Refineries blamed for slow gas price drop

Posted: Friday, September 12, 2008

ANCHORAGE - A state investigation has found that Alaska's gasoline prices are falling more slowly than elsewhere in the nation because the two refineries here are struggling to turn a profit.

The investigation finds that it's the refineries that have kept prices high.

But questions surrounding why Alaska's two refineries haven't lowered their prices along with plunging oil prices remain unanswered.

The average Anchorage gas price has declined 4.5 percent in the last two months, compared with the national average decline of 11 percent.

"We're going to find the answer," Ed Sniffen, the state assistant attorney general heading up the investigation, told a legislative hearing in Fairbanks on Wednesday.

Lawmakers asked Alaska refineries and retailers on Wednesday to explain the slow decline of prices, but Tesoro Alaska Co. and Flint Hills Resources - the two companies that produce oil at their Alaska refineries - didn't have answers.

Executives from the two refineries told the House Judiciary Committee that they are struggling - Tesoro's stock value has plummeted 65 percent and Flint Hills' is considering selling its North Pole refinery.

"There are all these external forces telling us how expensive it is going to be to manufacture the product," said Kip Knudson, spokesman for Tesoro, which makes most of the state's gasoline at its Nikiski refinery.

Executives from Safeway Stores, which owns gas stations, said they pay a higher wholesale price in Alaska than they pay in the lower 48 states.

"(The Alaska prices) are higher because of the limited refining capacity," said Glenda Wood, Safeway's national director for fuel pricing.

Safeway executives and others at the hearing suggested that the refineries need to keep their prices below what it would cost to ship gasoline into the state from Seattle.

Sniffen said there was no reason for a refinery to drop its wholesale price unless its competitor does. In Alaska, there are only two competitors, he said.

Rep. Jay Ramras, R-Fairbanks, who chaired the Wednesday committee meeting, said the duopoly is causing consumers to suffer because they have control over pricing power.

Ramras said the Judiciary Committee will hold a follow-up hearing in October to discuss ways to reduce the gap between price declines in Alaska and the lower 48 states, and perhaps eliminate any connection between how much it would cost to ship gasoline from Seattle and wholesale prices in Alaska.

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