Refinery shuts unit on declines; Senate considers gouging bill

The Flint Hills refinery shut down one of its three processing units because of declining demand for jet fuel, a company spokesman told a state Senate committee on March 13.

Crude Unit No. 3 produces jet fuel for Ted Stevens Anchorage International Airport, but a decline in landings at the busiest air cargo operation in the country, have reduced the demand for jet fuel, according to Jeff Cook, director of external affairs for Flint Hills.

Cook said international cargo flights at the airport are down 30 to 40 percent, and rail shipments from the North Pole refinery to Anchorage have fallen by half year over year.

“We had no further capacity to store, and certainly weren’t able to market the product,” Cook said, calling the decision to shut down the crude unit “an unprecedented move.”

Flint Hills built Crude Unit No. 3 in 1998 to meet increased jet fuel demand at the airport.

The unit accounts for a third of the production at the refinery, Cook said.

Cook said Flint Hill hoped the “temporary shutdown” would only last “three to four weeks,” but that “world economics will determine how long that shut down takes place.”

Those economics don’t necessarily look favorable, though, Cook said.

“Our refinery is losing money again and the outlook is uncertain for the months ahead,” he said.

Those poor economics led Flint Hills to enter into talks with the state Department of Natural Resources in hopes of finding a way to keep the refinery in business.

Price cap removed from bill

Cook’s comments came in the context of a hearing before the Senate Special Committee on Energy on a bill to prevent price gouging on gasoline and other refined products.

The bill, Senate Bill 54, originally tied Alaska prices to those in Washington State, restricting refineries like Tesoro and Flint Hills from charging more than 10 percent above the average price of similar products in Washington State, or face fines.

The bill’s sponsor, Sen. Bill Wielechowski, an Anchorage Democrat, said he removed the price cap provision following concerned testimony from refineries at a February hearing.

“We think it still keeps the bill strong and continues to accomplish the objective,” Wielechowski said.

Without the cap, though, the proposed legislation becomes less concrete about what actually constitutes “excessive” or “exorbitant” pricing, according to Ed Sniffen, an assistant attorney general in the consumer protection division of the Department of Law.

Alaska case law doesn’t currently define those terms, but if other states ever try to enforce similar laws, Alaska could get some guidance on the terminology, Sniffen said.

“It is a very broad and undefined standard. We’ll just have to work with it as best we can,” Sniffen said.

Most price gouging laws across the country only go into effect during natural disasters or states of emergency, when public officials hope to prevent retailers from significantly marking prices based solely on emergency demand, not on increased costs, Sniffen said.

A committee substitute of the bill changed a piece of the bill that would have allowed individuals to take action against companies under the Consumer Protection Act.

It also lowered the fine against companies caught violating the act.

Wholesalers and retailers

“What about other areas? Wholesalers and retailers. Why wasn’t this legislation more broad?” said Sen. Lyman Hoffman, a Democrat from Bethel, a rural hub where fuel oil is delivered annually in bulk shipments. Many smaller communities in Western Alaska get their fuel oil from a single provider, leading to monopolies and non-competitive pricing.

The issue is similar in the Southeast, where fuel oil is shipped up from Seattle.

“The issue is broader than a refinery issue,” said Sen. Burt Stedman, a Republican from Sitka, an island fishing community in the Southeastern Panhandle of the state.

The committee substitute expanded the bill to also include fuel wholesalers and retailers.

Sen. Lesil McGuire, an Anchorage Republican and chair of the Senate Special Committee on Energy, said she understood the concerns about the original bill, specifically the link to Washington State, but said the revisions address those concerns.

“Having this tool in the state’s arsenal is appropriate,” she said.

In a public hearing before the Senate Resources Committee on March 18, the bill received nine comments in favor and three opposed. The opposition included Cook, with Flint Hills, and Kip Knudson, with Tesoro Alaska.

“Clearly, if this is a good bill for Alaska consumers, I would urge you to expand it to all commercial transactions,” Knudson said.

—Eric Lidji