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Alaska petroleum products pricing investigation heating up Local oil refiners, retailers file petitions against attorney general’s civil investigative demand; state responds Tom Hall PNA Staff Writer
The state says that gross margins of petroleum refiners and gasoline retailers are 200-300 percent of the national average. The Attorney General’s office wants to find out what those margins mean in terms of net margins and profits.
With oral arguments set for Sept. 24 in State Superior Court, the Alaska Attorney General’s office will square off against Chevron Corp., Texaco Inc. and Tesoro Alaska Petroleum Co. over the state’s demand for documents in its Alaska petroleum products pricing investigation.
In response to the state’s June 25 civil investigative demand for antitrust documents, each of the companies filed similar petitions (which will be consolidated into one for the arguments) to extend the return date for and modify the state’s demand for documents.
Interestingly, Williams Co., another subject of the investigation, has said they are cooperating fully with the attorney general’s office and are turning over all the required documentation.
They want too much in too little time Among the main complaints in the petitions are: the amount of material to be produced, the deadline for producing the material, inclusion of all documents from a lawsuit in Hawaii and the state’s hiring of an outside attorney (Spencer Hosie, who also happens to be the Hawaiian Attorney General’s counsel in the aforementioned litigation).
Doug Gardner, Alaska’s assistant attorney general, told PNA Sept. 7 that the state’s investigation was prompted in part by the persistence of the Alaska Paradox, which goes like this: Petroleum is produced and refined in Alaska, yet Alaska has the highest ex-tax gasoline price in the country.
The investigation is aimed at finding out why.
“We want to know that the market is free and open and that the companies’ pricing practices have a clean bill of health with respect to antitrust laws,” said Gardner.
Tesoro Alaska Petroleum Co. President Steve Ricks said that his company wants to cooperate and welcomes the investigation. “Maybe this will clear it up once and for all,” he said. However, he cited concerns about the amount of material that the state wants, how soon it’s wanted, and the fact that sensitive documents could fall into the wrong hands (i.e., competitors).
In their petitions, the companies objected strenuously to the Attorney General’s request for documents from litigation in Hawaii (Bronster v. Chevron).
“They’re asking us for information on our operation in Hawaii which we just acquired last year,” said Ricks. “Why do they need that?”
In its opposition to Tesoro’s petition, the state maintained that documents in the Hawaii litigation are highly relevant. The state’s petition said that there are “remarkable parallels” between Hawaii and Alaska gasoline markets, as well as profound economic similarities. Both states are “highly concentrated ‘niche’ markets”; both have two principal refiners and some of the same retailers, and in the Hawaii lawsuit, Chevron, Texaco and Tesoro are among the defendants.
Addressing the hiring of outside counsel, the state characterized as being without merit the argument that only “an authorized employee of the state” could have access to the requested material, because the petition failed to include additional wording from the same statute. The additional wording authorizes the use of “...copies of the documentary material as the attorney general or a designee considers necessary...”
Why is gasoline more expensive in Alaska? Ricks cited several reasons why gasoline is more expensive in Alaska than in the rest of the country.
One is the market place. Ricks explained the apparent disparity between falling oil prices and the delay in a corresponding drop in gasoline prices in terms of commodity purchases. He said that just as a clothing manufacturer needs textiles, a refiner needs crude oil.
“That’s our commodity,” he said. “For example, today I have to buy crude for three months from now. Let’s say I commit to buy a million barrels at $20 per barrel. And let’s say that three months from now, the price is $15 per barrel. The public is going to want a price decrease even though I had to pay more for the crude three months ago. This is the standard in the oil industry as it is in other industries.”
Another reason that gas prices are higher in Alaska has to do with the number of small communities throughout the state.
“If you were to take the average price for a gallon of gas in Anchorage, you would see that they were similar to prices in the Lower 48,” said Ricks.
But when all the smaller communities are factored in, the average price is driven up. Ricks said that gas prices in smaller communities are going to be higher because of the higher distribution costs, operating expenses and smaller volume.
“If you have a station in Bethel that sells 50,000 gallons per month and another in Anchorage that sells 100,000 gallons per month, the one that sells less is going to have to set higher prices because their operating expenses are identical,” he said. But what about those profits? Other refiners have echoed Ricks’ explanations, but the attorney general apparently isn’t persuaded. In its opposition to Tesoro’s petition the state said, “Implicit in these explanations (market size, operating expenses, etc.), of course, is the premise that high prices do not mean higher profits.” And the investigation seeks to determine whether high Alaska retail gas prices result from higher Alaska costs, or if the higher prices reflect abnormally high profits.
The attorney general has indicated a willingness to work with the petitioners, including consideration of time extensions, but is urging that the petitions be denied.
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