Divorcement, D.C. Style

Legislation targeting Mamo would prohibit distributors from owning stations

WASHINGTON -- District of Columbia Councilwoman Mary Cheh introduced a bill Tuesday to prohibit gasoline distributors from owning and operating retail gas stations in D.C., reported The Washington Examiner. The same law was passed in 2004, but about four years ago Cheh successfully pushed for its repeal. On Tuesday she said that was a "mistake." If it is passed again, distributors who own gas stations will have two years to get out of the business.

The bill targets Eyob "Joe" Mamo, whose Springfield, Va.-based company, Capitol Petroleum Group LLC, owns 45 gas [image-nocss] stations in D.C., or about half the city's total. He also owns a DAG Petroleum, which plays the role of middleman between oil refiners and service stations.

Last week, D.C. attorney general Irvin Nathan announced he has launched an antitrust investigation into the relationship between DAG, Capitol Petroleum and the individual stations that Mamo said in a recent statement are franchised and operate independently.

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According to a report in The Washington City Paper Mamo, said that he is being "scapegoated," and that new legislation that is aimed to increase competition in the fuel industry would instead force small businesses to close.

Mamo accused D.C. officials of playing politics to kiss up to constituents outraged over the high price of gasoline. "Blaming the distributor is scapegoating simply to get politicians their airtime," Mamo told the newspaper.

Cheh's bill would restore a 2004 amendment to the Retail Service Station Act, a law first enacted during the energy crisis of the mid-1970s to keep big oil companies from controlling gasoline sales all the way from the oil field to neighborhood stations.

In 2004, D.C. Councilmember Phil Mendelson sponsored an amendment that added gasoline distributors, or jobbers, to the list of entities that must "divorce" themselves from day-to-day retail sales--meaning they could not operate stations themselves. In 2007, just as the measure was set to take effect, Cheh spearheaded the legislative effort that led to its repeal.

In a hearing before the council vote, Mamo, his lobbyist--former D.C. Councilmember and mayoral candidate John Ray--Mamo's attorneys and business associates testified that the measure would run jobbers out of business, stymie competition and run up gas prices. His team also submitted written testimony from the U.S. Federal Trade Commission (FTC) suggesting such so-called divorcement laws tend spur higher gasoline prices.

But since then, Cheh said that she has come to believe the jobbers may be constraining competition, instead of spurring it.

The measure would not require jobbers to sell all of their D.C. stations, the report said. The original law never went that far, according to Harry Storm, a Bethesda, Md., attorney specializing in gas station industry litigation. The legislation merely blocks distributors from running the stations--not owning them. "If they are trying to force the sale of all the [distributors'] properties, that would be a different analysis," Storm told the paper.

Mamo said the measure could force him to sell 15 D.C. stations currently run by "contract operators," free agents, usually family-owned small businesses, whom he contracts with to run the stations and sell gasoline and other products that he supplies. There would be no legal change to 30 other CPG stations run under franchise agreements that Mamo inherited when he purchased the stations from ExxonMobil in 2009, said the report..

The franchise operators, also usually small family-owned businesses, pay rent to Mamo and purchasefuel from him, but the profit they make from gasoline and convenience store sales and auto repairs is theirs to keep.

One of Mamo's franchise operators said the bill would ease concerns that Mamo wants to gradually replace them with contract operators. Mamo said he has no interest in evicting the franchise operators, but several franchise tenants said they are fearful that he intends to do just that as their leases come up for renegotiation.

"He'll make more money if he can have our profit too. It's a matter of greed," the franchisee, who spoke on the condition of anonymity for fear of affecting dealings with Mamo, told the news outlet.

Mamo said the measure would be unfair to his contract operators, who will be out of work unless they can come up with the $200,000 to $700,000 it typically takes to purchase a station franchise in D.C. "Who decides which families stay in business and which get thrown out?" he asked.

Cheh is "basically doing this so that two or three folks--wealthy operators--can buy their stations. That's not fair."