Legislature(2011 - 2012)BELTZ 105 (TSBldg)
03/13/2012 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB217 | |
| HB168 | |
| SB28 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 28 | TELECONFERENCED | |
| += | HB 168 | TELECONFERENCED | |
| += | SB 217 | TELECONFERENCED | |
SB 28-PRICE GOUGING INVOLVING ENERGY RESOURCES
1:59:16 PM
CHAIR EGAN announced consideration of SB 28 saying the committee
would take public testimony.
SENATOR BILL WIELECHOWSKI, sponsor of SB 28, said he filed this
bill in the past and it made it through a number of committees.
It is in response to concerns he is hearing from Alaskans about
very high fuel prices in Alaska.
SENATOR WIELECHOWSKI related that for too long Alaskans have
been paying some of the highest fuel costs in the nation. This
bill makes it an unfair trade practice for refiners,
distributors or retailers to charge unconscionable prices for
energy resources, heating oil and gasoline. The bill
specifically amends the Unfair Trade Practices Act to add number
58 to the current list of 57 consumer protection items in the
statute.
He explained that Alaska historically has paid 12 cents higher
than the national average for gasoline; at one time Alaska was
actually lower than the national average. However, in 2008
prices spiked to over $1 more than the national average, and
they have never settled back to where they had been. Currently,
Alaskans are paying 43 cents higher that the national average.
SENATOR WIELECHOWSKI said that a number of years ago, he and
Senator Davis asked the Attorney General to investigate this
matter; the conclusion was similar to Attorney General Botelho's
investigation in 2002, that the high prices are essentially a
result of an oligopoly in Alaska among the refiners. An
oligopoly is essentially a system that allows legal price
gouging to occur.
Because Alaska's market is so small, it is not a free market. He
said he understands that people don't want to interfere with the
free market, but the government commonly intervenes with energy
rates for heating oil, natural gas and hydro projects. For
instance, the Federal Energy Regulatory Commission (FERC) limits
rates on natural gas pipelines and oil pipelines, and Alaska has
the Regulatory Commission of Alaska (RCA) that was set up to
protect Alaskan consumers from being over-charged for natural
gas and other energy projects. All this bill is saying is that
you can charge whatever you want, but if the prices you charge
are unconscionable, then the state will not allow it.
2:02:49 PM
SENATOR WIELECHOWSKI said a lot of work had been done on this
bill in previous sessions; a number of changes had been made to
accommodate concerns of industry representatives and the
administration. The penalty for charging these prices is no less
than 10 times the economic benefit obtained by the suppliers, a
specific request from Tesoro a number of years ago. Industry is
specifically shielded from individual class action lawsuits, and
this bill leaves enforcement to the sole discretion of the
attorney general. Importantly, it makes it clear that a refiner,
distributor or retailer may submit evidence that seemingly
unconscionable prices are related to additional reasonable costs
incurred with the sale of the resource.
2:03:33 PM
SENATOR WIELECHOWSKI said some of the bill's specifics are based
on numbers he calculated about a year and a half ago when he
introduced the same bill. Alaskans use about 25 million gallons
of gasoline a month. He concluded at that time that every penny
in additional costs added by refiners costs Alaskans about
$250,000 more as a whole. He reminded them again that Alaskan
gasoline has typically averaged about 12 cents higher than
national gasoline prices and today we are 43 cents higher. So
assuming 31 cents per gallon is going to the refiners in excess
charges, Alaskans are being over-charged $7.75 million per month
or $93 million per year.
2:05:14 PM
He said he didn't have a problem with people making profit, but
Alaskans shouldn't be gouged for a resource that they need and
rely upon. If you assume every Alaskan uses 10 gallons per week,
you're looking at an increased cost of about $161 per person.
This is essentially a tax that every working Alaskan is paying
that goes to the refiner that is outside the state.
SENATOR WIELECHOWSKI showed a chart of the average refiner
margins for gasoline in Alaska, Washington and the U.S. It
showed that from 2004 refiner margins (profit) in Alaska tended
to very closely track Washington and the U.S. as a whole. In
July/August 2008, there was a huge spike - over one dollar
difference, and that gap has never been closed. He said
considering that Alaska has the lowest gas taxes in the nation,
that much of the oil comes from Alaska and virtually all of the
gas is refined here resulting in very little in transportation
charges, "There is absolutely no reason in the world that Alaska
should be paying the highest or second highest gasoline prices
in the United States, absolutely no reason for that at all!"
2:07:09 PM
SENATOR MENARD asked him to explain how small mom and pop gas
stations would be gouged by the refiners and distributors.
Wouldn't that force them out of business?
