Why is gas at the Sacramento airport so expensive? Here’s how the operators set the price

Chris Jensen wasn’t happy paying $5.20 for a gallon of regular to fill up his rental car at the Sacramento International Airport Arco airport station but it beat the alternative of being hit with an ever more expensive fuel surcharge when he returned his Alamo Rent a Car.

“The price of gas here should be more competitive with the outside world,” said Jensen, who was flying to Seattle on Monday after several days visiting relatives in Modesto. “It’s too expensive.”

The world he was referring to is outside the airport, where the Arco gas monopoly is broken. While not cheap, the average daily price of regular on that day in the Sacramento metro area was 51 cents less than the Arco station, according travel industry group AAA.

The Arco gas station at Sacramento International Airport is among the most expensive places to fuel up in the region, and the reason for this dubious distinction traces back to a deal struck 15 years ago between county officials and the company that owns the station.

Prior to 2008, the formula used to set the gas prices relied on comparisons to other Arco stations, a brand known for its lower gas prices than its name brand competitors. That changed after a new company, Green Desert, took over the operation and asked the airport regulators to approve a new pricing formula.

The regulators agreed to a new formula that let the company set the airport gas prices based on the prices at a different set of Sacramento-area stations, according to Green Desert President Sam Hariz. Of the 15 stations that are used as a basis for the price, 14 are higher-priced Shell and Chevron stations. The 15th is a 76 station. No Arco stations are part of the comparison survey anymore.

The change to the pricing formula happened two years after Green Desert took over the gas station.

Eric LaVaughn, president of the CharVaughn Group that manages the station for Green Desert, said that the company was struggling to make a profit with the inherited formula.

“We were having a very difficult time making it financially here, even breaking even,” LaVaughn said.

LaVaughn said that BP, the previous owner of the airport station, could afford to use a lower pricing formula because the company was also an oil producer and supplier. He noted that franchises like the airport station operate with tighter margins because they have to pay franchise fees and purchase fuel from an oil company.

“It wasn’t changed out of greed, out of the desire to make money more out of the airport, or out of the public,” LaVaughn said.

He said the reality is Green Desert did not have the “deep pockets” that BP had.

Are oil companies to blame?

When Green Desert officials were bidding on the airport station, Hariz said BP officials misinformed them about its profitability. They learned after taking over the operation that margins were too narrow.

A BP spokeswoman declined to comment.

Green Desert along with other franchise owners filed a federal court lawsuit in 2011 against the oil company’s subsidiary BP West Coast Products. One of the key arguments in the case was that the subsidiary was not selling gasoline to franchise owners at a competitive price.

The case was settled out-of-court six years later, Hariz said, with BP making minor concessions but still controlling the pricing of gasoline.

California Governor Gavin Newsom has recently put gas prices in the spotlight. He accused oil companies of taking advantage of California residents with high prices and signed legislation on March 28 creating what he said will be an independent watchdog to root out price gouging by oil companies.

Against that backdrop, LaVaughn said it can generate negative publicity being the highest priced gas station in a very visible location.

While BP no longer directly owns the gas station, the fact that the station operates as a franchise associated with the company means that BP still has concerns over pricing at the station due to its location at the airport, LaVaughn said.

He said things came to a head last October when BP officials called to express concern about the pricing after a gallon of gas jumped to around $7.00 during a national gas run-up.

LaVaughn said station ownership is concerned about community relations.

“We don’t want to be accused of price gouging, taking people for a ride” LaVaughn said.

In an effort to be good neighbors and generate positive public relations, LaVaughn said at the start of this year, Green Desert changed the way it calculated the price of gasoline. It still averaged the credit card price of the 15 comparison gas station but it didn’t add an airport approved extra 5%.

But Hariz said frequent BP wholesale gasoline price increases means the station has to use its discretion on when it can offer additional discounts beyond its airport approved formula.

On Monday, an Sacramento Bee analysis showed that the gas station was imposing the full charges allowed by its airport agreement.

