By Keith Reid
After 17 years serving the industry at the helm of The Petroleum Marketers Association of America, Dan Gilligan is retiring as president. PMAA is a federation of 47 state and regional trade associations representing approximately 8,000 independent petroleum marketers nationwide.
Rob Underwood, the association’s current director of government relations will be stepping up to take the helm on May 16, 2015, though Gilligan will be assisting in an advisory capacity during the transition until October.
FON columnist Shane Sweet interviewed Underwood for his perspective on taking over a unique and dynamic organization. In this article, we take a look at the past 17 years and what Gilligan saw transpire in the industry and association during that time, what he’s most proud of and where he would have liked to have had a do over.
FON: When did you first start in the industry?
Gilligan: Officially in August, 1998, but it was actually earlier than that. I accepted the job in early July when I was president of the Steel Shipping Container Institute and I got a call saying that the state executives were meeting in Monterrey, Calif., and I was needed there the next week. I was still working for the other outfit but it turned out fine. The second I agreed to the job I was on the clock.
FON: What was going on in the organization in 1998?
Gilligan: It was a very challenging time for PMAA, and the organization was really struggling with its structure. There were many members at the time who thought we should abandon the federation model and just become a direct membership organization like NACS or SIGMA or any number of other groups. And there was another core component that did not want the structure to change.
I think that’s one of the main reasons I got the job, because I had run a federation in the housing industry previously made up of 38 state associations. So they wanted to see if the structure could be saved, and it was. We brought five state association executives onto our executive committee—prior to that it was only marketers that were allowed on the committee—and we did a lot of things to strengthen the relationship with the state associations rather than try to dismantle it.
FON: A lot was also starting to pop in the industry around that time. What were some of the big things you faced as you started up the new job?
Gilligan: My first week in the PMAA office was when BP announced its merger with Amoco. Everything went crazy, and the press was calling asking what does PMAA think about this? And I was like holy cow; I have no idea what PMAA thinks. We didn’t have a public relations department so I called our attorney Bob Bassman and said Bob, what do I think about this? And he wrote up a one-page memo that I could basically just read off.
And what a big deal that was, because shortly afterward it was Exxon and Mobil then Chevron and Texaco—bing, bing, bing. That was a shock to most of the branded marketers, but especially the Amoco ones. Amaoco was a big operation in terms of branded wholesalers and retailers. It was truly a shock to the industry.
For my first two or three years I would say that dominated what PMAA was working on with meetings at the FTC, because there was a lot at stake in what the FTC approved or what it required in terms of divestitures and all of that. So there was no easing into the job. That was jumping right into the fire.
FON: I came into the industry a year later and the mergers were still top of the news and, of course, at that point in time we also had the actual implementation date for the UST regulations.
Gilligan: That is when the pressure really started coming down on the operations who had not made the UST improvements, and that was a big deal as well.
FON: What has been the biggest change in the industry you’ve seen since you’ve been here?
Gilligan: There are two or three things. When I arrived in 1998, the traditional petroleum marketing company was still in what I would call a romantic stage of interest in c-store operations. They were fuel operations getting into convenience stores and they had gotten into that in a serious way in the 1990s.
But in the early 2000s I started to see a shift were a lot of these operations were asking how do I get out of convenience stores? The two businesses are just so different in how you operate them, so probably the biggest change was seeing a lot of petroleum marketer companies exit the convenience business and strictly supply fuel.
It wasn’t that they weren’t as interested in the convenience store business; it was just that they didn’t feel their business model could handle it. In the convenience store business unless you get bigger you can’t hardly survive—get bigger or get out—and a lot of petroleum marketing companies have focused on building their fuel business and supplying fuel the convenience stores but not actually in the direct operation stores. There are exceptions like Bill Englefield in Ohio and Jay Ricker who has really grown his convenience store operation and loves that business. But there have been quite a few of them that have decided to ease back.
The other big thing is consolidation. Once the majors consolidated and got out of retail operations it was only natural that petroleum marketers would follow suit and consolidate. So you are seeing some of these big operations merge like CST Brands and Lehigh Gas Partners and The Pantry and Couche-Tard—nationally and regionally. SC Fuels just bought out DeWitt Petroleum. You’re seeing it everywhere, and that’s a really big deal.
FON: What looked like it was going to be a big deal but didn’t pan out?
