Report Title:

Maximum Wholesale Gasoline Prices; Civil Actions

 

Description:

Requires DBEDT to establish quarterly, maximum wholesale gasoline price for Hawaii based on the average price of crude oil prices in four markets; prohibits oil companies from charging more than the maximum price to retailers; establishes civil penalties. (HB2198 HD1)

 

 

HOUSE OF REPRESENTATIVES

H.B. NO.

2198

TWENTY-FIRST LEGISLATURE, 2002

H.D. 1

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO GASOLINE.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that there is a need to ensure the lowest gasoline prices for Hawaii's consumers. Gasoline prices have fallen to their lowest levels in years. While mainland consumers have been enjoying cheaper gasoline prices, however, Hawaii's consumers still continue to pay a large premium at the pump.

The legislature finds that the price of two types of crude oil, namely, Alaskan North Slope and Indonesian Minas, which are commonly used at the two oil refineries operating on Oahu, have declined fifty per cent since October 2000, while other types of crude oil have also dropped by comparable amounts.

Nevertheless, during this same time period, the wholesale prices that oil companies charged Oahu retail dealers for gasoline refined from that oil has not similarly declined. The legislature finds that the failure of these oil companies to reduce the wholesale prices charged to gasoline retailers has resulted in substantial profits for these oil companies during this period.

The legislature finds that one way to ensure lower gasoline prices is to apply a benchmarking process to establish an upper limit, or cap, on the wholesale price of gasoline that Hawaii's large oil companies may charge to retailers in the State.

The legislature finds that benchmarks are often specified in contracts for the bulk purchase of a steady, reliable amount of gasoline by large buyers, such as the state and federal governments. Prices charged to the two governments, however, are currently based on different benchmarks as specified in their contracts. When the federal government purchases gasoline for military service stations or the postal service, for example, it pegs the contract price for gasoline to a mainland index, while the state and county governments both use a local index.

Suppliers to the United States Postal Service and military must use selected California "rack" prices posted by the Oil Price Information Service, an independent price-tracking publication, to adjust their Hawaii amounts. Rack prices are what a distributor or wholesaler pays per gallon to pick up gasoline at a refinery site. Generally, the Hawaii federal prices are based on the benchmark plus a set amount, which is usually a few cents per gallon to cover supplier margins. Most federal, state, and local agencies on the mainland use the Oil Price Information Service for their bulk-buying gasoline contracts.

While gasoline prices have fallen for federal agencies in Hawaii that rely on the mainland index, however, state agencies are still paying relatively high gasoline prices, since adjustments for the State are pegged to local benchmarks that have changed very little, resulting in little movement in gasoline prices. While relying on a local index means that the State has less volatility in its gasoline pricing from month to month, it nevertheless ends up paying a premium to ensure lower price volatility.

The legislature finds that applying a slightly different type of benchmarking process to the wholesale price of gasoline sold in this State will help to bring about lower prices at the pump. Accordingly, the purpose of this Act is to require the department of business, economic development, and tourism to establish and publish, on a quarterly basis, the maximum wholesale price of gasoline that Hawaii's large oil companies may charge to retailers in the State. This maximum price is to be based on a benchmark average of four international crude oil prices.

The intent of using this type of benchmark is to prevent the large oil companies doing business in Hawaii, which have kept Hawaii's wholesale gasoline prices artificially high, little opportunity to increase wholesale prices, except when there has been an abrupt world market change in crude oil prices, in which case the manufacturer or jobber may petition the department to readjust the maximum wholesale price of gasoline.

SECTION 2. Chapter 486H, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"486H-    Restrictions on manufacturers and jobbers in the wholesale sale of gasoline to dealer operated retail service stations; civil actions. (a) As used in this section:

"Dealer operated retail service station" has the same meaning as defined in section 486H-10.4(e).

"Department" means the department of business, economic development, and tourism.

"Jobber" has the same meaning as defined in section 486H-1.

"Manufacturer" has the same meaning as defined in section 486H-1.

"Maximum wholesale price of gasoline" means the average price per barrel of New York, Texas, Alaskan North Slope, and Indonesian Minas crude oil, multiplied by 0.035 based on an octane rating of 87; provided that:

(1) When the octane rating is greater than 87, the maximum wholesale price for each gallon of gasoline sold shall be increased by one cent for each single point increase in octane rating above 87; and

(2) When the octane rating is less than 87, the maximum wholesale price for each gallon of gasoline sold shall be decreased by one cent for each single point decrease in octane rating below 87.

Examples: If the average price per barrel of New York, Texas, Alaskan North Slope, and Indonesian Minas crude oil is $20 per barrel, then the maximum wholesale price for each gallon of gasoline, based on the following octane ratings, is:

(1) 70 cents per gallon with an octane rating of 87:

$20.00 x 0.035 = 0.70;

(2) 71 cents per gallon with an octane rating of 88:

($20.00 x 0.035) + 0.01 = 0.71; and

(3) 69 cents per gallon with an octane rating of 86:

($20.00 x 0.035) 0.01 = 0.69.

(b) Notwithstanding any law to the contrary, and except as provided in subsection (d), no manufacturer or jobber may sell, offer to sell, or agree to sell any gasoline to a dealer operated retail service station, the price of which is in excess of the maximum wholesale price of gasoline established by the department as provided in subsection (c).

(c) The department, on a quarterly basis, shall determine the maximum wholesale price of gasoline and publish that price, including publication on the department's Internet website.

(d) Any manufacturer or jobber may petition the department to readjust the maximum wholesale price of gasoline in the event of the occurrence of an abrupt world market change in crude oil prices. The department shall publish its findings and any changes to the maximum wholesale price of gasoline, including publication on the department's Internet website.

(e) Any manufacturer or jobber who violates any requirement imposed or rule adopted under this section shall be liable to the State in an amount equal to the sum of:

(1) Three times the amount of actual damages sustained or $500,000, whichever is greater; and

(2) In the case of any successful action to enforce the foregoing liability, the costs of the action, together with reasonable attorney fees as determined by the court.

An action to enforce any liability created under this section shall be considered a civil action and shall be brought in a court of competent jurisdiction without regard to the amount in controversy, within two years from the date on which the liability occurred. The department may refer any such action to the attorney general as it deems appropriate.

(f) The commission shall adopt rules pursuant to chapter 91 as may be necessary to implement this section, without regard to the public hearing and notice provisions of that chapter."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 3000.