04/01/2009 03:15 PM House LABOR & COMMERCE
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| Start | |
| HB68 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 68 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 1, 2009
3:17 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Mark Neuman, Vice Chair
Representative Mike Chenault
Representative John Coghill
Representative Bob Lynn
Representative Robert L. "Bob" Buch
MEMBERS ABSENT
Representative Lindsey Holmes
COMMITTEE CALENDAR
HOUSE BILL NO. 68
"An Act making sales of and offers to sell certain energy
resources by a refiner at prices that are exorbitant or
excessive an unlawful act or practice under the Alaska Unfair
Trade Practices and Consumer Protection Act."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 68
SHORT TITLE: PRICE GOUGING INVOLVING ENERGY RESOURCES
SPONSOR(s): REPRESENTATIVE(s) PETERSEN, GARA, TUCK, GRUENBERG,
KAWASAKI
01/20/09 (H) PREFILE RELEASED 1/16/09
01/20/09 (H) READ THE FIRST TIME - REFERRALS
01/20/09 (H) L&C, JUD, FIN
02/04/09 (H) L&C AT 3:15 PM BARNES 124
02/04/09 (H) MEETING CANCELED
03/25/09 (H) L&C AT 3:15 PM BARNES 124
03/25/09 (H) Heard & Held
03/25/09 (H) MINUTE(L&C)
04/01/09 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
PETE ROBERTS
Homer, Alaska
POSITION STATEMENT: Testified during the discussion of HB 68.
JUSTIN POWELL
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 68.
RANDY GRIFFIN
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to HB 68.
STEVEN MCCOY
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 68.
JAVEN OSE
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 68.
PAUL KENDALL
Homer, Alaska
POSITION STATEMENT: Testified during the discussion of HB 68.
EDITH TOMINY
North Pole, Alaska
POSITION STATEMENT: Testified in support of HB 68.
DAVID OTNESS
Cordova, Alaska
POSITION STATEMENT: Testified during the discussion of HB 68.
AVES THOMPSON
Executive Director
Alaska Trucking Association (ATA)
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 68.
CLYDE (ED) SNIFFEN, JR., Senior Assistant Attorney General
Commercial/Fair Business Section, Civil Division (Anchorage)
Department of Law (DOL)
Anchorage, Alaska
POSITION STATEMENT: Provided comments and answered questions
during the discussion of HB 68.
REPRESENTATIVE PETERSEN
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As prime sponsor of HB 68, testified and
answered questions during the discussion of the bill.
DAVID DUNSMORE, Staff
Representative Pete Petersen
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 68,
on behalf of the prime sponsor, Representative Pete Petersen.
ACTION NARRATIVE
3:17:47 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:17 p.m. Representatives Buch,
Coghill, Lynn, and Olson were present at the call to order.
Representatives Chenault and Neuman arrived as the meeting was
in progress. Representatives Tuck, Stoltze, and Ramras were
also in attendance.
HB 68-PRICE GOUGING INVOLVING ENERGY RESOURCES
3:18:13 PM
CHAIR OLSON announced that the only order of business would be
HOUSE BILL NO. 68, "An Act making sales of and offers to sell
certain energy resources by a refiner at prices that are
exorbitant or excessive an unlawful act or practice under the
Alaska Unfair Trade Practices and Consumer Protection Act."
3:18:29 PM
PETE ROBERTS offered his belief that energy pricing is done in a
byzantine way in Alaska. He said, "No where else in the world
is natural gas priced relative to fuel prices, crude oil prices,
or many of the other things we have to deal with for natural gas
in the Railbelt." He stated that has increased heating prices,
and electric prices by 40 percent. He suggested that the
committee review in a detailed way and rewrite laws concerning
pricing natural gas. He said, "I have no problem for these guys
charging 120 or 130 percent of Henry Hub, but I think if you
figure it out they're probably getting more like 200 percent for
their gas." He acknowledged that he is not an expert but
something is wrong with energy being twice as costly in Alaska
as anywhere else, while Alaska is an energy producing state.
MR. ROBERTS offered that most petroleum products sold in Alaska
originate at Flint Hills and Tesoro. He stated that those
refineries appear to set the price at will. He said, "I again
have no problem with them making a reasonable profit, even
better than a refinery can make in the south 48, but there is
something wrong with three weeks ago my son paying a $1.55 for
gasoline in California, the most expensive state in the union in
terms of taxes and everything else. And here I'm paying as much
as $1.92 today or $2.92 in Homer for gasoline. And here we are
one of the largest energy producers in the nation and there's
something wrong here." He suggested that the legislature pass a
law for the state to sell a small portion of the Alaskans' share
of crude oil at about $30 per barrel. He opined that it is not
enough petroleum to make a difference in the long term viability
of the state treasury. Furthermore, the state could implement a
tax structure that is punitive if the oil companies go above 120
percent of profit anywhere else for refined products. He opined
the Department of Revenue could monitor costs.
