Why Does Gas Cost So Much in D.C.? Joe Mamo says it's not his fault. The District government disagrees.

Cash Guzzler: Filling up in the District costs more than anywhere in the continental U.S. except Connecticut.
Photo by Darrow Montgomery

Summer began this week, which means panic about rising gas prices—an annual tradition in the media—can’t be far behind. In the District, though, this year is a little different than usual: Some of the panic may be justified.

According to the American Automobile Association, gas in D.C. cost just a nickel more than the national average in 2007; on Tuesday, that gap had widened to 31 cents. If you drove across the border to Virginia, meanwhile, you could have filled up for 42 cents a gallon less for the same regular unleaded gasoline.

“Nothing explains this huge gap. All three of these jurisdictions [Maryland, Virginia, and D.C.] have been planets in the same obit” for decades until the District’s prices took flight four years ago, says John B. Townsend II of AAA Mid-Atlantic. Today AAA says D.C. has the second-highest gas prices in the continental United States, behind Connecticut. The only explanation, Townsend says, it excessive profit-taking.

Who is pocketing the profit, and what to do about it, is at the center of a dispute between a group of Exxon station operators; their embattled landlord, Joe Mamo, chairman of Springfield-based Capitol Petroleum Group, which today owns nearly half of all gas stations in the District; and the District government, where officials suddenly seem to be rethinking years of support for Mamo. Just ask Attorney General Irv Nathan, who’s investigating whether Capitol Petroleum violated antitrust rules, or the D.C. Council, which is considering legislation that would make it illegal for companies like Mamo’s to both supply and operate gas stations in the city. A similar law that used to be on the books was repealed in 2007—after a lobbying campaign by Mamo.

Mamo says a small group of Exxon franchises are engaged in price gouging that’s inflated the citywide average cost of a gallon of gas, and insists that his company and other “jobbers,” as they’re known in the industry, are all that stand between District drivers and even higher gas prices. If he’s forced to sell some of his stations or move them to a franchise operating model, it would drive up prices, he says.

“These guys in wealthy neighborhoods that make a lot of money are using their councilmembers to eliminate competition,” Mamo says, leaving no doubt about what he thinks of the bill, introduced by Ward 3 Councilmember Mary Cheh.

But a council hearing last week featured testimony from antitrust experts who say Mamo’s company is the problem, not the solution. The reason gas prices have gone up here, the theory goes, is an unhealthy competitive landscape that emerged in the last five years or so as big oil companies sold off their retail stations to jobbers like Mamo.

Jobbers own most of the city’s gas outlets; Mamo’s 45 stations represent about 42 percent of city’s 108 stations. His company, and another that owns all two dozen BP stations, represent control of about 70 percent of the market.

That “tight duopoly” has diminished competition and driven prices higher, says David Balto, a senior fellow at the Center for American Progress and a former Federal Trade Commission lawyer.

“The history of the oil industry has been that this kind of vertical integration has been a problem,” he says. “The District needs to put a stop to it, or it’s only going to get worse.”

Mamo, a 44-year-old Ethiopian immigrant who started out with a single Amoco station on South Dakota Avenue NE two decades ago, built a huge empire quickly. In the last two years, Mamo has expanded to 164 stations in the D.C. region—about 25 percent of the total—plus 71 in New York City. In 2010, the company distributed 260 million gallons of fuel and earned approximately $778 million in revenues.

But the expansion in the District might not have happened without the council’s help four years ago, when lawmakers repealed legislation that had banned jobbers from operating stations (the law the council is now considering reinstating). Back then, the FTC put out an advisory ruling agreeing with Mamo: The ban would drive up prices. But Balto and Townsend told councilmembers last week that the agency got things wrong in 2007—and that subsequent price increases proved it.

For decades, the conventional wisdom has been that divorcement laws drive prices up, while jobbers lower them by keeping competition lively. But just like the FTC letter, those theories harkened back to the heyday of the Big Oil station. Nobody seems to have tested them out now that so-called “mega-jobbers” like Mamo dominate markets.

As last week’s hearing droned on for six hours, Mamo and his franchisee tenants swapped allegations and details about the costs of doing business. But the deluge of data brought little clarity. Both sides cherry-picked facts that made them look more like the victim in an increasingly no-holds-barred fight.

Team Mamo went so far as to make a slideshow out of some pretty sensitive competitive information on profits by several CPG tenants. The slides, however, left out a key figure: CPG’s markup for delivering the same gas. When pressed, Mamo later said it was about 30 cents a gallon—significantly higher than the 19 cents per gallon average Mamo usually quotes.

Meanwhile, Roland Joun, co-operator of the notorious Watergate Exxon, sputtered about price hikes and rent increases when asked why the station slaps $1.25 on every gallon. That’s 48 cents more profit than the second-most “gouging” gas station in Mamo’s slideshow.

Amid so much mudslinging, Robert Lande, board member of the American Anti-Trust Institute, says the best approach is to stop focusing on the individuals and look at the competitive picture. An anti-trust professor at the University of Baltimore law school who hasn’t taken a formal side in the fight, Landle says two companies that control 70 percent of the stations can influence each other’s pricing through casual observation, without ever resorting to anything illegal, such as collusion.

“You can’t play those mental games when you have 20 companies that each have 5 percent of the market,” he says.

No matter how the investigations play out, one thing’s for sure: None of it will help lower gas prices in D.C. this summer. Cheh says her bill probably won’t be up for a vote until the fall. Maybe it’s time to think about buying a bike.

