The livin’ may be easy, but petrol prices can be a summer bummer. One of the least attractive components of summer — when gas is historically at its highest — is when the chariot runs out of fuel, and prices at the pump seem exorbitant.
It’s a reality that hits Tahoe hard. Although gas prices are lower than average across the country going into this summer, our region is in the top tier for gas prices in the nation, according to GasBuddy, a company that reports on fuel prices using crowdsourcing. On June 1, just 0.9 percent of gas prices in the nation were more than $3/gallon for regular unleaded, and only 0.3 percent of gas cost more than $3.25. On that day, prices in Tahoe/Truckee ranged from $2.99 on the lowest end at the Transam station in Kings Beach to $3.39 at various stations along Highway 89 in Tahoe City and Truckee.
In comparison, for the same day, a 76 station in San Francisco’s North Beach district was at $3.29/gallon, the price in Carson City was $2.31 gallon, and the average for the country was $2.33/gallon. The average across California that week was $2.87/gallon.
People in Tahoe are struggling to pay what is the upper one percent of fuel prices in the nation, and are naturally curious about why they are this high. But are these rates unfairly inflated, or appropriate for the region based on gas price structuring?
Allison Mac, a West Coast petroleum analyst, believes that one of the biggest pricing factors in a region like Truckee is convenience. “In general, gas is a convenience purchase; people won’t shop around for gas, so to speak, so with a high-visitation area like Truckee that is right off the highway, consumers will pay the going rate,” she said.
Fuel in our area is hauled up from Bay Area and Sacramento refineries, and gas stations are charged a transportation fee as part of their costs from their supplier, leading some to wonder why the Kings Beach Chevron station is consistently cheaper than retailers in Tahoe City or Truckee, when Kings Beach is farther off the highway. Mac believes that the difference in additional transportation costs for the extra mileage to Kings Beach compared to that of Truckee is negligible.
“Transportation to the pump is absolutely a part of gas prices, but convenience and other factors such as cost of living where the gas station is located likely outweigh the additional transport fee,” Mac said.
The majority of gas stations — 58 percent of the estimated 152,000 in the country — are licensed to an individual owner, according to GasBuddy. A brand like Chevron is not setting the prices for its stations, leaving that decision to the operators.
It is possible our prices are affected by the mild consolidation in this area. Cox Family Stores owns the Shell stations in Truckee and Tahoe City (as well as a half dozen more throughout California), and an individual proprietor owns the 76 station near Donner Lake, downtown Truckee, and the Circle K in Incline Village.
While gas station employees are legally bound to not disclose what they pay for their gas, the Truckee Tahoe Airport — as a public entity that sells airplane fuel — isn’t. Kevin Smith, the airport’s general manager, said he pays $2.30/gallon for jet fuel, which is very similar to automobile diesel. He admits to charging a premium for it, and the price to the consumer comes out to $4.46/gallon. At time of press, local stations were selling diesel for around $3/gallon, which could potentially give an idea of the rate of markup for diesel if local gas stations are paying a similar rate, although diesel is only a small part of U.S. fuel volume and doesn’t explain the majority of the market.
A half dozen local gas station owners or managers were interviewed for the story, and they all chose to speak anonymously. They said that the price paid at the pump is a reflection of the various factors that make Tahoe a high-end place to live, a result of staying competitive with the guys next door, and factors specifically applicable to fuel in this area.
One of those contributing influences is the weather, which can inflict additional transportation costs during the winter, one owner said. Individual business practices by the gas stations also play a role. For example, if a gas station wants to attract employees via offering higher wages and benefits, this can raise pump prices, according to another owner. Conversely, some owners may choose to lower labor costs, and are able to sell at a lower price, with the aim to recover from the lower profit margin via larger sales volume, as well as to turn a profit from additional sources like food and alcohol. Gas stations that are closer to borders with cheaper fuel — like in Kings Beach — usually see lower figures, since drivers are more likely to head to Nevada to save money, which forces owners to push prices down lest they lose business.
The pump price is largely connected to what vendors pay when the trucks refill the stations. Vendors admitted that the amount they pay for branded gas (Chevron, Shell, 76, etc.) is essentially the same for all brands, and that the price is adjusted at each refueling. Therefore, if the price from the refinery goes up, one station may raise its numbers before its neighbors. On the other hand, vendors allowed that it’s common practice to stay at the same price as other nearby gas stations.
