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[Senate Hearing 112-596]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 112-596
 
                GASOLINE PRICES IN THE STATE OF VERMONT 

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   TO

EXAMINE GASOLINE PRICES AND MARGIN DYNAMICS WITHIN THE STATE OF VERMONT

                               __________

                     Burlington, VT, August 6, 2012

                       Printed for the use of the
               Committee on Energy and Natural Resources

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

76-613 PDF                       WASHINGTON : 2012 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
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Washington, DC 20402-0001 

               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          JAMES E. RISCH, Idaho
MARIA CANTWELL, Washington           MIKE LEE, Utah
BERNARD SANDERS, Vermont             RAND PAUL, Kentucky
DEBBIE STABENOW, Michigan            DANIEL COATS, Indiana
MARK UDALL, Colorado                 ROB PORTMAN, Ohio
JEANNE SHAHEEN, New Hampshire        JOHN HOEVEN, North Dakota
AL FRANKEN, Minnesota                DEAN HELLER, Nevada
JOE MANCHIN, III, West Virginia      BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Brockwell, Ben, Director of Data, Pricing & Information Service, 
  Oil price Information Service..................................     5
Choquette, Joesph, III, External Affairs Manager, Vermont 
  Petroleum Association, Downs Rachlin Martin PLLC, Montpelier, 
  VT.............................................................    10
Coutts, James, Director, Franklin County Senior Center, Saint 
  Albans, VT.....................................................    19
Horne, Gail, Owner, Keelers Bay Variety Store, South Hero, VT....    16
Leuck, Rob, Vice President and Regional Manager, Costco 
  Wholesale, Sterling, VA........................................    14
Sanders, Hon. Bernard, U.S. Senator From Vermont.................     1

                GASOLINE PRICES IN THE STATE OF VERMONT

                              ----------                              

                         MONDAY, AUGUST 6, 2012

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Burlington, VT.
    The committee met, pursuant to notice, at 2 p.m., at 
Contois Auditorium, City Hall, 149 Church Street, Burlington, 
Vermont, Hon. Bernie Sanders presiding.

 OPENING STATEMENT OF HON. BERNARD SANDERS, U.S. SENATOR FROM 
                            VERMONT

    Senator Sanders. This is a formal hearing of the U.S.
    Senate Committee on Energy and Natural Resources. I want to 
thank Senator Jeff Bingaman of New Mexico, who is the chair of 
the committee, for allowing us to hold this hearing in 
Burlington. I want to thank his staff member for being with us 
today. What is being discussed here will become a part of the 
official record of the committee. I want to thank the city of 
Burlington for allowing to use this facility, which I have some 
familiarity with.
    I also want to mention that we have representatives from 
Senator Leahy's office, Ted Brady, is here. Ted, thanks for 
being here. From Congressman Welch's office, John Copans. I 
think we have the Attorney General of the State of Vermont, 
Billy Sorrell here, I believe. Thanks for being here as well.
    I also want to thank our panelists for taking the time to 
be with us to share their views on this extremely important 
issue.
    The issue that we are going to explore today is one that 
concerns many Vermonters, and that is how gas prices at the 
local level are determined, and why it is that, with few 
exceptions, gas prices at the pump in northwest Vermont--
Chittenden, Franklin, and Grand Isle Counties, have been 
significantly higher over the last several years than gas 
prices in other parts of Vermont, in New England, and 
throughout the country. That is the primary issue that we are 
going to be looking at today.
    I think we all understand that in a rural State like 
Vermont, high gasoline prices have a very serious impact on 
many people and families in our State. It is certainly not 
uncommon in Vermont for workers to travel 20, 30, 50 miles a 
day to work, and then travel back. When gas prices go up, that 
is money coming right out of their pockets, and that it is 
especially taking place at a time when many workers are seeing 
stagnant or, in fact, declining paychecks.
    So high gas prices are a serious problem. These prices not 
only impact workers, but they impact small business owners, 
family farmers, truckers, and volunteers, as we will hear later 
this afternoon, who deliver meals to senior citizens and 
perform other functions in our community. In other words, when 
gasoline prices become unusually high, extremely high, they 
impact the entire local economy.
    Now let me very clear at the onset. The issue that we are 
exploring today is a complicated one, and it is extremely 
opaque. It is an issue which has not, in my view, gotten the 
public attention or the transparency that it deserves. Today 
what we are going to try to do is to some degree lift the veil 
of secrecy, to the best that we can, on this complicated issue.
    Let me also be very clear in stating my understanding, and 
I think all of us understand, that there are many factors that 
go into setting gasoline prices in Vermont and across the 
country. Gasoline prices to a significant degree are determined 
by the price of crude oil. When crude oil prices go up, gas 
prices go up. When crude oil prices go down, gas prices at the 
pump go down.
    Excluding for the moment the enormous power of OPEC, the 
Oil Producing Exploring Countries--Exporting Countries--we have 
in this Nation 5 giant oil companies--ExxonMobil, BP, Shell, 
Chevron, and ConocoPhillips--that have made more than $1 
trillion in profits over the last decade. I think it is fair to 
say that most people in Vermont and throughout this country 
have the belief that year after year as these companies make 
enormous profits, they do not stay up nights worrying about the 
needs of working families or consumers.
    I just want to point out just in passing that in 2005, Lee 
Raymond, the former chairman of ExxonMobil, was given nearly 
$400 million in a retirement package by that company. I should 
also mention that many of these same giant oil companies 
receive huge subsidies and tax breaks from the Federal 
Government, something which on another day we can talk about at 
length.
    Further, when we talk about high oil prices, it is 
important to understand that high oil prices have a lot to do 
with Wall Street speculators who are buying and selling huge 
amounts of oil on the energy futures markets. The last 
information that I have received on that issue suggests that 
Wall Street speculators control over 80 percent of the oil 
futures market. Needless to say, unlike fuel dealers, or 
airline companies, or trucking companies, these Wall Street 
speculators do not use one gallon, one barrel of oil. Their 
only function in life is to make as much money as they can by 
speculating in oil.
    To the point, Goldman Sachs, perhaps the largest speculator 
on Wall Street, came out with a report earlier this year 
indicating that excessive oil speculation is costing Americans 
about 56 cents a gallon at the oil pump. Others have estimated 
that number to be even higher.
    While these two factors and others can explain why gas 
prices have been extremely high on the national level, they 
cannot what we are exploring today, and that is the significant 
differences in gasoline prices that have existed in northwest 
Vermont compared to other regions in our State and other parts 
of the country.
    Over the past several months, many Vermonters have asked me 
why consumers have been forced to pay considerably more for a 
gallon of gasoline in northwest Vermonter than in other regions 
of our State or throughout New England. Clearly in Vermont, 
State taxes are the same from one end of the State to the 
other, and we have learned that transportation costs amount to 
at most a few cents per gallon.
    So here are some of the questions that are on my mind and I 
hope that we can discuss this afternoon. As an example, on July 
6, 2012, a month ago, with the same gas station company owned 
by Maplefields, charged $3.35 a gallon in Middlebury, while 
charging $3.59 a gallon just 35 miles away in Burlington. Why 
on July 1st were people in St. Albans paying on average--on 
average for the whole town--$3.60 per gallon of gas, while 
people in Springfield, Vermont on average were paying less than 
$3.40 a gallon? Why on June 24th were people in Waterbury 
paying more than $3.65 a gallon for gas on average, while 
people in Rutland were paying an average of $3.49 a gallon? 
These are just a few of the questions that the citizens of 
Vermont have been asking me.
    Now as many of you know, on July 2nd, I asked the Federal 
Trade Commission, the FTC, and the Oil and Gas Price Fraud 
Working Group to investigate why prices could be so much higher 
throughout northwest Vermont than in other areas of our State 
and the country. In the days that followed, we learned some 
interesting information. Let me just tick off a little bit 
about what we learned.
    First, the FTC provided information showing gasoline prices 
in Greater Burlington in late June--late June--were 10 to 43 
cents a gallon greater than their computer model projected they 
should be based on historical wholesale prices.
    Second, according to OPIS--and we will hear testimony from 
Ben Brockwell from OPIS on this issue, and OPIS is the Oil 
Price Information Service--we learned that earlier this summer, 
the Burlington area was the most profitable gasoline market in 
the northeast, more profitable than Washington, DC, or New York 
or, in fact, any other region east of the Rocky Mountains. That 
the Burlington area was the most profitable gasoline market in 
the northeast.
    Further, according to additional information we received 
from OPIS, gasoline profit margins in Burlington more than 
tripled from January 1st of this year through June 30th of this 
year. During the first half of this year, Burlington was one of 
the most lucrative markets in the entire eastern half of the 
United States of America. As Ben Brockwell, the director of 
data at the Oil Price Information Service, OPIS, who is here 
with us today, told the Burlington Free Press on July 13th, and 
I quote, ``Burlington is always the top market in the northeast 
in terms of profits.''
    Let us be clear. What we have seen in the first half of 
this year is not an aberration. Over the last 3 years, gasoline 
prices and profit margins have almost always been higher in the 
Burlington area than the national average. In fact, over the 
past 3 years, Burlington area gas prices have exceeded the U.S. 
average 86 percent of the time, sometimes by as much as 29 
cents per gallon. Burlington gasoline prices over the past 3 
years have exceeded the statewide average 72 percent of the 
time.
    Prices in St. Albans exceeded both the U.S. average and the 
Vermont average 90 percent of the time. Prices in Waterbury 
exceeded the U.S. average 97 percent of the time and the 
Vermont average 100 percent of the time.
    As my office has looked into this issue, we have tried to 
understand why prices in northwest Vermont were so much higher 
than the rest of the Nation, the rest of New England, and, in 
fact, the rest of our country. One conclusion that we have 
reached is that it appears that there is just not a whole lot 
of competition when it comes to gas prices in this region, 
certainly as compared to other parts of the State and other 
parts of the country.
    Now one of the reasons for that may well be a reality that 
many Vermonters are not aware of, and that is that the 
largest--the 3 largest gasoline distributors in northwest 
Vermont--S B Collins, Champlain Oil, and R.L. Vallee--own more 
than half of the filling stations in this region--that is out 
of 185--and just 4 companies, adding Wesco to that mix--own 
nearly two-thirds of the filling stations in northwest Vermont, 
or 64 percent of the total.
    Now I suspect that this concentration of ownership and lack 
of price competition may be a significant reason why gasoline 
stations in northwest Vermont have been able to charge 
substantially higher prices than other regions of our State and 
country.
    No one is disputing that gasoline distributors--gas 
stations--have a right to make a profit. That is not in 
dispute. In my view, however, especially in these difficult 
economic times when workers and families are struggling to keep 
their heads above water, they should not be ripping off people.
    Now let me mention something that I have found to be very 
interesting, speaking only for myself. That is since I have 
called for this investigation into unusually high gasoline 
prices in northwest Vermont, I am happy to say that I and 
others have suddenly detected a more competitive spirit among 
gasoline station distributors in Chittenden County. I say this 
fully understanding that national wholesale gas prices have 
soared in recent weeks, and have in the last couple of days 
been reflected locally. We all know that to be the case.
    On Friday, August 3rd--now this is interesting to me--gas 
prices in Burlington were for the first time in several months 
below the national average. Today as best as we understanding, 
with gas prices in Vermont and nationally increasing 
substantially--in Vermont, nationally, and in Burlington--gas 
prices in the Burlington area remain at about the national 
average.
    In the month of July, average gas prices in the Burlington 
area went down--went down--by about 9 cents a gallon, even 
though wholesale gasoline prices in our region have gone up by 
more than 18 cents a gallon during this same time period.
    Now why is that? We can all guess why, but I happen to 
think it has something to do with the fact that maybe a 
spotlight has been shined on this situation, and that local 
distributors and gas stations have responded accordingly. I am 
glad that they did, and I hope very much that they will 
continue to do that.
    Now on another issue. As many of you know, and we will hear 
some discussion about this later on this afternoon, Costco has 
been trying to build a gasoline station at its Colchester 
location since 2007. Costco recently informed my office--and I 
will enter that letter as part of the record--that it could 
have sold gasoline for 19 cents a gallon less than the average 
price charged by gas stations in Colchester during the past 2 
years. I want to thank a representative from Costco for being 
with us today.
    Now I raise this issue--and I want to be very clear about 
this--not to be pro-Costco, not to be anti-Costco, but to 
emphasize that when low cost competitors enter a market, what 
national statistics show is that market forces have a tendency 
to bring prices down.
    Let me also be clear, Costco, as we all know, is attempting 
to receive a permit to build gas stations on their premises 
through a regional environmental board. This hearing today--so 
we are absolutely clear on it--has nothing to do with that 
process. It would be totally improper if I or anyone else tried 
to intervene. We have an environmental board that is 
independent that is dealing with that issue, and that is the 
way it should be.
    But I think that most people--and I myself do find it 
interesting--that the major opponents of Costco getting that 
permit are local gasoline dealers. In a letter to me Costco 
wrote, and I quote--and I do not quote, but that Costco wrote 
to me that they have obtained several approvals for our 
proposed gas station in Colchester, but each approval has been 
appealed by, among others, gas station owners in northern 
Vermont. We can--this is Costco speaking--``We can discern no 
legitimate reason for these appeals and believe that they are 
really an attempt to use the land use process to stifle 
competition for gas sales. We intend to vigorously pursue our 
rights in court, and we are confident that we eventually will 
prevail,'' end of quote. So let it stand at that. We will hear 
from Costco in a moment.
    Let me again thank our panelists for being with us today. 
My suggestion is if you can make your testimony in 5 minutes, 
great. If you need more time, that is OK, too.
    Let us begin with Ben Brockwell. Ben is the director of 
data pricing and information services for the Oil Price 
Information Service. Ben, we very much appreciate your being 
here. The microphone is yours.

