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Democrats reviving anti-gouging bills Kawasaki and Wielechowski making another effort to impose price controls on petroleum products sold in Alaska By ERIC LIDJI For Petroleum News
A pair of bills introduced for the upcoming state legislative session aim to prevent companies at the end of the Alaska crude oil supply chain from gouging consumers.
On Jan. 9, Rep. Scott Kawasaki, D-Fairbanks, filed House Bill 37, which would make it illegal for oil refiners in Alaska to charge “exorbitant or excessive” prices.
The bill defines “exorbitant or excessive” as prices which are “unreasonably high given the reasonable costs incurred by the refiner in the state in connection with the refiner’s sale of the energy resource.” As a practical measurement, the bill uses the Pacific Northwest as a benchmark. The price of a petroleum product in Alaska would be considered “exorbitant or excessive” on its face if it was more than 10 percent higher than the average wholesale price of similar products in Idaho, Oregon, and Washington.
In such cases, the Alaska refiner would be allowed to defend its pricing by providing cost information. The bill contains a provision for costs incurred through natural disasters.
“Even with falling oil prices across the globe, Alaskans still pay a premium to heat their homes and drive to work,” Kawasaki said. “I have always fought to lower energy prices across the state and I will continue to do that through legislation, amendments and votes.”
The bill would give the state Attorney General the ability to issue civil penalties up to 10 times the windfall collected by the refiner or up to $50 million, whichever is higher.
The same day, Sen. Bill Wielechowski, D-Anchorage, filed Senate Bill 10, which would make it illegal for oil refiners, distributors or retailers to charge “unconscionable” prices.
The bill gives the state attorney general discretion to launch an investigation into suspicious pricing, allows downstream companies to justify their prices by showing operating costs and allows the state to issue civil penalties up to 10 times the windfall.
Both bills cover jet fuel, motor vehicle fuel, heating fuel and diesel fuel.
No collusion Efforts to control prices for Alaska petroleum products emerged from two investigations.
In 1999, after several years where Alaska gasoline prices were some 17 cents-per-gallon higher on average than prices on the West Coast, then-Attorney General Bruce Botelho launched a major investigation into the pricing of petroleum products in Alaska.
The three-year investigation found a highly concentrated gasoline industry in Alaska.
“When there are few sellers in a market, like Alaska, it is easier for them to observe how competitors react to decisions regarding output and prices, and each may take into account the potential impact of its own actions on market prices and the potential responses from other sellers,” Botelho wrote in a November 2002 report. Because such “parallel pricing” isn’t considered a violation of anti-trust laws, he closed the case.
Then-Attorney General Talis Colberg launched a similar investigation in August 2008 at the request of Wielechowski, then-Sen. Bettye Davis, D-Anchorage, and then-Gov. Sarah Palin. Again, the investigation arose from a price differential between Alaska and the rest of the country. Over the course of a year, Alaska gasoline prices had gone from being 13 cents-per-gallon higher to 75 cents-per-gallon higher than the national average.
At the same time, then-Speaker of the House John Harris, R-Valdez, asked the House Judiciary Committee to launch a parallel investigation into this price “decoupling.”
In early 2009, both investigations blamed the disparity on market forces. They described a combination of volatile oil markets and a concentrated refining industry in Alaska.
Only two of the six oil refineries in the state at the time produced gasoline. Some 80 percent came from the Tesoro refinery in Nikiski. The remainder came from the Flint Hills refinery in North Pole, which mainly supplied communities in the Interior.
“You work in a small environment with few competitors long enough, you can predict the reactions of your competitors,” then-Assistant Attorney General Ed Sniffen, who authored one of the reports, told the House Energy Committee in February 2009.
Dying in committee Anti-trust laws in Alaska prohibit collusion, which includes competitors actively working together to set prices, to monopolize a market or to engage in predatory pricing. Other than those restrictions, oil refiners and retailers can charge whatever the market will bear.
That’s why, following the 2009 reports, lawmakers have considered price controls.
In 2009, Wielechowski sponsored SB 54 and then-Rep. Pete Petersen, D-Anchorage, sponsored HB 68. Both bills capped Alaska prices for gasoline, diesel fuel and heating oil to 10 percent above average prices for similar products in Washington state.
While lawmakers were debating the legislation, Flint Hills announced plans to close one of its three processing units at its North Pole plant in response to declining jet fuel demand. Wielechowski later removed the price capping provision, which made the bill less concrete by defining gouging as a matter of “excessive or exorbitant” pricing.
(Flint Hills subsequently closed its remaining units, making the industry even tighter.)
The bills both died in committee. But House and Senate lawmakers have introduced similar measures in the years since. Those bills have taken two different approaches.
The House bills continue to use specific pricing mechanisms.
Petersen introduced HB 25 in 2011 and Kawasaki introduced HB 132 in 2013. Both bills capped the prices of Alaska products at no more than 10 percent higher than the average wholesale price of similar products in Idaho, Oregon, and Washington.
Both bills died in the committee process.
The most recent bill Kawasaki introduced is nearly identical to those earlier bills.
Wielechowski introduced SB 28 in 2012. Like his current bill, it prohibited “unconscionable” pricing but included no specific price cap or pricing index.
At a March 13, 2012, debate before the Senate Labor and Commerce Committee, Wielechowski said he had removed the specific pricing standard at the behest of refiners, who worried that an unusual event in Washington could harm refiners in Alaska.
Refiners preferred the term “excessive or exorbitant” pricing, according to Wielechowski, but the Alaska Department of Law asked him to use the term “unconscionable” instead.
The word “unconscionable” has been used in previous cases, which created legal precedent that would help the attorney general in the future. Personally, Wielechowski said he defined “unconscionable” as 10 percent above the average price in Seattle.
SB 28 also died in committee.
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