Gas Companies Making Bank: Anatomy of High Gas Prices
By Denise C. Jones
WI Contributing Writer
Thursday, October 13, 2005

To say that nearly everyone has the “gasoline blues” is perhaps the understatement of the year. While more people are trading in their gas-guzzlers for more fuel-efficient cars including hybrid vehicles, consumers are challenged to be more consciously aware of where and how they purchase gas.

John Townsend, Manager of Public and Government Affairs at AAA Mid-Atlantic recommends that drivers “shop with their steering wheels” when purchasing fuel, that is observe gas station prices when you are out driving, and go where you find the best prices.

Proactive measures like keeping up with scheduled maintenance work, checking for correct tire pressure, not using the air conditioner as often, and driving at a steady pace instead of constantly accelerating then slowing down, also improves gas mileage. However, now that people in the D.C. metro area are paying between $1.20 and $2.00 per gallon more this year for gas than they were paying last year, and charges of price gouging are at an all time high, some wonder are there other options to relieve the high fuel prices. Might changes in consumer behavior, congressional intervention or alternative fuel sources be the answer?

A starting point for most consumers is the gas pump. With gas prices nearly $4.00 a gallon at some stations in the District, poor and working class communities are the hardest hit. “It’s almost like a regressive tax on someone who is poor or on a fixed income, especially if they’re the head of a family and they have to drive great distances to get to their jobs,” says Townsend. He cited an example of why drivers must be savvier when purchasing gas. During mid-September in the northeast D.C. area of Bladensburg Road and New York Avenue, he noticed a BP station was charging $2.95 per gallon for the lowest octane, and a station called “Lowest Price” was charging $3.49 per gallon for the same octane. At the Lowest Price station, he noticed there were five people buying gas, while at the BP station, there was one driver purchasing gas.

The psychology of this behavior is that people function based on habit and conditioning. If the Lowest Price station has had cheaper gas than the BP station in the past, then people have become accustomed to purchasing at that station without checking the price.

Townsend noted that although the Lowest Price station is charging 50 cents more than the BP station, the Lowest Price station does not accept credit cards, while the BP station does accept them. One rationale gas station owners are giving for the dramatic price hikes is their credit card fees increase based on the volume of sales. The more credit card sales, the higher the processing fee charged by credit card companies.

Given the current fuel price crisis, should credit card companies be required to fix processing fees to alleviate skyrocketing price hikes? Is price gouging at play at the Lowest Price station?

Among the three jurisdictions—the District, Maryland, and Virginia—people who gas up in D.C. pay more money consistently at the pump. Given the disparity in prices throughout the area, regional attorneys general are seeing record reports of price gouging. According to District price gouging laws, a gas station owner or gas company can be charged up to $1,000 per day or their permit can be revoked or they may be required to reimburse the price difference to consumers if they are found guilty of price gouging. However, the burden of proof is on the consumer.

Drivers must obtain receipts of fuel purchases and document the date, time, the name and address of the station, the price per gallon, what octane, and how much gas was purchased when reporting price gouging. In natural disasters or other national crises, there is panic from Wall Street to the gas pumps as stock prices plummet and gas prices soar higher and higher. Townsend noted that in the weeks following the September 11 terrorist attacks, states’ attorneys general across the country were charging record numbers of gas stations with price gouging. In Georgia, there were reports of gas prices as high as $6.00 per gallon.

Since the recent natural disasters in the Gulf States, gas companies are reporting that home heating oil and gas prices will rise this winter by 30 to 70 percent. However, before Hurricanes Katrina and Rita, AAA Mid-Atlantic reported that the record for highest gasoline prices in the District was broken 10 times in July of this year, and 11 times in August. The public interest group, Public Citizen reports that the top five oil companies (Exxon Mobil, Shell, BP, Chevron Texaco, and Conoco Phillips) have made record profits of $254 billion since 2001, the first year of President George Bush’s administration. Exxon Mobil leads the way with $89 billion, “the most profitable corporation in the world,” says Tyson Slocum, Research Director of Public Citizen’s Energy Program. He adds, “there is a direct correlation between these record profits and record prices being paid by consumers.”

