Report says regulating gas prices not very wise

RISKY: Such a move could drive refineries out of business.

February 2, 2009 

JUNEAU -- A state legislative investigation has failed to answer definitively why Alaskans pay such high gas prices at the pump, but the report released Monday suggests the key lies in Alaska's in-state refineries' efforts to compete in a global jet fuel market.

The 54-page House Judiciary Committee report also warns that any attempt to regulate consumer gas prices risks driving the refineries out of business and severely impacting Alaska's economy.

Committee Chairman Jay Ramras, R-Fairbanks, said the committee's findings are based on intuition after spending four months researching and gathering testimony on the issue.

"It seems that in order for refineries to maintain their competitive position in the global jet aviation market, they have to shift costs on to a much smaller more fragile consumer retail gasoline market," Ramras said.

"We don't think there's any illegal activity going on. We think it has to do with two very distinct marketplaces," he said.

Tesoro Alaska on the Kenai Peninsula and Flint Hills Resources in North Pole, which produce jet fuel and motor gasoline among other products, are smaller and less efficient than other U.S. refineries and are disproportionately dependent on the production of jet fuel. Jet fuel makes up 60 percent of their product sales while motor gasoline accounts for only 10 to 15 percent of sales, according to the report.

Because jets are able to refuel anywhere, jet fuel prices are controlled by the world market. Alaska refineries have struggled, first with high oil prices then a downturn in the global economy, to keep their jet fuel prices competitive. According to the report, they are likely offsetting their losses through gas prices.

But, it warns, any effort to regulate gas prices could jeopardize the refineries' ability to stay in business in Alaska and with it the jet fuel that is "the mother's milk of much of the Alaskan economy."

Ramras said he concluded that the higher gas prices may be a worthwhile tradeoff.

"We think the jet fuel aviation market is 10 percent of the state's work force and 10 or 11 percent of the gross domestic product. You can't just shrug that off lightly and say, 'That's baloney. We should have cheap gasoline,'" Ramras said.

The report was written by Ramras. Other committee members did not weigh in at the hearing. They will add their thoughts in an addendum to be released later.

Former House Speaker John Harris, R-Valdez, last August ordered the committee to look into why gas prices in Alaska have remained high compared with other states.

The state consistently records the highest gasoline prices in the nation even as oil prices are dropping. As of last October, gas prices were a full 71 cents above Seattle prices and 98 cents above the national average. Historically gas prices in the state have tended to be closer to 10 cents per gallon higher than the average.

The economic impact on Alaskans has been devastating to residents and industries in the state, especially in rural areas where fuel costs are astronomical. High transportation costs also have driven up the price of consumer goods around the state.

The report lists more than a dozen unique features of Alaska markets that contribute to the disparity between prices in Alaska and the rest of the nation, but offers few suggestions for legislative action that would offer any relief to consumers.

Alaska has the smallest demand for motor gasoline of any state, the report says. It also says demand is not very price sensitive, so there is less incentive for suppliers to lower their prices.

The report warns against price gouging legislation, public ownership of refineries or luring a new refinery to the state for fear that it will drive an existing facility out of business.

However it says building gasoline storage tanks in strategic locations around the state could help lower gas prices in rural areas. That would allow villages to purchase and store fuel when the price is low.

The committee held four hearings since last September. The report includes testimony from industry representatives, the Attorney General's Office, energy expert Barry Pulliam with Econ One, the Port of Anchorage and the public.

A similar but separate report from the Attorney General's office is also expected to be released soon.

Anchorage Daily News is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service