Report Title:

Energy Resources

Description:

Extends the time for the Department of Business, Economic Development, and Tourism to complete the comprehensive review and analysis of the price cap mechanism and policy options to lower Hawaii's gasoline prices. (HB1127 HD2)

HOUSE OF REPRESENTATIVES

H.B. NO.

1127

TWENTY-SECOND LEGISLATURE, 2003

H.D. 2

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO ENERGY RESOURCES.

 

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

SECTION 1. The legislature finds that Act 77, Session Laws of Hawaii 2002, among other things, established wholesale and retail gasoline price caps effective July 1, 2004. That law further required the department of business, economic development, and tourism to conduct an independent analysis of gasoline price caps, and to report back to the legislature before the 2003 regular session.

However, upon further review, the legislature finds that the department needs additional time to properly and thoroughly conduct its review and analysis. The department's report is to include a review of the unsealed documents in the recently settled gasoline antitrust litigation and other appropriate materials; an analysis of empirical data to determine whether the Oil Price Information Service index or other appropriate benchmarks are applicable to Hawaii's markets; and a review of options available to the legislature, including wholesale and retail gasoline price caps and the potential effects of imposing price caps.

Since Act 77 allocated insufficient time to complete the department's review and analysis, and given the fact that the gasoline price cap provisions of Act 77 do not become effective until July 1, 2004, the legislature finds that the department should be given an additional year. Having the department report back to the legislature prior to the regular session of 2004 will still provide sufficient time to allow the legislature to study the issue of gasoline price caps during the regular session of 2004 and make an informed decision as to whether to retain, modify, or repeal the price cap provisions.

Accordingly, the purpose of this Act is to extend the reporting date for the department of business, economic development, and tourism to twenty days prior to the convening of the regular session of 2004.

SECTION 2. Act 77, Session Laws of Hawaii 2002, is amended as follows:

1. By amending section 1 to read:

"SECTION 1. The legislature finds that gasoline is an energy resource, and that there is a need to ensure lower gasoline prices for Hawaii's consumers. Although gasoline prices have fallen to their lowest levels in years, and mainland consumers have been enjoying less expensive prices, there is evidence that Hawaii's consumers still continue to pay a large premium at the pump.

The legislature finds that the price of gasoline is a pivotal component in determining the future of the State's total energy situation. The cost of gasoline permeates every aspect of Hawaii's energy economy from the petroleum manufacturer to the gas station and finally to the ultimate payer, the people of Hawaii. As a result, no one in this State, resident or visitor, can escape the impact of the cost of gasoline.

The legislature has had long-standing and serious concerns over the high price of gasoline in the State of Hawaii, especially since prices in Hawaii have often been far in excess of the prices observed in other markets in the United States. In past hearings held by the legislature, the oil companies have represented that the market for gasoline in Hawaii was competitive, and that the high gasoline prices in Hawaii were attributable to the high cost of doing business in the State of Hawaii.

The legislature finds that the evidence obtained and developed in the State's antitrust lawsuit shows that the high cost of doing business in Hawaii has not been and is not the cause of the high gasoline prices. Rather, the evidence indicates among other matters, the following:

(1) Retail gasoline prices in the State of Hawaii have been much higher than the prices observed in other oligopolistic and equally concentrated markets;

(2) Retail gasoline prices in the State of Hawaii have exhibited far less volatility, as well as abnormal stability, in comparison to prices observed in other oligopolistic and equally concentrated markets; and

(3) The major oil companies have been realizing profit margins far in excess of the margins realized in other oligopolistic and equally concentrated markets.

More recently, the oil companies have argued that high gasoline prices, high profit margins, and the lack of vigorous competition are the inevitable results of the oligopolistic structure of the Hawaii market.

In essence, the oil companies have now recognized that the structure of the Hawaii market is not one that will encourage competition. Rather, the structure of the market will perpetuate high and rising prices, supra-competitive margins, and a lack of competition.

The legislature finds that affirmative action is necessary to address the uncompetitive market, and that this action requires a multi-pronged response, especially in light of the recent ruling issued by the United States District for the District of Hawaii in Chevron U.S.A., Inc. v. Benjamin J. Cayetano, et al., Civil No. 97-00933 SCM, in which the court held that the lease rent cap statute in Act 257 passed by the legislature in 1997 was unconstitutional.

