Legislature(2009 - 2010)BUTROVICH 205
03/13/2009 11:00 AM Senate ENERGY
Audio | Topic |
---|---|
Start | |
SB132 | |
SB54 | |
SB71 | |
Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
+= | SB 54 | TELECONFERENCED | |
*+ | SB 131 | TELECONFERENCED | |
*+ | SB 132 | TELECONFERENCED | |
*+ | SB 71 | TELECONFERENCED | |
SB 54-PRICE GOUGING INVOLVING ENERGY RESOURCES 11:39:17 AM CHAIR MCGUIRE announced the consideration of SB 54. SENATOR WIELECHOWSKI, sponsor of SB 54, moved to adopt the committee substitute (CS) to SB 54, labeled LS0209\S. There being no objection, the motion carried. SENATOR WIELECHOWSKI introduced his staff, George Ascott, who presented this bill at the last hearing. Based on the testimony then, the bill was modified slightly. A provision was deleted that created an objective defined standard for "excessive" and "exorbitant" to be 10 percent above the price that it was sold for by Seattle refineries. This concern was raised by the refiners; and the CS still keeps the bill strong and accomplishes the objective. ED SNIFFEN, Assistant Attorney General, Department of Law, said his duties include enforcement of Alaska's Consumer Protection Act, and SB 54 would make excessive or exorbitant prices by a refiner a violation of the act that would fall within his authority to enforce. He explained that making an act a violation of the Consumer Protection Act creates an opportunity for private individuals to also bring an action to stop the conduct. That may be something that hasn't been considered. Otherwise he has no comments and was available to answer questions. 11:42:17 AM SENATOR STEDMAN asked how "exorbitant or excessive" is defined on page 1, line 10. MR. SNIFFIN replied that it is a fairly broad description and there is no current case law that addresses exorbitant or excessive prices in a consumer context. This language tracks language that is used in price gouging laws from some East Coast states that prohibit exorbitant or excess prices. He is hopeful that those laws would give some guidance on exactly what that means, but the standard is fairly broad and they would have to work with it as best they can. 11:43:44 AM SENATOR WIELECHOWSKI said he was simply trying to accommodate testimony from the refiners, and he would be happy to go back to the original language. Otherwise excessive and exorbitant will ultimately be defined by the courts. CHAIR MCGUIRE said most states have a price gouging statute on the books, and asked if in Mr. Sniffen's analysis of those if he found that they used "excessive and exorbitant." 11:45:15 AM MR. SNIFFEN answered that the statutes he looked at used a variety of descriptions for conduct that should be stopped. For example, when Hurricane Katrina hit, Louisiana's price gouging statute went into effect. Their statute says during the state of a natural disaster or a declared state of emergency, if you charge prices in excess of a certain percentage above the price that was charged 30 days before the disaster that is considered to be exorbitant or excessive. A lot of the price gouging statutes are keyed around prices that were in effect prior to a state of emergency and they say a price above a certain percentage can't be charged over that preexisting price. Alaska is not trying to key this provision to a declared state of emergency. Without a definition, they would have to see what the courts would say about it as it works through the enforcement process. CHAIR MCGUIRE said this is his area of expertise, and asked what the trends are for other departments of law in interpreting these terms. 11:47:25 AM MR. SNIFFEN explained that 90 percent of the states that have price gouging laws only have them triggered in the event of some declared state of emergency. A few states on the East Coast have price gouging laws that are triggered in the face of "market emergencies" that don't require a natural disaster - but rather a financial disaster of some kind. Once the laws are triggered, most states have laws that say the price cannot be increased more than a certain amount over what was charged before the disaster. They try to prevent retailers from taking advantage of consumers during their most dire times of need. Some states say that means what other people are charging for the same goods and services in areas where a market emergency doesn't exist. In these states, "excessive and exorbitant" hasn't ever been invoked. 