Business: Why-o, Why-o Sohio?

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An oil firm incurs the regulators' wrath by cutting prices

Those irrepressible regulators at the Department of Energy were caught last week with red tape all over their faces. Firing off a fusillade of contradictory rulings over the past two weeks, they first ordered Standard Oil of Ohio (Sohio) to raise its gasoline prices immediately by 100 per gal., then reversed themselves and ordered the increase rescinded, and finally proposed that Sohio add the extra 100 per gal. by early July.

For the past few months Sohio has been selling gasoline at its 2,500 stations, including Boron and BP outlets in twelve states, for about 100 per gal. less than the going rate at competing stations. Sohio, the nation's 13th largest oil company, was able to keep its price down because it was one of the companies involved in the discovery of Alaska's North

Slope oil. Under the complicated system of fees charged by the DOE, Sohio pays only $17.88 per bbl. for Alaskan oil, compared with $24.81 that various companies pay for crude from other areas. Federal regulations, however, limit Sohio's profits. Result: the company had no choice but to lower its prices. Drivers bludgeoned by high fuel costs naturally raced to buy the cheaper Sohio gas. In some cities early this month, customers were queuing up at 6 in the morning to purchase regular for $1.01, unleaded for $1.05 and premium for $1.08. Sohio's competitors, who under DOE regulations had been pumping gasoline for at least a dime a gallon more, were devastated.

But last month, a group of 94 unaffiliated dealers calling themselves Ohio Independents for Survival filed a complaint with DOE'S Office of Hearings and Appeals. After a speedy review, the department ordered Sohio to raise its prices 100 per gal. to more nearly equal the prices charged by the independents. Top White House officials, worried about the impact the ruling might have on Ohio voters in that state's June 3 presidential primary, expressed their displeasure to DOE. The department then quickly overruled the Office of Hearings and Appeals decision and reversed the reversal. It is now considering two proposals that would raise the fees of North Slope Alaskan crude. Both would hike gasoline prices for refiners like Sohio but would lower prices for others. Meanwhile, Sohio has already raised gasoline prices a nickel a gallon.

At the root of the Sohio confusion is the DOE'S Kafkaesque "entitlements" system, which dates back to the first 1973-74 OPEC oil price increases, and attempts to equalize the cost of crude to all oil refiners. Firms buying cheap domestic oil are taxed a certain amount for being "entitled" to acquire inexpensive crude. That money is then given back to refiners who import expensive OPEC oil and to refiners who use expensive uncontrolled domestic oil. The program, in effect, subsidizes imported oil at a time when official Government policy is to discourage imports. Though North Slope oil is domestic, the cost of building and operating the Alaska pipeline makes the crude relatively expensive to transport, so the Government treated it as something between domestic and foreign.