Explaining Alaska’s elevated gasoline prices

MATT NEVALA

December 04, 2008 at 9:14AM AKST

As a pair of state-government entities continue to investigate and study why gasoline prices in Alaska aren’t coming down as fast as they are in the Lower 48, Paul Dock thought about Kipnuk’s haves and have-nots.

“People are investing whatever they have in (fuel and heating oil),” said Dock, who has lived in Kipnuk for 53 of his 57 years. “I kind of feel lucky, having a job. But I worry about the people who don’t.

“Where are they going to go to pay for fuel?”

Far fewer cars and trucks are found in rural Alaska than in the state’s urban centers. But village residents struggle to pay steep prices to keep their snowmachines and four-wheelers running when needed for fishing and hunting trips.

Several months ago, the growing disparity between Alaska and Lower 48 gas prices unleashed two state investigations — one by the Department of Law, looking for potential illegal activity. The other is headed by the state House Judiciary Committee. It’s looking for an explanation for the price disparity and possible ways to fix the problem.

The House committee is preparing a report that should describe gas price-related legislation the Legislature might consider in the next session — from enacting a price-gouging law to establishing state control over prices. But some legislators have reportedly said they fear such laws because additional regulation might harm consumers instead of helping them.

Bethel’s Bob Herron, who will take over for Rep. Mary Nelson as District 38 representative next month, said he welcomes the current investigations and discussions.

“I’m glad the current Legislature is looking into (gas prices), Herron said. “It’s obviously a concern no matter where you live.

“With the economy going the way it is both nationally and worldwide, there isn’t as much demand as there has been and prices have dropped to $1.90 a gallon on a national average. Bethel and the villages around here are paying three to four times as much and people probably wonder how that’s possible.”

It seems obvious, but Herron said the overall struggles of high gas prices affect all aspects of living in rural Alaska. “Whatever discretionary income you have goes to buy the things you need,” Herron said. “It’s impacting plans for the future — a vacation, providing your child with some sort of schooling like college.

“You really have to prioritize your spending.”

And that’s only if you have a job to accrue income.

“There are no jobs in the villages and that makes things even harder,” said Dock, who works at the Yukon-Kuskokwim Health Corp. clinic in Kipnuk.

The Department of Law’s investigation is ongoing, and officials said it remains confidential under state law. The department has gathered information from refiners, distributors and retailers about the price of gas. The department also offered a wealth of information and data it thinks will help explain gas prices in Alaska:

• The State of Alaska (or any state) does not regulate gasoline prices. Refiners, distributors, and retailers can sell gasoline at any price they want so long as those prices are not the result of collusive behavior, like “price fixing.”  If the price reached an “unconscionable” level, the price could also violate Alaska’s consumer protection laws.

• Because gasoline pricing is not regulated, economic forces including the available supply, consumer demand, and competition in the marketplace are the primary factors that determine gasoline prices.

• Alaska does not have a price gouging law. Sellers of all goods and services (including gasoline) are not required to sell products on a “cost plus” basis. Thus, it does not matter what it costs the seller to acquire the goods or provide a service. Sellers can sell their products for whatever the market will bear. There is no “cap” on the amount of profit any business can make.

• It does not matter what gasoline prices were when the price of oil was the same as it is right now  For example, if refiners sold gasoline for $1.10 a gallon when oil was $60 a barrel, this does not require them to sell it for $1.10 every time oil is $60 a barrel. 

• The price of gasoline in the Lower 48 is not a good indicator of what prices “should be” in Alaska. The competitive forces that operate to control gasoline prices in the Lower 48 are completely different from Alaska. The dynamics of supply, demand, and competition are unique in Alaska.

• The demand for gasoline is not as “price sensitive” in Alaska as it is in other parts of the country. This means that regardless of the price, the demand does not change by much. This creates less incentive for suppliers to lower their price compared to areas of the country where demand drops significantly when prices rise.

• Gasoline sold in Southeast Alaska is barged up from the Pacific Northwest and from Cook Inlet. Because fuel is only barged in once a month or every few months, it takes longer for prices to reflect current market conditions. It may take two or three months to exhaust current supply before less (or more) expensive gasoline is available and sold to retailers.

• Some cities and boroughs charge tax on fuel sales. In the Kenai and Soldotna area, for example, the pump price adds a 6 percent city and borough tax that is not present in other cities, like Anchorage. Coupled with lower volumes and fewer stations, prices will tend to be higher in these communities.

Many Alaskans find it hard to fathom why their gas prices are so high when Lower 48 prices are diving. But Department of Law officials said it’s not that simple.

They’ve said it’s a “tricky analysis” involving many legal concepts.

The department’s report should be published before the end of the year.

Dock, a member of the Kipnuk Traditional Council, is eager to see what happens next.

“We have the highest prices for gas (and heating) yet we’re the state that provides much of the energy,” Dock said. “We need to put our heads together and think about that.”  

Matt Nevala can be reached at 907-348-2480 or 800-770-9830, ext. 480. The Anchorage Daily News contributed to this report.