NEVADA AND THE TAX MAN
It’s no secret that gas prices plummet as you head into Nevada. On June 1, fuel at a Carson City Arco was $2.31/gallon, more than $1 — or 32 percent — cheaper than the highest prices in Tahoe/Truckee.
Reasons for this include the fact that Reno has its own gas storage facilities, which drastically lower transportation costs to areas near Tahoe. Additionally, Nevada does not have the same emission requirements as California, and fuel is sold at a lower 85 octane grade (California’s has been referred to as “boutique gas”). Further, the converse effect of the high cost of living in Tahoe/Truckee plays a role in Nevada prices, as expenses are lower in most Nevada towns. Therefore, Tahoe-ites will likely continue to slog to Reno or Carson City to fill up.
Gas taxes are also far lower in Nevada. According to the U.S. Energy Information Administration, for the year 2015 the combined state and federal tax came to $0.42/gallon in Nevada, and $0.56 cents/gallon in California, with California’s rate the third highest in the country (a federal tax of $0.18/gallon is included in every gallon in any state).
Taxes added on by local jurisdictions have been cited as one theory for the high prices, specifically in relation to snow removal and road maintenance costs. The Town of Truckee said they do not have the ability to assess any additional gas taxes, and the taxes built into the price at the pump are not unique to Truckee. Of note is the Truckee-voter approved Measure V — which goes toward road maintenance, but not snow removal — adds an additional 0.5 percent to sales tax in Truckee.
Further, the Town is reimbursed for 50 percent of their snow removal costs by the state via revenue from gas tax (as is true for other mountain towns with snow removal). The Town’s total gas tax revenue is estimated to be $1.95 million for fiscal year 2016/17, with the vast majority of that coming from snow removal. This puts Truckee, a town of 16,000, at about the same level of gas revenue as Burbank, Calif., with more than 100,000 residents, making Truckee a larger recipient of gas tax revenue per capita than most other towns.
In Placer County, Public Information Assistant Scott Sandow reported a similar system to the one in Truckee. He said there are no taxes from the county added to the state and federal taxes related to road maintenance or snow removal.
GLOBAL COMPARISONS AND REAL COSTS
Consumers in Tahoe may face a veritable struggle to afford gas, but compared to the global stage, the U.S. — and even Tahoe — is dirt cheap. A report by the media company Bloomberg ranked global fuel prices for the second quarter of 2015, and showed that the U.S. ranked 52nd out of 61, with Norway in first place at $7.71/gallon. In terms of gasoline consumed, no other country even comes close: U.S. citizens on average consume 1.2 gallons a day per person, an indication that we will continue to pay up. When looked at as a portion of U.S. incomes, our cries might seem unwarranted as well: The report stated that it takes only 1.8 percent of an average American’s daily wages to afford a tank of gas, the 57th-lowest out of 61.
Our thirst for gas is costing the globe far more than prices at the pump indicate. Dirk Phillipsen, an economics professor at Duke, believes that the seemingly high price of gas in the U.S. is only a fraction of its true cost.
“If you were to, what economists call, internalize the externalities of burning fossil fuels like a gallon of gasoline, if the price of that gallon were to include all the external costs, such as pollution and health implications and so on, it would probably be something like $16/gallon,” Phillipsen said in a May NPR Marketplace interview.
BREAK IT DOWN
In hyper-summary: Crude oil, the raw material for gasoline, is sent to refineries after extraction, where it is made it into a variety of petroleum products, the main one being gasoline. It is then transported to your local gas station via trucks. According to Commodity HQ, a commodities analyst firm, the price of crude oil makes up 51 percent of the pump price, with the refining process accounting for another 23 percent. They acknowledge these numbers are a best estimate, but going off that figure, almost 75 percent of the cost of fuel is determined before it even leaves the refinery, and unaffected by the market forces in Tahoe.
But then where do the large discrepancies come from that put our region at up to $0.50/gallon, or 18 percent, above the state average? The remaining cost is broken down into distribution, marketing and taxes. This is where Tahoe sees the most markup, as well as the likely influence of the cost-of-living factor that can set prices higher than in other areas.
The exact configuration of the rates may remain shrouded in some mystery, but as they have been historically higher than almost anywhere in the country, the odds are that that trend will continue.
“Typically, gas prices will remain similar relative to other areas,” said Mac. “It’s highly unlikely that any factor could sway prices so much to lower Tahoe prices below nearby areas.”