Legislature(2007 - 2008)Anch LIO Conf Rm
11/21/2008 09:00 AM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| Overview(s): Matters Pertaining to High Gas Prices in Alaska | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
Anchorage, Alaska
November 21, 2008
9:19 a.m.
MEMBERS PRESENT
Representative Jay Ramras, Chair
Representative Nancy Dahlstrom, Vice Chair (via teleconference)
Representative Bob Lynn
Representative Ralph Samuels
MEMBERS ABSENT
Representative John Coghill
Representative Max Gruenberg
Representative Lindsey Holmes
OTHER LEGISLATORS PRESENT
Representative Scott Kawasaki (via teleconference)
COMMITTEE CALENDAR
OVERVIEW(S): MATTERS PERTAINING TO HIGH GAS PRICES IN ALASKA
AND WHY GAS PRICES HAVE NOT FALLEN AT THE SAME RATE AS IN THE
LOWER 48
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
REPRESENTATIVE MIKE HAWKER
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided comments and asked questions during
the presentation on matters pertaining to high gasoline prices
in Alaska.
SENATOR DONALD OLSON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided comments during the presentation on
matters pertaining to high gasoline prices in Alaska.
REPRESENTATIVE MIKE KELLY
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided comments during the presentation on
matters pertaining to high gasoline prices in Alaska.
KIP KNUDSON, Manager
External Affairs
Tesoro Alaska Company
Anchorage, Alaska
POSITION STATEMENT: Provided comments and responded to questions
during the presentation on matters pertaining to high gasoline
prices in Alaska.
JEFF COOK, Director
External Affairs
Flint Hills Resources
North Pole, Alaska
POSITION STATEMENT: Provided comments and responded to questions
during the presentation on matters pertaining to high gasoline
prices in Alaska.
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 responded to questions
during the presentation on matters pertaining to high gasoline
prices in Alaska.
BARRY PULLIAM, Senior Economist
Econ One Research, Inc.
El Segundo, California
POSITION STATEMENT: Provided comments and responded to questions
during the presentation on matters pertaining to high gasoline
prices in Alaska.
JERRY McCUTCHEON
Anchorage, Alaska
POSITION STATEMENT: Provided comments during the presentation on
matters pertaining to high gasoline prices in Alaska.
DONALD WESTLUND
Ketchikan, Alaska
POSITION STATEMENT: Provided comments during the presentation on
matters pertaining to high gasoline prices in Alaska.
DOLORES "DORRIE" FARRELL
Sitka, Alaska
POSITION STATEMENT: Provided comments during the presentation on
matters pertaining to high gasoline prices in Alaska.
TIM LUTHER
Kodiak, Alaska
POSITION STATEMENT: Provided comments during the presentation on
matters pertaining to high gasoline prices in Alaska.
DICK COOSE
Ketchikan, Alaska
POSITION STATEMENT: Provided comments during the presentation on
matters pertaining to high gasoline prices in Alaska.
MICHAEL E. McCARTHY
Homer, Alaska
POSITION STATEMENT: Provided comments during the presentation on
matters pertaining to high gasoline prices in Alaska.
JAVEN OSE
Anchorage, Alaska
POSITION STATEMENT: Provided comments during the presentation on
matters pertaining to high gasoline prices in Alaska.
ACTION NARRATIVE
CHAIR JAY RAMRAS called the House Judiciary Standing Committee
meeting to order at 9:19:47 AM. Representatives Dahlstrom (via
teleconference) and Ramras were present at the call to order.
Representatives Lynn and Samuels arrived as the meeting was in
progress. Representative Kawasaki (via teleconference) was also
in attendance.
^Overview(s): Matters pertaining to high gas prices in Alaska
9:20:05 AM
CHAIR RAMRAS [announced that the only order of business would be
consideration of matters pertaining to high gas prices in Alaska
and why gas prices have not fallen at the same rate as in the
Lower 48].
CHAIR RAMRAS remarked that although the general perception in
Alaska might be that there is only the one commodity of crude
oil and that the price of it sets the price of retail gasoline,
there are actually two separate commodities, that of crude oil,
and that of refined gasoline. In the Lower 48, there are very
large, complex refineries with the capability of selling
gasoline to a much larger market than Alaska's market; in
contrast, Alaska's market for gasoline products is small and
static. He surmised that if a producer of crude oil is also a
refiner of other petroleum products, then the price of crude oil
can become another variable in gasoline pricing decisions, as
are the level of competition and the level of demand. In
Alaska, however, there isn't much competition and the level of
demand stays fairly constant.
CHAIR RAMRAS said he is questioning whether retail gasoline
prices in the Lower 48 have been artificially reduced by the
decrease in demand due to conservation efforts. He used an
example involving rental car rates in the Lower 48 to illustrate
how an increase in supply coupled with a decrease in demand
encourages competition and thus a lowering of prices. Chair
Ramras then noted that Representative Joule has mentioned to him
that in Kotzebue, gasoline is delivered only once a year and so
the price is still what it was set at when the town's current
supply was delivered - that being about $7.85/gallon.
9:30:26 AM
REPRESENTATIVE MIKE HAWKER, Alaska State Legislature, opined
that in Alaska, the retail price of gasoline is driven by two
factors: the cost to produce the product, and the level of
competition. Alaska is very limited with regard to the number
of refineries that manufacture gasoline. He offered his
understanding that to date there has been no evidence of illegal
activity on the part of gasoline retailers. He surmised that
the question becomes what effect Alaska's lack of competition
with regard to gasoline manufactures has had on the retail price
of gasoline. He offered his understanding that government
regulation can also have an impact on the level of competition
present in any given market. This raises the question of to
what degree should Alaska regulate [the sale of gasoline].
CHAIR RAMRAS spoke of Tesoro Corporation's falling stock price
and the effect competition is having on its refineries outside
of Alaska, and used an example involving Alaska Airlines to
illustrate what effect competition or a lack thereof can have on
pricing. He then noted that the refineries in Alaska are very
small and that the volume of gasoline they produce is also very
small compared to refineries in the Lower 48, and that this,
too, could account for Alaska's higher retail gasoline prices.
REPRESENTATIVE LYNN characterized what he pays at the gas pump
as being too much.
9:36:05 AM
SENATOR DONALD OLSON, Alaska State Legislature, noted that in
his district, towns have been hit hard by the high price of
petroleum products, particularly the schools, because, as in
Kotzebue, the towns' bulk fuel tanks were filled when prices
were extremely high. Such high prices could have the effect of
encouraging people in rural areas to move to urban centers. He
warned that if the industry won't regulate itself, the
legislature will have to do it.
