I was trying to get an answer in regard to why there were not more openings of company-operated stores. That at least, in my opinion, the probability is significantly greater under decontrol where you do not have at least some of the protections that prevented that previously.

Mr. HILER. I understand that, but the entire study, everything on which it was based, the 80,000 closings in the last 10 years, was under control too. You cannot separate apples and oranges and try to anticipate what is going to happen if you are using some of your data from the past but you are going to skip other data.

Mr. BEDELL. The chairman certainly would agree with that and I think there have been times when some of the figures that have been used have been used to try to prove a point rather than to properly apply.

Mr. HOUSTON. Mr. Chairman, there is another factor that is involved in that and that is the Petroleum Marketing Practices Act passed in 1978 heavily documented up to that point during the 5 years that that was considered, established beyond a shadow of a doubt, I think, as the Senator stated in the Congressional Record, only half the job has been done. If we do not stop suppliers from competing against dealers we will not see dealers in the future in the marketing of gasoline. And I submit that having said that, that that caused a reduction in the number of refiner operated stations as it did when we moved closer to passage of the Petroleum Marketing Practices Act of 1978 we had rarely any complaint about abusive terminations, which is why the law was passed in the first place.

Mr. BEDELL. Thank you, and

Mr. HOUSTON. One last comment, if I may, for the record, because the committee was told earlier in testimony that consumers do not prefer retail dealers for auto repairs as they did. The Motor Vehicle Manufacturers Association figures disputes that by saying that in 1975, 46.5 percent of auto repairs in this country was performed by service stations in this country. And in 1978 the figure is still 42 percent and we have lost 100,000 dealers in the marketplace. I think the consumer does prefer the retail dealer for automotive service repairs.

Mr. BEDELL. The chairman wants to abide by the 5-minute rule that we are imposing on everyone else.

There is apparently one housekeeping concern we have. And that is on page 4 of your prepared remarks, Mr. Houston, you make reference to a statement by Prof. John T. Flynn and on page 5 you mention a publication called "20 Questions and Answers," could you try to provide those documents to the committee so we would know what they are?

Mr. HOUSTON. Yes. We thought all the committee members already had it so we did not bring any additional copies and we only gave it to the recorder over here.

Mr. BEDELL. As long as the recorder has it, fine. They will be included in the record.

[See appendix L, exhibits 2 and 3.]

Mr. Conte, do you have something?

Mr. CONTE. I just want to make one observation. I was quite surprised that none of you mentioned this-one of the things that

is troubling me and I would imagine other members of this panel is that we want to make sure that the consumer is going to get the cheapest price of gasoline. People are getting a cheaper price through a regular dealership. But the observation I wanted to make is that if the big oil companies are successful in driving all the dealers out then they will control the price, and knowing their track record, in the 23 years I have been in the Congress, they are never going to give a break to that consumer.

Mr. HOUSTON. The Congressman is correct. [Laughter.]

Mr. BEDELL. I think that is a good place to stop.

We will now have our next panel which consist of Robert Thornhill of Thornhill Oil Co., Fort Wayne, Ind., representing the National Oil Jobbers Council and Gregg Potvin, counsel for the National Association of Texaco Wholesalers.

We understand you have a plane to catch, Mr. Thornhill, is that correct?

Mr. THORNHILL. Yes.

Mr. BEDELL. At what time?

Mr. THORNHILL. 6:30.

Mr. BEDELL. Well, we should be able to get you out on time. That will be a great inducement for you to make your testimony as short as you can and for us to ask shorter questions.

TESTIMONY OF ROBERT J. THORNHILL, REGIONAL VICE PRESIDENT, ACCOMPANIED BY PHILLIP CHISHOLM, VICE PRESIDENT OF LEGISLATIVE AFFAIRS, NATIONAL OIL JOBBERS COUNCIL

Mr. THORNHILL. Mr. Chairman, I have a summary oral statement in the interest of time. I assume my full written statement is in the record. Also following my summary I would like to quickly have NOJC staff show you two charts we have drawn up to demonstrate how we view the wholesale transfer price section would affect jobbers and dealers.

Mr. BEDELL. Excuse me, would you introduce the other people at the table for the purpose of the recorder?

