Legislature(1997 - 1998)
02/24/1998 02:10 PM House ECD
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT
February 24, 1998
2:10 p.m.
COMMITTEE CALENDAR
FUEL PRICES AND THE EFFECT ON THE ECONOMY
TAPE(S)
98-1, SIDE(S) A & B
CALL TO ORDER
Representative Jerry Sanders, Chairman, convened the House Special
Committee on Economic Development meeting at 2:10 p.m.
PRESENT
Committee members present at the call to order were
Representative(s) Sanders, Ivan, Berkowitz, Hodgins and Williams.
Representative Austerman attended via teleconference from Kodiak.
Also attending:
Representative Joe Ryan and Representative Pete Kott
SUMMARY OF INFORMATION
CHAIRMAN SANDERS thanked all the representatives present and gave
a summary of why he has called the meeting. He stated that gas
prices in Alaska look to be 15 percent to 20 percent higher, with
the prices in the Lower 48 running $.99 to $1.01 per gallon and
Alaska's prices at $1.15 to $1.27. But when broken down, you have
to look at that Alaska does not have to pay freight on the crude,
the refineries save roughly $.10 per gallon right there. Alaska
also only has a fuel tax of $.08 per gallon while California pays
$.28 per gallon. California has been selling their gas for $.99
per gallon, take the $.28 off the top, their selling their gas for
$.69 per gallon while at a $1.27 per gallon with the tax off,
Alaska is selling for $1.19 per gallon. This has an effect on the
economy of Alaska. Why are these things true? There are some
obvious reasons, low volume in Alaska, great distances to transport
the fuel and severe weather problems. However, government
employees and organizations like the Department of Transportation
cite the same reasons when they are questioned about costs. They
all have the same problems. It is his belief that this has a very
significant effect on the economic development of Alaska. There is
not a lot of records to go back and check on, but there are some
nationwide records. Going back over the country the last 175
years, one can see that for 150 years America has an economic rate
of growth that 3.4 percent on an average. In 1973, when the OPEC
(Organization of Petroleum Exporting Countries) nations tripled the
price of oil, it dropped down, and for 25 years the economic growth
rate has been only 2.3 percent. Now that sounds like a difference
of 1 percent point but it's not. When you have a 3 percent growth
rate and it drops 1 percent, that is a 50 percent drop. That is
what has happened with the nation and surely it is the same for
Alaska. A slow economic growth rate caused by the price of fuel is
the main cause for the political and social unrest that faces
Alaskan's today. Its effect can be felt in Alaskan's personal
self-esteem and Alaskan's frame of reference as a state. It makes
one look for scapegoats. Is it rural people or it is urban people
to blame? Possibly governmental employees? Someone is to blame
and it is the slow growth that's inhibiting the state's
development. Alaskan people appreciate how much they gain when
crude prices go up, but what happens when prices fall? Why do
retail prices go up three days after an increase, but it takes a
year for it to come down when prices fall? The next question is
the hardest. What, if anything, can the legislature do about it
to get prices down and the growth rate up? Chairman Sanders said
he will call on people from the public, but first will let any
representatives with questions or comments speak first.
REPRESENTATIVE JOE RYAN stated that he had a copy of a report done
in 1980, by Mr. Frank DeLong and another fellow whose name he has
forgotten. It was written for Senator Fahrenkamp's Resources
Committee. Mr. DeLong resides in Fairbanks and was the person who
started the North Pole Refinery for Earth Resources. He had it for
a couple years and sold it. Mr. DeLong states in the report that
there are a couple of the major refiners that sell refined products
in Alaska and their prices always seem to be within reach of each
other, within a penny or so. The report talked about the refinery
in North Pole being one of the most profitable in the history of
the oil business. They do get royalty oil under a special
agreement with the state and that, supposedly, under the agreement
the citizens of Alaska would receive lower petroleum prices. They
pay a degradation fee of some $80 million. He has seen an article
where there is a 20 percent degradation in the oil that is taken
out and then put back in. The refiner should be paying $.12, but
are only paying about $.04 due to the 20 percent degradation.
