Rising gasoline prices are under investigation in Virginia.

www.washingtonpost.com By Kenneth Bredemeier Washington Post Staff Writer Wednesday, March 5, 2003; Page E02

Virginia Attorney General Jerry W. Kilgore's office is investigating whether gasoline prices "are going up artificially or being driven by the market."

Kilgore said that in the past two weeks four lawyers and another staff member from his office have questioned producers and gas-station owners and listened to complaints from consumers about how the average price of a gallon of regular unleaded gasoline has risen in Virginia to $1.58 from $1. A gallon of regular now averages $1.68 nationally and in the Washington area.

"The price will go up with the trouble in the Middle East and Venezuela," Kilgore said. "But does it have to go up this quickly? I'm not sure the market is producing this big a jump."

Officials in Florida and California are conducting similar investigations.

The cost of crude oil typically accounts for about 40 percent of the retail price of gasoline, but lately, with the sharp increase in the price of crude because of the threat of a U.S. attack on Iraq and the lingering effects of a strike by oil workers in Venezuela, the proportion has been more than 52 percent.

Kilgore said that the investigation is being headed by Deputy Attorney General Judith W. Jagdmann and that his lawyers are looking at whether the major oil companies might be violating state antitrust law.

John C. Felmy, chief economist of the American Petroleum Institute, a trade group, said there is no mystery to the gas-price increase: It's simply that the price of crude oil has gone up so much. He said that for every dollar increase in the price of a barrel of crude oil, the pump price will increase 2.4 cents a gallon.

Exxon Mobil Corp. spokeswoman Prem Nair said that in addition to the crude-oil price increases, a colder-than-usual winter has increased the demand for heating oil, resulting in less gasoline being made.

Kilgore said his staff is also exploring why when a gas station raises its prices, others around it do the same.

Kilgore said he expects the investigation to reach some conclusions in about two weeks.

Tim Murtaugh, a spokesman for Kilgore, said the investigation was started after complaints from consumers and gas-station franchise owners who claim that the major oil companies impose rules that needlessly push gas prices higher, and that company-owned stations are favored.

Bruce B. Keeney Sr., executive vice president of the Virginia Gasoline Marketers Council, which represents about 1,000 of the 3,500 gas stations in the state, said the major oil companies' system of "zone pricing," in which retail gas prices in specific areas are kept more or less the same, is anti-competitive because the oil companies quickly change the wholesale price of gasoline if any station owner attempts to lower the pump price to meet competition from another dealer.

Felmy said it was "completely bogus" that normal pricing practices had anything to do with the recent gas-price increases.