Sunday April 30, 2006
The Eliminate Gas Price Discrimination Act is designed to eliminate a practice commonly employed by major oil producers known as “zone-pricing,” whereby oil companies map out geographical areas and then charge gasoline stations different wholesale prices according to arbitrary formulas. Rather than permitting market forces to determine the price of gasoline, oil companies employ zone-pricing to artificially increase profits in multiple zones across the country. Allow me to explain a little more on how this “zone-pricing” process works.
Zone-pricing is the process by which oil companies’ map out geographical areas and then charge gasoline stations different wholesale prices according to arbitrary formulas. Rather than letting market forces determine the price of gasoline, oil companies employ zone-pricing to artificially increase profits in multiple zones across the country.
The ability to impose zone pricing is based on the power of the oil companies to control the wholesale purchases of gasoline stations. As a condition of their franchise agreements, gasoline station owners must agree to purchase gasoline from specific wholesalers. Such agreements render gasoline station owners powerless to shop for a cheaper supply of gasoline.
Congress has recognized that gasoline stations are in a tough negotiating position with the oil companies, and in 1978 passed the Petroleum Marketing Practices Act (PMPA) to provide national standards for gasoline franchise agreements. Unfortunately, the PMPA did not include anti-competitive protections for gasoline stations. For this reason, I have introduced H.R. 3964, which amends the PMPA to prohibit anti-competitive provisions in gasoline franchise agreements that dictate the wholesale supply of gasoline.
The Emergency Petroleum Allocation Act would direct the government to establish controls on gas prices during fuel emergencies. At the current time, the bill would limit gas prices at $2.50 per gallon, which was the national price average before Hurricane Katrina hit the Gulf coast.
Under the Act, Congress could also direct the President to take a variety of other actions to reign in oil prices, such as ordering refineries to modify their output, and controlling the accumulation of oil by importers, producers, refiners, marketers or distributors.
At a time when we are not getting any leadership from the White House, the responsibility falls on the leaders of this Congress to do all they can to ease the burden of high gas prices. I hope you will join me in urging the leaders of the Energy Committee to pay immediate attention to this issue, examine the practice of zone-pricing in the oil industry, and review the efficacy of designing temporary gasoline allocations during fuel emergencies.