Bills aim to control gas prices
JUNEAU - A battle over legislation to punish Alaska refineries if they overcharge for gasoline is shaping up in the Legislature. Several bills have been introduced in the state House and Senate, and a report issued by the House Judiciary committee Jan. 30 may add fuel to the controversy.
The legislation, House Bill 68 and Senate Bill 54, is being pushed by five Democrats in the state House and four Democrats in the Senate.
Democrats have more influence this year than in previous Legislatures. There is a coalition Senate organization that has put Democrats in influential positions.
If passed, the bills would impose substantial financial penalties on refiners if the price of gasoline in Alaska exceeded Washington state prices by 10 percent.
The House committee report, authored by Rep. Jay Ramras, R-Fairbanks, and committee Chief of Staff Jane Pierson, says the state’s refineries may be taking higher margins on gasoline sold to a captive Alaska market to make up for lower margins in sales of jet fuel in markets that face more competition.
However, the Judiciary report also warned against the state attempting to influence the market. Alaska’s refineries face their own sets of challenges, the report said, and if the state creates a situation where the refineries close, there could be unintended, but severe consequences, such as more expensive jet fuel for air cargo carriers stopping in Alaska.
Pierson said the report condenses information from several hearings on gasoline pricing the committee conducted through the summer and fall of 2008.
Ramras said he could not document any reason for a price difference of more than 70 cents a gallon in late 2008 when comparing prices in the Pacific Northwest and Southcentral Alaska. The cost of shipping fuel from the Northwest to Alaska is about 15 cents per gallon, the report said.
Gasoline is made at two refineries in Alaska, a Tesoro Alaska Petroleum Corp. plant near Kenai and a Flint Hills Resources plant in North Pole. Both refineries produce jet fuel, which they sell to airlines flying through the Anchorage and Fairbanks international airports.
Two other refineries in the state, owned by Petro Star Inc., mainly produce jet fuel and diesel, but not gasoline.
Jet fuel pricing is competitive and is influenced by international markets because the airlines, operating through a fuel-purchasing cooperative, import jet fuel by barge to supplement Alaska-made fuel from the Tesoro and Flint Hills refineries.
Gasoline wholesale distributors, in contrast, have no way of importing gasoline as a check on the refineries because the two refining companies own most of the bulk storage facilities and most retail outlets in the Anchorage and Fairbanks markets.
There have been times when Alaska gasoline sold for the same price or even below that in Seattle, but for the most part Alaskans have paid higher prices, the Judiciary committee report said.
"Historically, the price of gasoline in Alaska has been in relative parity with gasoline prices on the U.S. West Coast and in Seattle," according to the report. "Gasoline prices historically trended 11 cents per gallon higher than the U.S. market and from 2002 through 2007 the average spread between Anchorage and Seattle retail gasoline prices, before taxes, was 17 cents per gallon."
That spread was out of whack by mid-2008, with gasoline in Southcentral and Interior Alaska as much as $1 per gallon higher than the national average. When crude oil prices started dropping, prices for gas followed in the Pacific Northwest, but not in Alaska.
Economist Barry Pulliam, of Econ One Research, a Los Angeles-based consulting firm, did an analysis of several years of price trends and showed the Judiciary committee that historically Alaska gasoline prices quickly followed crude oil on the upswing but lagged on the price decline.
The lag through the summer and fall of 2008 was more extreme, however.
"The last four months have seen the widest disparity in prices ever," Pulliam told the House committee in November.
The committee’s report indicated that some of this could be because the refineries saw their jet fuel margins squeezed during the period of high crude oil prices last summer, and delayed dropping gasoline prices to allow the refiners to make up the losses.
"One question that remains unanswered is: Are refiners in Alaska making exceptionally high profits to carry and make up for losses elsewhere … or are high gasoline prices due to unsustainable losses in markets related to other refined products?" the committee report asked.
Refined gasoline could be responsible for carrying the burden of much of the refinery plant’s operating costs, a disproportionate amount of these costs are being borne by Alaska consumers, the report said.
Embedded in Alaskans’ gasoline costs are the occasional operating losses Alaska refineries incur in the jet aviation fuel market. Each dollar lost in jet aviation fuel sales are compensated for by spreading the cost over a gallon of gasoline produced for consumption by Alaska consumers.
However, the report warned against the state attempting to interfere with or influence the market, such as with legislation triggering penalties when the gasoline price spread between Seattle and Alaska reach certain points.
"Economic conditions governing Alaska’s refining industry are quite different than those governing the refining industry in the state of Washington," the report said. "Directly tying Alaska refiners’ pricing structure to Washington’s refining prices may prove to be like comparing apples and oranges. Refiners in Alaska, by the very nature of the Alaska market, are already constrained by product pricing of jet fuel."
Under the proposed legislation refiners would find their flexibility to respond to market shifts in pricing commodities taken away, the report said.
Sponsors of Senate Bill 54 include Sen. Bill Wielechowski, D-Anchorage, as prime sponsor and fellow Democrats Sens. Johnny Ellis and Hollis French, both of Anchorage, and Joe Thomas of Fairbanks, as co-sponsors.
The House bill has Rep. Pete Petersen, D-Anchorage, as prime sponsor, and fellow Democrats Scott Kawasaki of Fairbanks, and Chris Tuck, Les Gara and Max Gruenberg of Anchorage, as co-sponsors.
The legislation would impose penalties on refiners’ economic gain or $50 million if prices in Alaska average 10 percent over Washington state prices for a period of time.