Small gas stations fight to survive

Wednesday, May 14, 1997 | 11:37 a.m.

The gas war is on again -- big oil vs. independent service station dealers and franchisees of major refineries -- over the battlefield called divorcement.

Passed a decade ago by the Nevada Legislature, proponents say it prevents major oil companies from controlling prices from the refinery to the pump and protects small businesses from predatory petroleum giants.

Opponents say it restricts free enterprise and is unnecessary and punitive. They argue that federal laws already are in place to protect small businesses and that gas prices would be even lower without divorcement.

A yet-to-be-drafted bill supported by the Atlantic Richfield Co., the largest distributor of gasoline in Las Vegas, is in the works for this legislative session.

Legislative Counsel Brenda Erdoes said that while no draft request for a bill regarding divorcement has yet been made, there have been reports that one is forthcoming.

However, she said, at this juncture, it would have to be submitted by a committee or be tacked on to one of eight existing trade practices or franchise bills dealing with chapter 597 of the Nevada Revised Statutes.

Divorcement came about in Nevada in 1987 when then-Assemblyman Matthew Callister, D-Las Vegas, was looking into high gasoline prices in the state and discovered that there was a document from a 1982 meeting of Arco executives plotting the demise of the competition.

The document included a memo from the then-president of Arco Petroleum Products Co., James Morrison, detailing how to attack independent dealers to gain control of gasoline sales at the pump.

When Callister demanded those documents, which were sealed as part of a California court case, Arco refused to provide them. Callister eventually got a copy of the documents from another court case where the judge had not sealed the records.

Arco, under subpoena, provided the Legislature with a copy of part of the document, omitting the damning four-page Morrison memo. That action, viewed as deception on Arco's part, sealed the fate of big oil in Nevada as legislators overwhelmingly passed divorcement.

Repeal sought

During the last five sessions, Arco and other major oil companies have introduced bills to repeal divorcement, failing each time, but gaining a little more support with each attempt.

Refiners have been able to press the point that a free and open market is best for competition, but not enough to convince lawmakers that Arco and other petroleum manufacturers no longer are the big bullies they have been portrayed to be.

So severe was the problem in Nevada before divorcement that big oil companies were being accused of using their company-operated stores to also drive their own franchisees out of business to take over their establishments.

That action created what appeared to be an unusual alliance of the independents and their chief competitor, the major refinery franchisees, against what had become a common enemy, the major refiners.

"We have made our mistakes in the past," said George Ross, manager for regional external affairs for Arco. "Part of that has been that we have not educated the public and media enough about what we are trying to do."

Part of the education, he says, is a recent 24-page report by the Great Basin Policy Research Institute out of the University of Nevada, Reno, which looks at various studies of divorcement in several states and recommends that:

* The Nevada gasoline divorcement statute should be repealed by the 1997 Legislature, allowing company-owned stores to compete in the retail gasoline market.

* "Federal and state statutes serve more than adequately to protect" the parties.

New research

Bob Morton, spokesman for the study, says he found many previous studies supporting divorcement to be flawed and that he agrees with the findings of the studies by more "reputable academia."

For instance, looking at Maryland, the state that in 1974 led the way for divorcement, which has spread in one form or another to seven other states, Puerto Rico and the District of Columbia, the Great Basin study found:

"Almost all of the academic studies examining the divorcement experience in Maryland have concluded that gasoline prices in Maryland have increased as a result of divorcement when compared to other states."

Of Nevada, the Great Basin study says: "There is a distinct lack of evidence that the gasoline marketing system warrants continued government interference."

The study concludes: "All of the existing credible data and studies uniformly shows that divorcement statutes are ... anti-competitive, punitive and anti-consumer."

Jack Greco, longtime director of the Nevada Gasoline Retailers Association and the driving force behind divorcement in Nevada, says legislators and others should not rely solely on studies produced by major oil companies, which have a definite agenda to push.

"Maryland's divorcement was thoroughly challenged on constitutional grounds by the refiners and approved as constitutionally sound by the U.S. Supreme Court," Greco said.

"The most authoritative long-term study of the effect of divorcement has on consumers was conducted in Maryland. It found that consumers saved an estimated $117 million over seven years because of divorcement."

Greco says the proof of how divorcement has worked in Nevada is at the pump, not in the pages of any big oil-sponsored report.