MR. ROBERTS offered his belief that the state allows electric
power and fuel that is monopolistic. He emphasized that it is
up to the government to control those rigidly. However,
government has been unwilling to do that. He further stated
that had this been implemented five years ago, that the state
could have the cheapest fuel in the nation with an economic boom
in the Railbelt and Southeast Alaska. He pointed out the super
high prices in rural Alaska for fuel. He asked members to
"ruminate" about this. He said, "We need to look at this in the
large scale sense, not in tweaking one thing or tweaking
another, or putting a little tax on this or that. We need to
change the way all energy products are priced within the State
of Alaska."
3:24:03 PM
CHAIR OLSON commented that the legislature reviewed the costs of
gas for Agrium, Inc. to attempt to assist them in obtaining gas
less than market value, but discovered it would require a state
constitutional change to sell petroleum for less than the market
rate.
3:24:26 PM
JUSTIN POWELL stated that he provides services for the website
fairbanksgas.com. He opined this bill is far too important to
die in committee. Constituents are paying over $2.67 per gallon
in North Pole, yet the gas stations are less than two miles away
from the refineries that obtain their crude oil directly from
the Trans-Alaska Pipeline System (TAPS). He said:
In my testimony today, I'm going to point out several
omissions from the House Judiciary Standing
Committee's (HJUD) report that dramatically affects
the conclusions reached by the committee Chair. The
burden that high gas prices have on Alaskan residents
is real. The price gouging we have endured over the
last year is unjustified. Gasoline, diesel, and
heating oil are not luxury items that households can
simply go without. High energy prices have a ripple
effect throughout the economy as every resident pays
for a high fuel cost several times over. We've been
paying over $1 a gallon more than U.S. averages at the
gas pumps and this has been a highly visible and
contentious issue.
MR. POWELL offered his belief that costs have been 175 percent
for gasoline and 536 percent for diesel. He opined that margins
have been well above average. He pointed out that residents pay
more for freight, food, clothing, and retail products. Alaskans
pay more to heat their homes, drive to work, only to pay more
for goods and services as business pass on their additional
energy costs. He further opined that what was lacking from the
HJUD report was quantitative information. He reported that
based upon the latest published information the annual gasoline
consumption in Alaska is 285 million gallons annually. He
specified that using the conservative estimate of $.80 per
gallon over Seattle prices, that Alaskans have already paid a
staggering $230 million over the past year in gasoline expenses
alone. He argued this is money that leaves the state and does
not provide any benefits to residents. He described that from a
labor and commerce perspective that this adds to business
expenses and reduces personal spending. He understood the
ripple effect of the $230 million is in excess of a billion
dollars annually, if it were to stay within the state's economy.
MR. POWELL recalled the HJUD report indicated that Fort Greely,
Eielson Air Force base and Fort Wainwright would be impacted and
possibly shut down by any possible legislation. One far flung
conclusion suggested that the military would sacrifice the
national defense if jet fuel increased several cents per gallon.
He noted that the increasing threat from North Korea dictates
that Alaska air defenses remain ready and capable.
Additionally, the prime supplier for all military installations
in Alaska is the Petrostar refinery, which would be exempted
under sub section (f) of this bill, he opined. He related that
testimony has been given that indicates that Alaska's small
market is a factor of high gasoline prices.
3:27:47 PM
MR. POWELL said, "What is really going on is that a virtual
monopoly has been created by Flinthills and Tesoro. As others
competitors cannot access our market due to lack of tank space
at the Port of Anchorage and the fact that in-state refiners
have significant lower transportation costs than a potential
outside competitor."
MR. POWELL said, "In conclusion, HB 68 is a fair and reasonable
measure that protects Alaskans from price gouging by
billionaires and would have a positive affect on our economy.
Industries such as fishing, tourism, recreation, and ground
transportation are all dramatically affected by high energy
costs." He opined that if the $230 million were spent in Alaska
that it would benefit Alaska's economy, "rather than subsidizing
the profits of David and Charles Koch, two of the richest men in
America. I urge you to move this bill to a floor vote. Thank
you."
3:28:52 PM
RANDY GRIFFIN stated that he is a longtime Alaska resident. He
related that he does not want to pay high fuel costs but is
opposed to HB 68. He explained that he does not think it is the
place of the federal government to dictate to private businesses
the prices that they sell their products since they are private
products. He offered that one remedy for high prices is
competition. He referred to groceries shipped to Alaska, adding
that he would also not want price controls with groceries. He
preferred to use competition to bring down prices. He suggested
that if tank space or infrastructure is needed that the state
could help build infrastructure so that competition could better
serve the area. He opined that prices in Alaska may be due to
higher operating costs and smaller refineries. He offered his
belief that price controls discourage investment and "is just a
bad deal all around." He said, "Nay on HB 68. Thank you."
