Paying at the pump

Local gas prices 20 percent more than state average

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Steamboat motorists are accustomed to paying more for gasoline at home than they do in Denver or even Silverthorne. But some local consumers have the impression that the gap between local gas prices and Front Range prices has widened, even as gasoline prices have dropped this fall. They aren't mistaken.

Local gas station owners say there are reasons, that are largely unknown to the public, why gas here is more expensive.

Colorado's retail gas prices dropped another 3.5 cents this week, as the state's regular self-serve, unleaded gasoline averaged $1.16.6 per gallon, according to AAA Colorado's weekly gas price survey. The national average for unleaded gasoline decreased 3.7 cents this week down from $1.17.9 to $1.14.2 per gallon. Colorado's gas prices average just 2.4 cents more than the national price for gasoline. Colorado cities surveyed by AAA this week included the following: Denver's average fell 3.6 cents this week, to $1.10.9 per gallon. With both the largest decrease and lowest price of the week, Pueblo reports a 5.4-cent drop to $1.07.2 per gallon. The only increase this week was seen in Durangoreporting a 4.3-cent rise to $1.29.9 per gallon. Vail reported the highest price of those included in the survey at $1.45.9 per gallon a 6.3-cent decrease from last week. An incomplete survey of prices for regular, unleaded gasoline in Steamboat Springs Friday, November 30, 2001 Mount Werner Sinclair $1.40.9 Ski Haus Conoco $1.40.9 Kum & Go $1.39.9 U.S. 40 Sinclair $1.39.9 Space Station $1.40.9 Bob's Conoco $1.42.9

"What are we going to do, drive to Silverthorne to fill up?" Ryan Tape asked this week. "What chance do we have?"

Tape is in the industrial equipment business and frequently commutes in an automobile between his home in Steamboat and Louisville, Ky. He has ample opportunity to observe gasoline prices as the highway miles roll by, and he purchases a great deal of fuel along the way. Tape was chafing over gas prices after returning from his latest trip a week ago. On his way home, he observed unleaded regular gasoline for sale in Denver at $1.09 and in Silverthorne for $1.07. When he got home, unleaded regular was still selling for $1.48.

Tape said he's accustomed to gas here being 20 cents a gallon more expensive than Denver, but not 40 cents.

"We do not have the luxury of doing the same thing in our business," Tape said.

Longtime Steamboat businessman Rod Schrage, who sells Conoco products at his Ski Haus gas station, said most people are not aware that 80 percent of the gas stations in Denver are company owned. For that reason, he said, they compete on a different level than independent gas station owners in mountain towns like Steamboat.

For that reason, they are essentially wholesaling the gas to themselves.

"There are times when my wholesale prices are higher than what you'd pay at the pump in Denver," Schrage said.

Consumers don't realize that the major gas companies, which are continuing to undergo consolidation, impose zone pricing on different regions of the country and the state, Schrage added.

The corporate stores in Denver don't want the public to perceive that their brand is more expensive than the next guy's gas. Therefore, they are more sensitive to fluctuations in price at their

competitors' pumps.

The same thing is true in Silverthorne, Schrage said, where a high percentage of the stations are corporate.

"That's a company market at a huge intersection where millions of dollars of gas are sold," Schrage said.

Jim Woods, who owns gas stations in Steamboat and Colorado Springs, said gas stations adjacent to Interstate highways like those in Silverthorne enjoy much higher volume than the typical station in Steamboat. They have the chance to spread their fixed costs over many more sales.

Woods confirmed that prices here are not responding as rapidly to the declining wholesale prices as they are in Denver.

"We're not lowering our prices as rapidly as we might in a standard market," Jim Woods said this week.

Woods acknowledged that prices in Steamboat aren't coming down as quickly as they are on Colorado's Front Range. Part of the reason is uncertainty about how much his Steamboat businesses will suffer during the coming ski season.

"We're very concerned about the volume of skiers we'll have this winter, or whether we'll have any skiers at all," Woods said. "I think that's probably got us a little bit nervous."

