PANEL: DAVID T. BREWSTER, INDEPENDENT OIL MEN'S ASSOCIATION; HAROLD MURPHY, JR., BAYSTATE GASOLINE RETAILERS ASSOCIATION; ROBERT MCCARTHY, GASOLINE STATION OPERATOR, NEWTON, MASS.; SIDNEY BENSON, GASOLINE STATION OPERATOR, ROXBURY, MASS. STATEMENT OF DAVID T. BREWSTER, INDEPENDENT Mr. BREWSTER. Senator Kennedy, thank you very much. My name is David T. Brewster. I am associate director of the Independent Oil Men's Association of New England. This association represents branded and private branded petroleum wholesalers in the six States of New England. In these States, wholesale gasoline marketing is accomplished by 14 integrated major refiners and approximately 360 independent wholesalers. These independent wholesalers sell branded or unbranded and they sell about 36 percent of the gasoline consumed in this area. We are pleased to have the opportunity to represent the gasoline wholesalers this morning, and to comment on the Federal allocation program and its implementation to date. Initially, let me say that this association reluctantly supported the origination of the mandatory control of petroleum by the Federal Government. On the one hand, it was obvious that the voluntary allocation system did not work. Some integrated refiners withdrew from marketing in various States, other refiners refused to supply historic customers at wholesale, and most integrated refiners had withdrawn from supplying product at any price to municipalities who in large measure needed product for what are now called priority users. These abuses by some refiners made the mandatory system necessary since the affected parties had no available alternative supply. On the other hand, we knew that a Federal allocation program would be difficult to administer. Some even say it would be impossible to administer. We feel that many aspects of the program will work, given proper attention and adequate manpower. Other parts of the program should be changed. We are doing our very best to cooperate with Bill Simon, who we believe is doing a fine job in Washington. At the onset, let us agree that the objectives of the program are sound. That is, to insure that the industry and consumers share the shortfall so that no one goes without, and so that competition will be preserved for a time when adequate product is available again. Also, that the program should work toward ultimate self-sufficiency for the United States. And now to specifics. I have given the chairman a letter sent to FEO in Boston by our association on January 30. This letter requests guidance on serious matters confronting our jobber members. This is now 24 days later and we have had no clarification. Under such conditions, it is difficult to adhere to these regulations. This time lag for interpretations of regulations is a difficulty which must be rectified. The second problem is the processing of forms. The so-called FEO 17, a copy of which I have also given to you, Senator Kennedy, is filed by a person with inadequate product. The regulations do not specify that the supplier or FEO must be required to act on these requests in any specified time. The result is that many requests to meet hardship situations made in January and pertaining to February supplies are yet unanswered by the suppliers and FEO. Needless to say, February is almost over. Again, the time lag is rendering the system inoperative and the consumers suffer thereby. The third problem involves rulemaking. The present system of rulemaking involves printing of regulations in the Federal Register, and they become effective that same day. It often takes between 10 and 15 days to get this information where it is needed. It is difficult to obey a rule whose existence you do not even know about. Lastly, we come to industry statistics. Last July, Mr. Wilfred H. Hall, executive director of the IOMA, appeared before you, and suggested that industry statistics were inadequate to do the job and urged remedial action. In the meanwhile, this need has become obvious. The fact that FEO had to send teams into 20 States last week to determine the extent of the gasoline shortage difficulties indicates the state of the art is still far from perfected. We have given you, Mr. Chairman, a synopsis of the AAA statistics indicating that overall New England is worse off than any other section of the country. In view of the foregoing, we respectfully suggest the following: 1. FEO should be properly funded and staffed to do the job. Inquiry is needed to determine what is needed, then to get on with the job. 2. FEO forms which are obligatory and/or which are needed to accord relief to wholesalers and customers should be processed by refiners and by FEO within a reasonable date after receipt, say 10 days, and applicants advised at that time as to the status of their requests. 3. Rulemaking should be made in such a way that changes, as contrasted to interpretations, should have effective dates 30 days after same are published in the Federal Register. 