- The Washington Times - Thursday, July 19, 2001

A panel studying gasoline sales in Maryland probably will consider a recommendation today to ban "zone pricing," the often-criticized formula oil companies use to decide how much to charge gas stations for petroleum.

Maryland would become the first state to outlaw the practice, if the panel recommends a ban and lawmakers approve it.

Oil companies and gasoline distributors set wholesale prices for stations based on zones they create in each state. The station dealers are free to set the prices they charge consumers at the pump, but many dealers say they are forced to pass on the cost of their gas to their customers.

Consumer groups and station dealers have attacked zone pricing. The critics contend that oil companies and other suppliers charge stations in wealthier neighborhoods higher wholesale prices for gas, which forces the stations to raise their retail prices.

The task force, which has studied the practice since December, is scheduled to meet today to begin considering its recommendations to Gov. Parris N. Glendening, a Democrat. The panel may finalize the recommendations at the meeting or delay a vote until later this month.

"The task force could recommend legislation to prohibit zone pricing in Maryland, or it could find that it is not a problem in the state," according to Frederick H. Hoover Jr., director of the Maryland Energy Administration, a state agency that works with the panel.

Lorel E. Wisniewski, the task force's chairman, declined to speculate on recommendations. But she said some of the panel's members who include representatives for service station dealers and consumers are likely to favor a ban.

State legislators, representatives for the oil industry and Attorney General J. Joseph Curran Jr., a Democrat, also sit on the nine-person panel.

The panel must reach consensus on any recommendation before it can be made to the governor, Mr. Hoover said.

Several states have considered bills in recent years to eliminate zone pricing, but none have passed, said the National Conference of State Legislatures.

Bills to control or end the practice failed this year in New York and Connecticut, according to the conference. Virginia has not considered zone-pricing legislation in the past three years.

Maryland was one of two states this year to adopt other measures to govern gasoline prices. In May, Mr. Glendening signed a bill that prohibits station dealers from selling gasoline below cost.

Utah Gov. Michael O. Leavitt, a Republican, signed a similar bill in March.

The Federal Trade Commission has never conducted a full investigation into zone pricing. It did review the practice as part of its recently concluded review of high gas prices in the West but found no evidence that zone pricing was part of the problem.

Every oil company that uses the method has its own set of zones for each state. The zones can be as large as a square mile or as small as a single station; the companies usually refuse to give more details on them, saying the information is proprietary.

"[Zone pricing] stimulates a competitive marketplace. Beyond that, we can't get into specifics," said Jeanne Miller, a spokesman for Exxon Mobil Corp.

Last year, Connecticut Attorney General Richard Blumenthal told Congress Mobil had 46 zones in his state. In one instance, stations in a town with a higher per-capita income had to pay 6 cents more per gallon wholesale than stations in a nearby but less affluent town, he said.

Gasoline zone pricing is not unlike hotel pricing, said John C. Felmy, an economist for the American Petroleum Institute.

Hotel chains determine rates based on the demographics in the neighborhoods where they offer lodging, Mr. Felmy said.

"This is basically the same thing," he said.

The Service Station Dealers of America and Allied Trades, a trade group that has a representative on the Maryland task force, supports a ban on zone pricing, said Executive Vice President Roy Littlefield.

Gas stations in recent days have charged as much as $1.87 for regular unleaded gasoline in Potomac and as little as $1.29 for the same grade on the state's Eastern Shore.

One factor in the different prices is whether an oil company or an independent distributor supplies the gasoline to the station. The independent distributors tend to charge stations less.

Stations in cities and their closest suburbs usually buy gasoline from the oil companies. Stations in rural areas tend to buy their gasoline from independent distributors.

"They charge more money in upscale neighborhoods and less in neighborhoods that are downtrodden. It depends on what they think your competition is," said Harry T. Murphy, technical director for the Service Station Dealers of America and its representative on the Maryland task force.

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