CHAIR RAMRAS explained that the committee has been looking
specifically at the pricing of gasoline in the Railbelt and
Southeast Alaska. He noted that Wrangell, which just got a new
supply of gasoline from Seattle and therefore should have the
cheapest retail gasoline prices in the state, doesn't; this is
evidence that the market is not working as it should, and
perhaps actually constitutes an instance of price gouging. He
again spoke about Tesoro Corporation's stock prices, and opined
that refiners in the Lower 48 aren't making much of a profit
because they have an excess of supply. He mentioned that a
lobbyist he's spoken with has asked whether the committee would
also be investigating barge companies and distributors.
CHAIR RAMRAS then read bullet point number 3 of a Department of
Law (DOL) press release dated 11/20/08 [original punctuation
provided]:
Alaska does not have a price gouging law. Sellers of
all goods and services (including gasoline) are not
required to sell products on a "cost plus" basis.
Thus, it does not matter what it costs the seller to
acquire the goods or provide a service. Sellers can
sell their products for whatever the market will bear.
There is no "cap" on the amount of profit any business
can make.
CHAIR RAMRAS opined that the governor should speak with refiners
and ask them for relief from their high gasoline prices.
9:43:56 AM
REPRESENTATIVE MIKE KELLY, Alaska State Legislature, raised the
issue of people possibly banding together and instituting a
cooperative model as a way of dealing with high gasoline prices,
but noted that such a model does carry the risk of, in the
future, not being able to take advantage of competitive pricing.
He cautioned against government regulation of Alaska's refining
industry.
CHAIR RAMRAS relayed that the committee would be considering
price gouging legislation, and will be providing information
about model legislation in a forthcoming committee report. He
mentioned that the committee would hold another meeting on the
issue of high gasoline prices in January, before the start of
the next session, and spoke briefly regarding how that meeting
might be proceeding and who might be testifying. He surmised
that any lowering of gasoline prices that occurs over the next
few months will be the result of market changes rather than the
result of anything specific that the legislature or the
administration might be doing.
9:50:34 AM
KIP KNUDSON, Manager, External Affairs, Tesoro Alaska Company,
turned the committee's attention to page 1 of his PowerPoint
presentation, and relayed that Tesoro Alaska Company has been
adding value to Alaska's economy for close to 40 years, and is
ingrained in the Kenai Peninsula community. Turning attention
to page 2 of his PowerPoint presentation, he explained that
gasoline is a commodity in both Alaska and the Lower 48, and
that Wikipedia defines "commodity" in part as:
... anything for which there is demand, but which is
supplied without qualitative differentiation across a
market. In other words, copper is copper. Rice is
rice. ... One of the characteristics of a commodity
good is that its price is determined as a function of
its market as a whole.
MR. KNUDSON surmised that this is basically saying that supply
and demand - not manufacturers - determines commodity prices.
Gasoline is a fungible product in that there is no qualitative
difference between one refiner's gasoline and another's. He
noted, however, that this is not as true so much anymore because
certain states and regions in the Lower 48 are now requiring
refiners to make what he called "boutique fuels" - specifically
gasoline - and these are not fungible; this has created what he
called "fuel islands" in the Lower 48. For example, states in
the Northwest have just started to migrate over to a new
gasoline formula because they are now mandating the introduction
of ethanol [into the fuel]; this means that anyone in Alaska who
wanted to go down south and buy "Neat (ph) 87 octane fuel" would
have some difficulty even finding it because most refiners are
now making a product to which ethanol can be added.
Nonetheless, all refiners are still making essentially the same
kind of product - a fungible product.
9:55:41 AM
MR. KNUDSON explained that if a commodity market experiences an
oversupply, prices fall, and if demand for a commodity cannot be
met, prices increase. In the short term, commodity markets are
completely uncaring about what it costs to manufacture the
commodity; again, it is supply and demand which determines
market prices. In the long run, however, if the price of a
commodity falls below what it costs to produce the commodity,
eventually a producer/manufacturer will go out of business;
supply will then tighten, and prices will rise again. In
response to comments, he opined that the gasoline commodity
market in Alaska is functioning normally, notwithstanding
challenges, adding that his company has provided the DOL with a
lot of confidential information confirming that point.
MR. KNUDSON, turning attention to page 3 of his PowerPoint
presentation, explained that over the past couple of decades,
gasoline refining/marketing has become very complicated,
particularly as a result of government interaction. For
example, there are new rules and regulations that the industry
has had to come into compliance with and make capital
investments in, in order to stay in business. And soon the U.S.
Environmental Protection Agency (EPA) will be requiring industry
to remove benzene from gasoline, and will be instituting
significant regulation of greenhouse gases. Furthermore, Tesoro
Alaska Company, because its refinery is located "on tidewater in
the Cook Inlet," will have deal with regulations designed to
protect beluga whales.
MR. KNUDSON turned attention to page 4 of his PowerPoint
presentation, and explained that it illustrates the amount of
investment that the refining industry has had to make in order
to stay in business under environmental regulatory requirements.
Notwithstanding this investment, the price of gasoline, as
illustrated on Page 5 of his PowerPoint presentation, has
historically remained relatively constant when adjusted for
inflation. In response to a question, he explained that his
company's refinery in Kenai has a "nameplate" capacity of 72,000
barrels. In response to other questions, he acknowledged that
when a small refinery makes a "regulatory investment," there are
fewer barrels across which to spread that cost, and then spoke
briefly about Tesoro Corporation's other refineries, adding that
the refinery in Alaska doesn't have an extensive conversion
capability.
10:06:58 AM
MR. KNUDSON, turning attention to page 6 of his PowerPoint
presentation, noted that Tesoro Alaska Company is an independent
refiner, as are all of Alaska's refineries, and thus has to buy
its oil on the open market. As an independent refiner, the
company's economic model is based on being more efficient and
providing a competitive alternative to an integrated major
[producer]. An independent refiner doesn't profit from high
[retail] prices but instead makes a profit or suffers a loss
based on the difference between the market cost of crude oil and
the market price of the refined products, and so the goal of an
independent refiner is to make a profit, both when retail prices
are high and when they are low.
