This is a formal hearing of the U.S. Senate Committee on Energy and Natural Resources and I want to thank Sen. Jeff Bingaman of New Mexico, Chairman of the Committee, for allowing us to hold this hearing in Burlington. I also want to thank Committee staff for being with us today. What is being discussed here will become a part of the official record of the Committee.
I also want to thank our panelists for taking the time to be with us and to share their views on this important issue.
The issue that we are going to explore today is an extremely important concern for many Vermonters and that is how gas prices at the local level are determined and why it is that, with few exceptions, gas prices at the pump in northwest Vermont - Chittenden, Franklin and Grand Isle Counties -have been significantly higher over the last several years than gas prices in other parts of Vermont, in New England, and throughout the country. That is the issue we want to explore today.
I think we all understand that in a rural state like Vermont high gasoline prices have a very serious economic impact on many people and families in our state. It is certainly not uncommon in Vermont for workers to travel 30, 40, 50 miles to their jobs and back. When gas prices get very high that is money coming right out of workers' paychecks, paychecks which in recent years have often been stagnant or even declining. High gasoline prices impact not only workers, but small business owners, family farmers, truckers, and volunteers delivering meals to senior citizens. In other words, they impact the entire local economy.
Let's be very clear. The issue that we are exploring today is a complicated one and is extremely opaque. It is an issue which has not gotten the public attention or transparency that it deserves. Today, what we are going to try to do is, to some degree, lift the veil of secrecy on this issue.
Let's be clear: there are many factors that go into setting gasoline prices in Vermont and across the country.
Gasoline prices to a significant degree are determined by the price of crude oil. When crude oil prices go up, gas prices go up. When crude oil prices go down, gas prices go down. Excluding for a moment, the enormous power of OPEC, the Oil Producing Exporting Countries, we have in this nation five giant oil companies -- Exxon Mobil, BP, Shell, Chevron, and ConocoPhillips - that have made more than a trillion dollars in profits over the last decade. I think it's fair to say that most consumers understand that these giant oil companies, who year after year make enormous profits, do not stay up nights worrying about the needs of consumers. Just in passing, as one small example, I would mention that in 2005 Lee Raymond, the former chairman of Exxon Mobil was given a nearly $400 million retirement package by that company. I should also mention that these very same oil companies receive billions of dollars in generous tax breaks and subsidies from the federal government - something which I have been trying to end.
Further, another reason why oil prices are so high has to do with Wall Street speculators who are buying and selling huge amounts of oil on the energy futures market. The last information that I have on this issue is that Wall Street speculators control over 80 percent of the oil futures market. Needless to say, unlike fuel dealers or airline companies or trucking companies, these Wall Street firms do not use one barrel of that oil. They are there just to speculate and make huge profits.
Goldman Sachs, perhaps the largest speculator on Wall Street, came out with a report earlier this year indicating that excessive oil speculation is costing Americans about 56 cents a gallon at the pump. Others have made estimates that are even higher.
While these two factors, and others, can explain why gas prices have been extremely high on the national level, they cannot explain what we are exploring today - and that is the significant differences in gasoline prices that have existed in northwest Vermont compared to other regions of our state and other parts of the country.
Over the past several months, many Vermonters have asked me why consumers have been forced to pay considerably more for a gallon of gasoline in northwest Vermont than in other regions of the state or New England.
Clearly, in Vermont, state taxes are the same throughout the state and what we have learned is that transportation costs amount to just a few cents per gallon.
Why on July 6, 2012 - a month ago - would the same gas station company (Maplefields) charge $3.35 a gallon in Middlebury while charging $3.59 a gallon just 35 miles away in Burlington?
Why, on July 1st, were people in St. Albans paying on average -- looking at all the gas stations in that area -- $3.60 for a gallon of gas, while people in Springfield, Vermont , on average, were paying less than $3.40 a gallon?
Why, on June 24th, were people in Waterbury paying more than $3.65 a gallon for gas, on average, while people in Rutland were paying an average of $3.49 a gallon?
These are just a few of the questions that the citizens of Vermont have been asking me and that my office has been trying to answer.
On July 2nd, I asked the Federal Trade Commission (FTC) and the Oil and Gas Price Fraud Working Group to investigate why prices could be so much higher throughout northwest Vermont than in other areas of the state and country.
In the days that followed, we learned a lot of interesting information.
First, the FTC provided information showing gasoline prices in greater Burlington in late June were 10 to 43 cents a gallon greater than their computer model projected they should be based on historical wholesale prices.
