Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Conference on the disagreeing vote of the Senate to the amendments proposed by the House of Representatives in S.B. No. 2179, S.D. 2, H.D. 1, entitled:

having met, and after full and free discussion, has agreed to recommend and does recommend to the respective Houses the final passage of this bill in an amended form.

The purposes of this measure are to increase efficiency in the use of the State's energy resources.

In particular, this measure improves energy efficiency in state facilities and imposes price caps on gasoline, which your Committee finds to be an energy resource.

With respect to state facilities, this measure requires the State of Hawaii government to significantly improve its energy management in state facilities in order to save taxpayer dollars and reduce emissions that contribute to air pollution and global climate change.

With respect to gasoline, this measure requires the Department of Business, Economic Development, and Tourism to determine the maximum wholesale price of gasoline, on a quarterly basis, based on certain criteria, including the cost of a barrel of site-specific crude oil, and prohibits petroleum manufacturers and jobbers from selling gasoline to a dealer operated retail service station for more than the maximum wholesale price. In addition, this measure allows a manufacturer or jobber to 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, and provides for substantial penalties for violations by manufacturers or jobbers.

Your Committee finds that state agencies are among Hawaii's largest energy consumers, spending hundreds of millions of dollars annually on products and services. As such a large consumer, the State should promote energy efficiency, water conservation, the use of renewable energy products, help foster markets for emerging technologies, and create local employment and economic development opportunities. Government should also lead Hawaii in energy efficient building design, construction, and operation.

Your Committee further finds that government should lead by example by mandating a reduction in energy use in state facilities and the use of renewable energy for much of the remaining energy demand. This will significantly reduce the use of fossil fuels in state facilities as well as provide guidance to other government and private sector individuals and organizations.

Your Committee further finds that there is a need to lower gasoline prices for Hawaii's consumers. The recently concluded antitrust litigation against the major oil companies doing business in Hawaii has demonstrated the limited competition among those companies and the extraordinarily high profitability of the Hawaii petroleum products markets. Your Committee finds that, in view of the lack of competition in these markets, the imposition of price caps on gasoline is necessary to provide relief to Hawaii's consumers.

Upon further consideration, your Committee has amended this measure by:

1. Requiring the Public Utilities Commission, rather than the Department of Business, Economic Development, and Tourism, to establish gasoline price caps;
2. Specifying that price caps are to be established for both the pre-tax wholesale and retail prices of gasoline on a weekly basis, rather than only for the wholesale price of gasoline on a quarterly basis;
3. Changing the methodology to establish the maximum pre-tax wholesale and retail prices of gasoline, including the establishment of a location adjustment factor, a marketing margin factor, and a neighbor island wholesale adjustment factor;
4. Using spot daily prices for various West Coast markets, as reported and published by the Oil Price Information Service, in formulating a baseline price for regular unleaded gasoline for Oahu, rather than the cost of a barrel of site-specific crude oil as a benchmark;
5. Imposing civil penalties for violations equal to three times the overcharge, or $250,000, whichever is greater; authorizing civil actions for violations by the Public Utilities Commission; and authorizing referrals to the attorney general as appropriate;
6. Prohibiting petroleum manufacturers, wholesalers, or jobbers from selling regular unleaded gasoline to a dealer operated retail service station, an independent retail station, or to another jobber or wholesaler for more than the maximum pre-tax wholesale price;
7. Prohibiting retail stations 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;
8. Giving the governor the power to suspend the operation of the pre-tax wholesale and retail gasoline price caps;
9. Changing the procedure to adjust maximum pre-tax wholesale and retail gasoline prices;
10. Allowing manufacturers, wholesalers, or jobbers to petition the Public Utilities Commission to adjust the maximum pre-tax wholesale price in the event of a change in the value of the baseline price for regular unleaded gasoline, the location adjustment factor, the marketing margin factor, or the neighbor island wholesale adjustment factor;
11. Allowing retail stations to petition the Commission to adjust the maximum pre-tax retail price in the event of a change in the maximum pre-tax wholesale price for regular unleaded gasoline, or the value of the retail marketing margin factor;
12. Maintaining the lease rent cap for dealer operated retail stations; and
13. Delaying the implementation of the pre-tax wholesale and retail gasoline price caps until July 1, 2003;

1. 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;
2. Substantially increase civil penalties for noncompliance;
3. Require the Department to refer intentional violations to the Attorney General, who may exercise appropriate legal or equitable remedies available to the State; and
4. 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 administrator of the Department's Energy, Resources, and Technology Division;

1. Review and analyze the unsealed documents in Anzai v. Chevron et al. (the recently settled gasoline antitrust litigation) and other appropriate materials;
2. Gather and analyze empirical data to determine whether the Oil Price Information Service index or other appropriate benchmarks are applicable to Hawaii's markets;
3. Review options available to the legislature, including wholesale and retail gasoline price caps and the potential effects of imposing price caps; and
4. Report findings and recommendations to the legislature before the convening of the 2003 regular session, including proposed implementing legislation, as appropriate;

In addition, your Committee recognizes the concerns of the Department of Business, Economic Development, and Tourism, which has a quasi-regulatory function and also serves as an energy advocate, particularly with respect to the Department's role as the "petroleum commissioner" under this measure, which may potentially conflict with the Department's functions.

However, your Committee finds, however, that despite these concerns, the Department is clearly in the best position to conduct a review of relevant petroleum industry materials in the context of its existing statutory role under the Petroleum Industry Reporting Act, and that the Department in this context is serving as a neutral party, rather than as an advocate, in gathering and analyzing data for the Legislature.

Moreover, your Committee finds that under this measure, the Department may contract with other neutral parties having expertise in petroleum issues for assistance in its review of petroleum data, such as the National Conference of State Legislatures Energy Project, which assists states in this critical policy area. Your Committee finds that the assistance of the NCSL energy project, or a similar neutral energy program, will be of value to the Department and the Legislature in providing assistance in assisting the Department to examine these issues in the broader context of state energy planning.

As affirmed by the record of votes of the managers of your Committee on Conference that is attached to this report, your Committee on Conference is in accord with the intent and purpose of S.B. No. 2179, S.D. 2, H.D. 1, as amended herein, and recommends that it pass Final Reading in the form attached hereto as S.B. No. 2179, S.D. 2, H.D. 1, C.D. 1.