3:31:28 PM
STEVEN MCCOY noted the importance of consumers to the
legislature. He offered his belief that there is a clear
difference in state gas taxes. He related that it allows
profits for refineries to be higher since the illusion is the
price is less since Alaska's gas taxes are 11 cents below the
national average. He related that Alaska's gas tax is $.08
whereas California's tax is $.43 per gallon. Thus, if
California is charging $1.89 compared to Alaska's price of
$2.30, there is actually $.80 difference that the refineries
gain. He opined that Hawaii is a poor example since it has to
import all crude oil over vast distances, has no oil of its own,
and has a $.34 gas tax. He further opined that there is not a
reasonable free market in Alaska due to the huge investment
markets, building a refinery and a pipeline system.
MR. MCCOY suggested that if a person approached a bank
requesting funding for an enterprise that would buy gasoline and
purchase a ship to ship it to Alaska for resale that the bank
"... would look at you and say you're nuts."
3:34:20 PM
MR. MCCOY related that Tesoro would control the profit level
until the person could no longer afford the payments. He
offered his belief that it is not possible for a person to
compete with large oil companies and refineries that own a large
share of the market. He opined that if Safeway owned 80 percent
of the grocery market, the legislature would be alarmed. He
said, "Don't let that happen. You have an obligation to the
individuals and businesses of the state because this is not a
free market situation." He further opined that what consumers
want is for the company to identify their costs and to justify
their costs.
3:35:51 PM
REPRESENTATIVE NEUMAN related his understanding that the
attorney general's office and particularly Mr. Sniffen reviewed
the refineries costs. He recalled the attorney general's office
concluded there was not any price gouging.
MR. MCCOY opined that the report did not discuss profit levels.
He further opined that the report concluded the refineries were
not doing anything that was not consistent with current state
law. He offered his belief that if the legislature enacted laws
that required the refineries to only earn reasonable profits
that the attorney general would take a different view. He said,
"You owe it to us to make reasonable laws in this circumstance.
This is not a free market. You should not sit back and allow
them to take away, to influence our economy in a negative way
like they have been for years and years and years."
3:37:47 PM
JAVEN OSE stated that he represents the roughly 500,000 angry
Alaskans that go the gas pump weekly. He offered his support
for HB 68. He related his understanding that gasoline prices in
Wyoming, Idaho, and Montana are all under $1.50. He inquired as
to how that could be when those states do not own the resources
as Alaskans own theirs. He offered his belief that whatever the
excuse, fuel is less expensive in the other states. He opined
that market forces are at work since the market has been
manipulated. He speculated that another bill may be considered
that compares Alaska prices to Seattle prices. He stated that
Alaska has nothing in common with Seattle's demographics and he
urged legislators to use Idaho, Montana, and Wyoming since those
states have similar population bases. He imagined that gasoline
prices are $1.29 per gallon in those states. He suggested that
if Alaska's constitution were changed by adding a semicolon and
a paragraph in the best interest's clause, to read: "; unless
the product is refined in state." Then the state could sell
crude oil to the refinery and make adjustments or subsidize
Alaska's fuel sold in the state. He offered his belief that
there is not any reason to continue with these high prices. He
related his understanding that Representative Coghill,
Representative Chenault, and Chair Olson represent the districts
that contain the Flint Hills and Nikiski refineries. He stated
he could understand they may be reluctant to pass this bill.
MR. OSE indicated that if the refineries say they cannot make a
dollar here someone else can "fill their shoes up and they'll
still make a profit." He speculated the companies probably need
to perform maintenance. He further opined that a deal should
have been made to minimize or eliminate in state tariffs. He
thanked members. He said, "There are a lot of people out here
that are angry about filling their gas tanks up daily. I hear
it every time I go to the gas station." He related that he
encourages people to contact their legislators, but recognized
it is hard to take time off from work to do so. He concluded,
"I'm in favor of HB 68. I'm sick and tired of getting gouged
for my own gasoline, the highest prices in Alaska where we're
supposed to own our own resource. The state should step up to
the bat and at least change the constitution or subsidize it.
Sell it for $30 a barrel to the refinery and keep it under $2 a
gallon."
3:42:26 PM
PAUL KENDALL stated he also submitted written testimony. He
suggested full disclosure. He recalled the testimony about the
attorney general's report, which he opined has no foundation.
He said, "You know, it's a funny thing about the truth,
gentlemen. We all know what the truth is. The truth is there
is something wrong in Alaska when it comes to energy." He asked
members to look at the larger picture. He pointed to the
800,000 vehicles in Alaska using 1,000 gallons of gasoline per
year equals about 800 million gallons per year. He recalled
testimony of 295 million gallons. However, in calculating the
cost of the gasoline, adding in diesel, propane, and heating
oil, it is understandable why a pipeline can be two-thirds empty
for over 30 years, but the oil companies can still make profits.