OPENING STATEMENT OF BEN BROCKWELL, DIRECTOR OF DATA, PRICING & 
       INFORMATION SERVICE, OIL PRICE INFORMATION SERVICE

    Mr. Brockwell. Thank you, Senator, for inviting me, and it 
is nice to be in Burlington, a beautiful town. As I was told by 
the Senator, it happens to have a college. I called it a 
beautiful college town. He says, you are wrong, Ben, it is a 
beautiful town that happens to have a college. It is nice to be 
in Burlington.
    My name again is Ben Brockwell. I am director of data 
pricing information services for OPIS, Oil Price Information 
Service. OPIS is an independent company that has been in 
business for over 30 years. We independently value the price of 
petroleum, gasoline, jet fuel, diesel fuel, and other finished 
products as they make their way through the downstream 
petroleum supply chain from the refinery, to the wholesale 
terminal, to the retail station.
    Our prices are critical benchmarks for people who buy bulk 
petroleum. The Federal Government through the DESC, the Defense 
Energy Support Center, relies on our numbers for benchmarking 
purposes, for prices to escalate and deescalate.
    I myself have been covering oil markets since the 1970s. It 
is really all I have ever done. I have had a chance to view the 
oil market over a long arc of time, from the oil embargo in 
1973, to what that did to prices, to the price collapse in 1986 
where prices went to under $10 a barrel, again in 1999, and 
obviously through 2008 when prices went to an all-time record.
    Much has changed in the business in terms of what 
determines prices. I am not going to give you a summit on how 
it has changed, but at one time the major oil companies--Exxon, 
Chevron, et cetera--had a big voice in determining prices. That 
was kind of taken away from them in the 1960 when OPEC was 
formed. As the Senator said, the Organization of Petroleum 
Exporting Countries are a high volume. They produce 1 out of 
every 8 gallons or barrels of oil that are consumed in the 
world are produced by OPEC. Saudi Arabia is the biggest OPEC 
producer. They produce 10 million barrels a day, so they are 
the prime producer.
    OPEC had pricing power for many years, but probably about 
10 years ago, and we, OPIS, really documented a lot of this 
over time. Wall Street and big money started to identify crude 
oil--heating oil, gasoline futures--contracts as a commodity 
that they can invest in and make money. So over the past 10 
years, in my opinion, and I think it is an issue that people 
have talked about, but people have not really examined close 
enough. The Wall Street refinance as we call it, the Wall 
Street speculators are the primary force that determines the 
price of gasoline that you pay at the pump. Anybody who tells 
you differently, they are simply wrong.
    Again, I am not going to give you a summit on how that has 
happened, but one of the important things that has happened was 
some of the deregulation that occurred in 2001, cheap money, 
low interest rates has also been another factor. It is very 
cheap the poker game. So I can get in for a cheap price.
    Basically what happens is oil is traded on a daily basis on 
the futures market. That benchmark, that transparent number is 
the starting point for what a refiner in Exxon or a Chevron or 
a Shell will sell their incremental gallons for into the 
marketplace. That becomes the factor of what your wholesale 
prices are set at. That ultimately affects the price of retail. 
So, again retail prices are directly linked to the futures 
market, and all of us are victims of that.
    It was brought to my attention by Senator Sanders' office 
that Burlington prices for a long period in his estimation were 
higher than the industry average. OPIS, among other things, 
surveys probably 150,000 retail gasoline stations on a daily 
basis. So we have a solid data base of what stations charge by 
location, by brand, by grade of fuel. I was not personally 
aware that Burlington was a market that stood out, so I was 
asked by the Senator's office to do some data crunching.
    I think I took some of that data back to 2009, looking at 
wholesale rack prices in Burlington versus retail pump prices 
over a statewide configuration, some of it by location. I then 
compared that other--Burlington to other cities in Vermont, and 
compared Vermont to the northeast or New England northeast 
region, and then compared that to the U.S. average.
    It was apparent to me, as the Senator elegantly pointed out 
in his statement, that your market for a long time has been a 
great market for a gasoline retailer to sell gasoline in terms 
of margin above his costs. I was asked if I could reasonably 
explain that. Since I do not have really have a stake one way 
or another, I am not a defender or oil companies. I do not 
condemn them. I am just a data collector, and I try to make 
sense of the data.
    Since the Senator asked me if there was a reasonable 
explanation that Burlington prices should be so much higher 
than neighboring areas, and I have a set of criteria I go 
through, and I will close my testimony just taking you through 
that for the next couple of minutes.
    I thought since Burlington prices were 25 or 30 cents 
higher than neighboring areas, that they may use a special 
fuel. In the summertime, there are a number of metropolitan 
areas that are required to use a reformulated fuel, which is a 
more sophisticated harder fuel to burn. It is required in 
metropolitan areas because of pollution and clean air. 
Reformulated fuel in the bulk supplied markets is running all 
summer about 25 cents. So my immediate thought, it is 
reformulated fuel in Burlington. It is conventional fuel in the 
other cities.
    As it turns out, Burlington uses the same kind of fuel 
everybody else uses. It is a conventional fuel, and it is 
priced essentially the same throughout the State. So I 
eliminated fuel type as a possible explanation.
    The next thing I look at because I always--I am a New 
Jersey resident, and New Jersey has cheap State taxes, so our 
prices tend to be lower than Pennsylvania and New York, for 
example. So I am always asked how come you guys are so cheap? 
Taxes is the second thing I looked at. Normally it is a State 
tax issue versus another State.
    There are a number of locations nationwide--Chicago is 
probably the most blatant or most conspicuous--where there are 
also county and city taxes that add to the additional State 
taxes. So I thought maybe Burlington had a special tax in place 
that would elevate its price. I eliminated that.
    I then looked at transportation because it does 
distributors to transport fuel from point A to point B. But at 
the end of the day, and I looked at a bunch of rates from 
independent haulers around the country, it costs about 3 and a 
half cents to haul fuel--3.4 cents a gallon to haul fuel 50 
miles. This includes loading and unloading the product. It 
costs 75 cents to go--excuse me, 4.6 cents to go to 75 miles, 6 
cents to go 100 miles, and 13 cents to go 200 miles. As the 
Senator had pointed out, fuel price discrepancies within 35 
miles, and it was not in any way that transportation was going 
to explain that 35 cent difference.
    The Senator pointed out in his--in these statistics that he 
put in his letter to the FTC, that I became aware of it when I 
saw the letter, that he was concerned about competition. I 
looked at the stations in Burlington that OPIS surveys in its 
assessment of prices. I did not look at who owns which station. 
I did not get into that deep analysis. There is no reason for 
me to doubt the Senator's analysis. He got it from sources that 
I would go to if I were doing the same thing.
    But more than, I think, 60 percent of the stations in 
Burlington are branded as opposed to unbranded. Branded 
stations tend to value their product more than unbranded. But 
again, the market kind of differential for that is, you know, 
typically 6, 7, or 8 cents a gallon, not 35 cents a gallon.
    You know, real estate values come into play, how much it 
costs a company to get into the market. But again, some of the 
data that I examined showed margins in Burlington more 
expensive than places like DC and places New York City. I do 
not know property values in Burlington, but I certainly know 
New York City is probably more expensive. So I did not think 
that was an issue.
    At the end of the day--and the quote that this Senator 
quoted me, is an accurate quote--my conclusion was I did not 
have a reasonable explanation as an expert in the field as to 
why prices should be that different. That is essentially what I 
told some of the press people who contacted me to talk to me 
about it. So that was my conclusion.
    I would be glad to answer any questions that the Senator or 
any other person may have on this issue. It is a complicated 
issue. There is a lot that goes into it. But the data that I 
provided is consistent data we use to compare different 
markets. It did show Burlington to be a profitable market over 
a long arc of time.
    [The prepared statement of Mr. Brockwell follows:]

