Statement of Administration Policy: S. 2041 - Petroleum Marketing Competition Enhancement Act

(Senate)
(Grassley (R) Iowa)

If S. 2041 is presented to the President, the Secretary of Energy would recommend a veto. The bill would prohibit a petroleum refiner from selling motor fuel to any resale customer at a higher price than the refiner sells the same fuel at retail at one of its direct-operated outlets in the same geographic area. The bill would fix prices at the wholesale level by requiring a minimum markup or margin between wholesale and retail prices. This approach is reminiscent of the discredited, unnecessary, and counter-productive price and allocation system of the 1970s. That system resulted in gasoline lines, gasoline shortages, and massive confusion and inconvenience for consumers, the unintended but inevitable result of counterproductive regulations such as this bill contains.

— Unwarranted Interference with the Energy Market

S. 2041 would inappropriately involve the Federal Government in what should be private, arms-length contract negotiations between vertically integrated refiners and their independent customers by dictating price terms. This action would seriously interfere with the energy market by limiting the ability of refiners to set prices in response to market forces and would result in price rigidity and higher prices for consumers.

— Increased Litigation and Higher Prices for Consumers

The bill would encourage and facilitate litigation by establishing "prima facie" violations and removing potential barriers to suits. Refiners may react to the threat of increased litigation by setting higher than necessary price margins in order to minimize divergence from historic prices, and thus limit their potential exposure. The bill would also impose burdensome and costly record keeping requirements on both refiners and wholesalers. Litigation and record keeping costs would be reflected in higher consumer prices at the pump.

— Counterproductive and Unnecessary Legislation

The bill's rigid pricing formulas may encourage refiners to alter their distribution arrangements by reducing sales to independent wholesalers or retail dealers and increasing sales to company-owned distributors. Such action would adversely affect the dealers that this bill is intended to help. Finally, gasoline marketing data analyzed by the Department of Energy and others indicate that gasoline retailing is competitive in most major markets, and is generally so across the nation. There is simply no evidence that would justify the severe governmental intervention called for by S. 2041.