You asked why retail gasoline prices are lower in some other states.

SUMMARY

Gasoline retailers set their own prices, but state policies affect their costs which, in turn, affect the prices they charge consumers. State tax policies vary widely and Connecticut places greater reliance on its gasoline taxes than most other states. As a result, only New York in this region has a higher gasoline tax.

Other cost factors may also contribute to making gasoline prices higher in Connecticut. Among these, federal environmental laws require the use of more expensive reformulated gasoline in the state and Connecticut is far from the Gulf Coast, the source of about half of the gasoline produced in the country. Further, each retailer has business costs that may be higher in one state than another.

PRICE SETTING

The law does not regulate gasoline prices or determine the way in which gasoline retailers set prices. Retailers consider many factors when setting their prices. These factors undoubtedly include the cost of acquisition, the cost of doing business (such as labor and property costs), the anticipated cost of acquiring the next delivery, and a return on their investment. Some of the factors depend on the state and locality in which the retailer is located.

COST FACTORS AFFECTING PRICES

The cost to produce and deliver gasoline includes the refiner's cost of acquiring the crude oil, marketing and distributing costs, the retail station's costs, and federal and state taxes (A Primer on Gasoline Prices, May, 2006, Energy Information Agency, U. S. Department of Energy, http: //www. eia. doe. gov/bookshelf/brochures/gasolinepricesprimer/eia1_2005primerM. html). A consumer's price reflects all of these costs as well as the profits of all of the businesses in the supply chain. Prices fluctuate due to many factors, including the competitiveness of the local market, seasonal demand, world events, and refinery disruptions. The primer states that in 2005:

• crude oil comprised 53% of the cost of a regular gallon of gasoline,

• federal and state taxes comprised 19% (based on a national average of state taxes),

• refining costs comprised 19%, and

• distribution, marketing, and retailer costs and profits comprised 9%.

STATE TAXES

Some factors play a greater role in some states than in others. For example, differences in state taxes account for significant state-by-state differences. Table 1 displays the state excise tax and total state taxes on gasoline in cents per gallon (cpg) for Connecticut, the balance of New England, New York, and New Jersey.

Table 1: Northeastern State Gasoline Taxes

The table shows that Connecticut's total taxes are higher on the price of a gallon of gasoline than every state in the region other than New York. The information was extracted from a chart prepared by the American Petroleum Institute dated March 13, 2007 (Motor Fuel Taxes).

OTHER COST FACTORS

There are also other factors that affect the cost of gasoline more in one state than another. Federal environmental laws, aimed at reducing carbon monoxide, smog, and air toxics, require some states, including Connecticut, to use reformulated gasoline. Reformulated gasoline costs more to produce than conventional gasoline sold elsewhere, increasing the price paid at the pump.

Further, states farthest from the Gulf Coast (the source of nearly half of the gasoline produced in the United States and, thus, a major supplier to the rest of the country), tend to have higher prices. The proximity of refineries to crude oil supplies can be a factor, as well as shipping costs (pipeline or waterborne) from refinery to market.

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