Mr. THORNHILL. On my right is Mr. Phillip Chisholm, he is the vice president of legislative affairs for NOJC and on my left is Mr. Gregg Potvin and he represents the National Texaco Wholesalers Association and I shall let him introduce the other gentleman. Mr. POTVIN. Mr. Chairman I am accompanied by Mr. Tom West, executive director of NATW and my cocounsel Glenn Every. Mr. BEDELL. Thank you.

Mr. THORNHILL. I am sorry, Mr. Chairman.

Good afternoon, Mr. Chairman, and members of the subcommittee my name is Robert Thornhill and I am president of Thornhill Oil Co., an independent petroleum products marketing firm in Fort Wayne, Ind.

I am here this afternoon representing the National Oil Jobbers Council a federation of 46 State and regional trade associations which represents approximately 22,000 small independent petroleum marketers.

We estimate that these marketers sell roughly 50 percent of the gasoline and 85 percent of the residential home heating oil sold in

America today. I am pleased to once again appear before a subcommittee headed by such a distinguished friend of small business. I am also pleased to provide this committee with the NOJC's position on H.R. 1362, a bill which would divorce certain refiners and implement a wholesale transfer price mechanism.

During periods of adequate or surplus gasoline supply the incidences of refiner subsidization become much more apparent to independent marketers. This phenomenon was most visible during 1978 when gasoline sales volumes were at an all-time high. Subsidization can take many forms. In addition to predatory pricing and supply practices by integrated refiners engaged in the dual distribution of product through their own company outlets and through independents in the same area, there are other refiner practices which adversely affect independent marketers. These more subtle forms of subsidization, which the DOE title III report chose to ignore, include the elimination of jobber prompt payment discounts and the elimination of jobber hauling allowances, and the elimination of credit cards.

Other ways subsidization occurs involve the entire credit policy programs of some refiners. Adherence to strict credit limits mandates that an independent marketer lower his volume as the price of gasoline products rises. Fewer gallons at the same total price over time will eliminate even the most efficient marketer. I have attached as appendix A, a list of refiner credit policy changes since the January 28 decontrol order.

I understand your staff requested of NOJC a list of such changes since decontrol. Since this list is constantly changing your staff has been provided with a revised appendix A, this afternoon.

There are several major concerns I wish to express to the committee as to the purposes and direction of this legislation.

First, we believe that the divorcement of the 16 or 18 largest refiners from retail marketing does little if anything to eliminate the possibilities of refiner subsidization. NOJC has witnessed subsidization by these refiners classified as small and independent refiners, to an equal if not greater degree than the large refiners. The small and independent refiners which in many areas of the country set competition by the prices posted at their own directly operated retail outlets, are not subject to divorcement sections of this legislation.

Second, the problem of predatory pricing and supply practices and the more subtle credit policy problems do not always occur at the retail gasoline pump. Independent marketers also must compete with refiner suppliers for the business of consumer purchasers of motor fuel. This consumer business is made up of thousands of bulk end users such as rental car fleets, municipal fleets, trucking fleets, farms, ranches, and small businesses.

At the present time there is a growing subsidization problem in the direct transport segment of this category. In fact, jobbers have lost many sales contracts to refiners in this category of purchasers which today makes up some 11 percent of jobbers annual buyers. Divorcement of refiners from operation of retail outlets only makes this category of purchasers more attractive to refiners looking to dump motor fuels. This important category, already threatened,

could easily go to divorced refiners. This element of the problem is not addressed in this legislation.

Third, at the present time there are some 14 State legislatures considering divestiture and divorcement legislation. Since the manufacture and distribution and marketing of motor gasoline is legitimately interstate commerce, it would seem appropriate that the Congress also consider it as such in this legislation. A patchwork of 20, 30, or 40 different State laws and even more local ordinances affecting gasoline marketing is not in the best interests of either the consumer or the marketers. The legislation before us does not preempt such State and local law and we consider this to be a significant problem area.

Another troubling section of this legislation for our members is section 3(c), popularly known as the wholesale transfer pricing section. If enacted, this section could eventually lead to the demise of approximately 25,000 independent dealers served by jobbers and certainly have a negative impact on another 38,000 open retail outlets served by jobbers.