He said, "Your leadership, you folks are failing us, gentlemen.
Now whether it is willfully and wantonly or whether you are just
isolated is the big question." He opined that just when he
thinks that the graft is permanent, he has watched the
legislature dig into issues that are brilliant. He offered his
belief that the first obligation is to provide for the energy
needs of residents, such as electricity, water, and clean air.
He quoted Peter Robinson, Chevron, who said, "You will find no
financial security. You will find no job security. You will
find no environmental security unless you find energy security."
He stated that society is at the brink of defining energy, which
he thought would be wonderful. However, he highlighted that if
members are dominated by the oil companies and their influence,
that "we're going nowhere." He related that the country is
facing difficult times and the legislature should assess where
it is in terms of providing energy for homes. He pushed for an
energy conference that he has requested for several years.
3:47:15 PM
EDITH TOMINY stated she and her husband both support HB 68. She
opined that it is time for Alaskans to "get their due" in
gasoline prices. She opined that Alaska seems to be subsidizing
the Lower 48 gasoline prices with high prices. She related her
understanding that Alaskans pay higher prices than anyone in the
nation. She said, "I think that is sort of ridiculous, and we
have the refineries sitting out here about four miles from us."
She offered that heating oil prices were terrible. She
explained that she thinks she speaks for many retired people on
fixed incomes who cannot afford to stay in Alaska with high fuel
prices. She stated that Alaska has been her home for 50 years,
and she'd like to stay in Alaska but she cannot afford to stay
if the prices keep escalating. She further opined that people
in Interior Alaska "especially get the raw end of the stick."
She did not think the Interior was treated fairly with respect
to oil and hopes that the natural gas line provides reasonable
gas prices. She said she thinks that in general with respect o
gasoline and heating oil prices that "we get ripped off." She
said, "I think the legislative body ought to be looking into our
situation, the Alaskan situation". She also said she felt that
Alaskans need economic justice and hopes the legislature will
help. She concluded: "Don't base prices on the price paid at
the pump." She urged members to resist the high gasoline taxes
that other states currently pay.
3:50:09 PM
DAVID OTNESS stated that he is a lifelong Alaskan and has worked
on the Trans-Alaska Pipeline System pipeline where he observed
the evolution of the petroleum industry. He noted that in his
latest career in which he transports fuel, he has transferred
fuel on a barge from Hawaii and moved it up the Kuskokwim. He
opined that this industry has set the standard for holding facts
and bending facts. He offered his belief that the oil industry
is the most profitable industry in the world. As an Alaska
citizen, enduring fuel costs, it is difficult to watch fuel
"sail by". He said, "I'm ashamed of how we dealt with this
incredible resource and had it turned around on us like this."
He further opined that in the 60s and 70s Alaska was naïve and
lost profits from oil. Additionally, he stated that this does
not pass the "smell test". He recalled prior testimony that it
may take a constitutional change, and he thought that would have
support. He said, "We can't continue to strangle ourselves like
this." He explained that Cordova has a sole source distributor.
He pointed out that Alaska has a serious issue and that we must
deal with it to take care of Alaskans. He said, "I don't think
this is a handout. I think it is a responsibility to ourselves.
I sure hope you take that into consideration."
3:54:10 PM
AVES THOMPSON, Executive Director, Alaska Trucking Association
(ATA), stated that the Alaska Trucking Association is not sure
that the ten percent is correct or that any number is correct.
He opined that prices should be market driven. He offered his
belief that there is more market force than has been recognized.
Secondly, the ATA is concerned about having a reliable source
and supply of fuel. Finally, ATA is concerned about jobs. He
explained that ATA employs many drivers to transport fuel
throughout the state, ranging from Fairbanks to Southcentral
Alaska. He expressed concern for jobs at the refineries and the
Alaska Railroad. He asked legislature to take a second look
before you "jump off this cliff."
3:55:35 PM
REPRESENTATIVE BUCH asked to put on record how this bill would
impact jobs.
MR. THOMPSON responded that if there is not a reliable source of
fuel, that trucks would not need drivers, that terminals will
not need warehouse people or dispatchers. He speculated that
there could be serious job loss with passage of this bill.
REPRESENTATIVE BUCH related he is trying to get the connection
that holding an industry accountable for price would have that
effect. He said he is looking forward to more discussion.
3:57:11 PM
CLYDE (ED) SNIFFEN, JR., Senior Assistant Attorney General,
Commercial/Fair Business Section, Civil Division (Anchorage),
Department of Law (DOL), introduced himself.
3:57:34 PM
REPRESENTATIVE COGHILL asked if he has considered definitions of
exorbitant or excessive. He related his understanding that the
terms would either need to be defined or would state price
gouging is unlawful and the bill would provide the parameters.
