Agency Finds ‘Redlining,’ ‘Zone Pricing’ of Fuel
In a rare glimpse into its continuing investigation of West Coast gasoline pricing, the Federal Trade Commission on Tuesday revealed that it has found evidence of so-called redlining and zone pricing, practices that consumer advocates contend inflate prices.
Richard Parker, director of the FTC Bureau of Competition, stopped short of calling such practices illegal in a letter sent Tuesday to Sen. Ron Wyden, an Oregon Democrat who has been a harsh critic of oil companies. But the probe has uncovered “detailed information on practices in the industry that raise competitive concern,” Parker said in the letter.
Parker said the agency found evidence in Oregon and elsewhere on the West Coast of “zone pricing,” in which refiners set wholesale prices by area, and “redlining,” in which independent distributors are prohibited from selling branded gasoline in certain areas.
“Zone pricing can lead to situations in which nearby dealers are charged different wholesale prices, which may be reflected in retail prices. These practices raise serious questions about their effects on competition in gasoline markets,” Parker wrote.
Wyden, who last year conducted his own investigation of Oregon’s relatively expensive gasoline, said that by using redlining and zone pricing, “the big oil companies are siphoning the competition out of the gasoline market.”
Arco and Chevron, the two major brands in California, do price their products in zones but do that so dealers can better compete in localized marketplaces, spokesmen said. Chevron Corp. does preclude independent distributors from selling to its dealers in certain areas--called “redlining” by the FTC--but the practice has been upheld by the courts as a valid business strategy that helps lower gasoline prices, company spokesman Fred Gorell said.
The FTC began investigating gasoline pricing in California more than a year ago after prices spiked. The agency also is investigating the price explosions this summer in Midwest gasoline markets.
California Atty. Gen. Bill Lockyer also is looking into gasoline pricing. Lockyer has blamed high prices on a lack of competition in the state, where Arco owner BP, Chevron and just four other companies control more than 90% of the refining and retailing of gasoline.
Industry officials argue that the state is vulnerable to price spikes because it is isolated physically--no major pipelines bring gasoline into California--and because of product, since state pollution regulations mandate a specialized super-clean gasoline sold nowhere else in the country.
The FTC letter serves as a status report for the investigation, which will be completed by the end of the year, a spokesman said.
Wyden, in an interview, said zone pricing and redlining are “a one-two punch directed at the consumer, who is getting clobbered.”
But oil company executives said these are legitimate business practices that respond to market conditions, in the case of zone pricing, or protect a company’s investment in dealerships in a particular area, in the case of what the FTC calls redlining.
Chevron spokesman Gorell said “redlining” is a “charged and inappropriate term” and that the California Court of Appeal last year upheld the practice.
Gorell noted that the FTC has reached no conclusions in its investigation.
“Chevron has and will continue to cooperate in any way with the FTC’s investigation as we have with all investigations associated with gas pricing,” he said. “It’s important to note that these investigations time after time after time conclude that it’s the marketplace at work setting gasoline prices and the culprits are supply, demand and competition.”
