Web Edition Sunday, Mar. 19, 2000 News - March 19, 2000

Fuel price 'instability' gets hearing in Senate By ROGER TALBOT Sunday News Staff

Filling up at $1.50 a gallon is not as outrageous when that price is tempered by inflation and the realization that about a quarter of what you pay for gasoline is the tax used to build and repair roads and bridges.

But that rationale "doesn't help me a hell of a lot," said Rep. George F. Brown, D-Rochester, who is trying to make ends meet on retirement benefits. Brown is the principal sponsor of a House-approved bill to have a study committee examine the "instability" of gasoline and heating oil prices. The bill is scheduled for a State House hearing Tuesday at 2:45 p.m. before the Senate Committee on Energy and Economic Development. There are questions that need to be answered, Brown said. "It just seems to me we ought to be able to get together with the wholesalers and retailers and come up with some state energy policy where we can help the working class people and the older people. Right now they get no help at all," Brown said of the soaring costs for fuel and oil.

Merelise O'Connor, deputy director of the Governor's Office of Energy and Community Services, said state agencies are cooperating in forming a committee to examine petroleum issues, such as bulk purchases. Also, she is planning to go to Washington on April 6 for a gasoline-outlook conference being staged by the federal Department of Energy. "I'm going to listen and gather information. If there is something the state can do, we want to know about it," O'Connor said. A week ago, when the state energy office conducted its latest "shop survey," the price of unleaded regular gasoline averaged $1.50 a gallon statewide. The survey noted that, in the months ahead, gasoline supplies may be strained in southern New England, normally serviced by two refineries in New Jersey that are currently out of operation. Supply should not be a problem for New Hampshire, which gets much of its gasoline from a refinery in New Brunswick, but the psychology of perceived scarcity could drive prices up in New Hampshire, O'Connor said.

With worldwide crude oil production down and fuel needs rising, the energy office predicted "prices may surge as high as $1.80 to $2 a gallon. "Price spikes have come sooner than expected and will likely peak in a month or two with good weather and consequent increased motor vehicle travel, but high gasoline prices are expected for some time." About 24 percent of the average retail price of $1.50 is tax  18 cents goes to the state, 18.4 cents is federal tax  a fixed amount, whether the cost for a gallon is $1.50 or in the $1 range, which is where it was in New Hampshire a year ago.

The taxes generate a lot of money earmarked for highway work. Last week, before congressional Republicans backed away from their call to repeal a 4.3-cent portion of the federal gas tax, the Transportation Department estimated such a cut would reduce highway money by $20.5 billion through 2003.

The shock of today's high price has been amplified by recent experience. "We're coming off a time when gas was as cheap as it has ever been," said David Harrington, lobbyist for the American Petroleum Institute. "The run up from where we were to where we are has pronounced the hike psychologically." When inflation is factored into the equation, paying $1.50 a gallon for gasoline is not unprecedented. Historically, API, the industry's national trade association, has tracked gasoline prices since it was founded in 1918. In that year, the retail price was 25 cents a gallon, but in a dollar adjusted to its current value, that would be $2.76 a gallon.

In the winter of 1973-74, when a Mideast war caused Arab oil producing nations to ban all oil exports to the United States and motorists waited in long lines to get a few gallons, the national average retail price for a gallon of gasoline was 53.2 cents. In 2000 dollars, that equates to $1.79 a gallon, or $1.38 if you deduct the taxes. The Organization of Petroleum Exporting Countries maintained a semblance of unity through 1985, when the national retail price was $1.20 a gallon ($1.84 when adjusted for inflation). But except for that period, 1973-85, gasoline prices have declined steadily since 1950 as new fields have been discovered and technological improvements have made it easier to get the crude oil out of the ground. Gasoline prices bottomed in 1998 at a national average of $1.11 a gallon ($1.13 when adjusted for inflation).

Gasoline prices are high now "because the price of crude oil has gone from $14 a barrel to around $30" over the course of a year, lobbyist Harrington recently told state lawmakers. The price is also driven by the fact that more oil is being consumed than is being taken out of the ground. The United States depends on foreign countries for about 55 percent of its oil, but the oil producing countries decided last spring to cut production of crude oil by about 2 million barrels a day. Demand, however, has remained high and, worldwide, the drawdown on previously stored inventories of crude is averaging 2 million gallons a day. "That makes futures traders panicky. When you see dwindling supplies, you can demand more for the product," Harrington said. In February, the national average retail price of $1.44 per gallon included 68 cents for the crude oil (up from an average of 42 cents last year), 41 cents for taxes and 35 cents to refine, deliver and retail the gasoline.

Former Manchester Mayor Robert Shaw, who has operated Shaw's Service Station on Webster Street since 1963, breaks the price down a little differently. On Thursday, he was selling regular gasoline for $1.47 a gallon. Deducting the $1 he pays for the refined product, 36.4 cents for state and federal taxes and 3 cents for delivery, leaves him 8.5 cents a gallon to cover all his business expenses, equipment rentals, salaries, profit. For the past six years, Shaw has supplemented the gasoline sales and auto repairs with what has become a popular Italian sandwich sideline. So, in 2000, can a traditional auto service station survive? "Look in the Yellow Pages of a 1973 Manchester phone book. Look at how many of us there were then. We used to cover four pages," Shaw said of the local service stations. "In the 2000 phone book, we take up one column."

Shaw remembered well the fall and winter of 1973  the long lines, the quotas that limited the gasoline delivered to his station, the odd-even plan that keyed the sale to the day of the week and the license number on the car. And the legal action he took against the "gouging" oil companies. Shaw rejected the inflation factor as a tool of the economists, but he did agree that gasoline, "when you look at it on a per-mile basis, is cheaper today than it was in 1973," because today's average vehicle goes farther on a gallon. He noted the puzzling mindset of the motorist who will drive many miles in search of a station selling gasoline for a penny below the competition. "Travel is still a discretionary expense," Shaw said of the outcry over the rising cost of gasoline. "It will hurt the state this summer. People are doing day trips for vacation or going some place and then not moving around." But Lauri Ostrander Klefos, the state director of Travel and Tourism Development, differentiated between a tight supply of gasoline and its cost.

The higher prices have not triggered any shift in the state's tourism advertising strategy. "Now, scarcity would be another issue," she said. "If travelers were worrying about going somewhere and being stranded there . . . but the economy is so good and we've not seen anything so far that would concern us about the coming summer.

"Historically, the rising cost of gasoline has never been a deterrent to traveling. For a 1,000-mile trip, we're really talking only an extra $25 to $30. Would that stop someone from going on vacation? "No," concluded the state's tourism director.

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-- Martin Thompson (mthom1927@aol.com), March 19, 2000