I thought I remembered hearing that there was a state in the Northeast that freezes gas prices at the beginning of the year, so the residents of the state either get a great deal or a terrible deal on gas all year. On the other hand, I’ve tried Googling various versions of this, and can’t come up with anything. Is this true? Which state is it?
There is no such state.
-
Until recently, I lived in the northeast and have driven in every state up there. Never heard anything about it.
-
The policy you suggest is unworkable. If the price was frozen by legislation, and then gasoline prices rose, the gasoline companies would simply stop selling in that state. The state cannot force gasoline companies to sell at a loss.
The only way to do it would be for the state to purchase gasoline futures on behalf of it’s entire population and then somehow distribute this gasoline through a bunch of state-owned gas stations. I guarantee you this is not happening anywhere in the US.
Since Nixon’s experiments in the the 70s the whole topic has become toxic.
Hawaii tried again from 2004-2007 anyway, but their regulations lacked teeth.
Some states control electricity prices though, and would not be suprised if a few did it for natural gas/heating oil/propane.
Maybe not a loss. But the state does pretty much give the companies the oil. And then the companies turn around and sell the gas at ‘fair market value’ (($3.50 a gallon)). And the state does require other industries (hospitals) to give their product away.
But in any case, it has never worked in the past. The oil companies are smarter than the government.
This is not true, not in the least bit, unless you subscribe to the theory that all natural resources are automatically state property - which is not a commonly accepted position in market economies. Either you own the land on which there is oil, in which case you also own the oil; or you drill on land that is publicly owned, in which case the government (state or federal, depending in the jurisdiction that controls the land where you want to drill) grants oil companies an exploration license allowing them to drill on publicly owned land. In the latter case, this license is sold in a public tender procedure, and in addition to the fees paid for the license the oil companie also puts up the amounts necessary to establish the facilities for drilling. It can’t be said that the oil ist just “given” to oil companies by the government.
ExxonMobile, BP, and Shell always top the list for most profitable corporations. So perhaps the licence fees and taxes are not quite high enough…
But, I think I like the Alaskan system better. Make them give actual people a share of the profits for resources taken from public lands.
Especially in the gulf coast states.
Not a US state but some countries effectively do this. Indonesia spends 22 billion a year subsiding gasoline prices to keep them artificially low.
I believe the province of Nova Scotia sets the gas price at the beginning of the week, and it stays frozen for the week.
Schnitte made an intelligent argument that you completely ignored, so I’m not even sure why I’m responding to you. But rights to drill for oil are usually sold at auction to the highest bidder–there’s no money left on the table. Oil companies are enormous because there are vast economies of scale to oil production, which favors large companies, and because oil is the lifeblood of civilization and figuratively makes the world go round.
And Alaska’s sovereign wealth fund doesn’t distribute a share of the profits to Alaska residents. Principal is untouchable, and only investment income can be distributed.
It’s not exactly the same thing, but my father and brother own houses that use heating oil for heat and the suppliers offer to fix the price of heating oil at the beginning of the season.
I meant to comment on this earlier today. I think there may be some confusion by the OP between gas and heating oil. It’s a common thing here in the northeast to lock in the price of heating oil before the start of the winter.
I did not ignore the argument at all. I simply replied that the licensing fees and taxes paid by the oil companies are not enough. Not for the extraction of a public resource.
The exploration licences are just the small part. The big part is the severance tax. That rate is set by Congress and is FAR TOO LOW.
The Gulf of Mexico is going to take decades to recover (if ever), and a lot of livelihoods along with it. And BP is already back on the top 10 list for highest profits.
And I do like the idea of Permanent Fund for Gulf area residents. Say a large amount saved for disasters, and the interest going to local communities.
Well, if you’re making that kind of argument, you need to have a well-founded benchmark that defines what would be “enough”. So, how much should the oil companies pay, in your opinion, and most importantly: Why?
I just googled return-on-equity figures for a couple of major corporations. The most recent available were 19.46% for Exxon, 13.782% for Chevron, 6.11% for BP, 12.03% for Total, 4.75% for ENI, and 9.09% for Royal Dutch Shell. By comparison, you get 35.42% for Apple, 34.89% for McDonald’s, 13.85% for General Motors, or 82.46% for Delta Air Lines. In the light of this, oil doesn’t seem to be a particularly profitable industry to me. Yes, oil companies are big in absolute terms, and as a consequence they also post very large profits in absolute terms, but that’s because of the economies of scale in the industry.
Well really I was just making a point of what the government could do, not necessarily what it should do. But…
Right now they pay 18% in severance tax for offshore oil. Which to me is a bit like an apple farmer paying his pickers 82% of the value of his crop. (I realize that it is a bit more complicated and expensive than picking apples)
Also, it is a precious resource, and I think we should hoard as much as we can for the future. And higher severance tax would encourage this.
If American production is not going to lower the price at the pump much (as the price is set by worldwide demand), then we should buy all the Mideast oil we can and save ours for the lean times. As far as petroleum goes… Winter is Coming. Nothing can replace it.
Finally, I was just in Mobile, AL. And the Gulf is still really messed up from that Deepwater spill. With great profits comes great responsibility. And that responsibility is fully being ignored.
Michigan tried to, about ten years ago, when prices went above $3 for the first time, Governor Granholm made an executive statement that she would take punitive action against any station that charged over $3 a gallon (presumably under application of some existing law), but prices naturally went back down in a week to two, and as far as I know, it was complied with by all stations.
As a caveat, public utility commissions are generally mandated to maintain a “healthy” utility, i.e. one that recovers its cost of capital. Utilities usually offer special programs and rate structures for low-income customers, but in aggregate prices must be set at a sustainable level to keep the utility, its shareholders, and its debt holders financial whole.
In general commissions can’t arbitrarily set prices so low that the utilities lose money or don’t make enough money.
I’m not sure if this is specifically what **Fishtar **was referencing, but just wanted to clarify that price regulated utilities are still not typically “losing money.” The companies just give up the right to charge high prices in return for downside protection, while customers receive the benefit of lower prices and economies of scale. Other factors can complicate this arrangement of course.
I live on the Gulf Coast, close enough that one day I could actually smell the oil from the BP leak. The visible significant to the local population consequences of the disaster are long gone. There is still some talk about damage along the coast, but it never interferes with activities. “The oil spill impacted the Gulf”, oh you want to charter a boat to go fishing-sure the fishing is fine, we’ll have a great time. There are massive manipulations of the BP trust funds controlled by the various governors, but besides the financial games, the consequences of the leak are history.
There’s a lot what governments “could” do. It could also expropriate and nationalise the entire oil industry rather than tax it, but that doesn’t mean the government “should” do that. But you were making the statement that the amount that oil companies pay in taxes and license fees isn’t enough, so I don’t think it’s too far-fetched a question to ask which amount, instead, would be enough, and what it is that makes you determine so.