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Why are Alaska gas prices so high?

From Sean Cockerham in Juneau --

Fairbanks Republican Rep. Jay Ramras, chair of the state House Judiciary Committee, today released his report on the high price of gas in Alaska. Bottom line is the committee doesn't know why prices are so high or what can be done about it, other than more terminals for gas storage around the state.

“Unfortunately the committee has yet to find a definitive answer as to why gasoline prices in Alaska have not equalized with the rest of the U.S. market,” it said.

The report follows hearings by the committee on gasoline prices.

The report was negative toward “anti-price gouging” bills introduced by Democrats in the state House and the Senate. The report, written by Ramras and his chief of staff, Jane Pierson, suggested dangers of messing with the market.

The 54-page report is labeled “draft” and other legislators on the committee will add their own conclusions to it. No doubt some will disagree with Ramras.

Ramras said his theory is the poor world market for jet fuel -- upon which the major Alaska refiners depend -- causes them to increase their gas price to help make up the difference.

The attorney general’s office is also doing its own investigation of Alaska gas prices. The AG's office might be better able to get at proprietary information than the judiciary committee.

Its report is expected soon.

Alaska has the highest gasoline prices in the nation. Alaska prices haven’t fallen nearly as dramatically as those in the Lower 48, despite the plunge in the price of oil.

Ramras’ report listed several factors in how gas is priced in Alaska. Those include the fact that it’s a small market and “refiners have no outside competition that would cause them to lower prices.”

There are only two refineries making gasoline in Alaska, Flint Hills in North Pole and Tesoro on the Kenai, the report said. They’re smaller and less efficient then Lower 48 refineries and really geared toward jet fuel.

Alaska also has limited infrastructure to store and move gas, the report said, and demand for gas in Alaska isn't as price sensitive as elsewhere.

“These are market conditions that are unique to Alaska, yet these market characteristics alone do not explain why the prices at the pump have not fallen in line with the declining price of crude, or found some parity with markets in the Lower 48,” the Ramras report said.

The report said evidence shows the problem is with refinery rates.

“The committee was not able to fully determine the costs and profits for Alaska’s refinery operations. However, it was clear that the proportion of gasoline prices attributable to the refinery margin has increased dramatically in recent months,” the report said.

Since March 2008, the margin has increased over 230 percent, with half the increase coming since crude oil prices began their dramatic price decline, the report said. The margin in Washington state increased by 63 percent in that time.

Several Democratic state legislators are pushing bills that would force Alaska refiners to justify their prices if they are charging more than 10 percent above Washington state averages. That would apply to the refineries that produce diesel and heating oil, as well those that make gasoline.

Ramras was skeptical about those bills.

His report said conditions in Washington state are much different than here. Ramras also said such measures could hurt the ability of refiners to set their gas prices to help offset jet fuel losses at times when the jet fuel market is hurting. Jet fuel production is important to the economy, he said.

“The worst unintended consequences of this legislation would be for independent refiners to pack up and leave the state” the report said.

One of the anti-price gouging bills is up for a hearing Wednesday in the House Labor and Commerce Committee. It’s sponsored by Democratic Reps. Pete Petersen, Les Gara, Chris Tuck, Max Gruenberg and Scott Kawasaki.

Petersen put out a response to Ramras' report, saying it "implies that Alaska’s refineries need to charge excessive prices for other products because they take losses selling jet fuel. Basic economics indicates that for-profit businesses will continue selling a product if it is more profitable to continue production than to shut it down. The business would make the same economic analysis for other products. This does not mean that a business will never sell a product at a loss, but the two decisions are independent."

"There are rational reasons why a refiner would sell jet fuel at a loss, and as the report notes the refineries are often able to make a profit on jet fuel even though they are forced to sell it at a fair market value," Petersen said.

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