   Prepared Statement of Ben Brockwell, Director of Data, Pricing & 
           Information Service, Oil Price Information Service
    My name is Ben Brockwell and I am Director of Data, Pricing & 
Information Service with OPIS (Oil Price Information Service).
    OPIS is a privately-held, independent business information company, 
a division of Gaithersburg, Maryland-based UCG. The parent company 
provides business information services across a wide array of 
businesses including oil and energy, the specialty of OPIS. Other UCG 
business units deal in health, banking, and technology fields.
    UCG celebrates 35 years in business in 2012.
    OPIS celebrates its 32 year as part of UCG in 2012.
    OPIS essential business function is to independently value the 
price of refined oil products (gasoline, diesel, jet fuel, propane, 
etc.) as they move along the supply chain from the refiner producer to 
the end-user consumer.
    OPIS prices provide independent benchmarks for bulk buyers and 
sellers of petroleum needing an independent source to value their daily 
buy/sell transactions for specific products.
    OPIS tracks wholesale rack or terminal prices at close to 400 city 
locations through all fifty U.S. states and in Canada.
    OPIS wholesale prices are highly referenced benchmarks used by 
petroleum wholesalers to sell product to end-users. Our prices are 
typically used as reference points around which contract prices between 
a supplier and a consumer rise or fall, escalate or de-escalate.
    The U.S. government through its Defense Energy Support Center 
(DESC) relies on OPIS data to buy its bulk fuel needs for the military.
    OPIS, through its retail gasoline/diesel group, also tracks retail 
gasoline prices at some 175,000 gasoline stations through all fifty 
states, including Vermont.
    OPIS retail prices are site specific, brand specific, and product 
specific, and updated daily via credit card transaction reads mainly 
through Portland, Maine-based Wright Express, a credit card services 
company serving small, medium, and large sized fuel fleets.
    OPIS also collects prices directly from some of the large chain 
retailers who have a vested interest in our data being correct because 
OPIS retail gasoline prices are being used by automobile companies as 
part of the dashboard software used to find gasoline stations and other 
consumer services--GPS based technology.
    Retail gasoline and diesel prices are aggregated in a retail fuel 
data base and sorted in a variety of formats so the information can be 
sold on a fee-subscription basis.
    A sampling of OPIS retail fuel products include: Retail Fuel Watch 
(RFW), a weekly publication that tracks rack-to-retail gasoline and 
diesel prices profit margins by geographical region (Northeast, for 
example); by state (Vermont); and by metropolitan location 
(Burlington). Among other things, RFW ranks by region the most 
profitable and least profitable cities to market gasoline. It also 
rates the top earning brands by region.
    OPIS stores lots of retail pricing data in its Retail Data House, 
which can be used to generate comparative price studies over time by 
region, by brand, by state, etc.
    OPIS also publishes a Retail Radius Report which essentially 
provides competitive station pricing data by specific geographical 
region within a specified radius of any selected station location.
    OPIS also published from time to time special retail reports, 
including an Annual Retail Market in Review that summarizes and 
compares various data components, including gallons sold, annual 
margins, market share by brand, branded supplier price comparison, 
unbranded supplier price comparisons, branded versus unbranded price 
comparisons, etc.
    Because of OPIS recognized expertise in wholesale and retail 
gasoline prices, I was contacted by the office of Senator Bernie 
Sanders regarding possible pump pricing discrepancies in Vermont, 
specifically the variation between prices in Burlington, Vermont and 
other areas of the state.
    I was made aware of a July 2012 letter that the Senator had sent to 
the U.S. Attorney General and the Federal Trade Commission asking for 
an investigation to explain why Burlington, Vermont prices were some 
35cts/gal higher than places like Middlebury, less than 30 miles from 
Burlington.
    Senator Sander's office asked OPIS to provide some historical 
information on rack-to-retail gasoline margins in Vermont over time to 
determine how Burlington profit margins compare to other Vermont 
cities, the U.S. average, plus the northeastern regional average.
    OPIS provided several data series to aid the Senator with his 
inquiry.
    I was asked by the Senator's office if there was a reasonable 
explanation why Burlington prices were so much higher than neighboring 
areas.
    My immediate response was to take the Senator's office through a 
number of variables that I would examine to help explain any 
significant price differences.
    One of the first avenues of inquiry was took verify the type of 
gasoline that Burlington may use versus other areas of Vermont, the 
possibility that Burlington required what is known as reformulated 
gasoline, gasoline that is required in certain metropolitan areas to 
comply with ozone and clean air requirements.
    RFG gasoline tends to be much more expensive than conventional 
gasoline because the fuel is tougher for refiners to make and requires 
the use of more expensive blend stocks.
    Burlington, Vermont is not one of the metropolitan locations 
required to burn reformulated gasoline or low Reid Vapor Gasoline to 
meet clean air standards.
    Burlington uses conventional gasoline at its stations, the same 
gasoline used through the entire state.
    So my initial conclusion was that fuel specification differences 
did not explain the price discrepancies the Senator outlined in his 
letter to the attorney general.
    I then looked at state, county, and local gasoline tax 
possibilities as a reason one areas price could be so much higher than 
another--perhaps some Burlington city tax existed or some additional 
county tax on gasoline existed beyond the normal Vermont state gasoline 
tax that would create a price difference related to gasoline taxes.
    I believe the Vermont gasoline tax structure is pretty uniform and 
to my knowledge no additional or special gasoline taxes or fees are in 
place in Burlington or in the neighboring counties that would explain 
the price differences mentioned by Senator Sanders' office.
    So gasoline taxes didn't seem to me to offer a reasonable 
explanation of the retail gasoline price differences outlined by 
Senator Sanders.
    I also took a look at transportation--the possibility that it cost 
more to deliver gasoline to Burlington than to other markets but the 
major oil terminals are located closer to Burlington than to other 
markets so I eliminated this as a cause for the price differences 
described by the Senator in his letter to the attorney general and 
chairman of the Federal Trade Commission.
    Companies that deliver gasoline for a living tell me it costs about 
2.4cpg to deliver gasoline from zero to 25 miles; 3.4cpg from 26 to 50 
miles; 4.6cpg from 51 to 75 miles; 6 cpg from 76 to 100 miles; and 
approximately 13 cpg to deliver fuel 200 miles. Time and distance are 
the controlling variables that determine transportation rates, along 
with loading and unloading product, which is built into the rates.
    Real estate values in Burlington may offer one explanation but it 
is a variable I am not in a position to evaluate: the point being that 
the cost of building a running a station in Burlington may be higher 
than in other Vermont locations so retailers strive to earn bigger 
profits to offset higher expenses.
    Senator Sanders mentioned in his letter to the attorney general 
that the Burlington retail gasoline market was mostly controlled by 
four companies, suggesting a possible lack of local competition. That 
is an avenue of inquiry that might deserve closer inspection.
    The impact of having a low-cost gasoline provider in a market can 
be significant. In New Jersey, for example, areas that have Wawa 
gasoline outlets tend to be 15 to 24cpg lower-priced than areas that 
don't.
    Based upon my inquiry into this matter I have been unable to find a 
reasonable explanation to justify or explain why Burlington, Vermont 
retail gasoline prices are higher than neighboring areas.

    Senator Sanders. Ben, thank you very much. Our next 
panelist is Joe Choquette, who is the external affairs manager 
at the Vermont Petroleum Association. Joe, thanks for being 
with us.

