Mr. PHILLIPS. I don't know about the competition. I will try to find out as much as we can, but in the case of Vickers that is not true. Mr. DINGELL. I get the impression on this question you gentlemen all wear white hats, but I am not satisfied.

Mr. PHILLIPS. Mine is stained a little, but it is in the inside where you can't see it.

Mr. DINGELL. The Chair recognizes Mr. Wirth.

Mr. WIRTH. Thank you, Mr. Chairman.

I would like to get any reactions from you on following up on the questions I was asking of FEA on the decontrol of gasoline. Do you have any sense of what the impact of that might be on the price of gasoline?

Mr. ROPER. Well, I think that least in our case we are not restrained now by FEA on gasoline since we have had a historic position of having such high crude costs that we have had banking that has been considered in the price calculation and we are pricing because of the market not because of the maximum lawful price. So, as far as we are concerned, deregulation of gasoline would not cause the price of gasoline to go up.

Mr. WIRTH. Do you agree with that, Mr. Winkler?

Mr. THOMAS. I definitely agree with it, if I may. We also have a bank provision to work against. We are not at what we would choose to call a ceiling price, or full permitted selling price, today, and in fact have three major companies in our area whose dock price is up to 214 cents per gallon below ours.

Mr. PHILLIPS. We have not sold at our ceiling price for over a year, and I don't know of anybody operating in the 16 States where we do that is selling at ceiling price. If that is the case, I can't see any reason that a relaxing, or decontrol, of prices, would move the gasoline price up, if you are competing in the marketplace now, below the ceiling price. If you relax controls, why would you go to ceiling price?

Mr. WIRTH. Then assuming all of you were saying that prices would not go up, it would not make any difference if it was decontrolled?

Mr. PHILLIPS. Not as long as the supply situation and the demand is the way it is today.

Mr. WIRTH. Then Mr. Hill, in his testimony, I remember said there was no point in moving ahead with H.R. 13000 unless there were to be decontrol, right?

Mr. PHILLIPS. I think that is what he said. There was one point he made and I could not agree.

Mr. WIRTH. I am quoting, "I wish to emphasize such legislation would only be necessary to cope with the decontrolled market environment."

Mr. PHILLIPS. That is what I said a while ago, too. The only thing I disagreed with, I could not understand why he said if allocations went off it would be a different story. I think if allocations go off, you need some protection because allocations is what protect the volume to these dealers today for sure.

Now, if you don't have allocations and have price controls, the dealer would not have the protection that you are attempting to give

him. But, his theory was that if you left price controls on, did away with allocations, soon you would have to go back to allocations and I don't follow that reasoning. I don't know what he is talking about, but otherwise I agreed with him all the way.

Mr. WIRTH. You are saying we could go to a point of lifting controls on the allocation and maintaining controls on price?

Mr. PHILLIPS. You could, but I think then you might have some dealers that would say they need protection. They might be canceled out.

Mr. WINKLER. I would like to mention back in early 1973 we had a situation where we had price controls, as Mr. Hill pointed out, without allocation controls. The price of foreign crude oil which had always been cheaper than domestic went up higher than domestic crude, and there was not enough profit margin in many cases for companies to justify buying the foreign crude.

So, some major oil companies who had been selling us crude oil cut us off in order to use the domestic crude in their own refineries. So, it did definitely create a problem for us to have price controls without allocation at that time.

Mr. WIRTH. Generally the point that you all would take is it does uot make any difference if you decontrol on gasoline at this point as long as the supply is true.

Mr. GRUESKIN. I think the converse would also happen. If something happened tomorrow to create a shortage, you would see prices jump 5, 10, 15 cents a gallon. The factors at work then would be the factors at work whether or not there are controls in place.

So, in other words, you have got a plentiful supply so whichever way it is going to fluctuate it is all well beneath our stated legal ceiling prices so the only difference I can see is we have that much paperwork doing.

Mr. WIRTH. And the other issue is we are nibbling away at both ends of the barrel with residual at one end and gasoline at the other end and there is that potential bonanza in between that many people are concerned about.

