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Home My WebLink About1998-02-10; City Council; 14555; Operation Of Gasoline Service Stations. . CITY OF CARLSBAD - AGENd BILL AB# TITLE- CONSIDERATION OF AN ORDINANCE TO ADD CHAPTER 5.22 TO THE CARLSBAD MUNICIPAL CODE DEPT. HD. MTG. 2/10/98 REGULATING THE DISTRIBUTION OF GASOLINE AND THE CITY ATTY. WC OPERATION OF GASOLINE SERVICE STATIONS - DEPT. .CA I I CITY MGR. +,\;, RECOMMENDED ACTION: If Council deems it appropriate, adopt an ordinance similar to the San Diego County model ordinance, but operative after the County receives a final judgment that its ordinance is valid. ITEM EXPLANATION: Backqround: On January 13, 1998, the County Board of Supervisors introduced a regulatory ordinance relating to service stations in the unincorporated area of the County. The ordinance has not yet been adopted, and the Board directed the staff to coordinate activity with the cities in San Diego County in order to attempt to obtain the support of cities representing two-thirds of the population of the County of San Diego. The County ordinance contains an operational date section which requires the County Board of Supervisors to certify that a sufficient number of cities in San Diego County have also adopted the same or substantially similar ordinance, so that those two-thirds of all San Diego County residents would be covered by the various ordinances. If, and when, the County Board so certifies, the County ordinance would become operative. (The County Board of Supervisors staff report from the Chief Administrative Officer and the County Counsel dated January 13, 1998; the County model ordinance; and the minutes from the County Board of Supervisors January 13, 1998 meeting are attached marked respectively, attachments 1, 2 and 3 hereto). The gas station regulatory ordinance was considered by the San Diego City Council at its meeting on February 3, 1998. (The San Diego City Manager report number 98-23, dated January 29, 1998, is attached, marked attachment 4). It presents a version of the County ordinance appropriate for introduction and first reading for the City of San Diego, but recommends that if the council does so, the council condition that approval upon a binding agreement from the County to defend and indemnify the city in the event of legal challenge. On February 3, 1998, the San Diego City Council approved the ordinance, without the requirement for indemnification by the County. A related issue is the status of the San Diego County Superior Court price fixing class action lawsuit against the oil companies. Although the trial judge had dismissed the suit, last week that judge, David Danielson, reinstated the lawsuit explaining that he had made an error of law in granting the oil companies’ motion for summary judgment. Accordingly, the suit is alive again but no trial date has yet been set. Conclusion. Because of the substantial likelihood of litigation challenging the ordinance and the fiscal vulnerability of the City of Carlsbad to the substantial resources of the affected oil companies, if Council determines to introduce the attached Carlsbad version of the County model ordinance (attachment 5) the City Manager and City Attorney strongly recommend that the operative date of the City ordinance be delayed until after the County has obtained a .-- Agenda Bill # & 5$ay* Page 2 final judgment declaring its ordinance valid (Alternative #I). Alternatively, if the Council wishes to approve an ordinance similar to the San Diego County model ordinance, it could be introduced and adopted, but include an operative date section, which delays the operative date of the Carlsbad version until the execution by the County of San Diego of a binding agreement to indemnify and hold harmless the City in the event of legal challenge (Alternative #2). The attached draft ordinance has two choices for last pages embodying these two alternatives. A third choice would be to adopt the ordinance without an operative date section. FISCAL IMPACT: None by this action. If the Council approves the ordinance and it either delays the operative date of the ordinance until any potential litigation is finally resolved, or requires indemnification, there is no exposure to litigation expenses. There are unknown, but potentially significant legal costs if Carlsbad is sued. ENVIRONMENTAL REVIEW: Potential adoption of the ordinance is covered by the general rule that CEQA applies only to projects which have the potential for causing a significant effect on the environment. In this case it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment, therefore, adoption of the ordinance is not subject to CEQA under 14 CCR (515061(b)(3). EXHIBITS: 1. County Board of Supervisors staff report from the Chief Administrative Officer and the County Counsel dated January 13,1998 2. County model ordinance 3. Minutes from the County Board of Supervisors January 13, 1998 4. San Diego City Manager report number 98-23, dated January 29, 1998 5. City of Carlsbad Ordinance No. /z/s- +* ATTACHMENT 1 DATE: January 13, 1997 To; BoardofSupervieare 1 COUNTY OF SAN DIEGO BOAR0 OF SUPLAVtSORS WReonr CPK rw OklfW CHIEF ADNilNI$TRATIVE OFFICE cMh&JA&O” AGENDA ITEM rh&ezn nQElfzo~* mu nonm KJBJECT: Unreaeonable ~sollne Prices 8umARYt tkf l rcmae On May 6, 1997, Agenda Item @JO. 16, the BOiWd of SupeY'ViaorS directed County ~ounael to draft an ordinance for Board consideration to protect County ccmumers from artificially high gaeoline prices. An Ordinance has been drafted, a copy of which ie attached hereto. It appeara, however, that becauee such an ordinance would be applicable only in the unincorporated area of the County, a solution to the &tificially high price for gasoline in San Diego County can best be achieved through state and federal aation. 1. Authorizt the Chairman of the Board of Supcrviaors to write letters to the Federal !l?cade C!ommission (VTC!Iy), the U-S- Attorney General, the Caunty'a congreaaional delegation, the State Attorney General, and the County's legislative delegation urging them to take all appropriate available actione, including legislative and enforcement actions, to reduce unreasonably high gasoline prices in San Diegci County. 2. Authorize the Chairman of the Beard af supervisors ta write letters to all of the mayovr of the eitiee within San Diego County, the County Supervieore Association of Californfa (CSAC), the California League of Citim, and the 8an Diego Aaeociation of Ccwernments (Sm?mM 1, urging them to write letters to the mame groups and offices indicated above urging them to take all appmpriate available actlona, including legielative and enforcement act icme, to reduce unreaeonably high gasoline price6 in San Diego county. ATTACHMENT 1 3 StlENZeCT: Unreasonable Ilosslolinc Prices 3. Autharizc C&u&y Counsel to mubmit comments to the Federal Trade Cammisslfon (yFTC!M) ati the FTC! prapoeed Coneent Order applicable to the proposed merger of the werstern U-8. operations of the shell and Texaco Dil Companies, which mtrr will be supportive of any and all appropriate tneaaures against anti-competitive practicee and activitiser of the oil corapanieu. fimaal mot None Ccmrsider adoption of the. attached utiinance or take no action. BAclcGRwNP County Counsel was authorized by your 8oard to employ on behalf of the County various experts to amist in the preparation of a viable 8trategy t0 lower gaSOlin price8 in the San Piegb region. We received input from Dr. Uregoxy Nowell, a Ph.D, in Political Economy and the author of a well-regarded book on petroleum pricing, Dr. Arthur Brodschalzer, Aochlnting and Bu&xtss Management Ph.D., an experienced forensic economist/-a txountant, and Dr. Roger Nell, Economics Ph.D., a profemor at Stanford Univegsity. Both Dr. Now011 and Dr. NoI1 have mbetantial mgmAence with the gasoline indmtry, and Dr. No11 waa retained #a the main expert for the plaingiffe in ~guilar et al. v. Atlantio Richfield Corp., et al., 8uperior Court Case No. 700810, the San Diego lawrmit against .gasoline refiners who are alleged to have engaged in illegal collucrion to create artificially high gasoline price8 in San Dicgo County. We have been advised by the. expert6 specified above that the pricing pattern of gaeoline in Califorda la the result of reduced competition at the wholeleiale level rrince the intxoduction of low-emiaaion fuel (called VARB gas- to r8fhct the new requirements of the California Air Reeaumee Board). The Change8 causing high gasoline prices in California and Ban Diego County occurred primarily at the wholeeals - level. The primary causes of high gaeroline prices throughout California and in Sam Dicgo CZotmty are: (1) an increaee In concentration in refining, due to merger8 and exits; (2) a eubetantial 4 reduction in the feasibility of importing gasoline refined elsewhere in the world due to the unique requirements of ths C!ARB gas rulee; and 43) an increase in the extent to which California refiners engage in collusive bebavior through joint supply arrangements and information sharing, Because the source of high retail prkes in California and in San Diego County is at the level of refiners and wholesalers, attempting to solve the problem by regulating who may operate retail stations within the unincorporated area of the County, without eliminating the anti- competitive forces present at the wholesale level, is unlikely to be effective. Local regulation of retail operations may even make matters worse by 'eliminating refiner operated high volume stations which currently offer low pricea. The experts contend that by iteelf the reduction in the percentage of refiner operated stations in San Diego County will have little impact on retail prices since the wholesale price to station operators will most likely remain artificially high. The experts believe this will be the case even if station operators are free to seek branded gasoline from other wholesale vendors and there is no discrimination in the wholesale prioes aharged to the various local service station operators. Gasoline for San Diego is refined outside of the County, and wholesale pricing snd distribution' decisions are made outside the County by national and multi-national corporatias who are pursuing complex marketing strategies which have St-ate-wide, national, and internatiqnal impacta. The activities of the refiners and wholesale dietributors of gasoline that have resulted in high prices in San Diego County take place outside the boundaries of the County and are generally nbt subject to the police power of 8an Diego County or the cities within this region. The State and Federal Governments should bs called upon to appropriately regulate and monitor the wholesale pricing and distribution practices of gasoline refiners and to more vigorously enforce state and federal laws which prohibit monopolies and collusive and discriminatory pricing in restraint of trade. The Federal Trade Commission, a federa regulatory and quaei-judicial agency with legal authority to combat unfair ccmpetit5on and anti-trust violations in interstate and foreign commerce, ccmatitutes an example of a govemmencsal agency. with sufficient jurisdiction and legal authority to effectively deal with the anti-competitive activities of ' the major oil companies. In dealing with the proposed merger of Shell and Texaco operationa in the western United States, the FTC has indioated that there is no explanation other than anti-competitive -3- #UBSZEC!TI Unreasonable Gasoline Pricea forcee for why gasoline prices are much higher in San Dieso than in Lo8 Angelee . The Rt'C?, tiike the County, can regulate, monitor, and take enforcement actions against . these anti-competitive forces on a comprehensive baeie impacting activities of the oil companies in many geographical area8 as evidenced by the proposed consent order lamed by the FTC regarding the Shell-Texaco merger. The propoeed consent order, among other things, provides for the divestiture of retail service stations in San Diego County. The FTC will order divestiture of the Anacortee Refinery in Washington, Oahu Distribution Asaets and the Colonial and Plantation pipeline Ccmpa~+ae. The proposed consent order also provides for the continuation of the supply of crude oil to the Huntway R&fining company in Wilmington, California, and it prohibits Texaco and Shell from acquiring additional ownership of companiee refining petroleum product19 in Ala-, Waskington, Oregon or California during the next ten years without prior notification to the FTC. Additionally, the torment order~pr~vides that a trustee with extensive powars ,to sell an;aets may be appointed in the event that Shell and Tex&zo finil to comply with the various divestiture ordere set forth in the consent order. Comprehensive reporting to the FTC by Texaco and Shell is required, and the coneent order further provides for FTC lCCBP8 t0 COrpor8ts records of the two oil companies. The propoaed FEC consent order pmvides an example of the type of comprehensive governmental auth0rit.y nectaaary to combat the anti- competitive etrategiee of the oil companies. we are recommending that County Counsel be authoxLsed to submit ccmments to the FTC during the current 60-day comnent period which are supportive of the FTC effort to protect competition while permitting the proposed Shell-Texaco merger. The County and the interested cities may exeroMe their police powers only within their respective boundaries. Therefore, there is a clear need for the County and cities of this region to work with the appropriate state and federal officials to combat the anti-competitive forces that exist outeida the boundaries of the County which are reslponaible for the unreasonable gaealine priuee within San Piego county, *We recommend that the chakman of the Board of Supervisors be authorFeed to write letters to the apprcpriate etats and federal officials detailing the gaeoline price problems in San Diego County and -J- SuBJ%cTr Unreasonable Gasoline Prices requesting them to formulate a# appropriate comprehensive response to regulate and eliminate tbc anti-competitive activities which have resulted in the unreasonably high gasoline prices in the County. Hearings rrhould be held at the state and federal level to determine the nature and extent of the problem and to help in the formulation of a program to eliminate anti-competitive forces from the gasoline marketplace. Consideration may be given to legislation such as the 1997 Peace Bill to stimulate state-wide competition at the wholesale level hy allowing branded motor fuel franchises to purchaee branded motor fuel from any location or through any vendor in a refiners wholesale fuel network, Legislation amending existing anti-trust and unfair competition laws to make their enforcement eaaier may also be desirable, es would more vigorom enforcement af existing laws and clomr scrutiny of all oil company pricing and distribution aC!tiVitieB. Steps Inay be necessary to increase the supply of gasoline in storage 80 that gasoline prices will not be artificially manipulated with claims of product shortages. In addition, letters should be aesk by the ~haiman of the Board to the mayors of the c&ties within San Diego County, CSAC, the League of California Cities, and sANDA to enlist the support of local government8 represented by theere entities In obtaining an appropriate State and federal effort to combat unreesonebly high gasoline prices, wherever they may occur. The Board of Supervisors directed County Counsel to draft an ordinance to protect San Diego County consumers from artificially high gasoline prices. Pursuant tc that direction a draft ordinance was prepared and circulated to the city attorneys of all of the cities in the County. The draft ordinance prepased three strategies for lowering gasoline prices: (1) A phase out of refiner operated retail service stations; (2) A prevision to allow branded motor fuel franchiaeee to purchase branded motor fuel from any lwation or through any vendor in a refiner's wholesale fuel network (sirnila~ to the 1997 Peace bill, Senate Bill 404); and (3) Prohibitions against price discrimination and . overcharges by refiners. SUBJECT: Unreasonable Gasoline Prices Plea8c alsc, note. that the draft ordinance, which would only be applicable in the unincorporated area of San Diego County, is written so that it would only be operative if similar ordinances are adopted by the cities of the region so that two-thirds of the total residenta of the County reside in a jurisdiation having sub&antlally the 6ame ordinance. Section 2 of the draft ordinance reads aa follows: Y&xJ&ive~. zM#3urdinancc#3hilllbecaaroperativeonth~ date the Board of Supenrisors certifies that B sufficient number Of cities have adopted an ordinance, which ie the same or eubetantially similar.to this ordinance, 80 that two-thirds of the total remidentti of the County of San Diego, according to the official population figures for January 1, 1997, issued by the San Diego Atwociation of, Governments (SANDA@,. x'mide within a jurisdiction having adopted an ordinance which 58 the same or eubstantially similar to this ordinance.