Del-MD gas prices not the fault of retailers

As many Sussex Countians have noticed, gasoline prices are considerably cheaper in neighboring Maryland. It’s not unusual to see price differences of 30 to 40 cents per gallon between gasoline sold here, as opposed to that sold in Worcester, Wicomico and Dorchester counties.

There are several reasons for this, none of which have anything to do with state government action or summertime price gouging on the part of local retailers.

The only impact the state currently has on the price you pay at the pump is the motor fuel tax levied to help raise revenue for transportation projects. In Delaware, we charge 23 cents per-gallon on gasoline and 22 cents on a gallon of diesel. The state tax in Maryland is actually slightly higher: 23.5 cents per-gallon of gasoline and 24.25 cents on diesel fuel.

The people selling gasoline in Sussex are charging more because they are paying more for gasoline themselves. On average, the wholesale price for a gallon of gasoline in Sussex County during June was about 36 cents higher than in neighboring Maryland. This is because federal government regulations require that we sell a different type of gasoline in the First State.

The Clean Air Act stipulates that counties must meet an air quality standard for “ground-level ozone” or take action to reduce it. While ozone at high altitude helps shield us from ultraviolet radiation, ozone near the surface is believed to be detrimental to human health, harming both the heart and lungs. Ground-level ozone has even been implicated in reducing crop production.

Ozone is not directly emitted in vehicle exhaust, but those emissions interact with sunlight to form it. To combat this, the federal Clean Air Act (as amended in 1990) mandated the use of reformulated gasoline (RFG) in so-called “non-attainment” areas — those regions with ozone pollution levels above the government benchmarks. RFG is specially blended to reduce emissions in the specific geographic areas in which it is sold.

In the early 1990’s, New Castle and Kent counties were out of compliance for ozone and Sussex County was borderline. For the sake of standardization and ease of regulation, Gov. Mike Castle sent a letter to the U.S. Environmental Protection Agency on Jan. 8, 1992, asking that Sussex County be treated as a non-attainment area.

While reformulated gasoline has always been more expensive than conventional gas, it was only recently that the disparity became extreme. During the last several years, the wholesale price difference between RFG purchased by Sussex County retailers and the gasoline purchased in neighboring Maryland was only about 8 to 12 cents per gallon. That changed in May.

For many years, RFG sold in Delaware and other non-attainment areas around the country contained a chemical known as MTBE. This additive increased the amount of oxygen in gasoline, helping it to burn more efficiently and thus reducing the pollution emitted from the tailpipe.

The downside of MTBE is that although it is relatively cheap and effective, it has also proven to be a threat to water supplies. Gasoline containing MTBE that escaped from leaking underground storage tanks, or that spilled during accidents, tainted groundwater around the nation.

Because people drinking relatively low levels of MTBE were stricken with a wide-range of health problems, contaminated wells had to either be relocated or fitted with expensive filtering systems.

When the federal Energy Policy Act of 2005 was enacted last August, it did not contain limited liability protection that MTBE producers had sought to shield them from lawsuits. The new omnibus law also required oil companies to triple the amount of bio-fuels added to gasoline by 2012.

Ethanol — a type of alcohol typically produced from corn — enabled oil companies to kill two birds with one stone. It could replace MTBE as an additive to reduce tailpipe emissions while enabling companies to increase their use of bio-fuels in recognition of the new mandate.

Starting in May, oil companies began to aggressively phase-in E-10 in Delaware. “E-10,” a blend of 10 percent ethanol and 90 percent gasoline, is now the only type of gasoline available in the First State.

However, the rapid switch to ethanol in Delaware and other East Coast states strained available supplies and drove up prices. Depending on whether you were buying on the spot market or under contract, ethanol prices have ranged between $3 and $5 per gallon in recent weeks. That translates to a cost of $126 to $210 per barrel of ethanol, compared to about $94 for a barrel of gasoline at the refinery.

With ethanol comprising 10 percent of the volume of each gallon of gasoline, the RFG sold in Delaware costs more than the conventional gasoline in sold in Maryland’s lower shore.

Adding additional cost are transportation issues. Most of the E-10 sold in Delaware comes from Delaware City or Baltimore, whereas most of the conventional gas sold on the lower shore is transported by barge to Salisbury and distributed from there. In other words, it costs more to get RFG to the pumps in Delaware.

Ironically, Sussex County gasoline retailers have had to cut their profit margins in a vain attempt to close the gap between themselves and their Maryland counterparts. Meanwhile, those Maryland retailers close to the border can boost their margins and still offer Delaware motorists a comparative bargain — all while making more money on each gallon sold.

Delaware is not alone in being forced to use RFG. In this region, all of New Jersey, Connecticut, Rhode Island and Massachusetts, along with portions of New York, New Hampshire, Pennsylvania and most of Maryland, must also use the specialty RFG blends. Prices in this region reflect that. According to the U.S. Energy Information Administration, prices for the Central Atlantic Region averaged about $3.02.

We share the frustration of Delaware motorists because we’re Delaware motorists too. While it’s understandable to be irritated at the seeming lack of fairness that’s lead to downstate Delawareans paying more at the pumps than their Maryland neighbors, please recognize that the circumstances responsible for this are beyond the control of your state legislators and local retailers.