SB 28-PRICE GOUGING INVOLVING ENERGY RESOURCES  2:05:47 PM CHAIR EGAN announced consideration of SB 28. SENATOR WIELECHOWSKI, sponsor of SB 28, said he had received many phones calls and emails in support of SB 28 and none opposing it. 2:07:32 PM SENATOR GIESSEL asked Mr. Sniffen, Department of Law, if he had investigated fuel prices in the past. ED SNIFFEN, Assistant Attorney General, Department of Law, said his responsibilities include enforcement of anti-trust and consumer protection statutes. In that role, he had investigated fuel prices in the last decade. SENATOR GIESSEL asked if he found any issues. MR. SNIFFEN replied that pricing investigations are tricky, because anti-trust law requires finding evidence of collusion or coordinated conduct. The department has retained experts to look at fuel pricing in the State of Alaska, the details of which are confidential, but they have released a couple of reports setting out their findings. No evidence of illegal activity - any collusion or coordinated conduct - had been found of among the refiners, distributors or retailers in the state. He said one of the good things about this particular bill is that it would remove the requirement to actually find collusion or coordinated conduct. They could look at conduct that is just "unconscionable." But the tricky thing would be if determining unconscionable would be any easier than determining collusion or coordinated conduct. SENATOR GIESSEL asked if he knew of a definition of unconscionable. MR. SNIFFEN responded that case law provides some guidance on it using words like excessive or exorbitant. In discussions with Senator Wielechowski's office, they decided that unconscionable would be slightly easier to identify than collusion or coordinated conduct, only because a couple of cases actually define what that means, although he didn't know how it would apply in Alaska. For example, in Pennsylvania and Ohio they say unconscionable means something that affronts the sense of justice, decency and reasonableness. Senator Wielechowski pointed out that in most states, price gouging laws require a declared state of emergency before the laws kick in; then you have a baseline. You could point out a company that had raised its price by 300 percent only because Hurricane Katrina came in and wiped out a lot of people. But because of Alaska's lack of competition, distributors and refiners can charge what they like without a declared state of emergency, and he had never had to look at an unconscionable price. SENATOR GIESSEL remarked that he just said he didn't have a determination of "unconscionable price." MR. SNIFFEN replied that was right, and he would have to come up with a test if this bill passed. Also, if you are going to tell somebody they can't charge something, the follow-up might be having to tell them what they can charge. An accounting would be required to determine what their costs are, what their investment risks are and what their return on capital is. Then it starts to look a lot like regulation, which is what the RCA does. SENATOR GIESSEL said page 2, line 2, refers to "fuel for space heating." In Anchorage that fuel is natural gas; in other areas it's diesel. What does this refer to and who regulates that price? MR. SNIFFEN answered most diesel fuel that is used for heating (delivered by a tank wagon or a truck) is the kind of space heating fuel that would be covered by this bill, but natural gas could also be used, and that is regulated by the RCA. The RCA does not regulate prices for fuel oil. SENATOR GIESSEL asked if this language conflicts with the RCA's regulatory authority over natural gas. 2:15:09 PM MR. SNIFFEN replied maybe, but by default, it would only apply to the commodity that is regulated by the RCA. He didn't know if there would be an actual conflict in the sense that the RCA would not attempt to regulate this kind of fuel product. SENATOR WIELECHOWSKI responded that this provision was added in a committee several years ago by the Senate Energy Committee; at that time, Senator Hoffman and Senator Stedman were concerned about high costs in rural and Southeast Alaska, particularly, in areas that use diesel oil for heating. It was never the intent to regulate an energy source that is currently regulated by the RCA. SENATOR PASKVAN asked Mr. Sniffen to comment on the difficulty in applying a collusion or coordinated conduct standard in a smaller limited market where there could be either an oligopoly or a monopoly. MR. SNIFFEN answered that it's very difficult to find illegal collusion or coordinated conduct in a smaller market, because prices are displayed for everyone to see. There is no need for competitors to engage in illegal conduct, because everyone knows what everyone else is doing. Even in Anchorage, where there is robust competition for gasoline, collusion between retailers is very difficult to uncover. Several years ago, the Attorney General's Office found evidence that some retailers had meetings and agreed to fix the price on gasoline, and he took action by shutting the stations