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HOUSE OF REPRESENTATIVES

H.B. NO.

1136

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO THE PETROLEUM INDUSTRY.

 

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

SECTION 1. The legislature finds that there is a need to help lower the price of gasoline for Hawaii consumers by ensuring competitive pricing of this important energy resource. Certain theory holds that vertical integration in industries, such as the petroleum industry, can harm competition, which has lent support to the view that it is possible that "divorcement" policies, like Hawaii's, which restrict the integration of gasoline refiners and wholesalers, and retailers could increase competition and benefit consumers with lower prices.

However, the legislature finds no evidence that these restrictions, first instituted in Hawaii in 1991, have led to lowering Hawaii's gasoline prices. Further, there is evidence that these policies actually sacrifice market efficiencies and are harmful to gasoline consumers, because they have instead raised prices of this important energy resource. An econometric analysis of the effects of divorcement policies in Hawaii, Connecticut, Delaware, Maryland, Nevada, Virginia, and the District of Columbia was independently conducted and reported by a deputy assistant director of the Bureau of Economics, United States Federal Trade Commission. The analysis concluded that divorcement added about 2.7 cents per gallon at retail on regular unleaded gasoline, costing consumers an estimated $100 million annually.

At the request of the legislature, the department of business, economic development, and tourism and its expert consultants are conducting an analysis of Hawaii's gasoline market and petroleum industry. The ongoing analysis has included meetings with many relevant stakeholder groups, including dealers whom the divorcement policy was intended to support. Preliminary findings show that dealers have reported that Hawaii's divorcement policy has severely diminished the value of their stations as to preclude the marketability and sale of these businesses.

Accordingly, the legislature concludes that divorcement and geographic restrictions on building retail service stations are significant barriers to market entry for otherwise more efficient competitors, and stifle competition among existing Hawaii firms.

The purpose of this bill is to remove these restrictions.

SECTION 2. Section 486H-10.4, Hawaii Revised Statutes, is amended to read as follows:

"[[]§486H-10.4[] Restrictions on manufacturers or jobbers in operating service stations; lease] Lease rent controls; definitions. [(a) Beginning August 1, 1997, no manufacturer or jobber shall convert an existing dealer operated retail service station to a company operated retail service station; provided that nothing in this section shall limit a manufacturer or jobber from:

(1) Continuing to operate any company operated retail service stations legally in existence on July 31, 1997;

(2) Constructing and operating any new retail service stations as company operated retail service stations constructed after August 1, 1997, subject to subsection (b); or

(3) Operating a former dealer operated retail service station for up to twenty-four months until a replacement dealer can be found if the former dealer vacates the service station, cancels the franchise, or is properly terminated or not renewed.

(b) No new company operated retail service station shall be located within one-eighth mile of a dealer operated retail service station in an urban area, and within one-quarter mile in other areas. For purposes of this subsection, "urban" means the first congressional district of the State, and "other areas" means the second congressional district of the State.

(c)] (a) All leases as part of a franchise as defined in section 486H-1, existing on August 1, 1997, or entered into thereafter, shall be construed in conformity with the following:

(1) Such renewal shall not be scheduled more frequently than once every three years; and

(2) Upon renewal, the lease rent payable shall not exceed fifteen per cent of the gross sales, except for gasoline, which shall not exceed fifteen per cent of the gross profit of product, excluding all related taxes by the dealer operated retail service station as defined in section [486H-1 and] 486H-10.4 plus, in the case of a retail service station at a location where the manufacturer or jobber is the lessee and not the owner of the ground lease, a percentage increase equal to any increase which the manufacturer or jobber is required to pay the lessor under the ground lease for the service station. For the purposes of this subsection, "gross amount" means all monetary earnings of the dealer from a dealer operated retail service station after all applicable taxes, excluding income taxes, are paid.

The provisions of this subsection shall not apply to any existing contracts that may be in conflict with its provisions.

[(d)] (b) Nothing in this section shall prohibit a dealer from selling a retail service station in any manner."

[(e)] (c) For the purposes of this section:

["Company operated retail service station" means a retail service station owned and operated by a manufacturer or jobber and where retail prices are set by that manufacturer or jobber.]

"Dealer operated retail service station" means a retail service station owned by a manufacturer or jobber and operated by a qualified gasoline dealer under a franchise.