~ According to our retained gasoline experte, the draft ordinance, even if it were adopted by all of the cities in San Diego County, would probably have little long-term effect on overall garroline prices in the region since it does not address wholemale pricing or distribution 'practicea. The refiner8 can curtail deliveries of gasoline and artificially raise average terminal prices. They can ale0 maintain . price differentials through franchim fees that differ by location. In addition, even if wholesale price8 ware lowered to some retail outlets. retailers could still chaqe high retail price8 in their local area8 if market condition8 pemitted. We note that the Automotive Trade Clrganizations of California (Auto- Cam1 steadfaetly maintatne that local ordinances requiring fewer refiner operated eervice etatione will lower prlaes by facilitating competition at the retail level. As indicated above, however, lack of competition at the retail level'ie not a ma-jar cause of high gasoline prices in California. Because Barr Dieg~ County already ha8 received threat8 of litigation if the ordinance ie adopted, a thorough review of the legal issues - aesociatsd with 8UCh an ordinance has been conducted. The draft ordinance ha8 bean provided to and reviewed by various city attorneye -6- SvBiJECT: Unreasonable Gaeoline Prices of the cities within San Diego County. identified and discusrred with your Board anticipated that adoption of the draft The legal issues have been in closed session. It can be ordinance would result in a lawsuit being initiated by the oil companite. Based on the opiniona of the various experts who have examined the gasoline pricing problem on behalf of the County, it appears that local ordinances regulatfng the operation of retail service stations may not be effective in combating the high gasoline prices in the San Diego region. The San Diego gasoline pricing problem seems to have it8 causes at the wholesale level, involving national and cnulti-national corporaMom making complex business decisions concerning the wholesale pricing and distribution of gasoline to San Diego service stations. The gasoline for San Diego County is refined outside of the County, and the wholesale pricing and dietribution decisions of the gasoline refiners are largely made outside of the County, beyond the juriediction of the County and the cities in the San Diego region. Despite the draft ordinance, the oil companies will continue to have strategies available to them to keep gasoline prices artificially high. To effectively combat high gasoline prices in San Diego County, the County and the cities of the regican should explore means of cooperating with and assisting state and federal officiala with vigorous enforcement of current laws to preserve effective competition in the wholesale marketing of gasoline, and with the enactment of additional necessary laws and regulations which would regulate or eliminate the anti-competitive forces at the wholesale level which have resulted in unreasonably high gasoline prices in California and in San Diego County, and which have created an artificial disparity between the San Diego and Los Angeles region in respect to gasoline prices. Rtspecztfully submitted, Respectfully submitted, LAldREW!E I3. PRIOR III J Chief Administrative Officer c -Y- SUBJECTt Unreasonable Qamlint Prices BUPV. MST.: All COUNTY COUHSE Respectfully submitted, L APPROVAL: Fbxm and Legality CX I Yes t 1 N/A [ 1 Standard Form [ J Ordinance [ 1 Reaolutian CHIEF FINANCIAL OFP’IC!BR/AvDIToI RNVIRWr C Xl N/A t I y- 4 VOTES: t IY- 1 I No cmlTRAcT~mrrEwPmmL0 I 1 Approved t Xl N/A CONTRACT NUIQtRR(S): N/A ’ PIXBVIOUS MEL- BOARD ACJXON: nay 6, 1997 (Agenda kern No. 16) BOARD POLICIBS APPLIC&BLE: N/A CXTIZBN B 8TXrNMBNTt N/A CONC!URRBNCB(8) : N/A ORXQZHATZiW DRP-: county Counsel CONTACT PERSON: Arne Hansen 531(730)-4904 AUTHORIZED REPRB8ENTATIVE rvl3. 1998 MEETING DATE -8- ATTACHMENT 2 0RDIBuNcB (NEW SERIES) . AN ORDINANCE ADDING CHWTER 20 To DIVISfOlJ 1 OF TITLE 2 OF THE SAN DIEGD CcxJNm CODE OF RBGULATORY ORDINANCES RELATING To SERVICE STATIONS The ,Board of Supentieona of the County of Saa Diego do ordain as follows: Section 1. Chapter 20 (commencing with section 23.2DDl) ier hereby added to division 1 of title 2 of the San Diego County Cede of Regulatory Ordinances to read as follows; CHAPTER 20 ~SERVICE STATIONS Sec. 21.2001. ' PURPOSE AND INTENT. The F3oard of Supervi8ors finds that.the proviaicms of this chapter 20 are necessary to promote competition between motor fuel retailers in the unincorporated areas of the County of San Diego. Such COrnpetitiOn will result in San Diego County Construers paying reasonable pricee for motor fuel. In addition, this chapter is intended to cause retail prices of motor fuel in San Diego County to compare more favorably with prices charged to motor fuel consumers in other parts of the State taf California. Sec. 21.2002. DEFINJXCW. As ueed in this chapter 20, the following terma shall have the meanings respectively nacribed to them in thia section: (a) "Affiliate- meaner any. person who, other than by means of a franchise, controls, ie controlled by or is under ccmmn control with any other peiraan, (bf 'Company operated station* means a retail aesvice atation operated by a refiner tith employee~~ of the refiner or by a cxxmdeaiml.ed agent, contractor or consignee of the refiner for 1 ATTACHMENT 2 the sale of motor fuel to the general public for ultimate consumption. A retail service station operated by a franchisee shall not constitute a campany operated station. (cl Tontrol~ means the direct or indirect ownership of or the right to exercise a directing influence over more than 50 percent of the beneficial interest in any person. W V!ost of doing business" meana the wnatm, on a per gallon sold basis, incurred by a refiner to sell motcm fuel at a company operated retail eervice station and includes, without limibation, the value of all ga, the coetx of delivery of any goods or ccmnoditiee, servicers, facilities, real property and imprwementa, l&r and overhead used, conmmed, expended or re.ason&ly allocated by a refiner in connection with the retail activity. "Cost of doi- business' does not include the cobt of extracting 03 purchaeing raw crude oil, the coat of refining crude oil tnto motor fuel or the cost of delivering motor fuel to the truck loading terminal. (a Vranchise* means any contract between a refiner and a motor fuel retailer under which a refiner authorizes or permits a motor fuel retailer to we, in connection with the sale, consignment or distribution of motor fuel, a trademark that is owned or controlled by the refiner. 9Tmnchise" includes: (1) Any contract under which a motor fuel retailer ie authorized or permitted to occupy leased marketing premises. tQ be employed in connection with the aale, consignment or dietribution of motor fuel under a trademark which is owned or controlled by such refiner; (2) Any contract between a refiner and a motor fuel retailer pertaining to the supply of motor fuel that ie to be sold, conprigned or distributed under a trademark owned or controlled by a refiner; and . . (3) The unexpi'red portion of any franchise, as defined in this subsectirm. that la transferred or assigned ae authoriked by the provisions of Isuuh francMae or by any aPpliCable provieiona of law that permit such transfer or aaslgmenr: without regard to any provision of the franchies. 4 2 (f) Vranchlsee" means a motor fuel retailer who ia authorizcd or permitted under a franchise to use a trademark in connection with the Bale, consignment or distribution of motor fuel. (9) "FranchisoP meam a refiner who, under a franchise, authorizes or permita a motor fuel retailer to use a trademark in cOnnection with the sale, consignment or distribution of motor fuel. (h) "Grade of motor fuel" moans motor fuel of a particular quality or class and sold under a particular trademark, trade name or brand. (1) "Leased marketing premises' means marketing premiaee owned, leased or in any way controlled by a franchiser and which the franchiaa is autharized or permitted, under the franchise, to employ in connection with the sale, consignment or distribution of motor fuel. Cj) "Market retail price' meana,the per gallon price at which a refiner sells or offers to sell to the public a grade of motor fuel at a company operated at&ion, less the cost of doing business at the retail service station. 04 'Marketing premI.sesW means, in the case of any franchise, premises which, under the franchise, are to be employed by the franchisee in connection with the sale, consignment or distribution of motor fuel. (1) Wotor fuel" means gasoline and diesel fuel of a type distributed for use as a fuel in self-propelled vehicles designed primarily for use on public streets, roads and highways. lrn1 'Motor fuel retailer@ means a person who is not an affiliate of a refiner and who purchartes motcx fuel primarily fur sale to the general public for ultirclatc consumption at a retail serv%cs etation. (n) Wvercharge" meana a Bale of or Offer to sell motor fuel to a motor fuel retailer at a price that exceeds the price charged any other motor fuel retailer for raator fuel supplied from the same truck loading terminal. 'overoha~e" ahall not bt 3 I3 conSt3xU5d to prevent due allowancea for the refiner's actual casts, including delivery, marketing, facility, and real estate coata. (0) *PersonH me- an individual, proprietorship, firm, partnerehip, joint venture, syndicate, company, association, camittee, corporation, trust or any other organization or group of individuals act$ng in concert. yPcrson" does not include govermnental ent itiee. (PI =Price" meam the price of a gallon of rotor fuel paid to a refiner by a motor fuel retailer, lel~trr the value, on a per gallon sold basis, of all rebates, discounts, credits, incentive8 and other benefits extended by the refiner to the motor fuel retailer. (9) "Refiner' mew any pernon engaged in the refining of crude oil to produce motor fuel and includes any affiliate of such person. (r) 'Retail service station' or Service etation" means a facility, including land and improvements, where motor fuel is sold at retail to the motoring public. Set! - 21.2003, RB~TRICTIOBT~ ON CCMPAW OPERATRCI STATIONS.(a) On or after July 1, 1998, a refiner 8hall not open a new Company operated retail service station in the unincorporated areas of San Diego County. (b) 0x1 or after &nuary 1, 1999, no more than fifty percent (50%) of retail gemice stations owned by a refiner in the unincorporated areas of San Diego County shall be company operated ststione. (c) On or after January 1, 2Ooo, no retail service stations owned by a refiner in the unincorporated areas of San Diego County shall be company operated ataizions. Sec. 21.2004. TEMWRARY C0MPJWY OPERATED STATICNS. (a) Notwithstanding section 21.2003, a refiner may open and operate a company operated retail service station, at a site described in aubaection (b) of this section, for a period not to wceed 90 days when, in accordant with atate and federal law: 4 (1) A m&or fuel retailer voluzitarily determines to terminate or not to renew a franchise with the refiner; or (2) The franchise between the refiner and the motor fuel retailer is terminated or not renewed by the refiner. (b) The company operated Btation referred to in subeection (a) of this section shall be opened and operated at the eame Bite as the retail Bervicc station operated by the rmjtor fuel retailer who was the franchisee. Sec. 21.2005. wHoLWAxJ3PuRCHAsIHGRIGETs. (a) On or after the operative date of this chapter, a refiner shall not enter into any contract or tike any other action to prevent a branded motor fuel franchime operating in the unincorporated area of the.County of San Diego from purchaBing the refiner's branded motor fuel from any location or through any vendor in the refiner's wholesale fuel network. This section shall not affect any contracted righta in exitrtence on the date immediately preceding operative date of this chagter. (b) A refiner shall not diacriminste in price between different franchisee purchasers of the refiner's branded motor fuel if the price discrimination effectively prevente a franchisee from taking advantage of price differences at different locationer or between different wholeeale vendore. Sec. 21.2006. PRICE DISCRIMINATION PROHIBITION. A refiner may not: (a) Sell or offer to sell to a motor fuel retailer any grade of motor fuel at a price that exceeds the then current market retail price for the saw grade of mOtor fuel supplied by the refiner, from the aame terminal, to a company operated station; or (b) Overcharge a mtzor fuel retailer for motor fuel. Sec. 21.2007. KNmRc!BMENT REkoNSIBIIJITY. (a) The Di&xict Attorney ahall enforce the provisions of this chapter. (b) Any permon who believee that a violation of any portlion of this chapter has ocourred may file a complaint with the 5 District Attorney. Tf the District Attorney detsrminea that there ie a reaeon to believe a violation of thirs chapter haa occurred, the Dietri.ct Attorney &all investigate. (c) The District Attorney my exercise such inveetigative power as are necessary for the performance of the duties prescribed in this chapter and may demand and shall be furnished with all records of refiners and motor fuel retailers which may be pertinent to Eluch inveBtlgatI.on. Sec. 21.2008. VIOLATI0NS CONSTITUTE MISDEYB&NORS- Any person violating the provisions of this chapter shall be guilty of a misdemeanor and upon conviction shall be fined in an amMlllt not to exceed five hundred dollars ($500.00) or by imprisonment for a period of not more than eix (6) months in the County Jail Qr by both BUCh fine and impriBo=nt- Sec. 21.2009. cIVILErm3R-. (a) Any aggrieved person my enforce the prwisiom of this chapter by means of a civil action. (b) Any person who commits, or proposes to commit, an act in violation of thio chapter may be enjoined therefrom by a court of competent jurisdiction. (c) An action for injunction under subsection (b) may be brought by an aggriemd person or by any person or entity which will fairly and adequately represent the fnterasts of the aggrieved psraon. (d) Nothing in this chapter shall preclude any aggrieved person from seeking any other remedy provided by law. Section 2, OPERATIVE DATE. ~hia ordinance shall become operative on the date the Board of Supewiaors certifies that a sufficient number of cities have adopted an ordinance, which is the came or substantially similar to this ordinance, so that two- third= of the total re&zIente of the County of San Diego, according to the official population figures for January 1, 1997. issued by the 6an Diego Association of Governments (SANDAG), reside within a jurisdiction having adopted an ordinance which is the 8ame or subetantiaJ.J.y similar to this ordinance. ! rbldupzo.afa 6 ATTACHMENT 3- COUNTY OF SAN DIEGO BOARD OF SUPERVISORS TUESDAY, JANUARY 13,1998 MINUTE ORDER NO. 1 SUBJECT: Unreasonable Gasoline Prices (Supv. Dist: AU) ISSUE/IUFJZRElNCEl: On May 6,1997 (16), the Board of Supervisors directed County Counsel to draft an Grdkrance for Board consideration to protect County consumers from artificially high gasoline prices An Ordinance has been d&ted, a copy of which is submitted hereto. It appears, howewq that because such an Ordinance would be applicable only in the unincorporated area of the Count+~~ a solution to the artificially high price for gasoline in San Diego County can best be achieved kq$r State and Federal action. .- FISCAL IMPACT: None RECOMMENDATION: CHIElF ADMINISTRATIVE OFFICER: 1. Authorize the Chairman of the Board of Supervisors to write letters to the Federal Trade Commission, the United States Attorney General, the County’s congressional delegation, the State Attorney General, and the County’s legislative delegation urging them to take all appropriate available actions, including legislative and enforcement actions, to reduce unreasonably high gasoline prices in San Diego County. 2. Authorize the Chairman of the Board of Supervisors to write letters to all of the mayors of the cities within San Diego County, the County Supervisors’ Association of California, the California League of Cities, and the San Diego Association of Governments, urging them to write letters to the same groups and offices indicated above urging them to take all appropriate available actions, including legislative and enforcement actions, to reduce unreasonably high gasoline prices in San Diego County. 3. Authorize County Counsel to submit comments to the Federal Trade Commission (FTC) on the FTC proposed Consent Order applicable to the proposed merger of the western United States operations of the Shell and Texaco Oil Companies, which comments will be supportive of any and all appropriate measures against anti-competitive practices and activities of the oil companies. ATTACHMENT 3 ACTION: ON MOTION of Supervisor Roberts, seconded by Supervisor Slater, the Board of Supervisors took action as recommended; directed the Chief Administrative Officer and the Director of the Department of Media and Public Relations to develop a regional public awareness campaign and create a Consumer Bulletin Board on the County Web Site and County Television Network to make .-. -. . current retail pricing information on motor vehicle fuel readily available to San Diego County consumers; directed the Chief Administrative Officer and Office of Strategy and Intergovernmental Affairs to seek reintroduction of legislation in the California Legislature to permit gas station operators to shop around for the wholesale distributor with the lowest price (the 1997 Peace Bill, SB 404); and to develop specific objectives for our 1998 Legislative Policy Guidelines to encourage State and federal officials to prepare a “comprehensive response to regulate and eliminate the anti- competitive activities which have resulted in the unreasonably high gasoline prices in the County”; directed the Chief Administrative Officer to explore the feasibility of replacing the emergency gas cards in some County vehicles with the new Affinity Credit Card so employees can purchase less expensive fuel when unable to utilize County pumps; directed the Chief Administrative Officer to move forward with adoption of the proposed Ordinance to protect San Diego’s consumers from unreasonable gas prices; tipl%oved and waived first reading of the Ordinance e&led: AN ORDINANCE ADDING CHAPTER 20 TO DIVISION 1 OF TITLE 2 OF THE SAN DIEGO 1~ COUNTY CODE OF REGULATORY ORDINANCES RELATING TO SERVICE STATIONS; directed the Chief Administrative Officer to report back fir a second reading of the Ordinance after working with the cities, and a sufficient number of cities aie prepared to adopt the Ordinance; and --’ authorized the sending of letters to the Chair of each Board of Supervisors within California. AYES: Cox, Slater, Roberts, Horn RECUSED: Jacob State of California) County of San Diego)ss I hereby certify that the foregoing is a fill, true and correct copy of the Original entered in the Minutes of the Board of Supervisors. THOMAS--J. PASTUSZKA Clerk of the Board of Supervisors BY Adair Gomez, Dep&y .’ -. - ATTACHMENT 4 - . . . . DATE fWUE& . . ATIEWION: t- ‘SUE3JECX fEFERENCE . . P JMWU~ 29, 1998 REPORT NO. m-23 Honomtlfe~sdcityco~~f l’hcketol Febmty 3, JP98 CcwMtderatbn vf thu county’e model Otdimtnce regulating thw dMbutM &ga~&nir md the opemtbn ofgatotini service stations Rules, Flnanccr and lntergov8mm elMsI Relaiiorw colTlnlittee &da ti.Jwe 2.1997; arid . County of San Dlega Bcwrd of &upwis~ dwAcet of January f3, 1898 - Should the City Coywil mAopt the propwed ardirtance whkh imposes oercdn rwtridbns on the operatim of gasoline service stationssuchasz ’ - Protllbii oli retilen from o$mlng gg m acompaqt q@wted” ret&i gas 8WVkt4 ~tatbm on or afttq Jufy 1.1%8: - PrphMta r&em frcrm owning joy retail set&e stations that are %?mpan$ operated Matier~o” on 01 afbx January 1, 200% (This type of reQUW&n is kmmrn es PivoFEemenE Regulatior~“): and - Pmscxbcs obctaln rvhok~ale pwbsing regbtkvnb and pd* discrlmlnaticm pruhib&ns thatm&lnems c&t fotlw b tb whdesa~ ctistrlbution dmmtwr fw.. (‘rws type or regulatiym is c&d “Price biscfirniitipn~ and ‘Open I;upply R~tiaticcm”.) ATTACHMENT 4 - . *. l * & . . . . ..