Kentucky Town Fuels Debate

Somerset StationIn an effort to balance fuel prices for local motorists, officials in the city of Somerset, Ky. have gone into the gas business despite complaints from area retailers.

By David Bennett, Senior Editor

Consumers frequently voice their displeasure over high gasoline costs but often find themselves over a barrel because they don’t have the means to do anything about it.
Just ask the people of Somerset, a popular Kentucky traveler town located on the northeastern edge of Lake Cumberland. For as long as most residents can remember, spiking fuel prices have been a sore subject, especially when tourists flock to the area every summer. Though the cost of fuel in surrounding towns seemed aligned with the market, gas prices always seemed artificially inflated in Somerset—often 20-30 cents per gallon higher.

And when the din from residents grew too loud, pointed questions to local fuel distributors usually went unanswered, according to some city officials.
Now, the din resounds once again from the cozy confines of Somerset, but this time it’s local retailers who are railing against a city initiative that they say is already hurting their businesses.

Banking on an existing city-owned filling station and a nearby refinery to supply it, officials of Somerset recently decided to serve residents by going into the gas business for themselves. Somerset City Council this past June voted 10-0 in favor of an ordinance authorizing the city to sell regular (87 octane) gasoline.
The Somerset Fuel Center began selling gas to motorists July 19.

Not surprisingly, the decision hasn’t been without opposition as retailer and petroleum groups assert that the city station, located on Chappells Diary Road, will cause unnecessary pressure in the marketplace.

Local and national media have jumped on the story, especially since Somerset appears to be the first municipality in either Kentucky or the country to sell gas under its own banner.

GAS FLAK
As of mid-July, the city pumps hadn’t been turned on. Somerset officials were waiting for credit card processing software to be delivered and to retrofit the center’s 10 pumps before servicing motorists. Plans call for an attendant to be on duty between 8 a.m.-4 p.m. to handle cash sales, while credit cards will be accepted 24 hours a day.

John Minton, who represents Somerset’s Ward 8, has been pushing for a city-operated fueling site for the last three years. The infrastructure was in place because it’s the same facility that fuels the city’s vehicles and school buses. Since Somerset is now converting its fleet to compressed natural gas, revamping the fuel center to accommodate private vehicles seemed in the cards.

Kicking the idea of providing motorist city gas around for nearly three years, the councilman said the fuel center program was the last viable option to help stabilize fuel costs in their town.

“Every holiday, every weekend, I’ve seen gasoline jump here 30, 40, 50 cents on the gallon just overnight, for no reason, and our neighboring towns—until the last two or three weeks—you could drive anywhere in a 50-mile radius and buy gas cheaper than you could in Somerset,” said Minton, a Somerset councilman since 1994.

In the last few weeks, since council members agreed to open the fuel center, prices in Somerset have been slightly lower than the surrounding towns, including Corbin, London and Russell Springs.

Somerset’s fuel center currently has the capacity to hold 40,000 gallons of diesel and 20,000 gallons of regular gas, and another 20,000 gallons of off-road diesel.
Minton said city officials have agreed not to sell diesel or high-octane gas at the station—yet.

Three miles away, the Continental Refining Co. is humming along and soon trucks will be traversing the distance to the fuel center to deliver gas for local motorists. City officials also insist that the fuel center will create jobs at the local refinery.

FREE ENTERPRISE
Local retailers point out the city’s plan to sell gas already subsidized by local taxpayers erodes the local market economy, thus hurting the prospect of jobs. City taxpayers already pay to subsidize the gas that powers Somerset’s public vehicles, which are now being converted over to compressed natural gas. The conversion will open up all of the location’s 10 pumps to paying motorists.

“Our industry is watching developments around the City of Somerset’s decision to sell gas publicly very closely,” said Brian Clark, executive director of the Kentucky Petroleum Marketers Association. “The city will be competing directly with small businesses in the community, and this raises many questions, not the least of which is, ‘why is this a good idea?’ It’s scary for those who depend on local businesses for their jobs, especially when government says they intend to interfere with the free market.”

Most often when fair trade issues come up, it is due to cases of American businesses asking government to protect their interests from unfair foreign competition. In Somerset, local merchants question whether the government is conducting unfair trade practices, especially when they are able to forgo the normal expenses that local retailers must contend with as part of doing business.

“What is this going to do as far as throwing a monkey wrench in a naturally-occurring competitive landscape that is now going to be thrown off kilter by an entrant that doesn’t have to play by the same rules as everybody else?” asked Ted Mason, executive director of the Kentucky Grocers Association and Kentucky Association of Convenience Stores. “I think that’s the huge concern. As you know, the margins in fuels are so thin, and by the time you pay credit card interchange (fees), by the time you make some money off your gasoline, you’re doing well. I think there’s a lot of concern from people who do have substantial investments—whether you have a single convenience store in the Somerset area or the larger chains; everyone is concerned about this precedent occurring.”

The two Kentucky retail groups represent more than 400 members with 1,600 locations around the state. Mason said that a public initiative that hurts local businesses is counterproductive in more ways than one.

“Our industry collects motor fuel taxes on behalf of the state, our members comply with laws and regulations that govern the industry and our members are deeply involved in their communities—they provide jobs, they pay school taxes, property taxes—and it’s troubling for there to be direct competition from the government,” Clark said. “They’re directly competing with those small businesses.”

Mason wonders if the local ordinance opens the door to other municipalities in Kentucky, or the country, to launch their own filling stations. Perhaps Somerset officials are eyeing other industries to enter, he suggested. “If (city officials) decide that groceries are too high in Somerset, are they going to open a grocery store?”

The argument that he is subsidizing Somerset’s fuel business isn’t lost on Somerset resident Steve Wright, who has lived here for more than 10 years. Wright has been following the fuel flap, and since he has to purchase gas for his vehicle somewhere, he’s willing to give his money to the city of Somerset rather than a higher-priced, commercial competitor.“Even if they don’t sell a gallon of gas; if the city’s gas station can push those companies to keep prices down, then I think it’s a great thing,” he said.

  • Truthseeker

    This I don’t an ignorantly written story it talks alot about how a small city like Somerset is subsidizing gas for a few to help then survive yet says nothing about how many billions of dollars in subsidies are given by our Federal Government to Big Oil and other big businesses yet no one in the petroleum or groceries groups ever complain about that little no fact and sadly those tax subsidies help no one but already rich big oil

  • CT Gas Guy

    Sorry truth seeker but your comments don’t make any sense and are not based in facts. For years retailers and distributors have complained about the profits of big oil. I personally have testified in both Washington, D.C. and my home state of Connecticut. I proposed both State and Federal Legislation called Fair Wholesale Pricing which would have saved the consumers in Connecticut millions of dollars only to see the huge lobbying efforts of Big Oil payoff and kill the legislation. Consider this fact, for a local retailer is it easier to sell gasoline that retails for $1.00 or $4.00 – so why would a retailer want to sell gasoline for $4.00? The problem is Big Oil is the only game in town and has a practice or secret of what is call “Zone Pricing” What this is and I proved it to our local legislators is they can and do charge as much as $.50 per gallon for the exact same gasoline on the exact same day to different customers of theirs. Why because Big Oil has determined they can and do get away with it as customers cannot easily get to the cheaper gasoline without consuming more gasoline. They call that the Free Market, I call it a captive customer the retailer who is stuck trying to sell that higher priced gasoline and still make a profit. I know what I am talking about as my station sold over 3 million gallons of gasoline annually and I was one of the ones they charged that higher price two.

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