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Alaska editorial: Alaska's gas prices the highest, but we have no idea why

Posted: Friday, January 08, 2010

As long as Alaskans pay so much more at the pump than their Lower 48 neighbors, they're not going to be satisfied with explanations like, "It's complicated." But that's essentially what Alaska's two main refiners, Tesoro in Nikiski and Flint Hills in North Pole, are saying.

They are resisting calls to regulate fuel prices in Alaska, an effort being led by Sen. Bill Wielechowski and Rep. Pete Peterson. Along with other lawmakers, they argue that Alaska's refiner's margin is the primary reason consumers are paying the highest gasoline prices in the country despite having the lowest gasoline taxes. That refiner's margin has gotten bigger even as crude oil prices have dropped.

The refiners counter that Alaska's market is unique.

Sure is. There's not enough competition.

With Tesoro and Flint Hills the only players, these refiners enjoy what former attorney general and current Juneau Mayor Bruce Botelho once described as the profits of collusion without the crime of collusion. State investigations have found nothing illegal in what the refineries charge, or any evidence that they've colluded to fix prices.

They don't need collusion. In a duopoly, they both have a good sense of what the market will bear, and Alaska's limited market will bear a lot. As economists might say, our demand isn't very elastic. We drive - cars, trucks, boats, ATVs, snowmachines, airplanes. When prices go up, we curse and pay because, in most cases, the alternative is just to stay home.

Because Alaska's market is unusual and there's no collusion, refiners and state investigators are essentially saying Alaskans should just live with the highest prices in the continental United States.

And so we could - if we were convinced that the prices were justified and that this market couldn't be changed. Do the refiners need these prices to stay in business, keep Alaskans employed and the railroad running jet fuel to Anchorage?

We don't know.

Here's what we do know: Alaskans pay more for gasoline right now than anyone else in the United States, and since 2008 we've paid a lot more in refiner's margin than the rest of the country has paid. And we're still not sure exactly why.

Alaskans need three things to settle this issue.

From the refiners, a good, clear explanation of why your margins are so much higher, with numbers to back it up. If you're building up capital to pay for reinvestment in facilities here, say so. If you're charging us a lot just because the market will bear it and you can ship bigger profits to your Outside owners, say so.

From lawmakers and state officials, a thorough look at what regulating the refiner's margin would do, both to refiners and the consumer. We don't want regulation that would do more harm than good. We do want a fair price for our fuels.

And let's look at what state government can do to make our consumer fuels market more competitive and less unique. Can we get some other players up here to put some old-fashioned market pressure on pricing?

Until either Alaskans have answers or our gas prices fall within view of the Lower 48's, this issue won't, and shouldn't, go away.

Our gas prices are nation's highest and we still don't know why.



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