Our Readers Say

So, let's put this into perspective: A real African gets the predominately African-American DC council to repeal a law in 2007 so he can monopolize the district's gas station. Now he's preying on other African-Americans. How nice.
Go across the bridge to Rosslyn Exxon - a bit lower
'Mamos gotta get whacked...send Joey 3 fingers and Tony no-neck'
The Exxon at Penn Ave and Alabama Ave in Southeast always seems to have "Maryland" prices, ie anywhere from 50 cents to $1.50 cheaper than the ones on the other side of the river. That's where I go.
"Mamo testified he leases most of his stations to independent operators and they set the price." Uhm what does it mean?

Lets see ok ok... as i understand it

If I am a wholesaler selling branded bottle of water for $1.00 to a branded retail store and if my cost is @ .75 my profit would be .25 right ? However, if the branded retail store turns around and sales the same bottle of water he/she bought from me(wholesaler) at $2.50 while his/her competition who buys the same product(bottle of water) at the same price ($1.00) from me(wholesaler) selling it at $1.30.
Who is setting the price, Who is benefiting from it, Who is gauging and WHO IS HURTING?

Consumers are hurting! Citizens are hurting. While certain retail store operators are getting fat and happy. And oh yea ….. These so called politicians whom we vote for are protecting the real thieves.
People when are WE (the people) going to revolt in this country. How much lying, stealing, deceit and oppression are WE going to continue to take? From every corner of this country politicians and the monied are ravaging the rest of us. The poor don't even rate....they are dismissed so much. When are WE (the GD people) going to rise up against ALL politicians and push back?
Neither the Dumbocrats or the Repuklicans care about our interests...only their own. What is it going to take to say NO MORE!!!!!!?????
Gas does NOT cost MUCH more in DC. The prices I see are, with the exception of the Watergate station, always LOWER than in Bethesda, and not much if any higher than northern Virginia. The 15th & U station is usually just about the lowest in DC.
@Bothside. You forgot to mention that Mamo is the only distributor from whom his station operators can purchase gas. As the owner of over half the city's gas stations he has a monopoly on pricing. Mamo buys gas from the distributor, who charges everyone the same per gallon price. Mamo charges operators a substantial delivery fee and then uses zone pricing per gallon depending on where the station is located. Hence the Watergate Exxon and the station across from the Four Seasons in Georgetown pay more than one of Mamo's own owner operated stations elsewhere in the city.
The legislation that Cheh has proposed would prevent distributors or "jobbers," like Mamo, from owning and operating gas stations in the District of Columbia. He admitted his motive is money and that is really about all he cares. Station operators accused Mamo of predatory pricing.
@maeve good points! Ok Zone Pricing is a pricing method in which all franchisees within a defined zone or region are charged the same price. It is practiced everywhere in the US. It's nothing new or different. Also as far as delivery fee goes company that distributes in this case "Jobber" eats that cost. You have to ask yourself why is it that only certain sites charge higher price than others in the same are. It is said that Mr. Mamo's company owns all Exxon sites in D.C. so why is it that Exxon by Key bridge sales unleaded @ 4.03/gal. now and site like the Exxon on 21st $ M St. who is few blocks from Key Bridge selling same product @ 4.79/gal. We have to look between the lines here my friend. Like Mamo said if the computation is eliminated then WE the customers will suffer paying more for fuel. Who’s going to balance out these Franchisees? Why do you think major companies in this case oil companies do not sale their assets in pieces? MUST read between the lines! And why is it that the Lawmakers involved in private owned companies? Is this an abuse of power? What’s next taking our homes by force?
Tracee,

what's the problem with a little free enterprise? The good news is that here in the District, you have many options, such as using public transit, walking, taking a bike (public or private), or driving a short way to Maryland or Virginia for better prices. None of these options are outside of behavioral norms for a citizen of DC. If Mamo or anyone else wants to set crazy prices, then the discipline of self-interested consumers with many other easy transportation and fuel options is supposed to take over, and they are supposed to punish Mamo by not buying gas from him.

Having read all about this over the past months, I really don't believe Mamo has as much leverage over District residents as has been alleged.

I don't drive often, but when I do, my time is worth something, so I often tank up at a convenient, albeit expensive station such as the notorious Watergate Exxon. Anyone at that station is there for the same reason, convenience and value of their time. Everyone knows it's high priced (it's the one shown in every nightly news stories about high regional gas prices), and a lot of people are fine with paying that in exchange for being in a prime location near the mall and RCP. The reason the station owners can "get away" with the prices they charge is that they have willing customers.

Leave them alone, I don't see any problem with the status quo, despite all the anguished cries from the public and council alike. Everyone needs to take a deep breath and remember lessons from Econ 101.
Luckily for District residents, this really isn't as big of a problem as it could be.

Regardless of where you are in the District, the MD or VA state borders are no more than 5 miles in any direction. Hell..I live in NW DC and work in super expensive crystal city where gas is a minimum of 25 cents a gallon cheaper. I haven't bought gas in the District in probably 7-8 years.

What really gets me is that Watergate exxon. Its always been a joke, now we know that they add on 1.25 per gallon as the stations "profit". What I want to know is who are the morons buying gas there when there is another gas station 50 yards away accross the street with gas ~1.50 cheaper. I always thought that Exxon was a mob front :)
exactly frankly, if you're dumb enough to drive lots and tank up in DC then that's your problem.
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