MR. SNIFFEN offered that he has struggled with the definitions
since the terms are broad. He explained that the standard does
not have much legal precedence. He related that a handful of
states on the East Coast have used this language in their price
gouging laws and have defined the terms in various ways. This
bill would key exorbitant and excessive to ten percent pricing
over Seattle prices. He agreed the term would be difficult to
define.
REPRESENTATIVE COGHILL offered his belief that that the term
should be defined or "scrapped." He inquired as to whether it
would be clearer to state that it was unlawful to price gouge.
MR. SNIFFEN stated that any subjective standard that would give
the attorney general a standard to look at for determining
whether the price is unlawful would make it clearer.
3:59:51 PM
REPRESENTATIVE COGHILL offered his belief that the ten percent
is a policy call. He inquired as to whether the state has ever
indexed to another state for consumer protection.
MR. SNIFFEN answered no.
4:00:19 PM
CHAIR OLSON inquired as to whether other states' price gouging
laws are triggered by a disaster.
MR. SNIFFEN answered yes. He offered that most states' laws are
triggered when an emergency is declared, typically tied to a
natural disaster. He recalled that two states have laws that
allow the governor to declare an emergency. In those instances,
the law states that a company cannot charge excessive or
exorbitant prices, with excessive or exorbitant loosely defined
to mean prices that are in excess of the prices charged in areas
in which a market emergency does not exist or immediately prior
to an emergency. He indicated that a tangible marker is
available to determine excessiveness, but all of those price
gouging laws are tied to natural disasters.
4:01:54 PM
CHAIR OLSON related his understanding that compared with
Seattle, Anchorage prices for groceries are 25 percent higher,
utilities are 14 percent higher, and medical costs are 10
percent higher. He inquired as to whether the state could
target costs for one commodity and not another.
MR. SNIFFEN opined that the legislature has broad discretion to
enact legislation that is in the best interests of the state.
He agreed there are many commodities that enjoy profit margins
that are similar to petroleum products. Gasoline and refined
petroleum are items the citizens rely on more than other
products. However, there are other consumer goods and
commodities that have similar profits that are not regulated or
subject to caps.
4:03:13 PM
REPRESENTATIVE BUCH opined that the rural communities have
endured extreme costs. He inquired whether the governor could
declare an emergency.
MR. SNIFFEN stated that rural Alaska faces a unique and
difficult situation with respect to fuel, with scattered
villages and different modes of delivery. He opined that if
there was a way to declare an emergency that the state would
need to consider the relief. He asked if the relief would be to
cap fuel costs by merchants or for distributors. He offered his
belief that the state would need to develop some type of scheme
that would encourage delivery of fuel, but at the same time
provide some relief to the communities. He stated that it is
something that bears further consideration of the logistics.
4:05:19 PM
REPRESENTATIVE BUCH asked if that mechanism could be facilitated
in this legislation
MR. SNIFFEN related that this bill would require serious
tweaking to get to distributors who might be delivering fuel in
those rural areas as opposed to just refiners. He stated that
the state would have to go downstream from the refiners to
determine the purchase price and selling price to determine if
there would be some place along the chain to implement some
price controls to provide consumers some relief. He said he was
not sure how that could be implemented.
4:06:14 PM
REPRESENTATIVE COGHILL related his understanding that the
concern is about excessive pricing and profit. He offered his
belief that the refiners were "bumped pretty hard with the
uptick in oil prices as well because of the feed stock that they
had to buy." He said it would seem to him that the excessive
profiting was more on the upstream producers instead of the
downstream refiners.
MR. SNIFFEN agreed. He said there was definitely an increase in
the cost of fuel for refineries and upstream of that he was not
certain. None of the refineries are vertically integrated in
that they do not own the source of supply. He agreed the
refineries were also paying the higher cost of fuel and those
costs eventually were passed on to consumers.
REPRESENTATIVE COGHILL reiterated that the bill may target the
wrong group of people. He opined that if the refiners were
targeted, that using a single state, such as Washington, which
has a different demographic, may not provide the average cost.
He inquired as to whether the area should be broadened to
determine the average gasoline price.
MR. SNIFFEN explained that Washington is an attractive
comparison due to its close proximity to Alaska. He related
that the potential sources of competition for refineries in
Alaska would come from the Pacific Northwest. He pointed out
the problem with comparing Alaska's prices to states west of the
Mississippi are the huge mega refineries in the Gulf Coast that
can basically "turn shoe polish into gasoline" that our
refineries cannot. Additionally, those states have pipelines
that encompass many states and the availability of that
relatively inexpensive source of supply is not available on the
West Coast. He opined that California, Washington, and Oregon
must ship gasoline through the Panama Canal if they want gas
from refineries in the Gulf Coast. He further opined that
typically prices are more expensive on the West Coast. He
offered his belief that if Alaska wanted to use a marker outside
of Alaska, that it would make more sense to make it a state that
is more relevant to Alaska prices, such as those states closest
to Alaska. In further response to Representative Coghill, Mr.
