Pumped Dry

Gas station dealers find big oil blocking the way in their struggles against extinction

And lest anyone miss the message, Chevron products manager W.J. Berghoff sent a letter to its remaining lessee dealers in western states last November announcing a new "market value" rent program. Under the program, rents would double on average and new fees would compound the monthly bill. Not to worry, though, as the bold-faced type in the first paragraph noted: "There will be no immediate effect on the rent you pay, because Chevron will temporarily waive these new rents.While we hope it will not be necessary to actually implement this program by withdrawing the rent waiver, Chevron must have the flexibility to respond quickly should the need arise."

What that need might be was spelled out quite clearly. Citing five state and local government initiatives to protect dealers in California, Oregon and Arizona that had been given "serious consideration," Berghoff stated that his company had to be prepared for the worst if they were passed. "Chevron can no longer ignore this threat," he wrote.

Chevron officials subsequently denied that the letter constituted a threat of their own. But imagining the result of such a shift would not be difficult: Shell went to a similar rent program in 1998, and since then its dealers have been dropping like flies. Even if dealers could somehow survive the hike, the additional costs would have to be passed on to consumers, raising pump prices even higher than the recent record levels. "This letter provides evidence of a price-increasing action by Chevron based on punitive, political, anti-competitive motives," wrote Oregon Senator Ron Wyden in a follow-up letter to the FTC. "The letter to lessee-dealers makes clear that Chevron is exploiting its enormous market power to raise gas dealer prices."

Attorney Robert Steinberg: "I want to get back our pound of flesh for these dealers."
Deron Neblett
Attorney Robert Steinberg: "I want to get back our pound of flesh for these dealers."

When FTC attorney Eugene Higgins reported on ARCO's pricing practices in late 1982, he didn't mince words. Recommending a full-bore antitrust investigation, Higgins concluded that ARCO was selling gas below its cost. Though he could not be sure why ARCO would choose to lose money, he wrote, "The answer would appear to be that ARCO will raise the price of its gasoline after its selective price-cutting has forced the closing of a sufficient number of the cost-efficient independent stations and intimidated the rest of the independents."

Higgins closed his report with a quote from former Supreme Court justice Louis Brandeis: "[We] should be under no illusions as to the value or effect of price cutting. It has been the most potent weapon of monopoly -- a means of killing the small rival.It is so simple, so effective."

Shortly thereafter, Higgins was reassigned to a minor matter in Iowa. The ARCO investigation died. "They blew him off into the cornfields," says Jack Greco.

The FTC is investigating allegations that oil companies deliberately have run up gas prices. Results were supposed to be ready by now but have been delayed indefinitely, and as each day passes, the likelihood that anything will come of it grows more remote. The momentum generated by $2-a-gallon gas in the Midwest has slowed (especially since prices fell within days of a congressional outcry), and consumers seem used to the idea of paying substantially more at the pump than they did a year ago.

The companies have a pile of answers to the pricing question, backed by industry analysts and experts. OPEC with its soaring crude prices has been the chief whipping boy -- never mind that most of the crude serving the West, where prices are highest, comes from California and Alaska and costs the Chevrons and BP Amocos a fraction of OPEC's price to produce. Persistent supply shortages, even if the companies have the ability to rectify them, provide another ready excuse. Zone pricing at the retail end simply "recognizes market conditions and how those conditions affect prices," as Equiva's prepared statement explains.

While some FTC staffers might like to penetrate the propaganda haze, they can't get out of the starting gate. Swamped by the spate of oil company and other big-ticket mergers, the agency is ill-equipped to evaluate those deals let alone devote scarce money and personnel to antitrust claims. "The merger wave strains the FTC resources to the breaking point," agency chairman Robert Pitofsky told the House Judiciary Committee earlier this year.

In fact, only 50 employees in the agency's Bureau of Competition are left to scrutinize antitrust cases, as one-third of its staff has been transferred to the merger side. And Congress is loath to increase the bureau's numbers, which were cut in half during the Reagan-Bush years and have never recovered.

Even if FTC staffing levels were beefed up, any efforts at blocking the oil industry might encounter resistance from other quarters. The companies continue to spread their wealth in selected political circles to further their agenda, and they expect a return on their investment. Industry contributions to federal campaign coffers over the 18 months since January 1999 have topped $14 million, not including millions more spent on lobbyists. As Chevron spokesman Jack Coffey recently told the Associated Press, the industry spends vast sums on lobbyists "to be sure our business operations can continue in the way we want them to continue."

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