Pumped Up
Why are gas prices higher in Silver City? And why are they always the same all over town?
By David A. Fryxell
On July 8, a driver along I-10 could have filled up his tank at the Love's truck stop on the edge of Lordsburg for $2.65 a gallon for regular unleaded. Less than an hour away in Silver City, the same commodity cost $3.29 — 64 cents, nearly 25 percent, more per gallon. And that higher price was the same at every single station in town except for Wal-Mart and the Phillips 66 that knocks off a few cents after hours. When, a few weeks later, the price in Silver City dropped to $3.09, every station had matched it before the first pot of coffee was brewed that morning.
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Statewide, with gasoline prices stuck higher than the national average, Attorney General Gary King sent a letter to industry suppliers, distributors and retailers asking why and what can be done to provide relief at the pump. Phil Sisneros, a spokesman for King's office, says price disparities and price-fixing allegations will be among the issues investigated. "Those are some of the things we hope to glean from the distributors," he says. "This definitely allows us to look at how pricing is done."
Businesses were asked to respond to King's questions by July 25, but Sisneros can't say when a report might be released or follow-up investigations launched. "It has the attention of the attorney general," he says. "We'll get it done as quickly as possible."
Martin Porter, owner of Las Cruces-based Porter Oil Co., has been busy filling out the attorney general's questionnaire. In addition to supplying a shifting list of area service stations, Porter Oil operates seven outlets of its own. With three Chevron stations in Silver City, Porter Oil and five other distributors keep cars here running.
"Silver City really has too many service stations," Porter says, "and they're all on only a couple of main drags. The stations in Silver City, nice as they are, are just barely big enough for Chevron to want."
The problem — and one reason gas costs more in smaller towns off the interstate like Silver City — is that stations all have to cover a certain overhead. That fixed cost — everything from labor to real estate to the toilet paper in the restrooms — doesn't vary all that much whether the station is in Silver City or Las Cruces, Porter explains. But the volume of sales a station gets to pay those costs depends heavily on its location.
Individual gas stations and distributors don't control many of the factors that add up to the price of a gallon of gas, Porter adds. "Most of the pricing is determined by the major oil companies, the refineries and the pipeline owners. Then we're locked up in long-term contracts and supply agreements."
For the past six months, for example, the wholesale price — what Porter would pay — out of Tucson has been 25 to 30 cents less than in El Paso. But all the gas that distributors like Porter Oil sell here comes via El Paso.
Stations supplied by "majors" like that Love's in Lordsburg or other Love's, Pilot or Flying J stations in Deming, Lordsburg and Las Cruces along I-10 enjoy a built-in price advantage. Because of volume, Porter says, such national-level players "can demand prices nobody else can demand" from their suppliers. "It's not unusual for a freeway truck stop to be selling gas for 15 to 20 cents a gallon under my cost," he says. "It's probably not under their cost, though, because they move so damn much volume."
Indeed, that same day the Love's in Lordsburg priced gas at $2.65, the Chevron just across I-10 was still asking $2.99.
Despite the Chevron sign outside, stations like Porter's in New Mexico aren't owned by the petroleum giant. The same goes for Exxon and Shell stations, and Phillips is getting out of owning stations here. So when a competitor like Diamond Shamrock in Las Cruces and Deming is owned by a big petroleum company, that's another challenge. Porter explains, "They make their money upstream, out of the refinery end. So they just want to keep the volume moving."
Gas stations like his, Porter agrees, are in a position sort of like a neighborhood store trying to compete with the pricing power of a Wal-Mart.
But why do the gas prices in Silver City — which lacks the "majors" down on the interstate — move in lockstep? On one recent day, according to motorist reports on the newmexicogasprices.com Web site, prices in Alamogordo varied by at least 34 cents a gallon for regular. In Silver City, the swing was just four cents — again, Wal-Mart and Phillips being the lone exceptions.
"You have reasonable people in Silver City," Porter says. "They all get up in the morning, drive down and look at the gas prices."
Consider it from the gas-station owner's viewpoint, he suggests. "On Friday afternoon if the guy across the street lowers his price two cents or five cents and I have a load of gas already ordered, if I don't match the price my load of gas won't fit. My sales will drop off and I'm suddenly out of synch. Then, if I'm cheaper than the other guy, I'll run out of gas before my next load gets here."
Stations in smaller communities have to compete on cleanliness, convenience or friendlier clerks, Porter says, instead of price. He laments, "The public doesn't understand."
There's a long pause, then Porter adds, "You know, from where I stand, as a middleman, this is the most competitive industry I've ever been in."
Consumers with issues about gasoline pricing can call the attorney general's toll-free consumer-complaint line, (800) 678-1508.
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