DISTRIBUTORS IN CALIFORNIA WARY AS GAS PRICES CLIMB

CHRIS O'LEARY

California-based distributors, hit with the nation's highest gasoline price surges, are trying to absorb the added costs without increasing prices for consumers or retail customers.

Gasoline prices have risen by 21% in the state since February, industry officials said, with current prices running from 20 to 40 cents per gallon above the already-rising national average.

"We're paying more for gas, which is certainly a concern for us," said Larry Cooper, vice president of distribution for Ralphs Grocery Co., Compton, Calif. "We've seen these spirals before and hopefully they're going to go back the other way."

The state's price increases are part of a national surge in gasoline prices that has sparked political debate on whether measures like repealing gas taxes should be taken.

California, however, is also contending with a reduced oil supply due to a string of accidents and maintenance shutdowns at local refineries as well as a federal law forcing all in-state drivers to use special reformulated gasoline, a mandate that doesn't apply outside the state.

Supermarket distributors have shouldered the increased costs so far but remain wary that higher charges from manufacturers, food brokers or third-party carriers could trigger a chain reaction of cost increases.

Gasoline price increases "are obviously costing us money but we're going to try to hold the line for our members as much as possible," said Corwin Karaffa, vice president of distribution for Certified Grocers of California, Los Angeles.

"We have not made any

price changes to our members for delivery at this point," he said. "We want to determine whether it's a long-term or short-term shift in pricing."

State energy officials have predicted gasoline prices could remain at their high levels for two more months. However, Karaffa said he's seen signs of prices leveling off. "Prices seem to have stabilized over the last week," he said. "Hopefully, they've topped out."

Certified has begun contacting its vendors to determine whether increased transportation costs will affect allowance and pricing structures, he said.

"We've sent letters for our vendors to take appropriate action based on the increased fuel prices," Karaffa said. Most parties, from brokers and carriers to manufacturers, are still trying to predict the extent of gas price increases before making any price changes.

California officials said the reformulated gasoline policy in particular places retailers in the state at a competitive disadvantage.

Diesel gasoline users in California have already switched to new fuels, which reduce fuel emissions to comply with the Clean Air Act of 1990. All in-state gas stations must convert all other fuels to new reformulated blends by June 1.

Many stations have already converted to the new gasoline, which is helping to raise prices, said Maureen Heagney, a spokeswoman for the California Trucking Association, Sacramento.

Diesel prices still remain the highest, she said. "We're averaging a good 40 cents more a gallon for diesel. Any consumer of diesel is feeling an enormous pinch. It has not topped out, it continues to rise."

Reformulated gasoline laws have become "more stringent," added Ralphs' Cooper. "There's an issue with the amount of processing and the availability [of the new fuels]. It seems to be all interrelated."