* -. *.. 1 . . . . -_ “. . m&s Rjssa@m&M M the proposed ordinance k irdopter), t k recommended that the City first obtain a binding ~inmitmertt from ti EMcnty of San Dk$u ta defe&. am! indermif$ . the City from any chatlye ta the CRY3 regukti- w.4l.a -lhecou~BoardofS~~~ ’ - adoption of the prop034 tinance. On January 13,1998. the County Board of Supewlsan apprQved ule mdel dm. l.twew. ti Qfdii WlR OnIy become effective ifcities repre$entf~$ lwu-thirds ofthe residents of San Diego County atso adopt this ofdinunw or a Gmit8r one. (A* Cwt. WW, Roberts, .tkm. Renised; Jacch) . . \ &il&ilmtnl~ - NQnew . . &&FnfoB - Nwue. ’ - . - On June 2. t89’t th8 Mayor and m cawrcil -anRuks.Fklsnceanct tntergbvmmenia1 ~efatkmi cm@ned a hrcu’ng k consick the issue adgas pfi&g in San Dieq~. Mayor Galding mted on Steve Dam, Chief of Staff to !%pcnrfsw RM\ Roberts, to preen! g stahent cm the Supwvisots behalf, ouUlrin~ a Fjrapti - County ordinance rekating t0 gas pfims. Tk Maytx and the Cmmitkuw~ i&mssad in what actii could be taken ta tie comp&on, and iheceby. hr gsMine prices in San D’iego. ‘. . d A panel of speakers represtnGng Iho ols tndusby, be hkptndtnt stwkt station opera&s’ assudatlon, the utilities Chsumer Adon Netwwk (UCAN) and htdustry experts on gas prldng made presentaWns. Thy abo anrwvltred qwstione fr?%n the Committee. Cii staft presented krf~don an permit acttvlty for gas stations (32 new gas station CUP’s have been &sued sheet 1994)- Deputy City Attorney Rick Duvwnay - outliid c&ah legal issues whkh nnwM need to be conaider& sh&I the CommMee d&d@ tb take acticm ret&iv8 t0 gaSOR@ pttdrtg tci San C?iega. ‘I‘hesG ke@l issutls riced * ’ to be lconsidered by the City Cour$J in their a&on MI this pqozec! erdinancie and this Is rem in lht Marmgtr’~ rtwmmdatIun te &&dn indem&wtian from thi? County prior to adopting tile proposed ordimm, . Mwl MRcheII, bepuly lJi&tor Qfths m## Inttrg~ Rdaths cleWmeN outlined pIUJX6ad legislatios before the Cu&fnii Senate (S5 404 - Pescz and SB 52 . - Kopp). Gince that ha S@ 404 has failed pm$$ge and SB $2 is & the inqctive liot . _ . On JGnuary W1933 the County 6w-d dS&Afws’q3~ro*ed the ptipased .!’ . * s -. . . . . 03 ~rdinancw. p HOWWW, the wdinance wM’ onl$ beccimc effecth if cib representing hm- thirds OF the: t&d- w1F San Mepj COUP@ ~BIW adwpb $b or a similar ordinance. cT)ls , . . Cl@ COMpriSi?s 4394% of the Cou+ paputation.) Attachment A coWns the Caunty - - . Board of SUp@nM& r2porI on the Issue qnd a copy ofthek mockI Ordinance. Pl=-=3N . ‘ - What goes Into the pkiirg.ofe gallon ofgasoline? Are gas prices higher In sin Wego . than elsewhere, and tf so Wy? VWt can be done about lt3 These em questins that ~consumers ask themsebes when they twel and whw~ they till @ at their Iowl slations. Thew are the sti questions that the Mayarand rho Rules CummII asked of the pand aasembkxl beWe them at thefr heatig in June of this year- . IMffll~UQn pivVIded by the CfbWomIa Enefgy CacnnWon and Me Am4Mcan Pstrdeum lflHUte IndIMes that fw regular Wded geaoihe priced al $1.38 per galJon the price breakctwwnk . . ‘r 46.0 wnb 24.0 eenb lj.8 cents 8.7 cemts . cwtofc#deQII P~arldmfinlngcesk Trmsportalion costs (ta get the gas to the pump) . Tata1 taKes charged per gallon (State EL local sales tnx, stab pslsc tax, federal =d=w Deakr%m~kr” (what the dcak charges MW hit QthW Qorts) . $1.38 TcMcostf6ragall~nof unteaded87 Qdane gas Calirornia gaaoI!ne prices are on the aveiragc 5 to 15 cents perguIbn highcrtnan lhe national average, accordtrtg to this s8me source, due to the coot ofralanrrutating the gas 1u satisfy UWS mote btfict clear, sir memums In the date. Cedai~~~y, Wm is me WWXI Why mm kavlng GaMarda wiR rtdit~ B drop in gas prtoed In other states. fhe quesflon ol wh6ther gutdine pikes urn, on wfmge, mare wpensive k~ the San OhgO re@n than in athes areas 04 tXitimia (!ike Los Angeles)% a more difficult one to answtw- Gas prim can rke end far QQ a ddy b&j end an yacy greatly acrots tom, usumiry labs Qb llw lht stret. . There ate many uunreys wlddr r~Dort c~vte on thta ~SSM and there dosrr teem to be mm regiQnar dlllannceJ. P;rrt c$ u# pm Isi *en you cfef& the baundaries of . f- tk re@n ad when yW dmdr the prke. For example, the tiiifw~la Energy cm~isdon’s WRmTe RetaIl Gwo!he Friee .~eporl IMCWCI tczr July f4,l B97 lhat tht w=W CaUfwmta 3taltwld6 Average Pricer wtn high~t h N~tthtm C&emh, .- I ’ . . . . . 04 (average $1 .a$) next highest in enkaa califontirr (werage $1.366) and f-st in Southern Califwnis (51.335). However. &t&em CaUfemia indudes LOIS Angekab a& ,*- .- San &go. Many $arr Oleg8bs sew to have II hsrddme fhdihg &ass expewive gap ..~ hen tban when they travel in Los Anghs. Otis inkresting to note that one month later this same survey report@ that the kwVeSt uvuR49e p&0 Ws in CWkti 4M%xn&. The most recent report of January 19.1998 hk&e~ (he average Statewide prh? fs $1.37 * per galtwr~ but does hot iist a breakdown of gas prices by region &Utachfnen~ 6). - Certainty tfmsp0ctetion gWs play a fuctw in ge5 p&x3 variations but the deaIef . “marghw and the whokdc cod ol ga8 ~NM the refiky does ho. @Mb% mar& ia UW overheucl and profit chagcd by the gas O!&XI dealers.) I3lw.camm’rtteem . b&h d the debat8 at the Rukt Com&ee hearing cenkrcd ~rounb the de#w WargIn,’ the ti~l~ale und retell pricing pradice~ dthe oil cwnpan’ks. . 7hcInd~~~nd;mtruvlcsdaaon~~~~arguedUtetlhadoompanieshrvctaomuch. . . power and controth the wtwkr#e market, ?hey b&we that qulati- nhordd be intraduced to limit the number of rc$rlf at&n~whwethe rwjor oil wnywks have. c0ntrul of ret3Il pricing m thcw statbns (Dry0rcsmu1t) 85 wetI as regulak~~r whkh would wntrd wholesale prkhg ptadks ofrdbrerles and.Wra&kWs h the sta& (Price Discrimlnatfwr and Open Supply Regufatho). WAN also suppenS this pbckhn. Thf? pit company reprc?atiatiWW ar9& that by ptahlb’i them from Ml&l any wrnparty opmated gasMne senh stat@q in thii region (0iwrccmcn~ will lead to less comprrdltbn and highw p&us. Thay twgcnd theCltyfookalw8ysb encourage the hnxtion 8nd wpemth3 d rare gas ~tationrr f&her than mstrkt them further, in 6fder b GROW for fnoc~ armpelltlorr in this c&n. Futthcr they believe their indwtry is already heMy SegubteU by t&ate and federal @vs in VW &a of prkbg, a@ that the price of gas is afleded BS much by taxc~ as W ts by the tideMe prich9. Argurt?ents and experts wqe ~IWSEWIM on both sides as to whether the regutatqr schemes of divorcement afib price ban q@ation.wrxked or diin’t work in stat@$ tike4-lawah, Nevada and Maw Y&W they t&c been ‘unplom&ed in varh% krms. . . dUeStiCWa were raked us la hcmv the cii a& C~urtty waufd enlcwce these pr4pased El)U!&kXlS ~n~efin~‘~ who serve this market and who zwepiedomlnantly outside of t&n Diego ~twnty. . Staff expressed concerns that it may not be prackal to import the re9ulatofy khemer of fXwcemant, ptice DischdtWon a& @QII sup& reguhth~ proposed by Uie County at a muntipal or even the San Okgo regl0n8l level of g&xwnment. stuIIwas GQncemed that k maymlpfMdcanynrechanisrnwhlch~U~ logkally bad to lower prices to the wrmumer. llte regubtiinr would not MOW O’A r&hi to own 3!U! company operated gu htio~ after January I. ZCIOO in the City or -. I . -4- . l . . - e- CuunLy. Th& seems likely to red iri ibwer qps staticm and less competition in San Dl6gO. 1R sbtfk czpinian. nb ccmdi&c eMa wae given that kdkhd b’iucc~mcnt tead * w to lower rebstl pr*hs few gediw in any dthd states that sdoptedlhl tvpe of t6fJUl~tKO~ . PA06 ktximinati snd Open Gupply regul*ns msy encoumge more uniform DC ’ ~~rnpetllhnr whdesak prkes respectMy, b$ fE is not dear how this would be enforced . Further, the ~1 dew noi have any mcrohankms wf4ch wwId 8nsur~ how these pticm would be rdkt6d in the retdi ptluea charged cmncwierr at th6 gas statbriE. lo thqe anything that can ba dara at a b~~4 level that would ghre wnsumerv the ability breduceth6~rhrslcests~ D~s were hokl with mine obbc pwtJdpanb on’the Rules Committee panel by . . Erty staff about what land use regubtwyrdief aGtkono might em~~rage the loming of ’ * gas pfic66. l?m oil oamprrniss rend id6pcwd6nt op8mtCbr6 ideated that most commuritk~ in Cakmia do have wme type ofdiacmtionory prcw~s required for rftky and katiort ol their stations. . Howevw, the kvel of detail tmquired for the review and time rquIred for the Ciia disomthary pmcem was kmger and more cwrhisome than some areas. f- lie most imp&ant impiauemtnts they Wa;r 918 City could make were: an early a!mm,smuitofthe p* 8 tshcdmd time to get to a decision point; and a siirgle pointofcantadfcwkwerawtutton. ~CRyhasrewntly&hplmentedtheso . irnprwermth. EftcdivG July 1 , 1 fM el af these pmjcqts am now assigned B Proj& Mart6g6r. Theyndl b6 6ffef&, ad feceiv6, pdhnibx~ry reviews. . . Staff Is not f6cmmmding any lpnd us8 orcbme changes at this drne. the recent twnd R8r aImo5t all gas st&tons b to be c&nbbmJ with other sources like mfni mark, alcohol slsles, carwashes (ami wen drive-up fad fo@d). The fndusfry rapresentatiies Said @is &rid wifi cvnku6. Staff c~rtSk&Wd proposing to reduce gd% statbn CUP’s from B Process 3.to a ~ro~tss 2. tiowcver, gas stations which have 1”~ of these associated usw typicMpvoukJ teOggGT nebhbrxhoud issues and appeals.. 68CWlSf3 Of thts. bbdf wtrclud6d that l&68& 3 was the appropfh6 kzvct fw revtew of fxc~jects such 8s these. . We have been tald that the oombinati#l of gas stations tih athtr uwd such &s these . ensble the station opfmtws to kw th& ~88 prices as IQW as posstbk. 6?ne reason . thfs market trend hrrP dw&kp8d )s that the m d $a?3 s&c at the ~t&lon will go up ~c2Nlsi p6opk tan g6t gas and other aewkes in “vne-stup.” t%nx! qmfii kt the tidOf# wmep fram tiw sale d fotxJ a gas, the b&ma betwecin the revenue and f- operstlng awta k mom #tfwtive lo gas station operaton. - i . - . - ’ If the proposed ordtn6ncc Is adopted (Attachment C), it fs reeommer$ed by the Manager that the City tirst obtain a binding commitment f#m the County of San Diego .to datknd and lndemnlfy the cii from any challenge to the City’e ~ulath. 1. Do&tadopttheprqmedordlnanc6. 2. Adopt the pmpascd wdinunce regulating the operafien of gas statkas and re@@ing artah gas wholesale practices w&out obtaining any indemnihtion from the county. 3. Take no &on on thk matter. _ - RespecWIysubmltted. . ,&w . Apm=f submlttf3d by: PEMLOPE CtJc8RFlI I-GRAF?-. WA Trild4 P. CHRI~SEN, AIA Agdrlt~t my Manager Devetopment Se@ces Manager . ‘mp - AT’I’YUMMEHTS A Caun~ 8d of SupeMsofs’ Statf Report and Model Otdm;mc@ .B. Cellfomfa Energy commission’6 c;difoma Retail Gawkto Price Rbpat?s dated July 14.1897; Aqust Il. 1987: and Januvy 19.1998 II C. Proposed CMdhnc~ requlating the dlstdbutton ef gusolIn and the operation . of gasoline .Fit?wka slations EzWiPOR7Vm - - . . . . . . . . 1 2 3 4 5 6 7 8 9 10 11 12 2 g mwm 327 13 %80 8 18 19 20 21 22 23 24 25 26 27 / 28 - ORDINANCE NO. m-444 $$ ;9 .f' AN ORDINANCE OF THE CITY COUNCIL OF THE Cl OF CARLSBAD, CALIFORNIA AMENDING TITLE THE ADDITION OF CHAPTER 5.22 RELATIN DISTRIBUTIO The City Council of the City of Carlsbad, ordain as follows: SECTION I: That Title 5 of the Carls the addition of Chapter 5.22 to read as follows: unicipal Code be amended by “GASOLINE DISTRIBUTION AN SOLINE SERVICE STATIONS Restrictions on company operated stations Temporary company operated stations Wholesale purchasing rights Price discrimination prohibition Enforcement responsibility Violations constitute misdemeanors Civil enforcement apter are necessary to promote competition between motor fuel retai the City of Carlsbad. Such competition will result in Carlsbad consumers pa reasonable prices for motor fuel. In addition, this chapter is intended to cause retai es of motor fuel in the City of Carlsbad to compare more favorably ed to motor fuel consumers in other parts of the State of California. pter, the following terms shall have the meanings respectively o them in this section: “Affiliate” means any person who, other than by means of a franchise, s, is controlled by or is under common control with other person. “Company Operated Station” means a retail service station operated by a with employees of the refiner or by a commissioned agent, contractor or nee of the refiner for the sale of motor fuel to the general public for ultimate A retail service station operated by a franchisee shall not constitute a Company Operated Station. 1 1 2 3 4 5 6 7 0 9 10 11 12 9 8 mum yz-7 %Eo 8 13 18 19 20 21 22 23 24 25 26 27 28 C. “Control” means the direct or indirect ownership of the right to exercise a directing influence over more than 50 percent of the beneficial interest in any person. D. ‘Cost of doing business” means the expenses, on a per gallon sold basis, incurred by a refiner to sell motor fuel at a company operated retail service station and includes, without limitation, the value of all goods, the costs of delivery of any goods or commodities, services, facilities, real property and. improvements, labor and overhead used, consumed, expended or reasonably allocated by a refiner in connection with the retail activity. Cost of doing business does not include the cost of extracting or purchasing raw crude oil, the cost of refining crude oil into motor fuel or the cost of delivering motor fuel to the truck loading terminal. E. “Franchise” means any contract between a refiner and a motor fuel retailer under which a refiner authorizes or permits a motor fuel retailer to use, in connection with the sale, , consignment or distribution of motor fuel, a trademark that is owned or controlled by the refiner. “Franchise” includes: 1. Any contract under which a motor fuel retailer is authorized or permitted to occupy leased marketing premises, to be employed in connection with the sale, consignment or distribution of motor fuel under a trademark which is owned or controlled by such refiner; 2. Any contract between a refiner and a motor fuel retailer pertaining to the supply of motor fuel that is to be sold, consigned or distributed under a trademark owned or controlled by a refiner; and 3. The unexpired portion of any franchise, as defined in this subsection, that is transferred or assigned as authorized by the provisions of such franchise or by any applicable provisions of law that permit such transfer or assignment without regard to any provision of the franchise. F. “Franchisee” means a motor fuel retailer who is authorized or permitted under a franchise to use a trademark in connection with the sale, consignment or distribution of motor fuel. G. “Franchiser” means a refiner who, under a franchise, authorizes or permits a motor fuel to use a trademark in connection with the sale, consignment or distribution of motor fuel. H. “Grade of motor fuel” means motor fuel of a particular quality or class and sold under a particular trademark, trade name or brand. I. “Leased marketing premises” means marketing premises owned, leased or in any way controlled by a franchiser and which the franchise is authorized or permitted, under the franchise, to employ in connection with the sale, consignment or distribution of motor fuel. J. “Market retail price” means the per gallon price at which a refiner sells or offers to sell to the public a grade of motor fuel at a company operated station, less the cost of doing business at the retail service station. K. “Marketing premises” means, in the case of any franchise, premises which, under the franchise, are to be employed by the franchisee in connection with the sale, consignment or distribution of motor fuel. L. “Motor fuel” means gasoline and diesel fuel of a type distributed for use as a fuel in self-propelled vehicles designated primarily for use on public streets, roads and highways. 2 1 2 3 4 5 6 7 a 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 M. “Motor fuel retailer” means a person who is not an affiliate of a refiner and who purchases motor fuel primarily for sale to the general public for ultimate consumption at a retail service station. N. “Overcharge” means a sale of or offer to sell motor fuel to a motor fuel retailer at a price that exceeds the price charged any other motor fuel retailer for motor fuel supplied from the same truck loading terminal. “Overcharge” shall not be construed to prevent due allowances for the refiner’s actual costs, including delivery, marketing, facility and real estate costs. 0. “Person” means an individual, proprietorship, firm, partnership, joint venture, syndicate, company, association, committee, corporation, trust or any other organization or group of individuals acting in concert. “Person” does not include governmental entities. P. “Price” means the price of a gallon of motor fuel paid to a refiner by a motor fuel retailer, less the value, on a per gallon sold basis, of all rebates, discounts, credits, incentives and other benefits extended by the refiner to the motor fuel retailer. Q. “Refiner” means any person engaged in the refining of crude oil to produce motor fuel and includes any affiliate of such person. R. “Retail service station” or “service station” means a facility, including land and improvements, where motor fuel is sold at retail to the motoring public. 522.030 Restrictions on companv operated stations. Restrictions on company operated stations are as follows: A. On or after July 1, 1998, a refiner shall not open a new company operated retail service station in the City of Carlsbad. B. On or after January 1, 1999, no more than fifty percent (50%) of retail service stations owned by a refiner in the City of Carlsbad shall be company operated stations. C. On or after January 1, 2000, no retail service stations owned by a refiner shall be company operated stations. 