FTC numbers spur Sanders allegation that big gas station owners are gouging customers

Photo by Ceilidh Galloway-Kane

Photo by Ceilidh Galloway-Kane

Gas prices in Burlington are well above state and national averages, and have been creeping above Federal Trade Commission predicted price ranges since May, according to Sen. Bernie Sanders’ office.

The average price of gas in Vermont today, the office said, is $3.53. In Burlington, consumers were paying an average of $3.68 as of June 30.

Burlington is one of 360 cities around the country where gas prices are tracked by the Federal Trade Commission.

Sanders’ office said the FTC released data to the senator that revealed gasoline prices in Burlington in June were as much as a dime to 43 cents greater than a Federal Trade Commission computer model projected. In a statement, Sanders said the data showed Burlington gas prices were 15 cents to 29 cents higher than prices charged by gas stations in other Vermont towns only about 35 miles away.

Mitch Katz, an FTC press officer, said the commission received a letter from Sanders regarding the fuel prices and they they take such letters very seriously and were working on a response.

The FTC does not generally publicly comment on pending investigations because such an announcement could affect the market.

Attorney General Bill Sorrell said he had noticed a discrepancy in prices and had heard from some consumers on the matter as well. He said that while the issue can be frustrating, it often doesn’t add up to a crime.

“We, in the past, with the Federal Trade Commission, have been involved in looking at gas prices in the area. And quite simply if different gas stations look out the windows and see what their competitors are charging and decide to charge that amount, that is not a violation of our laws,” he said.

That doesn’t mean the Attorney General’s office won’t keep an eye out. Collusion, the act of collaborating with would-be competitors to set artificially high prices, would be hard to prove even if it was at work in a situation like this one, Sorrell said. While he wasn’t aware of any formal consumer complaints and said he had no evidence of a crime, he said the office hasn’t written off the issue.

“If we got any compelling evidence, we would be in touch with the federal authorities very fast,” he said.

Sanders says four companies own 58 percent of the gas stations in the Burlington market and hints this might be the reason for the discrepancy in prices.

“Prices here in the Burlington area and other parts of Vermont are much higher than they should be,” Sanders said. “So far, no one has given me a particularly good explanation. People who own service stations have a right to make a profit,” Sanders said. “They don’t have a right to rip people off,” he added.

Joe Choquette, a spokesman for the Vermont Petroleum Association and American Petroleum Institute, said market forces are the only cause.

“I would say that we think it’s a competitive market, and what’s at work are the forces of supply and demand and competition,” he said.

Why would competition lead to higher prices in one area? Choquette said distribution networks may be to blame.

Gas stations all over the state get their fuel from terminals that offer petroleum with various brands’ additive packages. One of the terminals serving Vermont is in Albany, N.Y. Another is in Burlington.

“If you were to drill down and get the prices for the same product at the various terminals, you’ll find in general the price per gallon of the product in Burlington is about 5 cents higher per gallon than the price in Albany,” Choquette said.

Areas in the southern part of the state may be served by the Albany terminal, and there are also terminals in Portsmouth, N.H., Portland, Maine and Springfield, Mass.

The varying sources of fuel cause a large variation in fuel prices across the state, Choquette said.

“I would say that we think it’s a competitive market, and what’s at work are the forces of supply and demand and competition,” Choquette said.

Follow Taylor on Twitter @taylordobbs

Comments

  1. David Usher :

    In a recent trip to Boston, gasoline was 40 cents cheaper in NH and 20 cents cheaper in Boston suburbs than in the Burlington area. This has not been the case in the past. Pump prices were generally higher in MA than in VT.

    We need a simple analysis published regularly that will compare retail prices, wholesale prices, federal tax, state/local tax per gallon from Burlington and other nearby markets. This will allow us to see where the discrepancies lie. Trudging around the Internet to find this information is a hassle. Can some enterprising investigative journalist please oblige?

    I don’t find Mr. Choquette’s reported analysis reassuring.

  2. JED Guertin :

    Mr. Choquette’s statement is reasonable on its face.

    “If you were to drill down and get the prices for the same product at the various terminals, you’ll find in general the price per gallon of the product in Burlington is about 5 cents higher per gallon than the price in Albany,”

    A 9000 gallon tanker truck costs money to run. And Albany, NY is a major shipping point. So shipping fuel to Burlington should cost more than it costs in Albany. However, that doesn’t explain the $ .15 higher cost of gallon of fuel between Burlington and other parts of the State.

