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1 leased premises, the franchisor may not use an event de2 scribed in paragraph (4) as the basis for the termination or 3 nonrenewal of the franchise. If a franchisee receives such a 4 notice and is unable, after a good faith effort, to obtain pos5 session of the premises involved, the franchisor, as a condi6 tion of any termination or nonrenewal made on the basis of 7 an event described in paragraph (4), shall pay to the franchi8 see the reasonable value of the good will of the business lo9 cated on the premises which is attributable to the efforts of 10 the franchisee.".

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Mr. SHARP. I would like to recognize my colleague from Oklahoma who has been an active leader on this issue, and is a sponsor of one of the major proposals under consideration in the House.

Mr. SYNAR. Thanks, Phil. And I want to thank you for calling this hearing today to review the need for amending the Petroleum Marketing Practices Act. As a primary sponsor of H.R. 2406, I obviously appreciate your continued interest. And unless Tom Tauke gets here, I would like unanimous consent that his opening statement by made part of the record.

Mr. SHARP. It will certainly be made part of the record. [The prepared statement of Mr. Tauke follows:]

STATEMENT BY HON. THOMAS J. TAUKE, A Representative IN CONGRESS FROM THE STATES OF IOWA

First, I want to commend and thank the chairman of the subcommittee, Phil Sharp, for calling this hearing this morning, and I appreciate the opportunity to sit with this subcomittee today since it is not one of my assigned subcommittees within the Energy and Commerce Committee. It's good to be back, Mr. Chairman.

Over the past several years, I and other Members of Congress have spent a considerable amount of time reviewing the petroleum marketing practices of the major refiners of crude oil. The record that has been compiled suggests that the major oil refiners have pursued policies designed to force a substantial number of service station dealers and oil jobbers out of business. These practices have reduced competition in the petroleum market, and that is why I have joined with my good friend, Congressman Mike Synar, to introduce legislation, H.R. 2406, to address this problem.

Let me begin by affirming my belief that Congress should enact divorcement legislation prohibiting the major refiners from engaging in the retail marketing of petroleum products. Having pursued that course for 5 years, I recognize that it is unlikely that divorcement legislation can be passed. Yet the problem persists. Therefore it is essential that Congress consider legislation that is "doable"'-an approach that can be passed into law.

H.R. 2406 is what Congressman Synar and I think is “doable." These amendments to the Petroleum Marketing Practices Act are the result of lengthy discussion among Members of Congress, their staffs, the Petroleum Marketers Association of America, the Service Station Dealers of America, and other interested parties. Congress, in the past, has recognized that sometimes the relationship between suppliers of a product and the sellers of a product is not as balanced as it should be. With this legislation, we do not establish a whole series of Federal regulations or establish a Federal bureaucracy. What H.R. 2406 does do is ensure that the normal contracting processes which establish business policies in petroleum marketing can work and will work in the interests of a competitive marketplace and the consumer.

Mr. Chairman, I look forward to hearing from our witnesses today, and I look forward to working with you to bring this legislation to a subcommittee markup in the near future.

Mr. SYNAR. Last year the subcommittee held 2 days of hearings on this subject. Looking back over those hearings it has become clear to me that the basic issue we are trying to address with this legislation has been obscured by numerous misunderstandings, misinterpretations, and downright misleading accusations.

So I would like to start today by making it clear as to what this bill does not do. Contrary to what the major oil companies would have one believe, this bill does not re-establish price and allocation controls. Contrary to what they would have one believe, it does not fix prices or guarantee profit margins for anyone.

And it does not protect or promote inefficient gasoline marketing. It is not anticompetitive or anticonsumer. And it certainly does not establish any additional regulatory procedures or bureau

cratic burdens. I do not doubt that we will hear again today such rhetoric from opponents of this bill.

Nonetheless, I would ask my colleagues to look beyond the rhetoric, and focus for a moment on why we are here today. And more importantly, why in 1978 Congress enacted the Petroleum Marketing Practices Act.

The PMPA was enacted to serve one overriding purpose. And while the act itself is very complex, its goal is rather simply. That is, to provide more equitable balance of power between gasoline marketers and the oil company suppliers. The bottom line is that captive gasoline markets need and deserve the right to protect themselves against arbitrary and discriminatory practices on the part of their suppliers.

Seven years after the passage of PMPA the question must now be, does a more equitable balance exist? Have marketers and dealers been afforded adequate protection? The preponderance of evidence-the multitude of PMPA court decisions, and the testimony of several witnesses who will appear here today-clearly indicate that the intent of Congress in 1978 has not materialized.

One need only to review the court decisions or talk to his or her neighborhood service station dealer or local jobber-if they are still around and ask them that simple question. And the message is quite clear. PMPA is not working.

Therefore, we must now ask ourselves whether there remains a need, as there was in 1978, for PMPA? Now a great deal has changed in the petroleum marketing industry since 1978. For starters, price controls have been removed, competition has increased, demand has decreased, and industry margins have tightened considerably.

In short, market forces have radically altered the marketing industry. Now do these changes suggest that PMPA is no longer necessary? I do not believe so. To the contrary, I believe these changes argue even more forcefully for a strong and an effective PMPA.

We cannot, nor are we trying to alter the course of market developments. We can, and I believe we should provide adequate opportunity for the market to operate on a fair, just, and reasonable basis for all those who wish to compete. Now that is the goal of H.R. 2406.

It does not guarantee livelihoods for anyone, and it does not determine wholesale or retail prices. It merely provides dealers and marketers a right of action against the suppliers who use arbitrary and discriminatory practices to assert market control.

