Price-gouging at the pump? Up to $1 added to St Louis E85 price to discourage use of renewables, says ethanol group

October 8, 2014 |

e85-price-gouging“Sneaky E85 pricing strategies…give oil refiners the opportunity to wrongly claim that consumers are ‘rejecting’ E85,” says RFA.

In Missouri, the Renewable Fuels Association released a new report highlighting alleged price-gouging in the St. Louis E85 market.

In a new case study, the RFA tracked E85 and gasoline (E10) prices at all nine retail stations selling E85 in the St. Louis metro area, each carrying the brand of one of the five largest integrated oil production and refining companies.

Across more than 250 observations during the summer, the average E10 retail price was $3.452 per gallon and the average E85 retail price was $3.476 per gallon. Meanwhile, E85 was available at a local wholesale terminal for an average of $2.582 per gallon, while E10 averaged $2.933 per gallon at the wholesale level. Based on prices for locally available ethanol, hydrocarbon blendstock, RFS RIN credits, and a typical markup, E85 could have been offered at retail for $2.44–2.55 per gallon.

Twice the mark-up on E85 as E10 gasoline

Overall, the RFA study fund that the wholesale-to-retail markup on E85 was nearly twice the markup on gasoline. Finally, the study found E85 retail prices were roughly $1 per gallon higher than was justified by wholesale prices for locally available ethanol and hydrocarbon blendstock.

The study’s results offer “… clear support for the notion that some gasoline producers/suppliers and their franchised retailers purposely employ E85 pricing strategies meant to discourage E85 consumption and negatively influence consumer perceptions about the fuel.”

Bob Dinneen, president and CEO of the RFA, stated, “Sneaky E85 pricing strategies ultimately give oil refiners the opportunity to wrongly claim that consumers are ‘rejecting’ E85; and it gives them an opportunity to claim they can’t comply with Renewable Fuel Standard (RFS) requirements above the so-called ‘blend wall.’ This study exposes the utter hypocrisy of that argument.”

Why St. Louis?

So, why is the St. Louis E85 market so dysfunctional, when other markets are seeing competitive pricing and strong demand for E85? The RFA offered several potential explanations:

1. Retailers affiliated with a Big Oil brand are often bound by franchise agreements that make it difficult to sell anything other than “branded” fuel. These agreements often set up roadblocks for retailers who wish to sell “unbranded” fuels like E85.

2. Many oil companies require branded retailers to sell a specified amount of “branded” fuel such as premium or diesel. Therefore, competitively priced E85 would potentially drive sales away from those fuels, leaving retailers in jeopardy of failing to meet contractual obligations.

3. A small number of consumers purchase E85—no matter the price relative to gasoline—because of ethanol’s environmental benefits. Retailers may be taking advantage of these consumers by keeping E85 prices artificially high.

4. Due to the relative proximity of the stations offering E85 in the St. Louis market, there is very little price competition to attract FFV drivers to one station over another.

5. Retailers may be implementing “decoy pricing,” which means they set the price of E85 high so that other fuel options seem more reasonably priced.

“This is just one more way Big Oil attempts to quash competition and discourage consumers from choosing greener, cheaper, domestically-produced renewable fuels,” said Dinneen.

The data

The complete study can be downloaded here.

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