Governor's task force: No easy fix for pain at the pump

by Dustin Bleizeffer, 

WyoFile.com

There are no quick or easy ways to protect Wyoming customers from price spikes at the fuel pump, according to a new state report. 

Trends in regional oil-refining capacity and fuel storage are moving in the wrong direction. A state fuel tax holiday would be too costly — an estimated $120 million annual drain on state revenue — while exerting a “minimal impact” at the pumps. 

“Even producing substantially more crude oil would not immediately impact the supply of gas or diesel,” according to the report commissioned by Gov. Mark Gordon.

Gordon formed the Gas and Diesel Price Working Group in June in response to a nationwide spike in fuel prices, which approached an average of $5 per gallon in Wyoming this summer. The 10-member group held two public meetings, analyzed the causes of regional price spikes and explored ways to reduce the impact of a volatile fuel commodity market on Wyoming residents.

“Even though Wyoming ranks in the top 10 of oil and gas producing states, the eventual price all Wyoming consumers pay is generally determined by factors well beyond our control,” the working group concluded in its 15-page report released Oct. 18.

But the state could help offset inflationary responses to fuel price spikes with some type of fuel rebate. That could come in the form of a lower sales tax for non-fuel purchases that’s triggered when the state earns more revenue from spiking oil prices. The state could “implement a dynamic sales tax, whereby the 4% statewide sales tax would fluctuate as the prices of Wyoming’s principal commodities rise or fall,” according to the report.

Other potential relief measures include instituting a tax credit for Wyoming’s elderly and disabled. Longer-term efforts include encouraging more oil lease sales and production, as well as increasing refining and fuel storage capacity in the region.

Wyoming produces about 240,000 barrels of crude oil daily — 2% of the U.S. production, according to federal data. Although some of Wyoming’s crude oil is refined within Wyoming and the Rocky Mountain region, “suppliers, refiners, wholesalers and marketers determine fuel prices daily, not consumers or a central governing authority.”

Local refiners are also operating at about 90% capacity and are not fully utilizing fuel storage capacity. Transportation issues — particularly a shortage of truck drivers — also contribute to fuel price volatility, according to the report.

There are economic and regulatory headwinds against increasing refining capacity in the region as well. Many refiners are forced to respond to increasingly stringent fuel standards in other regions of the country. HollyFrontier Sinclair recently retrofitted its Cheyenne petroleum products oil refinery to instead produce renewable diesel using agricultural materials. Most of the renewable diesel is sold outside Wyoming. Other local refineries have not made up for the petroleum-refining capacity loss.

“I think the best solution for long-term price stability would be more energy production in our region that supplied our refineries,” Colorado-Wyoming Petroleum Marketers Association Executive Director Grier Bailey said.

Bailey, who did not serve on the working group, said local politics and policies matter when it comes to long-term solutions and incentives that might result in adding more regional oil production and refining capacity.

“People are fleeing high-cost-of-living states for more reasonable and more balanced legislatures that exist in Montana, Idaho, Wyoming and the Dakotas,” Bailey said. “I think that in our region specifically, the industry is more incentivized to make these types of investments.”

The working group recommended against instituting a fuel tax holiday, warning it would sap the state’s road maintenance budget by as much as $120 million annually without providing much relief for customers.

However, some form of tax relief in other areas — such as sales tax for non-fuel products — could be an effective measure to ease the burden of fuel price volatility for residents, according to the working group.

The state receives an extra $100 million in severance tax and ad valorem tax revenue annually for every $10 increase in the price of oil, according to the report. Some type of sales tax relief tied to the average annual price per barrel of oil “would be a relatively efficient way to help Wyoming residents.”

The working group acknowledged that establishing such a system comes with complexities and administrative burdens. It recommended further study on the idea.

Meantime, it said, state leaders should not lose sight of longer-term strategies to incentivize more oil production and regional oil refining capacity. Those strategies could include reducing state royalties for oil production on state lands, instituting a tax on renewable diesel production and using the state’s $3 billion industrial revenue bonding authority to back investments to expand oil refining and storage.

“As a longer-term solution, seeking ways to expand our refining capacity will help keep the cost of gas lower at the pump for Wyoming,” working group member Sen. Ed Cooper (R-Ten Sleep) said in a prepared statement.