OPENING STATEMENT OF JOSEPH L. CHOQUETTE, III, EXTERNAL AFFAIRS 
 MANAGER, VERMONT PETROLEUM ASSOCIATION, DOWNS RACHLIN MARTIN 
                      PLLC, MONTPELIER, VT

    Mr. Choquette. Thank you, Senator Sanders, and members of 
the committee. Thank you for the opportunity to provide some 
perspective regarding gasoline prices in the Burlington area.
    As the Senator mentioned, my name is Joe Choquette. I have 
worked with most of the companies that are spotlighted here for 
more than 25 years, first as executive director of the Vermont 
Petroleum Association, and more recently as it government and 
public affairs advisor.
    It is worth noting that Vermont's annual gasoline sales 
have about 329 million gallons, is the lowest in the lower 48 
United States, and second only to Alaska among all the States. 
In New England, even tiny Rhode Island beats us selling 395 
million gallons of gasoline in 2010.
    This is a small market served by as many as 6 terminals 
located in 4 States and 2 countries. It is a complex market 
with many challenges--the distance to refineries, high real 
estate costs, strict environmental regulations, and high taxes.
    The Vermont Petroleum Association, a division of Vermont 
Grocers Association, is a trade group that serves the needs of 
Vermont's motor fuel distributors. In Vermont, there are 
approximately 75 licensed wholesale distributors. These 
companies provide gasoline and diesel fuel under many different 
contractual arrangements to branded and unbranded gasoline 
stations. None of these are major oil companies.
    We have identified at least 10 licensed distributors who 
actively serve the Chittenden County market. The relationship 
of these distributors to the stores they serve varies greatly. 
They might own the store and operate it with their own 
employees. They might own the property and equipment and lease 
the business to an independent dealer. Or they might sell 
directly to an independent dealer who owns all of his own 
assets. Some dealers even buy their product directly from the 
terminal and arrange delivery through a common carrier, which 
brings me to the purpose of the hearing.
    First, we recognize that the difference between the 
wholesale rack price for gasoline at the Burlington terminal 
and the average retail price in the Burlington area during the 
period that you selected was above the national and regional 
average. However, the petroleum industry is a volatile 
industry, and such periods are routinely offset by times when 
the difference between rack price and retail price is narrow 
and often negative. This was true during some periods of 
October through March, and it also true today.
    Second, margins are not profits. From the gross difference 
between wholesale and retail, distributors and dealers have to 
meet the cost of running their businesses. It costs at least a 
million and a half dollars to build a convenience store from 
scratch in this location, and an estimated $250,000 to replace 
3 underground petroleum storage tanks and two multiple product 
dispensers. Credit card fees alone cost about 10 cents per 
gallon.
    Third, sales volume varies considerably and low volumes 
mean slow turnover. The original cost of the product stored 
underground is almost always different from the current price 
at the terminal. In many locations, inventory lasts for at 
least 10 days. Considering all of this, these companies have to 
earn a living when the market allows them to do so.
    An analysis by the National Association of Convenience 
Stores prepared for this hearing illustrates this point. NACS 
estimates that the average cost of running a convenience store 
nationwide is about 17 cents per gallon. The OPIS data for the 
months of January through March shows extremely narrow and 
sometimes negative net margins. That is also true today.
    Further, these margins only measure the difference between 
rack and retail, and the cost calculated by NACS apply only to 
the store or station. They fail to consider the cost of running 
a distribution business, and, thus, the two businesses are 
considered as one.
    You have questioned whether the Burlington market is 
competitive, citing a 20 cent per gallon difference between 
Burlington and Middlebury. A search for prices on the publicly 
available gasbuddy.com consistently shows at least a 17 cent 
percent gallon difference between the low price in the 
Burlington area and the high price in the Burlington area. Last 
week as well as today, the difference is 24 cents. Consumers 
have many choices in this area. If they always bought at the 
lowest price, all of the prices would quickly come down.
    The analysis performed by NACS also reveals a population to 
store density and a density of store ownership that is more 
competitive than the national average and not less competitive. 
Of 105 stores in Chittenden County, 61 appear to be operated by 
independent dealers, and only 44 are operated by 7 distributors 
operating 4 or more stores each.
    Chittenden County has 1,492 people per retail outlet. 
Across the northeast, there are 2,877 persons per store, and 
nationally 2,576. Thus, there are more independent stations 
competing for your business here than elsewhere.
    The companies and businesses we represent in general are 
long-time legacy businesses that are now in the second and 
third generation of family ownership. They have come to supply 
this area after major oil companies have sold their assets and 
stopped doing business here because of low volumes and 
shrinking profits. Unlike some other businesses, our 
distributors and dealers give back to their communities every 
single day.
    Among the actual causes supported by these local family 
businesses are the C. Douglas Cairns hockey arena in South 
Burlington, the Muscular Dystrophy Association, the Children's 
Hospital, the Make a Wish Foundation, the Vermont National 
Guard Scholarship Fund and Christmas Fund, the Vermont Food 
Bank, and the Ronald McDonald House.
    In the past few weeks, the wholesale price of gasoline has 
increased more than 20 cents per gallon, yet retail prices have 
moved very little in the Burlington area. Last week and today, 
the average price in Chittenden County was below both the State 
and national average, despite paying a 5 to 6 cent per gallon 
premium for gasoline delivered to the Burlington terminal by 
rail.
    Now as then, there is at least a 17 cent per gallon 
different between the high price in Burlington and the low 
price in Burlington. Consumers have many choices here.
    Thank you for listening, Senator Sanders and members of the 
committee. I will be happy to answer your questions at the end.
    [The prepared statement of Mr. Choquette follows:]

   Prepared Statement of Joseph L. Choquette, III, External Affairs 
  Manager, Vermont Petroleum Association, Downs Rachlin Martin PLLC, 
                             Montpelier, VT
    Senator Sanders and members of the committee:
    Thank you for the opportunity to provide some perspective on the 
issues you have raised regarding gasoline prices in the greater 
Burlington area. My name is Joe Choquette. I have worked with many of 
the companies that are spotlighted here for more than 25 years, first 
as the executive director of the Vermont Petroleum Association and more 
recently as the VPA's government and public affairs advisor.
    The Vermont Petroleum Association, a division of the Vermont 
Grocer's Association, is a trade group that serves the needs of 
Vermont's motor fuel distributors. In general, these are second and 
third generation family-owned businesses that have operated here for 
many years.
    It is worth noting that Vermont's annual gasoline sales of 329 
million gallons is the lowest in the lower 48 United States and second 
only to Alaska among all of the states. In New England, even tiny Rhode 
Island beats us, selling 395 million gallons of gasoline in 2010. This 
is a small market served by as many as five terminals located in four 
states and two countries. It is a complex market with many challenges--
the distance to refineries, high real estate costs, strict 
environmental regulations and high taxes.
    In Vermont, there are approximately 75 licensed wholesale 
distributors. These companies provide gasoline and diesel fuel under 
many different contractual arrangements to branded and unbranded 
gasoline stations. None of these are major oil companies. The major oil 
companies abandoned this market long ago because of low volumes and 
narrow margins.
    We have identified at least ten licensed distributors who actively 
serve the Chittenden County market. The relationship of these 
distributors to the stores they serve varies greatly. They might own 
the store and operate it with their own employees. They might own the 
property and equipment and lease the business to an independent dealer, 
or they might sell directly to an independent dealer who owns all of 
his own property and equipment. Some dealers even buy their product 
directly from the terminal and arrange delivery through a common 
carrier.
    Along with variations in ownership come variations in capital 
costs. From buying land to equipping stations, capital costs can total 
millions of dollars per location. Some dealers make a major investment 
in real estate and equipment. Some have nothing invested.
    Which brings me to the purpose of the hearing.
    First, we recognize that the difference between the wholesale rack 
price for gasoline at the Burlington terminal and the average retail 
price in the Burlington area during the period you selected was above 
average both across the country and in this area in general. However, 
the petroleum industry is a volatile industry, and such periods are 
routinely offset by periods when the difference between wholesale costs 
and retail prices is narrow and often negative. This was true during 
some periods of October through March.
    Second, margins are not profits. From the gross difference between 
wholesale and retail, distributors and dealers have to meet the cost of 
running their businesses. It costs at least $1.5 million to build a 
convenience store from scratch and an estimated $250,000 to replace 
three underground petroleum storage tanks and two multiple product 
dispensers. Credit card fees alone cost about ten cents per gallon. In 
the end, our companies gamble that the highs and the lows will average 
out and that they are able to maintain their equipment, pay their 
employees a fair wage, keep the business running, and make a fair and 
reasonable profit.
    Third, sales volume varies considerably and low volumes mean slow 
turnover. The original cost of the product stored underground is almost 
always different from the current price at the terminal. This 
phenomenon adds even more to the complex economics of running a 
gasoline station. Simply put, these companies have to earn a living 
when the market allows them to do so.
    An analysis by the National Association of Convenience Stores 
prepared for this hearing illustrates this point. NACS estimates that 
the average cost of running a convenience store nationwide is about 17 
cents per gallon. The data that you have selected for the months of 
January through March shows extremely narrow, and sometimes negative, 
net margins during the first three months of the year when the average 
cost is applied. Companies need to recover those costs somewhere or 
close their business.
    Further, the margins cited in your report only measure the 
difference between rack and retail, and the costs calculated by NACS 
apply only to the store or station. It fails to consider the cost of 
running a distribution business. Thus, it makes no distinction between 
two different businesses and the two businesses are being included as 
one.
    You have questioned whether the Burlington market is competitive, 
citing a 20 cent per gallon difference between Burlington and 
Middlebury at one point. A search for prices on the publicly-available 
www.gasbuddy.com consistently shows at least a 17 cent per gallon 
difference between the low price in the Burlington area and the high 
price in the Burlington area. Last week the difference was 24 cents. 
Smart consumers shop for lower prices and they have many choices in the 
Burlington area If consumers always bought at the lowest price, all of 
the prices would quickly come down; but consumers also shop for 
convenience, by brand, or to earn brand-related discounts.
    An analysis of the ownership and density of stores in the 
Chittenden Country area performed by NACS reveals a population-to-store 
density and a diversity of store ownership that is more competitive 
than the national and regional average, and not less competitive. Of 
105 stores in Chittenden County, 61 appear to be operated by 
independent dealers and 44 are operated by eight distributors operating 
4 or more stores. Chittenden County has 1,492 people per retail outlet. 
Across the northeast there are 2,877 persons per store and nationally, 
2,576. Thus, there are more independent stations competing for your 
business here than elsewhere.
    The companies and businesses I represent, in general, are long-time 
legacy businesses that are now in the second and third generation of 
family ownership. They have come to supply this area after major oil 
companies have sold their assets and stopped doing business here 
because of low volumes and shrinking profits. In short, we are at the 
end of the pipeline in the motor fuel industry. These companies are the 
survivors.
    Our distributors and retailers give back to their communities every 
single day, and they demonstrated their social responsibility long 
before the term became popular. Among the actual causes supported by 
these local family businesses:

   C. Douglas Cairns Hockey Arena in South Burlington
   The Muscular Dystrophy Association
   The Children's Hospital
   The Make a Wish Foundation
   Vermont National Guard Scholarship Fund and Christmas Fund
   Vermont Food Bank
   Ronald MacDonald House

    In the past few weeks the wholesale price of gasoline has increased 
more than 20 cents per gallon, yet retail prices have moved very 
little, especially in the Burlington area. Last week the average price 
in Chittenden County was below both the state and national average, 
despite paying a 5-6 cent per gallon premium for gasoline delivered by 
rail to the Burlington terminal.
    Now, as then, there is at least a 17 cent per gallon difference 
between the high price in Burlington and the low price. There is 
virtually no other product that puts its price on three foot signs that 
are visible on the street, so customers can make informed decisions on 
where to buy their gasoline.
    Thank you for listening, and I will be happy to answer your 
questions.

