Pump fiction - Does anyone know why our gas prices are so high?

Jul 9, 2008 at 1:19 pm

Greg Brenzel finally left the gas business in October, 35 years after his family opened its first Chevron station in Louisville. It wasn’t so much his choice, he says, as Chevron’s: The supplier priced Brenzel out of business. 

Brenzel says his family’s story is unfolding again and again across Louisville right now, as the area’s major suppliers — mostly Thorntons Oil and Marathon Oil, the latter the subject of a 2006 price-gouging lawsuit filed by then-Attorney General Greg Stumbo that is ongoing — are selling gas to their company-operated stores at a lower cost than to independents like Brenzel, effectively pushing them out of competition. The last six years he was in business in the iconic triangle-shaped lot at Taylorsville and Bardstown roads in the Highlands, Brenzel was paying a dime more for Chevron gas than what was being sold at its company-operated stores. A family-owned joint like his needed to make at least 10-12 cents on a gallon to survive. His store was making somewhere in the low single digits. 

“They’re dictating the price everybody in Louisville is paying, but they’re also dictating who’s selling it,” says Brenzel, who’s now in real estate full-time. 

In recent weeks, gas prices in Louisville have jumped to more than 30 cents higher than both the national average and prices in surrounding areas, and no one can explain why. According to figures from the Governor’s Energy and Environment Cabinet, Louisville prices have steadily outpaced those in Cincinnati, Covington and Lexington since at least mid-June.

Prices here dropped to their lowest point in two weeks on Monday, perhaps a reaction to last Thursday’s announcement that Kentucky Attorney General Jack Conway, with the support of Gov. Steve Beshear and Mayor Jerry Abramson, has launched an investigation into possible collusion by major gasoline wholesalers and retailers in Louisville. 

“Something peculiar is happening here,” Conway tells LEO Weekly, adding that his office received 20 phone calls and 57 e-mails last week from people wondering just what the hell is going on here. 

This is an industry known for being obtuse about gas pricing, one that journalists, politicians, lawyers and consumers have been trying to crack — with little success — for years. As such, Brenzel’s theory is curious: At a time when gas prices and oil company profits are reaching record highs in America, and conventional wisdom might suggest there is major profit to be made, little people who’ve been in this business a long time are bailing for lack of funds. 

Two years ago, Brenzel finally pulled the pumps at his family’s Germantown station, which is now an auto repair shop. Note the abundant remnants of BP (once British Petroleum, now the cloying “Beyond Petroleum”) signs in Louisville, as well as the changing signs at other stations, where family names have been replaced by slogans and advertising. Soon you’ll begin to notice who’s losing ground and who’s in control: There are 36 Thorntons stations in Louisville, all of which control their own supply. There are 34 Speedway stores; they get their gasoline from Marathon Oil, which also has company-operated stores in the city and some 6,000 in 19 states.

Since the 1990s, the Kentucky counties of Jefferson, Boone, Campbell and Kenton, as well as parts of Oldham and Bullitt, have been under state mandate to sell reformulated gasoline, said to produce lower harmful emissions. That adds 6-12 cents on the gallon — obviously not enough to cover the disparity between our recent prices and national and area averages.

There is no state- or local-government regulation of the price of gasoline, a commodity. According to Karen Wilson, spokeswoman for the state Energy and Environment Cabinet, pricing is determined solely by the market — at least in theory. 

But U.S. Rep. John Yarmuth, D-Ky., doesn’t buy it. “If the price actually reflected supply and demand, it wouldn’t be anywhere near where it is now,” he says. 

None of the companies mentioned in this article returned requests for comment on the price of gas — how they set it, what they sell to retailers, and so forth. Per his investigation, Conway has the power to compel information from them, which he says he intends to do. 

Meanwhile, many here are trading theories as to what is happening. When asked whether a drop in prices following the announcement of his investigation would suggest market manipulation, Conway says it would be a “good indicator” that something weird was happening.

Chad Carlton, a spokesman for Mayor Abramson, says it seems odd that gas in Louisville — which has major distribution terminals on the Ohio River — would be so much more expensive than the places where it’s being shipped. The confluence of interstates here could be one reason for gas companies to jack the price, he adds.

These theories hover around an essential question nobody is asking, at least directly: Is there a monopoly at play here? Brenzel thinks so. Otherwise, how would the stations all wind up at the same 30-cent hike? 

“I would call it collusion,” he says. “Wouldn’t you?”