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The gas station magnate under investigation by District officials, Joe Mamo, says he’s being “scapegoated,” and that new legislation set to be introduced before the D.C. Council today that’s aimed to increase competition in the fuel industry would instead force small businesses to close.
The bill, sponsored by Councilmember Mary Cheh, would bring back a law the council (with Cheh’s help) repealed four years ago. One of Mamo’s gas station tenants says the legislation could protect franchisees from Mamo’s “greed.”
But in his first interview since D.C. Attorney General Irv Nathan last week announced an anti-trust investigation of his business practices, Mamo, the chairman of Capitol Petroleum Group LLC, accused D.C. officials of playing politics to kiss up to constituents outraged over the high price of gas.
“Blaming the distributor is scapegoating simply to get politicians their airtime,” says Mamo, whose Springfield, Va.-based company owns about 45 stations in D.C., around 42 percent of the total, and about a quarter of all stations in the greater Washington area.
This morning, Cheh will introduce a bill that would restore a 2004 amendment to the Retail Service Station Act, a law first enacted during the energy crisis of the mid-1970s to keep big oil companies from controlling gasoline sales all the way from the oil field to neighborhood stations. In 2004, D.C. Councilmember Phil Mendelson sponsored an amendment that added gasoline distributors, known in the industry as “jobbers,” to the list of entities that must “divorce” themselves from day-to-day retail sales—meaning they couldn’t operate stations themselves.In 2007, just as the measure was set to take effect, Cheh spearheaded the legislative effort that led to its repeal. In a hearing before the council vote, Mamo, his lobbyist—former D.C. Councilmember and mayoral candidate John Ray—Mamo’s attorneys, and business associates testified that the measure would run jobbers out of business, stymie competition, and run up gas prices. His team also submitted written testimony from the Federal Trade Commission suggesting such so-called “divorcement” laws tend spur higher gas prices.
But since then, Cheh says she’s come to believe the jobbers may be constraining competition, instead of spurring it.
The measure would not require jobbers to sell all of their D.C. stations, as was reported by several media outlets last week. The original law never went that far, according to Harry Storm, a Bethesda attorney specializing in gas station industry litigation. The legislation merely blocks distributors from running the stations—not owning them.
“If they are trying to force the sale of all the (distributors’) properties, that would be a different (legal) analysis,” Storm says.
Mamo says the measure could force him to sell 15 D.C. stations currently run by “contract operators,” free agents, usually family-owned small businesses, whom he contracts with to run the stations and sell gas and other products that he supplies. (There would be no legal change to 30 other CPG stations run under franchise agreements that Mamo inherited when he purchased the stations from ExxonMobil in 2009.)
The franchise operators, also usually small family-owned businesses, pay rent to Mamo and purchase gas from him, but the profit they make from gas and convenience store sales and auto repairs is theirs to keep.
One of Mamo’s franchise operators says the bill would ease concerns that Mamo wants to gradually replace them with contract operators. Mamo says he has no interest in evicting the franchise operators, but several franchise tenants say they are fearful that he intends to do just that as their leases come up for renegotiation.
“He’ll make more money if he can have our profit too. It’s a matter of greed,” says the franchisee, who spoke on the condition of anonymity for fear of affecting dealings with Mamo.
For his part, Mamo says the measure would be unfair to his contract operators, who will be out of work unless they can come up with the $200,000 to $700,000 it typically takes to purchase a gas station franchise in the District.
“Who decides which families stay in business and which get thrown out?” he says. Cheh is “basically doing this so that two or three folks—wealthy operators—can buy their stations. That’s not fair.”
In response, Cheh says there would be nothing improper if she were acting in the interest of her constituents, but the attorney general’s anti-trust investigation was a bigger motivator. Those concerns, along with the recent spike in gas prices, and frustration at never getting “a good answer” as to why gas prices in the District are higher than in the surrounding suburbs, spurred her to act now.
“We are going to restore it to what it was in 2004,” and consider other measures to address issues that could increase competition and bring down prices, Cheh says. “Introducing legislation is just the beginning of the process.” She invited Mamo to make his case before the council. “And we’ll seen how it adds up.”
Mamo is more sanguine about Nathan’s anti-trust investigation. He says he is confident the city will conclude that he operates fairly.
“Gas has gone up a dollar, and we’re making less,” he says. Mamo says CPG has cut its profit margin by about 1.5 cents a gallon in the past year to help dealers remain competitive, even as prices at the pump have jumped up.
“I see it happening in Maryland and other states,” he says of the anti-trust investigation. “It’s part of the high price of gasoline. I am being scapegoated, but so are other distributors, as well as some dealers around the country.”
Photo by Darrow Montgomery