HOUSE BILL REPORT

HB 1921

BYRepresentatives Vekich and Anderson

Prohibiting motor fuel producers or refiners from operating a retail outlet and allowing retail dealers to sell more than one brand of fuel.

House Committe on Trade & Economic Development

Majority Report:  Do pass. (10)

      Signed by Representatives Vekich, Chair; Wineberry, Vice Chair; Braddock, Cantwell, Fox, Grant, Holm, Moyer,  Rasmussen and B. Williams.

Minority Report:  Do not pass. (8)

      Signed by Representatives Amondson, Doty, Hargrove, Heavey, Kremen, McLean, Schoon and J. Williams.

House Staff:Stephen Hodes (786-7092)

AS REPORTED BY COMMITTEE ON TRADE & ECONOMIC DEVELOPMENT

FEBRUARY 1, 1988

BACKGROUND:

The bulk of the motor fuel retailers in the state are managed by lessee-dealers.  Such dealers lease their stations from their refiner-suppliers, but operate their stations independently, retaining the profits from the station.  Some states prohibit refiner-suppliers from directly operating retail stations.  Proponents of this prohibition, known as divorcement, claim that it results in a more competitive market for motor fuel and related products.  The market for motor fuel in Canada, which is more monopolized than are United States markets, is held to be a negative example, with higher retail motor fuel costs.  Divorcement was restricted to states in the mid-Atlantic region (Maryland, the District of Columbia) until 1987, when such a prohibition was enacted in Nevada.

The state's Gasoline Dealer Bill of Rights Act, passed by the Legislature in 1986, provided dealers and refiners with a set of ground-rules to govern their relationships.  The legislation defined unfair business practices in this field, which included requirements for dealers to purchase or lease refiner-supplier goods or services, discrimination by refiners between retailers in charges offered for goods and services, or charges by refiners of more than a fair and reasonable price for products or services. The legislation also permits retailers to take legal action against refiner-suppliers selling a franchise in violation of the provisions of the act.

SUMMARY:

Large integrated refiners are not permitted to operate motor fuel service stations in the state, with the following exceptions:  large integrated refiners are permitted to continue to operate service stations they were operating as of the effective date of the legislation; integrated refiners are permitted to own all or part of the assets of a service station if they do not engage in the business of selling fuel at the station through employees, commissioned agents, persons acting on behalf of the refiner or under their supervision, or under a contract which provides substantial or effective control to the refiner.  Large integrated refiners are defined as individuals, partnerships, or corporations who in the most recent calendar year produced more than 30 percent of the crude oil supplied to their refinery and whose total refinery capacity exceeds 175,000 barrels a day.

The attorney general is permitted to undertake civil action for relief if the provisions of the legislation are violated. Such actions are to take place in the superior court of the county in which the defendant is located, resides or is doing business.  The court is given jurisdiction to restrain the violation, to require compliance, and to impose penalties.  Affected parties are provided with the option of undertaking civil action.  If the plaintiff prevails in such cases, the plaintiff shall be awarded attorney and expert witness fees, except in cases of nominal damage awards.

The attorney general is directed to prescribe regulations for the collection of information necessary to determine compliance within 180 days of the effective date of the legislation.

Fiscal Note:      Requested February 1, 1988.

House Committee ‑ Testified For:    Tim Hamilton, AUTO; Jerry Blanton, J and S Petroleum; Bill Best, Texaco; Noel Gibb, Texaco.

House Committee - Testified Against:      Ron Pierce, KAYO; James Butler, Ashland Oil.

House Committee - Testimony For:    Chevron treated station owner in unfair manner.  Had to sue them to be able to remain in business.  Refiners have treated dealers unfairly.  Canadian experience is an object lesson for the states.  Costs have risen dramatically there in more heavily monopolized markets for motor fuel.

House Committee - Testimony Against:      Ashland just located stations in Washington State.  Will leave if this legislation passes.  Firm was forced to close stores in Maryland after similar legislation was passed there.  Stations can't stay in business selling only gasoline.