down. But absent a "mole" or "whistle blower" who is at those kinds of meetings, it is very difficult to find. 2:18:51 PM SENATOR WIELECHOWSKI said originally the bill had a specific trigger of 10 percent higher than Seattle gas prices. Refiners didn't like that; it was too specific, even though the two prices had tracked for years. Then they tried using "excessive" or "exorbitant" and were finally advised by attorneys that using "unconscionable" was a better standard, because it is used in other states and in regulatory hearings and has a body of case law behind it. The Attorney General has reported investigating this issue twice, but they have been limited to collusion and anti-trust issues; they have not investigated whether or not the prices are unconscionable. SENATOR WIELECHOWSKI pointed out that all this bill does is empower the Attorney General, if he believes there is evidence of very high prices without warrant, to investigate, and if he finds evidence, he can file a lawsuit. He explained that originally the bill was drafted so that anyone could file a lawsuit. Tesoro said that their main concern was that they didn't want to fight 100 lawsuits. He was told by the representative that if that provision were changed to only allow the Attorney General to file a lawsuit, they would not oppose the bill. The next day after he made the change, Tesoro came in and opposed the bill. So there are tight restrictions on this bill; it is designed to protect Alaskan consumers. SENATOR WIELECHOWSKI stated that he was not saying anyone was acting other than they would in a free market; people are going to try to make as much money as they possibly can. The problem in the State of Alaska is there is no free market here, and that situation allows legal price gouging. This bill just says that in that situation the Attorney General is empowered to investigate and if they find evidence of gouging with unconscionable prices, they have the ability to file a lawsuit. 2:22:12 PM SENATOR GIESSEL moved conceptual Amendment 1 as follows: I move that SB 28 be amended to include health care (from both providers and facilities), rental housing, and the sale of grocery food items. That they be covered by and subject to the same anti-gouging provisions as the refiners, distributors and retailers of certain energy resources. She apologized for the conceptual form and said her amendment was still in drafting. She explained that the Department of Administration was struggling to contain the accelerating health care costs. Alaskans pay 50 percent more for health care than people in Seattle. In fact, many insurers are sending their beneficiaries to Seattle for health care services, because the prices are so high in Alaska. She had heard the same about rental housing and grocery prices in some locations. SENATOR DAVIS asked the sponsor if this amendment would affect the title and what his thoughts were on it. SENATOR WIELECHOWSKI replied the amendment would require a title change; he had additional problems with it, because he didn't think the state should be in the business of regulating the free market unless it's absolutely necessary. The significant difference between groceries, for instance, and gasoline prices, is that there is one place to buy gasoline; one refiner refines 80 to 82 percent of gasoline, and another refines 10 percent. There is an oligopoly when it comes to gasoline and heating in the State of Alaska, but if he doesn't like what he is charged for a dozen eggs or a carton of milk at Safeway, he can go to any of another dozen stores that are around. If he doesn't like what his doctor at Providence charges, he can go to other health care providers. He has hundreds of choices in rental property. There is a free market for those items; there is not a free market for gasoline. That is the major difference. SENATOR GIESSEL said many Alaskan communities have extremely limited grocery and housing opportunities and certain groups offer specialized health care. So it does apply to these other vendors. SENATOR WIELECHOWSKI said Senator Giessel was correct and that would be an excellent bill for to file on her own and take through the committee process. 2:26:47 PM SENATOR MENARD said she had one strong concern with the amendment and that was that it had not had due process. She knew the direction in which Senator Giessel was going and wanted to hear from those other industries about why citizens of Alaska feel gouged, but it's way too late in the session to tackle this amendment. SENATOR PASKVAN objected to the amendment. A roll call vote was taken. Senator Giessel voted yea; Senators Menard, Davis, Paskvan and Egan voted nay. Therefore, the amendment failed. 2:29:05 PM SENATOR PASKVAN moved to report SB 28 from committee to the next committee of referral with individual recommendations and attached fiscal note, if any. Senator Giessel objected. A roll call vote was taken: Senators Menard, Davis, Paskvan and Egan voted yea; and Senator Giessel voted nay. Therefore, SB 28 passed from the Senate Labor and Commerce Standing Committee.