11:49:23 AM SENATOR HOFFMAN said this legislation seems to be geared for the refineries, but why doesn't it include other businesses in the state that don't have refiners. SENATOR WIELECHOWSKI answered that he considered that, and he is open to addressing that. But the Attorney General's report indicated that the gap appeared to exist with the refiners. SENATOR HOFFMAN said he thought the question to Mr. Sniffen was regarding gasoline, and his investigation was in that regard. He didn't think Mr. Sniffen looked at what was happening in western Alaska and other parts of the state. 11:51:07 AM MR. SNIFFEN responded that is correct for the most part. But as part of the investigation he became aware of some of the practices related to heating fuel and other products sold by the refineries. He explained that there are only two gasoline refiners in Alaska - one of them produces a majority of the gasoline. But there are a number of retailers and distributers, so the competition among the sellers of petroleum products becomes better the farther away one gets from the refinery. That is different in different parts of the state. The Railbelt area has fairly decent retail competition, but in rural areas there is no competition. SENATOR HOFFMAN remarked that is thrust of his concern. Other areas of the state such as the YK Delta, Bristol Bay, and Norton Sound have primarily one distributor and the potential for price gouging exists there as well. 11:52:49 AM SENATOR WIELECHOWSKI said he would be happy to modify the language to include that issue. SENATOR HOFFMAN thanked him, and said he wasn't asking to hold it up at this stage, but he would like to work with his office to broaden it to areas of the state that have very little if any competition. SENATOR STEDMAN said Southeast Alaska imports most of its fuel oil from Seattle. His constituents' concern is that some of the larger fuel buyers can purchase fuel at $1.20 per gallon, and the pump price is $3.00. The issue is broader than a refinery issue. Prices in Southeast have come down into its' "normal spread" over Seattle, but it "was awful inelastic on the downside." He understands that had to do with some "hedging business practices." But it is a great concern because a lot of communities in Southeast have virtually one supplier. He asked the sponsor also to take a look at broadening the applicability as the bill moves along. 11:54:53 AM SENATOR WIELECHOWSKI said he would be happy to do that. He mentioned that he did get some e-mails from people in Southeast, Ketchikan in particular. He figured Senator Kookesh would be interested in Angoon prices as well. SENATOR STEDMAN asked Mr. Sniffen to respond to the Southeast portion of his report. MR. SNIFFEN said the Southeast portion of his report was limited. He gathered information about energy suppliers of fuel into Juneau and other points in Southeast Alaska to determine if there was an economic basis for the prices they charge or if those prices were the result of some kind of collusion or an anti-trust activity. There seemed to be economic justification for the prices that they charged. One of the concerns he keeps hearing from Southeast consumers, in Ketchikan in particular, is that they know how much gas costs in Seattle and that it can't possibly cost that much to transport it up here. So why is it so much more? MR. SNIFFEN'S answer is that the amount of profit a business wants to tack on to their landed price of fuel can't be controlled through statute. Looking at the component of what it costs to get fuel to an area is not the way to look at what prices should be. The prices are what the market will allow. When there aren't many competitors monopolistic pricing practices go on, and that is not illegal, which is why this bill would at least allow him to look at that kind of conduct - to see if while there is no an illegal anti-trust pricing scheme going on, that the prices are exorbitant and "they shouldn't be allowed to charge them." His conclusion for Southeast market is that there was no collusion that could be identified from the evidence - and they looked at quite a bit and interviewed a number of people. It seems like the prices were the result of big fluctuations and a lot of "hedging activity." 