"Operate" means to engage in the business of selling motor vehicle fuel at a retail service station through any employee, commissioned agent, subsidiary company, or person managing a retail service station under a contract and on a fee arrangement with the manufacturer or jobber.

"Retail" means a sale of gasoline made to the general public at prices that are displayed on the dispensing equipment."

SECTION 3. Section 486H-10.5, Hawaii Revised Statutes, is amended to read as follows:

"[[]§486H-10.5[]] Violation; penalties. Any person who violates section [486H-10] 486H-10.4 shall be assessed a civil penalty of $1,000 per day for each violation."

SECTION 4. Section 486H-11, Hawaii Revised Statutes, is amended to read as follows:

"[[]§486H-11[]] Enforcement of prohibition. (a) The attorney general shall commence a civil action to enforce section [486H-10,] 486H-10.4, by seeking injunctive or any other appropriate relief. The civil action shall be brought in the circuit court of the circuit where the alleged violation occurred, or where the defendant resides or is doing business.

(b) Any person who is injured in another person's business or property by the violation of section [486H-10,] 486H-10.4, may bring a civil action for damages or injunctive relief, or both, against the person violating section [486H-10.] 486H-10.4. If the plaintiff prevails, the plaintiff shall be awarded reasonable attorneys and expert witness fees; provided that if a court awards only nominal damages to the plaintiff, those fees, in the court's discretion, need not be awarded to the plaintiff. Any action brought under this subsection shall be brought in the circuit court of the circuit where the alleged violation occurred, or where the defendant resides or is doing business.²

SECTION 5. Act 77, Session Laws of Hawaii 2002, is amended by repealing the definitions of "retail" and "urban" in section 486H-1, Hawaii Revised Statutes, in section 2(2).

[""Retail" means a sale of gasoline made to the general public at prices that are displayed on the dispensing equipment.

"Urban" means the first congressional district of the State."]

SECTION 6. Act 77, Session Laws of Hawaii 2002, is amended by amending section 486H-10.4, Hawaii Revised Statutes, in section 2(3) to read as follows:

"§486H-10.4 [Restrictions on manufacturers or jobbers in operating service stations; lease] Lease rent controls; definitions. [(a) Beginning August 1, 1997, no manufacturer or jobber shall convert an existing dealer retail station to a company retail station; provided that nothing in this section shall limit a manufacturer or jobber from:

(1) Continuing to operate any company operated retail service stations legally in existence on July 31, 1997;

(2) Constructing and operating any new retail service stations as company retail stations constructed after August 1, 1997, subject to subsection (b); or

(3) Operating a former dealer retail station for up to twenty-four months until a replacement dealer can be found if the former dealer vacates the service station, cancels the franchise, or is properly terminated or not renewed.

(b) No new company retail station shall be located within one-eighth mile of a dealer retail station in an urban area, and within one-quarter mile in other areas.

(c)] (a) All leases as part of a franchise as defined in section 486H-1, existing on August 1, 1997, or entered into thereafter, shall be construed in conformity with the following:

(1) Such renewal shall not be scheduled more frequently than once every three years; and

(2) Upon renewal, the lease rent payable shall not exceed fifteen per cent of the gross sales, except for gasoline, which shall not exceed fifteen per cent of the gross profit of product, excluding all related taxes by the dealer [operated] retail [service] station as defined in section 486H-1 [and 486H-10.4] plus, in the case of a retail [service] station at a location where the manufacturer or jobber is the lessee and not the owner of the ground lease, a percentage increase equal to any increase which the manufacturer or jobber is required to pay the lessor under the ground lease the case of a retail [service] station at a location where the manufacturer or jobber is the lessee and not the owner of the ground lease, a percentage increase equal to any increase which the manufacturer or jobber is required to pay the lessor under the ground lease for the service station. For the purposes of this subsection, "gross amount" means all monetary earnings of the dealer from a dealer [operated] retail [service] station after all applicable taxes, excluding income taxes, are paid.

The provisions of this subsection shall not apply to any existing contracts that may be in conflict with its provisions.

[(d)] (b) Nothing in this section shall prohibit a dealer from selling a retail service station in any manner."

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect upon its approval; provided that sections 5 and 6 shall take effect on July 1, 2004.

INTRODUCED BY:

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BY REQUEST