5.22.040 TemPorarv comDanv oPerated stations. Temporary company operated stations must comply with the following: A. Notwithstanding section 5.22.030, a refiner may open and operate a company operated retail service station, at a site described in section 5.22.040(b), for a period not to exceed ninety (90) days when, in accordance with state and federal law: 1. A motor fuel retailer voluntarily determines to terminate or not to renew a franchise with the refiner; or 2. The franchise between the refiner and the motor fuel retailer is terminated or not renewed by the refiner. B. The company operated station referred to in section 5.22.040(a) of the section shall be opened and operated at the same site as the retail service station operated by the motor fuel retailer who was the franchisee. 5.22.050 Wholesale Durchasina riahts. Wholesale purchasing rights are as follows: A. On or after the operative date of this chapter, a refiner shall not 3 1 2 3 4 5 6 7 8 9 10 11 18 19 20 21 22 23 24 25 26 27 28 enter into any contract or take any other action to prevent a branded motor fuel franchisee operating within the City of Carlsbad from purchasing the refiner’s branded motor fuel from any location or through any vendor in the refiner’s wholesale fuel network. This section shall not affect any contracted rights in existence on the date immediately preceding operate date of this chapter. B. A refiner shall not discriminate in price between different franchisee purchaser of the refiner’s branded motor fuel of the price discrimination effectively prevents a franchisee from taking advantage of price differences at different locations or between different wholesale vendors. 522.060 Price discrimination prohibition. A refiner may not: A. Sell or offer to sell to a motor fuel retailer any grade of motor fuel at a price that exceeds the then current market retail price for the same grade of motor fuel supplied by the refiner, from the same terminal, to a company operated station; or B. Overcharge a motor fuel retailer for motor fuel. 522.070 Enforcement responsibilitv. Enforcement responsibility is as follows: A. The District Attorney shall enforce the provisions of this chapter. B. Any person who believes that a violation of any portion of this chapter has occurred may file a complaint with the District Attorney. If the District Attorney determines that there is a reason to believe a violation of this chapter has occurred, the District Attorney shall investigate. C. The District Attorney may exercise such investigative powers as are necessary’ for the performance of the duties prescribed in this chapter and may demand and shall be furnished with all records of refiners and motor fuel retailers which may be pertinent to such investigation. 522.080 Violations constitute misdemeanors Any person violating the provisions of this chapter shall be guilty of a misdemeanor and upon conviction shall be fined in an amount not to exceed five hundred dollars ($500) or by imprisonment for a period of not more than six months or by both such fine and imprisonment. 5.22.090 Civil enforcement. Civil enforcement shall be: A. Any aggrieved person may enforce the provisions of this chapter by means of a civil action. B. Any person who commits, or proposes to commit, an act in violation of this chapter may be enjoined therefrom by a court of competent jurisdiction. C. An action for injunction under section 5.22.090(b) may be brought by an aggrieved person or by any person or entity which will fairly and adequately represent the interests of the aggrieved person. D. Nothing in this chapter shall preclude any aggrieved person from seeking any other remedy provided by law.” 4 1 2 3 4 5 6 7 8 9 10 11 12 9 g mwm 32'; 98g 13 18 19 20 21 22 23 24 25 26 27 28 OPERATIVE DATE: This ordinance shall become operative when the County’s ordinance is upheld as enforceable and the matter is finally resolved in a court of competent jurisdiction. EFFECTIVE DATE: This ordinance shall be effective thirty days after its adoption, and the City Clerk shall certify the adoption of this ordinance and cause it to be published at least once in a newspaper of general circulation in the City of Carlsbad within fifteen days after its adoption. INTRODUCED AND FIRST READ at a regular meeting of the Carlsbad City Council on the day of , 1998, and thereafter PASSED AND ADOPTED at a regular meeting of the City Council of the City of Carlsbad on the day of , 1998, by the following vote, to wit: AYES: NOES: ABSENT: APPROVED AS TO FORM AND LEGALITY RONALD R. BALL, City Attorney CLAUDE A. LEWIS, Mayor ATTEST: ALETHA L. RAUTENKRANZ, City Clerk (SEAL) Aternative #I Operative Date 5 1 2 3 4 5 6 7 8 9 10 11 12 18 19 20 21 22 23 24 25 26 27 28 - OPERATIVE DATE: This ordinance shall become operative when the County of San Diego executes a legally binding agreement with the City of Carlsbad to the satisfaction of the City Attorney which provides for the County to defend and indemnify the City from any legal action challenging the City’s adoption or implementation of this ordinance. EFFECTIVE DATE: This ordinance shall be effective thirty days after its adoption, and the City Clerk shall certify the adoption of this ordinance and cause it to be published at least once in a newspaper of general circulation in the City of Carlsbad within fifteen days after its adoption. INTRODUCED AND FIRST READ at a regular meeting of the Carlsbad City Council on the day of , 1998, and thereafter Alternative #2 OPerative Date 5 1 2 3 4 5 6 7 PASSED AND ADOPTED at a regular meeting of the City Council of the City of Carlsbad on the day of I 1998, by the following vote, to wit: AYES: NOES: ABSENT: 8 APPROVED AS TO FORM AND LEGALITY 9 10 11 RONALD R. BALL, City Attorney CLAUDE A. LEWIS, Mayor ATTEST: 19 20 21 22 23 24 25 26 27 28 ALETHA L. RAUTENKRANZ, City Clerk (SEAL) 6 gasprice.txt at www.eia.doe.gov Regular Gasoline Spot Prices by City (Cents per Gallon) ------- Conventional Gasoline -------- I--------- City 01/05/98 01/12/98 01/20/98 01/26/98 1 01/27/97 New York 48.23 48.88 46.98 47.48 1 66.73 Page 1 of 1 Chicago 43.85 45.63 39.38 41.13 Houston 48.03 46.13 44.38 45.08 Los Angeles 57.50 49.50 51.50 50.50 ------- Reformulated Gasoline -------- City 01/05/98 01/12/98 01/20/98 01/26/98 66.68 66.28 75.75 New York - Chicago Houston Los Angeles --__----- 01/27/97 51.23 52.38 50.78 51.78 1 67.50 NA NA NA NA I NA 50.78 49.25 48.00 49.28 1 67.00 59.50 55.00 56.50 55.50 1 79.50 Source: Reuters Information Services. Regular Gasoline Retail Prices by Petroleum Administration for Defense District (Cents per Gallon, Including Taxes) ------- Conventional Gasoline -------- I--------- District 01/05/98 01/12/98 01/20/98 01/26/98 I 01/27/97 East Coast (PADD I) 108.5 107.5 106.5 105.2 1 122.8 Midwest (PADD II) 103.0 102.9 101.7 99.1 I 122.0 Gulf Coast (PADD III) 108.0 107.3 106.2 105.8 I 121.4 Rocky Mountain (PADD IV) 125.3 123.4 121.4 119.5 I 126.1 West Coast (PADD V) 129.3 128.2 126.6 125.3 1 131.5 U.S. Average 107.4 106.8 105.6 103.9 I 122.7 ------- Reformulated Gasoline ___-_--- I --------- District 01/05/98 01/12/98 01/20/98 01/26/98 I 01/27/97 East Coast (PADD I) 116.4 115.3 113.9 112.8 1 130.0 Midwest (PADD II) 109.3 108.2 106.4 105.3 I 129.2 Gulf Coast (PADD III) 107.9 106.6 105.4 104.2 1 116.7 Rocky Mountain (PADD IV) NA NA NA NA I NA West Coast (PADD V) 128.8 127.0 124.9 122.8 I 125.4 U.S. Average 118.3 116.9 115.2 113.8 I 126.5 Source: Energy Information Administration, Form EIA-878, Motor Gasoline Price Survey. For information about gasoline price data, contact Aileen Bohn: 202-586-4255. Internet: abohn@eia.doe.gov. 8 Carroll, Gilbert & Bach James R Carroll Guy J. Gilbert James E Bachor Richard L. Dooley Brian G. Balconi z?714-671-9399 Bb May 14,1997 810:38AM II92113 LAW OFFICES OF CARROLL, GILBERT & BACHOR A PROFISSIONAL CORPORATION 711 South Brea Boulevard Brea, CaIifornia 9262 l-5310 (714) 671-9963 l (213) 888-0884 FAX (714) 671-9399 l Modem (714) 671-9397 Internet E-Mail: JCarroII’i@AOL.com Of cow Richard P. Carroll John C. Lorand wflkm I!. Walls, C.P.A. May 8,1997 Board of Directors Automotive Trade Organizations of California 16750 Hale Avenue, Suite A Irvine, California 926065050 Gentlemen: Existing state and federal law are insufficient to prevent those practices prohibited in the proposed legislation. You have asked for a legal opinion as to whether the County of San Diego and cities within the County have the power and authority to enact an ordinance prohibiting direct refiner operation of service stations and requiring fair wholesale pricing. It is my conclusion that the County and the cities do have such power and authority for the reasons stated hereinbelow. I. Summary of proposed legislation The proposed ordinance would require refiners to phase out of operating retail service stations through salaried employees or commission agents over a two year period. The refiners could not open any new company operated stations on or after January 1,1997. By January 1,1998, the oil companies would be required to reduce the number of outlets operated by their employees or agents by 50%. The refiners would then have until January 1,1999 to convert any existing company- operated stations to operations by independent retailers. No business license, use or other permit, non-conforming use, license of any kind or description whatsoever, variance or other authorization to operate a retail business shall be granted for any such service station which would result in a violation of the ordinance. Violation of a county ordinance is a misdemeanor under Government Code §25132. Any private person could sue for an injunction, damages and attorney fees. The city attorney and the district attorney, as well as the State Attorney General would have standing to enforce the ordinance. Refiners would be able to temporarily company-operate a station for up to 90 days in the event of a dealer change. % Carroll, Gilbert & Bachor fp714-671-9399 f&l Mayl4,1997 810:38AM Pl3113 Page 2 5/14/97 Refiners would be forbidden from charging independent service station dealers a wholesale price which exceeds the market retail Price. The “market retail price” is defined in Section 2 (6) as the “price at which a refiner sells or offers to sell to the public a grade of motor fuel at a company-owned service station, less the cost of doing business at that service station.” Refiners would be forbidden from overcharging independent service station dealers for motor fuel. “Overcharge” means a sale or offer to sell motor fuel to an independent service station dealer at a price that exceeds the price charged any other independent service station dealer operating a service station within the County of San Diego. However, the term “overcharge” sha.lI not be construed to prevent due allowances for the refiner’s actual costs, including delivery, marketing, facility and real estate costs. Refiners would be forbidden from setting, controlhng or economically influencing the retail prices and profit margins of their independent dealers. The ordinance would be enforceable by local, county or state prosecutors and by private damage actions. You have asked for an opinion letter as to whether the San Diego County Board of Supervisors and/or cities witi the County have the power to enact this ordinance. In my opinion, based on the analysis set forth herein, the Board and the cities do have that Power. IL States may use the police power to ban refiner operated service stations and discriminatory pricing The leading case in this field is Exxon Corp. v. Governor of Maryland (1978) 437 U.S. 117. That case upheld a Maryland state law forbidding major oil companies from operating service stations through employees or agents. The Maryland statute also requires refiners to extend temporary price reductions granted to independent dealers injured by local competitive priced reductions uniformly to all stations they suPPlY* The court rejected constitutional challenges based on substantive due process and the commerce clause. It also held that the Maryland law was not preempted by federal anti-trust laws, including the Robinson-Patman and Sherman Acts. The Exxon Corp. v. Governor of Maryland ruling has been repeatedly cited by federal and state courts in upholding a wide variety of laws regulating the petroleum industry as well as other industries. E.g., Owens ZI. Wy of Signal Hill (1984) 154 Cal.App 26.123,201 CaLRptr. 70 (citing Exxon Corp. in upholding Carroll, Gilbert & Bachor =714-671-9399 IZQ Mayl4,1997 81CL38Ab.4 rw13 Page 3 s/14/97 ordinance regulating and restricting massage parlors against due process and equal protection attacks; the ordinance also voided previously issued business permits.); Chrysler v. Nm Mufor Vehicle Board (1979) 89 CaLApp. 1034,153 CaLRptr. 135 (citing Exxon Corp. in upholding California law restricting establishment of new motor vehicle dealerships against commerce clause and due process challenges). III. California cities and counties may exercise this police power The California Supreme Court has summarized the nature of municipal and county authority and its limits as follows: “Under the police power granted by the [California] Constitution, counties and cities have plenary authority to govern, subject only to the limitation that they exercise this power within their territorial limits and subordinate to state law. (Cal. Con&, art. XI, $j 7.) Apart from this limitation, the ‘police power of a county or city under this provision is as broad as the police power exercisable by the Legislattm itself.’ (BirkenfeZd v. City of Berkeky (1976) 17 Cal. 3d 129,140,X30 Cal.Rptr. 4655,550 P.2d 1001.)” “If otherwise valid local legislation conflicts with state law, it is preempted by such law and is void. . . . (CitOm.) A confiict exists if the local legislation ‘duplicates, contradicts, or enters an area fuIly occupied by general law, either expressly or by legislative implication’ (PeopZe ex rel. Deukmejian v. Counfy of Mendocino, supra, 36 CalA at p. 484,204 CaLRptr. 897,683 P.2d 1150)” Candid Enterprises v. Grossmonf U.H. Sch. D. (1985) 39 Cal.3d 885, 878,218 CalRptr. 303,309 (upholding local school district’s imposition of school impact fees on developer as not preempted by California School FaciIites Act.) The fact that state legislation touches.on the same subject matter as a local ordinance does not mean that the ordinance is automatically preempted, e.g. People vi Jacobs (1977) 72 Cal.App.3d Supp 46,240 Cal.Rptr. 140 (Local ordinance prohibiting nude public bathing held not preempted by state laws prohibiting certain “sexual activity” and “controlled nudity,” citing Eckl v. Davis (1975) 51 Cal.App.Sd 831,124 Cal.Rptr. 685). Similarly, in People Ex Re. Deukmejian u. Cfy. of Mendocino (1984) 36 Cal.3d 476,204 CaLRptr. 897,683 P.2d 1150, the state brought an action for declaratory and injunctive relief against county’s initiative ordinance prohibiting aerial application of phenoxy herbicides. The People asserted that a comprehensive state licensing scheme for pesticide marketing and use preempted the county ordinance. In upholding the local ordinance, the California Supreme Court enunciated a 3- * Carroll, Gilbert & Bachor 8714-671-9399 Ilg Mayl4,1997 @10:3BAM lx!13 Page 4 s/14/97 pronged test for determining whether the state has implicitly preempted the entire field by enacting legislation on any given subject: ” In determining whether the Legislature has preempted by implication to the exclusion of local regulation we must look to the whole purpose and scope of the legislative scheme. There are three tests: ‘(1) the subject matter has been so fully and completely covered by general law as to clearly indicate that it has become exclusively a matter of state concern; (2) the subject matter has been partially covered by general law couched in such terms as to indicate clearly that a paramount state concern will not tolerate further or additional local action; of (3) the subject matter has been partially covered by general law, and the subject is of such a nature that the adverse effect of a local ordinance on the transient citizens of the state outweighs the possible benefit to the municipality. ’ ” 36 Cal.3d at 485,204 Cal.Rptr. at 902 Perhaps the best example of the power of counties and cities to legislate in an area which has already been the subject of considerable state legislation is in the field of municipal rent control. The California courts have repeatedly upheld such ordinances as not preempted by state law. They have adopted this position in spite of the fact that the landlord-tenant relationship is entirely a creature of state common and statutory law. Birkenfeld v. City of Berkeley (1976) 17 CaL 3d 129,141- 142,130 CaLRptr. 