Legislature(2009 - 2010)BUTROVICH 205
03/18/2009 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB54 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 54 | TELECONFERENCED | |
SB 54-PRICE GOUGING INVOLVING ENERGY RESOURCES
3:33:35 PM
CO-CHAIR WIELECHOWSKI announced SB 54 to be up for
consideration.
CO-CHAIR MCGUIRE moved to adopt CSSB 54(RES) version 26-
LS0209\T. There were no objections and it was so ordered.
SENATOR WAGONER joined the committee.
CO-CHAIR WIELECHOWSKI explained that SB 54 is in response to the
outcry from across the state about the extremely high fuel costs
and that there is no logical explanation for why they are as
high as they are in Alaska. The bill makes it an unfair trade
practice for refiners, distributors or retailers to charge
excessive or exorbitant costs to Alaskans. It amends the Unfair
Trade Practices Act to add number 56 to the already 55 consumer
protection items in the statue.
He explained that Alaska has historically paid 10-20 cents more
than the national average for gasoline, and at one time Alaska
was actually lower than the national average. But during the
recent run up in oil prices, they have risen to more than 70
cents to a dollar above the national average and they haven't
fallen nearly as quickly as what has happened in the Lower 48 -
to the point where we have the highest gasoline prices in the
United States.
CO-CHAIR WIELECHOWSKI said that the oil is produced in Alaska
and the vast majority of it is refined here. The shipping costs
to market are very minimal and we have the lowest gas tax in the
nation - currently at zero right now. The Attorney General has
found that Alaska has an oligopoly, which essentially means no
free market for gasoline.
In these situations, in the past, action has been taken when
excessive prices are charged. This is done in the RCA on a
regular basis with natural gas prices. Oil is regulated by the
RCA in-state and by the Federal Energy Regulatory Commission
(FERC) when it is shipped down the pipe lines. Natural gas is
regulated by the FERC or by the RCA when it's shipped. It is not
unusual to do something like this with vital commodities like
oil and gas. He pointed out that SB 54 does not ask for
regulation or prices caps; it's just simply saying you can't
charge excess or exorbitant prices.
Provisions in the bill allow for higher costs that may incurred
because of Alaska's smaller market. He has heard overwhelming
support from all over the state for this measure. Years ago, a
similar situation was investigated by the Attorney General and
he found that the high costs were due to essentially market
conditions and nothing was done. They can choose to do nothing
and continue having Alaskans charged the highest prices in the
future or they can take some action that will protect Alaskan
consumers and businesses.
3:37:28 PM
SENATOR WAGONER asked when Alaska's gas prices were lower than
the Lower 48 average.
GEORGE ASCOTT, staff to Senator Wielechowski, sponsor of SB 54,
answered that said he didn't have that information. Tesoro's
representative might have it.
3:38:15 PM
ED SNIFFIN, Assistant Attorney General, Department of Law, said
Anchorage gas prices in 2007 were lower than the national
average for a good portion of the summer.
SENATOR STEDMAN said some areas don't have much of a shipping
distance, but it's hard to argue that for Southeast where oil
tankers go to Cherry Point for refining and then the product
gets shipped back. It appears from a Southeast perspective that
the issue wasn't at the refinery, but somewhere between where it
left Washington State and came out of the end of the hose.
SENATOR WIELECHOWSKI observed that Juneau's gas prices are
always higher than Anchorage gas prices with the exception that
this year when at about the time the Legislature came into
session the price in Anchorage was about $2.40 and $2.07 at
Juneau Fred Meyer's.
SENATOR WAGONER said other factors go into calculating the
prices of the products. For instance, you can fill a tanker in
Valdez and send it down the West Coast, but when it's full it
cannot go into Puget Sound and deliver. It has to go to San
Francisco and deliver part of its load and then deliver the
balance of the load in Puget Sound, because of the restriction
on how many barrels of oil a tanker can have there.
3:41:06 PM
MR. ASCOTT explained the differences between CSSB 54(ENE) 26-
LS0209/P and draft committee substitute (CS) version T. The
first change is on page 1, lines 9-12. The previous version
applied only to refiners, because it appeared that is where a
majority of the excessive pricing happened. In response to
concerns expressed by members of the previous committee that
price gouging was occurring in other areas of the state with
fuel distribution by one or very few suppliers, the bill was
expanded to include distributors and retailers. This is intended
to make price gouging illegal anywhere along the supply chain.