Gilligan: A big deal that didn’t actually turn into a big deal took place around the 2001 timeframe, and that the hypermarket big-box retailers really starting to get into fuel. Walmart, Costco, Kroger’s—there was just an enormous amount of angst about what that was going to do to the traditional petroleum marketing business. But as it’s turned out they have changed the industry somewhat, but there are a lot of branded petroleum wholesale and retail operations out there that are doing just fine. It’s actually forced traditional marketers to look at things differently and be more competitive. Out near my house, there is an Exxon station two blocks down from BJ’s Wholesale and that Exxon station does a whale of a business. The theory was at the time that it was just going to destroy the traditional petroleum marketing business. And that is not at all what has happened. It made them better competitors.
FON: I certainly provided my fair share of coverage on that issue and there was plenty of excitement, at the time. But along the lines of your comment I think the big-box folk had some expectations that didn’t quite turn out as planned.
Gilligan: I can remember Walmart—I don’t remember what year 2004, 2005—in their year-end statement saying we would’ve made a lot of money this year if we hadn’t sold gas for below cost for so long. So even Walmart learned that you can lose a lot of money selling gasoline and I think they’ve become a pretty good competitor. They use gasoline to drive traffic, but they realized they have to be competitive but they don’t have to be predatory.
FON: What have been some of the major accomplishments on the heating oil side?
Gilligan: One of the big deals was in 2001 when we got NORA enacted. We had been working on that for five or six years. John Huber worked for me at the time and he left to run NORA. And then we’ve had the reauthorization battles with NORA and finally we got it done last year for another five year stint, which is important. That was an enormously important initiative.
FON: Heating oil is obviously facing challenges—noting new there—most recently high oil prices which have settled down. What are your thoughts on the future of heating oil?
Gilligan: A lot of optimism comes with the price collapse of 2014. That gave heating oil dealers a lot of breathing room against cheap natural gas and politicians pushing natural gas expansion under environmental or climate change initiatives. It’s given all of these companies a chance to catch their breath, and it’s reducing the loss of customers. I also think blending heating oil with biodiesel and moving to lower sulfur oil is going to change the image quite a bit to being perceived as a more environmentally friendly fuel. I think there are a lot of positives on the horizon.
FON: As we start down this road of unexpected but overwhelming U.S. energy resources, what you see for the industry?
Gilligan: I’m convinced we will be energy independent well within my lifetime, presuming I live another 10 years or so. If only the environmentalists would just get out of the way. We are on the threshold of changing the world of energy and being energy independent and changing the whole global cycle to where we’re sending money to people that hate us, and the environmentalists are worried that the world’s temperature is going to go up a 10th of a degree at some point down the road.
I’m really not making fun of the climate people because they are serious. They want to crimp consumption of fossil fuels but they don’t have an alternative. Fossil fuels have lifted so many millions of people out of poverty, and the folks that want to crimp fossil fuels simply say let’s push them back in to poverty. This whole thing with windmills and solar panels and all of that—it’s really too bad that they have distorted the realities on this. Nobody wants to pollute the planet, and the industry has gone a great way toward reducing carbon consumption, but some of the environmentalists just want the total end of fossil fuels. And they try to make you feel guilty if you are consuming fossil fuels.
So if the environmentalists would just be responsible and let the energy be developed responsibly without this overarching evil, destruction of the planet mentality I think things could be moving along a lot quicker.
But, I still think at the end of the day we will reach energy independence because the markets always win. I’ve been in government affairs for 38 to 40 years now, and what I’ve seen time and again is that as much as the government tries to tell the markets what to do, the markets normally do what they want to do. They always find a way and they always win.
FON: What you think was your greatest accomplishment PMAA?
Gilligan: There are two or three things that were pretty exciting. When we managed to finally get some futures market reform provisions [with solid leadership from the New England Fuel Institute], and that was a great accomplishment. When you take on investment banks and actually get significant reforms in place—that’s a big deal.
We took EPA to court on the SPCC [bulk plant/terminal] rules and we got a settlement on that. Not too many people take EPA to court and win.
Another one, which was a fun win, was the wet lines issue. Department of Transportation had proposed the retrofitting of every gasoline transport in America to empty the wet lines before they entered the highway and we went to Congress and got an amendment added to the highway bill saying DOT couldn’t do this rule until they got a third-party study performed. We did it as a delaying tactic. We are just trying to slow them down.
But, sure enough, the GAO went over to see what DOT had to justify this rule and they had nothing. They had not one shred of statistical data to justify this rule. It was being pushed politically by a few congressmen on the Hill and they put pressure on DOT to move it, but it was one of those amazing things that was a win for PMAA.