Sniffen explained that Alaska prices have stabilized somewhat,
hovering around the $2.35 mark in Anchorage, with prices a
little higher in Fairbanks. He said he did not know what might
happen to oil prices. He further explained that one reason for
the lag has to do with how quickly other places are able to drop
their prices due to competitive forces. He stated that it is
slower in oligopoly markets such as Alaska and Hawaii. He hoped
that prices would continue to drop.
4:12:10 PM
REPRESENTATIVE COGHILL asked if there is a reasonable
explanation for the lag time.
MR. SNIFFEN agreed that the lag is interesting. He offered that
there is some truth to refineries keeping prices high until the
slow competition drives price down. However, he also thought
that refineries have long-term contracts for oil deliveries from
places such as Russia and South America. He opined that it may
be a while before companies can recover the costs. Thus, in
markets like Alaska that have small volumes, the turnover is not
quite as fast. Thus, some lag in prices may be economically
justified. He reiterated that some lag may be due to the
companies taking advantage of their oligopolistic situation. He
said, "That bubble probably consists of a mix of some of those
things." He agreed that might be area to explore to see if
something can reduce the disparity.
4:14:22 PM
REPRESENTATIVE BUCH inquired about scope of his investigation.
MR. SNIFFEN stated that the investigation was fairly broad. He
explained the attorney general reviewed gasoline pricing at
several different levels, ranging from the refinery,
distribution, and retail level. He offered that the attorney
general's office gathered information from retailers to the
refiners to determine how prices were set, what types of profits
were made, whether the companies were subsidizing other
shortfalls. He opined that it seemed the prices were "driven at
the refinery level" rather than by the retailers.
4:16:08 PM
MR. SNIFFEN, in response to Chair Olson stated that he has not
read the proposed Washington legislation that proposes a 37.5
cent gasoline tax on products shipped to Alaska, but he is aware
of the bill. He said he imagined that it would have some affect
on gasoline prices. However he said he thought that the price
at the pump has little to do with the cost. He said"
When oil is $150 per barrel it doesn't cost the
producers any more to produce it than when it's $25
per barrel. It's really a market driven thing and so
when you roll extra taxes in that's giving it an extra
cost that I suspect some of the price leaders here are
going to figure into the mix. But, if there are other
competitors who have fat enough margins out there that
they can absorb that cost, it may not spike $.40 right
away; it may go up a little; it may not go up at all.
We'll have to see how the market reacts to that. But
I suspect...worst case scenario, it's not going to be
good for gasoline pricing.
REPRESENTATIVE COGHILL inquired as to whether the state taxes
had any role in pricing.
MR. SNIFFEN said he was not certain he had an answer to that
question.
REPRESENTATIVE COGHILL opined that it probably is a question for
the Department of Revenue.
4:19:26 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 68.
The committee took an at-ease from 4:19 p.m. to 4:20 p.m.
4:19:56 PM
REPRESENTATIVE PETE PETERSEN, Alaska State Legislature, after
listening to public testimony, related his understanding that
the average Alaskan is concerned about overpricing of fuel. He
acknowledged that some adjustments may need to be made in the
bill to reach the ultimate goal. However, he stated that he did
not think that members can dismiss the idea completely and allow
the semi-monopolistic situation to continue in Alaska and for
Alaskans to continue to pay excessive prices. He recalled Mr.
Sniffen mentioned his investigation. However, unfortunately,
his investigation was not for price gouging but was for price
fixing and collusion. He observed that had his investigation
been conducted for price gouging that he may have asked for
different data and reached different conclusions. He advised
that the reason for the bill is to give the attorney general's
office "another arrow in their quiver" to try to protect the
Alaska consumer from high prices.
4:22:02 PM
CHAIR OLSON recalled that Mr. Sniffen indicated that nearly
every other state that has price gouging has been triggered by
natural disasters.
4:22:25 PM
REPRESENTATIVE COGHILL applauded Representative Petersen for
bringing the matter forward as it has resulted in worthwhile
discussions. He indicated that he struggles with whether
refiners are the right place to go since it may "squeeze the
very people that we want to encourage." He explained that the
value of the product went to the producers of the product, not
to the transporters or the refiners. He said, "We might be
barking up the wrong tree here." However, there might be some
reason to review this due to the lag between crude oil prices
and prices at the pump. He suggested that the committee may
want to consider a percentage of prices to allow refiners to
recover, but the rest is excessive. He questioned using
Washington State only as the basis for determining the index.