The NGRA has studied the gasoline prices in Las Vegas and Reno for the last six years, comparing them to Los Angeles, Phoenix, San Diego and San Francisco, excluding the varying taxes so that only the base price of the fuel is considered.

The NGRA found that Reno and Las Vegas had the lowest nontaxed prices, at 76.6 cents (Reno) and 77.2 cents (Las Vegas). Excluding taxes, Los Angeles trailed with 78.4 cents, Phoenix with 80.0 cents, San Diego with 81.6 cents and San Francisco with 83 cents.

Morton says the Great Basin study did not look at those NGRA-gathered figures to reach its findings.

Divorcement spreading

And, although a great many states don't have divorcement, other parts of the West are looking at it, Greco says. He notes that:

* Hawaii, since 1993, has had a moratorium on company-operated stations that is scheduled to sunset on Aug. 1. Plans are afoot to make it a permanent law.

* Oregon lawmakers, on May 1, heard testimony on divorcement legislation. Proponents used Nevada's divorcement law as an example of how divorcement has worked well to protect independents while providing low pump prices to consumers.

* Arizona lawmakers, in the wake of an interim study on high gasoline prices, are considering drafting a divorcement bill for their next legislative session.

* The chairman of the board of supervisors in San Diego has called for a county-wide divorcement bill.

Arco supports the creation of a consumer advocate as proposed by Sen. Randolph Townsend, R-Reno, to replace divorcement, claiming that adequately will protect independent dealers and major oil franchisees in cases involving antitrust.

Critics of big oil say that to put the burden of defending dealers on the back of a single state advocate would be playing into the hands of major refiners who have a history of engaging in long and costly litigations.

Such a maneuver, Greco argues, would frustrate an overworked advocate into giving up should he not have the full support of the governor and attorney general and not have a large reservoir of money to outlast lengthy court challenges.

Greco, an Arco franchisee, points to several cases where he says Big Oil dragged various types of cases through the court system for years:

* In 1990, after fighting the IRS for several years, Arco paid an $800 million settlement to satisfy a $1.1 billion tax bill over alleged unpaid windfall profit taxes on the company's Alaskan North Slope crude oil production from 1980-85.

* In a case involving a conspiracy to raise prices above federal limits, Arco fought a 15-year battle before paying a $76 million settlement.

* In a conspiracy to restrict competition case called MDL 150, Arco and six other major refiners fought the states of California, Oregon, Washington and Arizona for 19 years, before settling out of court to pay $140 million.

"A land war in China -- that's what you're really talking about when you sue an oil company," one Oregon assistant attorney general said at the time of the battle.

Mike Spiegel, a California antitrust attorney, was quoted as saying: "When you are suing a company that has a blank check to defend itself you have to be ready for the paper war that will go on for a long, long time."

Attorney general's view

Nevada Attorney General Frankie Sue Del Papa, in her August 1996 report on gasoline prices in the state, noted: "Nevada has experienced the aggressive marketing strategy of Arco to undercut competition, with the result that the independent stores either close or become affiliated with a particular brand."

However, John Sande, lobbyist for the Western States Petroleum Association, says Arco and other oil companies have every right to defend themselves against those who see only the money that can be made from such suits.

"It's wrong to assume that oil companies settle cases because they are in the wrong," he said. "Cases are settled all the time (to save money). I've had real good cases that I have settled."

Sande notes that sometimes the opposing side drags a case through the system, and other times major oil companies have to legally maneuver to find a fair setting.

"A district court would be the worst forum for an oil company," he said, indicating that on such a level, the oil company would be painted as a cold, faceless corporation against the local little guy.

Sande said that there are plenty of protections already on the books for independent dealers, including antitrust laws.

Besides, he argues, if a company were to lower gas prices solely to drive competition out of business then raise the prices once they are gone, what's to stop companies from coming back or other companies from pricing gas lower than the company that is overcharging?

Greco responds that any company that would come back -- if it could find locations and afford to rebuild after being decimated the first time -- would face the same wrath from big oil and again find itself out of business, and prices again would rise.

Besides, he says, such a situation cannot happen under divorcement.

"Regardless of the argument in favor of an advocate protecting the rights of independents and others, the fact remains clear that divorcement costs Nevada absolutely nothing, because there is nothing to defend," Greco said.

"It simply says to big oil, you cannot control the prices from the well to the pump. There is no need for an advocate to defend anyone at any cost to the state when existing divorcement takes care of all of that."

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