Blame Canada for gas prices? Not so fast…

Bellingham has bigger range at the pump than Seattle


Steve Jones, of Victoria, B.C., fills up his gas tank June 30 in Bellingham. Gas prices are relatively inexpensive in Bellingham compared to the prices in Canada, Jones said. Jones and his family were driving to Seattle to see the Mariners play the Toronto Blue Jays. Photo by Paul Moore.


In May 2006 Whatcom County Executive Pete Kremen decided to do something about the high price of gasoline in Bellingham. He wrote a letter to state Attorney General Rob McKenna, whose office investigates consumer complaints, hoping for an answer.

“I respectfully request that you look into the considerable difference of gasoline prices in Whatcom County versus that of other areas in Western Washington,” Kremen wrote. At the time, gas prices in Bellingham were averaging at $3.16 a gallon, while Seattle, Everett and Bellevue prices hovered around $3.06.

“It concerns me that our prices have been, on average, at least $.10 more per gallon than Seattle and 15 cents more per gallon than Tacoma,” Kremen wrote. “This is an extremely important issue for our community.”

Kremen ended the letter with the fact that, at a rate of 10 cents more per gallon, Whatcom County residents were paying a collective $8 million more per year for the same product as consumers in King County.

When McKenna’s office announced it would initiate an intensive gasoline price study across Washington state, the first such study since 1991, Kremen was hopeful.

When the report, released in April, stated that the explanation for high gas prices in Bellingham was because of Canadian drivers fueling up on cheap gas, Kremen was not satisfied.

“I was disappointed there wasn’t a more definitive response,” Kremen said. “It was pretty nebulous.”

What would a deeper look at the “blame Canada” theory show? Canadians may be a factor in the extra $8 million cost to Whatcom County drivers, but a Western Washington University economics professor found that the issue is far more complex and includes Western’s influence as well as Bellingham’s impact as a retail hub.


Blame Canada?

The Attorney General’s report was designed as an in-depth look at gas prices. Analyzing every level of petroleum production from refineries selling wholesale to transportation and retail distribution, the report aimed to inform consumers and policy-makers about factors that influence Washington’s gasoline prices. Kremen, along with other Whatcom County residents, awaited an explanation as to why Bellingham gas prices are so high.

Authored by University of Washington economist Keith Leffler, the report used a multiple-variable equation to predict what a reasonable gas price would be for any given area. Including variables such as number of stations per capita, land costs, transportation costs, employee wages and others, the formula worked very well. For every city analyzed, Leffler’s equation more or less predicted what the gas price in the area should be. The only anomaly was Bellingham – Leffler’s equation predicted a gas price 8 cents lower than the actual retail average.

“We looked at the data and said, “What’s going on here?’” Leffler said. “We didn’t offer an explanation, but we posited a hypothesis.”

The hypothesis was that Canadian and American drivers are filling up with “cheap” Whatcom County gas before venturing near the tax-heavy pumps of British Columbia (where, on average, gas costs $1 more per gallon.) This, in turn, drives up demand for gasoline – which drives up prices.

Leffler said to test his hypothesis he looked at gas stations in Whatcom County along 1nterstate 5 – suggesting that, if Canadian drivers are to blame, those stations would have the highest in the county. He found that, of 28 informally surveyed gas stations along 1-5 between Bellingham and Canada, prices were consistently higher.

However, it was difficult to further test the theory, Leffler said, as little data existed for other major border-crossing towns in Washington, such as Omak in Okanogan County, which could be used for comparison.

And that is essentially where Leffler’s testing stopped. Unable to probe the hypothesis further, the report concluded, albeit without complete confidence, that Canadian travelers may cause Bellingham’s elevated gas prices.


When gas prices dip, number of Canadian visitors does, too

It seems many Whatcom County residents were weary of McKenna’s claim – Western Washington University Economics professor Hart Hodges took to looking into the issue himself.

“When I first read that we should blame Canada, I just laughed to myself,” Hodges said. “I thought, ‘What are they thinking?’”

Conducting a comparative analysis using Canadian border-crossing data and historic gas prices, Hodges was able to surmise an alternative hypothesis to Leffler’s theory.

His argument is that Canadians travel more to the United States when their gas is cheaper – and thus, closer to Bellingham prices. McKenna’s report stated the average price of gas in Vancouver, B.C., was usually $1 more than in Bellingham – a truthful claim, most of the time. However, the periods of peak Canadian travel correspond with remarkably cheaper Canadian petrol or high Bellingham gas prices. Either way, during these periods, very little difference exists between U.S. and Canadian fuel prices.

