Santa Barbara News-Press (California)
The price of gasoline at Santa Barbara pumps has been drifting downward slowly, but not nearly as quickly as the falling wholesale price.
According to critics of the industry, there is no surprise here: Retailers are just making up for a difficult market when prices were rising earlier in the summer, making their profits where they can.
But the evidence is not clear about who, exactly, is reaping those profits — or whether they are really there.
“The business is not a cost-plus business,” said Joe Sparano, executive director of the Western States Petroleum Association in Sacramento.
“If you want to know what sets the prices, I’ll tell you — it’s the appetite of the buyer versus the costs to the supplier,” Mr. Sparano said. “I don’t know if you can count up all the cost factors and try to build that up to the price and explain it that way.”
According to Mr. Sparano, local retail prices for motor fuels depend on the concentration of stations in the market, zone pricing factors, which retailers are buying what size lots of gasoline and, as he puts it, other supply-and-demand factors.
Zone pricing is a marketing strategy that calls for setting prices within well-defined geographic areas that exploit the absence of competitors or, when competitors are present, that undercut their rates to capture market share. Industry critics call the practice unfair, because it leads to neighborhood-by-neighborhood variations in the price of a single product without economic justification. However, court challenges to zone pricing plans have never been successful.
Gasoline sold in Santa Barbara comes from Los Angeles-area refineries.
According to the California Energy Commission, the so-called rack price for gasoline there is $2.32 per gallon. The rack price is what refiners charge independent distributors for gasoline at the refinery’s terminal.
In theory, the retail price is based on that rack price, increased to cover transportation costs; ethanol blending costs; taxes and state fees; and profit margins for both the distributor and the retailer. The Energy Commission calculates those factors every week, and concluded that for the week that ended Aug. 21 they added up to 92 cents for unbranded dealers and 81 cents for the major brands.
If the Energy Commission is correct, however, the price of regular grade gasoline ought to be $3.16 — not $3.39 to $3.50 as it is at many Santa Barbara stations.
“The companies demand whatever is possible at the pump, no matter what the actual production and distribution costs are,” said Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights in Santa Monica. “Their quarterly profits show that what we pay at the pump has no relation to supply costs,” Mr. Court said. “What it boils down to is, it’s a rip-off.”
Rob Schlichting, a spokesman for the Energy Commission in Sacramento, said there are a number of factors that affect how closely the commission’s estimates reflect the reality of a particular market.
“Where the property values are high, taxes will be higher and often wages will be higher — those things may apply to Santa Barbara,” Mr. Schlichting said.
“Zone pricing tends to take affluence into account as well as the number of competing stations,” he said.
Regardless of whatever it is that props up prices at branded stations in Santa Barbara, not far down the road in Ventura and other locations between Santa Barbara and Los Angeles, retailers like Costco are offering regular gas for $3.04 — less than the Energy Commission’s predicted price and way below prices on the American Riviera. But before you rush to Costco, remember: You must be a member to buy there.