    In fact, Choquette’s response raises more questions than it answers. He seems comfortable with the $.05 to $ .15 differential. It suggests that for every gallon a Champlain Farms buys for $1.00 they sell for $3.00. I doubt if that’s the case.

    But Sander’s does raise some serious issues as to how much the American public is being gouged by the big oil companies. And the problems with so little competition.

  3. BERNIE’s VILLAIN DU JOUR ! (published on-line July 12. 2012) by Brooke Paige

    Does anyone check into these things before they start tapping out their opinions on the key pad then publishing it on their “blog”, sending it to press or airing it live! Certainly, the minions in the Sander’s camp – who put words in “Bernie’s” mouth DO NOT! A thirty minute examination of the issue (on the internet) and a few phone calls would have revealed ALL of the following!

    1 – That the finished gasoline that is delivered from Rutland follows an entirely different production and delivery path than the gasoline delivered from Burlington/St. Albans.

    RUTLAND fuels are produced on the East Coast in Northern New Jersey, Philadelphia and Delaware and are transported by rail to Albany and trucked to Rutland – primarily distributed by Midway to Central & Southern Vermont with some distribution over the mountains to the Connecticut Valley (VT & NH). This product is primarily produced using less expensive WTI (West Texas Intermediate – light, sweet-low sulphur) crude.

    BURLINGTON (and ST. ALBANS) fuels are produced primarily in Montreal at the Suncor Refinery. All of this fuel is refined from Brent (North Sea – light sweet) crude, the most expensive oil in the world market. This crude is transported by tankers to the PMTL (Portland-Montreal Pipeline)off loaded in Portland, ME and sent by pipeline to Montreal for refining at Suncor. Champlain Oil Co. (COCO), Burlington; S. B. Collins, St. Albans and R.L. Vallee, St. Albans all purchase their fuels from this Montreal source.

    The differential in the price of the unrefined Brent Crude is 10 – 25 dollars/barrel (42/gal/bbl) therefore the cost before refining is 24 – 60 cents/per/gallon. Starting to see why Burlington Gas cost more! Brent Crude is extracted from the North Sea Oil Fields of the shores of Scotland, England, Finland, Denmark and Germany. Its high quality and close proximity to European Markets permits the producers obtain a premium price in the world marketplace.

    2 – MIDDLEBURY is serviced by suppliers in Rutland, Burlington and St. Albans. In this market the Rutland supplier has a significant cost advantage and the Burlington/St. Albans suppliers are forced to heavily discount their sales in order to compete for sales.

    3 – Each of the fuel distributors own and operate Convenience Store (c-stores) in their primary markets: COCO operates the Champlain Farms Stores, S. B. Collins – Jolley Stores, R. L. Vallee – Maplefields, Midway – Exxon/Mobil Mini-Marts (many in combination with Dunkin Donuts in-store franchises). Not mentioned in this discussion is Cumberland Farms which wholly owns Gulf Oil.

    4 – Unfairly included in Mr. Sander’s attack was Simon’s Markets owned by Handy Enterprises. Handy DOES NOT distribute fuel – in fact they are customers of several of the regional suppliers. Paul Handy’s story is truly a wonderful rags-to-riches tale. Arriving in Vermont in 1954 from Lebanon (via Montreal), Paul began by working in a local gas station as a mechanic – soon he purchased his first station. Over the years Paul and his brother, Salamin, built an empire that includes over a dozen Simon’s Markets, Champlain Beverages (a soda distributor), The Shelburne Travelodge and the Countryside Motel. The brothers helped their relatives emigrate to Vermont – sharing with them the wonderful opportunity that hard work and dedication had brought them. The Handvs do not even belong in this equation – they compete effectively in the Burlington – Montpelier markets despite their purchasing disadvantage. Paul died in 2005 and his tradition of success is carried on by his sons Joseph and Peter, as well as nephews including Charlie – who spoke with this author about Mr. Sander’s attack. Charlie told me that he and his cousins have lots to tell Mr. Sanders about the additional difficulties that he has brought to the family business by his actions and inactions – including his current foolishness. HEY BERNIE! – pick up the phone and give the Handys a call, if you dare! The Handy family has lots they would like to say to you.

    5 – The c-store business counts on gas sales to bring in customers hoping that they will decide to come into the store and make an additional purchase. Gas is a lost leader (or at best a break even sale) and these operators count on the additional patronage to make their operations profitable. These retailers work diligently to maintain the lowest (profitable) prices – the c-store side of their operations depends upon a constant flow of satisfied repeat customers. If gasoline sales were as profitable as “Bernie” would have us believe, do you think these folks would endure the headaches of running mini-markets and most often fast food operation – PLEASE!

