Md. probes high gas prices

Comptroller assails prices oil firms charge service stations

May 26, 2007|By Jamie Smith Hopkins | Jamie Smith Hopkins,Sun reporter

State Comptroller Peter Franchot said yesterday that he is launching a probe into high gas prices and wants answers from oil companies - particularly why the price can range 10 or 20 cents a gallon between nearby stations selling the same brand.

With U.S. gas prices setting a record right before the travel-heavy Memorial Day weekend, politicians across the country are insisting that something has to be done - and are rushing to do it.

Twenty-one governors, including Maryland's Martin O'Malley, called this week for an inquiry into pricing. The House voted for legislation making gas price gouging a federal offense and also approved a bill to give the federal government the power to sue the Organization of Petroleum Exporting Countries, the major oil cartel.

The average price of regular unleaded gasoline in Maryland was about $3.12 a gallon Thursday, AAA said yesterday. It was the 12th consecutive day at or above the $3 mark.

Maryland's price is about 10 cents a gallon less than the national average and remained below the state's record of nearly $3.27 per gallon, set after Hurricane Katrina hit the Gulf Coast in 2005.

The Federal Trade Commission has investigated price gouging before - including post-Katrina - and said it could find very little activity beyond a normal market at work.

But Franchot, a Democrat who as comptroller is responsible for overseeing gas sales, said he believes the FTC "has lost its leadership and its direction."

The comptroller said he faxed a letter yesterday to major oil companies that asks for information about "zone pricing," which charges station owners in close proximity different prices for the fuel they sell to consumers. He said station owners are neither profiting from zone pricing nor to blame for it.

"I want to get to the bottom of this pricing scheme," said Franchot, standing across the street from an Annapolis Shell station charging just shy of $3.25 a gallon for regular gas. Declaring that "there's a new sheriff in town," he added: "I am committed to using the full power of the comptroller's office to ensure ... that all pricing in Maryland is fair."

In 30 days, he said, he will review industry responses to his letter and decide on further action. He said he has also directed agency inspectors to ensure that fuel isn't getting hot while it sits in retail outlet storage tanks, because fuel expands as it heats - which means consumers get less than they paid for.

The Consumer Federation of America thinks Franchot is right to go after what it considers an abusive pricing practice.

But both the industry and an independent gas-price expert said yesterday that attacking zone-pricing won't have the effect the comptroller wants.

Rayola Dougher, a senior economic analyst at the American Petroleum Institute, a trade association for the oil and natural gas industry, said the practice drives prices down, not up.

Refiners, distributors and marketers - sometimes the same entity, sometimes not - can decide to charge a station with stiff competition less than a station that's in a better position elsewhere in the area.

"It's a pricing mechanism used by a variety of industries, like hotels," she said. "You can think of it as offering a discount to some, where others don't get that discount."

Other states have considered making zone-pricing illegalbut backed off after being told it would hurt consumers, Dougher said.

Ben Brockwell, director of data, pricing and information services at Oil Price Information Service, an independent trade publisher, thinks zone pricing is the wrong target.

Prices have been driven up by too much demand for too little supply, he said, which means that legislators could get more bang for their buck if they require car manufacturers to make vehicles that are more fuel-efficient.

Speculation on the crude-oil futures market is also to blame for higher prices, he said. Once the domain of producers and big consumers, that market is now controlled by traders with no stake in the market beyond the money they sink into futures, he said.

Still, Mark Cooper, director of research at the Consumer Federation of America, calls zone pricing a scheme to wring a bit more money out of consumers. He thinks the industry can't possibly prove that two stations in the same neighborhood face different competitive markets.

"I think it's important for every level of government to be challenging the pricing practices of the oil industry," Cooper said. "I wish the comptroller could go after refiners, but that's a federal issue. To me, zone pricing is the final insult to the overall injury - yeah, it's pennies, but when you're paying $3, every penny counts."

Franchot found some agreement at the Shell station he used as a backdrop. The owner, bud elsaesser, who spells his name without capital letters, said he doesn't like being charged a different amount than other Shell stations in the area.

"If they eliminate zone pricing, it can't do anything but help me," the station owner said. "I have people all the time tell me, `Geez, gas is really cheap in Edgewater.' "

Franchot said consumers can e-mail concerns about prices or fuel problems to: gashelp@comp.state.md.us, and can get information about gas prices on his office's Web site: www.marylandtaxes.com.

jamie.smith.hopkins@baltsun.com

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