Midgrade Gasoline: Worst Deal on the NJ Turnpike February 24, 2017Posted by federalist in Energy, Government Regulation, Markets, Transportation.
The New Jersey Turnpike is an interesting study in government price regulation. In order to avoid price gouging by the gas vendors at Turnpike rest stops, the NJTA requires prices to be set competitively with regional gas retailers.
Furthermore, the NJTA contract allows only one price change per week. A familiar consequence of this has been that during spikes in gas prices people flood the Turnpike to fill up at the old prices during the few days before the Turnpike vendors are allowed to raise their prices to the market level.
Another strange pricing quirk has persisted for years: Sunoco, which has the contract for most of the rest stops, offers four grades of gasoline. A recent offering was:
- 93 octane: $2.83 (“Ultra”)
- 91 octane: $2.81 (“Premium”)
- 89 octane: $2.70 (“Plus”)
- 87 octane: $2.37 (“Regular”)
The weird thing is that 91 octane is always priced 2 cents per gallon lower than 93 octane. It turns out that this 93-91 price spread is specified in the NJTA contract, because most competitors used in the survey to set prices only sell three grades of gas.
This makes 91 octane the worst deal on the NJ Turnpike. Why? Gasoline octane is a linear function of blending. I.e., you can get a tank of 91 octane gas by mixing two parts 93 octane with one part 87 octane. (In fact, most gas stations only store two grades, and the pumps blend them to produce the mid grades.) At these prices, one could buy a tank of 91 octane by blending 93 and 87 at a cost of just $2.68/gallon – that’s lower even than the listed price for 89 octane!
I suspect Sunoco is exploiting this in two ways. First, NJ still does not allow customers to pump their own fuel. So blending a tank requires explaining the process to the attendant, who rarely seems that attentive. Second is the fact that Sunoco labels the overpriced 91 octane blend as “Premium.” The manuals and stickers in cars designed for high-octane gas typically specify “premium” fuel. Depending on the season and location the highest grade available might be 91, 92, or 93 octane, so drivers are likewise accustomed to asking for “premium.” On the Turnpike, “premium” gets you a tank of 91 octane. You have to explicitly request “Ultra” or “93” to get the highest grade.