More on Energy and Bad Delegates

In keeping with the Energy theme since this is an issue critical to all of us, the House of Delegates Economic Matters Committee held hearings last week on Gasoline price gouging in Maryland. Now if we all had a nickel for everytime a state committee held hearings on price gouging we could buy all the fuel we wanted!

As no transcript is available to the public (no it’s not on the website) on what happened during the hearings, I emailed the Committee chair Dereck Davis and sub-chair David Rudolph to ask for a brief comment. Delegate Davis failed to respond at all while Delegate Rudolph sent a terse message, “While I appreciate the opportunity, I must decline simply due to time constraints.”

Well at least he responded to the email request in the first place but isn’t there something wrong with Delegates who won’t even provide a scrap of info to the public on what they are doing? As I’m not a constituent of either I don’t expect so much but my own delegate, Ron George also was non-responsive to phone calls and emails during last year’s session.

Back to the Energy issue at hand, namely Gasoline Pricing. First we have to understand how it works in general and all the factors that influence price.

One factor is legislation currently in force. In Maryland (and Delaware and Virginia), due to previous “divorcement” legislation, refiners are not allowed to own fueling stations. This adds price pressure to fuel products and as a simplistic explanation more middlemen are involved which results in higher prices than in other states without divorcement laws. So thanks to the legislature, Marylanders already pay an extra 3 cents per gallon. On top of that, gasoline taxes in Maryland are higher than those of all neighboring states except Pennsylvania. So if you’re in Virginia, you might want to fill up the SUV!

Then there’s the wholesale pricing debate which was the subject of last week’s hearings. How are wholesale prices determined you may
wonder? Doesn’t it have to do with travel distance from the wholesale location? Nope!

Pricing at your local fuel station is determined by a mysterious process called Zone Pricing.
Zone pricing explains why fuel 10 miles away might be 5-10 cents more or less than in your neighborhood. So while there is wide variation in price it’s not due to conspiracy but rather due to competition among stations, just as the price of any other goods is determined. While price volatility has increased in recent years, the overall margin at the retail level has not increased much and any increase is probably due to the fact that retailers costs have increased over time as well.

For an upcoming post we will show you the numbers…