He further explained the formula, consists of netback based on
an indexed price of oil. He characterized the system as a
convoluted system. He suggested that the market price could be
used as the gauge for excessive charges to determine price
gouging. He also suggested the terms exorbitant and excessive
may be difficult to define. He further suggested that that the
conditions be established and specified for unlawful prices. He
opined the language should be concrete and not subjective. He
inquired as to whether the sponsor has considered a formulation.
He offered that the Alaska North Slope (ANS) pricing is based on
a netback system, which is to determine the selling price,
calculate the transportation cost, and then determine the price
at the wellhead. He reiterated a similar formulation may need
to be considered.
4:25:34 PM
REPRESENTATIVE PETERSEN stated that Washington was selected due
to its close proximity to Alaska. He informed members that he
did not compare price differential in other states for gasoline
prices over time. He agreed to consider changing the percentage
and to eliminate the term exorbitant and consider a formula
instead.
REPRESENTATIVE COGHILL clarified that he is looking for a
standard. He related a scenario in which all refineries shut
down in Alaska and all gasoline needed to be imported. He
opined that diesel would probably be refined in state. The
state would need to consider what it would cost to buy its
gasoline and whether Washington State would be the natural point
of purchase or if it would be purchased globally perhaps in
Indonesia. He advised that if the state could calculate the
cost of gasoline and transportation costs, it could better
understand excessive. He inquired as to whether that
determination has been done.
REPRESENTATIVE PETERSEN answered that he has not looked at costs
of importing fuel from Indonesia. He offered that Southeast
Alaska does import the majority of its fuel from Washington. He
opined that Southeast prices have come down and are currently
lower than in many other parts of Alaska.
4:28:08 PM
REPRESENTATIVE PETERSEN informed members that he did not enter
this to put refineries out of business. He offered his belief
that an option to initiate an investigation should be available
to the attorney general if evidence existed that pricing was
substantially higher than traditional pricing. He pointed to
the lag on the graph previously noted, and indicated that prices
still are not as low as normal prices. He maintained that
prices are still considerably higher in Alaska than in
Washington.
REPRESENTATIVE COGHILL advised that before he would feel
comfortable, he would want to know what import costs are
associated with gasoline. He inquired as to whether the
percentage over the timeframe of the lag. He further inquired
as to whether he has considered a time lag versus a percentage.
4:30:16 PM
REPRESENTATIVE PETERSEN recalled the average difference in
price, according to the graph was $.71 cents difference. He
opined that constituted a 25 to 30 percent range of difference.
However, traditionally the price difference had been ten
percent. He highlighted the reason for prices to continually
stay higher since normally "there might be a blip" but prices
would level out over a much shorter period of time. He noted in
the meantime prices have remained higher since the market peaked
nine months ago.
REPRESENTATIVE COGHILL with respect to the price lag offered
that Washington demographics consist of about two million
consumers as opposed to perhaps a half a million consumers in
Alaska's market. He opined that one market is a volume market
and the other is a non-volume market, which could account for
the price difference. Thus, he highlighted it might be
difficult to link and compare the two market prices. He
proposed that he would rather look at Alaska's market and
determine whether that market was excessive rather than to
compare it to another market with a different sales volume.
REPRESENTATIVE PETERSEN offered his willingness to work to
create a better mechanism.
4:32:56 PM
REPRESENTATIVE LYNN inquired as to whether the attorney general
could initiate an investigation.
REPRESENTATIVE PETERSEN said he was not certain. He offered his
belief that the attorney general must act on a request.
4:33:38 PM
DAVID DUNSMORE, Staff, Representative Pete Petersen, referred to
the attorney general's report which highlighted that currently
no law exists to prohibit charging excessive prices for gasoline
or fuel oil unless the prices are a result of price fixing.
Therefore, the framework does not exist for the attorney general
to enforce against exorbitant pricing.
REPRESENTATIVE LYNN asked if the attorney general can initiate
an investigation with or without the bill.
MR. DUNSMORE explained that the attorney general would make a
determination on whether state law is being obeyed. In this
case, the attorney general found there is not any evidence of
illegal activity. He highlighted that the attorney general's
report and the House Judiciary Standing Committee report both
agreed that a competitive market for refined petroleum products
does not exist. Both reports indicated that high refinery
margins were one of the factors of unusually high prices. He
maintained that currently there is not a price gouging law in
effect in Alaska.
4:35:47 PM
REPRESENTATIVE LYNN asked if the attorney general investigated
possible collusion. He asked for the difference between the
two.
REPRESENTATIVE PETERSEN explained that price fixing and
collusion is when companies collectively decide to charge a
certain price and when the prices would change. He implied that
it is difficult to prove those types of cases because the
competitor's prices are visible and it is not necessary to
communicate. The owner could just go down the street and look
at the competitor's price, and return to his business and change
the price. Thus, collusion and price fixing usually is a "high
hurdle" to surmount.
