LOUISVILLE, Ky. (WDRB) -- Kentucky Attorney General Jack Conway sued Marathon Petroleum Co. Tuesday in federal court, alleging anti-competitive practices that lead to higher gas prices in the state. 

Marathon's stranglehold on the wholesale gas market is “most pronounced” in Louisville and Covington, where cleaner-burning reformulated gas ("RFG") is required during the summer to reduce air emissions – but the company's abuse of its monopoly "harms everyone in Kentucky," Conway said in a news conference Tuesday.

Marathon, which owns the only oil refinery in Kentucky and another refinery nearby in Illinois, supplies about 95 percent of the RFG gas sold in Louisville and Northern Kentucky, according to the Conway lawsuit.

Conway said his analysis shows Louisville wholesale gas prices running roughly 25 cents higher than in St. Louis, the closest comparable market where the cleaner-burning RFG is required. The lawsuit says that prices at the pump -- excluding taxes -- were 17.3 cents higher on average in Louisville than in St. Louis during the summer of 2014.

Marathon exacted an extra $40 million from Louisville wholesale and retail sales last summer due to its anti-competitive pricing, according to expert witnesses prepared to testify in court, Conway said at the news conference.

Conway said his investigation shows some independent gas retailers are required to buy 100 percent of their fuel from Marathon through supply agreements he calls unlawful, and that Marathon has entered into “exchange agreements” with other refiners to keep their products out of the Kentucky market.

Conway also said Marathon has placed deed restrictions on former gas stations it has sold in Louisville and Lexington that prevent the buyer from using the property as a gas station, or that require the fuel be purchased only from Marathon.

"Marathon Petroleum Co. disputes the allegations outlined by Attorney General Jack Conway at a news conference earlier this afternoon and will defend this judicial action vigorously in court," the Findlay, Ohio-based company said in a prepared statement Tuesday, declining further comment.

Conway brushed aside reporters' questions about the timing of the lawsuit only a few weeks before he begins the general election campaign for governor.

He said it's taken time for his office – which has no anti-trust expertise – to get the case together, and that he shouldn't refrain doing his job protecting Kentucky consumers because it might be perceived as political.

“Yes, my name is on the ballot this fall, but if I see that consumers are being treated unfairly at the pump, I think I have a duty to act as the Attorney General of Kentucky,” he said. “I'm not going to get any job in the future to by failing to do my job now.”

In the works since 2008

Conway's lawsuit comes nearly seven years after he began investigating Marathon's alleged monopoly on the supply of gas to the Louisville area.

In 2008 – as Louisville gas prices soared to $4.30 a gallon – Conway and other elected officials like Gov. Steve Beshear and then-Mayor Jerry Abramson promised to address the issue.

Earlier: SUNDAY EDITION | Six years later, no results from investigation into Louisville gas prices

For years, Conway has said Marathon's status as an out-of-state company limited his ability to bring legal action and that it was up to federal authorities to try to break up the monopoly.

But the Federal Trade Commission and U.S. Department of Justice have shown no interest in pursuing a case, so Conway decided about nine months ago to take whatever action he could under state laws, Conway told WDRB's David Scott in an interview last week.

Conway said Tuesday that the anti-competitive supply agreements that some retailers recently shared with his office bolster his ability to bring a case within his purview as Attorney General.

Marathon's power in the Louisville market goes back to 1998, when it began a joint venture with Ashland Inc. and put the two oil refineries closest to Louisville – in Robinson, Ill. and Catlettsburg, Ky. -- under common control. Marathon took complete control when it bought out Ashland's stake in 2005.  

In an interview last summer, Marathon spokeswoman Angela Graves would not directly answer whether the company has a monopoly on the regional gas supply, but she noted that the “the FTC has looked at it before and reviewed it in a couple of different requests.”

The FTC's study, last updated in 2004, found no evidence of increased retail prices in Louisville during the two years following Marathon's joint venture with Ashland – 1998 and 1999.

Graves said there are “different ways” for suppliers to reach the Louisville market, including bringing gas up the Ohio River by barge.

But, according to Conway's complaint, Marathon has entered into "exchange agreements" with at least two competitor refining companies by which Marathon's reformulated gas is sold at their stations in Louisville and Northern Kentucky. 

While Marathon's refineries are "uniquely situated" to provide the cleaner-burning gas to Louisville and Northern Kentucky, the exchange agreements further limit competition by keeping other refiners from investing in the capabilities to make the particular blend of RFG gas required, according to the complaint.

Conway's suit also says at least two independent retailers that own unbranded gas stations in Louisville have signed agreements that limit their ability to buy gas from Marathon competitors and require the retailers to waive their right to claim that Marathon's pricing is unfair or anti-competitive.

The names of the retailers and the other refiners were blacked out in the version of the lawsuit available to the public on Tuesday, though Conway's office said in a court filing that it hopes to file a clean copy of the lawsuit after Marathon formally responds. 

The lawsuit also includes a copy of a 2007 deed to a gas station property in Jeffersontown, which was sold by Marathon's subsidiary Speedway. 

The deed prohibits the buyer -- Sav-A-Step Real Estate Inc. -- from using the property as a gas station for 25 years unless it sold only Marathon gas.

The lawsuit includes a second deed to a gas station property sold in Fayette County in 2013 with a similar 25-year prohibition.


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