Hariz could not say how many days since January that the gas station charged less than the maximum pricing rate allowed by airport officials.

Sacramento International Airport officials said they have expressed reservations to Green Desert about the airport gas prices.

“At several points over the last two years, airport leadership has voiced concerns over the prices found at the airport (gas station),” said Stephen Clark, deputy director of airport commercial development at Sacramento International Airport, in a written statement. “Staff continues to audit the Airport’s AM-PM station to ensure prices are within acceptable limits as the agreement allows and immediately address variances with the operator.”

He said airport leadership continues to work with the gas station operator “to provide more competitive pricing to the extent possible.” Clark did not respond to a request for specific price variances found by airport officials.

Why did airport officials agree to the new formula?

Green Desert’s business plan to airport officials in November 2008 promised it would offer aggressive pricing of gasoline as the “lowest price leader.”

There was no mention in the business plan of developing a new list of gas stations to determine pricing. And airport officials approved letting Green Desert operate the gas station the next month.

The Bee in October 2022 requested public documents from airport officials that detailed their views on scrapping the old list of Arco stations and replacing it in the formula with a list of higher priced stations. But airport officials have said in repeated correspondences have said they are still looking for the records.

The Green Desert lease calls for the company to pay the airport $96,195 a year until the agreement expires in 2027. In addition, the company must pay the airport 7% of its gross revenues in excess of $1.4 million a year.

LaVaughn said the airport station exceeded the $1.4 million in the fiscal year that started July 1 and have paid aviation officials $125,000 in total rent and fees.

But Hariz said it doesn’t matter how much revenue the station takes in if its costs are too high.

He said the gas station has 41 employees compared to ten to 14 workers for an average station.

LaVaughn said airport officials demand that the station provide excellent service, even sending inspectors with stopwatches to time how long customers wait at the gas station’s register.

Hairz said the station is making a profit but only because it charges more than other stations for gas. He refused to discuss how much profit the station was making.

Despite the price it charges, the Arco airport gas station’s ten pumps are often busy. It is the only gas station within several miles of the airport and visitors returning their rental cars face refueling charges if their tank is not full.

Those charges can range from $6.70 a gallon to $11.67 a gallon depending on the car rental company.

Other airports have tighter price controls

Other airports with onsite gas station locations often have tough rules to prevent price gouging.

At the Austin-Bergstrom International Airport in Texas, the lease with the onsite Texaco station states that fuel prices shall not exceed 5% of the daily fuel prices reported by the AAA for all stations in the Austin metro area, airport spokeswoman Lesly Ramirez said.

In Orlando, Florida, the airport opened an onsite gas station in February 2020.

Airport policy requires fuel sold by the Shell Station to be no higher than 15 cents among the mean fuel price sold at the 12 top-tier gas stations nearest to the airport, said Rod Johnson, a spokesman for Orlando International Airport. The calculation excludes the three highest and three lowest priced top-tier gas stations.

He said top-tier gas stations mean brand name gasoline such as Shell, Exxon Mobil, BP, Chevron, Conoco, Sunoco, Marathon or Phillips 66.

The Orlando airport station was opened after complaints from motorists about price-gouging by stations near the airport. Several stations were refusing to post their prices at their entrance and were charging motorists up to $6 a gallon when the average of regular was around $2.45 a gallon in the Orlando area.

Lavaughn said the airport station couldn’t make a profit if there were stricter gas price controls. He said costs are higher in California, from employee salaries to workers compensation rates, making it difficult to lower rates further. He said he hopes customers will appreciate the great service they receive at the station.

“We’re operating the Taj Mahal of gas stations in the state of California,” he said of the airport location.

LaVaughn said five rows of gas tanks and clean bathrooms, in addition to the hot food and great customer service, put the airport gas station in a league of its own.

He said ultimately customers are getting a good deal at the station because they are saving dollars off per gallon what they would pay if they returned their car without a full tank to their rental car company.

LaVaughn said he hopes customers are appreciative.

“I want to be seen as a hero that saves people money from the rental car companies,” he said.