H.R. 1362-SMALL BUSINESS MOTOR FUEL TUESDAY, MARCH 31, 1981 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY, ENVIRONMENT, AND SAFETY ISSUES AFFECTING SMALL BUSINESS, COMMITTEE ON SMALL BUSINESS, Washington, D.C. The subcommittee met, pursuant to notice, at 2 p.m., in room 2359A, Rayburn House Office Building, Hon. Berkley Bedell (chairman of the subcommittee) presiding. OPENING STATEMENT OF CHAIRMAN BEDELL Mr. BEDELL. The subcommittee will come to order. This afternoon we have the first of two hearings on H.R. 1362, the Small Business Motor Fuel Marketer Preservation Act of 1981. This bill has more than 70 cosponsors in the House, and comes to us with an extensive legislative history. [See appendix A.] The Members of Congress, and most especially those of us who serve on the Small Business Committee have a responsibility and a duty to help assure that small businesses have a fair chance to compete in today's economy. Therefore, we are concerned by the repeated complaints we hear that small and independent marketers of motor fuel are being driven out of the marketplace by the actions and policies of the big oil companies. We are troubled by the statistics that show that more than 80,000 service stations went out of business between 1972 and 1979, and that show the attrition rate among independent service stations continuing to run at about 10 percent a year. It is very clear to me that if we truly believe that there is and should be a place for the local small businessman in the marketing of gasoline, then we must act as quickly as possible to give that independent marketer the opportunity to compete on a fair and equitable basis. It is equally clear to me that if we do not do this, then the current trends will continue and the situation will get worse. There will be fewer and fewer independent businesses in motor fuel marketing and the major integrated oil companies will have further consolidated their grip on our economy. If Congress does not act soon, the more than 100,000 small businesses currently engaged in gasoline marketing will dwindle to a mere handful and be replaced by the seven sisters and their close cousins. Along with a list of the bill's cosponsors, I will place in the record a detailed summary of the key provisions of H.R. 1362. To summarize, very briefly, the legislation would: Make SBA loan guarantees available to service station dealers seeking to buy facilities they have been leasing from refiners; Prohibit major integrated refiners from operating service stations in competition with independent dealers; Place constraints on growth in direct retail marketing by those nonintegrated refiners who are not affected by the divorcement provision; Provide safeguards against discriminatory pricing of gasoline at the wholesale level; and Assure dealers of the right to go to new suppliers if their regular supplier is not able to meet the needs of the dealer and the public. [See appendix B.] I mentioned that this bill has a history. For the benefit of those who are new to this issue, I will state it briefly. Copies of the hearing records and reports have been provided to the members of the subcommittee and, of course, have been available to the public for some time now. In 1979, the Small Business Subcommittee on Antitrust, in response to complaints from Members' constituents, conducted an extensive series of hearings on gasoline retail marketing practices. Those included field hearings in Sioux City, St. Louis, and Dayton. Altogether, testimony was received from more than 100 witnesses. The subcommittee was moved by what they heard and the additional evidence that was gathered. Particularly important was the question of how the dealer is supposed to compete against the integrated oil company that not only is selling directly to the same retail market the dealer is in, but also is that dealer's landlord and supplier. In such a case, one competitor is able to control most of the variable factors crucial to the other's survival: rent, price and availability of product, credit, advertising, and so on. Parenthetically, I should note that the subcommittee did specifically consider the question of the impact of Federal controls on petroleum marketing. We concluded that while some problems were created by the Federal controls, the Federal regulations did serve the very important function of helping to buffer the small businessman from pressures that otherwise could be brought to bear by the oil companies. With the recent removal of controls, and without passage of legislation such as we are considering today, the dealer is even more vulnerable to unfair actions by the major oil company that is his supplier/landlord and with whom he must compete. The Small Business Motor Fuel Marketer Preservation Act was first drafted in a collaborative effort by the members of the Antitrust Subcommittee; it was introduced as H.R. 6722 in March 1980 by a bipartisan majority of the subcommittee. A second round of hearings, also quite extensive, was held and the bill then underwent markup. It was reported out of subcommittee unanimously. While this was going on, the Small Business Subcommittee on Energy was doing its own study of the petroleum industry and independently arrived at the same basic conclusion. They, too, unanimously recommended retail marketing divorcement. On July 1, the full committee took up the bill and made a few minor changes. It was reported out by a vote of 25-to-1. The legislation also was the subject of hearings last year in the House Committee on Interstate and Foreign Commerce and the Senate Judiciary Committee. H.R. 1362 is based upon the marked up version of H.R. 6722, as it was reported from the Small Business Committee, and upon a modification that was suggested by the Senate's hearings last year. So, this is not exactly original research we are doing here. On the other hand, I do want to stress that this panel approaches the legislation with an open mind. In 1980, H.R. 6722 was the product of team work and bipartisan effort to find a solution to a very serious and immediate problem. I expect this subcommittee's approach to H.R. 1362 this year will be the same. We will hear from an extensive and varied list of witnesses, and their comments will be given careful consideration. This afternoon we will hear from two of the sponsors of the legislation. Senator Howard Metzenbaum chaired the Senate Judiciary Subcommittee on Antitrust until it was disbanded early this year. Congressman Tom Tauke was a very active member of the House Small Business Subcommittee on Antitrust in the 96th Congress. We are also fortunate to have with us today Louis Goldstein, the comptroller of the State of Maryland. That State currently has the most comprehensive gasoline retail marketing divorcement law in the Nation, and Mr. Goldstein is responsible for administering it. Finally, we have representatives from the Federal Trade Commission and the Departments of Justice and Energy. These are the Federal agencies whose jurisdictions include antitrust and the petroleum industry. At a previous hearing on gasoline marketing, very informative and provocative testimony was received