Bill to regulate gasoline prices advances
A bill before the state legislature that would empower the state to monitor the gasoline industry, and prevent fuel price gouging following natural disasters, cleared its first hurdle Wednesday.
Under the legislation, sponsored by state Rep. Jim Shapiro, D-Stamford, a co-chairman of the Law Committee, fuel companies would be required to provide information on mergers and acquisitions to federal antitrust investigators and to the state attorney general.
Companies with large enough market share, as determined by the federal government's Herfindahl-Hirschman Index, would be subject to subpoenas from the Office of the State Attorney General for documentation on whether the company is using its weight to engage in tactics to stifle competition, such as undercutting single-station operators and smaller firms.
"Companies will certainly be allowed to grow by acquisition, providing that a business is acting fairly and not restraining trade," Shapiro said.
Shapiro said he drafted the legislation as concerns about a wave of consolidations and mergers of larger oil companies have grown in recent years, an issue he learned about as he pushed for several bills to ban zone pricing, a policy in which oil companies and distributors charge gas stations in some locations more for fuel, based on location alone.
"The key thing here is giving the attorney general the tools he needs to investigate potential antitrust and anti-competitive behavior in the retail pricing and selling in gasoline," said State Rep. William Tong, who represents Stamford and New Canaan and is a member of the law committee. "We're committed to ensuring the gas prices we pay in Stamford and New Canaan and elsewhere we represent are fair and competitive."
Zone pricing has a dramatic effect on Fairfield County drivers, where motorists have at times paid 50 to 75 cents more for a gallon of gasoline than drivers elsewhere in the state.
Companies looking to claim a larger market share in Connecticut may have cause for concern about language in the bill which might allow the attorney general greater leeway to probe corporate growth, especially if he or she chooses to target growth not driven by buying up other companies, said Steve Guveyan, executive director of the Connecticut Petroleum Council, which represents major oil companies, terminals, and producers in Connecticut including Exxon-Mobil Corp.
"What if a company wants to build its market share and increases in size by 5 or 6 percent based on just competitiveness?" Guveyan said. "Most companies want to grow, and it appears this law might impede the growth of companies down the road."
The law also includes a mathematical definition by which the state attorney general would identify gas station owners who are price-gouge drivers in the wake of hurricanes or other disasters to fatten their profit margins.
By using the difference between a station's price and the wholesale terminal price before and after a crisis, a wide upward departure in profit margin would indicate possible profiteering, Shapiro said.
"In the past, gas dealers have had trouble knowing what constitutes an emergency and what the definition of gouging is," Shapiro said. "So the current provisions against gouging have been tough to enforce. This new anti-gouging provision clarifies the rules to provide consumers and businesses information to act accordingly when there is problems."
After gasoline prices spiked in the state after hurricanes Katrina and Rita more than five years ago, State Attorney General Richard Blumenthal investigated whether gasoline and heating oil dealers might be illegally raising prices on false claims the hikes were in proportion to market pressures.
Peter Beutel, an energy analyst for New Canaan-based Cameron-Hanover, which provides market reports for energy traders, said the legislature appeared to be acting preemptively to regulate what it sees as a possible problem in the market.
Beutel said consolidation of local gasoline stations into local networks is not commonly viewed as a potential cause of higher gas prices. Higher prices are more commonly perceived as a side effect of various causes, including speculative investors buying oil futures, production by OPEC nations, and larger multinational oil companies, he said.
"I suppose the state has good reasons for doing this, but in the 11 years I've been in Connecticut, I've not heard this as something that sticks in people's craw," Beutel said. "Hopefully they are heading off price increases we will never see."