The energy bill (HR 6) recently passed by Congress provides even more subsidies to oil companies to the tune of $6 billion. Given the current crisis in fuel costs and the rising unemployment rate, which is symptomatic of an ailing economy, Slocum recommends that Congress “enact legislation to regulate the amount of profit that a company like Exxon Mobil can have because their profits are coming at the direct expense of economic growth and job creation.”

According to Public Citizen’s web site, the U.S. is the third largest oil producing nation in the world, U.S. oil companies control 34.5 percent of domestic oil refining, and Middle Eastern countries and the OPEC cartel provide only 14 percent of America’s oil and gas. In recent years, the merger of oil companies has resulted in uncompetitive practices and higher fuel costs for consumers. In 2004, the U.S. Government Accounting Office (GAO) issued a report that the “recent oil company mergers have directly led to higher prices,” and the GAO report is based on oil prices tracked up to the year 2000.

Public Citizen recommends a five-point plan for oil company accountability, which could translate to lower prices at the pump including: 1) implement a windfall profits tax or enact temporary price caps, 2) investigate uncompetitive practices by oil companies, 3) reevaluate recent mergers, particularly in the refining sector, 4) restore transparency by re-regulating energy trading exchanges, and 5) improve fuel economy standards to reduce demand.

According to the Environmental Protection Agency, the average fuel economy of a 2005 vehicle is 21 miles per gallon (mpg), a five percent decline since 1988. Given the current fuel crisis, more people are using public transportation, carpooling, biking, or turning to more fuel-efficient modes including alternative fuel vehicles for their transportation needs. At the moment, hybrid vehicles that run on electricity and gasoline are the most popular, like the Honda Civic Hybrid and Toyota’s Prius, which have mpg’s as high as 52 in the city.

 

Alternative to Gas

Electric hybrids have higher city mileage but lower highway mileage than gas vehicles, and the hybrids emit less pollution. Biofuels like ethanol (produced from corn) and methanol, an alcohol-based fuel (produced from natural gas) emit less pollution and are an additional mode of fuel for several municipal bus fleets including those in the D.C. metro area. Hydrogen is also among the alternative fuels, and it emits the least pollution of any fuel source. Although it can be made from fossil fuels like oil and coal which are major sources of environmental pollution or it can develop from renewable fuel sources like wind and electricity, hydrogen’s emission is water.

Currently, Shell Oil in partnership with General Motors operate an integrated hydrogen fuel station on Benning Road in northeast D.C., the only retail hydrogen fuel station in the U.S. Tim O’Leary, Manager of External Affairs for Shell Renewables and Hydrogen, says “hydrogen fuel is twice as efficient as gasoline because a driver can travel twice as far on a kilogram of hydrogen vs. a gallon of gasoline.” He sees hydrogen as the fuel of the distant future.

Although hydrogen fuel cell vehicles are not expected to be available to the general public in the near future, the Post Office and the Army maintain a fleet of hydrogen fueled vehicles in the D.C. area. The location of the Shell Hydrogen station, which opened in the fall of 2004, and the safety of the station met stiff resistance by the River Terrace Community Organization, the D.C. Green Party, and the Sierra Club. Protestors accused Shell Hydrogen of environmental racism for locating the station within steps of an elementary school, in a largely Black working class community.

What are the safety considerations in transporting the hydrogen to the station? How does the process of developing hydrogen fuel impact the environment? When asked why Shell did not locate the hydrogen station in an industrial park or a non-residential area of the city, O’Leary replied that Shell required “a large plot of land,” and the company has “a perfect safety record for transporting hydrogen to the station, and they follow the same safety protocol for the hydrogen station as for any gas station in case of an accident.” Nevertheless, community and environmental concerns remain.

Ultimately, communities are challenged to demand that their legislators investigate why the country is experiencing record high fuel prices, and what can be done to alleviate the toll it is taking on their wallets. Although the District representative in Congress does not have voting power, representatives and senators in the surrounding jurisdictions do. It is one more reason why the District needs statehood, and it is another reason for residents to be proactive in the political process and urge accountability by oil companies.