SENATOR WIELECHOWSKI replied this will have no impact on the
small mom and pop gas stations. He explained that one can track
what the average retail gasoline service station makes using
public information; it's not a lot, about 15 to 25 cents per
gallon. It hasn't changed much at all in recent years. This will
have no impact at all on them; in fact this will probably
benefit them, because when refiners charge higher prices the
gasoline stations are faced with a choice: they either bump up
their prices or they absorb some of the costs. A lot of them are
actually absorbing some of the increased costs and that is who
this bill would benefit. He said he had seen no evidence that
gouging is occurring at the service station level.
SENATOR GIESSEL asked what "unconscionable" means.
SENATOR WIELECHOWSKI replied that he struggled with that.
Initially, they set a specific standard, knowing that question
would be asked, of no more than 10 percent higher than Seattle
prices. The reason they picked that was because historically
Alaska and Seattle prices track very similarly, with Alaska
being a little higher sometimes. The refiners complained saying,
"You can't tie us to Seattle, because what if something happens
in Seattle? What if something happens in Alaska?"
He asked the refiners what they would like and came up with the
term "excessive or exorbitant." The Department of Law didn't
like that; so then they changed it to "unconscionable," because
that is used by the courts. Senator Wielechowski said he
personally would define "unconscionable" as more than 10 percent
of Seattle prices.
SENATOR GIESSEL said that raised several questions. She asked
the Pacific Northwest's predominant source of energy.
SENATOR WIELECHOWSKI replied a lot of their power is derived
from wind, hydro and natural gas.
SENATOR GIESSEL responded that it is inexpensive there, but up
here the predominant source of energy to do the refining process
is diesel, which is rather high-priced. How do you reconcile the
costs refineries face in Alaska with a very small market with
the costs in Seattle?
SENATOR WIELECHOWSKI replied that many would argue the per
kilowatt cost for wind or hydro is actually higher because the
upfront capital costs to build it are extremely high. That being
what it is, Alaska has two main refiners: Tesoro, which refines
roughly 80 percent of the gasoline, and Flint Hills, which
refines about 12 percent. The rest are some smaller companies
throughout Alaska. The two really control the market, and Flint
Hills is predominantly run with diesel. However, Tesoro is near
Cook Inlet and they are very fortunate enough to have a natural
gas market there. His understanding is that they use natural
gas, which in many places is one of the cheapest sources of
energy you can get.
THOMAS PRESLEY, staff to Senator Wielechowski, also pointed out
that language in section (f) says if reasonable costs are
associated with doing business in Alaska, those are a good
reason for not being guilty of price gouging.
SENATOR GIESSEL thanked him for pointing that out, but she
pointed out the added cost to a producer who has to go to court
to defend himself. It's also her understanding that Tesoro
imports a large amount of its oil from the North Slope and other
countries, because Cook Inlet oil, which they were built to
refine, is less and less available. Does that not add to their
costs?
2:13:38 PM
SENATOR WIELECHOWSKI answered yes, that is true. They buy some
of their oil on the spot market, but those transportation costs
aren't much different from what other refiners in the United
States that also buy on the spot market incur.
SENATOR MENARD said Alaskan refineries refine more gasoline than
the state can consume and asked why the price for exported gas
is sometimes lower than what is sold in Alaska. She stated she
had a problem with that.
SENATOR WIELECHOWSKI replied that he would be concerned about
that, too, but he wasn't aware of that happening.
2:16:04 PM
JAVEN OSE, citizen representing 650,000 Alaskans, said the
biggest joke at the gas pump is that we own the resource. If we
owned it, would we be paying this much for it? He asked them to
consider collecting all the state credit cards for gasoline and
make the people pay for it themselves. He said he is a typical
retired 69-year old man and has an income of roughly
$15,000/year. He has $6,800 in expenses not including $3,000 for
food. That leaves about $100 a week for fuel.
2:17:32 PM
As a solution, he suggested finding a number that brings Alaska
gasoline back to its $1.75 or $2.00/gallon price and selling it
back to the refinery. They can tack on their refinery charge and
the gas stations can make their 15 cents a gallon. The State of
Alaska will not lose anything and it will be good will towards
the people that are supposed to be the beneficiary of this great
resource.
If it was up to him, he would have made a deal for no tariff in
the state because of our location. Tesoro has been given every
tax credit conceivable, and look what they are doing;
opportunities for profit were too great to ignore! Saudi Arabia,
one of our allies today, sells its gas for 50 cents a gallon.
The Saudi citizens get $75,000 a year a piece for all of their
oil wealth. Venezuela has been keeping Alaskan villages supplied
with diesel and heating fuel, and the state has been sitting on
the bench. This has got to change, he exclaimed.
SENATOR MENARD commented that she knows that not one legislator
has a state credit card for gasoline or heating fuel.
