Some livelihoods running on empty

A week after Washington state announced the launch of an investigation into gas pricing, Spokane drivers have seen costs at the pump jump by more than 13 cents a gallon.

“I’m just grinning and bearing it because what can I do about it?” said Dan Johnson, owner of Daniel R. Johnson CPA, PS in north Spokane.

While Johnson is weathering gas prices that have once again climbed over $3 a gallon, a half dozen of his accounting clients who rely on diesel fuel to operate semi-trucks are feeling a major pinch.

“I have truckers who are clients who say they don’t know if they can stay in business because fuel has gotten so high,” said Johnson, adding that several semi-drivers who are clients paid $35,000 to $40,000 to fuel their rigs last year.

While consumers grapple with paying more for fill-ups, the skyrocketing fuel costs are creating make-or-break situations for businesses that rely heavily on diesel and gasoline and products manufactured with the fuels.

The Washington state Attorney General’s Office is planning a comprehensive investigation into how gas and diesel prices are set in markets throughout the state, but will that be enough to take the burden off some businesses or give motorists a welcome breather?

Experts say if gas and diesel prices continue to rise unchecked, it could make it harder for some Washington businesses, such as agriculture, to compete in the global marketplace.

“It’s certainly going to impact our competitiveness because you have high costs. If farmers aren’t making any money, they’re going to go out of business,” said Thomas Wahl, director of the Washington State University International Marketing Program for Agricultural Commodities and Trade Center.

Since last year, diesel, which powers heavy farm equipment, has increased by about $1 a gallon, Wahl said. Farmers are also paying more for fertilizer and chemicals, which rely on petroleum for processing and can make up as much as a third of a farmer’s expenses.

“All or most of their production costs are going up,” Wahl said.

“Eventually, these costs get passed onto consumers. It’s ultimately going to cost more to purchase products,” he said.

Kirk Mayer, manager of the Wenatchee-based Washington Growers Clearing House, a 2,200-member trade association, said the increase in gas prices could make it tougher for growers to attract seasonal laborers.

Growers are already facing challenges because of immigration issues, he said. Now, the added cost to drive to Washington from California, another seasonal labor market, could be prohibitive.

“We’re very, very concerned about the availability of labor,” Mayer said.

When fuel costs rise, growers also must find ways to trim other expenses if they want to remain competitive.

“They have to figure out a way to more effectively absorb those costs,” Mayer said.

The Washington Attorney General is partnering with the Governor’s office, the Department of Community, Trade and Economic Development and a University of Washington economist for the most comprehensive study on fuel pricing done in 16 years.

The study will analyze supply and demand and other trends influencing pricing within nine areas, said Kristin Alexander, spokeswoman for the attorney general’s office, in an interview last week.

A second phase will expand to other areas, and the state will investigate any anomalies, according to information posted online by the agency.

Alexander however, said the study will focus on supply and demand issues within the state and won’t extend to oil companies headquartered in other states for information on their costs and profit margins.

Tim Hamilton, executive director of Automotive United Trades Association, said, “you have to walk before you can run. The good news is they are actually going to try to pay attention to the issue.” Hamilton’s group is based near Olympia and represents about 400 convenience stores statewide that sell gasoline.

The Washington study could end up focusing on the pennies per gallon that small retailers make, he said, instead of holding oil companies accountable for pricing that has led to billions of dollars in profits.

A report obtained by The Spokesman-Review confirmed that most local retailers only mark up gas by about a dime a gallon. The document, called an OPIS report, is an insider petroleum industry report that shows what retailers pay for wholesale gas produced by Chevron, Shell, ExxonMobil and other big companies on any given day.

That dime a gallon doesn’t account for the costs of doing business, which includes high insurance, staffing and mortgages, convenience store owners said.

ExxonMobil Corp.’s net income was $39.5 billion for 2006, according to Hoover’s, a company that researches businesses. Chevron Corp. made $17.1 billion that same year.

Short of issuing subpoenas, governments are finding that oil companies can be downright uncooperative when it comes to providing price information, which they consider a trade secret.

Last fall, Utah Gov. Jon Huntsman Jr. unsuccessfully tried to get that state’s five oil refineries to divulge financial data that would give the state a clue as to how much money the companies are making off specific markets, according to a story in the Deseret Morning News.

Those same Utah refineries provide fuel that ultimately reaches stations and convenience stores serving drivers in Spokane and north Idaho.

The newspaper quoted Francine Giani, executive director of the Utah Department of Commerce, saying “they don’t want consumers to know exactly how much they are making.”

Further, Giani told the newspaper, “are we getting gouged? The answer is still yes.”

Big oil profits and high prices at the pumps have also earned the attention of lawmakers in Washington DC.

Some Democrats are proposing legislation that would roll back billions of dollars in government subsidies for oil companies, with some lawmakers saying the industry makes enough money as it is, a recent Associated Press story said. But some Republicans say that ending the subsidies will discourage domestic oil exploration and increase the nation’s dependence on foreign oil.

Hamilton, who accurately predicted gasoline pricing trends for Eastern Washington last fall, blames spikes in local prices on supply shortages. He contends that oil companies intentionally shift and restrict supplies to create shortages and maximize profits. Since the petroleum industry was deregulated in the 1980s, oil companies are free to use price both to ration supply and inflate profit, he said.

Without a sizable budget, heavy-hitting attorneys and subpoenas that apply to companies operating outside the area, Hamilton questions if the Washington state fuel study has the teeth to uncover the root of any “price fixing” or ultimately impact what people pay at the pump.

“Are you going to sit back and wait for someone from Houston to call you and say, ‘I confess?’” he said.