4. We feel that all involved in the gasoline problem should not have to rely on FEO flying teams of AAA statistics to see what is happening at the service station level. We suggest FEA should immediately hire impartial market research firms to monitor activities at this level. Some firms have accomplished surveys of service station activity for many years and could be immeasurably helpful particularly at this time. 5. Finally, when programs are substantially altered, for example, if we should go to rationing, such alteration should not become effective until these four steps are taken: A) Federal forms are printed; B) Federal agencies are already staffed; C) Advisory boards are already functioning; D) Those affected fully understand the system. We suggest that 45 days advance notice is not unreasonable. At hand is the serious question of whether the Federal Government has the ability to govern. This question will only be answered affirmatively if steps, like those suggested above, are taken and taken soon. The States are off and running to fill the void and confusion. And due to the interstate factors involved, this can only compound our difficulties. We would like to conclude with one final suggestion. The price-controls in effect today suggest that an independent wholesaler can some how exist on a fixed margin of profit per gallon when his cost of product is up 100 percent, his taxes are up, wages, delivery cost, and every other cost is skyrocketing, and this fixed margin per gallon is based on an allocation fraction, in many cases, 15 to 20 percent below its current product needs. We understand the need to prevent profiteering under this situation, but fail to see why the nonintegrated refiner companies should bear the brunt, while others profits increase substantially. Without attention to this problem, attrition of the independent wholesale competitors is inevitable. Senator Kennedy, I appreciate this opportunity. Mr. PAUL GUNN, INDEPENDENT OIL MEN'S ASSOCIATION OF NEW ENGLAND, Federal Energy Office, Boston, Mass. January 30, 1974. DEAR MR. GUNN: I am switching hats for the moment from fuel oil and am representing the New England gasoline association. Before getting into gasoline matters, however, I would like to express our appreciation for your fine presentation at our seminar in Concord, New Hampshire, and that we look forward to hearing from you on some of the unanswered questions. Two questions come to my mind concerning gasoline. They are as follows: (1) New supply. There apparently is a small amount of gasoline available from non-conventional sources at very high prices. Our branded and private branded distributors are in a terrific bind on their supply and the question has been asked as to whether a jobber can legally buy from a person who is not a regular supplier. As I read the regulations, a supplier with excess quantities is supposed to notify FEO. If FEO does not respond within 15 days, the supplier is free to sell this product wherever he chooses. The jobber would have no way of knowing whether the FEO was or was not made aware of this surplus and, therefore, I am wondering what liability, if any, falls on the jobber or the end user who might avail themselves of these supplies. (2) Second question deals with the allocation fraction. In your delivery, you indicated that FEO would give little, if any credence to a request for assignment of a supplier if the amount short was the allocation fraction subtracted from his expected demand. It would not seem logical that this judgment should be applied universally. For example, Jobber A is on a 60% quota from his supplier. Jobber B is on 90% quota from a different supplier. If both were thrown out on the basis of inadequacies of the shortfall relevant to the allocation fraction, there would be obvious injustice. It seems obvious that such a judgment would not be in the spirit of the allocation program itself. Therefore, my question specifically is, is it not proper for a jobber with the gasoline shortfall to continue to file this shortfall even if it applies to an allocation fraction? (3) As I read the regulations, suppliers are precluded from giving their jobbers more than a ratio of 1.0 related to their base period volume. This formula applies until FEO can process the suppliers' agreement to take care of growth (up to 20%) and this information is forwarded to your office and/or your office receives and processes requests for extraordinary growth situations. Assuming that you are undertaking a mountain of paperwork, it would seem logical to allow a couple of months to go by before imposing the ratio. This ratio is currently causing suppliers to tighten up available supplies to their jobbers because they have no forms or the forms have not been processed and/or FEO has not processed the forms. It would seem that some relief is a necessity in the coming two to three months until the allocation procedure is operable. I would appreciate your comments on this situation, as it is most serious. We, again, thank you for your fine presentation before the fuel oil group earlier in the month. Very truly yours, WILFRED H. HALL, Executive Director. 1. Maine, New Hampshire, Vermont, Rhode Island, Massachusetts, Connecticut. 2. New York, New Jersey, Virgin Islands, Puerto Rico. 3. Pennsylvania, Delaware, Virginia, West Virginia, Maryland, District of Columbia. 