Fairbanks had a very large economic development program at the
airport to bring foreign air carriers in because it is 250 to 300
miles shorter on the great circle route to the Far East than it is
to Anchorage. It was a consortium of people who bought pretty
cheap fuel products in Singapore, poured them into Anchorage in the
duty free zone and lowered the price $.06 per gallon. That just
took care of Fairbanks, they could not compete with those prices.
Representative Ryan questioned how fuel could be shipped to
Anchorage and sold cheaper than where it was refined. Due to the
market, competition? He didn't think that was it. He Also
questioned why prices were always constant with Tesoro. Why is
there no difference if there is competition? With the trades they
do, instead of shipping petro up the Kenai Peninsula to Fairbanks,
they trade with Tesoro stations then get a corresponding agreement
from the lower areas to save shipping costs. The report listed
some of these things that the committee is now questioning.
REPRESENTATIVE AUSTERMAN stated that he is in Kodiak and gasoline
prices are $1.529 for regular, but one can go down to the plant and
buy gas for little cheaper, like $1.05 plus taxes on top of that of
$.314.
REPRESENTATIVE BILL WILLIAMS didn't feel comfortable getting into
a position of dealing with the private sector business, but would
like to hear from people in the public sector.
REPRESENTATIVE MARK HODGINS agreed that it is difficult in getting
involved in the competitive market. He stated that the House
Special Committee on Oil and Gas is looking into some of the
spillage and tanks that led to the underground tank thing. That
costs the industry a lot of dollars and it could or could not have
something to do with the high prices. If there was just one
business that had high prices, there might be something to look at
but with competition, it is difficult to try and come in to mess
with the economic situation. Prices have fallen in Juneau since
three years ago when Mapco came in. The main axiom is that when
you're in business, they owe it to their customers to continue to
offer their services. It's kind of thin ice that the committee is
treading on, but he still thinks it's a good idea to have meeting
to see if they can get them to self-examine themselves.
CHAIRMAN SANDERS thanked the other representatives and introduced
the first public person to testify.
DAVID REAUME, Economic Consultant from Juneau, stated that the
information suggested that there is something worth investigating.
Is not the fact prices in Alaska are generally higher than
elsewhere, or the Kodiak prices are higher than Anchorage prices?
Those differences can be explained by such things as weather. He
said he thinks it is interesting the way prices respond over time
or fail to respond over time. He gave examples of numbers he has
taken between January and December of 1997. The price that Mapco
paid for crude oil fell 30 1/2 percent and the price Tesoro paid
for crude fell a little bit more than 38 percent. The two
companies have different contracts. At the same time, prices at
the pumps in Anchorage fell less than 2 percent. If one expects to
see a one for one translation of crude oil prices changes into pump
prices, that would depend on the percent of the total operating
costs and other factors that crude oil took up. Mr. Reaume passed
out some annual report statements he had gotten off the Internet
for Unical, Mapco and Tesoro. He addressed Tesoro's and said to
illustrate under the income statement for December 1996, and
December 1995, these are the year ending statements. The costs of
goods sold, let's set a high percentage of something like 8/9th,
whatever translates into somewhere above 80 percent of the revenue
is the costs of goods sold. The costs of goods sold has in it
other items other than simply crude oil, but he thinks it's safe to
conclude from this that crude oil, the acquisition price of crude,
constitutes something in excess of half the total costs for these
operations. If one was to see a 40 percent reduction in crude oil
and if that were translated competitive market to retail pump, one
could expect to see something like a 20 percent reduction at the
pump instead of the 2 percent. There are some time elements
involved.
REPRESENTATIVE ETHAN BERKOWITZ said that's assuming there is no
other costs in the price of production.
MR. REAUME stated that was correct. (Indisc.) no, this was
suggestive, it did not prove anything but it was suggestive. It
did state the issue.