MR. KNUDSON turned attention to page 7 of his PowerPoint
presentation, and explained that although there are only two
manufacturers of gasoline in Alaska, there are a lot of
"marketers". Refiners make a variety of products but have very
little ability to differ the amounts of the products they make,
and all refiners have "minimum run rates" and all strive, at all
costs, to avoid having to turn off their refineries. Refiners,
like all manufactures, follow best practices that encourage
"just-in-time inventories," because otherwise they will be
punished financially if they have either too much crude oil or
too much refined product in their tanks at any given time.
Refiners also build storage and distribution networks to satisfy
customer needs without engaging in long-term storage of either
raw crude oil or refined product.
MR. KNUDSON indicated that refiners are faced with the dilemma
of selling all the products they produce daily, and Tesoro
Alaska Company sells its 50,000 barrels of daily product through
a multitude of channels, such as those listed on pages 8 and 9
of his PowerPoint presentation: retail sales at Tesoro
stations; wholesale branded rack sales, both through
distributors and through dealers; wholesale unbranded rack
sales, both on contract and via open rack; and bulk sales. He
noted that Tesoro Alaska Company also exchanges gasoline - as a
fungible commodity product - with other refineries, and that
this is a standard operating practice throughout the world.
10:14:07 AM
MR. KNUDSON, turning attention to page 10 of his PowerPoint
presentation, said it illustrates that Alaska's gasoline demand
is very small compared with all other Petroleum Administration
for Defense District (PADD) V states. Referring to page 11 of
his PowerPoint presentation, which illustrates refinery
locations in the U.S., he explained that two of the refineries
on the North Slope are just topping plants operated by the
producers, who generally just use what they produce at those
plants to further their own oil production efforts as opposed to
selling it on the commercial market. Alaska, essentially, then,
just has [three] refineries, and the reason that the state has
so many - given its size - is because of the demand for jet
fuel, also known as distillates; Alaska's demand for jet fuel is
more than three times its demand for gasoline, as illustrated
via page 12 of the PowerPoint presentation, and Alaska's
refineries are primarily designed to produce jet fuel.
MR. KNUDSON, referring to page 13 of his PowerPoint
presentation, mentioned that approximately one-third of what his
company's Kenai refinery produces is considered "the bottoms,"
for which there is no market in Alaska and which usually sell at
a loss. Page 14 of the PowerPoint presentation illustrates that
Alaska's gasoline demand is subject to seasonal swings - demand
is greater in the summer months and less in the winter months -
and this causes difficulties for refiners as they attempt to
adhere to their run rates. Page 15 of the PowerPoint
presentation states that seasonal swings can hurt a business's
return on investment regardless of what kind of business it is.
MR. KNUDSON indicated that page 16 of his PowerPoint
presentation illustrates that on a monthly average, Alaska's
retail sites only sell a bit more than half the gasoline that
Washington's retail sites sell and only about one-third of the
gasoline California's retail sites sell. Page 17 of the
PowerPoint presentation illustrates that Tesoro's branded
outlets constitute only about 15 percent of Alaska's total
retail outlets; he added that Tesoro also supplies only about 15
percent of Alaska's total retail market. [Page 18 of the
PowerPoint presentation is a duplicate of page 10.] Page 19 of
the PowerPoint presentation shows an overhead view of Tesoro
Alaska Company's Anchorage tank farm. Turning attention to page
20 of his PowerPoint presentation, he explained that maintaining
maximum throughput is essential for a successful fuel terminal,
and that in order to maximize its throughput at the Port of
Anchorage, Tesoro leases storage to its competitors.
10:21:45 AM
MR. KNUDSON referred to page 21 of his PowerPoint presentation,
and explained that the commodity price for fuel is determined by
[the price of] the last barrel going into a particular market to
satisfy the demand in that market. He mentioned that this is
where the concepts of import parity and export parity come into
play, and that all producers play a critical role. Referring to
page 22 of his PowerPoint presentation, he said it illustrates
recent volatility in the Pacific Northwest spot market, adding
that the recent daily price swings are unprecedented. Risk
constitutes a cost, and a company must protect itself against
risk in order to stay in business.
MR. KNUDSON turned attention to pages 23 and 24 of his
PowerPoint presentation, which illustrate some retail gasoline
prices in Anchorage and Juneau on 11/21/08. The lowest retail
price listed for Anchorage is $2.76/gallon, and the lowest
retail price listed for Juneau $3.22/gallon, which includes a 5
percent sales tax. Juneau has no refineries, and is a pure
import market, though it is 1,000 miles closer to the Pacific
Northwest spot market than Anchorage is. Turning attention to
page 25 of his PowerPoint presentation, he said it compares
[both before-tax retail gasoline prices and rack rates] in
Anchorage with those of Seattle. With the exception of the
steep rise and the steep fall in the price of Alaska North Slope
(ANS) crude oil, he remarked, the "pricing curves" are on par
with historical trends. In other words, it appears that
Alaska's commodity market is working roughly just as it always
has. Since an independent refiner makes money based on the
difference between the market cost of crude oil and the market
price of the refined products, it can be troublesome when the
price of crude oil and the Pacific Northwest spot market price,
for example, get close, just as they are now. If this persists,
it could result in a refinery going out of business, and supply
will subsequently decrease.
MR. KNUDSON, referring to page 26 of his PowerPoint
presentation, said it illustrates the spread - as a percentage -
between the price of ANS crude oil and [the before-tax retail
gasoline price] in Anchorage. From December 2007 through
October 2008, the percentage was exceptionally low, but is now
moving back to "normal" levels. He again pointed out that a
refiner has to be able to make a profit in both a high-price
environment and a low-price environment. Referring to page 27
of his PowerPoint presentation, he said that the refining
industry is one of the few successful value-added industries in
Alaska. Tesoro Alaska Company has been adding value to Alaska's
oil for 39 years and has employed Alaskans to make products that
Alaskans buy. Economists in the Lower 48 have determined that
the [job multiplier] for a refinery is nine, much higher than
for other industries, and this means that in Kenai, Tesoro
accounts for approximately 1,800 jobs - 200 jobs in the refinery
itself, and each of those jobs multiplied by nine. In-state
refineries, by supplying jet fuel, have helped underpin the
growth of the international air cargo industry in both Anchorage
and Fairbanks, and this demand for jet fuel has in turn helped
underpin the ability of in-state refineries to make more
gasoline and diesel. For example, even though Alaska is
geographically distant from large fuel markets, the reliability
of its refineries' gasoline supply is excellent.
