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California Service Station and Automotive Repair Association1202 Grant Avenue, Suite B1Novato, CA 94945415-892-1243 FAX 415-892-4173 http://www.cssara.org |
June 2, 2005
Deborah Platt Majoras, Chairman
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Dear Chairman Majoras:
I write to you on behalf of the membership and the Board of Directors of the California Service Station and Automotive Repair Association (CSSARA) to respectfully advise you of our strong opposition to the proposed merger of Valero and Premcor. I personally have been a petroleum retailer for the past twenty-seven years, and represent over two hundred petroleum retailers in California who either own or lease more than five hundred retail gasoline facilities in the highest priced gasoline market in the continental United States.
We understand the reasons for your recusing yourself from this merger, as you were a past partner in the law firm representing Valero. However, in reviewing your background, and the backgrounds of the other Commissioners, we feel that you, more than any other Commissioner, have excellent insight into the antitrust effects of this type of proposed merger. It will be very unfortunate for both consumers and small business to be deprived of your expertise and knowledge on this issue.
Many say that as California goes, so goes the nation. California has had the highest gas prices in the country since approximately 1995. If you listen to the oil industry, this situation was the result of our special recipe for gasoline. However, federal gasoline specs for reformulated gasoline (RFG) are now very close when compared to CARB gasoline. Therefore the CARB ingredient package does not justify the differential between California gas prices and prices in the rest of the nation. In our opinion, the major oil companies have been able to achieve these higher prices strictly because of their ability to consolidate the market and drive out competition.
The merger of Valero and Premcor will certainly continue this trend.
Many of our members who have become property owners and fly the Valero flag have felt manipulated by Valero’s ability to coordinate and cooperate tacitly rather than explicitly as it relates to the price of a gallon of gasoline in California. These petroleum retailers who purchased their facilities from Valero, when Valero took over the Exxon Mobil refinery in Benicia, California, supported that merger. The reason they supported that merger was that they were promised that Valero would enter the marketplace at a competitive or super-competitive price methodology. This lasted for all of six months. Then Valero, who had no retail identity before the California buyout of the Benicia refinery, acted in unison with the other six major oil companies that produce 92% of all refined gasoline in the state of California. Valero has now grown to be the largest independent refiner in the United States since acquiring the Benicia Exxon Mobil refinery.
They have treated their marketers with indifference and the consumers of California with unconcern. When the market is consolidated to the point that it is in California it becomes, and remains, a sellers’ market. This situation will be exacerbated throughout the United States if we continue to allow such mergers and consolidations to occur within the petroleum industry. We will have an extreme reduction in competition and higher costs for consumers. Regrettably, a chapter of the California Service Station and Automotive Repair Association has had to bring a very costly lawsuit against Valero for its inability to address competitive marketplace issues as well as proper handling of the indemnification agreements on the properties the dealers purchased from Valero.
Consumer choice, competition and fair trade are essential to a healthy marketplace. There are two conditions under which a merger creates a non-competitive effect. The first is when the market is substantially concentrated after the merger, which both California and the United States as a whole are becoming. The second is when it becomes difficult for new firms to enter the market in the near term and provide competition. No small oil supplier can operate in California because of the control the seven majors have over our state. That same kind of situation is now occurring throughout the United States. Valero has become a petroleum giant, at the expense of California’s consumers, through its appetite for growing its retail base with an uncompetitive pricing methodology.
It is for all of these reasons that we strong oppose the merger of Valero and Premcor.
Sincerely,
Dennis DeCota
Executive Director
cc: Orson Swindle, FTC Commissioner
Thomas B. Leary, FTC Commissioner
Pamela Jones Harbour, FTC Commissioner
Jon Leibowitz, FTC Commissioner
Bill Lockyer, California Attorney General
Senator Carole Migden
