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 4 markets. Prohibits oil companies from charging more than the maximum price to retailers. Establishes civil penalties. Repeals existing gasoline price cap law.

THE SENATE

S.B. NO.

1506

TWENTY-SECOND LEGISLATURE, 2003

 

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 low gasoline prices for Hawaii's consumers. Although gasoline prices have fallen to their lowest levels in years, and mainland consumers have been enjoying cheaper gasoline prices, Hawaii's consumers still continue to pay a large premium at the pump.

The legislature further finds that the price of Alaskan North Slope crude oil and Indonesian Minas crude oil, commonly used at the two oil refineries operating on Oahu, has declined fifty per cent since October 2000. The prices of other types of crude oil have also dropped by comparable amounts. Nevertheless, during the same period, wholesale prices that oil companies charged Oahu retail dealers for gasoline refined from that oil have not declined similarly. The legislature finds that the failure of oil companies to reduce wholesale prices charged to gasoline retailers during this period has resulted in substantial oil company profits.

The legislature finds that one way to ensure lower gasoline prices is to apply a benchmarking process that establishes an upper limit, or cap, on the wholesale price of gasoline that oil companies may charge to retailers in Hawaii. Benchmarks are often used to limit gasoline prices in the bulk purchase of gasoline by a large buyer, such as the state or federal government. When the federal government purchases gasoline for military service stations or the postal service, it bases its benchmark on a mainland index. The state and county governments both use a local index.

In Hawaii, gasoline prices for the United States Postal Service and military are based on selected California "rack" prices posted by the Oil Price Information Service, an independent price-tracking publication. Rack prices published by this service are also used by most federal, state, and local agencies on the mainland to establish benchmarks for their bulk-buying gasoline contracts. Rack prices are what a distributor or wholesaler pays per gallon to pick up gasoline at a refinery site. Hawaii federal benchmarks are generally equivalent to the rack price plus a set amount, usually a few cents per gallon, to cover supplier margins.

Federal agencies in Hawaii have seen a decrease in their gasoline prices because they rely on a mainland index, whereas state agency gasoline prices are still relatively high because they are pegged to a local index that has changed very little. Relying on a local index means less month to month volatility in state gasoline pricing, for which the State pays a premium.

The legislature finds that applying benchmarks to the wholesale price of gasoline sold in this State will help lower prices at the pump. The benchmark process will give oil companies, which have kept Hawaii's wholesale gasoline prices artificially high, little opportunity to artificially increase wholesale prices.

Under the benchmark process established by this Act, maximum wholesale prices are based on the average price per barrel of New York, Texas, Alaskan North Slope, and Indonesian Minas crude oil multiplied by 0.035, and based on an octane rating of 87. Prices are increased one cent for each point increase in octane rating above 87 with a corresponding decrease for each point decrease in octane rating below 87.

For example, if the average price per barrel of the four types of 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 for an octane rating of 87:

$20.00 x 0.035 = 0.70;

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

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

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

($20.00 x 0.035) – 0.01 = 0.69.

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, based on a benchmark average of four international crude oil prices.

This Act further prohibits any Hawaii manufacturer or jobber from selling, offering to sell, or agreeing to sell any gasoline to a dealer operated retail service station, in excess of the maximum wholesale price of gasoline established by the department. Abrupt changes in world market crude oil prices are accounted for by allowing oil companies to petition the department to readjust the maximum wholesale price of gasoline under these circumstances.

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 the sale of gasoline to dealer operated retail service stations; civil actions. (a) Notwithstanding any law to the contrary, and except as provided in subsection (c), 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 (b).

(b) The department on a quarterly basis shall determine the maximum wholesale price of gasoline, which shall consist of the average price per barrel of New York, Texas, Alaskan North Slope, and Indonesian Minas crude oil, multiplied by 0.035, and 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.

The department shall publish the maximum wholesale price of gasoline by means that shall include the department's internet website.

(c) A manufacturer or jobber may petition the department to readjust the maximum wholesale price of gasoline in the event of an abrupt change in crude oil prices in the world market. The department shall publish its findings and any change in the maximum wholesale price of gasoline by means that shall include the department's internet website.

(d) 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's fees as determined by the court.

An action brought 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.

(e) The department 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. Section 486H-1, Hawaii Revised Statutes, is amended by adding five new definitions to be appropriately inserted and to read as follows:

""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.

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

"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 4. 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 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) 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) Nothing in this section shall prohibit a dealer from selling a retail service station in any manner.

[(e) 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 5. Section 2 of Act 77, Session Laws of Hawaii 2002, is repealed.

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 2003.

INTRODUCED BY:

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