Is Arco competing fairly?

Wednesday, May 14, 1997 | 11:37 a.m.

Assuming there is an appetite for repealing divorcement in Nevada, at least one major question needs to be thoroughly explored:

Has Arco -- or, for that matter, other major refiners -- changed its ways from pre-divorcement days when critics said it tried to stonewall the Legislature and wound up paying a dear price for it?

Arco detractors also say it is one leopard that is far from changing its spots. They point to how the company swallowed independent Thrifty Oil in early March and engaged in a questionable price undercutting practice in the small town of Pasco, Wash., later that month.

Nevada Gasoline Retailers Association President Jack Greco notes that last December, Thrifty Oil, in the wake of a brutal Los Angeles gasoline war, considered rebranding all of its stations to Arco.

By March 3, however, an announcement was made that Thrifty Oil would lease more than 260 of its stations to Arco, giving the company 1,700 retail stores in five Western states.

Arco has just 15 company-operated stations in Nevada -- the number limited by divorcement, which prevents a concentrated price war effort that would result in takeovers similar to Thrifty Oil.

Because the Nevada market is mostly franchisees and independents, competition among those small businessmen determines the prices, not a major oil company directing what the price will be, as what happened in California late last year.

The February 1997 issue of National Petroleum News lays blame at the feet of Arco for the price war that led to Thrifty's demise.

"Arco was considered the main cause of the price war, and it wasn't yet clear whether its price cutting would cool down," the magazine says.

Scott Loll, manager of public affairs for Arco, strongly disagrees.

"The LA price war was started by Shell, and Texaco was the first to respond -- Arco was one of the last to respond," he said, noting that there was nothing sinister about the Thrifty deal.

"The owner of the company approached us -- he was 76 and wanted to get out of the business and just own the land," Loll said.

If there is one example of a recent incident which looks on the surface like an attempt by Arco to destroy the competition, it would be in Pasco.

On March 26, while gasoline was selling for just under $1.30 per gallon for unleaded regular at the company-operated Arco at Rancho Road and Vegas Drive, the same product was selling for 88 cents at an Arco in Pasco.

The cost of transporting the fuel the extra distance from Alaska could not have played too great a role in that wide price difference, as fuel that day was selling for 26 cents more in Yakima, Wash., than it was in nearby Pasco.

The difference in taxes also was a nonfactor, as without them, the Pasco gas would have sold for 46.1 cents per gallon and the Las Vegas gas would have sold for 77.8 cents per gallon.

Also, it is against federal law for gasoline stations to sell petroleum below their cost for the purpose of driving competitors out of business. Arco denies that was the case in Pasco.

The reason for the abnormally low price, Greco says, can be found in the March 30 edition of the Tri-Cities Herald, which noted that critics of the incident saw Arco as "an insatiable corporate carnivore that devours competition only then to jack up prices."

The article notes that when Mr. Qwik's Conoco station next to the Pasco Arco, started selling its gas for 91 cents a gallon, Arco dropped its price to 88 cents.

The newspaper also noted that the incident brought to mind an early 1990s' price war in Yakima where 50 stations went out of business after Arco moved in.

Arco spokesman Geoge Ross told the SUN that Arco was only responding to Mr. Qwik, which he says started that price war.

He noted that the Pasco Arco is run by a contract dealer who sets his own prices, and was not a company-operated station as reported by Arco critics.

In the Herald article, which also referred to the business as "the corporate Arco station in Pasco," Arco spokesman Tom Markin echoed Ross' comments, noting "we're pricing to meet competition."

Rod Smith, treasurer of Smith Distributing company, which supplies Conoco stores in the Mid-Columbia region, told the Herald he only responded to Arco's predatory pricing, and never initiated it.

By early evening on March 27, after the Herald reporter began to ask questions, the Pasco Arco raised its gasoline price to a more competitive 91 cents.

By late last week, the Pasco Arco's price was up to 96 cents, while gasoline in Seattle company-operated Arcos was selling for $1.26-$1.29 a gallon, about what you'd pay for a gallon of regular unleaded in Las Vegas.

Greco says that another proof that divorcement works in Nevada is that gasoline stations of several brands are popping up all over the valley, including Mobile and Shell.

"If divorcement is so bad, why did eight new Mobile gas stations go into business here in recent months?" Greco said.

"Under divorcement, none of them can be operated by the company, but they are being built anyway. That is one strong argument against the myth that divorcement limits competition. There's all kinds of competition now."