Why Does Gas Cost So Much?
Why are gas prices so high at the infamous Watergate Exxon? The District’s gas king, Joe Mamo, turned out for a D.C. Council hearing Friday toting a slide show aimed at answering that question—or at least deflecting allegations that his company, Capitol Petroleum Group, is to blame.
On June 12, when the Watergate station was peddling its black gold for a pricey $5.09 and $5.29 a gallon, the franchisee who rents the locale from Mamo was pocketing “pure profit” of $1.18 to $1.25 a gallon, compared to a national average of just 16 cents a gallon, according to Mamo’s lawyer, Al Afano.
“Here’s your answer. Take a look at what they’re making,” said Alfano, who also offered CPG’s estimates of the profits being made by five other Northwest gas station operators he characterized as part of “the leadership group” pushing for legislation that, if passed, could force Mamo to sell some of his 45 D.C. stations, which make up nearly half of the city’s total.
There was plenty more, er, fuel poured on the rhetorical bonfire at Friday’s D.C. Council hearing on the legislation. But after six hours of testimony, the only thing that was clear is that gas prices have been rising faster in the Districts than they have both regionally and nationally.
John B. Townsend II of AAA Mid-Atlantic testified that in 2007, when the council repealed the measure it’s now thinking of reinstating, D.C. gas prices were only about 5 cents higher per gallon than the national average. For several months that year, the price split between the District and the greater Washington metropolitan area was as little as 2 cents. Today, however, the average gallon of gas sold in D.C. costs 41 cents more than Virginia’s statewide average, and it’s 27 cents and 28 cents, respectively, more expensive than the Maryland and U.S. national averages, according to AAA’s price tracking data.
What has also changed in that time frame is Mamo’s business. Through a series of acquisitions, he purchased more than 200 ExxonMobils and Shells in Greater Washington and New York City, ending up with a quarter of all stations in the D.C. region and about 42 percent of the District’s gas stations.
For Team Mamo, the June 17 hearing must have had elements of déjà vu-meets-Twilight Zone. Ward 3 councilmember Mary Cheh, who led the charge to repeal the 2004 law four years ago after a lobbying campaign by Mamo, is the author of the new measure Mamo desperately opposes.
Perhaps the single most persuasive piece of evidence presented in 2007, a letter issued by the Federal Trade Commission, came under heavy attack from AAA and antitrust experts last week. The letter had provided independent backing to Mamo’s argument that the so-called “divorcement law” would lead to higher gas prices.
“It’s great to predict, but they were simply wrong,” David Balto, a senior fellow at the Center for American Progress and a former F.T.C. anti-trust lawyer, said of the position laid out by the commission four years ago.
Balto testified that the city’s gas industry is not “competitively healthy” today because repealing the earlier law had allowed jobbers to acquire the oil companies’ “market power,” a legal term referring to the extent to which a single firm or a few firms can influence the price of a product.
During a particularly vigorous faceoff with At-Large Councilmember Vincent Orange, Townsend declared that not only had the FTC gotten it wrong, but so had The Washington Post in a May 27 editorial Orange quoted repeatedly throughout the hearing, which defended Mamo as a victim of “blatant example of political scapegoating and opportunism.”
Only three councilmembers showed up for the hearing: Cheh, Phil Mendelson (who wrote an earlier version of the legislation) and Orange. Cheh and Mendelson seemed to side with the operators. But Orange, who has received thousands of dollars in campaign contributions and other support from the Mamo and his companies, said he hadn’t heard anything to convince him that the District needs a new divorcement law or that Mamo’s company has anything to do with surging gas prices in the District.
Orange and Cheh did clash, though, over race, prompted by letter the Rev. Jesse Jackson sent to D.C. Council Chairman Kwame Brown, other black councilmembers, and Mayor Vince Gray.
In the letter, Jackson praised Mamo as a role model for minority entrepreneurs and accused the council’s white members of seeking “to put in place onerous and inequitable business restrictions.”
When Orange echoed Jackson’s view, Cheh turned toward Orange, raised a finger and said the racism allegation was “deeply offensive, and I reject it.”
Orange, his voice rising, tried to continue, but Cheh cut in: “It is also perfectly clear that my legislation has nothing to do with race.”
Later, when Mamo and his entourage testified, Cheh demanded to know who had “ginned up” Jackson’s letter, in a heated exchange with Mamo’s longtime lobbyist, former councilmember and mayoral candidate John Ray.
“No one,” Ray said, “no one puts words in Mr. Jackson’s month.” Cheh responded: “You, Mr. Ray, or you, Mr. Mamo, ginned up this letter, and I want to know who it was.”
“You are using words you shouldn’t be using. No one ginned up this letter,” retorted Ray, accusing Cheh of disrespecting him.
That got Cheh to back down, saying, “Perhaps ginned up was not the right phraseology.”
Photo by Darrow Montgomery