Retail gas stations in Alaska are served largely by two in-state refineries. Drivers see the highest gasoline prices in the country, [image-nocss] according to the report. That price gap between Alaska and most other states grew pronounced following a spike in energy prices two years ago. It also produced public interest in two related questions: "Why do petroleum-rich Alaskans pay moreand could the situation change?"
A pair of studies last winter, however, produced the same general conclusions as similar work a decade before, said the newspaperwith only two gasoline-producing refineries, each of which faces high business costs and a limited market for buyers, it is natural that Alaska would see prices higher than states connected to larger gasoline supply networks.
"The price of many consumer goods in Alaska is higher than the price you would pay in Seattle or another large metropolitan area. Gasoline is no different," said the state attorney general's office in January 2009 as it investigated Alaska's gasoline market for signs of illegal price fixing.
According to the report, neither that study nor a similar investigation 10 years ago reported finding evidence the two refineriesone owned by Tesoro in Nikiski, the other Flint Hills Resources in North Poleworked together to hold prices artificially high.
But State Representative Scott Kawasaki (D), one of nine co-sponsors of two related bills, said the group's plan would require profit disclosures from refineries if gasoline prices are more than 110% of prices in Washington state.
The markup in Alaska's gasoline market largely occurs at the refinery level, said the report, not at retail gas stations. The two refineries operate differently and produce different amounts of different products. The Democrats' bills, however, deal with both at once, calling the justification for 2007 and 2008 price markups "questionable."
"Ultimately, what we want to see is consumers get a better shake," Kawasaki said.
Refinery managers told the paper that government intervention would be bad for all sides in the long run and added that gasoline sales in Alaska, given the open-ended opportunity for new potential sellers, are more competitive than some might think.
"Maybe it's not as competitive as L.A., but it's competitive," Tesoro spokesman Kip Knudson told the Daily News-Miner.
The gap between retail gasoline prices in Alaska and Washington has narrowed significantly in the past year, the report said. As of December 23, prices in Fairbanks were about 10 cents per gallon higher than in Seattlea 3% difference.
Gasoline prices inside and outside rose to follow the price of oil on its trajectory two years ago. When oil prices plummeted months later, gasoline prices in Alaska grew "sticky," said the report, holding up to $1 per gallon higher than the national average, prompting calls by House leaders and the governor's office for investigations.
"That was a cause for concern," State Rep. Chris Tuck (D)another representative backing the measure, which would direct refineries to share confidential information with the state attorney general when wholesale gasoline prices pass the Washington-indexed thresholdtold the paper.
Four state senators, including Joe Thomas (D), have sponsored a companion bill in the Senate.
Early 2009 reports from the Alaska attorney general and House Judiciary Committee peg Alaska's gasoline markets as fairly unique, the report added. Both prominently recognize that the state has only two gasoline-producing refineries, each of which generally serves its surrounding region and thus holds some ability to affect the price retail gas stations pay. (Southeast imports its gasoline.)
Things are more competitive in the lower 48 states. Washington has five gasoline-producing refineries and the West Coast as a whole has three or four times that many, some far larger than Tesoro's Nikiski plant, which is the larger of the two in Alaska. Those refineries compete for business from retail gas station chains, and that competitive situation naturally forces prices downward, said the report.
That competition does not exist in Alaska, so without government regulating the price of gasoline, refineries have more room when finding gasoline prices retailers will bear, the paper said.
The state of Hawaii, another isolated market with two gasoline refineries, tried a price cap on gasoline in 2005. The cap system, different than the plan proposed in Alaska, tied maximum prices partly to retailer markup and state taxes. Hawaii Governor Linda Lingle suspended the cap within a year, calling it a "failed experiment."
Tuck said the Democrats' plan has publicly, but improperly, been pegged as a "price cap." He said it would simply require gasoline-producing refineries to stay within parameters or prove, through confidential reports to the state, why they could not afford to do otherwise. He said other necessitieswater and electricityare regulated by the state, so it is reasonable to consider limited regulations on gasoline in an isolated market such as Alaska.
The proposed regulation could face scrutiny in the state legislature this winter. State Rep. Jay Ramras (R), chairman of the House Judiciary Committee, led a third study of gasoline markets last year after a request from then-Speaker John Harris. The study's findings largely paralleled those from the attorney general released at around the same time. But the committee report went further by suggesting any regulation of the refineries could force a refinery out of business.
The report characterized Flint Hills' profits as subject largely to oil prices, saying "challenges facing the company remain." It suggested that tying Alaska's gasoline prices to those in Washington would create an artificial apples-to-oranges connection, one that could throw a wrench into Alaska's refinery business plans.
"Controlling duopolistic, efficient markets by inserting the heavy hand of government will likely have severe consequences that will not benefit consumers," the House Judiciary report said, according to the paper.
Representatives backing the bill said the details are open for discussionthe broader goal is to ensure refineries do not take advantage of drivers and businesses. Kawasaki noted the group is not suggesting gasoline fall under the state Regulatory Commission's purview, only that wholesalers avoid gouging consumers, something he said he believes has happened. "Even though they don't have to sit in a smoke-filled room and discuss where prices should be, [refineries] are essentially setting a price, and all of them are complicit," he told the Daily News-Miner.
Refineries have testified that lawmakers behind the plan have failed to grasp some of the more complex corners of the state's wholesale gasoline market. Experiments with price regulation, Knudson said, have yet to succeed in the United States and the plan would increases refineries' costs.
"It's extremely bad public policy and is guaranteed to have negative consequences on the fuel market in Alaska," he said.
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