In anticipation of lower revenues this winter, Woods said he's been slower to lower the price at the pumps in Steamboat this fall. He is the owner of the Sinclair station that was "re-branded" from its former identity as Mount Werner Total within the last month. He's also a partner with Jon Peddie in the Sinclair station on U.S. 40 at Hilltop Parkway.

Woods is aware that there's a growing impression among consumers in Steamboat that local gas prices are unjustified.

"We don't think of ourselves as price gougers, although some people may see us that way. We have our reasons," Woods said.

Schrage offered a slightly different rationale for why the gap in prices between Steamboat and Denver has widened this fall. Schrage, who purchases wholesale gas from Weston Oil distributorship in Steamboat, said he tries to sell gasoline at a certain margin. For much of the last 6 to 8 months, he said, wholesale prices have forced local retailers to operate on thinner margins than usual. Now, he said, those margins are beginning to get healthy again, and local stations are reluctant to move prices at the pump downward.

"Gasoline prices are so volatile," Schrage said. "As prices have gone down, competitors here have been reluctant to go down very quickly. It's easy to move them down, but it's harder to move them back up again."

Gasoline distributors contacted for this story were not forthcoming. Terry Weston at Weston Oil did not return phone calls. Jeff Trevenen of Trevenen Oil distributing in Craig declined to be interviewed.

Woods cited a variety of reasons why gas prices in Steamboat are typically higher than they are on the Front Range or in Silverthorne. Most have little to do with the outlook for the coming ski season.

Understanding the cost of gas begins with a look at the wholesale price and the state and federal taxes that are applied to every gallon, according to Woods. Current wholesale prices for gas are about 65 cents, Woods said. Dec. 1 prices for wholesale gas on the Chicago Board of Trade were listed at 52 cents, but Schrage said those numbers have little to do with the wholesale price in Steamboat because of zone pricing.

On top of the wholesale price, 22 cents must be added for state gasoline taxes and 18.4 cents for federal taxes. Then transportation costs are added. Local stations pay a premium of between 7 to 9 cents a gallon to have gas trucked to Steamboat, Schrage and Woods said.

The cost of shipping a tanker load of gas to Steamboat is about $550, compared to $250 to haul it to Silverthorne, Woods estimated. In addition, there is a surcharge of $50 to $100 per tanker to build a statewide fund for the cleanup of underground storage tanks.

Steamboat gasoline stations also have to build higher employment and real estate costs into prices at the pumps, Woods said. His new Mount Werner Sinclair, built several years ago, cost more than $2 million to develop, he said. He doesn't object to high standards for commercial developments in Steamboat he said he thinks it's appropriate that new gas stations in Steamboat are more attractive than gas stations in Silverthorne. But he said he also has to recover that cost from his sales.

"My banker wants to know that I can pay him back," Woods said.

Woods said the traditional model for gas station/convenience stores predicts sales will be evenly split between gas and products from the store.

The new Kum & Go station in Steamboat was advertising for new clerks last summer and offering wages of almost $9.50 an hour. Schrage said he pays well over that. Woods agreed payroll costs here are higher than on the front Range; he typically pays $6.50 an hour for convenience store clerks at his stations in Colorado Springs.

"I probably pay the highest wages of any (gas station/convenience store) in the state," Schrage said. "My premise is that I want people who can afford to live here. If I can't have that, then I don't want to be in business. That's my decision."

Schrage and Woods say they both offer benefits to their employees.

Both retailers have programs intended to defray the cost of gasoline for locals. Woods offers a 5 percent discount to customers who use a Sinclair credit card to make their purchase, including items from the convenience store.

Schrage has a more novel approach. For every $10 worth of gas, he rebates customers who pay inside the store, with a "wooden nickel" he calls a Ski Haus buck. It can be applied to future gasoline purchases, amounting to a 10 percent discount. Or, customers can choose to apply the $1 token to purchases at his sporting goods store.

"We try to be leaders in a lot of things at Ski Haus," Schrage said. "But we try to be middle of the road in gasoline. You're never, ever going to see gas prices in Steamboat Springs comparable to Denver. And you're not going to get rich running a gasoline station in Steamboat."

To reach Tom Ross call 871-4210

or e-mail tross@steamboatpilot.com

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