Why some stations charge outlandish gas prices

Summer gasoline prices across the nation have dropped to their lowest mark since 2004. AAA says the "best news" is that many motorists are once again paying less than $2 a gallon.

But don't expect any bargains soon at the Lukoil on Ridge Pike at Chemical Road in Conshohocken, where the price for regular was stubbornly stuck at $2.999 a gallon recently.

"Are you saying it should be priced lower?" asked Tom Hutchinson, the dealer-franchisee. He refers disgruntled consumers to a toll-free Lukoil customer service number posted on the window of the convenience store.

The Lukoil in Conshohocken is not the only outlier on the gas-price spectrum. According to GasBuddy.com, 15 stations in the region offered prices of $2.78 or higher one day recently when the average retail price for regular was $2.27 a gallon.

There seems to be no logic to this. The Conshohocken Lukoil, while it stands alone at a busy off-ramp from I-476, is only a half-mile from another Lukoil that charges $2.35 a gallon. The pricier station has few customers. Regular travelers in the area seem to be aware of the situation.

The most expensive gas in the region was at a BP on North Easton Road in Doylestown, where the posted price of $3.29 a gallon was 45 percent higher than the regional average. A Shell across Easton Road charges 87 cents a gallon less.

It's the same in lower-priced New Jersey. A Shell at Brace and Kresson Roads in Cherry Hill sells gas for 60 cents more than the Citgo across the street. An Exxon on Mount Holly Road by the Burlington Center Mall charges $2.47 a gallon, 60 cents more than competitors a half-mile away. The employees behind the Exxon counter shrug about the price, and take a message for the owner. He doesn't return the call.

The dealers at several gas stations say that their hands are tied, and that they are weary of being accused of price-gouging. They said they are only passing along the high prices they are charged by their suppliers, from whom they lease the properties. They spoke on the condition of anonymity, because they fear retaliation by their suppliers.

"We can't control the price," said one Montgomery County dealer, who expressed exasperation that his high retail fuel price was driving traffic away from the doughnut shop in his sparsely stocked convenience store.

Hutchinson, the manager of the Lukoil in Conshohocken who was one of the only dealers who gave his name, was unapologetic. He said he sets his price to cover the station rent from Lukoil, enough to stay in business. "We just do what we have to do," he said.

Ultra-high-priced stations are unusual, said Jana Tidwell, a spokeswoman for AAA Mid-Atlantic. Only 0.03 percent of Pennsylvania stations are selling gas for more than $3.25 a gallon, she said, and only 1 percent for more than $2.75 a gallon.

"The vast majority of stations compete favorably on price in order to attract consumers," she said.

"Not only does the typical station want the consumer to buy gas, but they also are interested in attracting people into the convenience store," she said. Merchandise usually has a higher margin than gasoline.

Industry experts say that a business strategy built around high fuel prices generally does not work, except for a few stations in affluent areas where the customers are price-insensitive, or those for which gasoline sales are a side business, such as an old-style service station with auto-repair bays.

Such is the case for the 309 Gas Station and Car Wash on Bethlehem Pike in Montgomeryville, where the car wash was doing a brisk business, but nobody was buying gasoline priced at $2.90 a gallon. Just up the road, a Speedway was selling gas for $2.21.

Few stations appear to deliberately pursue a strategy of setting high prices aimed at snaring unsuspecting motorists, said Sal Risalvato, executive director of the New Jersey Gasoline, C-Store, Automotive Association.

"That's an unsustainable business model," he said.

There are exceptions. Two gas stations in the tourist mecca of Orlando have become infamous for charging $6 a gallon, about three times the regional average. One of the stations is in Lake Buena Vista, near Disney World, and the other is near the Orlando airport.

"People are in a hurry, trying to catch a flight, and then afterward, they realize they paid 12 bucks for two gallons," said Patrick DeHaan, a senior petroleum analyst for GasBuddy.com.

DeHaan criticized Florida government for not enacting consumer protections to prevent dealers from erecting ground-level signs camouflaged by shrubbery. Otherwise, it's legal for gas stations to charge what they want in non-emergency situations.

"The state is not doing a good job in this instance of protecting consumers from stations that are ripping them off," he said. "They're fleecing them."

But DeHaan said "very few" dealers are engaged in price-gouging. "At the same time, motorists deserve some of the blame for not paying attention," he said.

Risalvato, with the New Jersey fuel dealers' association, said dealers operate under a wide variety of supplier arrangements that can leave them at the mercy of their wholesaler.

Most supply contracts require distributors to charge a dealer a specified margin above a published wholesale price, known as the "rack" price. Larger-volume dealers often can negotiate a smaller margin, giving them a competitive price advantage.

But other gas-station operators are locked into station leases with distributors that require them to pay what is called a "dealer tank-wagon" price for fuel. "The dealer tank-wagon price is whatever the supplier says it will be," said Risalvato.

He says that some distributors "squeeze" the retailers by dramatically increasing the wholesale price. He suspects the distributors want to force the dealers to abandon their leases, so that the distributors can take over the properties, or to favor a nearby competitor that they control. But such allegations are hard to prove in court, he said.

"Here's what happens, over a period of time, the dealer loses so much volume he goes out of business," he said. "He closes his doors. Because he's leasing the property from the distributor, he literally turns in the keys."

Three dealers in the region with high prices identified their supplier as ARFA Enterprises Inc., a wholesale distributor based in Pennsauken.

ARFA is owned by Semyon Logovinsky, a Russian-born U.S. citizen who worked as an engineer and marketer for Amoco and Citgo. In a 2013 affidavit filed in a federal suit in Massachusetts in which ARFA was a party, Logovinsky said ARFA had 25 to 30 employees and distributes fuel to about 175 dealers in New Jersey and Pennsylvania.

Logovinsky could not be reached for comment. A person answering the phone at ARFA's headquarters hung up twice on a caller who identified himself as a reporter.

"Please don't call," he said.

amaykuth@phillynews.com

215-854-2947@maykuth


Find the Cheapest Fuel Online

The best way to avoid getting snared by a high-priced gas station is to shop around. AAA and GasBuddy offer online and mobile apps that include up-to-the-minute price reports on invidual stations:

AAA: http://midatlantic.aaa.com/Outreach/GasInformation

GasBuddy: www.gasbuddy.com