Legislative Memo


A. 8589-a (Abbate) / S. 4428-b (LaValle)



Retail Geographic Divorcement Legislation



April 26, 2004


The Business Council of New York State, a broad-based statewide membership organization
of over 3,600 companies, chambers of commerce and trade organizations, has reviewed the
aforementioned legislation and opposes its enactment.

This legislation, similar to a bill vetoed by the Governor in 2002, would amend the New York
State General Business Law and limit the rights of petroleum refiners and producers to
directly operate service stations that they might own, construct or purchase. Under this bill,
a petroleum refiner/producer would be directly prohibited from locating a company-operated
service station within 1 mile in New York City, 1.5 miles in counties with a population of
900,000 and 2 miles for all other counties, of their own dealer franchisees or distributors.

This bill would only restrict refiner-producer company operated stations. Independent retail
marketers and hyper-marketers, on the other hand, would be able to have stations at
locations of their choosing, without restrictions.

Consumers will be those most disadvantaged if this legislation is approved. The price of
gasoline is determined, in part, by the amount of choice and access to fuel providers that
consumers have available to them. Service stations owned and managed by petroleum
refiner/producers provide alternatives to products and prices offered by franchised service
stations. This legislation would illogically restrict that type of consumer choice and impose
limits on a free market system while threatening a significant catalyst for competitive, lower

In August of 2002, the Federal Trade Commission issued a letter of opposition to two motor
fuel marketing proposals, one of which was the geographic divorcement bill that had been
delivered to the Governor for his consideration. The FTC's Office of Policy and Planning and
the Bureau of Competition concluded that enactment of the measures “would have
significant harm to consumers” in New York State. In addition to opposition by the FTC it
should be noted that studies, including a report by the Maryland State Department of Fiscal
Services, have concluded that prices typically rise following a legislative or regulatory
mandate of market divorcement as proposed in this bill. In fact, a U.S. Department of
Energy investigation found that there was no evidence of predatory pricing by
refiner/producers and has recommended against the enactment of “divorcement” legislation.

Moreover, company owned stations provide a vehicle for the testing and introduction of new
services and products into the market. Franchised service stations often cannot afford to
take such risks with product testing. If the operating ability of company owned stations is
restricted, the types and kinds of services available to consumers will, in turn, be limited.

Passage of this bill would circumvent the property rights and freedoms of motor fuel
producers and refiners. Such a violation is troublesome, not only in this particular scenario,
but also when it may appear to be precedent setting for other types of business practices and
industries. We believe this legislation is anti-consumer and unnecessary governmental
intrusion into the market-place.

For the reasons articulated above, The Business Council must oppose this legislation and
strongly urges its defeat.