2:20:59 PM
ED SNIFFEN, Assistant Attorney General, Civil Division,
Commercial and Fair Business Section, Alaska Department of Law
(DOL), Anchorage, AK, said he was available for questions on SB
28. He appreciated being able to work with Senator Wielechowski
on changing some of the wording in former iterations of the
bill.
2:21:48 PM
MATT WALLACE, Executive Director, Alaska Public Interest
Research Group (AKPIRG), said they are a non-profit, public
interest advocacy organization with a focus on issues such as
consumer protection, good governance, and transparency. He
supported SB 28, because it is about consumer protection and
fairness issues.
He said Alaskans are rightfully upset about high prices at the
pump. Right now the average gas price in Alaska is $4.26 versus
a U.S. average of about $3.82. Transportation costs in Alaska,
because it is so spread out, can make a huge impact on Alaskan
pocket books. We're very near the highest price in the country;
California's gas price is higher because of its higher state tax
on it.
MR. WALLACE said lots of factors go into that final retail
price. The tax regimes make a difference, but a factor unique to
Alaska is just the lack of competition in the refining industry.
When that happens, there is a much greater risk of price gouging
and "unconscionable prices" being charged to Alaskan consumers.
This bill provides a reasonable deterrent to this activity while
limiting the enforcement mechanism to the Attorney General's
office. It's possible this could get passed into law, and it
would never get used because of that deterrent. The key piece is
to have it on the books to provide the motivation to not charge
these unconscionably high prices.
2:24:59 PM
SENATOR GIESSEL asked him why he said Alaska lacks a free market
in refining.
MR. WALLACE replied that obviously Alaska doesn't have a legal
monopoly; there are rules against that. But a number of factors
make Alaska unique; its size and distance from the rest of the
United States. It's technically possible for that competition to
exist, but the economic bars are set so high that a limited
number of sellers have a higher immunity to charging these
prices.
SENATOR GIESSEL asked if he was saying that there are
environmental factors that limit the number of people that are
willing to take the risk to come into this market to build a
refinery and attempt to support themselves and their workforce.
MR. WALLACE said that was correct.
SENATOR GIESSEL said this bill appears to vilify refineries and
appears to be a jobs bill for attorneys and asked why he is not
supporting simple price controls on gasoline.
MR. WALLACE replied that he would be happy to evaluate a
proposal that would protect consumers in that way, but this bill
is a good first step to provide a deterrent that doesn't exist
now.
CHAIR EGAN said that completed public testimony on SB 28.
2:28:11 PM
SENATOR WIELECHOWSKI responded to a couple of Senator Giessel's
statements. He did not call refiners "unreputable" and he was
offended by the jobs-bill-for-attorneys comment. This is a bill
that is trying to protect Alaskans, and he was sorry if she
thought protecting Alaskans from price gouging was vilifying
someone or a jobs bill for attorneys.
SENATOR GIESSEL responded that the gentleman who just testified
said Alaska has a small market that costs a lot to get into.
There are distance factors, and these are issues that can't be
controlled. Therefore, refiners are not price-gouging Alaskans;
they are attempting to make a reasonable living and provide
wages for their staff and jobs for Alaskans. Opening up
allegations about them is troubling, and she didn't see how it
would help anything. If you want to control prices, you set
price controls.
SENATOR WIELECHOWSKI responded that for years his chart shows
that refiners were making healthy profits in Alaska until 2008
when they decided to start gouging Alaskans, and they have been
gouging Alaskans ever since. He philosophically disagreed that
refiners should have the ability to gouge Alaskans on an energy
product that every single Alaskan in this state needs and uses.
CHAIR EGAN held SB 28 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 28 AAA fuel gauge report.PDF |
SL&C 3/13/2012 1:30:00 PM |
SB 28 |
| SB 28 AlaskaSeattle6yearComp.pdf |
SL&C 3/13/2012 1:30:00 PM |
SB 28 |
| SB 28 Refiner Margins.pdf |
SL&C 3/13/2012 1:30:00 PM |
SB 28 |
| SB0028A.pdf |
SL&C 3/13/2012 1:30:00 PM |
SB 28 |
| SB 28 Letters to Editor.pdf |
SL&C 3/13/2012 1:30:00 PM |
SB 28 |
| SB28 Past Investigations.pdf |
SL&C 3/13/2012 1:30:00 PM |
SB 28 |
| SB28 Sponsor Statement.pdf |
SL&C 3/13/2012 1:30:00 PM |
SB 28 |
| SB 28 lttr opposing, Tesoro 2012-03-13.pdf |
SL&C 3/13/2012 1:30:00 PM |
SB 28 |
| HB 168 lttr opposing, Alaska Conservation Alliance 031212.pdf |
SL&C 3/13/2012 1:30:00 PM |
HB 168 |
| HB 168 supporting testimony, Portman 031312.PDF |
SL&C 3/13/2012 1:30:00 PM |
HB 168 |