TO: Alaska Senate Energy Working Group
SUBJ: Price gouging
First off, sorry for not sending this to your Gmail account. Thanks for looking into the perplexing reality that Alaska, among the U.S. oil producing vanguard, pays much higher gasoline prices, on average, than the rest of the country. Again.
When all the fuss first started up we were happy if skeptical about how much money our Legislature is spending to study something it apparently has little power to influence. Again. Members of The Concerned who live in urban Alaska were especially happy. They're tired of swiping supermarket rewards cards in hopes of relief at the gas pumps. They'd rather discounts were automatically applied.
This is the latest in a now-venerable tradition of election-year "investigations" into the possibility that petroleum-consuming Alaskans (meaning, let's face it, all of them) are getting stretched over the barrel and hosed by some company somewhere along the supply chain.
You've been presented evidence that in 2008, the differential between Alaska's gas prices and those paid in the Lower 48 jumped up 40 to 50 cents per gallon and stayed. And between 2004 and 2007, that the margin charged by Alaska refiners surpassed the nationwide average by 30 percent.
The big problem, according to several experts you've heard from, is that Alaska is a small market dominated by various monopolies or near-monopolies, whether in shipping wholesale fuel or producing it. What's more, despite Alaska's love of large, gas-guzzling vehicles, Alaska doesn't consume as much as gas as other states. Alaskans are also a captive market; no one's driving to Canada or sailing to Washington or Siberia to tank up. Therefore, the market will bear infuriatingly high prices.
At least a clearer picture of the problem seems to be emerging from all your years of investigating. Who can solve a problem without identifying its causes? New solutions have been proposed, and some have already been abandoned. But we're concerned it all will come to nothing for your constituents, Alaska consumers.
One idea that's surviving the gauntlet pretty well, so far, is for the state to build large fuel storage facilities and then lease them to major fuel retailers, such as the supermarkets and retail warehouse stores. That way, the thinking goes, greater competition will lead to price drops across the board.
But we're concerned it won't work, as we're wont to do. First of all, storage paid for with state money (estimated by one official between $75-$100 million) will unfairly favor the road system. After all, it's not as if there are heating oil pumps down at Fred Meyer. And last we checked, there aren't any Costco Warehouses in rural Alaska's small towns, many of which are served by one major fuel retailer.
Second, we're concerned it won't work in urban Alaska because those supermarkets, when they decided to get in the gasoline business, could have pursued the storage option themselves. And they did not.
We start to swoon when we imagine how much Costco, for instance, could undercut the gas competition if it leased a tank farm! But we try not to allow ourselves to think how gloriously cheap Carhartts would be if Carrs and Fred Meyer could lease a pants tank.
The problem is, essentially all retailers in both urban and rural Alaska occupy markets with very little competition, just like most of the fuel retailers and refineries do. In the larger Anchorage area, probably the most competitive market for groceries, the stores have found it cost-effective to fight for shares of their primary industry – selling groceries – by offering fuel discounts to loyal customers. They're not really trying to corner the gas market; if they were, tank farms already would have been constructed by the private sector to satisfy that big increase in wholesale need.
High retail gas prices actually serve a purpose for retail supermarkets: if those prices were significantly lower, working toward those customer discounts by pushing a shopping cart around wouldn't seem as important.
High prices often cause people to look sideways at taxes levied on a product. But that's not the case here. Alaska levies some of the smallest fuel taxes in the U.S. It does, however, charge some of the highest taxes on alcohol in the nation. According to the Tax Foundation, a non-profit think tank, as of September 2011, Alaska's excise taxes on beer and wine are the nation's highest, and its excise tax on spirits ranks eighth.
Even though most of us think it would be awesome, we're not writing to encourage you to lower the tax on beer, wine and spirits. Alcohol creates a great deal of public health and safety cost in Alaska because some people don't enjoy getting hammered responsibly. Along those same lines, we aren't asking you to hike the state's gasoline excise tax.
Instead, we beg of you, after you investigate gas price gouging again, please turn your attention to other forms of price gouging.
Retail vendors make a killing on booze. According to members of The Concerned who are employed in the hospitality industry, the profit margins on beer, wine and spirits are positively massive, despite the generally higher cost of raw materials and shipping. Twelve-ounce cups of mass-produced beer that sell for $6 or $7 dollars (or more) at festivals and sporting events can cost less than 30 cents each wholesale. Outrageous!
We're also concerned that movie theaters have gone too far in exploiting the monopoly on snacks they've created within their establishments. Some of the candy on their shelves sells wholesale for $1.25 per individual box, and most of it costs less than a dollar. And don't even get us started on popcorn. A 35-pound bag of unpopped kernels (brand-name, of course) can be had wholesale for $40. Some portion sizes only take a few tablespoons. Outrageous!
Naturally, there's a difference between gasoline and beer or popcorn. Because of the way we've built our world, one is more or less a necessity, and the others are just awesome adjuncts to life. But luxury or not, how will any market begin to meet consumers halfway if Alaskans have had it drilled into their minds for decades that everything must be more expensive here? And how will competition come about more organically, without interference like a new, fabulous multi-million-dollar new state project, or new rules to cap profit margins?
The answer is to get Alaskans to consume more of everything despite the high costs. Every motor vehicle needs a giant gas tank so we can stock up when there's a short price dip. Natch, we'll also require turbo chargers to come stock on new vehicles, to discourage fuel hoarding. And while you're at it, outlaw small popcorn bags, mini-M&Ms and canned soda. Candy should only be sold in five-pound bags and beer vendors should only serve actual, full British pints.
Maybe if we all resolved to throw away the last tomato and take the long way home from work more often, then eventually Alaska's prices for all kinds of goods could come closer to the Lower 48's. Only by massively increasing consumption will Alaskans finally exercise control over their own market forces.
The best part? That solution won't cost up to $100 million in public money and won't put good people out of business with price-driven conservation. It also won't allow new, Outside competition to slash local profits.