    Senator Sanders. Joe, thank you very much for your 
testimony.
    Our next panelist is Rob Leuck, who is the vice president 
and regional manager for Costco Wholesale from Sterling, 
Virginia. Rob, thanks for being with us.

  OPENING STATEMENT OF ROB LEUCK, VICE PRESIDENT AND REGIONAL 
            MANAGER, COSTCO WHOLESALE, STERLING, VA

    Mr. Leuck. Thank you. Good afternoon, Senator Sanders and 
committee members. My name is Rob Leuck, and I am the vice 
president of operations for Costco in the northeastern 
division, the second largest retailer in the United States in 
terms of sales volume. The written testimony I provided you has 
more background on our company.
    I personally currently oversee 20 locations in the 
northeast, including the one here in Colchester, Vermont. The 
Colchester, Vermont location has been open since 1993, August 
1993.
    Senator Sanders. If you could speak a little bit closer to 
the mic. Bring that a little bit closer. There you go.
    Mr. Leuck. The location here in Colchester, Vermont has 
been open since August 25th of 1993. We currently have 130,000 
card holders, which accounts for 20 percent of the residents of 
the State of Vermont.
    Costco has a very simple business model. The primary goal 
of our operations is to bring goods and services to the market 
at the lowest possible price. We do this through high volume, 
no frills. We offer value on everything we sell, and we only 
carry the highest quality, which is expected by our members who 
pay to shop with us.
    We offer a suite of products and services, all of which 
operate under the same philosophy, including, but not limited 
to, photo, optical, and pharmaceutical departments, hearing 
aids, and a food court, and, of course, gasoline, all of which 
we consider to be part of our core services, which brings us to 
the heart of why we are here today, our gasoline operations.
    As previously stated, we consider this one of our core 
businesses, and wherever practical we operate stations at our 
warehouses. As with any product we sell, we sell the highest 
quality at the lowest possible price. An example of what we do 
is we have put 5 times the required additive by the EPA of 
detergent into our gasoline to make sure our members' engines 
are running clean at all times.
    The pricing philosophy on gasoline is simple as well. We 
will not be undersold. We will always try to be the lowest 
price in the market, and I have provided data in my written 
testimony for the locations which I oversee.
    We understand that some competitors may feel that we use as 
a loss leader, and it is simply not the case. We will not sell 
below cost unless we are lawfully allowed to do, only to meet 
the competition, and usually only on a temporary basis. We 
operate all our stations in a responsible manner. We meet or 
exceed lawful requirements for environmental concerns and 
safety concerns. Unlike most of the self-service gas stations, 
we have an attendant available at the pumps during all hours of 
operation. We do this because, as previously stated, it is what 
we do with all our businesses, and our members expect it.
    We have been trying for more than 4 years to obtain 
approval for a station in Colchester and have faced opposition 
from what we understand to be parties with competitive 
interests. We will not be deterred, and we will continue to 
vigorously pursue those approvals.
    In every major market, we face vigorous competitors, both 
large and small. Competition serves the entire community 
because without competition, markets will charge what the 
market will bear. Based on our experience, we believe that a 
station in Colchester would serve the entire community by 
lowering the opening price point and reducing prices paid for 
at the gas--at the nearby gas stations. In our written 
testimony, we have provided an example of our station affected 
the market in Maui, Hawaii.
    I would like to conclude by saying that our analysis of 
pricing in the Colchester market, based on data we were able to 
obtain, showed that we would have been an average of 19 cents 
lower per gallon of regular gasoline and 25 cents lower per 
gallon of premium than the market averaged. That is not to mean 
that if we were open tomorrow that we would be that much below 
the competition. As has been our experience, the average market 
price would lower, which is exactly what competition will do in 
a market. This would be to the benefit of all consumers, 
members and non-members alike.
    Thank you.
    [The prepared statement of Mr. Leuck follows:]

 Prepared Statement of Rob Leuck, Vice President and Regional Manager, 
                     Costco Wholesale, Sterling, VA
    Good morning, Mr. Chairman and Committee Members.
    My name is Rob Leuck. I am a vice president for Costco Wholesale 
Corporation, the second largest retailer by sales in the United States. 
I have responsibility for 20 locations in the northeast United States, 
including the Costco in Colchester, Vermont. I am including with my 
written testimony some background information about Costco wholesale. 
Our Colchester warehouse currently provides 279 good paying jobs with 
generous health and other benefits. Over 130,000 Vermont residents have 
a Costco card which accounts for approximately 20% of all Vermont 
residents.
    Our business model is centered on high volume, no-frills facilities 
operating with low overhead so that we are able to provide tremendous 
value for our members. Wherever it is practical, Costco operates 
gasoline stations at our Costco warehouses. We consider gasoline to be 
one of our core services. Our philosophy is simple: Our members pay to 
shop with us, and we strive to provide a suite of products that provide 
great value for that membership fee. Gasoline is one such product.
    While we, of course, will always strive to provide the best 
possible price, we are also committed to providing the highest possible 
quality on gas. As an example, we now offer gasoline with 5 -times the 
EPA required detergent dose. This assures our members that their 
engines will receive enough detergent to remove deposits from intake 
valves and injectors, so that they can run at peak efficiency. We call 
that ``doing the right thing.'' This detergent program is currently 
available at over 200 US Costco sites and will be available at all 
Costco locations by September of 2013.
    Costco's policy concerning gasoline pricing is simple: we will not 
be undersold by competitors in our market areas. Because our members 
pay to shop at Costco, it is critical that we show them consistently 
good value. The chart attached to this document is a snapshot of the 
value being offered at sites that I manage for Costco.
    We have read that some of our competitors believe we sell gasoline 
as a ``loss leader.'' That is simply not the case. Sometimes meeting 
the competition means that--where it is lawful to do so--we sell below 
our cost, usually on a temporary basis. We will not, however, sell 
below cost unless meeting competition requires us to do so and it is 
legally permitted. In such circumstances, we would only lower prices to 
``meet'' the competition and not ``beat'' it.
    Additionally, we operate all our gas stations in a responsible 
manner, and implement and maintain environmental and safety measures 
that meet, and often exceed industry and legal requirements. Every 
business a member encounters in a Costco, from optical, to pharmacy to 
gasoline, is there to provide a great value for our members: that 
includes great pricing, great quality and great service.
    We have been trying for more than 4 years to obtain approval for 
Costco gas station in Colchester but we have faced opposition from 
competitors. We will not be deterred, and will continue to try to 
obtain approval so we can provide this important core service to our 
Vermont members.
    We face vigorous competition from competitors large and small in 
nearly every Major market in the United States and Canada. Ultimately, 
competition serves the needs of the community--Costco members and 
nonmembers alike. In the absence of our type of competition, markets 
typically charge what the market will bear. Our model is different, in 
that, as we are able, we seek to maximize sales by providing the lowest 
possible prices on all of the items we sell. Based on our experience 
throughout the United States, we believe Costco gas station at the 
Colchester site would serve the entire community by lowering the 
opening price point and reducing the average price paid for gasoline at 
all nearby outlets.
    We have included some information about our recent gas station 
opening in Maui, Hawaii, which demonstrates how our entering a market 
positively influences the prices paid for gas in that community, not 
just at the Costco, but across the island.
    Thank you for your time.

    Senator Sanders. Rob, thank you very much.
    Our next panelist is Mrs. Gail Horne, and Gail is the owner 
of the Keelers Bay Variety Store in South Hero. Gail, thanks 
very much for being with us.

