Alaska might sit on a treasure of petroleum, but its residents have always paid dearly for gasoline and heating fuel, and since 2008, when crude prices spiked, it's only gotten worse.
Anti-trust investigations and bills to bar gouging have gone nowhere over the years, and some legislators, like Sen. Bill Wielechowski, D-Anchorage, believe the state's two refiners have become emboldened in charging the maximum that the market would bear.
Now Wielechowski and the Alaska Senate are exploring an idea that they say would affect the market without directly controlling it. They say the state could build up to a million gallons of tank storage at the Port of Anchorage to lease to large-scale retailers like Costco, Fred Meyer or Safeway. With that new storage, the retailers could economically barge fuel from Seattle to Anchorage and break the grip that Alaska's refiners have on the local market, they say.
James Hemseth, deputy director of the Alaska Industrial Development and Export Authority, testified Wednesday at a legislative hearing in Anchorage that his agency could construct a fuel terminal by fall of next year for $75 million to $100 million. The cost would be paid back to the state through leasing the storage capacity, and Alaskans could end up with cheaper fuel, Hemseth said.
Hemseth was one of six witnesses to testify before a special legislative panel, the Senate Energy Working Group. It was set up by the Senate Finance Committee to see if the state could play a role at reducing consumer prices for gasoline, diesel fuel and heating oil. In addition to holding meetings around Alaska, the panel is looking to hire a consultant for up to $150,000 to study ways to reduce fuel costs.
Fuel prices are a popular issue in Alaska, especially when they're so high compared with the Lower 48. Perhaps not coincidentally, it's an election year. One of the three members of the panel, Sen. Lyman Hoffman, D-Bethel, is unopposed, but Wielechowski, who chaired the meeting, will face Republican Bob Roses, while the third member, Sen. Joe Thomas, D-Fairbanks, is in a bruising redistricting face-off with Republican incumbent John Coghill of North Pole.
Roses said he has been fundraising at the Petroleum Club and getting support from industry members who are unhappy that Wielechowski opposed Gov. Parnell's oil-tax breaks. At a recent Anchorage Tea Party candidate forum, Roses criticized a bill against gas-gouging that Wielechowski sponsored last session. The bill died in the Senate Finance Committee.
"My opponent, every time there's an election, comes out with an anti-gouging something or other," Roses said at the forum. "Do I think we're currently gouging people? You take a look at what's happening with the prices and the way that our prices are structured based on what it costs to bring it out of Seattle, I venture to guess you could do all the studies you want, you aren't going to find that anybody's gouging."
During a break in the hearing Wednesday, Wielechowski said it would be improper for him to respond to a political argument during an official Senate event. But he said he has a "six-year record of fighting for lower energy costs." And he said he prefers market solutions, like new storage tanks, to outright or indirect regulation.
The panel heard from several experts who have investigated the energy market in Alaska. Wielechowski said Tesoro Alaska, which provides virtually all the gasoline sold in Southcentral Alaska from its Nikiski refinery, was invited to testify but declined.
Asked for comment, a Tesoro representative said a spokesman wouldn't be available until Thursday.
Ed Sniffen, an assistant attorney general in the consumer protection office, said he's conducted several investigations of gasoline and fuel prices, most recently in 2009, just after a major spike in prices. He found the refiners have done nothing illegal.
"From a legal perspective, it really doesn't matter if the price of a barrel of oil is $10 or $1,000. The refinery isn't required to sell its product based on the cost of a barrel of oil. They sell that product into the market at whatever the market will bear. So whatever they get for their product is what they're gonna do."
In addition to the state being remote and having high transportation costs, Sniffen said prices are affected by the tiny size of the Alaska market. It might seem strange to Anchorage residents who have to drive nearly everywhere they go, but the state has the lowest gasoline consumption in the country, around 300 million gallons. The next lowest, Hawaii, is about 500 million gallons.
Adjusting for differences in gasoline tax -- Alaskans pay one of the lowest tax rates -- gasoline used to cost about 10 to 15 cents a gallon more in Anchorage than the Northwest, Sniffen said. Then, in 2008, the differential jumped to 40 to 50 cents and has remained there, he said.
At the same time, said Chuck Burnham of the Legislative Research Agency, Alaska's refineries increased their margins, the difference between the price they paid to purchase crude and what they received when they sold refined product. Between January 2004 and the end of 2007, the margin for Alaska's refiners was 19 percent higher than Washington state refiners and 30 percent above the U.S. average.
From 2008 to March 2012, the Alaska margins jumped to 106 percent above Washington's and 136 percent over the rest of the country, Burnham said.
"The difference is stark and it's been fairly sustained," he said. He said the Alaska refiners wouldn't explain why that was happening.
Alaska's two refineries -- Tesoro and Flint Hills in North Pole -- produce more jet fuel than gasoline, and those prices are more competitive, Sniffen said. Where the difference in jet fuel prices between in Alaska and the Northwest was once 2 to 3 cents a gallon, it's been 6 or 7 cents since 2008, he said.
One likely reason that the difference is less stark for jet fuel than gasoline is the economic strength of the buyers, the big airlines, said consultant Barry Pulliam of Los Angeles-based Econ One Research.
"The credible threat of imports -- the fact that product can be brought in and you have the threat there -- keeps prices in line," Pulliam said.
The same threat could work for gasoline if additional fuel storage existed, Sniffen said.
Reach Richard Mauer at firstname.lastname@example.org or 257-4345.