Analysis of Gas Prices in Howard County, Maryland

1.1 Economic Analysis Findings

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  Percent of unbranded gasoline stations within a region;
  
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  Station density per capita;
  
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  Changes in rack (wholesale) prices;
  
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  Population changes; and
  
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  Current gasoline taxes.
  

The analysis focuses on data collected between 2002 and 2012 for eight jurisdictions: Baltimore City and Anne Arundel, Baltimore, Carroll, Frederick, Harford, Howard, and Montgomery Counties. Across counties, RESI found that, with the exception of Montgomery County, Howard County’s unleaded gasoline retail markup was the highest of the remaining seven jurisdictions, all other things being equal. Montgomery County, historically, had the highest recorded retail price for gasoline across all jurisdictions observed in the study.

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  Regional population;
  
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  Household income per capita;
  
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  Distance from station to a major road;
  
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  Distance to nearest competitor;
  
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  Percentage of permitted gas stations zones;
  
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  Percentage of permitted under conditional use permits;
  
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  Difference between station’s and competitor’s prices;
  
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  Zoning (conditional use zone, prohibited zone, or permitted zone); and,
  
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  Being located within Columbia, Maryland.
  

Across counties, RESI determine that retailers located within Columbia, Maryland, had higher margins than those not within Columbia, Maryland. Overall, margins for those located within permitted zones were statistically less than those located within conditional use permit zones and prohibited zones. RESI concluded that the margin variation across gas stations was related to the direct and indirect zoning regulations across jurisdictions.

1.2 Land Planning Analysis Findings

Through qualitative and spatial analysis, RESI used gas station locations and zoning to create inputs for the economic analysis to analyze their influence on gas prices in Howard County.
The findings for Howard County are consistent with economic theory regarding barriers to entry and competitiveness. Barriers to entry can include permit costs, length of time spent in the development review process, economic impact analysis fees, and new infrastructure construction. Zoning is a major barrier to entry for gas stations in particular. Gas stations require a conditional use permit in most zoning districts throughout the study area.
In particular, RESI examined the way gas stations are regulated in Columbia, a planned, unincorporated community within Howard County. Columbia is laid out in a series of villages, each of which include a “center” containing services and amenities that are often not visible from main roads. Columbia’s development, which is almost wholly contained in the New Town District, requires approval of a Final Development Plan. Gas stations are typically included as part of the proposed development, which must meet the criteria specified in the Final Development Plan, the primary source of zoning requirements for any specific property in the New Town District. The remaining land in Howard County uses standard zoning districts where gas stations are either prohibited are subject to approval of a conditional use permit.

1.3 Conclusion

Historically, unleaded gasoline retail markup tends to be higher in both Howard County and Montgomery County, all other things being equal. RESI found the following:

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  As the percentage of unbranded gas stations increases in a jurisdiction, the unleaded gasoline retail markup tends to decline over time;
  
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  Gas stations located within conditional use permit zones and nonconforming zones will have margins higher than those in permitted zoning regions; and,
  
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  Gas stations located in Columbia, Maryland, will have higher margins than those within the study region.
  

Overall, margins are affected greatly though land planning. The percentage of the region zoned for gas stations without barriers and with minimal barriers significantly impacts the retailer’s margins. The greater the barriers to enter the market in a given region, the higher the margins become for retailers since competition will be lessened or condensed. The further away from their competitors or the lack of competitors will also drive margins upwards for retailers. Through economic analysis, RESI found that gas stations in Columbia maintain a higher margin than other places in Howard County and elsewhere in the study region. Intentional planning and zoning decisions in Columbia’s New Town District may have an influence on the number and location of gas stations within its borders. If the zoning regulations are left unchanged, the trend may continue over time.

2.0 Introduction

The Regional Economic Studies Institute (RESI) of Towson University has been tasked with analyzing the retail gasoline market in Howard County, Maryland. As part of the analysis, RESI compared Howard County’s retail gasoline market to those in neighboring jurisdictions (Baltimore City and Anne Arundel, Baltimore, Carroll, Harford, Frederick, and Montgomery Counties).
RESI examined the structure of gasoline prices in Howard County through two separate and complementary analyses to fully answer the question, “Are gas prices in Howard County statistically different from gas prices in the surrounding jurisdictions? If so, why?” An economic analysis was conducted to determine whether or not branding, competition, and other economic factors have affected gas prices in each jurisdiction. An analysis of land planning, or zoning regulations, was conducted to determine whether or not location and zoning impact gas prices in each jurisdiction.
RESI employed regression analysis to estimate a gas price margin model for the region. Using two separate Ordinary Least Squares regressions, RESI reviewed (1) the time-series effect on the regional gas stations and sustainability of the industry and (2) the cross-sectional effect across jurisdictions and stations to determine what factors contribute to the price differentiation. RESI ran the regressions and reviewed coefficient estimates to determine the size of the impact and if the impact has a positive or negative effect on price. Data regarding the retail prices, location, and wholesale markup were used in estimating the effect, if any, of factors such as branded or unbranded stations.
Annual data allowed RESI to create a variable, “gas stations per capita,” that took the number of establishments and divided it by the total population within that region during that given period. This allowed RESI on an annual basis to determine the potential competition within a region. Results of this regression analysis were reported on the 95 percent confidence level, indicating the most significant factors that impact retail gas prices.
RESI also investigated the influence the factors of location and zoning have on gas prices in Howard County. RESI conducted a spatial analysis of the location of gas stations, closest competitors, the distance to major highways, percentage of jurisdictions zoned outright allowing gas stations, and percentage of jurisdictions allowing gas stations through a conditional use permit.
RESI performed a zoning diagnostic for the eight jurisdictions, enabling ease of comparison across jurisdictions in how they regulate the siting and locating of gas stations within their borders. The findings from the qualitative zoning analysis were then used in the economic analysis to determine their influence on gas prices.
As part of the zoning analysis, RESI reviewed specific cases of the regulation of gas stations, primarily in Howard County. RESI reviewed documents including technical staff reports, conditional use permit and rezoning applications, and newspaper articles. The findings were further informed by discussions with staff at Howard County. Several cases are cited in the text. However, Appendix B contains a comprehensive list of cases reviewed.
In addition to the economic and land planning analyses, RESI has reviewed and included examples of comparative research on factors that lead to changes in retail gasoline prices as a basis of comparison.

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