    6 – The Head of the Bureau of Economics at the FTC (Federal Trade Commission), Louis Silva, explained (in a telephone conversation, Tuesday) that the FTC report that Sanders cited is designed to compare the market prices in different markets – not to explain variations within markets (i.e. New England vs Gulf Coast – the benchmark). The Weekly Report does not and cannot be used to compare local pricing within a market because of refining, distribution and marketing conditions unique to those areas (like Vermont).

    The Weekly Report was set up in the wake of Katrina to monitor the Gulf Coast markets (to check for gouging in the wake of the Hurricane). When it was found to be a useful tool for the FTC, the decision was made to make the report permanent. (Details in the September 2011 report “Gas Pricing and Petroleum Industry Update”)

    7 – The Deportment of Energy routinely monitor and analyze Market and Wholesale Pricing conditions. These market conditions are fully explained in “DOE Motor Fuels – Understanding the Factors Influencing Retail Pricing of Gasoline (GAO-05-525SP-2005)”. The report details each of the factors that influence the pricing of gasoline. In brief the wholesale price, at the time the report was written, was a combination of: Crude Oil 48% + Taxes 23% + Refining 17% + Distribution and Marketing 12% = 100% to which the retailer added a mark-up of 4 – 15 cents/gallon. A 2011 update sets the percentages in the era of $4/gal. gasoline at: Crude Oil 65%, Refining 14%, Taxes 13% (fixed in most states to a per gallon rate) and Distribution and Marketing 8% = 100% – the retailer market-up remaining 4 – 15 cents/gal. – a substantial percentage decrease when you consider that the sale price has doubled.

    8 – As if this was not enough to convince you that despite “Bernie’” ranting, these folks are probably not making a fair profit (let alone “cheating the consumer!”). Selling Gasoline is an expensive and highly regulated business – the initial cost of setting up the tanks and pumps + required (and necessary) fire protection equipment is generally $500,000 to $1,000,000 (or more) depending on the number of pumps and tanks, regular testing of the tanks (for leakage) cost over $1,000 twice a year, service calls start at $1,000 + time and materials, when the equipment fails. Additionally, the inspectors from Vermont Weights and Measures and Vermont Environmental Protection routinely visit and inspect each pump and tank at every location. Still looking like EASY MONEY?

    I could continue however only a little child (or a Vermont U.S. Senator) could still think that differences of 5, 10 or 15 cents/gallon translate into consumer fraud, collusion among competitors or illegal activity!

    All of these folks are hard working Vermonters carrying on family traditions that stretch back generations. So why has “Bernie” target these folks (families) to be his Villains du jour. Did I neglect that these folks are also rock-ribbed Republicans – safe and easy targets for the “independent” (Democrat in disguise) Sanders. YES – Tony Cairns (COCO), Bruce Jolley (S. B. Collins), Skip Vallee and the Handys are Republicans all – God love them! In fact, Skip was Bush’s choice as Ambassador to Slovakia and the Handys are personal friends of Governor Douglas!

    Now, not that anyone will be expecting it; HOW ABOUT AN APOLOGY BERNIE for trampling and defaming the reputations of these respected, hard working Vermonters!

    H. Brooke Paige
    Washington, Vermont

    THE AUTHOR HAS NO RELATIONSHIP OR CONNECTION WITH ANY OF THE INDIVIDUALS OR BUSINESSES MENTIONED IN THE ARTICLE ABOVE. MY FIRST AND ONLY COMMUNICATION WITH THEM WAS ON THE MORNING OF JULY 10 – OFTEN HAVING LEFT A MESSAGE ON THEIR ANSWERING MACHINES OR WITH A RECEPTIONIST – ALL CALLS WERE PROMPTLY RETURNED! b.p.

    H. Brooke Paige
    P.O. Box #41
    Washington, Vermont 05675

    (H) 1-802-883-2320
    (C) 1-802-224-6076
    e-mail at: donnap@sover.net

    REPORTERS ARE WELCOME TO USE AND QUOTE ANY OR ALL OF THE ABOVE INFORMATION – WITH PROPER ATTRIBUTION TO THE AUTHOR!

    To those that have only a passing experience with investigative reporting THIS is how you develop a accurate and credible story! You need to make the calls, do the research and keep you personal bias and predispositions at home!

  4. Jason Farrell :

    I was reading a political story yesterday which gave me reason to look up the the etymology of the term “blowhard”. And today, I’ve read a comment that clearly demonstrates a perfect example. Thanks Vermont Digger!

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