Secondly, according to OPIS, the Oil Price Information Service, we learned that earlier this summer the Burlington area was the most profitable gasoline market in the northeast - more profitable than Washington, DC or New York City or, in fact, any other region east of the Rocky Mountains.
Further, according to data I received from OPIS, gasoline profit margins in Burlington more than tripled from January 1st of this year through June 30th of this year.
During the first half of this year, Burlington was one of the most lucrative markets in the entire eastern half of America.
As Ben Brockwell, the director of data at the Oil Price Information Service (OPIS), and one of our witnesses today, told the Burlington Free Press on July 13th: "Burlington is always the top market in the Northeast in terms of profits."
Let's be clear. What we have seen in the first half of this year is not an aberration.
Over the last three years, gasoline prices and profit margins have almost always been higher in the Burlington area than the national average.
In fact, over the past three years, Burlington area gas prices have exceeded the U.S. average 86 percent of the time - sometimes by as much as 29 cents per gallon. And, Burlington gasoline prices, over the past three years have exceeded the statewide average 72 percent of the time. Prices in St. Albans exceeded both the U.S. average and the Vermont average 90 percent of the time. Prices in Waterbury exceeded the US average 97 percent of the time and Vermont 100 percent of the time.
As my office has looked at this issue, we have tried to understand why prices in northwest Vermont were so much higher than the rest of the nation, the rest of New England, and the rest of the country. And one conclusion that we have reached is that it appears that there is just not a whole lot of competition when it comes to gas prices in this region - certainly as compared to other parts of the state and this country.
One of the reasons for that may well be a reality that many Vermonters are not aware of. And that is that the three largest gasoline distributors in northwest Vermont (S.B Collins (43), Champlain Oil (35), and R.L Vallee (22)) own more than half of the filling stations in this region (owning 100 of 185 stations); and just four companies (adding Wesco (18) into the mix) own nearly two-thirds of the filling stations in northwest Vermont, or 64 percent -- owning 118 of 185 stations.
I suspect that this concentration of ownership and lack of price competition may be a significant reason why gasoline stations in northwest Vermont have been able to charge substantially higher prices than other regions of our state or the country.
No one is disputing that gasoline distributors have a right to make a profit. In my view, however, they should not be ripping people off in these tough economic times.
Now, let me mention something that I have found very interesting. And, that is that, since I have called for this investigation into unusually high gasoline prices in northwest Vermont, I am happy to say that I have detected a more competitive spirit among gasoline station distributors in Chittenden County. I say this fully understanding that national wholesale gas prices have soared in recent weeks, and have in the last couple of days been reflected locally.
On Friday, August 3rd, gas prices in Burlington were, for the first time in several months, below the national average. Today, as best as we understand, with gas prices in Vermont and nationally soaring, gas prices in the Burlington area remain at about the national average.
In the month of July, average gasoline prices in the Burlington area went down by about nine cents a gallon, even though wholesale gasoline prices in our region have gone up by more than 18 cents a gallon during this same time period.
Meanwhile, the national retail average price for gasoline during July went up by more than 19 cents a gallon, keeping track with the rise in wholesale prices. In other words, during July while gas prices nationally went up by 19 cents a gallon, they went down by 9 cents a gallon in the Burlington area. This indicates to me that when local distributors want to be competitive they have the capability of doing so. And, I hope very much that we continue to see that level of competition in northwest Vermont so that prices here reflect prices nationally and in the rest of New England.
Now, as many of you know, Costco has been trying to build a gasoline station at its Colchester location since 2007.
Costco recently informed my office, and I will enter that letter as part of the record, that it could have sold gasoline for 19 cents a gallon less than the average price charged by gas stations in Colchester during the past two years. And, I want to thank a representative from Costco for being here today.
I raise this issue not to be "pro-Costco" or "anti-Costco," but to emphasize that when low-cost competitors enter a market, what national statistics show is that market forces have a tendency to bring prices down.
Let me also be clear: Costco is attempting to receive a permit through a regional environmental board. This hearing today has nothing to do with that process because it would be totally improper for I or anyone else to be intervening in what is a state of Vermont quasi-judicial process. As I think most people now know some of the major opponents to Costco getting that permit are local gasoline distributors. In a letter to me, Costco wrote and I quote: "Since 2007 Costco has been seeking land use permits and approvals to build a gasoline filling station at our current store in Colchester, Vermont. We have obtained several approvals for our proposed gas station in Colchester, but each approval has been appealed by, among others, gas station owners in northern Vermont. We can discern no legitimate reason for these appeals, and believe that they are really an attempt to use the land use process to stifle competition for gas sales."
That's Costco's view. Others can form their own opinion.