CT Attorney General, In Formal Legal Opinion To Governor, Says Gasoline Measures Require Legislation

June 9, 2008 -- Connecticut Attorney General Richard Blumenthal, in a formal legal opinion released today, said a state statute - not simply a new regulation - is necessary to prevent Big Oil from blocking its franchisees from offering consumers cash discounts.

Gas prices, Hamden, Connecticut, May 2008: Photo by Anne (CC)

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Blumenthal's legal opinion, creating a clear path for immediate legislative action during Wednesday's special legislative session, was issued at the request of Gov. M. Jodi Rell who inquired about Blumenthal's proposed gasoline measures.

Blumenthal said the state has full authority to regulate cash discounts by gasoline retailers -- whether by mandating cash discounts or barring oil companies from blocking franchisees from offering discounts.

"This legal opinion must be a green light for legislation to provide immediate enhanced competition and benefits for consumers," Blumenthal said. "As in the past, I will continue to urge as sound public policy that the legislature unshackle retailers, giving them discretion to offer cash discounts without imposing a mandate.

"There should be no reason for diffidence or delay on legislative action. My proposed gasoline and home heating oil measures require legislation -- not simply regulation -- and may provide sizeable competitive relief to small businesses and consumers seeking cash discounts.

"Legislation requiring gasoline retailers in this state to offer a cash discount or banning franchise agreement provisions prohibiting franchisees from offering cash discounts would not be prohibited by federal law, including the PMPA or federal octane rating posting regulations. Such legislation should be upheld as well against any challenge under the Contracts Clause or the Interstate Commerce Clause of the United States Constitution."

No federal law -- including the Petroleum Marketing Practices Act (PMPA), federal regulations regarding octane information and the Interstate Commerce or Contract clauses of the United States Constitution -- bar states from regulating cash discounts by gasoline retailers, Blumenthal said.

A common provision in franchise agreements prohibits gasoline retailers from offering such discounts. This provision affects up to 85 percent of the franchisees in Connecticut, including Mobil, Exxon, Shell and Citgo.

For several years, Blumenthal has advocated legislation banning these restrictive provisions in franchise agreements and has urged that the legislature consider such legislation in the June 11 special session.

In contrast to mandating cash discounts, Blumenthal's proposal would give small business retailers discretion to offer cash discounts but not impose a mandate. Some gasoline retailers unrestricted by franchise agreements are already offering them.

"Neither my proposal to prohibit restrictive contractual provisions, nor a mandated cash discount, violates federal statutory or constitutional law," Blumenthal said. "The prohibition on cash discounts is a minor provision in a contract that governs the broad issues of a franchisor-franchisee relationship. Even if a court deems the ban on prohibiting cash discounts to be substantial, there is a strong public purpose to providing consumers the option of significantly reducing gasoline costs by paying cash.

"Courts have repeatedly upheld state laws regulating aspects of the relationship between gasoline distributors and their retailers," Blumenthal said.

Source: Connecticut Attorney General