Indie Economics

The Tale of the City Service Station

David Brancaccio Aug 25, 2014

Before there was Exxon, there was ESSO. Before there was CITGO, there were Cities Service stations. That brand is long gone, but this summer marks the return of something you might call “City Service.” Sick and tired of high local fuel prices, a town in Kentucky in recent weeks opened up its own gas station. It is a filling station owned by the town of Somerset. 

The mayor, in what’s been described as a Republican stronghold, says residents have been complaining for years that gas prices in Somerset tend to run higher than in surrounding areas, and spike when vacationers come in for boating and fishing on a nearby lake. Somerset already owned a 60,000 gallon gasoline storage facility. Jazzing up the place to take cash and credit cards required a modest investment of  $75,000. Somerset also lucked into having an independent wholesaler in the neighborhood that is willing to supply the gas to the town little station.

The city is charging per gallon based on an average regional price. The mayor is quoted saying the idea isn’t necessarily to sell gas, but to help bring gas prices down. The strategy appears to be working in the early weeks of the venture. Local drivers are delighted, but private sector gasoline sellers are not. Some say it smacks of socialism, even communism, and see the idea as an assault on the free market.

I looked around for some precedents and they are interesting. Some cities have long had municipal public utilities. The power company in San Francisco is owned by the city and county, for instance. In North Dakota, there has been a state-owned bank that for 95 years has been serving as a kind of mini-Federal Reserve for the region to target cheaper loans to projects deemed in the public interest, like nurturing local entrepreneurs.

There are precedents in the retail sector as well. The town of Kotzebue, Alaska owns its own liquor store. In Minnesota, 207 municipalities own their own booze emporiums. 

More typically however, the response to high prices or other perceived market failures has not been ownership of the retail outlet by a municipality. Instead, the solution is more often local citizens banding together. Heating fuel co-ops are common, in which locals pool resources to get a better price on oil by buying in bulk. In Powell, Wyoming, there is even a department store called Powell Mercantile owned by a group of 500 local shareholders. The store is popular enough to have become a tourist destination. 

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