4. North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, Tennessee, Kentucky, Cana Zone. 5. Michigan, Illinois, Wisconsin, Minnesota, Indiana, Ohio. 6. Texas, Louisiana, Arkansas, Oklahoma, New Mexico. 7. lowa, Nebraska, Missouri, Kansas. 8. Montana, Wyoming, North Dakota, South Dakota, Colorado, Utah. 9. California, Nevada, Arizona, Hawaii, Samoa, Guam, Trust Territory of the Pacific Islands. 10. Washington, Alaska Oregon, Idaho. Source: American Automobile Association, Falls Church, Va. 1. Maine, New Hampshire, Vermont, Rhode Island, Massachusetts, Connecticut. 2. New York, New Jersey, Virgin Islands, Puerto Rico. 3. Pennsylvania, Delaware, Virginia, West Virginia, Maryland, District of Columbia. 4. North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, Tennessee, Kentucky, Canal Zone. 5. Michigan, Illinois, Wisconsin, Minnesota, Indiana, Ohio. 6. Texas, Louisiana, Arkansas, Oklahoma, New Mexico. 7. Iowa, Nebraska, Missouri, Kansas. 8. Montana, Wyoming, North Dakota, South Dakota, Colorado, Utah. 9. California, Nevada, Arizona, Hawaii, Samoa, Guam, Trust Territory of the Pacific Islands. 10. Washington, Alaska, Oregon, Idaho. Senator KENNEDY. There is profiteering but it isn't being done by the service station owners or the jobbers, or the distributors, as I understand it. Mr. Murphy, can you give us your view as how you see the problem? STATEMENT OF HAROLD MURPHY, JR., BAYSTATE GASOLINE RETAILERS ASSOCIATION Mr. MURPHY. Well, of course, we all understand that we are facing a lot of chaos, from the Government standpoint, the independent oil dealer, the consumer, and the oil company. It is in a situation where nobody seems to know in which direction they are going and it causes quite a bit of chaos. In our own State here, we are trying to eliminate problems of service stations being closed. We are trying to extend the hours of operation, and every time we seem to go forward in this type of method, we run into a different problem out of Simon's office. It goes back to what this gentleman just said involving making rash decisions and rules and regulations without talking to the people who are actually in the business. Our National Congress of Petroleum is now in Washington, they have an office there. We would like to see F.E.D. talking to people that are in the business that are faced with these problems. The consumer is out there and he doesn't know which direction to go in because all the consumers are faced with the same problem "I don't know if I am going to get any gas." The dealer is trying his best to stretch out his gas so that the consumer has gas throughout the month. When they throw these regulations out and they take an independent business man who has made an investment in his business, and turn around and tell him he is no longer independent anymore, he is governed by the Government, he is told who he can sell to, he is told approximately when he can sell his gas, and he is told what he can make for a profit, and as far as we are concerned in the industry, we are not independent business men anymore-we are run by the Government. We feel that in our own State here in Massachusetts, we would like to have a board that worked along with the Governor, or Simon's office, so that when certain regulations come out, and we are going to do certain things in our State, they have talked to people that are in the business. We have some senators that are on a special board here in Massachusetts that know nothing about service stations. They have been very cooperative. They have had us down before they tried to come up with new legislation, to find out our opinions. Somebody who has never been in the business hasn't been subjected to the problems of meeting the public that is upset. We have had good cooperation with the public in this State. They are upset to a certain extent, and you can't blame them. How much longer they are going to put up with the problem, we don't know, and how much longer the service station dealer is going to put up with the same type of problem. Hopefully, this afternoon, one of our problems will be ended. Mr. Simon has indicated that he is going to increase our profit today. They are meeting with him at 4 o'clock this afternoon. This would be a great help in calming down the service station dealer-who is faced with the problems of his expenses going up, and nothing to offset it. If things were normal people could get all the gas they wanted. They would also come in for repair work. But the repair work isn't there. So independent dealers feel that under this situation now, they are not independent anymore. The price range is very great between the so-called major oil company, the distributor, and the independent distributor. There is, in some cases, 12 cents a gallon difference, which is causing quite a bit of chaos. Your normal regular customer is not your regular customer anymore because of price shopping. In 1972, let us say for instance, when the independents were offering lower prices than a major oil company, they were pumping a number of gallons more than a major company. In 1973, the major oil companies cut back the alloca |