Curran wants it both ways on gasoline prices

September 07, 2005|By JAY HANCOCK

WHAT SHOULD the poor gas stations do?

They'd better not charge too much for gas in Maryland - the attorney general says so. But they're not allowed to charge too little, either, thanks to the 2001 "Sam's Club" law that threatens harsh punishment for giving Marylanders the most affordable gas possible.

Think I'm kidding?

So far this year, Maryland Comptroller William Donald Schaefer has fielded 32 citizen complaints about service stations selling gas too cheaply and has busted several, forcing them to raise prices, according to his office.

I know you are as outraged as I am that stations have been trying to sell for less. I feel that $3.50 is a terrific price for a gallon of unleaded. It's probably not high enough, come to think about it. Former Gov. Parris N. Glendening and the other people who brought you the Sam's Club law might feel more comfortable with $4. Or $5.

But wait! That would get gas stations in trouble with Maryland Attorney General J. Joseph Curran Jr. He's against high gas prices.

"Like my fellow Marylanders, I am wondering why gasoline that was already bought and paid for by stations here has suddenly skyrocketed in price," Curran said last week. "We have many questions, and we want clear and understandable answers. ..."

I'll try. How's this for understandable? Gas stations "own" the gas in their tanks, an economist might say. Stop me if this gets too technical. When the market rate for the gas goes up, they can "sell" it for a higher price, encouraging others to sell high, too, and sometimes the cycle becomes self-reinforcing.

Here's a helpful analogy. Say there's a Maryland homeowner - Attorney General Curran, to pick somebody at random. Say he "already bought and paid for" his house, a lovely Baltimore stucco, as it happens. Say the market value for Curran's house "has suddenly skyrocketed in price," which, as a matter of fact, it has, along with other Maryland real estate.

When Curran sells the house, should he take what the market bears and pocket a big profit? Apparently not, according to Curran. His blast against gas stations implies that anybody who sells anything should do so at only a smidgen over their historic cost. Or maybe he thinks gas stations should sell gas below cost.

But wait! That would get them in trouble with Comptroller Schaefer.

He's charged with enforcing the Sam's Club law, which allows him to shut down any miscreant who insists on giving Marylanders great deals by selling gas below average wholesale cost in a given area at a given time.

The measure, backed by independent gas stations who feared predatory pricing by chains, effectively bans price wars and loss leaders, those time-tested tactics to get market share. It was opposed by Sam's, Sheetz, Wawa and other chains who claim their wholesale cost is lower than that of their competitors.

"The bill puts efficiently operated retailers at a disadvantage," complains Wawa spokeswoman Lori Bruce. Opposition by Sheetz to the law and those like it, says Sheetz general counsel Mike Cortez, "stays as strong as ever."

In practice, the Sam's Club law subjects even law-abiding but aggressive gasoline marketers to extra government scrutiny. Since Aug. 1, whistle-blowers have alerted Schaefer's investigators to a dozen stations that suspiciously seemed to offer just a little too much customer value. (The snitches, whom Schaefer's office did not identify, are presumed to be rival gas stations.)

Three weeks ago, for example, Sheetz store No. 316 in Joppa was flagged for selling gas at $2.559 a gallon. Yes, I'm feeling the anger, too. Nobody should have gotten away from the pump in mid-August for anything less than $2.7999999, as far as I'm concerned. But Schaefer's office found that, in fact, Sheetz was legit, selling for more than a dime over the posted wholesale price. (Nobody has complained to Schaefer's office about low prices since Aug. 17.)

Sometimes the comptroller cracks down, however. The most recent violations were in April, when a Sheetz, two Wawas and a BJ's in St. Mary's County launched an old-fashioned price war, going mano a mano at $1.999 - below the $2.0065 wholesale price, according to Schaefer's office. After regulators intervened, prices at all four stations went up a few pennies, according to The Washington Post, which reported the story in May.

What a dumb, unnecessary rule. Merchants are already protected from monopolies and predatory pricing by antitrust law. The Sam's Club statute seems anti-consumer, pro-special interest and especially embarrassing given what's going on with gas station marquees these days.

But neither should regulators be meddling much with prices on the high side. What businesses charge often must be tied to future costs, not past ones. Yes, there are such things as hoarding and gouging, and sometimes governments must step in. But we aren't even close to those conditions in Maryland. When government gets involved in commerce, market logic often gets left by the roadside.

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