Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Energy and Environmental Protection, to which was referred H.B. No. 815 entitled:

begs leave to report as follows:

The purpose of this bill is to create an exception to the gasoline retail divorcement law by allowing a manufacturer or jobber to operate a former dealer-operated retail service station where the current or new dealer:

(1) Is in agreement with such an operation; and

(2) Has a contract interest in the operation.

Your Committee received testimony in support of this measure from the Western States Petroleum Association, Arc in Hawaii Wahiawa Center, one gasoline dealer, and individual. The Hawaii Automotive Repair & Gasoline Dealers Association, Hawaii Coalition of Retail Gasoline Marketers, and one gasoline dealer testified in support of the intent of this measure, with suggested revisions. Tesoro Hawaii Corporation and one individual offered comments.

Your Committee finds that the original divorcement law was designed to protect gasoline dealers from being forced out of business by oil company-owned and operated gasoline stations. Currently, a manufacturer or jobber is prohibited, with certain exceptions, from operating a former dealer-operated service station. This is known as the "once a dealer-operated station, always a dealer-operated station" arrangement.

Supporters of this bill contend that the law fails to consider the small business person who has built a successful service business while operating under a "contract dealer" or "fee operator" arrangement with the oil company. Under such an arrangement, the small business person negotiates a fee that will be charged to the oil company to operate the gasoline facility. The oil company purchases the fuel inventory, pays the taxes on the fuel, pays the credit card discount fees, and provides the fueling system, equipment, and the real estate. In turn, the contract dealer maintains the facility, employs the personnel, and pays the oil company a fair market rent for the service bays or retail area which is used in the business person's business venture.

However, others believe that under the current law, such contract dealers should be considered oil company operated stations.

Supporters believe that this bill will allow a dealer the flexibility to make the best business decision for the station. They contend that this will allow the best buyer, which in many cases is the oil company, to run the station for more than two years. While this arrangement could provide the outgoing dealer the best chance of receiving some compensation for the station, it may also jeopardize the existence of other dealers by circumventing the intent of divorcement.

It is your Committee's intent to use this bill as a vehicle to further discuss this complex issue. Your Committee has amended this bill by:

(2) Defining "contract dealer"; and

As affirmed by the record of votes of the members of your Committee on Energy and Environmental Protection that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 815, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 815, H.D. 1, and be referred to the Committee on Consumer Protection and Commerce.