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Are Alaska's retail fuel prices pumping Alaskans?

Scott Woodham
Aaron Jansen illustration

TO: Retail fuel prices
SUBJECT: Pumping Alaska

Dear Alaska Retail Fuel Prices,

With all the turmoil in oil markets lately, you've gotten to be quite high, even in the minds of Alaskans, who are generally used to high prices already. Some of The Concerned have been worrying that you're not finished climbing, either.

We're sure you know it, but whenever you climb, you take a bite out of the income of Alaskans who depend on fuel for life and work (which is all of them). Others of us have become concerned again with that classic Alaska question: Why can't Alaskans, who have the biggest oil field in the country, use their resource wealth in some new way to get a break from you? Many oil-producing nations, after all, offer seriously cheap gasoline and other retail fuels.

Why are you so high all the time? We know the answer is complex -- at least, that's what the Institute of Social and Economic Research at the University of Alaska Anchorage found in its recent studies detailing your components.

As we understand the situation, one big factor is that Alaska's wholesale gas market isn't exactly competitive, so there isn't much incentive to jostle for consumer favor. There's effectively only one gasoline and diesel refiner, Tesoro, supplying the large bulk of automotive fuel to the entire road system. And across much of rural Alaska, the choices aren't any better. 

Another big part of why you're so high is that even though Alaskans consume vastly more fuel per capita than any other Americans (due to the environment, of course, and consumption of jet fuel), there just aren't that many of us. So the market Alaska has doesn't attract much attention from large-volume fuel shippers on the West Coast.

But still, some among The Concerned can't help but look at that big oil pipeline running down the middle of the state and think of Alaska's constitutional mandate that oil be produced for the "maximum benefit" of all Alaskans, who, also constitutionally, already own their state's resources. What's more, the thinking goes, Alaska statutes even include an option for the state to choose between taking royalties "in value" (meaning the producers pay Alaska cash for its share of oil) or taking them "in kind" (meaning the state takes its own share and sells it off itself).

Those pieces of the economic jigsaw puzzle have always concerned us all, generally, but they have led some among us to wonder why the state can't just seriously undercut the going rate of wholesale oil in Alaska by selling in-kind royalty oil to local refiners on the down-and-dirty cheap; say, cheap enough to offset processing costs to make and ship finished products and allow a reasonable profit. Or cheap enough, as one commentator argues, to increase profits and stimulate expansion and job creation.

Among The Concerned are those that think it's time Alaska regulate automotive and airplane fuel consumed in-state as a public utility. Still others think it's time the state form a giant version of the fuel co-ops created recently by Alaska Village Electrical Cooperative, or the village of McGrath.

Some of us -- much to the horror of the rest -- even whispered that they'd be happy to trade their entire yearly Permanent Fund Dividend check if they didn't have to drop so much money every time they gas up their homes, cars, trucks, boats, and businesses. We don't know how much we believe them -- they were filling up when they said that -- but we're also concerned they'll convert their cars to run on wood and we'll have to sit next to them idling in traffic.

Naturally, in all those scenarios, there'd need to be some kind of contracts, laws, or guarantees that the savings were indeed passed on to Alaskans at the pump (and not just shipped off for extra profit in Whitehorse or Seattle). And even more effort would have to go into ensuring prices didn't get smaller only on the road system.

Some of us seriously doubt that rural Alaskans would see much relief from you under most of those scenarios, and think the effort to do something good for all residents will just become another chapter in the conflict between urban and rural economic interests, another victim of Alaska's challenging geography and small population.

Others of us, however, think that if gasoline and diesel in Anchorage were to cost around $2 a gallon at the pump, or heating oil in Fairbanks were to cost $1.50 a gallon, enterprises would crop up in no time and find a way to spread it far and wide.

Luckily for you, though, in 1979, a judge made it so that you don't have to worry about most of these concerns. Superior Court Judge Allen Compton's opinion in the so-called "Amerada Hess" case held that Alaska should not accept royalty in-kind oil unless it could be demonstrated that in-kind value would end up being at least as great as the benefit from in-value royalties. His opinion has essentially become the policy the state board tasked with the decision has followed since.

And by "value," Judge Compton was talking about cash. Some of us think maximum benefit should be defined in a wider way when it comes to royalty in kind, but that just seems to bring up more possibility for inequalities and abuse. The U.S. Department of the Interior did away with its royalty in-kind program a couple of years ago because it was reportedly rotten with abuse and corruption, so maybe Judge Compton did Alaska a favor.

Come to think of it, maybe that's also why former Gov. Palin just cut those $1,200 energy rebate checks in 2008 instead of directing the state to take over refineries like they were a bunch of failing dairies. After all, an amount of public money is still easier to fairly split between hundreds of thousands of individuals than an amount of public crude oil would be, to say nothing of trying to distribute secondary or tertiary economic impacts or engineering a closed, state-run monopoly on retail petroleum.

Shine on you crazy diamond,
The Concerned
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