The next change appears on page 2, lines 7-10. In the previous
version the civil penalty was not less than the greater of 10
times the economic benefit to the refiner or $50 million. The
penalty was changed to only be 10 times the economic benefit to
the refiner or distributor, and it was clarified that it also
applies to distributors and retailers. This is in addition to
the civil penalties that would normally be incurred under the
Unfair Trade Practices and Consumer Protection Act, which is not
more than $5,000 per violation.
3:43:08 PM
Also in response to industry concerns a section was added on
page 2, lines 11-22, that restricts the power to bring action
against a violator solely to the Attorney General. Normally
under the Unfair Trade Practices and Consumer Protection Act,
private individuals can sue a violator for treble damages. It
was felt that they could be bankrupted or seriously hurt by
numerous individual lawsuits. Also on lines 12-14 the CS
specifies that the Attorney General may collect attorney's fees
and court costs. This should have the effect of lowering or
negating the fiscal note which is currently indeterminate.
3:44:04 PM
The next change starts on page 2, lines 23-27, that clarifies a
reasonable defense by a refiner, distributor, or retailer is
that the seemingly exorbitant prices have been attributable to
costs incurred in connection with the sale. Finally, on page 2,
line 28 - page 3, line 7, definitions for the term "distributor"
and "retailer" were added to the definition of "refiner" which
had been previously defined.
3:44:43 PM
]BOB WINESTEIN, Mayor, City of Ketchikan, supported the proposed
CS.{ Ketchikan has had quite a bit of concern about high gas
prices. Giving the Attorney General this authority is an
important legal and economic tool for the state. Additionally,
this may cause refiners and distributors to watch their
practices more closely and reduce the likelihood of excessive
pricing. He also agreed with Senator Stedman's comments about
how the situation in Southeast differs from other parts of the
state.
3:46:09 PM
]DAVE OTNESS, representing himself, Cordova, said what's
happening lately is destroying the fabric of Alaska.{ This step
up has kept going for years based on the attendant costs of
being in remote communities, but something went wrong with the
equation to where we can't support our coastal societies any
more. It behooves investigation on that level. We have no state
taxes on our gas, and we're paying more than anybody else.
3:48:24 PM
]RANDY GRIFFIN, representing himself, Fairbanks, opposed CSSB
54(RES) because it is contrary to the principals of freedom.{ He
argued, "That fuel is private property and it belongs to whoever
manufactured it and I think that they should be able to sell it
for whatever they want since it belongs to them." The free
market keeps prices in check.
3:50:01 PM
STEVE ALLEY, representing himself, Valdez, supported SB 54. He
believes we are being gouged. In Anchorage, gas is $2.27 today
and in Valdez it is $2.81.09, $2.95.09 and $2.95.09. That is
price gouging.
3:51:14 PM
DEAN WESTLAKE, representing himself, Kotzebue, supported CSSB 54
(RES). He remarked, "Remember, these numbers only represent the
villages that the state surveyed, and unfortunately our region
is not one of the places that surveyed." A place like Noatak is
$9.99/gal for heating fuel. Their local fuel provider said they
would blend last year's price with this year's when the fuel
barge comes to Kotzebue in July. It sounds great until one
realizes that when the prices hit there last July 5, they went
up without the benefit of price blending. This year's spring
barges to the villages will be selling at last years' prices
when they upload. So, in effect, they will be paying exorbitant
prices for two years because of a delivery schedule that
maximizes outside profitability at the expense of local
sustainability.
3:52:49 PM
MARGARET HANSON, Kotzebue, supported CSSB 54(RES). Because of
the high cost of fuel in the Northwest Region, some cities are
having a hard time keeping their doors open. In fact one city
closes its doors two days per week, and they are open Monday,
Wednesday and Friday four hours/day. Taxes can be raised, but
there are no jobs out there to support them. The electric fuel
surcharge for the one community was $69,000 in one month; the
electricity charge was $2,000. It's too much for the consumer to
handle. She said her family bought $600 worth of frozen meat a
couple of months ago and when it got to Kotzebue it cost $900
for freight.
3:55:35 PM
MERRICK PIERCE, representing himself, Fairbanks, supported CSSB
54(RES). He thinks eliminating obvious price gouging by
regulation is a very positive step because of the amount of
price gouging Flint Hills/Tesoro do to Alaskan consumers. Last
fall he was in Sinclair, Wyoming, where today gas can be bought
for $1.42/gal. after subtracting the state gas tax. Wyoming is a
rural state with 493,000 people and they have a refinery in
Sinclair. Fairbanks has a refinery just like Sinclair does, but
they are paying over $2.56/gal. "Obviously there is some price
gouging occurring in our market."
