November 24, 2008
Monday

At the direction of Governor Sarah Palin, the Department of Law began an investigation into the pricing of gasoline in Alaska. The investigation was initiated in August, following the decline of gasoline prices across the country as the price of crude oil began to drop from record highs near $150 a barrel in July. Gasoline prices in Alaska, however, did not follow national trends, and soon became the highest in the nation. The Department's investigation is focused on explaining the slow decline of gasoline prices in Alaska, and whether the price of gasoline is the result of any illegal conduct, like price fixing or other collusive behavior.

The Department's investigation is ongoing, and must remain confidential under state law. According to a news release, the Department has gathered significant information from refiners, distributors, and retailers about the pricing of gasoline, and continues to gather additional data and information. The Department has retained Barry Pulliam, a Senior Economist at the Los Angles firm of Econ One, to assist the Department in its investigation. The Department has also attended two House Judiciary Committee hearings convened to discuss gasoline pricing issues.

The following is some useful information provided by Alaska's Department of Law about gasoline pricing generally that may help explain some of the pricing for gasoline in Alaska.

1. 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.

2. 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.

3. 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.

4. It does not matter what gasoline prices were when the price of oil was the same as it is today. For example, if refiners sold gasoline for $1.10/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.

5. 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.

6. 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.

7. 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.

8. Some cities and boroughs charge tax on fuel sales. In the Kenai and Soldotna area, for example, the pump price adds a 6% 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.

The Department of Law plans to complete its investigation to determine if there is any illegal activity among gasoline sellers that may be a cause of the high price of gasoline, and will prepare a summary of its findings when the investigation is done.

Source of News:

Alaska Department of Law
www.law.ak.state.us

 

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