MR. KNUDSON, turning attention to page 28 of his PowerPoint
presentation, said that Tesoro is continuing to provide
proprietary data to the DOL, and that Tesoro maintains the
belief that the DOL's confidential forum is the correct process
through which to investigate gasoline prices. In conclusion, he
urged the legislature to wait for the DOL's report before
getting too far ahead with any legislative proposals, surmising
that that report could assist the legislature in its
deliberations. In response to a question, he offered his
understanding that the DOL intends to conclude its investigation
before the end of the year.
REPRESENTATIVE HAWKER noted that the DOL is investigating
whether the high retail gasoline prices in Alaska are the result
of any criminal activity, but that the legislature, via these
meetings, is instead considering policy issues related to those
high prices. Referring to page 25 of Mr. Knudson's PowerPoint
presentation, he asked why retail gasoline prices in Anchorage
began to diverge dramatically from Seattle's retail gasoline
prices in April 2008, and why Alaska's prices didn't decrease
when Seattle's retail gasoline prices and the price of ANS crude
oil decreased.
10:39:59 AM
MR. KNUDSON said he could not point to a reason why, and
reminded members that the Pacific Northwest commodity market is
geographically distinct from Alaska's commodity market.
Furthermore, demand in the West Coast's gasoline markets has
dropped significantly, thus immediately altering the
supply:demand relationship in those markets; in Alaska, in
contrast, the supply:demand relationship did not change as fast
or at all, and this might account for the aforementioned
divergence. However, historically, similar divergences occur
roughly every September, and some of that has to do with how, in
the summertime, the gasoline supply on the West Coast must be
altered in order to comply with [more stringent environmental]
regulations, but need not be altered in the wintertime, thus
essentially increasing the supply and resulting in a decrease in
price.
MR. KNUDSON, in response to comments, opined that because the
Pacific Northwest spot price has been at or below the ANS crude
price this fall - as illustrated via page 25 of his PowerPoint
presentation - this indicates that the Pacific Northwest market
is out of balance. Perhaps Alaska's commodity market is, in
fact, in balance. In response to a question, he said he doesn't
know how many days Tesoro Alaska Company could store an excess
supply of gasoline before finding itself in trouble, but
reiterated that his company simply cannot allow such a thing to
happen.
CHAIR RAMRAS questioned whether a boycott on gasoline stations
would bring retail prices back down in the near term.
MR. KNUDSON acknowledged that lowering consumer demand would
definitely have an impact on Alaska's supply:demand
relationship. In response to questions, he concurred that the
gasoline manufacturing capacity of refineries in Alaska,
especially during winter months, exceeds demand; in other words,
because of the demand for jet fuel, Alaska's refineries could
find that they are making too much gasoline to properly account
for seasonal swings in demand. In response to comments, he
explained that all refiners in Alaska have to calculate how much
gasoline they can produce without having to export it at a loss.
REPRESENTATIVE HAWKER suggested that the high in-state prices
Alaska's refiners are setting are subsidizing any losses that
might result from exporting excess supply to the Lower 48.
10:48:54 AM
CHAIR RAMRAS asked what the rack rate is at [Tesoro's Kenai
refinery].
MR. KNUDSON said he hasn't been provided with that information.
CHAIR RAMRAS asked Mr. Knudson to provide the committee with the
current rack rates at all of Tesoro Corporation's refineries.
MR. KNUDSON said he would, but warned that that information
would not reflect Alaska's market and that the fuel at the
company's other refineries could not be transported to Alaska.
CHAIR RAMRAS predicted that the DOL's investigation will
conclude that Alaska's high retail gasoline prices are not the
result of illegal activity, and again opined that the governor
herself should be speaking to Alaska's refiners about those high
prices because no one has been able to explain, to his or his
constituents' satisfaction, the disparity between Alaska's
retail gasoline prices and retail gasoline prices in the Lower
48. He then expressed disfavor with the DOL's statement in its
press release that the administration can do nothing to lower
Alaska's retail gasoline prices.
REPRESENTATIVE LYNN surmised that the governor is not unaware of
the problem, and expressed satisfaction with the steps being
taken thus far.
REPRESENTATIVE KELLY offered his belief that the high price of
gasoline at the refinery level is caused by too much government
regulation, and cautioned against rushing to add another layer
of government regulation in an attempt to address the issue. It
may instead be more appropriate to simply continue having the
refiners justify to the legislature why Alaska's gasoline prices
are so high.
10:58:49 AM
JEFF COOK, Director, External Affairs, Flint Hills Resources,
said he did not have any new information to add to that which he
provided at the previous two meetings on this topic. He relayed
that Flint Hills Resources is continuing to provide the DOL with
requested information, and is working on a presentation for the
committee's next meeting on the topic of high gasoline prices in
Alaska. He noted that he, too, is precluded by law from
disclosing information about his company's pricing strategies,
and relayed the names of individuals from his company who might
be speaking at the next meeting.
11:02:38 AM
CLYDE (ED) SNIFFEN, JR., Senior Assistant Attorney General,
Commercial/Fair Business Section, Civil Division (Anchorage),
Department of Law (DOL), relayed that the DOL will be meeting
with Delta Western, Inc.; Holiday Stationstores, Inc.; and
Costco Wholesale Corporation. Delta Western, Inc., he explained
is one of Southeast Alaska's primary fuel suppliers, and
operates a barge transportation company. Obtaining data from
such a company could provide the DOL with a better picture of
why Southeast Alaska's pricing structure is as it is. As a
barge operator, Delta Western, Inc., is largely responsible for
setting the wholesale price of fuel in Juneau and other
Southeast Alaska communities; retailers then use that price as a
benchmark when setting their retail prices.
MR. SNIFFEN said that although Delta Western, Inc., is not the
only wholesale provider of fuel in Southeast Alaska, it is a
significant player, purchasing fuel in the Pacific Northwest and
having "terminaling" capacity of between 10 million and 15
million gallons in Juneau. When Delta Western, Inc., fills
those tanks, it might take Juneau consumers several months to
use up that supply, throughout paying the price set when the
tanks were filled up. The dynamics of fuel pricing in an import
market such as Juneau's, therefore, are a lot different than in
the Railbelt, where refineries are located. In response to a
question, he surmised that he would be able to get data from
Delta Western, Inc., and other companies regarding how fast
Juneau consumers go through Juneau's fuel supply, adding that
that information would be included in the DOL's final report.
MR. SNIFFEN explained that the DOL has been working with Barry
Pulliam from Econ One Research, Inc., to try to make sense of
all the data the DOL has been gathering throughout its current
investigation into why retail gasoline prices in Alaska haven't
fallen at same rate as retail gasoline prices in the Lower 48.
