Some want to kill W.Va. ‘minimum markup’
CHARLES TOWN – A pair of bills that seek to exempt gasoline prices from an obscure 1939 law that established minimum mandatory markups for wholesalers and retailers is idling in the state Legislature.
[cleeng_content id=”829821085″ description=”Read it now!” price=”0.49″ t=”article”]The minimum markup rule was part of the Unfair Trade Practices Act, which requires wholesalers to mark their products up 4 percent and retailers to mark theirs up 7 percent.
The bill, which was enacted at the tail end of the Great Depression, was approved in the wake of an era when massive companies, referred to as trusts, were able to establish monopolies, engaging in a practice called “predatory pricing” that squeezed out competitors, such as “mom and pop” operations. Predatory pricing involved selling products below cost for a period of time in order to drive smaller competitors out of business. Once a trust had established a local monopoly, it could then raise prices and reap hefty profits since consumers would have no alternatives.
Delegate Stephen Skinner said that, at that time, the Legislature “was trying to intervene into the economy to protect small businesses from being swallowed by big businesses.”
But Sen. Herb Snyder, lead sponsor of the Senate Bill 491, which, along with Bill 4389 in the House of Delegates, seeks to address the minimum markup requirement, said the law is not serving its intended purpose and has been keeping gas prices elevated in the Eastern Panhandle for years.
“Things have changed a lot in the markets in this country,” Snyder said.
Skinner said the evidence the law hasn’t functioned as intended is clear.
“The proof of how well the legislation has worked is how poorly Walmart has done in the state of West Virginia,” he noted, pointing out that the retail giant is the largest private employer in the state.
Snyder said the law is usually difficult to enforce and has seen little use in other segments of the market, but gasoline wholesalers and retailers have successfully sued each other several times for pricing gas too low.
“The only industry that has used this for lawsuits, as far as we know, are the oil marketers,” Snyder said. “What they have done is to sue each other for not charging enough for gas. If someone is lowering the price of gas, they can and have been sued by the gas wholesalers.”
The potential penalties under the law are severe, Snyder said. The law declares that upon a third conviction of unfair trade practices, a business can be stripped of its right to operate within the state.
“No one wants to risk that,” he said.
Snyder says one clear indication the 1939 law has not been working as intended can be seen in a 2000 lawsuit in which Go-Mart, a major retail chain in the southern part of the state, sued the four-store chain U-Save for dropping its prices below the minimum markup. “It has been used in reverse,” he said.
As a result, gas prices have stayed higher in places where lawsuits have taken place, Snyder said.
“One would expect that gas prices would be equal to or lower than what we are seeing in the rest of the state, but that is not what we are seeing,” he said.
Locally, in March 1996, R.M. Roach and Sons, owner of Rocs filling stations and Roach Energy, filed suit against the Inwood Sheetz, alleging that it was selling gasoline below the minimum markup. The suit ended with a stipulation agreement a month later that is under seal.
Skinner said the law, when enforced, can function as state-mandated price fixing, eliminating the benefits to consumers of price competition. “In any other circumstance, you legally can’t have collusion over the prices of goods and services,” he said. “No one can convince me that the way it is working now is helping consumers.”
So far, both the House and Senate versions of the bill have yet to clear their initial committees – something that will have to happen this week for the bills to be considered this year.
Snyder introduced the bill at the beginning of the legislative session, but it was not put onto the agenda of the Senate Judiciary Committee, the first hurdle the bill has to clear, for the first several weeks.
Finally two weeks ago Sen. Corey Palumbo, who chairs the committee and controls the agenda, agreed to list the bill, and it was sent to a special subcommittee which is currently considering it. If it clears Judiciary, the bill will have to be sent to another committee before hitting moving to the floor for a vote.
The House bill has yet to be placed on a committee agenda.
Snyder said the bill has been opposed by the West Virginia Oil Marketers and Grocers Association, or OMEGA, a trade association that represents the state gasoline industry.
“The oil marketers are fighting me tooth and nail,” Snyder said. “They are trying to preserve their profits and their profits are inflated by this section of the law. The minute that the bill showed up on the agenda of the Judiciary Committee, all of a sudden all of the members were getting phone calls and letters from the oil marketers in their area. They do not want to give this up.”