Dan's Papers -December 19, 2008 - STATE GAS PRICING LAW IS IGNORED HERE

Four weeks ago, a State law was passed to prohibit "zone pricing" by gas stations. This practice allows gas stations to charge more at the pump in rich communities, such as the Hamptons, than in poorer communities, such as Shirley. Everyone thinks this is a form of collusion and price fixing that is criminal. But until now, largely because of lobbying by big oil, no state legislature has had the guts to make a law preventing it.

Last fall, our longtime State Assemblyman Fred Thiele vowed that enough was enough, and he would get such a law passed, and he did. It was voted upon and signed into law on November 12. But in spite of promises of vigorous enforcement, almost nothing has happened. Only about one in 10 gas stations is in compliance. And these one in 10 gas stations all have the same thing in common. They are independently owned and get gas that does not have a nationwide name. They sell Superior or Valero or Supercharge gas and, in complying with the law, they were charging an average of $1.95 a gallon last week. The gas stations owned by Hess or Exxon or Mobil are charging $2.25 in the Hamptons and as much as $2.75 in Amagansett and Montauk and are not in compliance.

There seems to be a disagreement why the independent gas stations comply but the major gas stations do not.

According to Thiele, the majors are flouting the law and daring the State to bring them to court, where they can fight the new law. "The State Attorney General knows about this non-compliance," he said. "You will soon see the State get an injunction, file for restitution and even enforce a civil penalty. The law's got teeth."

But, according to Katherine Odessa, who is president of the Long Island Gasoline Retailers Association, there is a loophole in the new law that allows the majors to not have to abide by it.

"The law prevents wholesalers from selling gas using zoning rule pricing. So the independents who get their gas from wholesalers have to comply," she said. "But big oil companies don't use wholesalers. They deliver gas in company trucks direct from their refineries. So the new law does not apply to them."

In other words, although the gas comes out of the ground everywhere the same, it depends where it goes before it gets to the pump. If it goes to a Mobil owned oil refinery and gets stamped MOBIL, then they can continue doing zone pricing. If it gets marked "generic" and gets bought by an independent wholesaler who ships it out to independent gas stations, then they can't do zone pricing.

In a strange way, this situation gives a big boost to the independent stations. When the word gets out that the gas you get there is cheaper, the old mom and pop owned stations, which often provide not only gas, but friendly repair service, will get lots more business. So hooray for the folks who own the B & L Service Station in North Sea and the Superior Gas Station in Aquebogue and PayLess Gas Station in East Hampton.

If matters go that way, then soon the majors will have to lower their prices anyway to compete. On the other hand, because gas is gas and the cost by the barrel is the same, perhaps the lower price required for compliance will cause the mom and pops to be unable to make enough money to stay in business.

One final thought. With the economy in the dumps, the Hamptons could get hit particularly hard since it centers on tourism and Wall Street. If this place goes even further into the dumps, perhaps the zone pricing will drop away anyway because the Hamptons will no longer be home for the rich. We shall see.