He indicated that having a better understanding of all the
market factors responsible for gasoline pricing being what it is
will enable the DOL to better determine whether Alaska's high
retail gasoline prices are indeed the result of illegal
activity. He said he anticipates that the DOL's investigation
should be concluded by the start of the next legislative
session.
MR. SNIFFEN explained that his office was recently asked by the
attorney general to provide the public with an update on its
investigation, and did so in the form of the aforementioned
press release; however, providing factually accurate information
without divulging confidential information was difficult to do.
CHAIR RAMRAS noted that Petro Star, Inc. (PSI), has provided the
committee with written testimony.
11:12:09 AM
BARRY PULLIAM, Senior Economist, Econ One Research, Inc., in
response to a question, concurred that on the issue of gasoline
pricing, there are complexities in the market place to be
considered; for example, one must recognize that the retail
price of gasoline is dependent upon both the market price of
crude oil as well as other factors such as the cost to
manufacture gasoline and the cost of distributing it, with the
latter actually constituting another market. So although Alaska
and the rest of the country, particularly West Coast states,
have to reckon with the market price of crude oil and share
similar types of distribution systems, the composition of the
"downstream" markets is very different in the rest of the
country than it is in Alaska.
MR. PULLIAM also acknowledged that perhaps folks in the Lower 48
are benefiting from more competition, since anytime a market has
more competitors, the quicker pricing will respond to changes in
raw material costs. Mr. Pulliam then referred to page 25 of Mr.
Knudson's PowerPoint presentation, and noted that the price of
ANS crude oil appears to have peaked in July 2008, and that over
the course of the next four and a half months the price dropped
by about $100 a barrel. This was an unprecedented drop, and
must be taken into account when considering the issue of retail
gasoline pricing. All other parts of the country except Alaska
and Hawaii responded fairly quickly to the change in crude oil
prices, with only a small lag in the lowering of retail gasoline
prices; this is the result of competition. In Alaska, market
forces are actually working, though in a delayed manner, to
bring retail gasoline prices down, he opined. Mr. Pulliam
concurred with the data on page 25 of Mr. Knudson's PowerPoint
presentation indicating that [Pacific Northwest spot market]
prices for gasoline in the Lower 48 have fallen below ANS crude
oil prices, which, he relayed, he hopes don't fall any lower
than they are now.
MR. PULLIAM, in response to a comment, predicted that unless the
price of crude oil falls below where it is now, gasoline prices
in the lower 48, at least at the wholesale level, "have probably
made their run," and opined that having those prices remain
below the cost of crude oil is not sustainable. There has been
some "fattening" in the margin between rack rates and retail
prices, and that's getting worked off; in the last week or so,
for the first time this fall, there has actually been a bit of
an acceleration in the speed with which Alaska's prices dropped
compared to how much prices in the Lower 48 have dropped. He
predicted that retail gasoline prices in Anchorage are going to
continue to fall, and so again urged the legislature to keep in
mind the unprecedented drop in crude oil prices - an anomaly in
and of itself.
CHAIR RAMRAS asked Mr. Pulliam what the legislature could do now
to bring immediate relief to constituents with regard to retail
gasoline prices.
11:24:44 AM
MR. PULLIAM surmised that nothing can be done within the next
month or so to lower Alaska's retail gasoline prices at the same
rate as retail gasoline prices are lowering in the rest of the
country; nothing, that is, short of imposing some sort of
regulation to that effect. He mentioned that when regulatory
solutions were attempted elsewhere, they failed.
CHAIR RAMRAS said his constituents want something done now and
won't be satisfied with the answer that nothing can be done.
MR. PULLIAM clarified that he did not mean to say that prices in
Alaska won't continue to move towards parity with prices in the
Lower 48 between now and [the end of the year]; rather, prices
in Alaska will continue to decline, and the gap in pricing
levels will continue to narrow.
MR. PULLIAM, on the issue of the possible unintended
consequences of attempting to regulate pricing, suggested that
such regulation could limit participation in Alaska's gasoline
industry; could reduce competition; could limit profit
opportunities; could result in underinvestment in the industry;
could result in product [both gasoline and jet fuel] shortages;
and could result in a decline in the quality and/or choice of
products. Furthermore, there is also the possibility that such
regulation could result in even higher retail prices, as
occurred in Hawaii when that state chose to regulate gasoline
pricing; once a price cap is set, people tend to price their
product at that level, thus eliminating the potential for
competition [to keep prices low]. Another point to consider is
that regulating the price of petroleum products will require
extra personnel to monitor prices, and so the question will then
become at what level is that done and at which locations.
MR. PULLIAM, in response to comments and a question,
acknowledged that the market in Southeast Alaska doesn't respond
in the same way that the market in Western Alaska does,
regardless that they are both import markets, because of
differences in scale. Therefore, when considering the concept
of regulation as the means of reducing prices, the legislature
must also keep in mind that the situation is different in the
Railbelt, for example, than it is in other locations around the
state; in other words, regulation that works in Anchorage may
not work elsewhere in the state.
REPRESENTATIVE HAWKER asked whether the lag in pricing parity
could be the result of a difference in the supply/procurement
process in the various Alaska markets.
MR. SNIFFEN said he is not sure but would be seeking more
information on that point. He too remarked on the recent
narrowing of the gap in pricing parity, and also offered his
belief that that gap will continue to narrow, and mentioned some
retail prices he's seen recently. On the issue of what can be
done now, he said that the DOL is currently very limited in what
it can do legally to stop someone who might be charging high
prices absent any actual criminal activity. Furthermore, it
could very well be that Alaska's high gasoline prices are simply
the result of unconscionable pricing practices, and although
existing statutes would allow the DOL to put a stop to such
practices, [it could be difficult to prove that they are
actually occurring].
CHAIR RAMRAS, after making comments and in response to a
question, acknowledged that he has not yet asked the governor to
meet with Alaska's refiners regarding their pricing practices.
11:45:49 AM
MR. SNIFFEN ventured that it might be easier to find evidence of
collusion than evidence of unconscionable pricing practices.
And even if any such evidence is found, it might still not
result in a lowering of prices. In conclusion, he suggested
that absent any criminal activity, [consumers] must just let the
market work itself out.
CHAIR RAMRAS asked whether the recent repeal of the State's
motor fuel tax of $.08 has really been passed on as a savings to
the consumer.
