Are San Diegans Taking a Hosing on Gas Prices?

A few years ago, highway travelers who journeyed between San Diego and Los Angeles could fuel up in either city and expect to pay about the same amount for a gallon of gasoline.

But today, drivers who frivolously fill up their tanks in San Diego should be prepared to dig deeper in their pockets: According to industry surveys, a gallon of regular unleaded costs 10 cents more on average in San Diego than it does in Los Angeles.

In the past two years, industry experts say, the price difference between San Diego and Los Angeles has expanded to 10 cents or more from a traditional gap of a couple of pennies. According to the most recent research by Lundberg Surveys, a North Hollywood-based market research firm, a gallon of regular unleaded costs an average $1.10 in San Diego and about $.99 in Los Angeles.

Moreover, Lundberg’s recent survey of 51 major U. S. cities reveals that San Diego posts the third-highest price in the nation for a gallon of regular unleaded gasoline. Only two other cities--Anchorage, Alaska, and Honolulu--recorded higher prices.

San Diego’s steep gas prices have left local drivers and politicians angry to the point that Rep. Jim Bates (D-San Diego) has asked the Federal Trade Commission to investigate the reasons. Explanations offered so far include allegations of price fixing by the major oil companies, skyrocketing real estate costs and simple supply-and-demand market dynamics.

“For some reason, San Diegans are getting a raw deal,” Bates said. “If the Federal Trade Commission comes up with evidence showing fairly clearly that this is a case of price fixing, (the FTC) would turn (the evidence) over to the Justice Department for prosecution,” Bates said.

But the major oil companies that operate in San Diego County have denied any wrongdoing and say the prices are market-driven.

Bates “is totally incorrect if he’s suggesting that the oil companies are cooperating together,” said Frank Suchwala, a pricing product supply specialist at Chevron, one of the county’s major suppliers.

“Dealers establish their own street prices and they set prices which they believe the market will bear,” Suchwala said.

But dealers say the major oil companies are charging them higher prices and that they in turn must pass along the costs to consumers.

Dealers “take a lot of flak (from drivers) who may have just come down from Los Angeles and purchased gas up there,” said Steve Shelton, executive director of the Southern California Service Station Assn., a 1,280-member trade group composed primarily of individual operators who lease gas stations from the major oil companies.

“They see the prices here, and the first thing they say is, ‘What kind of rip-off artist are you?’ ” Shelton said. “It’s a bum rap. Our guys are the victims. We’re not the perpetrators.”

“San Diego has the highest wholesale prices in the United States, and that’s what makes the retail prices higher,” Shelton said.

The wholesale prices of gasoline in San Diego seem particularly high when compared with nearby Southwestern U. S. cities--such as Las Vegas and Phoenix--which are supplied by the same Los Angeles-area refineries.

According to the Lundberg Surveys, a comparison of wholesale prices for regular unleaded--the most common grade, accounting for 50% of all gasoline sold--reveals the following: Regular unleaded produced in Los Angeles sells in the home city at an average wholesale price of 71.51 cents per gallon.

In Phoenix, where the gas must be transported 400 miles, the same gallon of gas sells for 73.32 cents per gallon. In Las Vegas, about 280 miles away from Los Angeles, a gallon sells for 68.73 cents.

But in San Diego, which is just 120 miles away, the same gallon costs 81.63 cents.

Shelton says the major oil companies’ strong presence in the state, coupled with a dwindling number of independent dealers, has decreased competition in the marketplace and led to such higher prices.

According to the Lundberg Surveys, the nation’s four biggest oil companies accounted for 28.9% of domestic gasoline sales nationwide in 1987. By contrast, California’s top four oil companies--ARCO, Chevron, Shell and Unocal--accounted for 61.6% of the state’s gasoline sales during the same year.

“But, more importantly, the private branders who helped keep prices down in San Diego in the past today can only be found few and far between,” Shelton said. “That’s created an environment where there are very few players. That means less competition in the marketplace and higher prices for consumers.”

Skyrocketing real estate prices and escalating costs associated with operating a gas station have forced many independent dealers out of business and prohibited many from entering, Shelton said.

“There are all these new environmental regulations that you must meet,” Shelton said. “For example, if your tanks are so old, you have to replace them. Most people can’t afford to upgrade, and they go out of business. And many independent operators have discovered that the price of insurance has gone up dramatically, too.”

Shelton says the remaining oil companies are taking advantage of the lack of competitors.

“It’s more profitable for the handful of (major oil companies) to cooperate than compete,” Shelton said. “In San Diego, we’re seeing an exaggerated symptom of the problem.”

But Suchwala, the Chevron spokesman, said his company’s prices--8 to 9 cents higher in San Diego than in Los Angeles--are set only to remain competitive.

“The major competition in (San Diego County) is ARCO, and they have taken a higher price posture in San Diego” than in Los Angeles, he said. “They are the market leaders, and we follow the competition.”

Asked why Chevron doesn’t lower prices to draw more customers, Suchwala said, “Our company’s pricing strategy is not available for discussion.”