[Congressional Record Volume 140, Number 146 (Saturday, October 8, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: October 8, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
              PETROLEUM MARKETING PRACTICES ACT AMENDMENTS

                                 ______


                               speech of

                             HON. RON WYDEN

                               of oregon

                    in the house of representatives

                        Tuesday, October 4, 1994

  Mr. WYDEN. Mr. Chairman, today, the House takes up H.R. 1520, 
legislation I sponsored which makes a number of important changes to 
the Petroleum Marketing Practices Act [PMPA]. The PMPA was enacted in 
1978 in order to preserve competition in the petroleum marketing 
industry by regulating the circumstances surrounding the termination or 
nonrenewal of service station franchises.
  The PMPA was passed in recognition that there may often be unequal 
bargaining power between major oil companies and service station 
dealers who operate stations under franchises from the oil companies. 
Because of their unequal power, franchise agreements between dealers 
and oil companies contained clauses which would not have been agreed to 
by the dealers if the parties had equal power. Specifically, Congress 
adopted a set of procedural protections so that a dealer could have his 
day in court if the dealer were to be terminated by a major oil 
company. Congress restricted the scope of the PMPA to procedures and 
grounds for termination and nonrenewal. It did not address other issues 
in franchise relationships or disclosures to be made to a prospective 
dealer.
  Since the PMPA was enacted, some courts have limited the law's 
protections for dealers and expanded the scope of the PMPA beyond what 
Congress intended. H.R. 1520 clarifies the intent of Congress in 
enacting the PMPA and corrects the problems that have arisen from 
judicial interpretations of the law.
  This legislation is the result of extensive discussions between the 
service station dealers, jobbers, and major oil companies, discussions 
held under the auspices of Chairman Dingell and his staff. It is a true 
compromise bill. H.R. 1520 has been endorsed by all major petroleum 
marketing groups, the Service Station Dealers of America, the American 
Petroleum Institute, the Petroleum Marketers Association of America, 
and the Society of Independent Gasoline Marketers of America. It has 
also been endorsed by the administration.
  H.R. 1520 addresses several serious problems which exist in the 
current version of the PMPA. As the PMPA is written today, oil 
companies can enforce financially crippling conditions on service 
station dealers in a franchise agreement, such as 24-hour operating 
requirements and minimum staffing requirements, when business demand 
does not justify such expenses. As a result, dealers are left with the 
Hobson's choice of operating their businesses in an unprofitable manner 
or risk being terminated for failure to comply with the onerous 
franchise requirement. Another problem arises in situations where the 
service station operators are not parties to the lease agreements for 
the properties where their stations are located. Some oil companies are 
taking advantage of this, and, by refusing to renew the lease for the 
property, are forcing dealers to be evicted. Finally, under the current 
PMPA, oil companies are able to circumvent State laws which protect 
service station dealers. These are just a few examples of why the 
current PMPA must be amended.
  Hearings before the Small Business Committee in the last Congress 
revealed that thousands of hard-working service station dealers have 
lost their businesses because of deficiencies in the current law. 
Further evidence of the need to strengthen and clarify the PMPA was 
also provided during a series of hearings held by the Energy and Power 
Subcommittee over the past three Congresses.
  H.R. 1520 remedies the problems which exist under the current PMPA. 
Specifically, this legislation does five things.
  First, it prevents a franchisor from insisting upon changes or 
additions to a franchise agreement for the purpose of converting a 
franchise-operated station to one operated by the employees or agents 
of the franchisor. This will reduce the number of independent service 
station dealers and jobbers who are unjustly forced out of business.
  Second, H.R. 1520 addresses situations where the franchisor leases 
the service station property from a third party and the station 
operator is not a party to the lease. In these circumstances, the 
station operator typically has no right to extend the lease or to 
purchase the property from the landlord; the franchisor has the sole 
right to exercise any options to renew the lease or buy the service 
station. As a result, franchisors can in effect terminate their 
franchisees and put the station operators out of business simply by 
failing to exercise these options.
  To protect dealers against terminations in these situations, 
franchisors will now be required to give their franchisees the 
opportunity to assume the underlying leases for the station properties 
when those leases expire. Oil companies, which are typically the 
parties to the lease agreements, will now be required to offer to 
assign to the service station operators any options they hold either to 
purchase the property or to extend the lease. The oil companies would 
be able to condition assignment of their options upon receiving 
unconditional releases from liability executed by the landlord and the 
service station operator.
  In addition, if a dealer acquires property rights to the service 
station by purchase or lease, the franchisor would have to make a bona 
fide offer to sell to the dealer the buildings and other improvements 
made at the site.
  Third, the legislation provides that the rights of station operators 
under the law may not be waived as a condition of entering into or 
renewing a franchise agreement. Oil companies would also be prohibited 
from insisting upon so-called choice of law provisions which provide 
that the law of a State other than the dealer's home State will govern 
the franchise agreement. By including these choice of law provisions in 
the franchise agreement, service station dealers from States like 
Oregon that are protective of the rights of dealers can lose their 
rights because the franchise agreement says the law of another State 
that is less protective should govern the franchise.
  Fourth, H.R. 1520 also makes clear that the State laws which allow a 
dealer or jobber to pass on his or her business to a surviving family 
member upon death were never intended to be preempted by Federal law.
  Finally, this legislation prohibits terminations or nonrenewals in 
situations where the franchise provision upon which termination or 
nonrenewal is based are illegal or unenforceable under the governing 
State law. Oregon and a number of other States have adopted statutes to 
safeguard the rights of service station dealers, such as prohibiting 
forced 24-hour operation where such operation is unprofitable or 
unsafe. Because a franchise provision requiring 24-hour operation in a 
State that has a law prohibiting such a requirement would be illegal or 
unenforceable under that State's law, a dealer in that State could not 
be terminated for noncompliance with a 24-hour operation requirement in 
the dealer's franchise agreement. The legislation makes clear that 
noncompliance with illegal or unenforceable franchise requirements does 
not constitute a failure justifying termination or nonrenewal of the 
franchise.
  This legislation makes clear that the PMPA applies only to the issues 
of termination and nonrenewal. Historically, the regulation of 
franchises has addressed three aspects of the franchise relationship: 
First, disclosure prior to the establishment of the franchise; second, 
standards during the operation of the franchise; and third, procedures 
and grounds for termination. The PMPA does not preempt the States, 
rights to regulate the ongoing relationship of the parties. Also, to 
the extent that States regulate matters such as hours or closing times, 
then an oil company may not use dealer conduct in following State law 
as a reason to terminate or nonrenew.
  These changes to H.R. 1520 clarify the original congressional intent 
of the PMPA and in effect level the playing field between oil companies 
and dealers. I urge my colleagues to support this important, 
procompetition and prosmall business legislation.

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