substantial majority ofD.C.'s gasoline stations. In contrast to
2007, when the Office ofthe Attorney General suggested in its
written testimony that the Council might "consideradditional
statutory changes in order to allow D.C.'s independent [gasoline
station] operators tooperate more independently of particular oil
companies" (emphasis added), now the primaryconcern at the retail
level is the high proportion ofD.C. gasoline stations owned by
particularwholesalers. Last month, I indicated publicly that, as
part of the District's efforts to try to reducethe exorbitant
prices that D.C. consumers pay for gasoline, this Office is
actively investigatingwhether there have been antitrust law
violations in the D.C. gasoline market that have resulted
inunnecessarily high prices. That investigation is continuing.In
D.C., as in most other large cities; a major constraint on retail
gasoline competition is therelatively small number of retail
stations. In addition, in many parts of D.C., it is not easy to
findsuitable sites for new stations. Given the significant barriers
to entry into D.C.'s retail gasolineCouncilmember Mary M. Cheh,
ChairpersonJune 17,2011Page 3market, the recent concentration of
gasoline station ownership in the hands of a small number
ofwholesalers has the potential to enable those wholesalers to
exercise market power, resulting inhigher retail prices for
consumers.The District's current law on gasoline marketing
agreements makes it harder than it wouldotherwise be for a
wholesaler to exercise market power through direct manipulation of
gasolineprices. The law does so by prohibiting a distributor from
requiring a station operator - includingthe operator of a station
owned by the wholesaler itself - to buy gasoline from that
distributor.D.C. Official Code 36-303.01(a)(6). Under this law, a
distributor may seek to secure a stationoperator's loyalty through
better prices or better service, but not through contractual
restraints onthe station operator's ability to buy gasoline from
other suppliers. Put another way, while Districtlaw does not permit
a gasoline station operating under the Brand "X" trademark to
purchaseBrand "Y" gasoline and dispense it from a Brand X pump, the
law does give the Brand Xgasoline station the right to purchase
Brand X gasoline from any available supplier.The threat to consumer
welfare posed by these market conditions calls for vigorous
enforcementof federal and District antitrust laws, careful
antitrust review of transactions that could furtherincrease market
concentration, and serious efforts to reduce unnecessary barriers
(includingregulatory barriers) to the opening of new gasoline
stations. Bill 19-299 is an important step inthe right direction.
By forbidding wholesalers from directly operating their D.C. gas
stations,Bill 19-299, together with the District's existing
restrictions on gasoline marketing agreements,would help to prevent
wholesalers from exercising market power. If not restricted in this
way,wholesalers could maintain their positions as the exclusive
suppliers of particular gasolinestations simply by becoming the
operators of those stations and choosing themselves as
theirsuppliers. Accordingly, the Administration supports Bill
19-299.We fully support the bill as written. We further suggest
that, either as part of this bill or as partof a future bill, the
Council may wish to consider additional statutory measures that
could offerconsumers more effective long-term protection from the
combination of (1) high concentration inthe ownership of D. C.
gasoline stations and (2) significant barriers to the entry of new
retailgasoline stations in D.C. First, we respectfully request the
Council to consider providing theAttorney General with express
authority to seek injunctions and civil penalties, on behalf of
thepublic, against distributors that violate the District's
gasoline marketing agreement law or engagein any other
presumptively anti-competitive practices that could have the effect
of increasingprices at the pump. Second, if the current bill is
intended to allow wholesalers to own gasolinestations, but not
operate them, then a new bill should provide that wholesalers with
a highconcentration of gasoline station ownership may not use their
market power, over time, in otherways besides increasing wholesale
gasoline prices. 'For example, a wholesaler with a highenough
concentration of gasoline stations could choose to raise rents
and/or provide little or nofacility maintenance. The station
operators would probably have little choice but to pass on
theirhigher rental and maintenance costs in the form of higher
retail prices to consumers.Councilmember Mary M. Cheh,
ChairpersonJune 17,2011Page 4In conclusion, passage of Bill 19-299
should increase the effectiveness of the District's
gasolinemarketing agreement law as a means of preventing gasoline
wholesalers, at least in the shortterm, from exercising market
power to the detriment of consumers. We support Bill 19-299,commend
the Members of the Council for its introduction, and urge its
favorable considerationby the Committee, and, ultimately, by the
full Council.Sincerely,/\ (C _ J ,\ I (l/ ,;t..VV "--t ~ L- ~ L~
;::...= -_ _Irvin B. NathanAttorney Generalfor the District of
ColumbiaIN THE COUNCIL OF THE DISTRICT OF COLUMBIA BEFORE THE
COMMITTEE ON GOVERNMENT OPERATIONS AND THE ENVIRONMENT Mary M.