REPRESENTATIVE HODGINS pointed out, from memory, that Tesoro uses
about 55 percent of the barrel and gasoline was 25 percent to 30
percent of that so in the barrel itself, they only get 55 percent
out that they can actually utilize. The rest was recedes that some
of the refineries get to put back into the pipeline. Tesoro had to
ship it out to get rid of it and it costs them $20 million. What
struck him was that it's not the portion of the barrel that goes
for gasoline, it's like maybe 25 percent of the barrel, so even if
there is a 25 percent decrease, they are looking at at least an 8
percent to 10 percent decrease that should be for the cost of the
crude. It is not a ratio of one to one.
MR. REAUME said no and that was what he tried to point out, that
the percentage translation at the pump under a competitive market
would be, in part, a function of the share of total costs that the
product in question took up. If there were no other changes, the
costs of crude oil was 50 percent of the total cost producing a
slate of products than one would expect something like one half the
percentage reduction in retail price then one saw in terms of the
acquisition price of crude. So crude prices dropping 38 percent,
that implies something in the order of 15 percent to 20 percent
reduction. With all things equal in a competitive market and
sometime lags involved, but thinks that the issue whether or not
there is a problem there. It isn't simply that gas prices are
$1.50 in Kodiak and a $1.20 in Los Angeles that directs attention
in the wrong direction. We need to look at how pump prices change
when crude oil prices change and some other things. For example,
compare, if the data is available, the way in which average gas
prices charged by Tesoro and Mapco have changed in the same January
to December period. Mr. Reaume said he thinks that the nature of
the problem is better focused drawn to the way in which retail
prices relate to changes in crude oil prices rather than simply
enter area costs differentials. The next point he made was
regardless of whether one is talking about the retail or the
wholesale level, there is both extensive empirical and theoretical
research indicating that price fixing is not only possible, but in
fact has gone on a relatively regular basis across the United
States for a number of years. He gave the committee a copy of a
journal article from the Autumn 1996 Rand Journal of Economics by
two authors. One is Sevrin Borinstine from the University of
California Berkley. He has done a fair amount of work on the
question of the relationship between retail petroleum prices and
crude oil prices and the issue of how one, if one were a player in
the market, would one go about price fixing without getting caught.
If one wanted to contact someone who is not only capable of
analyzing but in effect up to speed, that would be the sort of
person to contact. He gave the telephone number of Mr. Borinstine
to the committee. One of the papers passed out to the committee
was co-authored by Mr. Borinstine titled, "Do Gasoline Prices
Respond as Symmetrically to Crude Oil Prices Change." Mr. Reaume
stated that the mere fact that somebody at the University of
California has a research paper that asked that question suggests
that somebody around here has been looking at some numbers that a
least make a reasonable being want to inquire into it. The second
article was authored by Karen Brock, he was not an acquaintance of
hers, titled. "The Behavior of Retail Gasoline Prices Symmetric
or Not?" What that discusses when they are talking about symmetry
is the tendency for people (indisc.) to see and these can tell you
whether they have actually recorded them. Retail prices going up
when crude oil goes up is relatively lock step fashion and then
falling to come down. That's the symmetry that they are referring
to in these two articles. The third article Mr. Reaume passed out
was from the GAO US Journal Accounting Office, its "Energy Security
and Policy: Analysis of the Pricing of Crude Oil and Petroleum
Products." These three articles are fairly readable and have other
references.
REPRESENTATIVE BERKOWITZ said it seems to him that according to the
Rand Journal, there is an assumption that there is a tacit
collusion as opposed to active collusion. When dealing with a
retail market for gasoline. It's competitive as there are a lot of
players. There is a good knowledge base by everyone. How does one
distinguish between tacit collusion and just competition?
