Guest commentary: Time to break up the gas monopolies
Labor Day is upon us. A better name for it here would be “Gasoline Rip-Off Day.” Everyone from Aspen to Rifle and Vail knows gasoline prices in western Colorado are way too high. But who should we blame?
I suggest we point a finger at a rapacious Canadian oil company and some equally rapacious gasoline marketers, particularly Phillips 66.
Start with the oil company. Suncor owns the refinery that supplies most if not all of Colorado’s petroleum products. Suncor is a Canadian firm. Its primary interest today is in developing, producing and selling Canada’s very dirty tar sands oil.
Suncor purchased Denver’s two refineries 10 years ago, combined them and then upgraded them to process heavy, dirty Canadian crude. Today, much of the oil refined by Suncor in Denver comes from Canada.
Wait, you say, isn’t Colorado producing a lot of oil? The answer is yes. Colorado pumped out twice as much oil in May as Suncor processed. But Colorado’s output was declining when Suncor bought the two refineries. The company built pipeline links to bring its crude here in preparation for when the state ran dry. Today, it continues to bring in heavy crude while Colorado producers must find other markets. One of these is in Nova Scotia.
You and I pay the bill for this swap. Suncor sticks it to us for higher-cost crude while Colorado producers earn less. What is the difference? Well, today AAA reports that we pay an average of $3.62 per gallon while consumers in North Dakota pay $3.46, Oklahoma $3.28 and Texas $3.26. Why did I pick these states? Because North Dakota, Oklahoma and Texas, along with Colorado, are centers for fracking.
Simply put, we pay more because Suncor has monopoly power. Like other Canadian companies, it is extracting money from Colorado just as Russia extracts tribute from Europe. By my estimation, Colorado pays $600 million in tribute to Canada each year.
Those living west of the Continental Divide also must feed the rapacious gasoline marketing business. Most gasoline gets distributed by one of two companies. Phillips 66 is one. It supplies Conoco and Phillips 66 stations. This firm and other suppliers extract additional tribute from us through an arcane practice called “zone pricing.” This pricing scheme allows companies to charge different prices to different customers. The Aspen Business Center station may pay $4.39 per gallon for the product they buy, while the Conoco station at Willits may pay $3.89. Then the operators add around 20 cents to set their retail price.
The Conoco station in Gypsum probably pays only $3.45 for the gasoline it buys, a full dollar less than those in Aspen. Why does the Gypsum operator get a deal? The answer is simple. The Costco store down the street sells gasoline and Costco buys direct. Phillips 66 executives must grit their teeth and give the Gypsum station a lower price or see it close.
Under zone pricing, which the Federal Trade Commission has long criticized, companies discriminate among consuming areas, establishing prices to maximize the amount of money (a pain to you and me) they can pull out of each one. Like Suncor, they do this because they can. In the process, they probably reap $100 million or more from the valley if traffic counts can be believed.
Historically, we have complained about the valley’s gasoline prices but done nothing. Mayor Eddie Girdler, of Somerset, Kentucky, faced the same issue and took action. He opened a city gasoline station that charged the same low prices as neighboring towns. His residents saved more than twenty cents per gallon. Local gasoline marketers complained. Given the oil industry’s zone-pricing system, I bet their suppliers cut prices so the marketers could match the Somerset city price.
Phillips 66 and other marketers would do the same should Aspen, Basalt or Carbondale adopt the Somerset strategy. If we opened one or two “city stations,” prices up and down the valley would drop to Gypsum levels, at least. The biggest beneficiaries of the change would be the few intrepid individuals selling gasoline in Pitkin County. They would gain because they could lower their prices, which would encourage drivers to buy locally rather than trekking to Glenwood.
It is time to break some monopolies. Gasoline should cost less in Colorado.
Philip K. Verleger Jr. retired from the University of Calgary where he was the David Mitchell-EnCana professor and now heads PKVerleger LLC. He was director of the Office of Energy Policy at the U.S. Treasury during the Carter administration. He currently lives in Carbondale.
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