Cheh, Chairperson Public Hearing on B19-299 - the Retail Service
Station! Amendment Act of 2011 Remarks Prepared By: David A. Balto
Law Offices of David A. Balto David. [email protected] June
17,2011 I TESTIMONY OF DAVID A. BALTO BEFORE THE DC CITY COUNCIL IN
SUPPORT OF PROPOSED LEGISLATION B19-299 JUNE 17,2011 INTRODUCTION
Madam Chair and other distinguished members of the council, I want
to thank you for giving me the opportunity today to speak about
B19-299. The proposed legislation to amend the Retail Service
Station Act of 1976 to prohibit gasoline distributors from owning
and operating retail service stations in the District of Columbia.
As I will detail in my testimony, the retail gasoline market in the
District of Columbia is not competitively healthy. Two gasoline
distributors (jobbers) control approximately 70% of the retail
market. Since the council passed legislation to permit jobbers to
own service stations four years ago, there have been numerous
service station acquisitions which have led to a significant
increase in gasoline prices. This tremendous vertical integration
between jobbers and retailers raises serious competitive concerns I
and has led to significantly higher prices for hundreds of
thousands of DC consumers. My testimony today is based on over 25
years of experience as an antitrust practitioner, the majority of
which I spent as a trial attorney in the Department of Justice and
in several senior i management positions including Policy Director
of the Federal Trade Commission. As a trial attorney in the Justice
Department, I helped to bring several criminal enforcement actions
against gasoline jobbers for price fixing. As the Policy Director
of the Federal Trade Commission, I investigated numerous gasoline
mergers including ExxonIMobil and BP/Arco-both of which led to
major divestitures. Finally, on multiple occasions I have
contributed to studies on retail gasoline competition. I am here
before the committee today with a simple message: the repeal of the
DC divorcement law harms consumers. By diminishing competition, the
law results in higher prices at the pump. The DC gasoline market is
a tight duopoly controlled by two gasoline jobbers with a combined
market share of approximately 70% -- a market share higher than
jobbers in any other US metropolitan market. The price gap between
DC and its suburban neighbors has increased by more than 7 cents
since 2009, according to the Washington Post. The elimination of
divorcement law has caused consumers in DC to pay far more for
gasoline. But the council can correct this mistake by enacting
BI9-299. Enactment of this proposed divorcement legislation, along
with sound antitrust enforcement actions by the DC Attorney
General, would appropriately address this broken market. I will
begin my testimony with a discussion of the issues with vertical
integration in the gasoline industry and will then, make three
major points. 1. Elimination of the divorcement legislation has
harmed consumers through higher retail gasoline prices, greater
concentration and a less than competitive gasoline market. . 1 i 2.
Enactment ofB19-299 will restore competitive balance to this market
and should in turn, lead to lower gasoline prices. 3. The 2007 FTC
letter to the DC Council and other FTC studies which claim the ban
on divorcement to be procompetitive are inapt. CONCERNS OVER
VERTICAL INTEGRATION Since the proposed legislation importantly
prohibits the vertical integration ofjobbers and retailers, let me
first raise a few concerns about vertical integration in this
market. In many markets, vertical integration among complimentary
levels can be beneficial. By coordinating the production and
distribution of products, vertical integration can promote
efficiency and eliminate the need for firms on different levels
ofthe market to secure profits. With one firm controlling both
production and distribution, there is only a single margin to be
secured. But vertical integration is not innocuous. As the early
history of Standard Oil has demonstrated, vertical integration can
also be a very effective tool for stifling competition. There are
three tendencies of vertical integration that may explain how the
elimination of divorcement legislation has harmed competition in
the DC gasoline market. For one, vertical integration can raise
entry barriers or foreclose nonintegrated firms from a market. In
the case ofthe DC gasoline, for example, having two dominant
jobbers that control approximately 70% ofthe retail market makes it
is much more difficult for new jobbers to enter. In preparation for
this testimony, I spoke with jobbers from outside the Washington
area. They explained that because of the vertical integration
between the two dominant jobbers and their service stations, it was
particularly difficult to enter into the Washington wholesale
gasoline market. Because of the lack of nonintegrated independent
gasoline retailers, it is exceedingly difficult for a nonintegrated
jobber to effectively enter into this market. Second, vertical
integration may enable integrated firms to raise its competitors'
costs in an anticompetitive manner and reduce the incentive for
nonintegrated firms to compete. For example, a dominant jobber may
diminish the ability of independent firms to compete by limiting
its supply or by raising prices strategically. Positioned at two
l