State limits how low gas prices can go


August 05, 2008|By DAN THANH DANG

The Q:

The high price of gasoline has Townson Burkindine in Essex thinking a lot about what his elected officials have done over the years to help, or rather, hurt consumers.

"I don't know if this is true or not, but I heard somewhere that the General Assembly passed a law that retailers selling gasoline can't sell gasoline below a certain price," Burkindine said. "It blocked BJ's and Sam's Clubs from selling below cost, I think, to protect Maw and Paw gas stations. Is that right? Is that true? I think it guaranteed retailers a certain price on gasoline. It doesn't sound like that would be good for consumers. I don't know where I heard it or who I heard it from, but I know I heard it."

The A:

Burkindine is correct. Maryland does have a ban against low-price selling.

In 2001, Maryland's wise and wonderful politicians passed a law prohibiting individual retailers from charging less than what they pay for gas, unless the price is being lowered to compete with nearby stations.

At the time, convenience stores with discount gas, such as Sheetz and Wawa, and certain grocery stores and warehouse clubs were purchasing gasoline at low wholesale prices. Such businesses were able to negotiate deals with suppliers because of the large volume of gasoline they purchase.

In turn, those retailers could sell gasoline at their stations for lower prices.

Consumers loved the savings, but traditional retailers said the arrangements were driving them out of business, so they lobbied lawmakers for relief. The General Assembly responded by prohibiting individual retailers from selling gas below a statewide average wholesale price.

The Maryland Public Policy Institute said the measure effectively dampened price competition.

Although Burkindine didn't ask, he might be interested in the other, much older, law that the institute says hurts consumers at the pump.

In 1974, price control policies prevented oil companies from passing the rising cost of crude to consumers. So oil companies cut back on importing crude and cut back on supplying independent stations in order to fulfill the needs of their own "name-brand" stations, MPPI said.

Gas lines stretched for blocks, and lawmakers reacted by adopting divorcement laws.

Gas station divorcement laws basically prohibit oil companies and refineries from operating retail stations, but would still allow them to own stations as long as they contract the stations out to independent franchisees. Maryland adopted its own divorcement law in the middle of the crisis.

Although divorcement is intended to prevent oil companies from using their power to manipulate prices and force independent and franchise gas station owners out of business, MPPI says the laws effectively force consumers to pay a double markup on the price of gasoline. Oil companies and refiners charge enough stations for the commodity to make a profit, and then stations add more to the price to make their own profit.

MPPI says that several studies have shown that divorcement leads to higher prices for consumers.


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