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Posted at 08:26 PM ET, 07/11/2011

Council eyes sweeping changes to D.C. gasoline industry

The D.C. Council is putting the screws even tighter on gasoline industry heavyweight Eyob “Joe” Mamo of Capitol Petroleum Group. Revised legislation approved Monday by the council’s Government Operations Committee is intended to lower gas prices, but it would seriously impact Mamo’s business model.

Mamo, who owns and supplies gasoline to about half the city’s stations, has been in the public eye since Attorney General Irvin B. Nathan announced in May that his office was investigating Mamo’s companies for potential antitrust violations.

A bill that Mary M. Cheh (D-Ward 3) introduced earlier this year was relatively limited — prohibiting a gas distributor, or “jobber,” such as Mamo, from also operating retail stations. That would affect a small portion of Mamo’s stations where he directly contracts with operators to run the stations.

What Cheh’s committee sent to the full council Monday is quite a bit broader. It gives franchise operators of gas stations the right of first refusal to buy their station if their landlord (i.e. Mamo) were to sell it. This is crucial because many gas stations sit on valuable property ripe for development. Giving the operators a chance to buy their stations stands to complicate or prevent any transaction.

The bill also now includes strong language allowing retail dealers to shop around for their wholesale gas. As it stands, there is a city law forbidding those arrangements, but it is widely flouted. The upshot is that station operators currently have to buy their gas from a particular jobber, regardless if another jobber is willing to sell to them for less.

And finally, the bill allows the District’s attorney general to sue over violations of these and other laws governing the retail gas industry.

Needless to say, Mamo is not pleased. His lobbyist, John Ray of Manatt, Phelps & Phillips, on Saturday sent a memo to council members urging them to oppose the expanded bill.

Ray wrote that the divorcement provision “would increase gasoline prices in the District” and accused Cheh of ignoring testimony and evidence presented in opposition to the bill at a hearing last month.

He amplified his objections in an interview Monday, calling the bill “probably the worst piece of legislation, and the most anti-economic-development legislation that I’ve seen before the city council in a very long time.”

Ray said that if the council passes the bill, Mamo would have a variety of grounds to sue the city. For instance: Mandating that a station operator could buy gas from any distributor would represent an infringement of property rights, he argued — a station’s landlord, Ray explained, owns the tanks and pumps and is not obligated to put his competitor’s gasoline in them.

As he put it in his memo: “[T]he City Council can [be] expected to hear from franchisors in other industries because their franchisees will want the same rights, which would allow a McDonald franchise to buy its prepared potato chips, burgers, fish and chicken nuggets from whomever he or she chooses.” This, Ray wrote, would be “disastrous” for the city economy.

Ray was critical of Cheh, a law professor at George Washington University, for sponsoring a bill he considers legally suspect. “She is a smart enough woman to know better than that,” he said. “It’s targeting one person. It clearly violates federal law, as well as the Constitution.”

Cheh defended the newly expanded bill, calling its provisions “really reasonable and sensible.”

”They came out really as a result of the testimony,” she said. “We relied on people who were experts and were not representing Mr. Mamo.”

In any case, Mamo and Ray will have at least two months to lobby council members to vote down the bill. Though Cheh had hoped to put the bill up for an initial vote Tuesday, she said Monday evening that she will wait until after the summer recess, given the already very long agenda for Tuesday’s meeting.

Before the measure was pulled from consideration, Ray said he was confident he had the seven votes to defeat the bill. “I’ve never lost one,” he said. “I don’t expect to lose tomorrow.”

Here is Cheh’s committee report, and Ray’s memo in response:

Jobber Bill Cmte Report Jobber Bill Memo

By  |  08:26 PM ET, 07/11/2011

 
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