465,4745,550 P.2d 1001 The teachings of Candid Enterprises v. Grossmont U.H. Sch. D, supra, and People Ex Re. Deukmejiun v. Cty. of Mendocino supra, are that, absent an express legislative prohibition, a city or county may validly exercise its police power if the ordinance meets five criteria: (a) it does not duplicate state law; (b) it does not contradict state law; (c) the subject matter has not been so fully and completely covered by state law as to “clearly indicate that it has become exclusively a matter of state concern;” (d) the subject matter has not been partially covered by state law “couched in such terms as to indicate clearly that a paramount state concern will nor tolerate further or additional local action;” and (e) the subject matter has not been partially covered by general law, and the subject is not “of such a nature that the adverse effect of a local ordinance on the transient citizens of the state outweighs the possible benefit to the municipality. ” * &roll. Gilbert & Bachor W714-671-9399 @rMayl4,1997 @10:38Ahd -. L46/13 Page 5 s/14/97 Based on the foregoing, the proposed ordinance would not be preempted by any state or federal law. There follows here a survey of those federal and state laws which arguably touch on the subject matter of the proposed ordinance -- motor fuel marketing in general, pricing and trade practice. The discussion is somewhat lengthy, since the absence of any implied preemption must be established by a process of elimination. IV. Survey of state and federal laws touching the subjects of motor fuel marketing, pricing and trade practices There are no federal or California laws regulating, requiring, restricting or forbidding direct refiner operation of service stations. Several other states, such as Maryland, have laws prohibiting or limiting direct refiner operation. Nor are there any federal or state laws which expressly preempt state or local laws restricting or forbidding the practice. There are a number of state and federal laws which deal with the subject matter of the marketing of motor fuel and/or the franchise relationship between a major oil company and a service station dealer. These laws include the following: (1) Advertising, measuring, labeling and retail sales statutes: Chapter 14, Division 5 of the Business and Professions Code, commencing with §13400, is titled “Petroleum.” Chapter 14 covers mandatory sale to local government for essential services, tie-in retail sales, refueling service for the disabled, false advertising, posting hours of business, fees collected for disposing of waste oil, standards for gasoline, diesel fuel and other petroleum products, price indications on dispensers, labeling, identification of tank vehicles, measurement of wholesale deliveries, price sign advertising, inducements to purchase motor fuel, and product adulteration Chapter 14.5, titled “Service Stations,” and commencing with §13651 imposes certain requirements on service station operators, such as offering free air and water and providing rest rooms under specified circumstances. Nothing in Chapters 14 or 14.5 addresses the subject of refiner operation of service stations, pricing (as opposed to price advertising) or the franchise relationship between oil companies and dealers. The proposed local ordinance would not conflict with or duplicate anything in these two chapters. Nor does the enactment of the statutes in these chapters mean that “the subject matter has been so fully and completely covered by general law as to clearly indicate that it has become exclusively a matter of state concern,” PeDpZe Ex Re. Deukmejian v. Cty. of Mendocino , supra. Carroll, Gilbert& Bachor 8714-671-9399 I%I Mayl4,1997 810:38AM [97/13 Page6 s/14/97 The various provisions of these two chapters constitute a patchwork of rules covering various subjects, some of which are related to each other and some of which are not. These provisions are not part of an overall legislative scheme or plan. It therefore cannot be said that “the subject matter has been partially covered by general law couched in such terms as to indicate clearly that a paramount state concern will not tolerate further or additional local action,” People Ex Re. Deukmejian v. Ciy. of Mendocino , supra. Indeed, all of the obligations imposed on the operator of a retail service station under these chapters remain exactly the same, regardless of whether the station is operated by an independent dealer or an oil company employee. It is therefore even doubtful whether it can be said that “the subject matter has been partially covered by general law.” There is also no room to argue that “the subject is of such a nature that the adverse effect of a local ordinance on the transient citizens of the state outweighs the possible benefit to the municipality.” PeopEe EX Re. Deukmejian v. Cty. of Mendocino , sup-a. As discussed above, the Exxon Corp. v. Governor of Maryland (1978) 437 U.S. 117 case and its progeny have rejected any argument based on the notion that laws such as this unreasonably burden commerce. The ordinance would affect only acts and omissions occurring within the County of San Diego. (2) Franchise disclosure laws: The California Franchise Investment Law, Corporations Code @31000 ef seq. is pureIy a disclosure statute It requires a franchiser to make specified written disclosures to franchisees when a franchise is sold. 9 31005(b)(l) specifically applies the law to the petroleum industry. An examination of the CFlL indicates that it neither contradicts nor duplicates anything in the proposed local ordinance. The CFIL only applies to franchise situations. Its subject matter in the broadest sense is the relationship between a franchiser and a franchisee. In its narrowest sense, the subject matter is the disclosure of specified information to a franchisee. By either test, the enactment does not touch on the subject matter of refiner operation of service stations or the wholesale or retail pricing of motor fuel. (3) The federal Petroleum Marketing Practices Act (YPMPA”): The PMPA, Title 15, U.S. Code 55 X401-6, is a federal statute restricting the right of a major oil company or “franchiser” to terminate or refuse to renew a dealer’s franchise. It does not regulate, require, restrict or forbid direct refiner operation of service stations. The PMPA is not triggered by any conduct of an oil company unless it has a franchise relationship with a service station dealer. Nor does the PMPA touch on the subject of motor fuel pricing. Carroll, Gilbert & Bachor 8714-671-9399 @iI Mayl4,1997 010:38AM Clall3 Page 7 s/14/97 The “subject matter” of the PMPA is the termination or nonrenewal of the franchise relationship. 15 U.S.C. §2806(a) expressly addresses preemption of state laws. It provides that all state laws concerning the termination or nonrenewal of a franchise are preempted to the extent that such laws are different from the PMPA. All other aspects of the franchise relationship are left to state law. Courts have tended to construe the preemption provision narrowly, ruling that the Act was not intended to preempt all state regulation of specific components of franchise agreements between dealers and oil companies. Esso Standard Oil Co. v. Dept. of Consumer Affairs (1st Cir. 19%) 793 F.2d 431; Bellmore v. Mobil (2d Cir. 1986) 783 F.2d 300,304. The PMPA makes four references to refiner operation of service stations. All are tkqential to the subject matter of the Act. %2802(b)(3)(A), 2802(b)(3)(D) and 2802(b)(2)(E) forbid nonrenewal on specified grounds as a pretext for converting the stations to operation by agents or employees of the franchiser. The fourth reference is in 52804. 9804(a) requires the franchiser to give the franchisee at least 90 days written notice of termination or nonrenewal. Subsection (b) allows the franchiser to furnish less than 90 days notice where it would not be “reasonable” to require it to give the full 90 days notice (e.g., abandonment of the station by the franchisee). In short notice cases, the franchiser is prohibited from putting in a new franchisee in the station for at least 30 days. 92804(b)(l) lets the franchiser retake possession of the station, and “in circumstances under which it would be reasonable to do so, operate such premises through employees or agents,” This section does not conflict with the proposed ordinance. The proposed ordinance expressly permits a refiner to company-operate the station for 90 days following termination or nonrenewal of the franchise relationship with the dealer. The fact that the PMPA does not penalize the franchiser for company- operating a station in a specified situation does not mean that the Act creates a federal “right” to do so. (See discussion below under heading (7) pertaining to federal and state price discrimination laws.) It should also be noted that the PMPA permits franchise termination or nonrenewal for any one of approximately twenty two (22) separate and distinct grounds. In each case, the Act attaches specified conditions or requirements which must be satisfied to justify such action in any given case. The four references to company operation of service stations are to be found among these various grounds, Carroll, Gilbert & Bachor Page 8 ‘Lp714-671-9399 IZa May16 1997 810:38AM D9/13 conditions and requirements. In other words, the thrust of the Act is directed at the franchise relationship, not refiner operation of service stations. (4) State laws governing termination and nonrenewal of service station franchises: Chapter 7.5 of Division 8 of the California Business and Professions Code, commencing with 920999, is titled “Franchises.” The chapter creates certain rights for service station dealers which may be asserted against oil-company franchisers. 920999.1 is a good-cause termination and nonrenewal statute. It was enacted in 1975, before the passage of the Petroleum Marketing Practices Act in 1978. It had a provision similar to those contained in the PMPA forbidding franchise termination or nonrenewal for the express purpose of converting the station to company operation (See above .) Since s20999.1 addresses the very same subject that the PJHPA does, i.e., franchise termination and nonrenewal, it is preempted by the PMPA. Cal$ Arco Distr, Inc. v. Atlantic RichfiZd Co. (1984) 158 Cal.App.3d 349,204 Rptr. 743. The remaining provisions of Chapter 7.5 grant a dealer as the right to have counsel present during negotiations and the right to purchase the company’s interest in the premises and improvements. The proposed ordinance neither duplicates nor conflicts with Chapter 7.5. Nor can it said that the enactment of the Chapter resulted in the area being “fully occupied by general law,” Candid Enferprises v. Grossmont U.H. Sch. D. , supra, so as to preempt the proposed ordinance., (5) State laws requiring fair practices: Chapter 7.8 of Division 8 of the E&siness and Professions Code, commencing with §21140, is titled “Framzhise Dealers Fair Practices.” This section grants a dealer certain rights against an oil company franchiser, including the right to purchase motor fuel from any source during a shortage, to be free of coercive tying practices, to bequeath the franchise, to sell or assign the franchise and to incorporate. There are also remedial provisions. There is no mention of the subject of refiner operation or motor fuel pricing in these sections. Chapter 7.8, as well as Chapters 7.5 above and 7.9 and 8.0 below, are not part of any comprehensive regulatory scheme. Rather, these Chapters are the patchwork hodgepodge that has resulted from the piece-meal enactment of various measures designed to help service station dealers under specified circumstances. (6) State laws permitting dealers to close stations during unprofitable hours: Chapter 7.9 of Division 8 of the Business and Professions Code, commencing with $!1150, permits a service station dealer, under specified circumstances, to close the business during late night and early morning hours. . Carroll, Gilbert & Bachor V&714-671-9399 L Mayl4,1997 810:38AM c310/13 Page 9 5/14/97 These provisions make no mention of company operation or motor fuel pricing. (7) State price discrimination laws: Chapter 8 of Division 8 of the Business and Professions Code, commencing with 921200, forbids price discrimination in the sale of motor vehicle fuels and oil, where such discrimination injures competition. In order to prove a violation of Chapter 8, the plaintiff must prove that there the defendant made two sales--one to a “favored purchaser” and one to a “disfavored purchaser.” The favored purchaser must be in competition with the disfavored purchaser, and the disfavored purchaser must sustain a competitive injury as a result. The mere existence of a discrimination in price does not create a cause of action under Chapter 8. Hamro v. Shell Oil Co. (9th Cir. 1982) (1982) 674 F.2d 784 discrimination in price. The ordinance does not “duplicate” Chapter 8. The word “discrimination” does not appear anywhere in its terms. It is directed to practices which result in artificially high prices. The state law, on the other hand, is directed at price discrimination which injures competition, parti&larly between a favored and a disfavored purchaser. The ordinance simply places a ceiling on the price that a refiner may charge a service station dealer. The proposed ordinance does not require any conduct forbidden by Chapter 8. Nothing therein compels an oil company to discriminate in price among purchasers of motor vehicle fuel. Conversely, any notion that if the ordinance might prohibit conduct which is not forbidden by Chapter 8, it must be preempted was laid to rest in Shell Oil Company v. Younger (9th Cir. 1978) 587 F.2d 34. Shell challenged Chapter 8 on the grounds that it is preempted by the federal antitrust laws, in particular the Robinson-Patman and Sherman Acts. Both the state and federal laws forbid price discrimination where the effect of the discrimination is to injure competition. Supra. However, a seller can defend himself under the Robinson-Patman Act (the federal price discrimination law) by showing that he offered the favored purchaser a lower price than that he charged the disfavored purchaser in order to meet competition. The seller would have to prove that a competitor of his offered the favored purchaser the same or a lower price. To raise the “meeting competition” defense under §§21200 et seq., the seller has the additional burden of proving that the same price “was also offered to any other of his purchasers in competition with the purchaser or purchasers receiving . Carroll, Gilbert & Bachor ‘Lt714-6769399 @a Mayl4,1997 @10:30AM I411113 Page 10 5/14/97 such lower price.” It is not necessary for the seller to make such a showing in order to raise a complete defense to a claim for violation of thefederal price discrimination law. Citing Exxon Corp. v. Maryland, supra, the Ninth Circuit rejected Shell’s contention that the Robinson-Patman Act created a “federal right” to the meeting competition defense: “But it is illogical to infer that by excluding certain competitive behavior from the general ban against discriminatory pricing, Congress intended to preempt the States’ power to prohibit any conduct within that exclusion.” 587 F.2d at 36, citing Exxon Corp. v. Governor of Maryland, 437 U.S. at 131-133 The state motor fuel price disc rimination law, Business and Professions Code $j21200 et seq. cannot, therefore, be said to create a “right” to engage in the practices prohibited by Section 7 of the proposed ordinance. It therefore does not “conflict” with the state law. (8) State and federal antitrust laws: Section 7(4) provides that an oil company may not “set, control or economically influence” retail motor fuels at their dealer operated stations. State and federal antitrust laws in theory prohibit “vertical” (i.e., between marketers at different levels of the distribution chain) price fixing. But the proposed ordinance would not duplicate the applicable state and federal laws. It is directed at conduct which would not rise to the level of a price “fix” under the antitrust laws. The California Cartwright and the federal Sherman Acts forbid combinations in restraint of trade. The state law was patterned after the Sherman Act Accordingly, federal decisions under the Sherman Act are applicable to the corresponding sections of the Cartwright Act. Hamro v. Shell Oil Co. (9th Cir. 1982) (1982) 674 F.2d 784 citingyounger v. Jensen, 26 Cal.3d 397,405 n.4,161 Cal.Rptr. 905,910 n.4,605 P.2d 813,818 n.4 (1980). In a number of decisions, “vertical price fixing” (combinations between marketers at difftient levels of the distribution chain e.g., between a wholesaler and a retailer fixing the prices the retailer will charge) has been held to violate the Sherman and Cartwright Acts. In 1964, the U.S. Supreme Court held that an arrangement under which Union Oil Co. paid the dealer on a commission basis but retained the contractual right to determine the retail price violated the Sherman Antitrust Act. Simpson v. union Oil Co. 377 U.S. 13. In the wake of the Simpson decision, contracts which expressly allowed the supplier to set the retail price disappeared. In a series of post-Simpson rulings, the federal courts announced the general proposition that a supplier may not use . CmoU, Gilbert & Bachcr we71 4-671-9399 @ Mayl4,1997 810:38AM c412113 Page 11 s/14/97 coercion to control a retailer’s margins. Gray v. Shell Oil Co. (1972) 469 F.2d 742. Lehman v. Gulf Oil (1972) 464 F.2d 26. The setting of a specific suggested retail pricing schedule, the systematic surveillance of retail pricing for the purpose of singling out dissidents, the use of threats of termination, nonrenewal or other reprisals has been found to constitute unlawful price fixing in a number of cases. Yentsch v. Texaco (1980) 630 F.2d 46; Phillips v. Crown Central (lW9) 602 F.2d 616; Broussard v.Socony-Mobil(l965) 350 F.2d 346; Crown Central v. Brice (1977) 427 F.Supp. 638. At the same time, wholesale pricing systems which take into account and affect or influence retail margins have been upheld. Texaco Puerto Rico, Inc. v. Medina, (1st Cir. 1987) 834 F.2d 242;WaZters 6 Sons v. Morton Bldg. (7th Cir. 1984) 737 F.2d 698; Lewis Service Center v. Mack Trucks (8th Cir. 1983) 714 F.2d 842; General Cinema v. Buena Vista 681 F.2d 594 (9th Cir. 1982); Kestenbaum v. Falstafl Brewing (5th Cir. 1975) 514 F.2d 690; AAA Liquors Inc. v. Joseph Seagram &Sons 702 F.2d 1203 (10th Cir. 1982); Hanson v. Shell (9th Cir. 1976) 541 F.2d 1352; Butera v. Sun OiE (1974) 496 F.2d 434; Sun Oil Co. v. Vickers (8th Cir. 1969) 414 F.2d 383; Swettlerz v. Waggoner Gas and Oil (1974) 373 F.Supp. 1022. Since this practice is not within the purview of the Sherman or Cartwright Acts, there can be no preemption of the provisions of the proposed ordinance forbidding it. The continued viability of Simpson v. Union Oil Co, sztpra, is in serious doubt. The last U.S. Supreme Court denunciation of vertical price fixing came in Albrecht v. Herald Company, 390 U.S. 145 (1968). Subsequent rulings have undermined the rationale of Albrecht, and it is anticipated that it will be overruled iu ULC 1~~~11 fulurc. Khurc v. Stulc OiE Cv, (la1 Cir. 199G) CC1 I Dua l?~ar~clt.ic~t: Ouidc, pIll,OOl. It is therefore not at all clear whether vertical price fixing remains illegal. What is clear is that Section 7(4) addresses conduct that would not constitute a “price fix” under the antitrust laws. For example, it proscribes wholesale pricing systems directed at controlling or influencing retain profit margins, a practice which the state and federal laws permit. The practices proscribed by Section 7(4) of the proposed ordinance do not in themselves constitute a violation of the Cartwright or Sherman Acts. Nor does the fact that the state or federal statutes fail to outlaw a particular practice does not create a “right” to engage in it. Shell Oil Co. v. Younger , supra. The Cartwright Act does not represent an attempt by the Legislature to occupy the relevant field. The “field” would be the regulation of practically every industry in which monopolistic practices or price fixing could in theory occur. The dictates of common sense lead to the conclusion that the state law is not “couched in such . Carroll,Giibwt&Bachw &lMq'14,1997 @10:38AM [913/13 Page 12 s/14/97 terms as to indicate clearly that a paramount state concern will not tolerate further or additional local action” nor is it “of such a nature that the adverse effect of a local ordinance on the transient citizens of the state outweighs the possible benefit to the municipality.” People Ex Re. Deukwzejiun v. Cty. of Mendocino, supra. Indeed, the Legislature’s subsequent enactment of the various provisions of Chapters 7.5 through 8 of Division 8 of the Business and Professions Code (discussed above) manifests a belief that the door remains open to further legislation. Based on the foregoing, in my opinion, the County and the cities have the power to enact and enforce the ordinance, and it is not preempted by state or federal law. Sincerely James R. Carroll Attorney at Law Encl. as noted cc File JAN-27-88 TUE 13:02 AnTMA FAX NO, 71466n5808 P, 01 Notes:.