Koch Power is not the name of a company. It is the oligopolistic power wielded by the Koch brothers over the Minnesota retail gasoline market. On May 16, 2013, they exercised that power to raise the price of retail gasoline by 40 cents a gallon overnight. But that story, like all stories involving the Kochs, does not end there. Below the fold you will read a story that could easily be titled House of Cards: Minnesota.
The House of Cards, for the unacquainted, is fundamentally a story about how private economic power intersects and conflicts with government power, with each sector manipulating personal ambition to achieve their respective goals. The power conflicts are personified by a billionaire electric power baron who is a friend and financial backer of the president of the United States, and Francis Underwood, an unscrupulously ambitious Democratic leader in the House of Representatives. In one episode (spoiler alert), the baron shuts off electric power to Washington DC by shutting down one of his power plants, and threatens to shut down his power plants serving much of the southeastern United States, claiming the plants need scheduled maintenance, all in order to force the president and congress to adopt policy changes favorable to his business interests in China.
The parallel episode in Minnesota can be fully understood only with an understanding of the retail gasoline market in Minnesota and of the governor and state legislature.
Two refineries supply almost all the gasoline sold to Minnesota consumers. One is the St. Paul Park refinery, owned by Northern Tier Energy, and the other is the Pine Bend refinery, owned by Flint Hills, which is owned by Koch Oil, which is, in turn, owned by the Koch brothers.
The Pine Bend Flint Hills refinery supplies between 50% and 75% of the Minnesota gasoline market, depending upon who you talk to. See footnotes on sources, below. (Koch’s refinery is of course privately owned by the two brothers and the exact gasoline sales are not public. But if both Minnesota refineries were operating at capacity, Pine Bend would provide 78% of the gasoline produced.) In any event, there are only two suppliers selling into the retail gasoline market in Minnesota, and the smaller one claims that it supplies 25% of the Minnesota market.
If you are a gasoline station operator in Minnesota, you will receive a telephone call pretty much every day from your supplier informing you of the wholesale price you will pay on your next order. Station operators must raise or lower their prices immediately upon a change in the wholesale price, for reasons that are irrelevant to this post. Although no one to my knowledge has alleged that Flint Hills has conspired to fix retail gasoline prices, those prices move in daily unison at all stations pretty much statewide. Koch’s Flint Hills refinery is the price leader and is happily followed by the only other, much smaller supplier, and so the prices move in unison.
Now for state government. In 2012, control of the state legislature switched from the republicans to the democrats. The new democratic leaders of the legislature elected in 2012 campaigned on, and made it clear that their election would result in, significant new taxes to close the projected $6.2 billion biennium government deficit, and significant new spending on education and transportation infrastructure. With Mark Dayton, democrat, as governor elected in 2010, the democrats were situated to deliver on their campaign promises.
The first democratically controlled state legislature after the 2012 elections convened on January 8, 2013, and was constitutionally mandated to adjourn at midnight, May 20, 2013. The way the Minnesota legislature works, particularly in years when the biennium budget is on the agenda, is that nothing gets done until the last 4 or 5 days of the session, when all-night sessions are the rule. More importantly for political players and lobbyists, legislation that was considered dead can come back to life in those 5 days, so nothing is over until it is over, and votes take place at ten minutes to midnight on May 20th . Lobbyists and the usual power brokers live in terror those last 5 days, knowing that all their prior efforts during the session can go down the drain.
During the 2013 session, in early April, the House Transportation Committee proposed to raise taxes on gasoline by 5 cents per gallon. Dayton, for reasons unknown, let it be known that he was opposed. In response, in late April, the Transportation Committee proposed a tax on wholesale oil suppliers.
Which brings us to the week of May 14-May 21, 2013. On May 16, 2013, the price of gasoline jumped 40 cents overnight. The price increase pushed the per-gallon price of gasoline to the highest in the continental United States. Blame for the increase was placed on the usual suspects, except one. Bad weather in the Gulf of Mexico, trouble in the Middle East, jump in demand, shortage of supply, etc.were bandied about, but my favorite reason (because it fit so perfectly the House of Cards script) was that the Pine Bend Refinery had to close for “maintenance.”
On May 20, the legislature adjourned, increasing taxes on the wealthy and on business. The tax increases were bitterly opposed by the Chamber of Commerce and the business lobby, but all the proposed tax increases passed, except one: the oil tax increase failed. Who wants to explain an oil or gasoline tax that would increase gasoline prices even more than the then (suddenly) prevailing $4.29 per gallon price?
Dire warnings of gasoline prices going even higher were rampant.
Now the curious part. Check out the gasoline and oil prices for Minnesota for 2013:
attribution: None Specified
[Charts used by permission of GasBuddy]
The reason that a “jump in oil prices” could not be blamed for the jump in gasoline prices was because it could be too easily verified to be untrue. Oil prices actually fell that week.
More importantly, the price of gasoline fell a dollar gallon in the two weeks following the legislature’s adjournment to slightly below its price in the weeks before adjournment, and before the May 16th price increase.
Now take a look at gasoline prices in the states surrounding Minnesota:
Funny thing. Wisconsin feels no pain, but Minnesota gets whacked. Now let me think about the difference between Wisconsin and Minnesota… Oh, yeah, that’s right Wisconsin’s governor takes personal phone calls from David Koch.
I cannot guess what evil motives lurk in the hearts of men like the Kochs, but I have a whole lot more evidence of their economic and political buccaneering –and outright financial harm to the public- than the Kochs have in their multi million dollar fraudulent attack on Obamacare.
Are Tea Party republicans so far gone that they cannot see how government power, in which they at least have a voice, helps protect them from the direct out-of –pocket harm inflicted by the unrestrained power of a Koch oligopoly, in which they have no voice?
Epilogue. The tax and spending increases passed by the Democrats turned a $6.2 billion biennium deficit into a $1.2 billion surplus and reduced unemployment from 6.7% to 4.7% within 18 months. Only transportation infrastructure got stiffed, thanks to the Kochs.
Gasoline prices went up 40 cents a gallon overnight-
Pine Bend owned by Flint hills owned by Koch Industries supplies 70% of gasoline to MN market-
Koch refinery in MN
St Paul Park produces 25% of gasoline in MN-
[“Minnesota Refineries “]
[“The Flint Hills and St. Paul Park facilities refined about 128 million barrels of crude oil in 2011.’]
[“Flint Hills is almost four times larger than the St. Paul Park
refinery: its operating capacity is 277,200 barrels per day, compared
with the latter’s 74,000. They jointly produce the vast majority of
petroleum products consumed in Minnesota.”]
MN legislature considers gas tax in 4/09/2013=
MN legislature considers oil wholesale tax – 4/17/2013-
MN legislature adjourns 5/20/2013-
http://www.twincities.com/… [“Democratic-Farmer-Labor lawmakers delivered on much of what they
promised. On the last day of the session, they passed a hefty tax
increase to plug a hole in the state budget and pump more money into
education, property tax relief and jobs creation.” “Not done:
Legislators rejected raising gas taxes or metro-area sales taxes for
transit. A task force last fall said the state needs to raise $50
billion more for transportation projects over the next 20 year”]
2-year chart of TC MN gas and oil prices- showing 5/16/2013 spike-
Gas prices spike in MN in 2013 highest in continental US; gas price map by state http://www.twincities.com/… [“Experts said that indicates that the refineries don't have the
capacity now — apparently because of the maintenance work — to process
the same amount of crude oil they did last year.”]
Government hearing on how gas prices are determined-
MN State budget deficit 2011-2012
I usually take a year or two to figure out what just happened