PROVO — Utah County motorists are wondering why gasoline prices throughout the county vary by as much as 20 cents per gallon when the valley's retailers supposedly pay about the same costs.
Retailers say motorists in the central part of the county are simply reaping the reward of a gas-price war while motorists in the outlying parts of the county are buying gas for about what it cost the stations. While the price war might benefit consumers now, some retailers say it will hurt the industry in the long run if the cutthroat pricing doesn't end soon.
For the past several weeks gas prices for regular unleaded in central Orem, Lindon and Pleasant Grove have hovered around $1.20 to $1.22 per gallon, which is comparable to prices in some parts of Salt Lake County. However, those prices are about as low as you'll find in the country, and some say stations selling gas at those prices are losing about 15 cents per gallon and possibly violating state law.
"We've never seen anything like this," said Mark Walker, operations manager for Walker Oil.
According to the Energy Information Administration, the average price for gasoline in the Rocky Mountain region Monday was $1.42 per gallon.
Stations in Payson, Spanish Fork, Springville, American Fork and Lehi are selling regular unleaded gas closer to the national average price — between $1.35 to $1.42 per gallon. Provo stations are not totally involved in the price war but are still selling gas at about $1.27 per gallon to remain somewhat competitive with stations to the north. According to industry officials, the cost of gasoline for Utah County retailers this week is about $1.36 per gallon.
The smaller retailers blame the central valley price war on "predatory pricing," where a large retailer opening a new station comes in and drops prices drastically in an attempt to take over the market in that area.
Low gas prices are also used as gimmicks to lure customers to businesses to spend money on the other services and goods the businesses offer.
For example, Smith's Food and Drug in Pleasant Grove last week was selling gas for $1.20 per gallon and then giving an additional 5 cent per gallon discount to those who purchased at least $25 in groceries.
When one station drops prices, surrounding stations soon follow suit to ensure they don't lose customers. Often, stations change prices several times a day attempting to keep a leg up on their neighbor.
While those buying gas in central Utah County are loving the price war, those in the outlying parts of the county paying about $1.40 per gallon are upset — believing they are being gouged by the station owners.
"They don't understand that we are at cost or slightly above cost at those places," Walker said.
Under the Utah Motor Fuel Marketing Act, gas retailers must sell gas for at least a 6 percent profit. Last year Walker Oil was fined $1,000 for selling gas below cost during a grand opening promotion at a new station in Heber City.
"Now we have people doing it 200 days a year and nothing is being done about it," Walker said.
Kevin Olsen, enforcement counsel with the Utah Division of Consumer Protection, admits the law is very difficult to enforce and that state officials have basically only gone after clear-cut violators.
"It's been a real bear to deal with," he said.
The problem state officials face with the law is determining a retailer's costs. When calculating the price of gas, many retailers include several other expenses other than simply the wholesale rack price they are paying.
Also, during price wars state officials must determine which station dropped prices first because stations are allowed to sell below costs to remain competitive.
"When we try to determine where it started, they all just point the finger at the others," Olsen said.
The Utah Legislature recently amended the Motor Fuel Marketing Act, and small retailers hope the law will now be easier to enforce. Beginning July 1, if Gov. Mike Leavitt signs the bill approving the amendments, gas retailers will be prohibited from selling gas below cost, which will be determined by the rack price, plus freight and taxes.
"You cannot sell it below that," Walker said.
The amendments also transfer enforcement responsibility from Consumer Protection to the Utah Attorney General's Office. Next week, the Utah Petroleum Marketers and Retailers Association is meeting with the attorney general to complain about those initiating the gas price wars.
There are signs this week that the price war might be ending. Several stations that have been selling gas for about $1.20 per gallon raised prices about 10 cents per gallon Tuesday. Smith's in Pleasant Grove, which was selling gas at $1.20 last week, was selling gas Wednesday night for $1.32 per gallon. Two stations on State Street in Orem that were selling gas for $1.22 Monday raised the price to $1.36 Wednesday night. The price at many stations in central Orem, however, remained below $1.25 Thursday morning.