  OPENING STATEMENT OF GAIL HORNE, OWNER, KEELERS BAY VARIETY 
                     STORE, SOUTH HERO, VT

    Mrs. Horne. My husband, Mark, and I have owned and operated 
Keelers Bay Variety in South hero since 1974. We are a family 
owned business with our daughter, Wendy, now taking an active 
role in the management of our business. We have always sold 
gasoline along with a variety of food and beverages in our 
store.
    Our customers have supported us since we began nearly--
excuse me--38 years ago, and we do everything we can to support 
them with fair prices, community donations, good employment 
opportunities, and a welcome place to see friends and 
neighbors. We work hard to be part of our community and donate 
back on a daily basis as much as we can.
    We support a wide variety of charities from the United Way 
in Grand Isle Food Shelf, to local sports such as the Little 
League.
    This Wednesday, we are donating 1 percent of our store's 
sales to Champlain Islander's Developing Essential Resources, 
C.I.D.E.R., which operates many of our senior programs, 
including Meals on Wheels, on the islands. We are excluding 
gasoline from that 1 percent.
    We are also active members of the Vermont Grocers 
Association. I have served on the board of directors and was 
chair of the association from 2005 to 2007. The VGA has 180 
member stores in Chittenden, Franklin, and Grand Isle County. 
Over half of these stores sell gasoline.
    In many respects, I think we are typical of many other 
independent store keepers. We do not charge our customers an 
annual membership, B, we accept MasterCard, Visa, American 
Express, and probably 10 other cards, which we alone can cost 8 
to 10 cents per gallon. We also set our own retail price on 
gas. There are a variety of ways a store like ours can buy and 
sell gasoline. The option we chose may not be the same for the 
next person.
    When we replaced our undergrounds storage tanks 25 years 
ago, it cost us $35,000. More recently in 2006, we had our 
gasoline distributor replace the tanks and pumps. The cost 6 
years ago had increased to $175,000. I shudder to think what it 
will be the next time.
    Today that cost is much higher, which is why we chose to 
turn over the ownerships of our tanks and pumps to our 
distributor. Additionally, our contract allows us to pay for 
the gasoline as it is sold and not when it is put into the 
ground. While it reduces our margin, it also reduces our cash 
needs and market risk at a whole market as they change daily. 
The 16,000 capacity of our tanks represents $56,000 inventory 
at $3.50 a gallon.
    As such, our margins may be significantly less in a station 
that owns its own equipment and is responsible for all the 
regulatory and capital costs associated with them. 
Nevertheless, we are an independent operator, and we do set our 
own prices--retail prices.
    A number of factors go into pricing of gasoline every day, 
including market conditions, expected wholesale--changes in 
wholesale prices, our cost of operations, and competition. Our 
small and somewhat seasonal community of South Hero has 3 gas 
stations within one mile. We keep a close eye on the price 
everyone charges to make sure that we are competitive. Because 
we are so close to Colchester and other areas in Chittenden 
County, so many options are also available to our customers. 
Most of Grand Isle County works in Chittenden County or 
further.
    Sometimes we make a few cents and sometimes we do not. Last 
week--on Tuesdays we have 5 cents off a gallon, and there was a 
price change that day, so we were actually selling below our 
wholesale costs for half of the day. Not a good business 
practice.
    When our supply contract is up for renewal in 2917, we will 
have several options. We can get out of the gasoline business, 
we could change distributors, we could buy direct from a 
terminal and hire a trucker to help us bring the product. That 
would involve paying excise taxes, and investing in our 
equipment upgrades, and assuming all the various regulatory 
compliance issues.
    With the contract with the distributor, we have several 
options. We can own the tanks and pumps and pay for gasoline as 
it is delivered, cover our own costs with credit cards for 
gasoline or have them embedded in our wholesale cost, have the 
distributor to take ownership of the tanks and pumps and assume 
all the costs and compliance with them, which we do now, and 
other variations.
    According to the survey of the National Association of 
Convenience Stores, 62 percent of consumers say that price is a 
primary determining for when they buy fuel. Location is primary 
for 20 percent. Sixty-six percent shop for price by driving 
around and looking at store signage. Forty percent of the 
customers say they will drive 5 minutes out of their way to 
save as much as 3 cents per gallon. Seventy-one percent will 
drive for 5 cents additional difference.
    There is virtually no product that puts its price on large 
-foot signs for all the customers to see and make informed 
decisions on where to buy their gas. As small business owners, 
we work real hard to bring value to our customers every day.
    I am not here to talk about hypothetical and what I would 
have done it the past. I think our customer support is somewhat 
evidenced in the recognition that we value their business and 
are neighbors in the community. We are fortunate to have had a 
distributor who has chosen to partner with us for many years, 
which has allowed us to stay in the gas business.
    Thank you.
    [The prepared statement of Mrs. Horne follows:]

  Prepared Statement of Gail Horne, Owner, Keelers Bay Variety Store, 
                             South Hero, VT
    My husband Mark and I have owned and operated the Keelers Bay 
Variety Store in South Hero, VT since 1974. We are a family owned 
business with our daughter Wendy, now taking an active role in the 
management of the business. We have always sold gasoline along with a 
wide variety of food and beverages in our store.
    Our customers have supported us since we began nearly 38 years ago 
and we do everything we can to support them with fair prices, community 
donations, good employment opportunities and a welcome place to see 
friends and neighbors. We work hard to be part of our community and 
donate back on a daily basis as much as we can. We support a wide 
variety of charities from the United Way and Grand Isle Food Shelf to 
local sports such as our Little League. On Wednesday we are donating 1% 
of store sales to Champlain Islanders Developing Essential Resources, 
which operates many of the senior programs, including Meals on Wheels, 
on the islands.
    We are also active members of the Vermont Grocers' Association. I 
have served on its board of directors and was chair of the organization 
from 2005 to 2007. VGA has 180 member stores in the Chittenden, 
Franklin and Grand Isle counties. Over half of these sell gasoline.
    In many respects I think we are typical of many other independent 
storekeepers. We don't charge our customers an annual membership fee 
and we accept Visa and MasterCard for payment from our customers, which 
alone can cost 8-10 cents per gallon. We also set our own retail price 
on gasoline.
    There are a variety of ways a store like ours can buy and sell 
gasoline. The option we chose may not be the same for the next person.
    When we replaced our underground storage tanks 25 years ago it cost 
us $35,000. More recently (2006), we had our gasoline distributor 
replace the tanks and pumps. The cost 6 years ago had increased to an 
estimated $150,000 or more. I shudder to think what it will be the next 
time.
    Because that cost is much higher it is why we chose to turn over 
the ownership of the tanks and pumps to our distributor. Additionally 
our contract allows us to pay for the gasoline as it is sold not when 
it is put in the underground tanks. While that reduces our margin, it 
also reduces our cash needs and market risk as wholesale prices change 
daily. The 16,000 gallon capacity of our tanks represents $56,000 of 
inventory at $3.50 per gallon.
    As such our margins may be significantly less that a station that 
owns its own equipment and is responsible for all the regulatory and 
capital costs associated with them. Nonetheless we are an independent 
operator and we set our own retail prices.
    A number of factors go into the pricing of gasoline every day 
including market conditions, expected changes in wholesale prices, our 
costs of operation, and competition. Our small and somewhat seasonal 
community of South Hero, has 3 gas stations. We keep a close eye on the 
price everyone charges to make sure we are competitive. And because we 
are close to Colchester and other areas of Chittenden County, so many 
other options are also available to our customers.
    Sometimes we make a few cents, sometimes we don't. Last week at one 
point we were actually selling below our wholesale cost. Probably not a 
good business practice.
    When our supply contract is up for renewal in 2017 we have several 
options:

   We can get out of the gasoline business
   We can change distributors
   We can buy direct from the terminal and hire a trucker to 
        bring us the product. This would involve paying the excise 
        taxes, investing in the equipment upgrades and assume all the 
        various regulatory compliance issues.

    And with the contract with a distributor we have several additional 
options:

   Own the tanks and pumps and pay for the gasoline as it is 
        delivered.
   Cover our own costs with credit cards for gasoline or have 
        them embedded in our wholesale cost
   Have the distributor take ownership of the tanks and pumps 
        and assume all the costs and compliance issues associated with 
        them.
   And more variations thereof

    According to a survey by the National Association of Convenience 
Stores

   63% of customers say that price is the primary determining 
        factor for where they buy fuel; location is primary for 20%
   66% shop for price by driving around and looking at a 
        stores' signage
   40% of customers say they will drive 5 minutes out of their 
        way to save as little as 3 cents per gallon; 71% for a 5 cent 
        differential.

    There is virtually no other product that puts its price on large 
three foot signs for all to see so customers can make informed 
decisions on where to buy their gasoline. As small business owners we 
work real hard to bring value to our customers every day. I am not here 
today to talk about hypothetical's and whatI would have or wouldn't 
have charged in the past. I think our customers support is somewhat 
evidence of their recognition that we value their business and are 
their neighbors in the community. We are fortunate to have had a 
distributor that has chosen to partner with us for many years which has 
allowed us to stay in the gas business.
    Thank you.

    Senator Sanders. Gail, thanks very much.
    The issue we are talking about impacts not only Chittenden 
County or Grand Isle County. It also impacts significantly 
Franklin County. Jim Coutts is the director of the Franklin 
County Senior Center in St. Albans. Jim, we very much 
appreciate your being here.

 OPENING STATEMENT OF JAMES COUTTS, DIRECTOR, FRANKLIN COUNTY 
                SENIOR CENTER, SAINT ALBANS, VT

    Mr. Coutts. Thank you, Chairman Sanders, and members of the 
committee, and staff members, and guests. As you said, my name 
is Jim Coutts. I am the executive director of the Franklin 
County Senior Center. We have 570 members. I am one of about 
120 senior centers in the State of Vermont.
    Our primary purpose is nutrition. We serve meals at the 
center, but more importantly, we run a Meals on Wheels program 
that has continually run through Franklin County Center for 40 
years.
    We rely heavily on volunteer drivers. We have no stipend to 
pay drivers to drive. When we see the price of gasoline 
escalate, as it has in the last 2 years, we get very, very 
concerned. When the price hit $4 a gallon a few years ago, we 
lost drivers. Four dollars a gallon seems to be a psychological 
point at which part-time drivers will not volunteer their time.
    If the volunteer driver leaves our area and still wants to 
volunteer, he will go to some place where he does not have to 
drive. We will not see that volunteer driver come back again 
because citizens of Vermont are very, very active in civics, 
and they can always find someplace to volunteer their time.
    Recently, we have seen gas prices that have been extremely 
high, and some of our members that work in Franklin County or 
have relatives that work in Franklin County tell stories about 
going down to Burlington and buying their gas, especially the 
one nearest the Costco station. That seems to be that strip 
between Costco and Wisniewski, where prices are sometimes 15 or 
18 cents a gallon or more difference.
    During the summer, we do not worry so much about the 
pricing because right now we are not--the drivers that we have, 
which are 80-year-old or 70-year-old members, they do not have 
the high electric and gas prices for their furnaces and things 
like that. When that happens and we start seeing cold weather 
come around again, they are going to think twice about the 
price that they can afford to pay to deliver meals free. They 
are going to have higher prices for everything. If the price of 
gas goes up, it seems reasonable to think that the price of oil 
will follow, as it has in the past, and the LIHEAP program and 
the other programs that are in place to help people heat their 
houses are going to feel the pinch of that.
    There is not an awful lot that we can do about the gas 
prices individually. We have to have to gas. We have to 
deliver. If we were to, as a center, pay people to deliver the 
meals that we do, which is 17,000 meals a year, it would cost 
on a stipend of 50 cents a gallon approximately $9,000. That is 
just not a tenable thing for our center or any other centers.
    So what we can do? We can do a couple of things. Obviously, 
we could go to 3 days a week delivery and have cold meals on 
those other days, which sometimes have said that seems to be a 
good choice. Meals on Wheels is not a program that only 
delivers meals. Meals on Wheels relies on a safety check for 
the people that are out there. In many, many instances, the 
people that are delivering Meals on Wheels are the only contact 
that seniors have either that day, that week, or sometimes even 
that month. That safety check is vital, and it is done by every 
Meals on Wheels program. If we went to 3 days a week delivery, 
it would suffer.
    Two weeks ago, gas prices in Swanton were $3.64. I go 
south, and gas prices were 22 cents different. I have lived in 
Swanton for 35 years. It used to be that the pricing in Swanton 
and St. Albans gas was relatively close to the prices in the 
rest of the State. It is not that way any longer. When I travel 
to relatives in Berry, Vermont, I can pay as little as $2.40 
a--excuse me, $3.40 a gallon for that same gas.
    Thank you for the opportunity to testify today on behalf of 
the seniors, and I hope that we have shed some light on what it 
means when prices go up, what happens to the senior citizens in 
this State. As I look out in the audience, there are many 
senior citizens here. I thank you.
    [The prepared statement of Mr. Coutts follows:]

