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Legislative Memo

BILL:

A.10588(Abbate) / S.6636 (LaValle)

Support

SUBJECT:

Geographic Divorcement Legislation

 

DATE:

May 23, 2006

 

SUMMARY

This legislation is similar to bills vetoed by the Governor in 2002 and 2004. The bill 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 company-operated service stations within 1 mile of each other in New York City, 1.5 miles in counties with a population of 900,000 or more, and 2 miles for all other counties.

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 costs.

BACKGROUND

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 opposes this legislation and strongly urges its defeat.