The last time I filled up my gas tank I paid $3.98 a gallon. That was on September 29th. Today the local gas prices are over $4.50 per gallon here in California. Not a big deal for those in other countries because comparatively we pay less. But we wanted to visit gas prices with you with our slant vs. the oil company slant.
Let’s do a hypothetical situation. Let us say that I own a gas station in California. I start out new two weeks ago. Let us say that the cost of the gasoline that I paid on my first order was twenty cents per gallon. OK, I can hear you saying, “Then why am I paying what I am paying at the pump?” The reason is the tax on gasoline that the station has to pay to the State of California. So, in order for me to make a profit, I need to at least double the cost of what I paid. So, to simplify this hypothetical situation, let’s say I charge you forty cents on the gallon. And, yes the remainder is the tax that I pay on your behalf to the State of California…
So, let’s take a look at something else that one would think would be involved. Here is the situation: I paid for my initial gas two weeks ago right? Right! But yesterday they had a mishap at the Chevron refinery down in Richmond, CA. So today, gas prices, as announced on the news, jump fifty cents a gallon. OK, the numbers are a bit extreme but bear with me. Gas prices throughout the State jump that fifty cents a gallon. But wait! I only paid twenty cents on the gallon, for which I am charging you the additional fifty cents to the gallon. Here is the rub. I have not paid the higher price for that gasoline yet, but I might be paying that on my next purchase. Might be, or, maybe not. Even though I am still trying to sell the twenty cent a gallon cost gasoline, I raise my prices for the mishap at the Chevron refinery. And, so does every other station in the State even though they may not be Chevron supplied stations. But wait! Go back to me paying twenty cents on the gallon. Shouldn’t the pump price be based on that? Shouldn’t the station have to use all the twenty cent a gallon gas before refilling their tanks and then charging more? Why does it not work that way? What is up with that? Price gouging maybe??? Why are we not asking station owners to hold their price until they fill their tanks with the higher priced gasoline?
Question: Does that seem fair to you? If the station has not used up that twenty cent a gallon gasoline, why can they charge more? The accountant in me says what about inventory valuation? I just cannot imagine having to change my cost structure on a daily basis to fit what the rest of stations in the country or in the State are doing.
Let’s take a look at another angle. If I travel to let’s say Prescott, AZ, where there are no oil refineries, and the gasoline needs to be trucked in to them, why do I pay less for gasoline there than I do here in California for the same gas I buy in California? After all they are trucking in the gasoline, for which there would be shipping charges, and which one would think that the Arizona gas station is paying for too. Maybe it has to do with the State of AZ tax on gasoline. But shouldn’t I be paying somewhat the same price in this country no matter where I go? No, no, no, no, no!
Here is another issue. It was reported on the news today that stations here in California are closing because the folks that own the franchise stations cannot make any money on what they have to pay for the gas. One station owner claimed that his cost to fill his tanks was $50,000. I am not sure what the gas companies terms are on the purchase of gas, but can you imagine having to fork out $50 grand that you have not yet earned? But then you should have adequate money accumulated within your business to pay the next upcoming billing. Hmmm…If stations close, there is less availability. If there is less availability, then the gas companies can ask more for the gas!
Here is another bit from the news today: Governor Jerry Brown is asking the refineries to change over to the “winter” formula early to help alleviate the cost that folks in this State are having to pay. Why should the cost of the winter formula be any different than any other time of the year? The answer is because of the additives that are added to the “summer” gas work with the heat in a large part of California.
So, the big question here is this: If the refineries experience trouble at their plants due to improper maintenance, due to for sake of example, be a faulty valve, that burns off the gasoline they are trying to refine, shouldn’t that be one of the risks of the business, and already included in the cost calculation of the price of the gas? Events like the recent Chevron mishap are becoming monthly events. Maybe there should be more government inspections of these plants. But then who gets to pay for that? We do! It is a never ending cycle of making the consumer pay for the mishaps of companies, regardless of what industry that they are in. And the reason is to show a good bottom line to investors.
Until the consumer tells companies that they are tired of paying for their “mishaps,” no matter how the companies may couch them, this practice will continue. When are you, my dear consumer, going to say “Enough is enough?”