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THE CALIFORNIA GASOLINE CRISIS: (with a related letter to Shell Oil President, John Hofmeister)

Why Californians Pay More at the Pump
And How True Reforms Will Help
California Service Station and Automotive Repair Association
1202 Grant Avenue, Suite B-1
Novato, California 94945
(415) 892-1243
www.CSSARA.org
________________________________________
TABLE OF CONTENTS
Executive Summary
I. HOW THE CALIFORNIA MARKET OPERATES TODAY
II. COST TO CONSUMERS AND BUSINESSES
III. OIL COMPANY PROFITS
IV. OTHER STATES ARE ACTING
V. SOLUTIONS FOR CALIFORNIA
VI. OIL COMPANIES OPPOSE REFORM
Appendix A: You Can’t Believe Any Claim Made by the Oil Companies
Appendix B: QUESTIONS AND ANSWERS
Executive Summary
 
A Gallon of Gas in California
Costs 30-40 Cents More than US Average
 
Source: American Automobile Association, 4-4-03.

Oil companies would like Californians to believe gasoline price spikes are due exclusively to world events, prices will eventually fall to earth, and reforms are unwarranted.
The oil companies are wrong.

To read this complete article with colour grahics go to…

http://www.cssara.org/www/NewsPage/California_Gasoline_Crisis.htm

A related letter to Shell Oil…

Letter from to Shell Oil President, John Hofmeister, from the Executive Director of California Service Station & Automotive Repair Association, Dennis DeCota.                   
 
March 29, 2006

John Hoffmeister
Office of the President
Shell Oil Products
P.O. box 674433
Houston, TX  77267

Dear Mr. Hoffmeister:

The California Service Station and Automotive Repair Association is a thirty-three year old trade association representing petroleum retailers throughout the State of California.  Shell policy regarding zone pricing and multiple site operations (MSO) is causing the economic extinction of its franchised dealer network.  To be perfectly clear, I am talking about those Shell dealers who have a lease under the federal Petroleum Marketing Practices Act (PMPA). 

Shell’s marketing practices of controlling both retail prices and wholesale prices at the MSO stations and the PMPA franchise stations has caused the demise of hundreds of California PMPA Shell franchised dealers.  This marketing ploy is not only wrong, it is illegal, as California Business and Professions Code 21200 specifically prohibits this type of predatory pricing.

Today, March 29, 2006, Shell’s dealer tank wagon price (DTW) in Fairfield, CA, excluding tax and fees, is $1.9415 for 87 Grade Regular.  In San Francisco it is $2.1205.  In Menlo Park it is $2.2595.  In San Mateo it is $2.0655.  From highest to lowest that differential equates to .3180 cents per gallon.  This price zone differential, to say the least, is unconscionable to both retailers and to the consumers they serve.

Shell’s MSO operations continue to sell at retail at prices far below what a Shell PMPA franchised dealer needs in order to run a profitable operation.  

For example, today in San Francisco 87 Grade Regular DTW Shell price is $2.1205 plus .3799 in taxes and fees, plus sales tax of .212.  The MSO station located at 19th Ave and Lincoln in San Francisco is retailing its 87 grade Regular at $2.709 per gallon, which, if matched by a Shell PMPA franchised dealer this would create a loss of < .0034> profit per gallon..  The breakdown is as follows:

Shell DTW
 2.1205
 
Taxes and fees
 .3799
 
Sales tax at MSO retail price
 .2120
 
Cost per gallon
 2.7124
 
Less retail sales price at MSO
 2.709
 
PMPA franchised Shell dealer, if matching MSO at retail price would show a < .0034> loss per gallon
 < .0034> per gallon

Credit card fees on Visa/MasterCard alone are .065 per gallon.  This < .0034> margin on 87 Grade Regular gasoline is below-cost selling, which is also illegal in California.  Since MSO operators do not pay rent to Shell, as a PMPA franchisee dealer does, this only escalates the below cost issue.  Shell is effectively and maliciously promulgating the economic demise of its PMPA franchisees.  In today’s market a dealer needs a minimum margin of .15 cents to break even.

I have been asked by your franchisees who are members of the California Service Station and Automotive Repair Association (CSSARA) to request that Shell stop this predatory practice now and not increase the MSO’s pricing, but instead lower zone and DTW pricing so as to allow Shell’s PMPA dealers to be competitive in the marketplace so that they can survive.  After all, every business contract has a common thread of implied covenant of good faith and fair dealing.

Your customers and marketers are anxiously awaiting your reply.

Respectfully,
Dennis DeCota,
Executive Director

cc:        Members of the California State Legislature

            Bill Lockyer, California Attorney General

            Deborah Platt Majoras, Chair FTC

            Thomas Barnett, U.S. DOJ – Antitrust Division

            David Walker, U.S. GAO

            Barbara Boxer, U.S. Senator

            Dianne Feinstein, U.S. Senator

            Arlen Spector, U.S. Senator

            Joseph Alioto, Attorney

            Kevin Lally, Attorney

            Richard Perez, Attorney

            Kurt Melchior, Attorney

            Peter Gunst, Attorney

            Thomas Bleau, Attorney

            Gideon Kracov, Attorney

            Chris Walker, Advocate
 

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