Law would probe pricing abuses in gasoline industry
Published 1:09 pm, Monday, March 8, 2010
A new bill in the state Legislature would expand oversight of market share within the gasoline industry, allowing the state attorney general to probe alleged price manipulation or other tactics meant to stifle competition.
Under the bill, sponsored by state Rep. Jim Shapiro, D-Stamford, co-chairman of the General Law Committee, the attorney general could apply the Herfindahl-Hirschman Index, the same formula used by federal antitrust investigators to evaluate the market share of firms in different industries.
"Just because companies increase their market share doesn't mean they are using it in an unfair way," Shapiro said. "But companies that are gobbling up large sectors of the market should be aware that regulators are going to look at that."
State Attorney General Richard Blumenthal said the law would not ban firms from attaining a large market share, but it would formalize his office's role in enforcing antitrust cases in the gasoline industry.
"The language allows for the use of antitrust enforcement even against entities that don't meet the market power standard if they engage in illegal price fixing or engage in other anti-competitive behavior," Blumenthal said.
Last year, Shapiro sponsored a bill to prohibit zone pricing, a practice by which oil companies and distributors charge more to some gas stations based on location. The bill had the support of most Fairfield County legislators.
Steve Guveyan, executive director of the Connecticut Petroleum Council, which represents major oil companies, refiners and terminal operators in Connecticut including Exxon Mobil Corp., said the group has concerns about the bill and questions how use of the federal formula would provide an additional safeguard against anti-competitive practices or price gouging.
Oil companies now file reports with the Department of Justice and the Federal Trade Commission, both of which already apply the formula when checking whether a firm's market share raises antitrust concerns, Guveyan said. He added that a more stringent application of the Herfindahl-Hirschman Index standard than the federal government upholds is not justified.
"The process of going through an HHI analysis with those agencies is very time consuming, detailed and expensive, and requires bringing in antitrust lawyers and economists," Guveyan said. "Are we duplicating the same standard as the federal government imposes, or is it more strict? In that case, I think we would be hurting ourselves."
The bill is geared toward handling the potential results of expected increases in market share by midsized distributors or oil companies that could buy up distribution terminals or available gas stations, Shapiro said. The bill is also meant to deal with the increased concentration of control in the refining market, which would centralize power over supply.
The anticipated sale of 150 gas stations by Exxon Mobil Corp in Connecticut, part of the company's process of divesting thousands of gas stations around the country, is an example of the type of asset that could be leveraged for unfair advantage, Shapiro said.
An expanded network of gas stations could undercut smaller competitors that suffer from less favorable wholesale prices, Shapiro said.
"Big oil companies have been selling their stations, midsized distributors are getting bigger, and with the consolidations, we had no framework in which to deal with that," Shapiro said.
Both Michael Fox, executive director of the Gasoline & Automotive Service Dealers of America, which represents gas station operators in the state, and Chris Herb, of the Independent Connecticut Petroleum Association, which advocates for distributors, said their members support the bill.
Fox said that any further mergers of terminals and distributors in the state would mean less competition and an eventual rise in consumer prices
"Your average driver's assumption is that if you see four brands of gasoline, that there are four different firms supplying it," Fox said. "When the federal government approved the merger of Exxon Mobil, we disagreed with them. The government would never let Pepsi buy Coke, and that's the potential here."
Guveyan said that a previous Blumenthal effort to evaluate pricing data from oil companies in the state failed to reveal any collusion or illegal pricing practices.
"There are over 30 different wholesalers in Connecticut, and geographically, we are a small state," Guveyan said. "There are many different terminals located around the state selling different brands and with different ownership. There is a high level of competition."
Herb said that using the federal formula will guarantee that the state's layer of distributors doesn't become dominated by a few powerful firms.
"In this case, we're in the same position as the gasoline dealers," Herb said. "No gas station owner or distributor wants to see any one company have such control of the market that it would be able to manipulate prices or stifle competition."