MR. REAUME answered to distinguish tacit collusion from active
collusion and then competition from tacit collusion. "Active
collusion" means one gets on the phone and talks to the other guy
and they plot, a memo changes hands. That, on occasion, has been
found. Tacit collusion usually is embodied in what is called price
leader/price follower behavior where for a time they might have
tried to cut each others throats. They learned that it makes sense
for them as business people to simply let one of them set the tone
with respect to raising and lowering prices or changing the way
they do business and that qualifies as tacit collusion. When firms
are tacitly colluding, they refrain from taking aggressive action
on price and other marketing methods against one another. They, in
effect, let the lead firm dictate what is going on. That can break
down but he has seen it only once in 20 odd years here in Alaska.
It happened once in Juneau when Mapco came to town, then it
appeared that somebody had reestablished themselves as the price
leaders if that model is to be believed. If one is to believe
tacit collusion is going on in Juneau, what one might have seen was
a period of competition when Mapco first came in followed by a
renewed understanding that it isn't the best way for them to
conduct business. Competition is simply one does what one thinks
is best for their own business. If it means one thinks it's best
to match somebody else's price to keep from losing customers, which
it usually does, that also means that from that point of view, it
is pretty difficult to determine if tacit collusion or competition
is going on. If the committee believes that there is a problem,
then the anti-trust road is where they have to head. If they
believe that a company or group of companies is behaving in an
anti-competitive manner, there are only two avenues in which to
establish a case. One is statistical and the other is finding the
smoking gun. Having someone come forth and testify that is
credible or having memos, tapes of telephone conversations, things
of that nature. Based on Mr. Reaume's reading of history on anti-
trust cases, ones based on statistical evidence are drawn out and
frequently come to no conclusion. That is not a cost effective way
to use public money unless there is a large amount of money at
stake. He cited the example of tobacco companies, the antitrust
cases against them were years in the making and until the "smoking
gun" came forward in the forms of memos and testimony from Liggett,
was going no where. He thinks that if the committee is looking to
pursue litigation, it has a long way to go. He gave an idea that
he thinks is pretty straight forward but it is not fully developed.
They could consider making the price of which companies pay for
royalty crude dependent upon their retail performance. He couldn't
give a formula, but said it could in effect say if retail prices
don't behave symmetrically according to a formula figured out by
the state and written into a contract that has been signed, then
there is going to be a transfer of funds in effect, the price of
royalty crude would go up or vise versa. If the problem is that
prices tend to go up with the price of crude but don't tend to go
down quite as rapidly this is an avenue the committee might want to
seriously investigate. He concluded that the period of
investigation has just begun and they might find prices to be
reasonable. He doesn't think they are but would keep an open mind
and asked if there were any questions from the committee members.
REPRESENTATIVE RYAN stated that he had comments regarding
Representative Hodgins' remarks. Tesoro does not have the luxury
of reinjecting residual fuel. (Indisc.) He checked the prices of
bunker fuel in the West Coast, it was about $13.
REPRESENTATIVE HODGINS questioned Mr. Reaume about selling royalty
oil and tying the price to retail prices. He didn't know how it
would be a savings to the consumer and didn't it seem more like a
tax.
MR. REAUME answered that suppose the company fails to perform, that
the price of crude oil goes down and they fail to pass it through
to the consumer. The nature of the formula would be to see that
the break in crude oil prices is passed on to the consumer. If
they fail to pass it on to consumers a portion of money is passed
over to the state treasury. It doesn't affect the retail price of
crude immediately but it is passed over.
REPRESENTATIVE BERKOWITZ asked why the state should get involved.
MR. REAUME answered that the justification Representative Berkowitz
was looking for in constructing such a formula was an arguable
point. It would be a testable hypothesis that if installed he
conjectured the result would not be failure to perform, the result
would be performance on the part of companies for fear that the
other would perform and thereby create a noncompetitive situation
for those that were not performing. Failure to respond would lead
to the second part of this. Assuming right now that there is a
problem and there is structured a formula and both companies fail
to perform. The companies would have a certain amount in public
interest advertising. They are concerned about the legislative
body investigating, it could lead to different tax laws, regulatory
changes. The failure to respond at the retail level leads to
publicity in the form of the public knowing the company had to
write a check back to the state because prices did not go down.
