Report finds border raises price of gas Maine AG says expensive fuel response to Canadian drivers

It costs a lot to gas up in Washington and Aroostook counties, Maine’s attorney general said in his final report on gasoline price comparisons for the state issued Tuesday. But Mainers living near the border can look to Canadian drivers as a big reason gasoline is out of sight.

Canadians who are paying more than $4.50 a gallon for regular (U.S. pricing) are more than willing to tip their hat to customs officers as they cross into Calais to pay $3.08 a gallon for regular.

In his 11-page report, Attorney General G. Steven Rowe offered some grim observations, but few solutions. Since there are no cost-based regulations in the state, the report said “market forces set [the price].” And the high cost can’t be blamed on price fixing, the report said.

As a result, Washington and Aroostook counties with their low population density pay higher prices.

Small retailers require a higher margin in order to survive in a sparsely populated economy, the report said, and the high level of market concentration that characterizes retail gasoline markets in Washington County’s rural economy holds down competition.

Poor economic conditions such as population loss and poverty apparently exacerbate high gasoline price impact on consumers, the report added.

The findings didn’t make Sen. Kevin Raye, R-Perry, happy.

“I believe it is clear that the Canadian border and the high level of market concentration are major drivers of the inordinately high prices we are paying for gasoline,” Raye said. “While the attorney general did not find evidence of unlawful activity, I remain troubled by the disparity in gasoline prices that afflict the areas of Washington and Aroostook counties that are close to the border.

“While I recognize that small retailers in rural areas do require a higher margin than large retailers in heavily populated areas,” Raye said, ” I am not convinced that this has a significant impact on the higher gasoline prices in our area. This same phenomenon would be found in virtually any rural area so it cannot explain the disparity we see. It also certainly would not explain why the attorney general confirms that prices are 12-19 cents a gallon higher in eastern Washington County than in the western end of the county.”

The highest average retail prices in other Maine counties are generally at least 5 cents below those in Aroostook and Washington counties.

In any given month, the lowest retail averages in Maine are likely to be found in Sagadahoc, Kennebec, Androscoggin, Waldo and Somerset counties.

“Consistently higher prices, albeit not reaching the levels recorded in Washington and Aroostook, were found in Hancock (third highest in six months), Lincoln (third highest in three months), Knox, Franklin, Oxford and Piscataquis counties (each of the latter three was the third highest priced counties in one out of 12 months),” the report stated.

“The difference between the highest and lowest county retail averages for calendar year 2005 ranged from 9 cents up to 19.1 cents; was more than 18 cents in four months, more than 16 cents in seven months and below 10 cents in only one month.”

In sum: “Washington and Aroostook were in a class by themselves with prices significantly higher not only than areas considered competitive (such as Kennebec, Waldo or Androscoggin counties) but also consistently well above some comparably remote, economically depressed and sparely populated areas (such as Piscataquis, Oxford, Franklin or Somerset).”

There are inconsistencies even within Washington County with people in Calais paying typically 12-19 cents more per gallon than their counterparts in Cherryfield.

Wholesale rack prices at Portland and Bangor fall within closely comparable ranges, thus wholesale pricing is not a factor contributing to disproportionately high retail prices in Washington County or elsewhere. Gas supplied to Washington County is shipped from Bangor, Bucksport and Searsport, while retailers in the southern and central half of the state receive it from South Portland or Portland terminals.

Transportation costs don’t seem to be a factor.

Transportation costs incurred by retailers in Cherryfield, or their wholesale suppliers, exceed those applicable in Augusta by a mere 0.055 cents per gallon while the corresponding differentials for other relevant locations are: Machias 1.5 cents; Calais 2 cents; and Eastport 3.41 cents.

Based on these facts, one would expect retail prices in Cherryfield to approximate those in Augusta and increase marginally as one travels east and so on, the report said.

But that’s not what’s happening. Cherryfield actually tends to exceed Augusta by 7-10 cents, Machias exceeds Augusta by 14-17 cents, Eastport exceeds the capital by 18-25 cents and Calais by 19-29 cents.

The fact that Calais prices exceed not only those to the west, but also Eastport prices indicates that the proximity of the Canadian border exerts a powerful upward pressure, the report said. “Even after adjusting for transportation costs, prices increase exponentially as one approaches the border, and diminish as one travels away from it.”

Although a few high-volume gasoline outlets operate successfully in Washington County, they don’t aggressively compete to reduce prices for consumers, the report went on to say.

The reason “these large retailers find themselves in a delicate position” is a result of Washington County’s history of predatory pricing complaints and investigation, the report said.

“In an environment where low volume independents have repeatedly come forward with predatory pricing complaints, a dynamic other than competitions comes into play. Larger competitors who have the ability to drop prices to win market share decline to do so for political or public relations reasons … to avoid making enemies,” the report said.

At the same time, “the perceived necessity of maintaining higher prices does not exactly impose a hardship on these larger operators, rather, it provides them with a justification for reaping even higher margins than their smaller competitors.”

Since pricing appears to be reached unilaterally, the companies are not doing anything illegal. “In the present inquiry, we have found no indication of any illegal price-fixing or other collusive activity,” the report said.

Although Raye said he appreciated the attorney general’s report, he said he would continue to follow the situation. He asked that anyone who might like to shed light on the issue should contact him at: SenatorRaye@downeast.net.