End price supports for gasoline
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t may be temporary, but Utah's subsiding gasoline prices -- down from close to $3 per gallon a few months ago to around $2.20 now -- have provided a respite to the controversy over how stations set prices at the pump.
An investigation by state government found that Beehive State retailers had taken unusually large profits at the tail end of the recent national price slide. Public pressure, along with the state's snooping, have since forced retailers in line with national prices.
But one thing we didn't hear too much about during the gouging controversy was that while Utah law doesn't establish a ceiling on gasoline prices, it does set a floor. Unlike virtually all other consumer goods, it is illegal to sell gasoline below cost.
This practice should be abolished.
The law -- a so-called "sales below cost" statute, or SBC -- was enacted in 1981 by the Legislature. It was designed to protect locally owned gas stations from being undercut by corporate-owned gas retailers who, theoretically, could afford to cut gas prices so steeply they could run the competition out of business. Utah is not alone in this price-protectionism for gas retailers; as reported by the Standard-Examiner's Tim Gurrister recently, between 16 and 22 states have similar laws governing gasoline prices.
But there is no general agreement among state officials as to the support or opposition to the law. Attorney General Mark Shurtleff and at least two of his predecessors were against the law preventing below-cost sales of gasoline. And lawmakers were sufficiently undecided about its worth during the past session that they declined to extend it by a requested five years -- instead, they established its "sunset" limit at July 2007.
A new bill to lengthen that sunset date by another five years has already passed out of a legislative interim committee, and will be debated by the entire Legislature in its early 2007 session. We urge lawmakers to scuttle that bill -- promoted by the Utah Petroleum Marketers and Retailers Association -- and allow the SBC provision for gasoline sales to expire in seven months.
Gurrister quoted a Weber State University economist, Cliff Nowell, who said it would be unlikely that gasoline prices would plummet if the SBC law is removed from the books. He also talked to the former director of the Utah Petroleum Marketers and Retailers Association, Farr West's Darwin Vandegraaff, who said since 1981, corporate ownership of individual stations in Utah has not prevailed, as predicted 25 years ago. Indeed, 66 percent of gas stations in Utah are locally owned. Furthermore, it's next to impossible now to find a gas station that isn't also a convenience store -- many quite large, and some including fast-food restaurants.
The best argument against continuing with the current policy of SBCs for gasoline, though, is that the state should not be in the business of protectionism. We don't do this for Wal-Mart, so why should we do it for gas stations? Let the marketplace decide.