That would stimulate price changes. There are really two ways in
which a formula of this sort, if constructed properly, would impact
the consumer in a positive way. One would be by one company trying
to avoid have to pay back money and the other would be the negative
publicity that would arise if the company did have to pay back the
money. He stated he could not go beyond this in terms of the
formula, he has not thought it all the way through but thinks it is
worthy of further investigation.
AN UNKNOWN SPEAKER asked Mr. Reaume was his background in retail at
all. Because what he described was if they punish the companies
then they will drop their prices and be more competitive but if
they didn't punish them, then there was no competition.
REPRESENTATIVE BERKOWITZ said he thought they would be competitive
in either stance.
MR. REAUME answered that the discussion of the formula was on the
assumption there was a finding of minimum tacit collusion, if there
is no finding of that then nothing need be done. He did not have
a problem using the word punish.
REPRESENTATIVE BERKOWITZ was not ready to jump to a conclusion
there was anything going on.
MR. REAUME said he was not either but was conjecturing.
REPRESENTATIVE BERKOWITZ asked if there was any information that
Mr. Reaume knew of that compared Alaska's wholesale prices with
those of the Lower 48. He saw through looking through the
information retail prices but no wholesale prices.
MR. REAUME said that it is possible to get it but a subpoena might
be needed in some cases. These prices are not typically published
and made readily available to the general public. He did not know
of any place he could get those numbers right away but knew of
where to get them in principal but it would take time. He went on
to say that there was a time that the attorney general's office was
looking into this matter and the answers they got from the local
stations was the stations were only passing on the higher prices
due to the high wholesale price. If one were to figure out the
differences between the prices of Southeast Alaska and Seattle,
being very generous with tanker travel costs, one could never get
the wholesale price differential that they had come up with. At
that point in time, it appeared that Chevron and Unical were taking
advantage of their duopoly (ph.) in Southeast Alaska and exploiting
it. The prices in Juneau as it was then and the prices as they
would have been under a really competitive market was probably
eaten up by the wholesale markup. He did not have those numbers
but the AG's office did and probably got them cooperatively, he was
not sure if they had to subpoena the companies.
CHAIRMAN SANDERS asked Mr. Reaume if he thought that if they could
get the television stations to give out the prices of gas, showing
where the lowest prices were, if it would have any affect on
prices. He thought though getting the stations to do it might
prove difficult due to advertising dollars.
MR. REAUME answered that the first problem would be getting them to
do it and that it could lower prices for awhile, but after a time
there would not be a long run effect. He wanted to point out
something else also when he was talking about deviation gas prices,
average gas prices has dropped he conjectures, more or less with
the price of crude. That situation exists in other fields. He
gave an example of trash pick up in Juneau ten years ago.
Consumers were paying the lion's share of the profit margin of the
company instead of the businesses, who dumped the most garbage.
Individual consumers are not organized and, therefore, have a
harder time getting things changed, where as larger consumers would
have less of a problem. That is a general theme, anytime one
constitutes the largest part of a business, they have more of a say
on prices.
REPRESENTATIVE RYAN gave a scenario and asked if it was reasonable.
If the legislature looked at the contracts of Mapco and Tesoro and
see if there is advantage. Looking at the general oil business,
refineries in particular, they are located near a large seaport
because they receive ocean shipments of oil. Fairbanks has a
unique situation, the refinery is allowed to tap off the
TransAlaska pipeline and pay a degradation fee. He doesn't
remember if there is a transportation fee involved.
MR. REAUME gave his understanding of the degradation charge. That
it is based on the volume put back versus the volume taken out,
that's one factor and the BTU value of what was put back versus
what was taken out. There may be additional factors going into the
composition of what was taken out but he didn't know. It is the
quantity and quality of what is taken and that is figured right at
the Fairbanks terminal. Transportation should not figure in for
the crude that goes on down to the Valdez terminal. He would be
surprised if it was. He thinks the issue is the total amount they
exact and that they do to take out valuable hydrocarbons at
Fairbanks that could otherwise be sold to the West Coast, Gulf of
Mexico.
