The Utah attorney general filed a lawsuit Wednesday against Flying J Petroleums Inc. for selling gasoline below cost at one of its Ogden outlets.
It's the first lawsuit filed since the attorney general began investigating alleged violations of the 1981 Utah Motor Fuel Marketing Act more than a year ago. The law prohibits a gasoline retailer from selling fuel below its cost - the wholesale price of gasoline plus a 6 percent markup for operating expenses.The complaint filed in 3rd District Court accuses Flying J, based in Brigham City, of violating the law for eight days in June 1990 at its 1206 W. 2100 South outlet in Ogden. The state seeks a $5,000 fine for each sale made at the below-cost price and a permanent injunction prohibiting Flying J from further violations.
Because the station named is a truck stop located just off I-15, the sales could have reasonably reached 100 per day during the eight-day period, said Assistant Attorney General Art Strong.
Flying J officials had been notified of the complaint but hadn't seen it early Wednesday. Executive vice president Phil Adams said the company hasn't done anything but be competitive in the Ogden market.
"It's ironic to me that while the attorney general says he is investigating price gouging, he files charges for selling too low," Adams said. "It appears the attorney general is trying to set prices."
Strong said he expects criticism for suing a retailer over selling gasoline too cheaply, particularly since pump prices have increased about 39 cents a gallon in just over two months.
"But those people don't realize how temporarily low prices can lead to permanently high prices," Strong said.
The complaint contends Flying J's below-cost pricing could force smaller competitors out of business because they don't have the resources of Flying J to offset losses incurred by selling below cost. In addition to its retail outlets, Flying J also operates a refinery in North Salt Lake.
With smaller competitors driven from the market, the threat of higher prices would loom because only a few, larger retail gasoline operations would control the price, the complaint says.
"The creation of an oligopoly or monopoly in gasoline retailing will lessen or eliminate competition in the gasoline and diesel fuel retailing industry and ultimately lead to substantially higher retail prices."
Proving below-cost pricing is difficult because the state must show the violator was the first to drop prices below cost. Another hurdle facing investigators is that the state can only use the wholesale price 15 days before the alleged violation as the reference of the retailer's costs. Any price since then, even if the retailer sells below that price, is irrelevent.
Strong declined to comment on specifics against Flying J but has previously said the state would only pursue its strongest cases.
The state has been investigating complaints of below-cost pricing for more than a year. The complaints under investigation came before pump prices started soaring following Iraq's invasion of Kuwait Aug. 2.
But before August, the state received more complaints about below-cost pricing from independent retailers in Weber County than any other area in the state. Flying J operates six of its 14 outlets in Weber County.
And while Wednesday's complaint may be the first, it apparently won't be the last. "We are near the conclusion of investigating two other national retailers, and we will soon be deciding whether to file complaints against them," Strong said.