Lawmakers push for cheaper gas - Oil industry critic seeks to outlaw 'zone pricing'

www.sfgate.com Edward Epstein, Chronicle Washington Bureau Thursday, March 6, 2003

Washington -- Two Bay Area members of Congress are calling for federal action to drive down the sky-high price of gasoline, but their odds of success seem slim.

Rep. Mike Thompson, D-St. Helena, a longtime critic of oil companies' practices, has introduced legislation that would force refiners to stop discrimination against independent stations and halt what he says is the practice of manipulating prices by zones to keep pump prices high or undercut competitors.

And Sen. Barbara Boxer, D-Calif., on Thursday asked the General Accounting Office, Congress' investigating arm, for an inquiry of gasoline prices in California, which are the highest in the nation.

Boxer, in a letter to the GAO, said she particularly wanted to know whether there had been an unusual cluster of refinery shutdowns that could result in tighter supplies and higher prices. Boxer also wrote the seven biggest refinery operators in California, asking for a list of the number of hours their refineries have been shut in recent months.

Thompson's legislation, which he had introduced in the previous session of Congress, has quickly drawn 20 House co-sponsors, all Democrats. It will be furiously opposed by oil companies, who deny price gouging. The oil companies argue that the recent spike in costs to motorists has been brought on by a looming war in Iraq, turmoil in Venezuela and a cold winter on the East Coast, all of which had driven the world price of oil to $37 a barrel Thursday.

The federal government warned Thursday that nationwide gasoline prices could hit record levels in April, with the average pump price topping the record $1.71 a gallon reached in May 2001. California's prices already are at record levels, with the statewide average for a gallon of regular unleaded hitting $2.04 on Tuesday, and prices reaching an average of $2.19 in San Francisco.

Thompson, who introduced similar "divorcement" legislation when he was a state senator, said prospects for his bill were "slim to none, and none just left town."

"I don't have any expectation this will become law, but the motoring public needs to know that the companies are doing this to them," he said.

According to Thompson and Dennis DeCota, executive director of the California Service Station and Automotive Repair Association, regional zone pricing involves the use of demographics -- income levels, local competition -- to manipulate the price for gasoline in a specific neighborhood. They say it amounts to oil-industry redlining.

But at ChevronTexaco, the San Ramon-based multinational that is the second-largest gasoline retailer in California, the explanation is much more benign.

"Zone pricing refers simply to the practice of pricing competitively in localized markets," ChevronTexaco executive David C. Reeves told a Senate investigating committee in April 2002. "It means identifying an area where we believe there are competitors to Chevron-branded stations and pricing our gasoline to allow our stations to compete for the business in that area."

"We are confident that it results in lower, not higher, prices for consumers," Reeves added.

Of the 8,500 gas stations in California, 6,500 are independently owned, although most have exclusive agreements to carry one brand and buy their gas at the zoned price. Thompson wants to free them to pay the "terminal price," meaning they could buy their gas on the wholesale market from middlemen or "jobbers" who pick up gas at terminals in Richmond, San Jose, San Bruno and Sacramento.

"The basic California situation is that there are only six or seven suppliers who control 90 percent of the production. They act in unison. It's an oil-igopoly," said DeCota, who owns a Union 76 station in San Anselmo. He was selling unleaded regular for $2.22 a gallon on Thursday.

In her letter to the refiners, Boxer alleged that their behavior raised echoes of the state's energy crisis.

"This is reminiscent of the electricity crisis when generators took their plants off-line for 'routine maintenance' at a rate higher than normal," Boxer wrote. "We now know that these generators were holding back electricity to artificially increase the price."

Nicole Hodgson, a ChevronTexaco spokeswoman, said that more than two dozen state and federal investigations over the past two decades had uncovered no evidence of wrongdoing.

Those investigations, Hodgson said, "have reached the same conclusion: that there has been no wrongdoing on the part of industry and that refiners have not engaged in illegal conduct."