Congressman supports Ridgell’s proposal to cap gas profits

Congressman Michael San Nicolas is supporting legislation by Sen. Clynt Ridgell that would cap gas profits on Guam at 20 percent. The proposed statute, Bill No. 320, would fine gas companies that exceed the profit margin $1,000 per day of noncompliance with the law. Mr. San Nicolas, in written testimony to the Guam Legislature in support of the bill, believes the fine is inadequate. He proposed an amendment to the bill. Read the entirety of his testimony below:

Håfa Adai Speaker Terlaje, Minority Leader Duenas, and all Senators of I Mina’ Trentai Sais na Liheslaturan Guåhan. Thank you for your continued leadership in advocating for the People of Guam, and for providing me the opportunity to speak on the importance of confronting historic issues with permanent solutions. Together we have realized significant progress for our island, and it is with this continued commitment to collaboration that I am confident we can advance policies that meaningfully elevate the quality of life for our community.

For years, the cost of living on Guam has continued to rise at the expense of our people. From housing and utilities to groceries and basic necessities, our families have struggled to make ends meet and put food on the table. Often we hear news of neighbors, relatives, and friends reluctantly making the choice to relocate for better prospects. The unprecedented economic downturn associated with the ongoing COVID-19 pandemic has further exacerbated this issue with many losing their jobs, shutting down their businesses, facing eviction, and going hungry. As we look to the future with strengthened efforts toward a revitalized economy and improved overall financial standing, it is paramount to consider and meaningfully address the factors that fundamentally inhibit our ability to accomplish such.

In recent months, dramatic and consistent increases in the cost of liquid fuel have critically impacted the lived experience of Guam residents. At the start of 2021, retailers were selling a gallon of gas at a price point of around $3.88. January 2022 saw prices hike to a striking $5.04 and by April 7th it had climbed to approximately $5.79. A short two months later, prior to I Liheslatura’s passage of the Bill 295 Gas Tax Relief Act, the cost of a gallon of fuel was inflated to a whopping $6.49 and today, families continue to be forced to shoulder the cost of unreasonable rates 3. Based on April 2022 research conducted within the Guam Congressional Office, in partnership with the Congressional Research Service, and with added insight from Guam fuel industry insiders, the predatory behavior of our oligopolistic petroleum industry has effectuated absurd profit margins that stand well over and above the realm of normal. To contextualize the matter further, substantial price differences exist between the fuel sold on military bases and outside the fence. However, the fuel sold both on and off base incur an identical landed cost. Namely, they come from the same sources, are shipped to Guam through the exact same channels, and are subject to the same exact fees at the port, in taxes, and for storage and transport. Although subject to the same operating environment, fuel was and continues to be more costly if purchased at one of Guam’s civilian retailers. Moreover, calculations in the first week of April estimated that these very companies effectuated a 62.9% profit margin whereas typical industry margins stand between 20% and 30%.

Bill No. 320-36 (COR) is a valuable tool we can utilize to address longstanding consumer concerns, minimize risks to our full and comprehensive economic recovery, and establish firm and fair parameters for commodity distributors. I would be remiss in my duties, however, if I did not point out that the $1,000 fine per day outlined in the present version of the bill will not serve as deterrence enough for companies not to circumvent the intent and effectiveness of the legislation. More specifically, companies will have the opportunity to drive prices up as far as they please while passing a hypothetical $365,000 (a total incurred across a calendar year) worth of fines onto consumers. Further, with approximately $250MM in fuel imported every year, this potential cost in fines is but a fraction of their annual earnings. In its place I suggest an excise tax on retail fuel profit margins on sums above a 30% markup to landed costs, at an excise rate of 110%, and rebating any such taxes to all taxpayers. This will effectively penalize excessive profiteering and fully prevent a passing of the cost onto liquid fuel consumers. Additionally, I suggest that liquid fuel retailers operating on Guam, as a condition of licensure to do business on Guam, shall cause their landed costs to be confidentially audited by the Department of Revenue and Taxation and Guam Public Auditor for the sole purpose of reconciling excise tax basis.

The absence of codified measures to ensure reasonable transparency and ethical business practices both amplifies existing hardships endured by our people and threatens the potential for our collective future prosperity. Without consistent tracking to verify the evolving landed cost of fuel, oil companies in Guam have misled and taken advantage of a misinformed public to further private interests. Without the implementation of a profit cap on gasoline products sold on Guam, companies have realized profit margins far beyond the scope of fair and healthy industry standards to the detriment of our residents. Finally, without forward-thinking strategies to address this dynamic issue, alternative legislation that directs its attention toward fuel tax relief serves as a temporary band-aid that shifts the burden back onto the people to carry. Namely, by offering tax cuts to businesses that presently impose skyrocketing markups for their own benefit, projected relief at the pump is both subject to the harsh reality of being short-lived and ultimately consequential for government operations with millions in unwarranted revenue shortfalls.

Senators of I Mina’trentai Sais na Liheslaturan Guåhan, we are called to meet the task of our day with ingenuity and conviction. We must do all that is within our power to protect the interests of our people and promote balance and fairness across industries. As an unrivaled commodity, liquid fuel has far-reaching implications on the lives of all those who call Guam home; it quite literally fuels our ability to expand our knowledge at schools, earn wages at work, and build vital relationships throughout the island. Mandated market monitoring is key to establishing both greater consumer confidence and accountability for oil enterprises, and profit caps are essential to cementing lasting stability as they accommodate fluctuations based on cost inputs while reigning in excessive profiteering and allowing liquid fuel retailers to thrive within a healthy 30% profit margin regardless of the price of oil.

I respectfully request that this body move to pass Bill No. 320-36 (COR), provided that the proposed fine penalty of $1,000 per day is amended by an enforced excise tax on retail fuel profit margins on sums above a 30% markup to landed costs, at an excise rate of 110%, and rebating any such taxes to all taxpayers. This legislation will not simply bring imminent financial relief to families amid the hardships of an ongoing global health crisis – it will set a precedent that demonstrates our ability as legislators to think creatively, work collaboratively, and issue targeted actions in service of the welfare of the People of Guam. More importantly, it will give our people much-needed assurance that they are not being excessively charged by a coordinated system working against them.

Sincerely, Michael San Nicolas

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