Critics Say Gas Zone Pricing Discriminatory 7:24 a.m. ET (1124 GMT) April 8, 2000 By Jim Abrams

WASHINGTON  Congress should ban the zone pricing tactics of oil distributors because they stifle competition and drive up gas prices for the poor, speakers told the House Judiciary Committee.

Defenders said zone pricing, where distributors charge different wholesale prices to gasoline stations depending on the locale, gives suppliers the flexibility they need to help retailers compete in tough markets.

Cleveland City Councilman Bill Patmon on Friday told the panel of a class-action lawsuit he is involved in against Shell, where residents in east Cleveland, a largely minority and lower-income area, say they are forced to pay higher gas prices than people in neighboring areas.

Shell has denied any wrongdoing, but Patmon cited figures showing where east Cleveland stations had to pay more wholesale for gas than what stations in other areas were charging retail for the same gas.

"Millions of dollars in disposable income are lost to the community," he said.

Connecticut Attorney General Richard Blumenthal joined Patmon in urging Congress to take action to ban zone pricing.

"The refining companies map out areas and charge dealers different wholesale prices according to secret formulas based on relative wealth, isolation or other factors," he said. "Zone pricing is invisible and insidious."

He said Mobil has 46 zones in his state and cited a case where the wholesale price in one town with a higher per capita income was six cents higher than the wholesale price in a nearby less affluent town.

Blumenthal said the rich get hit because they are willing to pay more and the poor because they don't have the mobility to shop around for better prices.

R. Timothy Columbus, speaking for the Society of Independent Gasoline Marketers of America, acknowledged abuses in the system, but said it also gave suppliers a means of adjusting prices to help retailers survive in particular market conditions.

He said his group opposed a ban on zone pricing because "most independent marketers' experience indicates that if all prices are to be at a single level, those prices will be at the higher, not the lower, level."

Charging different prices for different locales is not regarded as a legal problem as long as there are variations in costs, taxes or other factors. But it can become an antitrust issue if zone pricing is used to stifle competition, or a violation of civil rights laws if race is proven to be involved.

Because of zone pricing, said Roy Littlefield, a representative of the Service Station Dealers of America, it's not unusual "to see two nearby stations being charged grossly disparate prices by the same supplier."

He said that while there are cases of zone pricing being used to lower a dealer's price to meet competition, "in the overwhelming majority of instances it is used to exact higher prices from dealers and consumers."

Judiciary Committee Chairman Henry Hyde, R-Ill., said the issue was complex because "the legality of this practice depends largely on the intent of the wholesaler." He said he was concerned about, but did not yet know, whether zone pricing was happening for illegal reasons. http://www.foxnews.com/national/040800/gas.sml

-- Martin Thompson (mthom1927@aol.com), April 08, 2000