from the Small Business Administration's Chief Counsel for Advocacy, Milt Stewart. He left Government service last month to become editor of Inc. magazine, and the SBA has placed a caretaker in his old office until a new Chief Counsel is named. Milt feels very strongly about this issue, though, and sent the subcommittee a statement before he left office. If there are no objections, I would like to place Mr. Stewart's comments in the hearing record. [See appendix C.] I would also like to place in the hearing record comments by several of our colleagues. [See appendix D.] Also, I would like to leave the hearing record open for 1 week to receive any other statements that may be submitted. Mr. Conte, did you have a statement? OPENING STATEMENT OF HON. SILVIO O. CONTE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS Mr. CONTE. Yes, thank you, Mr. Chairman. The independent service station dealers is quickly following the fate of the 5-centcigar extinction. Those independent dealers who have managed to keep their heads above water, and survived the external as well as the internal forces in the marketplace, will witness the departure of some 34,000 more independent service station dealers this year alone. Since 1972 we have seen the ranks shrink from 263,000 to 182,000 service station dealers in this country. Granted, the industry has been saturated with these struggling small businesses who had been encouraged by big oil to distribute their products. But now that the retail side of the oil industry has become so lucrative in recent years, these small businesses are watching the emergence of a new source of product distribution-high volume gas-and-go company operated station. Recent trends in this distribution indicate to me that the company operated stations are receiving a most favored status in the marketplace, while the independent station dealer is forced to deal with the inequities of supply, price, rent, and a host of other conditions. I ask the question, how can the small businessman compete fairly with his own landlord and supplier? Mr. Chairman, I expect discussion will be raised and possibly answered during these 2 days of hearings. I commend you for your detailed work to date, and trust that this subcommittee will find these hearings very helpful in drafting this legislation, and I am pleased that we have the very, very able and outstanding Congressman, Mr. Tauke, as one of our first witnesses, and if I may, Mr. Chairman, when he is through if he would like to come up here and sit with us, we would love to have him. Mr. BEDELL. Without objection, he will be invited to sit up here with us. As Mr. Conte knows he participated very actively in this legislation last year and made a very significant contribution. Mr. Mavroules, do you have a statement? Mr. MAVROULES. I have no statement at this time, Mr. Chairman. Mr. BEDELL. Mr. Bereuter? Mr. BEREUTER. I have no opening statement. Thank you, Mr. Chairman. Mr. BEDELL. Mr. Eckart? Mr. ECKART. No opening statement. Mr. BEDELL. Mr. Hiler? Mr. HILER. No statement, Mr. Chairman. Mr. BEDELL. We are delighted to have you here, Mr. Tauke, and I would again like to express our appreciation for the way you helped with this legislation, and helped perfect it in the last session. I think you made a very, very positive contribution to it and, we are delighted to have you here to testify today. I should say that we have promised Mr. Metzenbaum that when he comes here from the Senate floor we will interrupt the proceedings and let him testify and go back. I ask all the witnesses to please excuse the Chair for having made that commitment but the Senator is very busy over there today. TESTIMONY OF HON. THOMAS J. TAUKE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA Mr. TAUKE. Well, thank you very much, Mr. Chairman. I must say that after listening to your opening remarks and those of the distinguished ranking member of the subcommittee, that I feel a little bit like the time I went to the Clayton County dairy producers banquet in order to tell them that I supported price supports. I think, a little bit, that I may be speaking to those who are already convinced about the merits of this legislation, although I know that there are many new members on the subcommittee. In either case, it is necessary for us, and important for us to review the information to see if we, ourselves, come to the same conclusion, and also to see if our colleagues come to the same conclusion that we did last year on a different subcommittee. I too want to express my appreciation to you and the other members of the subcommittee for inviting me here and for allowing me to participate in your hearing this afternoon, and also to thank you for the fine relationships that we had last year when we worked on this legislation. I have prepared a statement which I have submitted to the subcommittee. Having sat through many hearings myself, I choose not to read the statement but will allow you to do so at your own leisure, if you so desire. I would, however, like to make a few informal remarks about the legislation. I think that it is fair to say, first of all, that the purpose of this legislation is not to insure that every person who currently operates an independent gas station, or who is an independent gasoline dealer is guaranteed a job next year or the year after. What is important about this legislation is that it is designed to provide some kind of fair competition within the retail gasoline market. I would urge those who are on the panel to look at the record from last year, the hearing record, and see the evidence that was compiled, which I think made a very compelling case in support of this legislation. I would ask that you note too that last year in subcommittee and in the full committee, this legislation passed out with enormous support-only one vote in opposition, as I recall, in the course of the action of the subcommittee and committee on this legislation. I think that it is important to note that we considered the various trends, already mentioned this afternoon, that have occurred in the retail gasoline industry. The decline of 80,000 service station operators, the doubling of gasoline pumped through refineroperated stations, and the dramatic increase in the monthly sales of refiner-operated outlets versus those outlets that are controlled by branded dealers. Although we noted these trends, I think it was because we believed that it was basically unfair for dealers to compete head on with their suppliers, with major refiners, that we considered this legislation. And I would submit to you that you need not look at any of the statistics. You really need not look at any of the data that has been compiled, but what you need to understand is that if you have a supplier, on the one hand, who controls credit cards and leases, and on the other hand, you have a dealer who does not have control over his or her own lease, his or her own supplies, or his or her own credit card system, the two, obviously, cannot compete equally. That is what we discovered in the retail gasoline marketing business. You had people who were controlling the operations of |