REPRESENTATIVE LYNN commented that it is obvious that something
needs to be done. He offered his belief that the bill is well-
intentioned. He declared that he cannot currently support the
bill since it seems to represent a variety of price control and
government "meddling" that could cause unintended consequences,
including that it could potentially put refineries out of
business. He emphasized that the state needs more refineries,
not less, particularly since the airports depend on them. He
stated that he does not like the high prices of gasoline, but
this bill doesn't seem to fix anything, but is a case of
"throwing the baby out with the bath water." He stated he has
some grave concerns and does not have any solutions to suggest.
4:39:15 PM
REPRESENTATIVE PETERSEN related that under the bill that
establishes price gouging, the attorney general would obtain
different information from refineries during an investigation on
pricing than it would when investigating collusion. Under the
bill, the burden of proof rests with the refinery to prove it is
not price gouging.
CHAIR OLSON offered his belief the larger issue is not addressed
in the bill. He pointed to the efficiency of both plants. He
related that the plant in Nikiski would be much more efficient
if it was using 100 percent Cook Inlet petroleum. He opined
that the North Pole refinery would be more efficient if it used
natural gas. He offered his belief that is what keeps the price
high. He opined that the Nikiski plant is designed to burn Cook
Inlet crude oil but is only using 25 percent at this time. He
ascertained that is the stumbling block at this point and is
something that cannot be addressed in the bill.
4:40:50 PM
REPRESENTATIVE CHENAULT recalled earlier testimony questioning
whether the bill is targeting the right person. He said he did
not know. However, he opined that the increase in crude oil
price is not a profit margin for the oil refineries. He
indicated that as the crude oil prices increased and decreased,
that Tesoro's stock price has dropped considerably. He opined
that if the company was price gouging that the net profit would
be reflected in the stock report. He reiterated that Tesoro's
prices dropped four-fold. He reminded members that the Nikiski
plant is in his district. He observed that they provide diesel
and jet fuel to the Railbelt. He offered his concerns that if
the bill is going to target an entity that this might be the
wrong entity to target. He offered to work with the bill
sponsor. He recalled the price a mile from the refinery is as
high as any place along the Railbelt. He indicated his
constituents share the same concerns. He highlighted that he is
not sure if this bill is the right way to address price gouging.
4:44:06 PM
REPRESENTATIVE NEUMAN agreed that the issue is a high priority
for everyone in the legislature. He pointed out that everyone
pays the prices for gasoline. He related his understanding that
it goes back to economies of scale, that it takes a certain
amount to run a refinery. He indicated that if refineries could
reduce their costs it could help. He recognized that the
refineries also are purchasing $140 per barrel oil since the
refineries also pay for the product. Alaska's population is
about 666,000 whereas other states may have 4 to 6 million
people. He opined that the cost of the product may also depend
on the economies of scale. He referred to the cost of the
product, the cost of refining, and the consumer base and
inquired as to whether the economies of scale have been studied.
He characterized Alaska as an isolated base.
4:46:23 PM
REPRESENTATIVE PETERSEN suggested that the refineries in
Washington purchases some of their crude oil from Valdez, ship
it to Washington, then back to Southeast, and still can sell it
cheaper than the in state refineries; and it makes one question
why refineries are not more efficient. He surmised they may
need an upgrade. He offered appreciation that everyone
recognizes this as a high priority problem.
REPRESENTATIVE PETERSEN, in response to Representative Neuman,
suggested one difference between Alaska and Washington is that
Alaska refineries have carved out niche markets for their areas,
so they have more pricing control, while Washington uses a
supply and demand method. He pointed to the information in the
attorney general and HJUD reports. He admitted that he has not
done extensive research on refinery costs based on size.
REPRESENTATIVE NEUMAN applauded the sponsor's work on the bill.
REPRESENTATIVE PETERSEN, in further response to Representative
Neuman, offered that economies of scale are mentioned in both of
the reports. He agrees that some semi-monopolistic situations
exist in Alaska since two main refineries exist. He
acknowledged the bill needs some improvements. He reiterated
his willingness to work together to try to make this work for
everyone.
4:51:05 PM
MR. DUNSMORE referred to a chart in the bill packet titled
"Figure 2: Average Prices and Margins for Petroleum Refiners in
Alaska, Washington, and the U.S., September 2007 to September
2008. While it does not address refinery costs, the graph shows
the margins charged by Alaska refiners, prices charged by
Washington refiners, and the U.S. average cost. He interpreted
that for most of the year the cost is in line with Washington
and U.S. average cost. The bill was introduced to address the
instance in which the Alaska prices spiked significantly more
than Washington or the U.S. The margins have been similar to
the Lower 48 until June or July 2008.
4:53:18 PM
CHAIR OLSON stated that HB 68 would be held over for further
consideration.
4:53:23 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:53 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 16 HB68 Written testimony - Powell 4-1-09.pdf |
HL&C 4/1/2009 3:15:00 PM |
HB 68 |