He noted the Legislature could adopt additional remedies to
reduce the cost of energy for Alaskans. One of the best ways to
reduce the cost of transportation energy is through the
construction of energy infrastructure that will make better cost
alternatives to gasoline and diesel fuel available. That added
competition will place significant downward pressure on
wholesale gasoline prices. He said the best alternative to
gasoline is compressed natural gas (CNG).
MR. PIERCE said the highest priority of the Legislature should
be getting the all-Alaska gas line built. With natural gas,
existing state vehicles can be converted to run on CNG or
factory CNG vehicles can be purchased - like the Honda Civic GX.
He said the cost equivalent for running a vehicle on CNG is less
than 50 cents per gallon versus the $2.50/gal. Natural gas
prices are collapsing, because vast shale gas deposits are being
developed in North America. This is a chance for the state to
provide some real leadership for the rest of the country.
4:00:05 PM
BILL ZORIK, representing himself, Fairbanks, supported SB 54. He
said he can think of several reasons that gas should be cheaper
up here, but Flint Hills has been very reluctant to share their
true costs and profits.
4:02:04 PM
JEFF COOK, Director, External Affairs, Flint Hills Resources
Alaska, opposed SB 54. It would adversely affect their business,
and have longer term negative implications for the people of
Alaska. It's important to understand that Flint Hills doesn't
own retail stations or crude oil. All of their products are sold
on the wholesale market, and they make less than one-fifth of
the gasoline used in Alaska and only a third of the heating fuel
in the Fairbanks area.
Their 175 employees are very proud of their contributions to
Alaska; they run a very efficient and safe refinery. Flint Hills
Resources has more than 60 years of experience in the refining
business. They have owned and operated the North Pole refinery
since 2004 and they also own and operates refineries in
Minnesota and Texas.
The North Pole refinery began operating in 1977 shortly after
TAPS was completed. The facility has gone through various
modifications over the years, but its basic configuration has
remained unchanged. The refinery is a topping plant, which means
it lacks the sophisticated processing capability to refine all
the crude oil coming into the plant into finished products. It
takes in 180,000-220,000 barrels of crude oil per day; they heat
the crude to distill it into a few basic products to sell; the
rest of the stream is returned to TAPS for which they pay a
quality bank assessment. As a result, they keep only about
40,000 barrels/day of saleable product, a majority of which is
jet fuel. In addition, they keep an energy source for heating
the crude oil and refining process, a disadvantage because
natural gas fuels most refineries in the U.S.
Many topping plants like the North Pole refinery operated in the
U.S. years ago, but now just a few remain due to increased
environmental emissions regulations and the increasing stringent
federal requirements on the different types of fuels.
MR. COOK said the North Pole refinery has kept pace with the new
environmental regulations, but federal mandates for lower
sulphur content in the last few years have substantially
diminished their ability to produce these two fuels. They still
produce some gasoline and off-road diesel, but they now buy
gasoline and diesel from other sources to meet the full needs of
their customers. Due to these regulations and their affect on
the market place, supplies are tight and margins for refineries
like North Pole are very small.
Flint Hills is currently working with the Alaska Department of
Natural Resources (DNR) to develop their understanding of their
operation and the circumstances that threaten their long-term
viability in the state. Even though the refinery has been
profitable recently, that doesn't mean it will remain that way.
It is not the case currently.
He said they are exploring all options to deal with this
uncertainty and they have provided financial data to DNR so they
can analyze and understand the challenges facing their refinery.
SB 54 would be a very serious threat to the future of the North
Pole Refinery. The CS does not specify what exorbitant prices
are, yet subjects refiners to penalties 10 times the amount of
the economic benefits of an unlawful sale; this leaves a high
level of uncertainty. They may be forced to cease refining in
the state.
Finally, he argued that lower prices don't attract producers who
will come into a market only if they believe they can make money
under the controlled price. This could lead to shortages.
Setting price caps is a dangerous game; no one can forecast the
future with any degree of accuracy and the consequences of being
wrong will result in a shortage of fuel in Alaska.
4:08:22 PM
In closing, he said that Flint Hills understands that high
prices can be a hardship for many Alaskan families. North Pole
workers pay the same high price for gasoline as everyone else.
Price control legislation will harm consumers by causing
shortages; their refinery is facing serious challenges now.
Demand for jet fuel, their primary product, is down
significantly in Alaska, and particularly at the Anchorage
International Airport. This is evidenced recently by Fed Ex
taking 68 pilots out of Anchorage.
