That 70s Show

High gas prices driving regulation speculation, calls for controls

WASHINGTON -- The rising price of gasoline has rekindled debate across America over whether prices for gasoline should be regulated as they are for electricity and water, said a Knight Ridder report.

As reported in CSP Daily News, on September 1, Hawaii will become the first state to cap the wholesale price of gasoline paid by retailers, who pass on price hikes to consumers. Hawaii's price ceiling will be set anew each Wednesday by taking the average of spot-market prices for gasoline in Los Angeles, New York and the U.S. Gulf Coast.

Gasoline prices across the United States now average above $2.61. Nevertheless, federal investigations have turned up no evidence of price fixing, and economists caution that regulating gas prices could result in less competition and even higher prices, the report said.

Michigan, Oregon, California, New York and Connecticut all have debated the merits of regulating the price of gasoline, said the report. The clamor spread across the northern border Sunday, when the head of Canada's New Democratic Party called for it.

It's very clear to us that gas prices need to be regulated. We really need to step back and recognize that like electricity, gasoline is too vital to the economy to be left in the hands of these corporations that have been gouging us, Doug Heller, the executive director of the Foundation for Taxpayer & Consumer Rights in Los Angeles, a consumer advocacy group, told the newspaper.

The Service Station Dealers of America (SSDA) agreed, saying wholesalers are limiting competition and thus pushing prices higher. Fuel is basically a commodity, almost something that should be regulated by the public services commissions, because there is no other product out there that so many consumers depend on, Paul Fiore, the group's executive vice president, told Knight Ridder.

The American Petroleum Institute (API) said it thinks regulating prices would bring disaster. That would be the stupidest thing on Earth we could do. It would throw us back into the 1970s, said John Felmy, API's chief economist.

President Richard Nixon ordered price controls on oil and gasoline in 1973. They remained until 1981. The controls interfered with market forces governing supply and demand and were blamed for volatile prices, shortages and long lines at gas pumps. President Ronald Reagan lifted price controls, and after deregulationand increased production by Saudi Arabiaa global oil glut emerged.

Few motorists complained when crude oil prices were $10 to $15 a barrel and gasoline prices hovered around $1 a gallon in the 90s. Today, however, gasoline prices are more than $3 a gallon in some cities, near the 1981 record price when adjusted for inflation.

Absent regulation, many gas station owners and consumer advocates want at least an end to zone pricing, according to the report. Factors that affect zone pricing include traffic patterns, the income of nearby residents, the level of competition from discount stations, even new entrants into the retail gasoline market such as Wal-Mart and Costco.

Wholesalers are careful to price what the market can bear, Don Spears, the managing director of pricing systems for MPSI Systems Inc., Tulsa, Okla., told the paper. MPSI creates data matrices for pricing. Dealers in different marketing environments have to give these retailers prices with which they can compete in different zones, he said. It's really a fundamentals-driven economic issue, where you are trying to make sure those dealers are competing effectively.

Some retailers disagree. The bottom line, the oil industry is able to extract a higher margin from their marketing area by segmenting their sales and the ability to price higher the same product because of demand, demographics or exclusivity, Andre van der Valk, who owns several stations around Los Angeles, told the paper. He sued Shell, alleging discriminatory pricing.

The Federal Trade Commission (FTC) has investigated allegations of price fixing nationwide and concluded that zone pricing does not lead to price gouging. Consumers shouldn't infer that there is something particularly suspect going on if they see price variations.... If you saw the same price at every station it might indicate competition is working perfectly, but it isn't inconsistent with competition that there's a variety of prices, said John Seesel, the FTC's associate general counsel for energy.

Economists at Virginia's George Mason University tried to replicate zone pricing in a controlled theoretical environment and concluded that eliminating the practice would not result in all consumers getting a lower price. There are all these other unintended consequences, Bart Wilson, who led the recent study, told Knight Ridder. The alternative to regulation, he said, is for consumers to become more active in rewarding stations with good prices. He pointed to websites that arm motorists with gasoline-price data, such as www.gasbuddy.com and www.gaspricewatch.com.

People really need to go out and make gas stations compete for their business, he said.

But a recent CSP Daily News Poll, which asked Do consumer fuel-price websites such as www.gasbuddy.com influence how you price your gasoline? found that 87% of the more than 230 predominantly retailer respondents are not influenced by the sites. Some 2.2% said they were influenced a lot, while 13% said they were influenced a little. And 5.2% said they were not sure.

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