City Paper is not for tourists
An attorney for Joe Mamo rejects claims that the D.C. gas station kingpin is driving up the cost of gas, pointing the finger instead at the operators of stations like the Watergate Exxon, where prices topping $5 a gallon have caused public outrage and consternation this spring. (How complicated is the gas business? Mamo’s company, Capitol Petroleum Group, owns that station, but an independent operator runs it and sets the prices.)
Far from jacking up prices, Mamo has cut his profit margins to help station operators stay competitive, attorney Alphonse M. Alfano tells Washington City Paper. D.C. Attorney General Irv Nathan announced this week that his office is investigating whether anti-competitive actions by Mamo’s company have contributed to high gas prices.
“His margin has declined from 2010 to 2011” to keep pace with prices “on the street,” an industry term referring to prices charged by competing stations, says Alfano, of the District-based law firm Bassman, Mitchell & Alfano, Chtd.
Mamo alluded to the falling margins in a statement he released yesterday, saying, “In fact, the city makes more money on each gallon of gas than CPG does.” That last bit refers to D.C.’s 23.5 cent per gallon fuel tax.
“There’s a lot of sound and fury here,” says Alfano, attributing Nathan’s investigation to robust lobbying by some of the operators of stations Mamo owns and public outcry over high gas prices. Alfano says CPG makes 14 or 15 cents a gallon today, which, he adds, would put the company’s profit margin at just about the national average.
Mamo’s tenants, meanwhile, aren’t buying those claims. They say Mamo has been raising their rents and gas prices ever since a spate of acquisitions that transformed him into a major Washington-area player in the gasoline business.
In the District, Mamo’s companies own 45 ExxonMobil and Shell stations. In industry terms, middlemen companies like his are called “jobbers.” He leases his stations to independent operators, known as “dealers,” who make money by pumping gas, convenience store sales, auto repairs or a combination of the three.
Many of his tenants bristle at the arrangement, in which Mamo is both their landlord and principal supplier. But that’s not likely the issue Nathan’s office is investigating, according to Robert Lande, an anti-trust expert at the University of Baltimore law school.
Lande, who is also a board member of the American Anti-Trust Institute, says the probe likely focuses on Mamo’s June 2009 purchases and whether those acquisitions could “substantially” lessen competition.
First, however, investigators will have to determine whether the city of Washington alone comprises a “relative geographic market,” a legal term key to determining whether a company has too much power to set prices in a given area.
“It all comes down to market power,” Lande says.
Investigators would have more cause for concern if the District alone were considered the geographic market, says Lande, since Mamo owns about 42 percent of all stations in the city. In the greater Washington region, he owns about a quarter of the total, which might not raise as many regulatory concerns.
For the 2009 FTC review, Alfano says, the relevant geographic market included Northern Virgina and some Maryland suburbs, as well as D.C., because they all get most of their gas from an oil terminal in Fairfax.
Either way, don’t expect a resolution in time for summer vacations. Lande says these investigations are so time-consuming and complex that it could be years before Nathan’s office even compiles enough information to decide whether to bring charges.
According to Alfano, CPG received an inquiry from Nathan’s office in mid-April. The company has already turned over a copy of the hefty legal document it filed with the Federal Trade Commission in 2009, and has until June 3 to supply additional price and sales information, he says.
Alfano says the FTC raised no issues with the deal. But Lande says that doesn’t mean it was vetted and found acceptable; it could have just gotten lost amid much bigger deals, like the massive federal antitrust investigation of Google.
“A little thing like this would probably get lost in the noise at the FTC,” Lande says. “You think they are going to worry about a guy buying a few gas stations?”
Nevertheless, Nathan’s office is free to bring charges if they find Mamo’s operation is stymieing competition. “If they find some of these acquisitions were anti-competitive,” Lande says, “legally, the attorney general could go back and force him to sell some of those stations.”
Meanwhile, Mamo’s tenants are thrilled city investigators are finally looking into allegations they’ve been raising for more than two years.
Roland Joun, who operates the Mamo-owned Watergate Exxon, blames the station’s infamously high prices on Mamo. He is less sure how the D.C. investigation could help gas dealers like him.
“We don’t know anything yet,” he says. “We just know we’ve been robbed with high gas prices. Our rents are skyrocketing.”
Joun wants the D.C. Council to pass new legislation reining in Mamo. Councilmember Mary Cheh has already said she plans to introduce a measure that would restore a 2004 law that barred jobbers from operating the stations they own. But Joun says what station operators would really like is a measure that would free them from their contractual obligations to purchase gasoline solely from CPG—most of which are legacies from before Mamo even owned the stations.
UPDATE: While she wasn’t sure what, if any, immediate impact the measure could have on lowering prices, Cheh says she will introduce new legislation next Tuesday that would bar jobbers from both owning stations and acting as distributors. The measure is similar to a clause she was instrumental in repealing four years ago, at the behest of Mamo and other jobbers.
Instead of spurring more competition, the move now appears, she says, to have helped Mamo put the squeeze on independent operators. “If I made a mistake, I want to go back and fix it,” she says.
Photo by Darrow Montgomery