As written, the legislation requires each supplier to post a single daily wholesale price for each type of motor fuel. This wholesale transfer price shall be the price to each purchaser of motor fuel that day. There are three exceptions to this rule: One, the supplier can meet but not exceed the equally low price of a competitor. Two, the supplier can add to the wholesale transfer price the cost of manufacture, sale, and delivery of the motor fuel resulting from differing methods or quantities in which such motor fuel is sold or delivered.

Three, refiners but apparently not jobbers, can assess a uniform and reasonable surcharge on sales of motor fuel as consideration for the use by the purchaser of the brand or trade name.

The impact of this provision is to virtually eliminate the wholesale function entirely. It forces refiners to absorb the economic return on performing the wholesale function in their wholesale transfer price. Where refiners do not perform the wholesale function, as in sales to jobbers they still receive the economic return thus forcing the jobber to either perform the function at cost or placing his dealer's customers at an uncompetitive position in the market.

The attached charts illustrate many of the points I have tried to make. I need not advise the subcommittee of the complex nature of the gasoline marketing industry. Trying to legislate relationships in such a complex area may be impossible.

Mr. Chairman, NOJC strongly urges that section 3(c) be eliminated from the bill completely.

There is one other area of the bill which I wish to address. Section 3(d) provides that no one shall restrict any dealer from purchasing or storing motor fuel from a source other than his regular supplier, provided that the dealer provides point of sale notice to the customer that the gasoline is not the advertised brand. This provision does not apply if the dealer is subject to a contract which requires the dealer to purchase exclusively from a given refiner or distributor. Under such a contract a dealer could purchase from another only if his contract supplier cannot provide

him with necessary volumes on terms and conditions available to him from another person.

This section gives a dealer virtually free rein to shop for gasoline from any supplier despite the fact that such dealer may be operating a franchise leased to him by the refiner or distributor. Conceivably a dealer with bad credit and an unpaid bill could shop for another supplier willing to extend him credit while still owing the unpaid bill for another supplier. The refiner and distributor then must play the role of landlord and dramatically escalate rents to the point that the given property provides an adequate return on investment.

NOJC also recommends this provision be deleted.

In summary, Mr. Chairman, the NOJC is acutely aware of the problem this committee seeks to remedy. Predatory pricing and supply practices have no place in the gasoline market. Be they used by refiners, jobbers, or any other marketers. We agree that subsidization has been a serious problem, one which could adversely affect what has been a truly competitive marketplace.

The problem we have at this time is in attempting to assess the impact of the recent decontrol actions on the marketplace, as well as decontrol's effect on previous subsidization actions. We would hope that following full decontrol the free marketplace would be able to handle the major problems in our industry today. To legislate a drastic and perhaps needlessly complex solution at this time may only complicate the problems caused by the last 8 years of regulation of our industry.

This legislation, as we see it, would require complexities in the area of pricing that may well eliminate some marketers and thousands of dealers and force others into direct operation of outlets in order to survive.

The legislation before us is not a panacea. It does not divorce all refiners. It does not include all retail transactions within the language of divorcement. It does not eliminate conflicting State and local laws and it may very well have to result in some sort of Federal controls to implement a very difficult and unfair pricing scheme. For these reasons we are unable to support this legislation. At this point, with your permission, Mr. Chairman, I would like Phil Chisholm our vice president for legislative affairs to very quickly run through these charts for you.

Mr. BEDELL. We do not want to cut you off but we do not want you to miss your airplane.

Mr. CHISHOLM. Mr. Chairman, I will be very quick. The total on the left chart basically gives the number of stations in each various category that are refiner-operated stations. The dealer served by refiners, the chain retailers, jobber operated stations, the dealers served by jobbers and the C stores and Mom and Pop stores that are served by jobbers.

Now these numbers are 1979 numbers and were drawn from several sources including the Department of Energy, the American Petroleum Institute, the National Petroleum News and some of the data that we developed from our own jobber profile studies. The chart of more concern to NOJC is the one on the right and this is how we perceive the wholesale transfer section to work in the market as we read it, and if we are perceiving it wrong then we