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 |