Accordingly, the purposes of this part are to:

(1) Establish wholesale and retail gasoline price caps by:

(A) Requiring the public utilities commission to determine the maximum pre-tax wholesale price of regular unleaded gasoline, on a weekly basis;

(B) Prohibiting petroleum manufacturers or jobbers from selling regular unleaded gasoline to a dealer operated retail service station for more than the maximum pre-tax wholesale price;

(C) Requiring the public utilities commission to determine the maximum pre-tax retail price of regular unleaded gasoline, on a weekly basis;

(D) Prohibiting retailers from selling gasoline to the public for more than the maximum pre-tax retail price for regular unleaded gasoline sold on a self-serve basis;

(E) Giving the governor the power to suspend the operation of the wholesale and retail price caps whenever the governor determines that the operation of this law causes a major adverse impact on the economy, public order, or the health, welfare, or safety of the people of Hawaii. The suspension will be in effect until [the] June 30 of the year of the next succeeding regular session. If the legislature makes no change, the rate reverts to the previously established rate;

(F) Providing for a procedure to adjust the maximum prices; and

(G) Maintaining the lease rent cap for dealer operated retail stations;

(2) Amend the Petroleum Industry Reporting Act to:

(A) Require, rather than allow, the department of business, economic development, and tourism to monitor the oil industry's profit margins in Hawaii and conduct random or periodic audits and inspections of oil suppliers;

(B) Substantially increase civil penalties for noncompliance;

(C) Require the department to refer intentional violations to the attorney general, who may exercise appropriate legal or equitable remedies available to the State; and

(D) Change references to the department and the director of business, economic development, and tourism in the Petroleum Industry Reporting Act to the "petroleum commissioner", who is to be the head of the department's energy, resources, and technology division;

(3) Require the department of business, economic development, and tourism to:

(A) Review and analyze the unsealed documents in Anzai v. Chevron et al. (the recently settled gasoline antitrust litigation) and other appropriate materials;

(B) Gather and analyze empirical data to determine whether the Oil Price Information Service index or other appropriate benchmarks are applicable to Hawaii's markets;

(C) Review options available to the legislature, including wholesale and retail gasoline price caps and the potential effects of imposing price caps;[and

(D) Report] (D) Submit an interim report to the legislature before the convening of the regular session of 2003; and

(E) Submit a final report of findings and recommendations to the legislature before the convening of the [2003] regular session[,] of 2004, including proposed implementing legislation, as appropriate;

(4) Require the attorney general and the legislative reference bureau to assist the department by conducting legal and policy analyses, as appropriate, and in drafting legislation; and

(5) Appropriate $250,000 out of the public utilities commission special fund to the general fund, and appropriate the same amount to the department of business, economic development, and tourism to allow the department to contract with one or more petroleum experts to assist the department."

2. By amending section 5 to read:

"SECTION 5. Review; report. (a) The department of business, economic development, and tourism shall:

(1) Gather, review, analyze, and evaluate publicly available information, studies, and reports, including unsealed documents in Anzai v. Chevron et al. (U.S. District Court for the District of Hawaii, Civil No. 98-00792-SPK) and the attorney general's investigation of the petroleum industry, as may be necessary;

(2) Gather, review, analyze, and evaluate empirical data to determine whether the Oil Price Information Service index, or other appropriate benchmarks, are applicable to Hawaii's wholesale and retail gasoline markets;

(3) Review options available to the legislature and make findings and recommendations concerning appropriate remedies and solutions available to reduce wholesale and retail gasoline prices in Hawaii, including proposals to impose maximum prices on wholesale and retail gasoline and the potential effects of imposing such price caps; [and

(4) Report] (4) Submit an interim report to the legislature no later than twenty days prior to the convening of the regular session of 2003 that discusses the progress made and any problems encountered by the department; and

(5) Submit a final report of findings and recommendations, including proposed implementing legislation, to the legislature no later than twenty days before the convening of the regular session of [2003.] 2004.

(b) The attorney general and the legislative reference bureau shall assist the department by conducting legal and policy analyses, as appropriate, and in drafting legislation."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.