- Excepts -scorn-ShelV’Fexaeo-complaint- anti consent order (those parts thnt pertain to San Diego) From the AnaIvsis:, E. L~cal Gasoline Distribution in San DiegoCounty Six vertically integrated oil companies conkol approtimakely 90 percent of the gasoline sold at both wholesale and retail in San Diego Courq These oil companies require their branded retailem to buy gasoline at San Diego terminals, where these companies set the wholemale price. On average, S‘zr, Diego wholesale prices exceed those in Los Angeles by more than the cost.of pipeline transporlation from Los Angclcs to San JXego. There is no bottleneck at the pipeline preventing additional gasoline from ffowing into the market to reduce the price difference between San Diego County md Los hgdes, suggesting that prices in SWI Diego can be and have been affected by the firms in that market. The whoksalt and rekl markets in San Diega County will be h&My c’oncentratcd aa P rwult of tiw Joint Vcnturc, which will r&~c like IIHl by 250 pointy ro 1815. There are barriers to entry at the retail level because of slow population growh, limited availnbility of udoquato retail sites, pcm>itting staph USIIIC-ds, ad ih~. need IO obtain a “critical mass” of stations to compete in the market. Furthermore, the extensive degree of vertical control, combined with barriers al the retail level, raises entry basricrs at the wholesale level. The Joint Venture likely will enhance the prospect.~ of collusion and tacit coordination, which couId raise prices to ccuatner~ by $10 million or mare. Section III of the Proposed Consent Order restores competition by requiring the Proposed Respondents to divest to a single entity gasoline statians representing enough volume to create a viable competitor at the wholesale level and reduce concentration levels to within the thresholds of the Merger Guidelines. JAN-27-98 TUE 13: 03 AI&“-CA FAX NO, 714F”18908 P, 02 From the complaiqg g. San Diego County, California, where the Joint C’enbure will reduce competition in the market far CARE gasoline; artd e __ The wholcsale and rdail markets for CAM3 gasoline in San Uiego County. California, are cuncntly moderately concentrated, whc&er measured by ~lre HHI or by four-firm concentration ratios. The joint VUW.K~ would significantly increase :he HHTs and result in highly concentrated markets. .Sixth Viplatiorl Chi;rgcd Shell and Texaco arc actual competitors in the wholesale and retail sales of CARB gasoline in San Dicgo County, CaliIbnia. The effect of the Joint Venture, ifcansummatcd, may be substantially :o lessen compaition in the whalcsall: a~r\l rz;tJ dcs uTCARB gmuliue in San ~lcgo Wunty, California, in violationaf Sccrion 7 of the Clayton AC:; as amended, 15 1”. S C. 18, and I;catian 5 af the k&id T&r: Culrunissiun AU, as amended, 1s u.FY,.L. 43, III the following ways, among othcs: by clirninsting direct competition tn We wholesale and retail sales of CAkf3 gasoline; and by increasiny the likelihood of, or facilittiing7 collusion or cool-dinated intmdnn hatureen tkc competihrt of Shoil alld Tcxuc;c, and their competitors in San Diego County, California; each of which increases tic likelihood thal the price of CAKB gasoline will increase in San Dicgo County, California. JAN-27-98 TLiE 13: 03 AII=CA FAX NO, 714Fq8908 P, 03 From the Consent Order; F. “Retail Site” means a business establis~txnl loom which gasoline is sold 10 the general public. m G. “San Diego Divestiture &sets” meant a package of San Diego Retail Assets, to be identified by Respondents but appruvcd by the Cummissicm, that (i) includes individual Retail Sites each of which s&i an average of at least 85,000 gallor,s of @soline per month during 1996; (ii) each of which con~plics wirh all 1398 environmental requirements for underground storage tanks; (iii) for each of which Respondents can convey fee: ownership w a Long-Term Leaase; and (iv) in the aggregate had retail gasoline sales fiomRctail Sites of at leas1 43,21)0,000 gal1011s during calendar year 1996. H “Sm TG,en Retail Awets” means all Retail A~retc in S;m Diqo County, CAfornin, tht arc owned by Respondents or leased by Respondents from another Person. ‘fT IS FURTHER ORDERED th A. Rcspondcnts shall divest to a single acquirer, absulu~ely and in good faith and at no minitiuin priti, +ithn SIX (6) months from the date the order becomes final, the San Diepo Divestiture Assets. D. It~+~rrJw& dwll &VUL ~1 PC SW Disyw I)ivvstil;llt: hsets LU a shglu ac;quirer rhar receives the prior approval of the Commission, vniy in a mumer thar receives the prior approval of the Commission, and in a package of specific Retail Sites that receives the prior approval of the Commission C. The purpose of the divestiture of rhc San Die&o Divesdrure ASSBLS is to ensure the continued use of the San Diego Divcsliture Assets in the same business in which the San Dkga Divcstitbrt AASCLS WC, c CIIBU~U.I nl ~lrc Gruc: UT ht: uwuncemenr: of tie proposed Joint Venture, and to remedy thz lesscting of competition in the wholesale and retail sale ofgasoline in San Diego County, California, resulting from the proposed Joint Venture, as allcgcd in the Commission’s Complaint D. Pending divestiture of the San Diego Divcsliltire AWN. Respondents shall take such actions as are necesmy to maintain the viability and marketabiliry of the San Diego Retail Assets and to prevent the destructjon, relrwval, wasling, deterioration, or impairment of any of the San Diego Ret.ail &sets except for- ordinary wear and tear. Respondents shall continue a1 least at their schcdulcd pace all capital projects involving the San Diego Retail ASWS that were ongoing. planned, or approved as of gr after Qct&or 1. 1997, and cA;rwiw mrlinrain f11c San tIrgL> R ctail Assets 10 at I~pt the same stmdarde 2nd on tha CWM whudub IL; Rcsyondcms have been maintaining the San Diego Retail &~ts until the dale ofdivcstiture. Respondents :. :. ,rAN-27-98 TUE 13:04 Au-CA FAX NO, 7146m8908 PO 04 shall not, te.mnv~ nr deyrade the brand idanuficawn at the 5~ D~C~CJ Rc&l AWCAS, until the San Diego DivestiNre Assets 81’e divesqcd. IT TS FURTHER CNUHCRE1) that A, If Respondents have not divesM the asscls required ZQ be divcstd pursuant to Parwt-anhA IT . ‘Ill - JV, nr V , rhontutoly uld ir, good fuith culd wit11 the CtintntAsiua1’3 prior approval within the time periods required, the CorIkS& frlay annnint eithnr I%k-i Yrend or another person or persons to act as trustee (or trustees) LO divast thn.w nssets Lhat Respondents have failed to dwst as required by thiy order. If Rcspondmts have failed to dives the $an Piego Divcst,ibrtc A,WYF, IS rcquircd by Para,gph 111. nbovc, the trustee may select Rettil &sots loom those San Diego Retail Assets that Respondents own in fee or can dives a Long-Term LGW, in accordance with the requirements of Paragraph III In the event that the Commission or the Attorney General bring as action pursuant to 5(I) of the Federal Trade Commission Act, 15 USC. 45(l), or any other statute enforce by the Commission, Respondents shall consent to the appointment of a trustee in such action. Noithor the appaintrncnt af 4 IIUS~. KU a decision not to appoint a trustee under ?hk PRmRraph shall preclude the Cnmmiwinn nt the Att aA ahoy OWIIW UI Ii UJI: sccldng cfvil penal&$ Qr any other relkf ,w+il~hlP TO it, kcluding 1 court oppointcd twtcc, purw~t IV S(l,l of the Federal Trade Commission Aq or arty other slatute enforced by the Commission, for any failure by the Respondent to comply with this order. -. g rEEEEEEEEEEEEE gTl SEEEEEEEEEEEEE (0 JZ aI- ~~Nmmbmmoo*~cuN~ GE rn~v) >< acn L r&b-?9r~rr”~r TT < 0 d AA s .- ii .- E 3 6 $ 15 .- i k 3 . . 8 a v) g FZ 50% s E ?5 w- rnZD l-lo;;; RRL 557 AF” ‘f-%2 x 72 WGW c)Oc)c)DDU XIIIWW I l--lt-+l”l-l”“I-l <<<-coor wwww ggag’ I 2 I , I I SQs= l-n”* m;p”~$ysN !s “NW-02 www”mo zgEK;“gW I- zz> 8 S;oE m-4 2 8 r I. m v)” 5 02: 0 z \” iit m 0 Fi ‘BCS‘,tWO9rN-O~“tNOSWrNrWW mWPPO,O‘nrWOVO”lUOUWNO omtgmcngg~wmomoo~~~or CJl-m SP”Fz!FFEF nnnnnnnnnnnnn DDDDDDDDDDDDD wwwwwwwwwwwwwwwwwww rrrrrrrrrrrrrrrrrrr vBwBu3~v3~lnln~~~~~La~cnlnLn* !E mmmw~mmmmmmm~mmm~m DDDDDDDDDDDDDDDDDD ~00~00~~0~0000000~~ nnnnnnnnnnnnnnn r:z!ifDDD>DDDDDDDDDDD wwwwwwwwwwwwwwwwwww NNNNNNNNNNNNNNNNNNN 0000000000000000000 0000000000000000000 momowowmwwmmmmomwmw r-r t, NWNNW* W-W*NN- mmN4)m WN52coaOmh0IwNNNNz.m0PLN INNNP ~~~%!~ ~WWrnU WrnO)N 8E2E VI c CGC!2 wwww ssz:8 0000 YYYV Contents: To assist you in your cities deliberations, besides the informational ‘Divorce Big Oil” binder you have received, the following is a list of information in this packet: Right Side: page: 2. The $163 million overcharge San Diegans have paid for gasoline the last two years, prepared by petroleum industry consultant Tim Hamilton, 360.943.669s. 3. Comparison of average gasoline prices on ‘Super Bowl” Sunday. 4. A simple explanation of “Divorcement and Fair Wholesale Pricing.” 5-9. San Diego County service station census and analysis conducted by AUTO-Ca in conjunction with Supervisor Bill Horn’s staff, showing the number of company operated stations in the county. 10. January 6 gasoline price comparison in the four major markets served by L.A. refineries, showing wholesale costs, taxes and dealer margin. 11-12. A ‘Bell Weather” weekly price comparison of six randomly selected San Diego company operated stations compared to six L.A. stations of the same brand. 13-14. An eight year pricing study confirming the lower prices in Las Vegas and Los Angeles compared to the San Diego, Phoenix and Tucson markets where refiners have high concentrations of company operated stations. 15 16. Rebuttal to oil company “myths” about Divorcement and Fair Wholesale Pricing. 17-21. UCAN’s position paper supporting “Divorcement and Fair Wholesale Pricing.’ Left Side. l A legal analysis supporting cities and counties rights to enact local ordinances. l Excerpts from the recent FTC finding specific to the San Diego market. l Gas pricing data from the D.O.E., with website address for your future use. l Statistical analysis by the California Energy Commission, with a breakdown by county of number of stations per capita, per auto and miles of road. l List of stations in your city from county records. + l papaapm m@f[ar .IOJ uo~@i md spaa L6, ‘61 Wl L6‘ ‘so =a L6“LO*oN f.6‘ ‘01 130 L6‘ ‘SOdaS L.6‘ ‘808nV L6‘ ‘II w L6“EI unl- L6r ‘60 At34 L6‘ ‘PO&J L6‘ ‘LO-W4 L.6‘ ‘LO 9% L.6‘ ‘01 WI- 96‘ ‘90 DW 96“80*ON 966 'IT 130 966 ‘90daS 96‘ ‘6033' 96‘ ‘21 Inf 96‘ ‘LOW 961‘01 AW 961‘21 -W 96, ‘8O'W 96, ‘60 9Y 96, ‘SO mf q o%a!a urns purr ~7 hilq Ieguasg~!a as!ad 2 Big Oil’s ‘Super Bowl Gas Gouging! 4 c I per gallon I * Prices shown are the average of several stations’ prices for regular unleaded self-service gasoline in each &-ea, secured by telephone survey l/16/98 and l/19/98. Stop Big Oil’s Gas Price Gouging. Tell your City Council to ADOPT THE DIVORCEMENT & FAIR WHOLESALE PRICING ORDINANCE NOW! - - . ndro=cda Automotive Trade Organizations of California Main Office: Government Affairs: 16750 Hale Avenue, Suite A, Irvine, CA 92606-5050 1130 K Street, Suite LL20, Sacramento, CA 958143927 Ph: (714) 66MMO7, (800) 432-3083 Ph: (916) 4-43-5191, (800) 432-3083 Fax: (714) 660-8908 Fax: (916) 441-6464 Divorcement & Fair Wholesale Pricing: San Diego County Board of Supervisors’ Ordinance January 13,1998 Divorcement and Fair Wholesale pricing are legislative remedies for the anti-competitive environment now in place in the retail gasoline marketplace in San Diego and other areas of California. San Diego County and its incorporated cities are an ideal example of an area where the very few and very powerful oil companies have destroyed competition and elevated gas prices through company-operations and gasoline pricing schemes. Since January, 1996, San Diegans have paid more than $163 million more for their gasoline than their neighbors to the north, Los Angelinos. This disparity is attributable to: a) the ability of the oil companies to set retail prices at 32% of the retail stations in San Diego vs less than 10% in the Los Angeles market; b) the oil companies’ use of zone pricing to m aximize the wholesale prices they charge in each neighborhood, while controlling and disciplining competition in those geographical areas (redlining); and c) the oil companies’ wholesale gasoline purchasing restrictions on retail gasoline dealers, prohibiting them from buying the same branded fuel at the lowest price available. As drafted in the ordinance passed by the San Diego County Board of Supervisors on January 13,1998: Divorcement prohibits the oil companies that refine gasoline from operating retail gasoline stations and/or from setting retail prices at any retail gasoline station in the county. Fair Wholesale Pricing has two provisions: 1) prohibits the oil companies that refine gasoline from “redlining” any geographical areas (zone pricing) and thereby manipulating wholesale gasoline prices to restrict competition in the retail marketplace; 2) allows gasoline retailers to purchase their branded gasoline from the lowest priced vendor available to them. Divorcement and Fair Wholesale Pricing will ensure a free competitive marketplace where hundreds of individual service station dealers must compete to remain financially viable, thus replacing the handful of oil company pricing managers who presently set wholesale prices for all stations and retail prices at 32% of the stations. The Assoclath fiw Automothfe Prohs~onals Analysis of San Diego County Retail Gasoline Outlets Census (12/97, revisim l/10/98) At the end of 1995 the California Energy Commission estimated there were 707 service stations in San Diego County. According to county records, in 1997 there were approximately 723 retail gasoline outlets in San Diego County. There were 633 stations in incorporated cities within the county and 90 in unincorporated areas. Of the 561 stations that are branded by a major refiner, approximately 18 1 (33%) are company or contract operated. The refiners who control these 181 stations also determine the retail selling price. In December 1995 the California Energy Commission estimated there were about 119 company operated stations in San Diego County. Two oil company acquisitions resulted in the increase of branded company operated stations in the county since the 1995 CEC report. In 1997, ARC0 acquired 42 independent Thrifty stations in the county. Surveys show these former Thrifty stations are now company operated by ARCO. As a result of ARCO’s statewide acquisition of about 260 Thrifty stations, ARC0 is now San Diego’s and the state’s gasoline sales leader. ARC0 has the highest number of branded stations -- 132, in San Diego County. They also have the have the most company operated stations -- 89, or 67% of their mix. ARC0 has nearly one half of the county’s 18 1 branded company operated stations. On average, ARC0 stations lead the industry in gasoline sold per station. As a result, it is estimated 38%-43% of the actual gasoline in San Diego County is sold through the 18 1 branded company and contract operated stations. In 1996, Tesco Corporation bought Circle K Twenty-three Circle K stores in San Diego County sell gasoline. In April 1997, Tesco bought Unocal’s marketing and refining assets. Tesco’s acquisitions increased San Diego’s company operated station count. Tesco’s refinery production capacity now exceeds ARCO’s, making them the state’s number two refiner of gasoline. Chevron is the state’s number one refinery of gasoline. There are approximately 3 12 ‘branded” dealer stations in San Diego County. Dealers buy gasoline from their major suppliers at a wholesale price called “DTW’ (dealer tankwagon price). Branded dealers determine their retail selling price. Contractually, the major refiner controls the branded dealers “DTW’ price and source of supply. It is estimated 40%-45% of the gasoline sold in the county is through this class of trade. There are about 68 Jobber and “open lease” (or two-party) stations in San Diego County. Generally, these stations are operated by entrepreneurs own the land and facility and “brand” with a major oil company. Oil companies usually offer cash incentives or other discounts to acquire this class of trade. In exchange for branding the facility, the operator is contractually obligated to buy their gasoline from the oil company. Typically, the wholesale price for gasoline is at or below the oil companies posted “DTW’ price. Two party dealers are free to establish their retail price. This class of trade accounts for about 7%- 10% of the gasoline sold in the county. - Although not counted as “refiner controlled,” Seven Eleven (Southland Corp.) operates approximately 62 gasoline outlets in San Diego County. These facilities are branded Citgo, a non California refiner. The franchisees who operate Seven Elevens selling gasoline are paid a fee to manage the fuel facility by Southland Corporation. The retail gasoline prices at Seven Eleven stations are determined by Southland Corporation, Considering Southland’s fuel supply agreement with Citgo, Seven Elevens are considered “company operated,” but not refiner controlled. Seven Elevens account for about 4%-5% of the counties total gasoline sales. FTC Analysis: 75% of the Counties Stations Control 90% of the Gasoline Sales: According to a December 1997 FTC press release, “Six vertically integrated companies control approximately 90% of the gasoline sold at both the wholesale and retail in San Diego County.” The six companies are: ARCO, Chevron, Mobil, Shell, Texaco and Tesco (Circle K and 76 brands.) In other words, 548 of the 723 stations in San Diego County sell the bulk of the gasoline sold at the retail level. The same six oil companies also control much of the supply to the county’s independent station population. Effecting Future Station Census - Environmental Issues. Oil Company Mergers and Acouisitions: According to a December 1996 Oil and Gas Jourml excerpt, the six major oil companies operating in San Diego County control approximately 85% of the state’s gasoline refinery production. Compared to six years ago, the same six companies only controlled about 65% of the state’s gasoline production. (See Oil & Gas Journal excerpts December 199 1.) In January 1992, twelve oil companies controlled about 92% of the state’s gasoline refinery production. Following the 1998 Shell-Texaco merger, six major oil companies will own 92% of the state’s gasoline production. Since 1991, due primarily to investment costs associated with manufacturing CARB gasoline, the state’s gasoline refinery production has declined about 12%. The FTC has tentatively approved the 1998 merger of Shell and Texaco stations in San Diego County. To meet FTC approval, Shell and Texaco must divest to one buyer, stations that sold a total of 43 million gallons of gasoline in 1996. (About 4% of the gasoline sold in the county.) Considering Thrifty’s recent departure from the market, it is highly doubtful any financially credible independent will takeover the approximately 40 Shell-Texaco stations that will become available as a result of the FTC consent order. Estimates are the buyer will need $35 - $50 million to acquire the stations. Additionally, the buyer will need to secure a gasoline source from one of the majors already operating in San Diego. Because of financial and supplier constraints, the only logical suitors are: Exxon, who withdrew from the San Diego market in 1988, but still has a California refinery; Ultramar who has a small number of stations in San Diego and a refinery in Los Angeles or possibly Tesco. 