FON: In your job satisfaction over the years, where would you place battling out these regulatory and legislative initiatives?
Gilligan: That’s an interesting question. We’re having our Day on the Hill in a couple weeks and the speaker decided to recess the week that we were scheduled. So we had to shift it back because our members would be disappointed if they did not have a chance for that face-to-face meeting.
But the truth be told, it’s the staff that runs these issues. I’m not belittling the interaction between the business people and a member of Congress, but at the end of the day the things that get done happen because the staff gets them done. That’s the real difference.
I was a statehouse lobbyist in Indiana for 10 years and in that role you work directly with the legislator face-to-face, all the time getting things done. When you come to Washington you find out that there is very little face-to-face business that goes on between Washington lobbyists and an actual member of Congress. Most of it is at the staff level and the average staff member on the Hill is under 32 years old, eager, ambitious and smart. They are looking to make a mark and be successful and that’s where the action is at—convincing the staff that your approach is the better approach and that there is support for it. Most of the lobbying of the actual members of Congress is between the members when they are talking with each other.
FON: What was your greatest disappointment?
Gilligan: Actually it’s one of my regrets. I wish I’d approached it a bit differently.
I think it was 2004 or 2005, and in that timeframe as we discussed earlier there was the concern about big-box stores selling below cost.
I had met with one of the key staffers for Sen. Tom Daschle of South Dakota who desperately wanted a national ethanol mandate. Daschle was the majority leader of the Senate, and what he had done that year since the Senate could not come up with an energy bill was commit to an energy bill himself. So we went to Daschle’s people and said look, if you will look in amendment in there barring the below cost selling of gasoline and diesel, with a simple definition of below cost, we will support a national ethanol mandate.
So we sort a struck this deal and they said Sen. Daschle can’t introduce this amendment, so can you go find a senator to introduce it and we found Max Cleland from Georgia and he introduce the amendment. But boy oh boy did we set off a bomb in the industry.
It got really crazy and it got personal and there was a lot of division between PMAA and NACS and SIGMA and API and I do still to this day regret how I went about that. I was probably moving too quickly and forced people to overreact or underreact and eventually had to go back to Sen. Daschle and say we can’t do it. There’s going to be too much blood and carnage about this, because the industry was very divided. I wish I’d been a little bit more strategic and I hadn’t really laid the groundwork with the other associations.
FON: I was following RFS through a lot of that time and there was a lot of resistance and it seemed deadlocked, but all of a sudden the deal was done. How did that come about?
Gilligan: Four letters—MTBE. The law required reformulated gasoline to have an oxygenated additive, and there were only two: ethanol and MTBE. The refiners wanted to get rid of MTBE as quickly as possible, and the only way to do that was to remove that oxygenate mandate which the ethanol industry was not the mood to let happen. So basically, the refiners went to the ethanol guys and said we will agree to blend X gallons of ethanol if you agree to get rid of the oxygenate mandate.
One of the complaints from some refiners today is that this is not fair, I’m an obligated party and I have to blend this stuff and we have petroleum marketers out there blending and they are not out obligated. Not to be a smart alec, but I would say look, we didn’t volunteer to do this; you guys did. You guys agreed to do all this blending and we were not even allowed in the room when it was discussed. It was strictly the refiners and the ethanol industry that made the first deal.
But the first deal in 2005 wasn’t bad. It was really reasonable and we would not be having the blend wall issues with that one. When the Democrats took over in 2006 their view was anything the Republicans can do on renewable fuels we can do better. So they went back then and expanded the whole mandate in a very significant way, which really is the source of the problem.
FON: What would you say to the members of the association as you leave office and as Rob takes over?
Gilligan: First, I would like to tell them how much I respect what they have to do to make their companies profitable in probably the most competitive business you can imagine. I have an immense respect for people who have succeeded and continue to succeed in this business, and it certainly not getting it easier.
My message would probably be to get out there and be more politically active on the local level. Get to know your state legislators and your congressmen if you can. Send your local congressman a donation for heaven’s sake. Go to a town hall meeting and give a donation, and start building that rapport because that person makes a lot of decisions that affect your business.
It frustrates me when I encounter so many members who are detached from their local political universe. I don’t want to get in politics; it’s not my thing. But you have to get involved with politics because your business is at stake. Do not be indifferent to local political races get involved and be heard.
One of the old sayings is it doesn’t matter if you know your member of Congress, it matters if he or she knows you. And that is absolutely the truth. As consolidation occurs and our industry gets smaller, it’s even more important that you build those relationships and get involved.