4:09:30 PM
JAVEN OSE, representing himself, said he is a 50-year resident
of Anchorage, and that he had seen enough of free market forces
with $140/barrel for gasoline. He is not ready for another
summer of price gouging. Instead of comparing Anchorage prices
to Seattle prices, because we have no demographics in common
with them, we should compare our state to Wyoming where they
have reported a low of $1.14/gal. over the last two months.
The state has failed in its fiduciary duty to its citizenry.
They have known this manipulation has been going on in Kenai for
years where gas is 15 cents higher than in Anchorage - and they
make it right there.
MR. OSE said he had contacted the Attorney General's Office to
administer the contract to keep Flint Hills from gouging. Over
the last five years they have averaged 46,000 barrels per day.
By contract, the upper limit is 77,000 barrels. If the limit
were to be refined that might bring prices down to below $1/gal.
where it belongs. He summarized, "I'm mad as hell and thank you
for listening."
4:16:43 PM
GABRIEL ACEVES, Executive Director, Alaska Public Interest
Research Group (AKPIRG), supported SB 54. Everyone recognizes
there are certain costs to doing business in Alaska, and it's
not good for companies to take advantage of consumers because of
lack of competition.
Price control legislation sets floors and ceilings, but this
bill doesn't do either one of those. It simply puts the onus on
the folks refining and distributing to prove that what they are
charging is not exorbitant.
4:20:32 PM
KIP KNUTSON, Manager, External Affairs, Tesoro Alaska, noted
that "excessive" and "exorbitant" had not been defined, and that
would add risk to their operation here. And he offered, "Perhaps
you would consider applying the golden rule to this legislation,
if it's so good for refiners, perhaps it could be applied to all
commercial transactions in the state."
When he read the Attorney General's report that can be found at
the Department of Law's website, he saw that the AG concluded
that the Alaska refiners are abiding by Alaska's consumer
protection laws. It found no evidence of collusion or restraint
of trade or monopolistic practices. The same report highlights
that although there are only two in-state manufacturers of
gasoline, the market forces of supply and demand account for
prices paid by Alaskans. The report concluded that oligopoly
competition is common for many goods and services in the state
of Alaska and it doesn't by definition mean there is no
competition, but it means there are few competitors.
MR. KNUTSON said the report says that economic realities of the
Alaska gasoline market likely explain the price of gas in Alaska
and the relationship between Alaska gasoline prices and the
prices in the Lower 48.
4:23:18 PM
SENATOR WAGONER asked him where their crude oil comes from.
MR. KNUTSON answered their refinery is located in Nikiski. They
haul roughly 50 percent of the crude they purchase from North
Slope producers by tanker from Valdez. They buy every drop that
is purchased in the Cook Inlet, which is roughly 25 percent of
their crude throughput. They are now having to source the
remaining 25 percent from as far away as Norway or Nigeria.
SENATOR WAGONER asked the cost of the low sulphur unit at their
refinery.
MR. KNUTSON replied $65 million - to just stay in the road
diesel business.
SENATOR WAGONER asked why they were forced to do that.
MR. KNUSTON answered the Environmental Protection Agency (EPA)
required that on-road vehicles burn ultra low sulphur diesel - a
new fuel specification.
SENATOR WAGONER asked what their timeline is on recouping their
investment on that.
MR. KNUTSON answered that he didn't have that information.
4:26:10 PM
SENATOR WAGONER said a couple of other things need to be said.
First of all the average family received $3,800 from the state
of Alaska last year to defray the cost of higher fuel for which
there are various reasons. He asked what Tesoro's stock value
was in 2006 and what it is now.
MR. KNUSTON answered that he couldn't quote the 2006 price, but
at one point the stock peaked out at $65/share. Late last year
it hit $6/share. It has recovered somewhat to the $12-$14 range.
SENATOR WAGONER said that Tesoro is in his district and a lot of
people work full time there. "They are Alaskans, too. They had
to buy the same high prices on the fuels." He remarked if there
is so much profit on a gallon of gas at the pump, then why in
the center of Kenai, probably the best location there, is there
a brand new station built 10 years ago by Petro Marine that is
vacant and has been vacant for three years.
4:27:36 PM
CO-CHAIR WIELECHOWSKI closed public testimony and said he would
hold the bill to address committee concerns.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 54 - Bill Packet.pdf |
SRES 3/18/2009 3:30:00 PM |
SB 54 |