REPRESENTATIVE RYAN asked if that fee makes up for the
transportation from Fairbanks to Valdez. The fees are supposedly
for the degradation of the oil. Someone has to pay it.
MR. REAUME answered that the ultimate buyer at the end of the line
pays for that.
REPRESENTATIVE RYAN asked is that a concession.
MR. REAUME answered yes.
REPRESENTATIVE RYAN said if that's true and they have given certain
concessions and under the tacit understanding he was reading about.
Mr. Reaume interrupted and said that it really isn't a concession,
it is a reflection that when Mapco takes the oil, it doesn't have
to go all the way. Oil purchased in the Gulf of Mexico is going to
be higher due to transportation costs. It is a cost advantage for
Mapco over having not to transport it from Valdez.
REPRESENTATIVE RYAN asked what does Tesoro get out of the market
when they have to pay transportation costs and they are getting a
product that is of less value due to have Mapco putting back in the
degraded oil residue. It lowers the value of the royalty oil at
the Valdez terminal. They are at a competitive disadvantage to
Mapco. How can they stay competitive and still make a profit.
MR. REAUME answered that it is cheaper to ship refined products
than it is to ship crude so Mapco has to ship their products to
Anchorage and that offsets some of the costs. He said it is a good
point Representative Ryan was trying to make and he thinks it bears
investigating. One has to look at the total cost of acquisition of
crude and the quality of crude they are buying, what sort of
competitive edge would Tesoro have over Mapco and vise versa in a
well defined market. He didn't have any answers and that is one of
the things the committee needed to look into to before any firm
conclusions can be drawn.
CHAIRMAN SANDERS asked that if transportation costs are higher for
Mapco to ship down to Anchorage, why is the price $.13 to $.15
lower in Anchorage than it is in Fairbanks.
MR. REAUME said that is one of the questions the committee will
need to send its research people. It is going to take
investigating and will take time.
CHAIRMAN SANDERS thanked Mr. Reaume for his testimony and said that
the next person to testify would be someone who uses fuel for his
business. The focus would be on diesel fuel, which drives the
economy.
ERROL CHAMPION, Silver Bay Logging, Southeast Alaska, testified
that the business' costs for fuel was their second largest expense
next to personnel costs. He thinks that statement would hold true
for any business which is in natural resource harvesting. They
operate all over the state. Their business uses a fleet of
helicopter which last year used 954,000 gallons of fuel. The small
fleet of turbo planes used 67,000 gallons. They have five tugs and
they haul their own fuel to the smaller locations because it cannot
be delivered any other way. The five tugs burned 1,550,000 million
gallons of fuel in 1997. The traditional logging and construction
sights that operate across the state burnt 4,680,000 gallons of
fuel. Total fuel 7,257,000 in 1997. Wholesalers who bring it out
by barge weekly deliver the fuel in Southeast. Montague Island
and Afognak Island are supplied by the company's own tugs which
take up to 250,000 gallons loaded up in Anacortes Washington. They
make five trips a year. The quick math on that is that they spent
7.2 million dollars on fuel last year and a dime off a gallon is a
savings of three quarters of a million. That amount of savings
goes to the bottom line, allowing the company to make other
investments, improve their operation, etc. The cost of fuel is
extremely significant to the business's operation.
CHAIRMAN SANDERS said he assumes they buy their fuel in Anacortes
because it is cheaper than Alaska. Kenai is closer and if it was
cheaper, they would save money.
MR. CHAMPION said it is approximately 40 percent cheaper in
Anacortes than to purchase it in Kenai. The company buys in bulk
consistently and pays about $.80 a gallon. They purchase it from
Texaco or BP. There are three refineries and they are very
competitive with each other. Even if they filled their tugs at the
Seattle waterfront, they will pay less than buying in Alaska.
