SOMERSET, Ky. (AP) — Somerset's city hall ventured into the retail gas business Saturday, opening a municipal-run filling station that supporters call a benefit for motorists and critics denounce as a taxpayer-supported swipe at the free market.
The Somerset Fuel Center opened to the public selling regular unleaded gas for $3.36 a gallon, a bit lower than some nearby competitors. In the first three hours, about 75 customers fueled up at the no-frills stations, where there are no snacks, no repairs and only regular unleaded gas.
The mayor says the station was created in response to years of grumbling by townspeople about stubbornly high gas prices in Somerset, a city of about 11,000 near Lake Cumberland, a popular fishing and boating haven.
The venture got a thumbs-up from customers who let their vehicles reach near-empty in anticipation of the city-run station's opening.
"I'm tickled to death that they're trying to do something," Ed Bullock said as he filled up his car. "I'm glad they made the investment."
The venture unnerved local filling station and convenience store operators suddenly competing with the city in this Republican stronghold. Critics said the government has no business imposing itself into the private sector, and one store owner branded it as socialism.
Mayor Eddie Girdler, however, is standing firm behind the idea of the city-run station. The canopied station on the outskirts of this southern Kentucky town was converted from use by government vehicles into one that can also cater to anyone looking to fill their tanks.
"We are one community that decided we've got backbone and we're not going to allow the oil companies to dictate to us what we can and cannot do," Girdler said. "We're going to start out small. Where it goes from here we really don't know."
The amount charged motorists will be based on an average regional price for gas, and will include a small markup to cover costs, the mayor said. The city isn't out to make a profit, he said. Instead, the goal is to lower gas prices and lure more lake visitors into Somerset, he said.
Four nearby stations in Somerset were selling regular unleaded for $3.39 a gallon Saturday. The prevailing price in town had been in the mid-$3.40s per gallon late in the week, said Melody Price, office manager at Somerset Fuel Center.
Duane Adams, a convenience store owner in Somerset, sees the city's station as a slap in the face that could hurt his business.
"They've used the taxpayer money that I have paid them over these years to do this, to be against us," he said. "I do not see how they can't see that as socialism."
Other retail groups, including the Kentucky Petroleum Marketers Association, urged other municipalities not to follow suit. "If milk got too high, are you going to build a dairy?" said Ted Mason, executive director of the Kentucky Grocers Association and Kentucky Association of Convenience Stores.
Girdler, a Republican in his second term, said the city isn't looking to put anyone out of business.
"We don't care if we don't sell a drop of gasoline," he said. "Our objective is to lower the price."
George Wilson, the town's economic development business coordinator, said gas prices in Somerset are often 20 to 30 cents a gallon higher than in neighboring towns. Many lake visitors fuel up elsewhere, costing Somerset millions of dollars in retail sales, Girdler said.
Several customers at the city's station said they had no objections to the city's investment as long as it moderates gas prices in town.
"I'm glad somebody finally got some sense and lowered the prices," said Patty Gossett.
Another customer, Samir Cook, said he hopes the city-run station drives down prices.
"As long as I can get gas cheaper, that's really what I care about," he said.
Adams, the convenience store owner, disputes the city's claim that Somerset gas prices trend well above the regional average. The Kentucky Petroleum Marketers Association said there have been many times in recent months when Somerset's gas prices dipped below the surrounding area.
Dan Gilligan, president of the Petroleum Marketers Association of America, said a staff attorney involved in the industry since 1973 could not recall another city getting into the retail gas business. The National League of Cities said it was unaware of another U.S. city with such a venture.
Somerset had several built-in advantages in starting the venture, the mayor said.
The city is purchasing gas from a hometown supplier, Continental Refining Co. The city purchased a fuel storage facility for $200,000 a few years ago. Now, up to 60,000 gallons of regular unleaded gas can be stored there for the retail business.
The city spent less than $75,000 to convert the fueling center into a retail operation, the mayor said. Much of the investment went to upgrade pumps and add computer software to handle credit card purchases.
He doesn't expect the venture to cause a drain on the city's $64 million budget, and said the intent is to have it break even.
The station features 10 nozzles for public use and is open for credit card purchases nearly around the clock.
"It's been carefully thought out," the mayor said.
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Okay, as a soon to be former gas station owner, let me throw in my $0.02, which is more than I made on gas in quite a while.
This is going to be a disaster for the local stations. What the city should be doing is fighting for the local stations to get the costs down. Lower cost will lead to lower retail.
The article didn't state if the city was still receiving the fuel without the Federal Tax included, which is how municipalities in the State of Kentucky buy their fuel. They are not required to pay the Federal tax, only the State tax. That fact alone will drop the cost $0.183 per gallon. If they are still paying the same as they were before they opened the "public" station, then the local stations will have a reason to "fight City Hall".
I've been in the business for over 20 years and have never seen such a down market on fuel, meaning no profit for the retailers. Only the big players are making the money because they buy direct and haul from the depot, thus cutting out the middle man.
Long gone are the good old days where gas stations were making 20-30 cents per gallon and the retail was under $2.00/gallon. Now we are lucky to make 2-5 cents per gallon with a retail of $3-$4/gallon. Another issue to consider is the credit card fees. That alone adds 2-3% ($0.10/gallon) to the cost of doing business. It gets even higher if you use a "rewards" card. The retailer pays for your rewards, not the credit card company.
As a customer, this is great news for the local consumers. My fear is that the local stations will pay the price, and like me, go out of business.
Government needs to stay out of businesses and stick to what they are good at. Never mind, figuring that out would take too long.......