 Prepared Statement of James Coutts, Director, Franklin County Senior 
                        Center, Saint Albans, VT
    My name is Jim Coutts and I live in Swanton Vermont. I welcome the 
opportunity to testify to the impact that rising gas prices have on the 
seniors in Franklin County Vermont. I am the Executive Director of a 
570 member Senior Center--Franklin County Senior Center, 75 Messenger 
Street, St Albans, Vermont 05488.
    The Center has operated a meal site at this location for 40 years 
and is one of the longest running programs in the State. We currently 
deliver 17,000 meals to home-bound seniors through nutrition programs 
funded by the Older American Act. We deliver meals five days a week to 
an average of 70 clients a day. To accomplish the delivery we rely 
heavily on our members, many have been delivering for years and some 
are husband and wives each delivering a route on alternate days.. A 
typical route covers 25 miles from start to finish and many of our 
members drive cars averaging 12-15 miles to the gallon in city driving. 
This requires 2 gallons of gas per delivery or $7.00/day. Most of our 
drivers are on fixed income of less than $15,000/year as they are 
either a surviving spouse or a retired from a low-paying occupation.
    While recent gas prices have eased a little this summer they are 
still above the national average and 15-20 cents higher than some other 
area of the Vermont. When prices reached the $4.00 mark this spring 
several drivers told me that they could no longer afford the gas and we 
lost two drivers. $4.00 appears to be a psychological barrier that 
resonates with many drivers. We experienced the same situation a few 
years ago when gas reached the $4.00 mark. During the summer our 
drivers are not faced with high heating and electric bills, so they 
have a little extra money for gas and can afford to volunteer. I am 
concerned that if estimates of higher gas prices this fall and winter 
come true we will face a critical shortage of drivers. Past history 
with volunteer drivers is that if they don't deliver meals they will 
find some other volunteer position and we will not get them to return.
    One contingency plan would be to cut deliveries to three days/week 
and add cold meals for the alternate days. While this seems plausible 
it eliminates one essential component of the Meals on Wheels program--
The Safety Check. For many of our home-bound the only person they see 
daily is the meals on wheels driver. A bond delivers between the 
drivers and the clients and our drivers are trained to assess the 
status of the client and to report any abnormalities to the emergency 
contact or case worker.
    Our six routes a day average 150 miles a day or 39,000 miles a 
year. If we were paying a mileage stipend this would amount to $19,890/
year. Mileage reimbursement is not a viable option for most programs 
and certainly not for Franklin County Senior Center. On behalf of 
Franklin County and the numerous other Meals on Wheels providers I urge 
you to complete a comprehensive study of the impact of high gas prices 
on the health and welfare of the senior citizens of Vermont.
    A week ago prices in Swanton VT were $3.64. I drove 28 miles south 
and gas prices were $2.42-22 cents difference. I hope this hearing 
sheds some light on the disparity in pricing. Thank you for this 
opportunity to comment on a matter of extreme importance in our efforts 
to serve the home-bound Vermonters meals . . .