A free, open, and fair market will ensure that those who are the most efficient marketers will survive. And in the end, consumers will reap the benefits. That is how the market should be. And that is what PMPA and H.R. 2406 are all about.

Mr. SHARP. Thank the gentleman.

We are now happy to welcome our first panel of witnesses. We have with us today Mr. Vic Rasheed, the executive director of Service Stations Dealers of America; Mr. David Robinson representing the Petroleum Marketers Association of America; Mr. Jerry Ferrara representing the National Coalition of Petroleum Marketers.

Gentlemen, welcome. You've all had an association with this subcommittee in the past and know how we proceed. We would be de

lighted to hear your oral statement at this point, and we will make your written statement a part of our record. We are happy to hear what you have to say orally, and then we will take questions from members of our subcommittee.

Mr. Rasheed, we are happy to proceed with you first.

STATEMENTS OF VIC RASHEED, EXECUTIVE DIRECTOR, SERVICE STATION DEALERS OF AMERICA; DAVID T. ROBINSON, PRESIDENT, PETROLEUM MARKETERS ASSOCIATION OF AMERICA; AND JERRY FERRARA, NATIONAL COALITION OF PETROLEUM RETAILERS, INC.

Mr. RASHEED. Thank you very much, Mr. Sharp. On behalf of this panel I would like to thank you personally for your interest in our problems and for promoting this hearing. We hope that this will be the preliminary step to eventual action by Congress to address our problems.

Eight years ago this committee crafted a bill to bring some equity to the process of termination and nonrenewal of a service station dealer's franchise by his franchisor.

The author of that bill, now Chairman John Dingell, left no doubt that he intended the bill to lean strongly in favor of the franchisee in these areas, to balance the overwhelming economic power of the franchisor. Mr. Dingell went to considerable lengths to give the franchisee the right to quick and easily obtain injunctive relief against oppressive franchise terms.

However, by choosing favorable cases to challenge certain sections of the original act, refiners have succeeded in winning strict judicial interpretations which now circumvent the original intent of the law and make it a tool to be used against franchisees rather than to protect them.

For example, the original act spells out the conditions under which a full-service station can be converted into a gasoline-only pumper, and gives the dealer certain rights to protect his investment. However, as interpreted by a Federal judge in Baldauf v. Amoco, the dealer now has no rights, and must agree to have his full-service operation bulldozed and converted into a pumper or lose his entire investment and be evicted.

As a result of this one decision, thousands of full-serve facilities across the Nation have been or are being, converted into gas-only pumpers. Mobil now has a pumper-conversion clause in all of its lease renewals. The Mobil logo appears on some 13,000 locations nationwide. Amoco says it expects to convert up to 40 percent of its location to gas-only within the next 3 years.

Many of these locations employ more than a dozen people, including skilled, certified technicians, and have a costly investment in equipment, service vehicles, et cetera. In a conversion, these must be disposed of and their services lost to the motoring public. As a result, there is a growing crisis in the availability of automotive service.

The recent Hunter Job Analysis shows that service stations increased their total volume of service work in the past 3 years by 51 percent, even though the number able to do service work decreased by 5,000 in that period. What will happen in the next 3 years as

the conversions continue and demand for service increases as motorists keep their cars longer? H.R. 2406 addresses this problem by giving the dealer a clear choice of options, as intended in the original PMPA.

This is only one example of how PMPA has been subverted. There are many others. The Law Review articles which have reviewed PMPA cases conclude that judicial interpretations have limited its effectiveness.

The ABA's Business Lawyer refers to a significant court trend in the interpretation of PMPA which "has most often worked to the detriment of the franchisee, the intended beneficiary of the act's remedial provisions." The Emory University Law Journal concluded, "An analysis of the case law regarding PMPA reveals that conflicting judicial interpretations of the act have frustrated congressional intent, and have permitted major oil companies to terminate their franchise relationships arbitrarily."

The most serious loophole in PMPA is the omission of the requirement that changes in a lease be fair and reasonable. This was omitted from the original bill because of oil company objections. But how can anyone object to a standard that simply guarantees equal rights to both parties? It is difficult to see how anyone can argue that changes to a franchise agreement not be fair and reasonable.

Such a change would bring PMPA into line with existing trade regulation law. Under our existing antitrust laws, the legality of marketing terms and conditions imposed on retailers by suppliers are judged by their reasonableness.

PMPA itself already contains reasonableness requirements in two areas. In section 102(h)(2)(A) PMPA allows termination of a franchise or nonrenewal of a franchise relationship if the franchisee fails to comply with a provision of the franchise which is both reasonable and of material significance to the contract. If a dealer attempts to challenge a nonrenewal termination on these grounds, the nonrenewal termination will be upheld if the contract provision is reasonable.

By contrast, if at any time at time of renewal a franchisee fails to agree to changes to the franchise agreement made in good faith, he can be terminated. Additionally, section 102(a)(2) allows termination if an event occurs that makes termination of a franchise, or nonrenewal reasonable.

The existing reasonableness requirements to PMPA have neither prevented refiners from adopting uniform policies, nor have they generated the predicted flood of litigation. Many State laws regulating petroleum industry franchises require the franchisor's terms of renewal of the franchise be reasonable.

The consequences of the absence of the fair and reasonable requirement can be demonstrated by the actions of some suppliers in dealing with underground tank leaks, which is a very hot issue right now. These suppliers have forced dealers to sign indemnity clauses placing full responsibility for underground tank leaks onto dealers, irrespective of whether the dealer could otherwise be held legally responsible for that leak. This could cost a dealer conceivably $1 million in damages.