Customers gas up at Mankato’s Sam Club Thursday. The business was fined $20,000 for selling gas below the minimum set by state law.

MANKATO — At least one Mankato fuel seller was selling gasoline at prices below the minimum required by law and has agreed to a $40,000 penalty, according to the Minnesota Department of Commerce.

The exceptionally low prices offered by Sam's Club on Madison Avenue were matched by the Mill's Fleet Farm fuel station when it opened in April, which appeared to be the spark that caused a lengthy local gas war that left local drivers with weeks of steep discounts compared to other Minnesotans last spring and summer. But those prices were below-cost, which state law prohibits, according to the Commerce Department investigation that prompted a "cease and desist order" to Sam's Club late last month.

Sam's Club has already paid a $20,000 civil penalty imposed by the Commerce Department and agreed to pay $20,000 more if it doesn't stay in compliance with the fuel pricing law in the future. The law, which requires fuel sellers to keep prices above the wholesale cost, was violated at least 20 times at the Arkansas retailer's Mankato fuel station between April 14 and May 19, according to the department.

The Mankato gas war, which began in April and lasted for more than two months, left fuel prices up to 20 cents lower than other parts of the state but prompted complaints by smaller convenience store owners to the Commerce Department, which launched an investigation. Some pointed to the opening of Mill's Fleet Farm while others said Fleet Farm was only matching the Sam's Club price.

While Sam's Club, which is a membership-based wholesale club owned by Wal-Mart, was the first fuel seller to be fined, it might not be the last.

"The investigation continues into gas pricing in both the Mankato and Rochester areas," said Ross Corson, director of communications at the Commerce Department.

The Sam's Club and Fleet Farm stations appeared to be continuing a lowest-price dance in recent days. Late Friday morning, Sam's was offering regular unleaded for $2.15 a gallon and Fleet Farm was at that price for at least part of the day, according to Sam's went up to $2.21 later Friday night, with Fleet Farm sticking at $2.15. Fleet Farm rose to $2.21 on Saturday, but Sam's dropped to $2.14 by Saturday afternoon.Whether recent pricing violates the state law depends on the wholesale price levels for each retailer's supplier. The law also exempts stations from the below-cost law if they are matching the price of a competitor within the same retail market.

Unlike the period from mid-April to mid-July, when Mankato had the lowest average prices in the state among regional centers, other Mankato convenience stores and gas stations weren't immediately dropping their prices to keep up with Fleet Farm and Sam's this week. The new Augusta Drive Kwik Trip, just down Highway 22 from Fleet Farm, was at $2.24 per gallon much of Friday. Virtually all other Mankato stations were at $2.25 Friday and Saturday, a price that matched the statewide average and was four cents higher than the national average.

During the gas war, Mankato offered dramatically lower prices than others. Since mid-July, local gas sellers have continued to offer slightly cheaper gas on average than the Twin Cities, Duluth, and St. Cloud, but Rochester's average price has typically matched or been slightly less than Mankato's.

Local fuel buyers didn't seem particularly concerned that the Commerce Department was punishing Sam's Club for offering too good of a deal. Deb Deml of Mankato, filling her tank at a small two-pump Clark station near downtown Mankato, said she wasn't aware that Minnesota had a minimum-pricing law. But Deml said she would support its intent of keeping corporate gas sellers from using unfair pricing to drive smaller competitors out of the market.

"Because I'd rather shop at the small business anyway," she said.

Gasoline isn't a big part of Deml's budget, however. She doesn't drive a lot, and when she does, it's in a tiny, fuel-efficient Kia.

"I've only filled up twice since September," she said.

It's a different story for Neely Prenzlow.

"I live in Mapleton, work in St. Peter, so I drive at least 70 miles a day," Prenzlow said.

She couldn't help but notice that Mankato was offering substantial gas discounts in late spring and early summer. But even though the gas war offered budgetary relief, Prenzlow is fine with the Commerce Department cracking down if they've determined a big retailer is selling at prices that might kill off the little stations.

"It is disturbing, because I don't like the big guys to make all the bucks," she said.

The Free Press submitted a request for comment to Wal-Mart's corporate media relations department Wednesday and also asked if the company felt that Minnesota's pricing law should allow lower gas prices for organization's like Sam's Club that include membership fees. No response was received Thursday, Friday or Saturday.

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