MR. PULLIAM said the data indicates that retail prices did drop
by that amount once the repeal took effect, but acknowledged
that he is unable to say whether rack rates would have come down
anyway even if the tax had not been repealed. He pointed out,
however, that in the short term, gasoline taxes don't affect a
market's supply:demand relationship. In response to another
question, he explained that retailers still aren't charging
consumers that $.08 tax, but added that he can't say whether
wholesale prices are higher now than they otherwise would be had
the tax not been repealed.
REPRESENTATIVE HAWKER, again referring to page 25 of Mr.
Knudson's PowerPoint presentation, opined that Alaska retailers
have simply raised their prices by $.08.
CHAIR RAMRAS agreed, and characterized the retail gasoline
prices that Alaskans are paying as unconscionable compared to
what consumers are paying in the Lower 48. He then listed some
of the information that might be included in the aforementioned
forthcoming committee report, and spoke of how the committee
might be proceeding after the lunch break.
The committee took a recess from 11:54 a.m. to 1:27 p.m.
CHAIR RAMRAS, on the issue of possible future legislation,
indicated that one piece of legislation might pertain to
increasing the state's anti-trust penalties, and another might
address instances of price gouging.
1:29:11 PM
MR. PULLIAM, in response to a request, offered his understanding
that the price-gouging statutes in other states are all
triggered by the declaration of a state of emergency - such as
would result from a hurricane - and are intended to prevent
retailers from taking undue advantage of consumers during such
times. One challenge with that type of legislation, however, is
in defining exactly what constitutes price gouging, because in
order for any such legislation to be meaningful in Alaska, the
behavior of price gouging would have to be quantifiable.
CHAIR RAMRAS noted that another piece of possible future
legislation might authorize State regulation of the industry,
and might take into account market differences in Alaska's
various regions.
MR. PULLIAM said that in going that route, one would have to
consider several things, one being at what level should
regulatory oversight be imposed; for example, there is the
refinery level, the "rack level," and the retail level, and each
level has different challenges to contend with. Furthermore,
particularly in Alaska, geographic factors would also have to be
considered. This was an issue when Hawaii chose to regulate,
because the outlying islands had to barge gasoline into smaller
terminals with different distribution systems, and so a
different factor had to be calculated depending upon the
destination of the gasoline. Alaska's situation would be even
more complicated because there is no central point through which
the product would first flow.
MR. PULLIAM explained that any type of regulatory measure would
have to give market participants the incentive to provide
petroleum products reliably in all locations, so as not to run
the risk of having a shortage. Another challenge is that in
trying to find the correct level of regulatory oversight, one
runs the risk of setting the price either too low or too high.
The balance is delicate, he opined, and surmised that the State
- presumably via the Regulatory Commission of Alaska (RCA) -
would spend a lot of time and energy trying to design and
monitor the details of such regulatory oversight. In response
to a question, he suggested that the State should consider
whether there is any artificial barrier to competition, such as
overregulation or a lack of infrastructure. Consider, for
example, that the more terminaling capacity there is in the
state, the better, because it opens up the possibility of
bringing product in from elsewhere, and that threat of
competition could act as a disciplinary tool for the market.
CHAIR RAMRAS noted that the jet fuel producers in Alaska have
been very responsive to the market.
MR. PULLIAM pointed out, though, that buyers of jet fuel can
form consortiums and pool their buying power, which is not
something typically seen with regard to gasoline, perhaps
because doing so would raise antitrust issues.
REPRESENTATIVE HAWKER asked what the State could do to encourage
competition.
1:41:57 PM
CHAIR RAMRAS mentioned that the written testimony from PSI
touches upon that topic. He then remarked on the hazard of
having an excess supply on the market, as has occurred in the
Lower 48 when existing refineries have expanded.
MR. PULLIAM characterized refining as a cyclical business - in
that both capacity and demand can fluctuate quickly - one
requiring large investment as well as being risky.
CHAIR RAMRAS observed that if an entrepreneur were to bring
gasoline up to Alaska, he/she would run risk of not being able
to sell that gasoline at a price sufficient to cover costs,
particularly given that Alaska's refineries already manufacture
enough gasoline to satisfy the needs of the state.
MR. PULLIAM, in response to a comment, explained that although
the historical pattern is for Alaska's gasoline prices to lower
at a slower rate than gasoline prices in the Lower 48, they do
still continue to lower; therefore, if this historical pattern
maintains itself, Alaska's gasoline prices will lower further
than they are now. He noted that rack rates in the Pacific
Northwest have dropped below the price of crude oil, and opined
that rack rates cannot stay below crude oil prices for prolonged
periods of time. In response to a question, he also opined that
even if demand does not increase, rack rates down south will
have to increase above the price of crude oil in the long term,
and that they most certainly will if demand increases.
MR. PULLIAM, in response to another question, offered his belief
that Alaska's retail gasoline prices will fall because of
competition in the market over the available margins between the
cost of crude oil and the price of gasoline; those margins are
high in Alaska. Retail prices are also likely to continue
decreasing over the coming months since the demand [for
gasoline] is lower in the wintertime. If prices don't continue
to lower, he warned, then that would be cause for concern.
1:50:42 PM
MR. PULLIAM, in conclusion, cautioned the legislature against
taking action now - particularly with regard to instituting
regulatory oversight - based just on how the market has been
behaving over the last few months; the legislature should
instead gather more data [while] seeing whether the market
corrects itself.
REPRESENTATIVE LYNN asked whether there is any correlation
between the recent national and international financial crises
and the high price of gasoline in Alaska.
MR. PULLIAM said that in general, the financial crises and
deteriorating economy are having an impact nationwide, though
probably a more immediate impact elsewhere than in Alaska. He
predicted that if the economy stays weak, it could [reduce]
Alaska's historical summer increase in demand, and this will in
turn impact fuel prices.
CHAIR RAMRAS expressed a reluctance to interfere with the market
via potential statutory or regulatory changes.
REPRESENTATIVE LYNN relayed that he has concerns as well because
of the potential negative impact on the free market.
REPRESENTATIVE DAHLSTROM concurred.
2:01:19 PM
JERRY McCUTCHEON suggested that the State either hire an
antitrust expert to investigate the gasoline pricing situation
in Alaska, or ask the U.S. Office of the Attorney General to
conduct an investigation into the matter. He opined that the
level of gasoline pricing in Cook Inlet is inappropriate and
would fall apart under truly close scrutiny. In response to a
question, he offered his belief that antitrust behavior is
taking place at the refinery level, and that the refiners are
acting together to keep prices high.