Ballard WA the price is about $.90 per gallon.
CHAIRMAN SANDERS asked if the crude was from Alaska.
MR. CHAMPION replied that was correct.
REPRESENTATIVE RYAN asked what was the cost of transporting the
fuel back up to Alaska.
MR. CHAMPION said they figured it was about $.06 per gallon. The
fuel is from Alaska and they transport it back. They try to have
a back run of logs, whatever, so they don't make an empty trip.
CHAIRMAN SANDERS asked what taxes were involved. They do have a
water born freight and tax tariff.
MR. CHAMPION said that was included in the price. It does not
include any federal highway tax or sales tax. But it would be the
same here.
REPRESENTATIVE RYAN asked if they received a rebate on the Federal
highway tax for using a marine application.
MR. CHAMPION said if they paid it, they would get rebate but they
avoided doing that, as it was a long time to get the rebate checks.
They try and buy from a wholesale dealer who is not levied. They
don't run on federal highways, they are consistently in remote
locations. They consume their fuel on off road situations.
CHAIRMAN SANDERS asked Representative Austerman if this seemed to
comport with information he had in Kodiak about diesel prices. Are
prices less outside.
REPRESENTATIVE ALAN AUSTERMAN said that was true. Small businesses
buy off the West Coast also.
MIKE PRINCE, Emmonak, Alaska, representing Lower Yukon School
Board, gave testimony on gas prices for the school board. They pay
$2.30 per gallon and they have a $.03 sales tax. They might dip in
price a little bit in summer but it is usually $2.30. They use the
gas for their snow machines. They use stove oil and it is $2.20
per gallon. They bring it in by barge. He said that his household
uses about 110 a month on stove oil, maybe more. Their house is
pretty well insulated. The figures might be conservative. He has
a wood stove and uses 100 to 110 per month. Fuel use for machines
is broken down, that in summer they use outboard motors and winter
for their snow machines.
REPRESENTATIVE RYAN asked what amount of fuel did the school use.
MR. CHAMPION said that they put it out to bid. They have 11 sights
and seems like bulk rate for heating fuel is about $1.73. They buy
a lot of fuel and that price might be a bit conservative. They
have on occasion transferred fuel to local entities on an emergency
basis. It's an emergency basis only as they are very tight on
fuel. The fuel is deliver as late of September, maybe October.
They are mandated by insurance companies to have the barges out of
the area by a certain time. He did not know where the distributors
got their fuel.
ART HECKMAN, Pilot Station, runs the retail store in Pilot Station.
They retail their gas for $2.60 per gallon. They have a holding
tank for approximately 50,000 gallons for heating fuel and gas.
That includes the $.04 per dollar sales tax. Heating fuel is $2.30
per gallon. His household uses about 1,000 to 1,500 per year to
heat up his home. He uses driftwood to supplement heating costs.
The school has a holding tank of, his guesses, 8,000 gallons for
heating fuel. That covers the school and the living quarters for
the teachers. The light plant has anywhere between 80,000 to
110,000. The electric company tacks on a charge for 55 gallons of
fuel to each bill. That is approximately $75 per month to each
bill. He said that their distributor got their fuel from the West
Coast. It was cheaper. The people run out of heating fuel around
spring. They cannot live a subsistence lifestyle, there are only
40 permit holders for subsistence use. When the people run out of
fuel, they have to rely on neighbors. Everyone rations their gas.
When people want to moose hunt, they are limited to five to six
gallons but they need much more to hunt moose.
ADJOURNMENT
The meeting was adjourned at 3:30 p.m.
COMMITTEE ACTION
Committee took no action.
NOTE:
The meeting was recorded and handwritten log notes were taken. A
copy of the tape and log notes may be obtained by contacting the
House Records Office at 130 Seward Street, Suite 211, Juneau,
Alaska 99801-1182, (907) 465-2214, and after adjournment of the
second session of the Twentieth Alaska State Legislature, in the
Legislative Reference Library.
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