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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Sunday, April 27, 2008 It's no mystery: We need energy alternatives By James McCusker Columnist Gordon Wood, a history professor at Brown University, believes that, more than anything else, "We owe our success to the common sense of the American people." And one of the key characteristics of common sense is that evidence is important. Facts are not the Brussels sprouts of our information meal but the main course. A significant number of people believe that the oil companies have been in cahoots with one another to push gasoline prices higher. Some believed it from the start and others were goaded into it by politicians looking for a scapegoat and finding easy headlines when they mentioned "price gouging" and "conspiracy." It will be difficult to change their minds. And, despite the most recent evidence presented in a new report, some people will continue to believe that the oil companies are the enemy, no matter what. After all, according to a recent Seattle poll, there are people who blame Barry Ackerley for the Sonic's departure for Oklahoma City, even though he sold the franchise seven years ago. Still, on the common sense side, the research into oil prices done through Attorney General Rob McKenna's office is pretty persuasive. It really doesn't look as if the U.S. oil companies are to blame for the run-up in prices. And it doesn't look like they are conspiring against our state's drivers in particular, either. The report did not explore how the oil companies might be to blame for the Sonics' departure, so that issue is still in doubt. Feel free to blame Ackerley, Lindsay Lohan, or anybody you like. There is no doubt, though, why gasoline prices have been going up. The report deals with that question very clearly and directly. The report itself was commissioned by the governor's office, the attorney general and the Department of Community, Trade and Economic Development. Staffers there collected the information and data but the analysis of both the statistics and the industry structure was done by University of Washington economist Keith Leffler. What they found was not a conspiracy but a situation where prices at the pump in our state are driven by two kinds of costs: The price of crude oil and the supply costs associated with distribution; And the level of competition. As the report noted, "This investigation did not uncover any illegal conduct in Washington regarding the pricing of gasoline during the period examined, 2000-08." In economics, of course, nothing ever works perfectly, so it is not surprising that the report does include one mystery. The analysis of competition and cost driven prices can explain the at-the-pump prices everywhere in our state except the Bellingham area. For some reason, as the report notes, "Bellingham has below-average wholesale prices and above-average retail prices." Leffler's analysis suggests that Bellingham's unusual price structure and higher retail profit margin might be attributed to how close it is to the Canadian border. That makes sense, of course, in the same way that those "Last Gas for 78 Miles" signs draw in customers less concerned about prices than they are about running out of fuel someplace. The uncertainties and delays in Canadian border crossings in recent years have probably added to the pattern of fill-up anxiety by drivers. But while our speculations make sense, they are still speculations, and, technically, Bellingham's gasoline price mystery remains unsolved. We do know that as gasoline prices went up, consumers purchased less -- just as the supply-demand economic model would predict. The report found that, "The amount of gas consumed by Washington drivers decreased by 1 percent between 2003 and 2007." Gasoline prices in Washington are also higher than in other parts of the country because of our state's tax structure. As the report notes, "Washington's combined state and federal fuel tax is 54.4 cents per gallon, the highest in the nation." That, however, is neither a conspiracy nor a secret. In fact, despite the persistent beliefs of many people, there are precious few conspiracies or secrets to be found in the oil business today. It is what it is: a limited resource facing sharp increases in effective global demand. One of the few good things we can say about this situation is that what we have to do doesn't depend very much on what we believe about whose fault it is. Whether we believe in an oil company conspiracy or not, whether we believe that global warming is real or a form of mass hysteria doesn't really matter at all. We have to cut back on oil consumption and find alternative sources of energy anyway. Whether we do it because of prices or paranoia doesn't matter. We still have to do the same things. And right now would be a good time. James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal.

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