According to the Calvert Street Communist Party Newsletter (CSCPN), Comtroller Franchot is upset at the high price of gasoline, and is specifically targetting the practice of "zone pricing" by suppliers. Franchot is upset that private industry may set different prices for different retailers.
Since the matter of wholesale pricing is competitive, we don't know the exact factors that play into zone pricing, but given my experience in the retail industry, there could be a number of factors:
- Volume. The more you buy, the cheaper it is.
- Competition. The more competition there is, the more of a break a wholesaler will give you in order to compete, and hopefully get your volume up.
- Credit Rating. Late paying your bills? You bet that a wholesaler will count that into a price.
- Outstanding balance. If you are carrying a larger balance than normal -- such as in a franchise situation -- your price may be higher to reflect the risk of non-payment.
- DAF. The "dicking around factor". If you are a pain in the ass customer, your price might be higher.
- Distance. Your distance from the terminal means it costs more to transport.
But Franchot won't stop there. Even once zone pricing can be justified or explained, he will dig deeper to see how the state of Maryland can relive the glory days of the Carter Administration with price controls and gas lines. (Boy, you haven't lived until you sat in a hot 1976 Dodge Dart with vinyl seats in July waiting to buy gas at the Hess Station on Joppa Road!)
What Franchot is too dim to understand are the economics of gasonline. So class, let's sit down and learn what we can.
First, price is driven by supply and demand.
Demand remains VERY high. Not just for crude oil, but for refined gasoline as well. Americans are not substantially changing their driving habits. In fact, they can't. The tremendous "exurban" sprawl has mean that Americans live substantially farther from work and shopping than they have in the past. The BRAC growth that we will see from the new influx of Defense-related jobs into Maryland will only exacerbate this problem.
Supply remains VERY constrained. There are a number of reasons for this. The biggest reason is the lack of incentive for oil companies to build new refineries. When one looks at the harsh regulation, the environmental hurdles, and the sheer construction cost of new refinery capacity, oil companies have no incentive to invest in new capacity. Rather, they try to increase the profit margin on the capacity they have now, knowing that any shortages only play to their advantage.
Second, the government intefered in the market.
By implementing the new ethanol regulations in a manner to favor the corn-producing states, the Government of the United States bent us all over the table and raped us. How? The new regulations gave tremendous preference to corn-based ethanol, and place incredible burdens on cellulosic ethanol. More over, the regulations place incredible tarriffs on imported ethanol. That means the primary source of ethanol for the US has to be the midwest corn crop. Guess what that did? It caused a shortage. Shortages mean higher prices. Across the board. Since corn is also the base of the 90% of the sweeteners in this country (again, because of sugar tariffs!), the cost of food has doubled at the wholesale level. The cost of chicken -- fed primarily by corn -- is up 50%. The cost of beef is up 30%. It goes on and on. Naturally, the cost of ethanol has increased as well. That pushes fuel costs up.
Third, the government interfered in the market (part 2).
While ethanol is a much better additive than MTBE, the simple fact is that ethanol is 33% less efficient than straight gasoline. That means you will be purchasing more gasoline just to travel the same number of miles. That increases deman in and of itself. That means high prices.
Fourth, ethanol changed the retail outlook.
The switch to ethanol as an additive forced a number of retail outlets to invest in new tanks. These new tanks have a higher standard of moisture containment, because moisture damages the hydrocarbon links between ethanol and gasoline, causing separation of the molecules. That change was too costly for a number of retail outlets, forcing them to close. Up here in Gunpowder Country, we had five retailers close their gas operations alone. Add to that the collapse of the Parkton Meadowcroft Monopoly, and there is only one gas station between the Hereford and Maryland Line exits on I-83.
The simple fact is that the government has overcomplicated the picture. Liberals have long railed against nuclear power in the United States -- which would reduce the demand for oil-fired electricity generation, providing more crude for gasoline refining. (Note: If France can safely operate nuclear plants, why can't we? Or do you need to be a cheese-eating surrender monkey to do it.)
Furthermore, Liberals have long opposed unique and experimental employer-employee relationships like telecommuting, working from a mindset that every employee must be treated exactly alike, regardless of whether that is what the employee wants! Telecommuting would help keep people off the roads. I telecommute-- to an office in Maitland, FL. In the 22 months since I started that job, my road miles have gone from 15k+ per year to no more than 4k per year. While telecommuting doesn't work for every job-- even if it were applied to 20% of jobs, it would mean a huge decrease in gasoline use.
Environmentalist whackos and their liberal pals have always adopted a "stick and stick" approach to forcing environmental compliance. The Environmentalist Whackos need to understand that in the current market, oil companies don't want to lose one drop of oil-- it's too valuable. Opposing refinery operations instead of working with oil companies to create a better refinery design is foolish, stupid, and churlish. And while Environmentalist Whackjob-in-Chief Al Gore and his pubescent protege Leonardo diCaprio jet around the world in their private jets, they are consuming 1000 times the amount of fuel an average driver does in a year.
Ultimately, this will be a case of eliminating demand. Yes, we could boost supply, but I don't think that will ever happen. The Environmentalist Whackjobs and a certain drunken ship's captain have ingrained the image of oil as dirty and evil.
So-- if the liberal lunatics of the world like Peter Franchot REALLY want to hurt the oil companies, why not come up with an incentive plan that really starts to impact demand?
- Here are some ideas:
- Employees who telecommute three days a week get a tax credit for, say, $5k a year. Employers who allow such telecommuting get a $5k matching credit per employee.
- If you buy a hybrid, you pay NO sales tax, and NO registration fees. Period. If you buy a car that gets 30MPG average, you pay only 60% of the sales tax and 60% of the registration fee.
- Costs for using mass transit are 100% tax deductible. (The libs should love this one!)
- Car maintenance is the #1 thing you can do to increase gas mileage and efficiency. So, make sure that services like tuneups, oil changes, emissions work, and tire/suspension work are forever exempt from sales tax. Offer a $40/year tax credit for every motorist that gets their oil changed and tires rotated every 3000 miles.
- Offer a $1000 tax credit for the purchase of a new car every five years. New cars experience tremendous gains in performance and gas mileage every five years or so. Get those older jalopies off the road.
If Peter Franchot would focus more on the incentive side of the equation, he would have a greater impact on the cost of gas AND the health of the environment than his normal knee-jerk quixotic approach would ever.
And he might just show that attorneys can learn a thing or two about economics.