    Senator Sanders. Jim, thanks very much.
    What I want to do is just start it off with some questions. 
Joe, if it is OK with you, I will begin with you.
    Jim Coutts made the point about traveling around the State 
and seeing the differential in prices. Let me tell you just a 
personal experience. I was in a parade in Brandon on July 7th, 
so I traveled from Burlington down Route 7 to Brandon.
    As we went along the road, I was just taking a look at gas 
prices on Route 7. What I noticed was on that day in 
Middlebury, we had a gas station that was charging $3.35 a 
gallon, which was owned by Maplefields. Later on in the day 
after I came back, I went up to Burlington. It was in 
Burlington. That same Maplefields company was charging $3.59 a 
gallon. That was on July 7th. All right, that is a 24 cent 
differential in prices.
    Explain to us why one company owning two gas stations about 
35 miles apart, one in Burlington, one in Middlebury, would 
have a 24 cent differential in prices. Does this have something 
to do with the fact that in Middlebury, there is simply more 
price competition than there is in Burlington?
    Mr. Choquette. I want to go back and point out that I also 
pointed out the difference in the Burlington area was 17 cents 
a gallon, so there is variation even here in Burlington.
    Each of these markets behaves as an individual market. You 
are correct in saying that. The Burlington market is one, and 
the Middlebury market is one, and the Rutland market is one. 
For many years, it has been known certainly that Rutland, for 
whatever reason, all the players say it is a very competitive 
market. The same is apparently also true in Middlebury. I does 
not have the reputation.
    But each of these markets is organic. It develops out of 
the individual activities of each of the players in the market. 
Apparently, you know, the players in this market have not been 
as aggressive as they have been in Burlington--I am sorry, 
Middlebury and Rutland.
    Senator Sanders. Joe, listening to what you said--and I 
agree with the thrust of what you said. But when you say that 
for whatever reason prices, say, in Rutland have been lower, is 
the whatever reason not that we do not see a lot of 
competition? I think you are basically telling us that we have 
not seen the kind of aggressive competition here in the 
Burlington area that we have seen in Middlebury or in Rutland.
    Mr. Choquette. Senator, I am pointing out that today you 
can go to gasbudy.com, look up the prices in the Burlington 
area, and find a 24 cent difference between the high price and 
the low price. If everybody went to the low price, all the 
prices would come down almost immediately, but they do not. 
They shop for convenience. They go to Gail's store because they 
know Gail, and they always shop there. They have a Mobil credit 
card. They participate in a program where they get a discount 
for shopping at a supermarket.
    So consumer behavior is a part of the market, and it is 
just as much of a factor as some of the others that are cited.
    Senator Sanders. Joe, I mean, be that as it may, you did 
not answer my question. Let me just quote you, what you said to 
a weekly newspaper, Seven Days. This is what you said, ``There 
does seem to be a phenomenon that the Burlington area does go 
down in prices more reluctantly than other parts of the 
State.'' That is you, Joe.
    I do not know if we are beating around the bush or not. I 
think you basically said what I am saying, is that in other 
parts of the State you have more competition than you do in the 
Burlington area, which is why in--I understand. We all 
understand. Different prices in different stations in 
Middlebury, in Burlington, in every place in America.
    But on average is what I am talking about. On average, 
prices up here are much higher than they are elsewhere. Does 
this not have everything to do with the fact that there is not 
vigorous price competition here?
    Mr. Choquette. We think there is pretty vigorous price 
competition. I cited the NACS data that suggests 61 independent 
dealers here in the Burlington area. I am sorry that does not 
apply to the information that OPIS brought, but I did not have 
to go see whether we used reformulated gasoline or not either.
    I mean, the fact is that 61 dealers in this area set their 
own price at a minimum.
    Senator Sanders. What should I conclude about your quote to 
Seven Days? Were you misquoted, or is that, in fact----
    Mr. Choquette. I picked up on the information that you 
produced to say that that is what that suggests. But your 
information also suggests to me that at times during October 
through March, margins were extremely tight and possibly 
negative even in the Burlington area.
    Senator Sanders. We will deal with that issue later. We 
have some charts to deal with. Anybody else--we will open it up 
for questions or comments. Mr. Brockwell----
    Mr. Brockwell. I would like to just comment on the exchange 
you just had. The gentleman from Costco indicated that his 
presence in the market--and I understand he did not say it 
would automatically bring competition down 19 cents, but over 
time it was probably a 19 cents advantage.
    In New Jersey, one of the things I asked our retail group 
to do, and I had a limited amount of time to do it. I am sure I 
could do it on a broader basis. But I asked our retail group to 
give me some independent data that would indicate to me what 
having a low cost competitor in a market--what kind of impact 
that had. I did not know, by the way, about the 19 cents Costco 
information. I think that was in a letter from Costco to the 
Senator I was not privy to.
    In New Jersey, we have a low cost provider called Wawa. I 
do not know if any of you have come through New Jersey and seen 
Wawa, but Wawa is a huge presence. Wawa, by the way, is the 
Lenape Indian word for Canadian goose. They are a low cost 
provider.
    I did an analysis or my retail group did an analysis 
between North Jersey prices that do not have low cost 
providers, like the Burlington Vermont market, and Southern New 
Jersey, Ocean County being where I live and where Wawa has now 
a 45 percent market share. It shows consistently a 16 cent a 
gallon to a 24 cent a gallon difference in price. In other 
words, the competitive lower price Wawa market--Wawa had that 
kind of impact.
    The interesting thing to me was the 24 cents occurred in 
downward markets. In markets where prices are dropping, Wawa 
seems also to be a price leader on the downsize so that the 24 
cents showed up in declining markets, but on average it was at 
least 16 cents. So a low cost provider--there is no--I mean, we 
can debate it all we want, but statistics show that having a 
low cost provider in the marketplace changes the competition 
and changes the pricing model.
    Senator Sanders. All right. Let me just continue my 
discussion with Joe, and then I want to other people to jump 
in.
    Joe, this is a chart that is entitled ``gross profit 
margins for retail unleaded gasoline'' comparing northwest 
Vermont to the national average. It starts with January 2009 
and goes to July 2012.
    As you have indicated, there have been times where right 
here in October 2011 and April 2012, where the gross profit 
margin here in the Burlington area was lower than the national 
average. But the overwhelming majority of times, the profit 
margin has been higher, and in June it was off the charts. Can 
you explain why that might be?
    Mr. Choquette. I am not familiar with the data, Senator, 
that you are presenting here. But I will say as I said in my 
testimony, this is a low volume market. To the extent that Wawa 
or anybody else who offers product in any market, you know, 
makes a profit--volumes in New Jersey are higher than they are 
in Vermont. If you are Gail at her variety store, you know, she 
is not going to sell a million gallons of gasoline a month like 
Wawa is in southern New Jersey.
    Senator Sanders. But I am not talking about----
    Mr. Choquette. In order to pay her fixed costs, she is 
going to have to get a lower--a higher margin over time, and 
that is your answer.
    Senator Sanders. But I am not talking about Wawa, and I am 
not even talking about Gail in South Hero. This is, as you 
know, the largest city in the State of Vermont. This is, a lot 
larger than Middlebury, a lot larger than Rutland. So I am 
still not clear from you why with all of these gas stations we 
do not have more competition driving prices down.
    What this indicates, you made the point that there have 
been times when the profit margins in the Burlington area were 
lower than the national average. That is here. We see them here 
and here. But you have not explained at least to me why we have 
seen an off the chart profit margin, which, in fact, was one of 
the highest in the entire United States of America.
    Now my second question is, you correctly made the point 
that very recently what we have seen--and this is what this 
this chart is about. What we have seen is that while prices 
nationally have gone up, actually prices in the Burlington area 
have gone down. Wholesale prices have gone up. Prices in the 
Burlington market have gone down.
    Do you think maybe this has something to do with the kind 
of public discussion that is taking place in the State of 
Vermont on this very issue in the last couple of weeks, or do 
you think it is just coincidental?
    Mr. Choquette. Senator, there are a lot of factors that go 
into--first of all, and I would reiterate, that margins are not 
profits. So it is inaccurate to call this a chart of profits. 
Having said that----
    Unidentified Speaker: Can I just----
    Senator Sanders. No, let him finish. Joe? Hold it, Joe has 
the mic. My apologies.
    Mr. Choquette. Sorry. I lost my train of thought. What was 
the question again?
    Senator Sanders. I am sorry. You know, I just hoped that 
you could give us a good--the answer was that recently, as you 
have indicated, prices in the Burlington area have been much 
more competitive with the rest of the country and in the State 
of Vermont. I think you made that point.
    I was asking you whether you think it is just kind of a 
coincidence that all of this occurred at a time when there has 
been a lot of public discussion when I asked for an FTC 
investigation. Is that a coincidence?
    Mr. Choquette. We can neither prove nor disprove that, but 
you have every right to make that assertion, Senator.
    Senator Sanders. OK. Other discussion from anybody, feel 
free. Gail, anybody else to jump in.
    Mr. Brockwell. I would like to just defend the data. That 
is our data. I think it is a bit disingenuous to hide behind 
the debate by calling it not a profit margin. Whatever you want 
to call it, it is the difference between a wholesale price that 
a distributor pays for a product and retail price that he sells 
that product at, less transportation, less taxes, less some 
other costs.
    So the data shows that retail operators in Greater 
Burlington have a wider margin to do whatever they want to do 
with, operate their business, if you do not want to call it a 
profit or whatever they do, whereas other areas have a smaller 
margin. I think the Senator is trying to ask someone, anybody, 
to justify that difference. So I guess how would you justify 
that difference, whether you call it a regular margin----
    Senator Sanders. Let me ask the questions. All right, I 
will ask--I mean, I think I did ask you----
    Mr. Brockwell. Yes, you have.
    Senator Sanders. So I will ask the questions of--any 
other--of course, Jim?
    Mr. Coutts. I was interested in the fact that in the 
Burlington area, there is a 17 cent a gallon difference, or 19 
cents, whatever it happens to be, between the highest and 
lowest. We have 17 stations in Franklin County, St. Albans, and 
the Swanton area. There was a one cent difference Friday in all 
of those stations. Some of them are owned by different people. 
Some of them are owned by distributors.
    It used to be years ago, and some of you St. Albans might 
remember a place that was called Lester's. He was an 
independent, and when he sold gas, he sold it at about 3 to 5 
cents below what the local stores did. Very quickly, all the 
other gas stations followed suit.
    There was another station, A. Brown, similar situation. A. 
Brown always sold the lowest--and I see some heads nodding, so 
they know what I am talking about. That station is no longer A. 
Brown. It belongs to one of the distributors. A. Brown's price 
now is the lowest by one cent.
    Senator Sanders. Joe, I am going to put you on the hot seat 
again. Nothing personal here, just the other guy to defend 
that.
    Mr. Choquette. All right. I mean, there has----
    Senator Sanders. Jim says, I mean, I am not aware of that, 
Jim. You have checked the gas stations.
    Mr. Coutts. I have checked that, and there are people from 
St. Albans, I think, that could back that up.
    Senator Sanders. All right. You tell me, I mean, just for 
the average person, how many do you think you have in 
competition, 17 stations?
    Mr. Choquette. Seventeen stations in the St. Albans area.
    Senator Sanders. One cent differential. Does that sound 
like a vigorous competitor situation?
    Mr. Choquette. I have not--you know, I do not have any 
information on the St. Albans market. I am sorry, I have not 
been up there.
    Senator Sanders. OK. Let me go to Mr. Brockwell and ask him 
a question. According to your firm, the Burlington metro area, 
which includes Chittenden, Franklin, and Grand Isle Counties, 
was the most profitable market to sell gasoline in the 
northeast earlier this summer, and is consistently among the 
most profitable markets in the country to sell gasoline. Do you 
have an explanation as to why that might be the case?
    Mr. Brockwell. I think, Senator, I indicated in my initial 
statement that I went through what I would consider objective 
criteria to try to offer a reasonable explanation. At the end 
of the day, ladies and gentlemen, these retail stations and 
these distributors are my customers, so I am not here to 
condemn them or make them look bad, believe me. I was asked to 
evaluate a market condition that was in the Senator's eyes, it 
looked like a market distortion.
    I have no reasonable explanation. I do not know why 
Burlington stations are able to price. Maybe they have reached 
a pricing point that the consumer is comfortable with, and the 
consumer pays that price, and that is what they pay. I think I 
was quoted because I was taken to task by one of the 
distributors as saying, I guess they can charge whatever they 
want to charge in Burlington because that looks like what they 
are doing. I am open, Senator, to anybody offering me an 
explanation.
    Look, I have not been doing this for 35 years and not 
learned something. I cannot explain this. I cannot explain. You 
are the one that pointed it out, and I know there is a bit of a 
debate going on between you two about the competitive nature of 
the market. But I certainly think competition ought to be 
looked at, and competition seems to be a factor. Places that 
have low-cost providers are consistently cheaper than places 
that do not. I do not know that there is a Stuart's, or Sheetz, 
or a Wawa, or a Giant, that is a low cost provider.
    But again, is that the answer? I do not know. But it is 
certainly a reasonable explanation in the absence of any other 
data that I can provide.
    Senator Sanders. Let me go to Mr. Leuck and Costco and just 
ask you a question, if I might, sir. On July 16th, Costco sent 
me a letter, and this is what it said. ``Since 2007, Costco has 
been seeking land use permits and approvals to build a gasoline 
filling station at our current store in Colchester, Vermont. We 
have obtained several approvals for our proposed gas station in 
Colchester, but each approval has been appealed by, among 
others, gas station owners in northern Vermont. We can discern 
no legitimate reason for these appeals and believe that they 
are really an attempt to use the land use process to stifle 
competition for gas sales. If we had been selling gas at our 
Colchester location, our prices on average would have been 
approximately 19 cents a gallon lower than the average price in 
the Colchester area for regular gas.''
    That was in the letter that Costco sent to me. Could you 
elaborate on that, please?
    Mr. Leuck. That was determined by data supplied to us, I 
believe, by OPIS, and how we would evaluate our pricing if we 
were selling gasoline and obtaining gasoline from our wholesale 
sources.
    Senator Sanders. Do you want to say anything about the 
nature of the opposition to your getting a permit?
    Mr. Leuck. No. I think we are going to go through the 
appeal process and let the authorities make the proper 
decisions. We feel that we have the right to sell gasoline, and 
we will continue through that appeal process.
    Senator Sanders. OK. Let me ask you Gail a question, if I 
might. I mean, Gail, the bottom line that I think you suggested 
to us is you do not make a heck of a lot of money selling gas.
    Mrs. Horne. No.
    Senator Sanders. Let me ask you this. Could you tell us who 
your distributor is?
    Mrs. Horne. Champlain Oil.
    Senator Sanders. Champlain Oil. Are there any restrictions 
on the price that you can charge?
    Mrs. Horne. No.
    Senator Sanders. OK. So they sell to you, and you can 
charge whatever you want, high or low. OK. Essentially, you are 
looking at your competition, other people in South Hero, and 
that is how you determined.
    All right. Is there anything else you wanted to add to this 
discussion, Gail, that you have not said?
    Mrs. Horne. No, I think I am good.
    Senator Sanders. OK, good. OK. I do not have any other 
profound questions. Joe, is there anything else you wanted to 
add? I do not want to----
    Mr. Choquette. No.
    Senator Sanders. OK. Anything else anyone wanted to add?
    All right. I think this has been--I appreciate--Joe, and I 
did not mean to make your life miserable here, but you are the 
designated representative, right?
    Mr. Choquette. Designated hitter anyway.
    Senator Sanders. That is what they pay you to do, right? 
OK. So I just want to thank the panelists for being here, and 
call this hearing to a close. Thank you.
    [Whereupon, at 3:15 p.m., the hearing was adjourned.]

                                    

      
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