ANCHORAGE, Alaska (CN) —Tesoro Alaska agreed Tuesday to sell a petroleum fuel terminal at the Port of Anchorage to avert a state-initiated antitrust action triggered by its latest acquisition.
Avoiding trial, the Tesoro Alaska Company agreed to a consent decree with the state of Alaska on Tuesday — the same day the state served it with a summons and complaint for antitrust violations. This came one day after Tesoro closed on an asset purchase agreement for oil terminals previously owned by Flint Hills Resources Alaska.
The action serves to re-level the playing field after Tesoro reached an agreement last year with Flint Hills to acquire most of its Alaska fuel storage assets, including a storage facility at the Port of Anchorage. Alaska Attorney General Craig Richards and Tesoro settled on Tesoro selling another one of its petroleum fuel terminals at the Port of Anchorage to preserve competition in Alaskan fuel markets.
After conducting a six-month investigation, Alaska's Department of Law determined that Tesoro's acquisition of the new terminal would put it in "a position to exercise monopoly power." Once Tesoro owned Flint Hill's tank farm, its competitors would have limited ability to import fuel through the Port of Anchorage, compromising competition in markets for some fuel products — particularly gasoline.
Unlike most fuel markets in the lower 48 states, Alaska's geographic isolation creates challenges for the competitive sale of fuel products. Fuel is imported by barge from the Pacific Northwest to southeast Alaska, and from various sources to western communities. Three in-state refineries — one owned by Tesoro and two owned by Petro Star — supply the most heavily populated southcentral part of the state by road and rail.
Despite the presence of Petro Star, only Tesoro refines gasoline. State Sen. Bill Wielechowski (D-Anchorage) and others have been pushing the state to investigate why Alaska often has the highest gasoline prices in the nation despite its in-state refinery and the lowest taxes on gas.
"Most of the oil comes right from Alaska," Wielechowski told Liz Ruskin from Alaska Public Media. Even though the terminal that Tesoro must sell is smaller than the one it acquired — with a capacity of 220,000 barrels rather than 580,000 barrels — Wielechowski thinks the state's action is important. "It's huge. I think it's really critical that they did it," he said.
Wielechowski added that the sale of the terminal would allow a competitor to bring in fuel from a refinery in the lower 48 states. Even at a fraction of market demand, he thinks this would be sufficient to keep Tesoro's prices in check.
Under the 10-year binding consent decree, Tesoro has one year to sell its Terminal 1 to a qualified buyer. If it is not able to find a buyer within a year, it can lease the storage capacity to a qualified third party — and if that cannot be done, Tesoro agrees to "offer terminalling, storage and associated services to multiple qualified third parties on a non-discriminatory basis." If changes in the market address the competitiveness issue sooner, the state and Tesoro can revisit the decree.
"Allowing a new competitor into the Port of Anchorage will increase competition in this very constrained market," Ed Sniffen, chief assistant attorney general, said in a statement.
In addition to its 580,000 barrels of useable storage capacity, the Flint Hills acquisition includes a rail loading facility.
"This acquisition enhances our capabilities to efficiently and reliably serve our customers in the state of Alaska," Greg Goff, chief executive officer of Tesoro, said in a press statement. The rail loading capabilities gained through the acquisition will help improve Tesoro's ability to serve customers in the Alaska interior from Anchorage, the release stated.
According to the release, "Tesoro has agreed with the State of Alaska Attorney General to offer for divestment approximately 25 percent of its existing Tesoro Logistics Anchorage product terminal capacity (approximately 830,000 barrels in total) to complete the current FHR acquisition in a timely manner."
The terms of the state's agreement with Tesoro, filed June 21 with the Alaska Superior Court, are subject to the court's approval and require a 60-day public comment period.
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