SALT LAKE CITY, Utah -- Utah retail gasoline prices did not reflect the decreasing refinery rack gasoline prices statewide, according to a state report.
Our report revealed that gas retailers are making a healthy profit off Utah consumers and continue to do so even as rack prices keep dropping, said Francine Giani, the executive director of the Utah Department of Commerce. While these business owners may not be breaking any Utah laws, they are certainly gouging fellow citizens at the pump.
As reported in CSP Daily News, in mid-September [image-nocss] Huntsman directed the Utah Commerce Department and the state's Energy Advisor, Dr. Laura Nelson, to investigate the ongoing high cost of gasoline in Utah, which he termed as "remarkably high" even after prices began to drop sharply nationwide.
Giani said Friday that the final investigative report into Utah's gasoline pricing was sent to Governor Jon Huntsman Jr. and his staff for review. The report is the result of a 30-day investigation by the department into Utah's higher than national average gasoline prices as directed by Huntsman. The report's findings reflect gasoline information provided to Giani and a team of investigators by Utah refineries, local retailers, economists and gasoline industry experts.
The report said, Logic dictates that Utah gasoline prices should bear some relationship to the rest of the nation. Although Utah operates in a relatively closed system, crude prices are based on several factors, most of which are global in nature. As a result Rocky Mountain producers of crude price their product similar to those in global markets. Refineries in Utah have not indicated that their product or production costs are higher than other refineries in the United States.
It added, Retail gasoline prices are affected by numerous economic factors. Most telling from this investigation, though, is the type of information the refineries and retailers were not willing to provide to the Department. From the information that was provided, it appears that some retailers took an opportunity to increase profit margins as wholesale prices began to decrease. Gasoline profits often are not the most significant profit source for a retail station, and throughout most of the year the profit margin for gasoline is small, often only a few cents per gallon. It appears, however, that during recent weeks some retailers have been making a profit margin several times greater than average. Because of the failure of the refineries to provide crude oil prices, it is impossible to determine whether recent profit margins for the refineries were an aberration similar to the retail margins.
The report concluded, Regulatory options could mandate increased transparency in profit margins or level the playing field between various refineries and retailers.
Click here to view the full report.
On Friday, a gallon of regular unleaded gasoline in Utah averaged $2.55, which was 30 cents higher than the national average of $2.25, according to a Deseret Morning News report citing AAA.
Paul Callister, president of Salt Lake City-based Premium Oil Co., which operates 14 gas stations in Utah and Idaho, disagrees with the state's findings. Callister said his company was losing money the first six months of this year. "During the first part of the year the bank card people were making far more per gallon than we were per gallon," Callister told the newspaper. "There were hardly any margins at all for the retailers. The retailers have not been dropping their prices as fast because they are trying to make up for what they lost the first part of the year."
But Giani laughs at such reasoning, said the report.
She suggested that a new pipeline or refinery could be built in the Salt Lake City market to offer additional refined supplies. She added that consumers should shop around for the cheapest gas and use public transportation where available. "Are we being gouged? Absolutely," Giani said. "Consumers' best ammunition is to shop around and to maybe do some of these voluntary things which cause them to drive less."
John Hill, executive director of the Utah Petroleum Marketers & Retailers Association, said gasoline retailers are not gouging customers and are making roughly a 6% gross margin on a gallon of gasolinea gross profit of $1.87 on a 12-gallon fillup.
"Come on, that's not excessive profit taking," Hill told the paper. "If there was so much money in it, then the refiners would still be in the industry. Back in the 1980s, they owned the gas stations. There's no money in it. There's more money in refining and exploration."
Hill added that only 2.6% of all convenience stores that sell gasoline are owned and operated by one of the big five major oil companies. The report, however, said that because of a lack of information, the Commerce Department was unable to determine the percentage of Utah retailers owned or operated by a refinery. The report cited an Oil & Gas Journal study that stated as of October 2001, less than 20% of the gasoline produced in U.S. refineries was sold through a station owned or operated by the refinery.
Hill criticized Giani's advice to consumers to shun buying Twinkies at small stations if they didn't like the price of gasoline. At the same time, Hill said, big discount gasoline retailers such as Costco and Smith's were charging the same amount for gasoline as the small stations. She wasn't telling anyone not to shop at Smith's or avoid Costco," he told the paper.
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