For example, in August 2005, 419,000 Canadians crossed into Whatcom County. During that month, the difference between gasoline in Vancouver, and Bellingham was only 36 cents a gallon (at $2.73 in Bellingham and $3.09 in Vancouver.)

Five months later, in January 2006, Bellingham gas was $1.26 cheaper ($2.25 in Bellingham and $3.51 in Canada), yet border crossings had almost halved to 229,000 crossings.

Hodges’ study showed that when gas is cheap in Canada, more people cross the border. When gas is expensive in Canada, fewer do. If Canadians were affecting the changes seen in Bellingham, the opposite would be true – more Canadians would cross the border when their gas was more expensive, to take advantage of Bellingham prices.

Hodges, observing border crossing and gas price fluctuation data going back to the beginning of 2004, conducted a regressional analysis – a method of observing how certain variables and factors affect one another – and determined roughly 90 percent of the fluctuation Bellingham sees in gas prices cannot be attributed to Canadians.

“They’re not driving down here for the cheap gas,” Hodges said.


Stations show wide range in price

Hodges said the important thing to focus on when talking about gas in Bellingham is not the average price, but the range of prices.

On June 25, MSN Autos listed the average price of gasoline in Bellingham at $4.46, and Seattle at $4.43. However, Seattle’s gas ranged from $4.35 to $4.52 – a range of 17 cents.

On the same day, Bellingham’s spanned from a low of $4.26 to a high of $4.55 – a range of 29 cents. In fact, on that day, cheaper gas was available in Bellingham than it was in Seattle. Which begs the question: In such a relatively small town, how does gas fluctuate so much between stations, and why do people pay the higher prices?

Hodges has a few theories.

First, he believes Western Washington University students to be relatively inelastic gas purchasers – that is, students won’t drive very far to purchase gasoline. In their university-centric world, gas is purchased for convenience, not price.

Hodges said that’s why many of the most expensive stations in Bellingham are right around the university.

Hodge’s theory also reveals a hole in Leffler’s equation.

To determine the number of vehicles per station, the number of cars in the county was divided by the number of stations. However, the report used data from the Washington State Department of Licensing, which counted the number of cars registered in Whatcom County. That means they likely missed a majority of student drivers, who tend to have their cars registered in their hometowns.

The effects this omission has on the predicted price may be hard to judge. The report found when there is a lower number of vehicles per station, lower prices resulted because of increased station efficiency. Since students weren’t included in the data, the vehicles per station variable was lower than it should be, affecting predicted price.

Leffler said he was unaware of the omission, but considers it a factor.

“If I was still working on the project, I would definitely look into that,” Leffler said.

Contrarily, Leffler noted that the regressional analysis equation accurately predicted gas prices in Olympia and Ellensburg, towns with a high per-capita student rate. He mentioned that a possible test of this theory would be to look at how the price of gasoline changes the farther a station is from the school.

Another unique factor that Hodges noted is that Bellingham is a retail hub for Whatcom County. Other cities in the study – Tacoma, Seattle, Everett – have heavy retail areas surrounding them, while Bellingham is the retail area.

Taxable retail data for Whatcom County supports this. It shows that, per capita, retail sales in Bellingham are nearly seven times higher than any other Whatcom County city. Therefore, higher retail sales will result in higher traffic – and high demand for gas.

“Gas is higher in retail areas,” Hodges said.

However, UW’s Leffler noted that, if the “hub” theory about Bellingham is true, Yakima – another retail hub – would also have a higher difference between predicted gas price and actual price.

But perhaps 1-5, Leffler said, may be affecting things. It seems there are too many pieces to the puzzle.


Students, county shoppers also figure into equation

The theory that gas stations should get more expensive the closer to the Canadian border makes sense. However, couple that with the fact that Bellingham is a retail hub – and perhaps a destination for Canadian and Washington shoppers alike – would suggest drivers heading to or from Canada would stop in Bellingham, rather than Lynden, Blaine, or Sumas.

Additionally, to observe the effects students have on gas, a simple conclusion would be to look at all of the stations around the university. However, the stations along Samish and the Chevron on Lakeway – some of the most expensive stations in Bellingham – are also situated close to I-5.

What’s difficult about Bellingham is it’s too unique a city. Many factors could be affecting gas prices – border proximity, student population, the retail center, and I-5 impact.

“It could be a confluence of things,” Leffler said. “The hard thing about it is these factors alone are easy to look at and explain, but [combined] it is altogether something new.”


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