CHAIR RAMRAS offered his understanding that only Legislative
Council or the Legislative Budget and Audit Committee have the
authority to hire legal counsel to pursue antitrust violations.
MR. McCUTCHEON opined that because there is so much money at
stake, the legislature has a duty to get the best investigator
it can even if it means that another committee at some other
point in time authorizes it. In response to comments, he also
opined that the committee's continuing on as it has been on this
issue, without the benefit of professional investigatory
expertise, is futile.
2:08:07 PM
DONALD WESTLUND said that considering how low retail gasoline
prices currently are in the Lower 48, it seems that retail
gasoline prices in Alaska don't seem to decrease very fast,
though they are quick to increase. In response to a question,
he offered his understanding that currently the retail price of
gasoline in Ketchikan is $3.75/gallon or higher.
CHAIR RAMRAS read bullet point number 7 of the aforementioned
DOL press release [original punctuation provided]:
Gasoline sold in Southeast Alaska is barged up from
the Pacific Northwest and from Cook Inlet. Because
fuel is only barged in once a month or every few
months, it takes longer for prices to reflect current
market conditions. It may take two or three months to
exhaust current supply before less (or more) expensive
gasoline is available and sold to retailers.
CHAIR RAMRAS recalled that previous testimony has indicated that
in Juneau, it can take several months to exhaust the fuel
inventory in order to make room for a new gasoline shipment, and
that in places like Kotzebue, which is currently subjected to a
retail gasoline price of about [$7.85/gallon], bulk fuel
supplies come in only once a year. He surmised that the DOL's
final report will take up this issue in greater detail.
MR. WESTLUND noted that although barge transportation is touted
as the cheapest form of transportation, [retail gasoline] prices
aren't consistent in Southeast Alaska. For example, because
Ketchikan is the first stop for barge shipments, one would
assume that the price of gasoline in Ketchikan would be the
cheapest, but it is not. He said this is really discouraging,
particularly given that for his guided sport [fishing] business,
he burns approximately 100-120 gallons of fuel every day, so
when the price of fuel goes up, it takes more customers to pay
for the fuel. When there are only three or four customers per
day, that does not leave much margin for profit considering all
the other costs that must also be met. In response to a
comment, he relayed that he did not go commercial shrimping this
year because of the cost of fuel.
2:14:09 PM
DOLORES "DORRIE" FARRELL said she echoes the concerns expressed
by the two prior testifiers, though noted that the price of
gasoline is not such an issue for her personally because there
are so few roads in Sitka. She shared her belief that the
[pricing] situation [in Sitka] began deteriorating about four or
five years ago, when "Texaco was bought out by" Petro Marine
Services, adding that although she wrote letters of complaint to
Representative Peggy Wilson and the attorney general's office,
no action was taken. She said she disagrees with statements
advocating that the free market be allowed to function as is,
surmising that the nation's current fiscal situation is due to
the federal government taking just that route. It's
unconscionable, she opined, that in places where there is no
competition, such as in [many communities in Southeast], a
retail gasoline company can charge whatever it pleases; retail
gasoline prices are quick to go up when the price of crude oil
goes up, but it's months before consumers see any corresponding
drop in retail gasoline prices when the price of crude oil
decreases.
MS. FARRELL opined that there is a lot of injustice occurring,
and that consumer affairs are a legitimate concern of both
federal and state governments, which shouldn't simply stand back
and allow the free market to find its own balance, particularly
given that when there is no competition, prices get to remain
extremely high. She questioned what effect the antitrust
legislation of the early 1900s has been having. With regard to
the [aforementioned DOL] press release, she said, "I just have a
lot of issues with this," and recommended that a comparison
study [of retail gasoline prices] in Sitka, Petersburg, and
Juneau be made, since Sitka and Petersburg have "no real
competition" but Juneau does. In response to a question, she
mentioned that a [new] company in Sitka was recently charging
$3.65/gallon, and that Petro Marine Services recently dropped
its price to $3.61/gallon but not long ago was charging close to
$5.00/gallon. This lowering of retail prices by Petro Marine
Services is the result of competition, she opined, and offered
her understanding that there are plans for another company to
start selling marine fuel in Sitka, but those plans are being
fought with vigor by Petro Marine Services.
MS. FARRELL said that this is not right, and opined that it is
the function of the legislature to address such situations as
well as to consider how competition influences the price of
gasoline in places like Juneau, for example. She then relayed
that when she filled up her home heating oil tank a week ago,
the price was $3.974/gallon. This cannot go on, she opined, and
questioned where people are going to turn to for help if the
government won't do anything it. She relayed that the local
utility has said that if people continue to convert to electric
[heat], there will be blackouts.
CHAIR RAMRAS noted that the price of [number 1 heating oil] in
Fairbanks is now approximately $2.45/gallon, and that the price
of home heating oil is a big concern in his community. He too
remarked on the fact that retail gasoline prices in Wrangell
should be some of the lowest in the state given that those tanks
were just filled up with lower-cost gasoline from Seattle, but
are instead still some of the highest prices, and surmised that
the DOL will be investigating that situation as well.
MS. FARRELL pointed out that although the news on the radio
periodically announced that Hawaii had the highest price of
gasoline, the price quoted was always $.90 to $1.00 lower than
the price of gasoline in Alaska, even though Hawaii is further
from the mainland than Sitka. She opined that consumer affairs
must be an active, basic, functioning part of government, and
remarked, "If government doesn't protect its citizens, what is
its purpose?"
REPRESENTATIVE DAHLSTROM relayed that gasoline is $2.74/gallon
in Eagle River - the lowest it's been in a long time.
CHAIR RAMRAS, in response to a question, confirmed that the
committee has not yet heard from the RCA.
2:25:10 PM
TIM LUTHER - regarding the statement in the DOL's press release
that a community's retail gasoline prices won't go down until
the community has exhausted its existing, more-expensive fuel
inventory - pointed out that that's not what occurs when the
cost of the new inventory exceeds the cost of the old inventory:
prices rise immediately even when there is still [lower-priced]
fuel in inventory. He opined that the DOL's argument should
apply in both situations.
CHAIR RAMRAS said in Barrow the price of gasoline is much lower
than in Kotzebue, because Barrow got its supply when the [rack
rate] was lower. Wrangell, on the other hand, just had its fuel
supply topped off at what should have been a rack rate of about
$2.00 or less, but still has a retail price of $4.76/gallon.