3 - 3 In a recent San Diego Business Journal article, Chevron announced plans to increase company operated stations in San Diego County to about one-third of their mix. It is estimated Chevron’s decision will increase the number of refiner controlled stations in the county from 181 to 195. Conclusion: Environmental issues; oil company marketing decisions; mergers and acquisitions will continue to play a key role in the future of the county station population and mix. After considering the available data and tendencies of the oil industry to continue to consolidate assets, it would appear company operated stations will continue to increase, creating more vertical control from the well head to the pump. If left unchecked, increased company operations will continue to lead to higher gasoline prices for San Diego consumers compared to nearby markets with less vertical control, such as Los Angeles and Las Vegas. The counties proposed Divorcement ordinance will be an impediment to vertical integration and persuade refiners to compete at the wholesale level. Footnote: The sources for this report were county records and a census survey supplied by the Western States Petroleum Association, Facilities that sell gasoline or maintain proprietary storage tanks such as: airports, marine fuel docks, car rental agencies, military exchanges, car dealers, card locks and rental yards were not counted in the 723 total. There are about 73 of these “non-retail” locations throughout San Diego County. -. - i N - - cv c7 * 0 - z - - - - - c P s 8 5 Ll’ - 3 i i i s b ii 5 t a, In = z 4 b z 3 cu z f/l .- 5 m w P 9 “4 a . I I ,I g! dj I I I *I 001 2; I c-3: 6; 61 I I I I bl 9 ’ I Ol I I I s; Tl 01 I I I WI 3 . I Ol I I 2: 001 6; I I I I d w -1 =I -1 I I I I I I “0 I $ -- I Cl; Cl ml COI I I I 5 sl O1 I I I 01 ml 2; I I I 5 01 dl I I I I 00; 91 Ol I I I 8) 71 01 I I I 01 521 . I Ol I I 00; 3 6; I I I I 03: Q)I -1 =I -1 I I I I I I I bl $ dj I I I 001 bl -tl 01 I 9: 01 61 I I 1 I 71 9 . I Ol I I I s; ‘-I 01 I I d 3 I Ol I I ao; 3 6; I I I I gi I (Yl ’ I -1 I I I *c i ml 21 g; 4: U3l 3; I gi sl 01 I ! I 001 WI 2; I I I 81 01 dl I I I I 01 9 . I Ol I I I 53; ‘VI 01 I I 0; 3 . I Ol I I 6: I fil 6; I I I I 03; 3: .I -1 I I I I I I I 1 Cnl gi Y %I Al IO Research provided by the oil companies shows prices are lowest in “divorced” Nevada and highest in San Diego, Phoenix, and Tucson where the market is dominated by company-operated stations STREET PRICE 1990 AVG. 1991 AVG. 1992 AVG. 1993 AVG. 1994 AVG. 1995 AVG. 1996 AVG. l 1997 AVG. EX. TAX 1990 AVG. 1991 AVG. 1992 AVG. 1993 AVG. 1994 AVG. 1995 AVG. 1996 AVG. l 1 997 AVG. LOSANGELES SAN DIEGO PHOENIX LASVEGAS TucsoN 86.3 93.7 88.3 87.4 88.3 69.0 73.7 74.6 77.1, 71.4 81.7 83.3 82.1 80.8 76.3 80.1 81.6 83.6 77.5 81.6 71.7 76.9 78.9 76.6 77.3 74.2 80.7 78.1 70.9 80.6 80.7 89.1 90.01 81.8 89.6 84.7 91.8 91.51 79.4 90.1 I I I I I t I * This table is a recreation of the chart contained in a presentation by James M. Bush and Charles T. Stevens representing the oil companies at a special hearing on July 16, 1997 of the joint committee of the Legislature investigating the higher prices of gasoline in Arizona. The 1997 data was added by Tim Hamilton, a petroleum industry consultant from Olympia, WA. - i i r: : 6 I $ i :\ : L I ’ : I 1 :0 I *: :0 I - Automotive Trade Organizations of California Main Office: Government Affairs: 16750 Hale Avenue, Suite A, lrvine, CA 92606-5050 1130 K Street, Suite LL20, Sacramento, CA 95814-3927 Ph: (714) 660-090 7, (800) 432-3083 Ph: (916) 4435191, (800) 432-3083 Fax: (714) 660-8908 Fax: (916) 441-6484 BiP Oil Mvths: San DiePo Realities Oil Company Myth #l . . . Divorcement and fair wholesale pricing is government intervention and regulation. The Rdity . . . Divorcement and fair wholesale pricing is a necessary step for government to ensure competition in the oil industry. No federal, state or local laws prohibit the vertical integration and anti-competitive behaviors presently used by the oil companies to increase motor fuel prices unrelated to market forces. Oil Company Myth #2 . . . Divorcement and fair wholesale pricing is protectionism for a few independent dealers. The Redity . . . This ordinance protects the true competitive marketplace by insisting that retail gas prices be set by hundreds of individual small business people in their community service stations, rather than having retail prices set by a handful of Big Oil pricing managers sitting in Los Angeles, San Francisco, Phoenix or Houston. And it keeps whatever profits are earned by those community businesses in San Diego . . I for reinvestment in the local economy. Oil Company Myth #3 . . . Divorcement will not bring lower gas prices and may even bring higher prices to San Diego. The Reality . . . Ifthe ordinance will hold the existing high prices or even raise gas prices, why would the oil companies try to defeat legislation that makes them millions and millions of extra dollars every year? They wouldn’t! In truth, they fight divorcement and fair wholesale pricing because IT WILL WORK by forcing them to compete at the wholesale level and by freeing the retail market to compete through independent business people. Just look at Nevada . . . the only West Coast state with divorcement. The lowest prices in the West . . . and Nevada gets gas from California. And every effort bv the Bia Oil comnanies to repeal divorcement in these states has been defeated! The neonle know it works! Oil Company Myth #4 . . . Existing state and federal laws are adequate to protect consumers and gasoline dealers. The Redity . . . Not so! Existing laws have allowed these Big Oil companies to maintain their vertical integration (crude oil to motor fuel, ground to nozzle control), while consolidating the wholesale and retail gasoline marketplaces through mergers, acquisitions, market pull-outs, and e&nation of independent gasoline dealers. The introduction of California Reformulated Gasoline has completed their market control strategy . . . these few oil companies make &l of our gas, set all of the wholesale prices for fuel, and they control the retail prices through company-operations and pricing schemes (like zones). Divorcment and fair wholesale pricing returns competition to the retail marketplace, and the oil companies will have to compete strenuously at the wholesale level to keep their market shares. The Aswclatbn kr Automotive Pfvtb.8lonaki I5 - Oil Company Myth #5 . . . Gas prices are higher in San Diego because it costs more to build stations here. The Reality . . . Not according to information provided by an oil company in their f+anchise circular document. Costs to build a site in San Diego vs Orange County are almost identical. And even if costs are slightly higher in San Diego, that minimal difference to build a few stations doesn’t warrant SO million/year in higher gas prices! Oil Company Myth #I6 . . . Divorcement means the oil companies will have to sell and close gas stations. The Reality . . . Won’t happen . . . hasn’t happened anywhere divorcement has been enacted (Nevada, Maryland, Virginia, Washington D.C., Connecticut, Delaware, Puerto Rico). Divorcement simply means the oil companies can’t set retail prices at any gas stations in San Diego County! They can still own the stations. They can lease the stations to dealers or jobbers. Or, ifthey want to, they can sell some of them to dealers or jobbers. And since California is the largest concentrated market in the world for gasoline consumption.. . and since San Diego County has the third largest gas consumption in California.. . and since the oil companies will still want to sell the gasoline they produce . . . gasoline stations will remain open in sticient numbers to sell the 1.1 billion gallons of gas San Diegans consume each year. The only difference is that San Diegans will pay a more competitive price for their gas. Oil Company Myth #7 . . . The price of gasoline today, when adjusted for inflation, is a great deal for consumers. The Reality . . . In 1973, when consumers paid about $.40 cents per gallon for gas, they got their gas pumped for them, their windows washed, their tires checked, their oil and water levels checked, and the attendant came to their car to collect their money. If consumers were to get that same level of service today, dealers would have to charge about $2.00 per gallon for regular unleaded gasoline. This real rate of inflation doesn’t paint the picture that the outside oil interests and their paid economists would like you to see. Oil Company Myth ##8 . . . The oil companies haven’t increased the number of company-operated stations. The Reality . . . This is a word game the oil companies play to steer people away from the problem. The oil companies’ count of company-ops doesn’t include the other sites where they set the retail price of gasoline, such as fee- ops, salary+ps, commission-ops, contract-ops, and Sierra stations. And they play a numbers game too.. . over the last 20+ years, the total number of stations has been reduced by half, while the company-ops have increased. Thus, the control of the retail marketplace through company (and other euphemistic terms)- operations has increased dramatically and to the detriment of competition. And to compound the damagiq control held by the Big Oil companies, most of the newer, larger volume stations that have been built by the companies have been made company-ops, rather than dealerqxxated. So additional market control is established by controlling the higher volume sites. Oil Company Myth 119 . . . If you pass divorcement and fair wholesale pricing, companyqxxated station employees will lose their jobs. The Reality . . . The ordinance will NOT cause job loss. The companyqxxated stations won’t be closed when the ordinance is enacted, they will simply be franchised or sold to mdependent gasoline retailers who will need to employee most or all of the employees. And history shows that independent gasoline retailers pay similar wages and benefits to their employees as do the oil companies. 16 - UCAN Gasoline Position Paper http:/kvv+v.ucan.org/ucadnewdgasgosition.html UCAN’S POSITION ON GASOLINE PRICING MECHANISMS IN SAN DIEGO I. UCAN Supports a Two-Pronged Approach to Regulating Gasoline Prices in San Diego: Divorcement and Fair Wholesale Pricing Utility Consumers’ Action Network (UCAN) urges the immediate enactment of two important measures by the City and County of San Diego to protect consumers in the county from artificially inflated gasoline prices. These two mechanisms, described in detail below, are known as “divorcement” and “fair wholesale pricing.” UCAN has concluded that these two regulatory mechanisms are both necessary to protect San Diegans from unfair and anticompetitive pricing tactics practiced by the major oil companies’ selling gasoline in this county. For the reasons set forth below, UCAN urges the County Board of Supervisors and the City Council of San Diego to adopt an ordinance to implement these measures as soon as possible. II. The Problem: Market Forces have Failed to Protect Consumers in San Diego from Unfair and Anticompetitive Gasoline Pricing Practices UCAN is a consumer watchdog organization with approximately 38,000 members in the San Diego area. We have monitored retail gasoline prices and pricing practices since 1994, and over the past ten months have maintained a list of up to 230 stations with the lowest unleaded regular prices. The list is broken down by community, and updated on a weekly basis. We compile these prices by working with local radio and television stations and newspapers to recruit volunteers, who provide price information for the gasoline stations in their communities. UCAN checks these price reports against industry sources for accuracy, and UCAN staff also spend considerable time traveling throughout the county verifjling prices and compiling information on additional stations. We provide these price lists by fax to consumers who contact us, and we make them available on our web site <http://www.ucan.org>. The price fluctuations over this time period have been revealing in several respects. First, when compared to the changes of wholesale petroleum prices over the same period, there is little correlation. Although, retail prices will almost always jump up sharply whenever there is any type of wholesale price increase, when wholesale prices decline, there is generally no comparable reduction of retail prices. In fact, retail price decreases often seem to be tied more to public scrutiny and governmental inquiry than to any type of traditional market forces.2 UCAN Gasoline Position Paper hnp://www.ucan.org/ucan/news/gasgosition, Second, there are many unexplained irregularities between retail prices in San Diego and prices in other nearby areas. In October 1996, the retail prices for gasoline in Los Angeles averaged 20 cents less than San Diego. However, there were no market-based justifications for this disparity. Moreover, gas prices in areas such as Big Bear, Hemit, and Borrego Springs also averaged 1 O-l 5 cents lower than San Diego prices, even though these communities are in outlying and mountainous areas, where prices should be higher due to transportation costs. Finally, UCAN’s intensive, lo-month study demonstrates that there is a great disparity of prices among San Diego communities. UCAN has determined that prices average from 4-14 cents higher in communities with few independent stations (i.e., stations not carrying the brand name of a major oil company), as compared with communities where many independent stations remain in operation. This trend becomes disturbing when combined with the fact that the number of independent stations in San Diego County has been declining for several years. In fact, less than a quarter of all stations in San Diego are independent stations. Compounding this problem is a related trend toward increased ownership of branded stations by the major oil companies themselves.3 The obvious conclusion to be drawn from these facts is that retail prices in San Diego are not set by traditional market factors, but are controlled by the major oil companies through anticompetitive pricing practices. While we have no direct evidence of price fixing, the characteristics of the market described above strongly suggest that this is the case. UCAN believes that normal market dynamics have been undermined by concentration of refinery ownership and exclusive contracts resulting in price gouging by these companies. UCAN posits that this market failure necessitates action by the county’s governing bodies to protect consumers from these unfair and anticompetitive tactics. III. The Two-Pronged Solution: Divorcement and Fair Wholesale Pricing A. Divorcement is the First Step in Releasing the Oil Companies’ Ironclad Grip on the San Diego Market. The divorcement mechanism would essentially prohibit oil companies from operating retail stations in San Diego. Divorcement prevents oil companies from vertically integrating the market and thus controlling the supply of gasoline from the ground to the pump. Removing control of the retail stations from the clutches of the oil companies is the first step in creating a free market and fair, cost-based prices for consumers.4 Currently the oil companies operate about 17% of the retail stations in San Diego County. UCAN Gasoline Position Paper , UCAN supports regulation which would immediately place a cap on oil company ownership at this current percentage. Moreover, UCAN supports a phased reduction of company operated stations, reduced to 9% of all stations within one year of enactment, and completely eliminating all company operated stations within two years. Divorcement is a fair and efficient method of ensuring a free market and healthy competition in the gasoline industry in San Diego. Divorcement laws are currently in force in several states and municipalities across this c~u.ntry,~ and such laws have been held to be valid and constitutional by the US Supreme Court6 States such as Maryland and Nevada have reported substantial retail price reductions as a result of these laws. Significantly, no major oil company has found itself unable to do business or make a fair profit in those jurisdictions embracing divorcement. Divorcement will cause no injury to the oil industry, will not cause any job losses or impose any negative effect on San Diego’s economy. In fact, lower gasoline prices and a more competitive market will mean that more gallons of gasoline are sold, more gasoline-related jobs will be created, and more businesses will likely be attracted to the San Diego area. Divorcement, in tandem with fair wholesale pricing, discussed below, will result in less control of retail stations by the major oil companies, less manipulation of retail prices, more diversity of ownership, a more competitive market, and lower prices for consumers. B. Divorcement is only the First Step: Fair Wholesale Pricing Regulation is Also Necessary. Even if divorcement is implemented, the major oil companies can still exert significant control over retail prices. Currently, oil companies set wholesale prices through a complex and convoluted set of zones, which ensure that different retail prices will exist throughout the county. Zone pricing is essentially a scheme used by the oil companies to control and inflate prices arbitrarily from community to community, and in some cases from one block to the next. More importantly, zone pricing may be utilized to drive independently owned stations out of business, by simply pricing gasoline below cost in the zone where an independent station is located. To allow independent service stations to compete fairly, zone pricing schemes must be eliminated. Oil companies must be limited to setting only one price for wholesale gasoline, set at the terminal, and then only the actual costs of delivering the fuel to a station may be added to the wholesale price charged to each station. This is a fair and reasonable pricing alternative that will ensure competitive wholesale prices for all stations, and eliminate artificial overcharges for certain communities. UCAN supports an ordinance which would prohibit a wholesaler from selling gasoline to UCAN Gasoline Position Paper . one dealer at one price and quantity and failing to offer another dealer the same price and quantity terms, except for differences in transportation costs, advertising expenses, etc.’ In addition, wholesalers must be prohibited from selling gasoline at less than the delivered cost of the fuel plus the cost of doing business. Similar laws have been enacted in other states, such as Georgia, Missouri, Utah and Montana.* IV. To Ensure a Competitive Market and Protect Consumers from Artificially Inflated Gasoline Prices, Both Divorcement and Fair Wholesale Pricing Regulations Must be Enacted. UCAN believes that divorcement and fair pricing policies must be adopted to fully ensure a competitive market and fair gasoline prices in San Diego. Divorcement alone will not prohibit the major oil companies from artificially inflating prices and driving independent stations out of business. Likewise, wholesale pricing regulations will do little if oil companies still control the retail prices of a significant number of company-operated stations in the market. Therefore, UCAN advocates the adoption of both divorcement and fair wholesale pricing mechanisms as the only real, long-term solution to achieve fair gasoline prices for San Diego consumers. FOOTNOTES: ’ These companies include Mobile, Shell, Texaco, Chevron, and Arco. ’ For instance, UCAN began monitoring prices in September, 1996, when TV station KFMB (Channel 8) ran a story about high prices. At that time the average retail price reported to UCAN was %1.45.9/gaI. Over the next four weeks there was a flurry of media reports, a hearing by the San Diego Board of Supervisors and initial investigation by the Senate Committee. Prices over that period declined by 20 cents. This decline does not seem to correlate with any market supply and demand fluctuation. The only reasonable explanation is that it was caused by public scrutiny of prices that were artificially inflated. 3 According to the Automotive Trade Association of California, the oil companies currently operate about two and one-half times as many retail stations in San Diego County than in Los Angeles County, where prices are significantly lower. 4 Divorcement is not a new concept, and has been successfully implemented in other vertically-integrated industries with a high concentration of the market controlled by a small number of competitors. Examples include the motion picture industry, the beef industry, the liquor industry, and the telephone industry, with the break-up of AT&T. ’ Maryland, Nevada, Connecticut, Delaware, and the District of Columbia have enacted versions of divorcement. 6 See, Exxon Corp. v. Governor of Mmylnnd, 437 US 117 (1978). 20 UCAN Gasoline Position Paper http://www.ucan.org/uc.adnews/gasgosition.html ’ Any such measure must provide for mandatory disclosure of both wholesale prices and any associated delivery costs, to ensure oversight and compliance with the measure. * California Business and Professions Code 9 21200 expressly prohibits discriminatory pricing of motor fuels; however, this statute also requires a showing of anticompetitive effect, which is often very difftcult to satisfy. AutomotiveTrade Organizations of California 16750 Hale Avenue, Suite A, h-vine CA 92606 (714) 660-0907 fax: (714) 660-8908 Who is AUTO-CA? AutomotiveTrade Organizations of California (AUTO-CA) is a non-profit trade association representing the owners of more than 2,000 automotive aftermarket businesses statewide. AUTO-CA members offer a variety of services to the public, including gasoline retailing, convenience store operations, tire sales and repair, auto body/collision repair, and general-purpose auto repair. What is AUTO-CA? AUTO-CA was formed more than 30 years ago as a voice for small busi- nesses in the gasoline retailing and auto service industries. Over the years, we’ve successfully sponsored more than two dozen pieces of legislation and provided input into hundreds of regula- tory decisions in our efforts to represent our members AUTO-CA participates in the Automotive Aftermarket Legislative Coalition, the California Air Resources Board Reformulated Gasoline Advisory Committee, the Bureau of Automotive Repair’s IndustryTask Force on Smog Check II, the California EPATask Force on Streamlining Government, and various regional task forces and committees associated with the gasoline and automotive repair/service industries. In addition, as the state affiliate of the Service Station Dealers of America and AlliedTrades (SSDA-AT), AUTO-CA also plays an active role in the federal legislative and regulatory process. AUTO-CA Issue List: . . . . . . . . . . . . . . . Franchising in the gasoline industry Fairness in gasoline pricing - Divorcement, Fair Wholesale Pricing Vehicle Inspection ard Maintenance (Smog Check II) Access to emission and safety-related repair information and tools Alcohol and tobacco sales Alternative fuels Ethanol, MTBE, electric vehicles, reformulated gasoline, natural gas Business insurance Tort reform Environmental - underground storage tanks, air quality, water quality, fees, hazardous waste, etc. Safety in the workforce (OSHA and franchiser responsibilities) Vehicle repair subsidies and scrappage; Collision repair Towing Taxation - gasoline, business, prepaid sales tax, sales tax on labor Tires and rubber Streamling Regulations regarding small businesses STAFF CONTACTS: Ian Spcelman, Extcuth D/nctor;Tom Rlky, Lobbyi% Leslie Kaplan, Director, Government Affairs , 2 I ORDINANCE (NEW SERIES) . AN ORDINANCE ADDING CBAPTER 20 TO DIVISION 1 OF TITLE 2 OF THE SAN DIEGO COUNTY CODE OF REGULATORY ORDINANCES RELATING TO SERVICE STATIONS The Board of Supervisors of the County of San Diego do ordain as follows: Section 1. Chapter 20 (commencing with section 21.2001) is . hereby added to division 1 of title 2 of Code of Regulatory Ordinances to read as CHAPTER 20 SERVICE STATIONS Sec. 21.2001. PURPOSE AND INTENT. the San Diego County follows: The Board of Supervisors finds that the provisions of this chapter 20 are necessary to promote competition between motor fuel retailers in the unincorporated areas of the County of San Diego. Such competition will result in San Diego County consumers paying reasonable prices for motor fuel. In addition, this chapter is intended to cause retail prices of motor fuel in San Diego County to compare more favorably with prices charged to motor fuel consumers in other parts of the State of California. Sec. 21.2002. DEFINITIONS. As used in this chapter 20, the following terms shall have the meanings respectively ascribed to them in this section: (4 "Affiliate" means any person who, other than by means of a franchise, controls, is controlled by or is under common control with any other.person. (b) "Company operated station" means a retail service station operated by a refiner with employees of the refiner or by a commissioned agent, contractor or consignee of the refiner for t- 1 the sale of motor fuel to the general public for ultimate consumption. A retail service station operated by a franchisee shall not constitute a company operated station. (cl YontrolW means the direct or indirect ownership of or the right to exercise a directing influence over more than 50 percent of the beneficial interest in any person. -' - ‘IdI Yost of doing business" means the expenses, on a per . gallon sold basis, incurred by a refiner to sell motor fuel at a company operated retail service station and includes, without limitation, the value of all goods, the costs of delivery of any goods or commodities, services, facilities, real property and improvements, labor and overhead used, consumed, expended or reasonably allocated by a refiner in connection with the retail activity. "Cost of doing business" does not include the cost of extracting or purchasing raw crude oil, the cost of refining crude oil. into motor fuel or the cost of delivering motor fuel to the.truck loading terminal. M "Franchise" means any contract between a refiner and a motor fuel retailer under which a refiner authorizes or permits a motor fuel retailer to use, in connection with the sale, consignment or distribution of motor fuel, a trademark that is owned or controlled by the refiner. -"Franchise" includes: (1) Any contract under which a motor fuel retaiJer is authorized or permitted to occupy leased marketing.premises, to be employed in connection with the sale, consignment or distribution of motor fuel under a trademark which is owned or controlled by such refiner; (2) Any contract between a refiner and a motor fuel retailer pertaining to the supply of motor fuel that is to be sold, consigned or distributed under a trademark owned or controlled by a refiner; and (3) The unexpired portion of any franchise, as defined in this subsection, that is transferred or assigned as authorized by the provisions of,such franchise or by any applicable provisions of law that permit such transfer or assignment w>thout regard to any provision of the franchise. 2 (f) "Franchisee" means a motor fuel retailer who is authorized or permitted under a franchise to use a trademark in connection with the sale, consignment or distribution of motor fuel. w "Franchiser" means a refiner who, under a franchise, authorizes or permits a motor fuel retailer to use a trademark in . connection with the sale, consignment or distribution of motor fuel. (h) "Grade of motor fuel" means motor fuel of a particular quality or class and sold under a particular trademark, trade name or brand. 4i) . "Leased marketing premises" means marketing premises owned, leased or in any way controlled by a franchiser and which the franchise is authorized or permitted, under the franchise, to employ in connection with the sale, consignment or distribution of motor fuel. Cj) "Market retail-price". means the per gallon price at which a refiner sells or offers to sell to the public a grade of motor fuel at a company operated station, less the cost of doing business at the retail senrice station. (Id ‘Marketing premises" means, in the c&e of any franchise, premises which, under the franchise, are to be employed by the franchisee in connection with the sale, consignment or distribution of motor fuel. (1) "Motor fuel" means gasoline and diesel fuel: of a type distributed for use as a fuel in self-propelled vehicles designed primarily for use on public streets, roads and highways. (ml "Motor fuel retailer" means a person who is not an affiliate of a refiner and who purchases motor fuel primarily for sale to the general public for ultimate consumption at a retail service station. (n) "Overcharge" means a sale of or offer to sell motor fuel to a motor fuel retailer at a price that exceeds the price charged any other: motor fuel retailer for motor fuel supplied from the same truck loading terminal. "Overcharge" shall not be 3 i construed to prevent due allowances for the refiner's actual costs, including delivery, marketing, facility, and real estate costs. (0) \\Person" means an individual, proprietorship, firm, partnership, joint venture, syndicate, company, association, committee, corporation, trust or any other organization or group of individuals acting in concert. "Person" does not include governmental entities. (P) "Price" means the price of a gallon of motor fuel paid to a refiner by a motor fuel retailer, less the value, on a per gallon sold basis, of all rebates, discounts, credits, incentives and other benefits extended by the refiner to the motor fuel retailer. (9) "Refiner" means any person engaged in the refining of crude oil to produce motor fuel and includes any affiliate of such person. (r) ‘Retail service station" or Qervice station" means a .facility, including land and improvements, where motor fuel is sold at retail to the motoring public. Sec. 21.2003. RESTRICTIONS ON COMPANY OPERATED STATIONS.(a) On or after July 1, 1998, a refiner shall not open a new company operated retail service station in the unincorporated areas of San Diego County. (b) On or after,January 1, 1999, no more than fifty percent (50%) of retail service stations owned by a refiner in the unincorporated areas of San Diego County shall be company operated stations. (c) On or after January 1, 2000, no retail service stations owned by a refiner in the unincorporated areas of San Diego County shall be company operated stations. Sec. 21.2004. TEMPORARY COMPANY OPERATED STATIONS. (a) Notwithstanding section 21.2003, a refiner may open and operate a company operated retail service station, at a site described in subsection (b) of this section, for a period not to exceed 90 days when, in accordance with state and federal law: . 4 (1) A motor fuel retailer voluntarily determines to terminate or not to renew a franchise with the refiner; or (2) The franchise between the refiner and the motor- fuel retailer is terminated or not renewed by the refiner. (b) The company operated station referred to in subsection (a) of this section shall be opened and operated at the same site as the retail service station operated by the motor fuel retailer who was the franchisee. Sec. 21.2005. WHOLESALE PURCHASING RIGHTS. (a) On or after the operative date of this chapter, a refiner shall not enter into any contract or take any other action to prevent a branded motor fuel franchisee operating in the unincorporated area of the County of San Diego from purchasing the refiner's branded motor fuel from any location or through any vendor in the refiner's wholesale fuel network. This section shall not affect any contracted rights in existence on the date immediately preceding operative date of this chapter. (b) A refiner shall not discriminate in price between different franchisee purchasers of the refiner's branded motor fuel if the price discrimination effectively prevents a franchisee from taking advantage of price differences at different locations .or between different wholesale vendors. Sec. 21.2006. PRICE;DISCRIMINATION PROHIBITION. A refiner may not: (a) Sell or offer to sell to a motor fuel retailer any grade of motor fuel at a price that exceeds the then current market retail price for the same grade of motor fuel supplied by the refiner, from the same terminal, to a company operated station; or (b) Overcharge a motor fuel retailer for motor fuel. Sec. 21.2007. ENFORCEMENT RESPONSIBILITY. (a) The District Attorney shall enforce the provisions of this chapter. (b) Any person who believes that a violation of any portion of this chapter has occurred may file a complaint with the District Attorney. If the District Attorney determines that there is a reason to believe a violation of this chapter has occurred, the District Attorney shall investigate. (cl The District Attorney may exercise such investigative power as are necessary for the performance of the duties prescribed in this chapter and may demand and shall be furnished with all records of refiners and motor fuel retailers which may be pertinent to such investigation. Sec. 21.2008. VIOLATIONS CONSTITUTE MISDEMEANORS. Any person violating the provisions of this chapter shall be guilty of a misdemeanor and upon conviction shall be fined in an amount not to exceed five hundred dollars ($500.00) or by imprisonment for a period of not more than six (6) months in the County Jail or by both such fine and imprisonment. Sec.. 21.2009. CIVIL ENFORCEMSNT. (a) Any aggrieved person may enforce the provisions of this chapter by means of a civil action. (b) Any person who commits, or proposes to commit, an act in violation of this chapter may be enjoined therefrom by a court of competent jurisdiction. (c) An action for injunction under brought by an .aggrieved person orby any will fairly and adequately represent the aggrieved person. subsection (b) may be person or entity which interests of the (d) Nothing in this chapter shall preclude any aggrieved person from seeking any other remedy provided by law. Section 2. OPERATIVE DATE. This ordinance shall become operative on the date the Board of Supervisors certifies that a sufficient number of cities have adopted an ordinance, which is the same or substantially similar to this ordinance, so that two- thirds of the total residents of the County of San Diego, according to the official population figures for January 1, 1997, issued by the San Diego Association of Governments (SANDAG), reside within a jurisdiction having adopted an ordinance which is the same or substantially similar to this ordinance. ah:chapZO.ord 6 1 0 e E 5 z u In = i2 0 J= ‘is 2 tu 3 cn .- 5 v) -z- SSaJO 0 aa=rn C-rxS’ s I I w .‘= m 7il ar E’ c s 0 0 %) .- 0 . - Example Of The Vertical Integration And Horizontal Relationships Utilized By Oil Companies In The West Joint Venture Crude ration & Produ Refineries ude Oil Pipeline c oil Explo- ction Brand Additives 0 76 Company Owned & Operated Station Company Owned & Operated Station Company Owned & Operated Station