TO REGULATE COMMERCE AND TO PROTECT PETROLEUM MAY 13 (legislative day, APRIL 21), 1975.--Ordered to be printed U.S. GOVERNMENT PRINTING OFFICE MAY 13 (legislative day, APRIL 21), 1975.-Ordered to be printed Mr. Moss, from the Committee on Commerce, REPORT [To accompany S. 323] The Committee on Commerce, to which was referred the bill, S. 323, to regulate commerce and to protect petroleum product dealers from unfair practices, and for other purposes, having considered the same, reports favorably thereon with an amendment in the nature of a substitute and recommends that the bill as amended do pass. PURPOSE The purpose of this bill is to protect franchised dealers of petroleum products from the arbitrary termination, cancellation, or non-renewal of their franchises by their suppliers. To achieve this purpose, the bill prohibits the termination, cancellation, or non-renewal of a petroleum products franchise unless the affected franchise failed to comply substantially with any essential and reasonable requirement of the franchise, or unless the supplier withdraws entirely from the sale of petroleum products in commerce. The bill also provides a limitation on marketing activities in order to restrict major market shareholders in the expansion of distribution and retailing operations with personnel under their direct control. BACKGROUND The concept embodied in this legislation has been developed in the course of hearings and legislative proposals before various Committees of Congress for more than a decade. The bill synthesizes the objectives of three bills which were considered in the 93rd Congress by the Senate Commerce Committee, S. 1599, S. 1694, and S. 1723. For a number of years, the Senate Subcommittee on Antitrust and Monopoly, the Senate Small Business Committee, and similar House Committees have held hearings on the need for franchise protection for branded dealers of petroleum products. The Committee on Commerce has similarly considered such legislation and comparable legislation affecting other types of franchises, including Automobile Dealer Day in Court, which was reported by the Committee's Subcommittee on Automobile Marketing and subsequently enacted into law in 1956. "On March 17, 1973, the Consumer Subcommittee held a field hearing on the impact of gasoline marketing practices on the consumer. As a result of that hearing and subsequent developments in the gasoline marketing situation, S. 1599, S. 1694, and S. 1723 were introduced by Senators Saxbe, Moss, and Kennedy, respectively, during April and May 1973. The Consumer Subcommittee held hearings on these bills on May 21, 29, and 30, 1973. During the consideration of S. 1570, the Emergency Petroleum Allocation Act (15 U.S.C. 751 et seq.), an amendment (No. 159) was adopted by the Senate which embodied the substance of sections 3, 4, and 6 of the bill reported herein. However, that portion of the amendment having to do with franchised dealers was not adopted by the Committee of Conference. Again, during the consideration of S. 2589, the Energy Emergency Act, the Senate adopted an amendment similar to many of the provisions of the bill reported herein. The House adopted a similar amendment to the bill, and the Committee of Conference incorporated the protection of franchised dealers as section 111 of the conference report on S. 2589. However, this legislation was vetoed by the President. On July 31, 1974, the Committee on Commerce ordered S. 1694 reported with an amendment in the nature of a substitute and an amended title. The bill was subsequently passed by the Senate on August 7, 1974, but the House did not complete action on it during the 93rd Congress. On January 23, 1975, Senators Moss, Hart, Magnuson, Pastore, Stevenson, and Tunney introduced S. 323, a bill similar to S. 1694 as passed. The Committee held a hearing on this legislation on March 19, 1975. Subsequently, the legislation was considered in Executive Session on April 21, and ordered reported with an amendment in the nature of a substitute. DESCRIPTION AND NEED This bill is based upon a concern that independent branded fuel dealers are being inequitably treated by their oil company suppliers. The bill is designed to assist these small businessmen to gain needed protection. According to both the National Congress of Petroleum Retailers and the Society of Independent Gasoline Marketers of America, approximately 90% of the nation's service stations are independently operated, usually under lease or rental agreements with petroleum companies. Under these arrangements the independent dealer buys his products from the oil company and then is responsible for marketing, maintenance, sales of accessories, and a variety of related activities. In addition to the normal rigors associated with operating a small business, independent fuel dealers face serious difficulties in dealing with their major oil company suppliers. Dealers have no control over the pricing policies of their suppliers. As a result, the pricing policies of one oil company may result in a dealer finding himself uncompetitive with other retailers in his area. The most significant concern expressed, however, lies in the total control over the dealers through lease and rental agreements exercised by their suppliers. These agreements generally contain provisions for the sale of oil company products such as tires, batteries, and accessories. Many dealers have alleged resulting harassment by their oil company suppliers if the dealer does not increase sale of oil company products, comply with changing credit policies of the supplier, display materials to the satisfaction of the supplier or if he carries products produced by suppliers other than those of the lessor. Generally the provisions of lease or rental agreements allow an oil company to terminate the agreement on extremely short notice. This is a particularly difficult situation for a dealer to face considering that upon termination, there is no restoration of the equity, good will, or other investments which the dealer has made in his facility. The testimony of a witness at the Consumer Subcommittee hearing on March 17, 1973 should serve to demonstrate the nature of the problem. The witness, Richard Tubbs of Roy, Utah, had been a retailer for Phillips Petroleum Company for 17 years. Apparently he had operated his station well for he had received a number of awards during that time period. Mr. Tubbs describes his termination as follows: "I feel that I have been a good Phillips dealer. I have done a good job for my supplier and my customers. I have operated a sound business in which I have made a substantial investment in time and capital. Yet, despite the success of my business and the number of years I have spent in marketing Phillips products and developing Phillips' image, I was summarily terminated by Phillips in October of 1972. In October, two Phillips representatives came into my station without prior notice or announcement and told me that they wanted me to agree to vacate my business in thirty days. They told me that if I did not agree to this mutual cancellation, that Phillips would kick me out in ten days. The only reason they gave for my termination was marketing changes. After contacting a lawyer, I determined that Phillips did not have the right to evict me from my gasoline station on the short notice they proposed; but, as of May 1, 1973, I will no longer be a Phillips dealer-my lease has been terminated. Phillips, is not going to pay me one dime for the destruction of my business. I think that this abrupt and cavalier manner in which Phillips has terminated me is all too typical of the relationship between major oil companies and their dealers." A witness at the May 21, 1973, hearing, Irving Saul, of Dayton, Ohio, appeared representing eight Citgo jobbers from the greater Chicago, Illinois area. Mr. Saul reported that Citgo had decided to terminate all eight jobbers in Chicago. He reported the results of this termination as follows: "Now, in tabulating and so to give you this in capsule form, these eight jobberships represent 58,600,000 gallons of gasoline to their marketing area 4,600,000 gallons of diesel and 9,700,000 gallons of fuel oil are involved. That is what it is represented that is going to stop being marketed by these jobberships that represent between them and among them over 100 years of service to Cities Service, the Citgo brand, or to supply from Citgo. |