MR. LUTHER recollected that gasoline in Kodiak, which has two
suppliers of gasoline, was consistently at about $4.64/gallon
for about a year and then increased to a bit over $5.00/gallon
when the price of crude oil spiked. He questioned whether
maintaining a certain price simply because there's no
competition could be considered price gouging, and why retail
prices in Alaska are taking so long to decrease given that
retail prices in the Lower 48 are declining rapidly. He also
noted that although there is a decline in gasoline usage during
the winter months, there is an increase in heating oil usage
during those months; currently, the price of home heating oil in
Kodiak is $3.61/gallon, and some residents can go through about
100 gallons in about a week and a half.
CHAIR RAMRAS again offered his understanding that the DOL will
be asking questions of those companies that obtain their
gasoline supply via barge.
2:31:56 PM
DICK COOSE opined that the DOL's press release doesn't contain
much in the way of new information, but does contain some
serious errors. For example, although bullet point number 7
says that fuel is only barged to Southeast Alaska once a month
or every few months, in the summer, gasoline is barged to
Ketchikan every two weeks or more often depending on the demand.
About a month ago, the City of Ketchikan got a fuel delivery for
its diesel generators, with a transportation cost of only
$.22/gallon; meanwhile, retail gasoline prices in Ketchikan are
now about $1.70/gallon more than prices in the Lower 48. He
characterized this discrepancy as outrageous.
2:36:21 PM
MICHAEL E. McCARTHY provided the committee with the diesel fuel
prices he'd paid in Alaska and in various other locations while
on a trip down south, including the dates he purchased his fuel,
and offered his belief that those prices have had an impact on
tourism. And as of yesterday, he noted, the price of gasoline
in Homer was $3.34/gallon, whereas the national average price
was down to $2.02/gallon. He questioned why the recent
unprecedented reduction in the price of crude oil has not been
reflected at the pumps [in Homer]. Historically, gasoline was
always less expensive than diesel, but now it is not, and he
said he found that to also be true in Denmark, Norway, and
Sweden when he was there a few months ago. He then listed some
prices to illustrate his point.
MR. McCARTHY said he has since compared diesel and gasoline
prices between Wyoming and Alaska - since those two states are
similar in population, distribution [networks], and oil and
gasoline production - and found that the prices for both diesel
and gasoline are higher in Alaska than in Wyoming. After
listing some of those prices, he questioned why Alaska's prices
were so high. He suggested to the committee that they consider
instituting a prohibition against usury-like gasoline pricing in
Alaska, and opined that there is no reason why the record
profits recently enjoyed by the major oil producers should
result in a burden being placed upon the citizens of Alaska and
the rest of the country.
CHAIR RAMRAS noted that "we" have enforced new, low-sulfur
requirements for diesel fuel which may have impacted the price
of diesel in Alaska, and surmised that that regulatory cost is
being passed on to the consumer. The legislature, therefore,
must be careful not to put further pressure on the consumer
through statutory or regulatory changes that have unintended
consequences.
MR. McCARTHY offered his understanding, though, that
Scandinavian countries have the same low-sulfur requirements -
and, therefore, the same production costs - and yet diesel costs
less than regular gasoline in those countries.
The committee took an at-ease from 2:47 p.m. to 3:01 p.m.
3:01:21 PM
JAVEN OSE questioned whether it is really in the best interest
of Alaska's citizens to have to pay $1.50 more [for fuel] than
people pay in the Lower 48, particularly given that Alaska's
citizens own the state's resources, including oil. He then
asked whether members were familiar with the contract between
Flint Hills Resources and the State of Alaska.
CHAIR RAMRAS indicated that members were not.
MR. OSE opined that members should become familiar with that
contract. He then offered his understanding that during the
"energy crisis," the State of Alaska did not increase "the
amount of refined fuel," adding, "When you want the price to
come down, you flood the market." He continued:
The amount of barrels per day allowed at the Flint
Hills refinery is 22,000 at the bottom and 77,000 at
the top, and for five years, we've been pumping
[40,000 - 45,000 barrels] and taking the rest in money
and shoving it in the legislature or shoving it in the
permanent fund.
MR. OSE opined that the state of Alaska is in the oil business,
that the people are getting gouged, and that it's up to the
legislature to do something about that. One way to address the
problem is for the State to take part in the oil business;
regardless that the State has failed in its involvement with
other public sector industries, no one is losing money in the
oil business today. He recommended that the legislature or the
administration put out either a general order or an executive
order requiring that [gasoline] prices in Alaska be fixed. He
named Iraq, Iran, Saudi Arabia, and Venezuela as countries which
sell their gas at world market prices and provide gas to their
citizens at very low prices. He questioned why the legislature
doesn't simply order Flint Hills Resources to produce the
maximum amount allowed. The opportunity is there to give the
people of Alaska $1/gallon gasoline, but is instead taking care
of its resource in "a very poor fashion," he opined,
particularly given that gasoline prices in some areas of the
Lower 48 have dropped down to $1.65/gallon. That's outrageous,
he remarked.
MR. OSE asked how much it costs for the Flint Hills Resources
refinery to producing a gallon of gasoline.
CHAIR RAMRAS explained that that is considered to be
confidential information.
3:06:36 PM
MR. OSE opined, then, that the solution is for the State of
Alaska to have its own refinery, and characterized the refiners
currently operating in Alaska as price gougers. On the issue of
gasoline prices in Alaska increasing one day after a new
[higher-cost] shipment arrives but taking months to drop after a
lower-cost shipment arrives, Mr. Ose characterized that as
crazy, adding "We own it, let's act like we own it." In
response to comments, he opined that the refineries are where
the problem is, and that they are contractually required to
accommodate the State in its requests that the refineries
refurbish, rebuild, or update their facilities, or increase the
amount of refined product they produce.
MR. OSE, in conclusion, urged the legislature to step up to the
plate and do something about the situation; for example if the
State were to start producing jet fuel, Anchorage could once
again become "the air crossroads of the world." In response to
comments, he said, "It falls, not in the governor's lap, it
falls in the legislature's lap - let's get some cheap gas here
until that stuff runs out" - and surmised that even if the
governor were to issue an executive order to put a price freeze
on gasoline of $1.00/gallon, "we'll argue it for the next 10
years in court, but we'll get 10 years' worth of $1/gallon
gasoline."
ADJOURNMENT
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 3:15 p.m.
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