11:58:47 AM SENATOR STEDMAN said he understands the hedging mechanisms, and when you hedge on the wrong side of a bet you can have substantial losses, and when you have no competition, it makes it very easy to embed those into your price to recoup. That is a concern, but from a historical standpoint, Sitka once had two vendors, and then one purchased the other which created a little bit of interest. A lot of people in the community expected an increase in prices with one supplier, but they hoped it would be backed up with service and the quality of the installation. But as time went on, more constituents got concerned that what in fact happened is that they ended up with a monopoly - to their detriment in general. Although that hasn't been publicly expressed, it has been expressed privately. If they were to be able to back up the clock, there would be a lot of interest in the community to object to mergers like that, because it puts them in a position of one supplier. A small operation came in with one fuel pump for a little bit, but when you try to site a bulk facility in a community it is difficult and expensive. He cautioned other communities around the state to not hesitate to speak up if there is consolidation going on. Petersburg was also consolidated into one bulk plant. 12:01:26 PM CHAIR MCGUIRE said when the bill first came before the committee, the concern was trying to define the dollar amount relative to Seattle pricing. There might be legitimate reasons for the price disparity, but having this tool is appropriate, as is any tool to keep the pressure on fair prices for the benefit of Alaskans is healthy. 12:02:42 PM DANA OLSON, representing herself, said this issue belongs in the Attorney General's Office. She has heard a major problem with inconsistencies regarding 42 USDA Section 2000(d) where a refinery cannot get a grant and have no grievance procedure. 12:04:44 PM JEFF COOK, Director, External Affairs, Flint Hills Resources Alaska, said his previous testimony from February 12 stands, but with some additional comments on the CS. He was concerned that removing the 10 percent cap could arguably make it worse for the refinery. They wouldn't have any idea of what to price to avoid the ruinous penalties. The world economy and markets have continued to change for the worse since his February testimony. His refinery is losing money again and the outlook is uncertain. International cargo flights are down at the Anchorage International Airport by 30-40 percent and jet fuel for the airport is Flint Hills' primary product. He just read in the paper that Fed Ex has transferred 68 pilots out of the Anchorage area. This legislation threatens the long term viability of the refinery. 12:06:36 PM SENATOR STEDMAN asked if the refinery is running at full capacity or if they are having shut down issues. The Finance Committee had testimony from the Department of Transportation and Public Facilities (DOTPF) concerning the Anchorage airport and he asked the department for an update on the volumes of freight and fuel there. MR. COOK responded that last Saturday they shut down Crude Unit 3, an unprecedented move, because the demand for jet fuel was down so significantly. They had no further storage capacity and couldn't market it. He hoped the shutdown was for only three to four weeks. One year ago they were shipping 80 railcars per day from Fairbanks to Anchorage, now they are down to 40. 12:08:13 PM SENATOR STEDMAN asked him to put that shutdown into some scale so people could understand. MR. COOK replied that they have three units. Crude Unit 1, the original one, came on line with construction of the TAPS in 1977; it produces diesel and jet fuels. Crude Unit 2, built in 1984/85, produces gasoline and asphalt as well as diesel and jet fuels. Crude Unit 3 was built in 1998 and its primary purpose was to take care of the increased jet fuel demand at the Anchorage Airport. That would account for one-third of their production. SENATOR STEDMAN invited him to join in the presentation to the Finance Committee with DOTPF as a separate presenter to have input about the impacts to the refinery. He said he would also invite the Alaska Railroad. 12:09:39 PM KIP KNUTSEN, Manager, External Affairs, Tesoro Alaska, said this CS is a dramatic change since it is now a gouging bill instead of a price cap bill. He wanted to reserve comment at this time. He noted that his company would have to spend significant limited resources to define these terms of excessive and exorbitant. SENATOR STEDMAN extended the same invitation to him to attend the Finance Committee since it is a large issue for the community of Anchorage. 12:11:40 PM SENATOR WIELECHOWSKI moved to report CS for SB 54, version S, from committee with individual recommendations and attached fiscal note(s). There being no objection, CSSB 54(ENE) moved from committee.
Document Name | Date/Time | Subjects |
---|---|---|
SB 54 - CS (Version S) Energy.pdf |
SENE 3/13/2009 11:00:00 AM |
SB 54 |
SB 132 - Bill Packet.pdf |
SENE 3/13/2009 11:00:00 AM |
SB 132 |
SB 71 - Bill Packet.pdf |
SENE 3/13/2009 11:00:00 AM |
SB 71 |