Mr. GRUESKIN. There was a lot of testimony at the last hearing that a standby provision be held in abeyance of some hairline trigger if decontrol is in fact in place so that anything ranging from anything as dramatic and newsworthy as an embargo on down to regional problems, a string could be pulled without going into a cumbersome process. I think this would make sense.

Mr. PHILLIPS. Simply stated, without price controls, if a shortage hit like we had during the embargo, you are going to see gasoline prices go up. How much, whether it be 5, 10, or 15, we don't know, but they will go up. Today they won't.

Mr. WIRTH. Mr. Phillips it was in your testimony that you mentioned having some kind of exemption for independents or small independents. Was that in your testimony?

Mr. PHILLIPS. I think if you are going to have title II, which we think should not be in there at all, if you are going to have that, you have to exempt the small refiners who would be absolutely stifled during this period of time.

Mr. WIRTI. Do you have any reaction to that, Mr. Roper?

Mr. ROPER. I would agree.

Mr. THOMAS. We agree.

Mr. WIRTH. What kind of exemption would that be?

Mr. PHILLIPS. The same thing we suggested on definition of small refiner. You don't put in there "any refiner." You say anything but a small refiner would be under your moratorium. I don't believe in the moratorium to start with, but if we are going to have it, let's don't restrict the people that are not causing the problems with the dealer or that you are trying to save.

Mr. WIRTH, What you would do is save title I for those for whom it is acceptable, but title II is not?

Mr. PHILLIPS. That is right. I agree with Mr. Hill on title I. I think the restrictions on cancellations are strict. I can think of one that might cause an argument that is not provided for; that it, if the franchisor had a lease on a piece of property with an option to renew and it came time for renewal and he decided he was not going to renew, thereby he would have to cancel the dealer who is going to decide whether that was a good business judgment for him not to renew his lease so he had to put the dealer out and that just opens up an avenue to go to court.

Mr. WIRTH. The reasons for title II I find difficult to get my head around as well, but I was trying to get that out of counsel and maybe between the voice of the counsel and my old friend Harold Grueskin I can understand the reasons for and against title II may be.

Mr. PHILLIPS. I wish somebody would tell me.

Mr. WIRTH. Maybe it is appropriate to see if we can tease some of those out from further questions on title II.

Thank you, Mr. Chairman.

Mr. DINGELL. The Chair recognizes counsel, but before the Chair does so, the Chair would like to indicate the record will be open for a while, gentlemen, and we will want your further comments as you might deem it appropriate, not only with regard to the other titles of the bill, but also with regard to any further proposals by the staff or any other person.

If you would cooperate in responding and giving your thoughts, that will be very useful so we can have an appropriate picture as to the goods and bads and propriety of different proposals before us. [The material referred to was not available at the time the hearings were printed.]

Mr. DINGELL. Mr. Demarest?

Mr. DEMAREST. Thank you, Mr. Chairman.

I would just like to spend a very little bit of time on what might be another alternative to a marketing moratorium for rack pricing concept. I will try to outline something very briefly and ask for your reaction on it.

I understand it may be very limited. I think the problem that Mr. Wirth has alluded to and you gentlemen have inquired about is the potential of a vertically integrated refiner to subsidize or favor his own company operated stations as compared to dealers or jobbers which he sells to at wholesale, and to subsidize those operations through profits either in refining or in production of crude oil.

Through that subsidization his market share increases dramatically. Now, I don't know whether that problem exists. Mr. Hill explained it may be a greater potential for it following the removal of price and allocation controls.

Perhaps an alternative to a marketing moratorium which would, of course, directly prevent that kind of dramatic increase in market share is something which fundamentally says treat all consumers equally. I would like to suggest this as another alternative.

If you established within some market regions classes of trade, those could be your wholesale distributors, your retailers and the general public, and vertically taking the price on average, which you charged to a class of trade, require a supplier to maintain a differential in the average price charged one class of trade and the average price charged another class of trade, which differential would reflect the services which are provided to one class of trade not uniformly or generally offered to be provided to another class of trade, and that differential would have to be equal to or greater than the average cost of those services which are provided to the one class and not to another.

The simplest example is a wholesale distributor who buys unbranded product at the rack and dealers who purchase and include transportation, the price to the wholesale distributor class of trade representing only the gasoline, the gasoline, the price to the dealer class of trade representing transportation costs as well.

Similarly as between dealer tank wagon and the pump price require that the cost of operating company operate particular stations on average would have to be reflected in a differential. So that a vertically integrated refiner could not subsidize his employee operated stations by his upstream profits; that is, he could not post at the pump the same or nearly the same price as his dealer tank wagon price.

That is only half of it. The other half is what happens horizontally and on that score, you could cost justify within any market class I think does that have more flexibility to it than some of these other proposals?

Mr. WINKLER. As I understand it, you are carrying the concept of rack pricing clear through to retail by saying you have to pass on your cost of operation. Is that correct? Your retail operating cost?

Mr. DEMAREST. Essentially. At least equal to, but it could be greater, it could make a profit at your retail level.

Mr. WINKLER. That is the minimum. As pointed out in that number one how do you know what your costs are if you don't know what your volume is and if you are not competitive in your market. price, your volume is going to go down and your costs are going to go up and then you would have to continue increasing your price when you should be decreasing it to become competitive. I think it would make you tremendously inflexible and would not be practical. Mr. DEMAREST. You have a running shot at it, however. Mr. WINKLER. But in the wrong direction.

Mr. DEMAREST. Maybe you would back into this one.

Mr. ROPER. We are all three of us refiners and all three of us have to comply with the Federal Energy Administration's refiner price.

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rules which talk in terms of class of purchaser, equal treatment among the same class-if you change the price to one you have to change the same to each one of your classes equal application rule. Your question infers I think that there is predatory practices going on now and you will solve them by adopting this. First, I don't think it is a predatory practice and certainly it is not lawful for them to do that because of the present price regulations of the Federal Energy Administration. I don't think that is widespread and we want to get away from-we want to get away from all this reporting.

We have to be competitive and if we give companies particular services at certain levels, we are going to in order to be competitive going to have to make price adjustments but to lock us in a straitjacket and say that is the way it is, take it or leave it, we are opposed to that, and what you are really suggesting seems to me a modification.

You are really talking more of a reseller price rule than a refiner price rule, but it is still the same thing.

Mr. DEMAREST. FDA's present price control system, as Mr. Hill testified, does not reach this problem and even if it did, the concern I think that members of the committee may have or at least that some witnesses have expressed and to which some of these proposals are addressed is that on removal of allocation price controls, we may see an increase in the recurrence of this kind of practice. That is what this is addressed to as much as to current conditions.

Mr. DINGELL. Could I raise a question? Mr. Demarest has referred to the possibility of in the affirmative-requiring essentially this differential between different levels of marketing. Assuming that instead of saying that it should embody an essentially functional pricing differential between the different levels of marketing, what if the proposal were to say it should prohibit pricing which did not or which was not embodied, which did not embody a functional differential between levels of pricing?

That would be a little different. It is a subtlety you might not enjoy, but there is a distinction between the two and maybe one of you gentlemen would like to comment.

Mr. GRUESKIN. Let me back up on the philosophy. All this price formula type of thinking, talking, and bill writing, is predicated on the basis that there is predatory pricing, that when someone sees a price on the street that is lower than someone else that the intent behind it is predatory pricing.

I suggest the other way. If it were recognized as though McDonald's had the best hamburger for the best money-it was not that McDonald's was trying to run everybody else out of business who was selling hamburgers.

Mr. DINGELL. I should say I am not a newcomer to this business of petroleum pricing. I have been dealing with it for a number of years. I have found a number of instances for you where I was satisfied there was some clear showing of predatory practices in the industry.

Mr. GRUESKIN. It may well be, but what I am saying everytime someone has a lower price than another on the street it may not nec