(1) Adds Singapore spot daily price in determination of baseline price, with lowest three of the four average weekly geographic prices averaged for State baseline; (2) in event of a holiday or holidays, requires PUC to use average of remaining business days of the prior week; (3) removes the location adjustment factor; (4) reduces the marketing margin factor to 14 cents; (5) allocates different percentages of zone price adjustments to different distributors performing different functions; and (6) provides for adjustment of zone price adjustments and allocation of zone price adjustments on a zone by zone basis. (SD1)

A BILL FOR AN ACT

SECTION 1. As was more than evident during the aftermath of hurricanes Katrina and Rita and the refinery fires in Texas, natural and man-caused disasters halfway around the world can cause volatility and instability in our wholesale gasoline prices in Hawaii. To ensure stability in our wholesale gasoline price control program, we must not allow disasters in other far away locations to unreasonably influence our wholesale gasoline prices. To reduce this instability, we need to add an additional geographic market to provide more flexibility in establishing the baseline gasoline price.

In setting a maximum pre-tax wholesale price of gasoline, the legislature inserted a location adjustment factor to take into account the added costs of doing business in Hawaii. However, in the implementation of the gasoline price control program, the public utilities commission established zone price adjustments for the eight geographic zones established in the State, including a zone price adjustment for zone one, the Honolulu base zone. These zone price adjustments, adopted by the public utilities commission, were determined by using the highest actual costs of doing business by wholesaler distributors in the various zones. Accordingly, the location adjustment factor became redundant.

A sustained review of the spot daily price for conventional regular unleaded gasoline in a number of mainland markets and a review of wholesale prices in those markets published by the United States Department of Energy indicates that the marketing margin factor may have been set too high.

Further, in establishing zone price adjustments, some distributors were taking more than an equitable share of the zone price adjustment to the detriment of other distributors in the chain of distribution. To ensure that there is an equitable sharing of the zone price adjustment, the zone price adjustments must be divided by wholesale distributors based upon the functions that each provides in the chain of distribution.

Finally, it cannot be overemphasized that the entire reason for this Act, amending Act 242, Session Laws of Hawaii 2004, which amended Act 77, Session Laws of Hawaii 2002, is the need to protect the gasoline consumers in this State from the predatory practices of an oligopolistic petroleum industry. The various courts have found and the parties themselves acknowledge that the wholesale gasoline industry in this State is an uncompetitive oligopoly with the industry parties enjoying supra-competitive margins in their wholesale transactions, all to the detriment of the Hawaii consumer. Therefore, the legislature reiterates that the objective of this Act is to enhance the consumer welfare by fostering the opportunity for prices to reflect and correlate with competitive market conditions. This means that the public utilities commission is directed to proactively enforce the provisions of the law in order to enable the consumers of Hawaii to enjoy the lowest possible prices for gasoline, while allowing the refiners, jobbers, and wholesalers to make a reasonable return on their investments.

Accordingly, the purposes of this Act are to:

SECTION 2. Section 486H-13, Hawaii Revised Statutes, is amended to read as follows:

"§486H-13 Maximum pre-tax wholesale price for the sale of gasoline; civil actions. (a) Notwithstanding any law to the contrary, no manufacturer, wholesaler, or jobber may sell regular unleaded, mid-grade, or premium gasoline to a dealer retail station, an independent retail station, or to another jobber or wholesaler at a price above the maximum pre-tax wholesale prices established pursuant to subsection (b). The commission shall publish the maximum pre-tax wholesale prices by means that shall include the Internet website for the State of Hawaii.

(b) On a weekly basis, the commission shall determine the maximum pre-tax wholesale price of regular unleaded, mid-grade, and premium gasoline as follows: the maximum pre-tax wholesale price of regular unleaded gasoline shall consist of the baseline price for regular unleaded gasoline, plus [the location adjustment factor,] the marketing margin factor[,] and the zone price adjustment, and for mid-grade and premium gasoline, the applicable mid-grade and premium adjustment factor, such that the maximum pre-tax wholesale gasoline prices reflect and correlate with competitive market conditions.

(c) The baseline price for regular unleaded gasoline referred to in subsection (b) shall be determined on a weekly basis and shall be equal to the average of[:] the three lowest of the four weekly averages of the spot daily price for conventional regular unleaded gasoline or its equivalent standard:

as reported and published by the Oil Price Information Service for the five business days of the preceding week; provided that if the preceding week contains a holiday or holidays, then the average of the remaining business days of the preceding week shall be used; and provided further that the commission, in its discretion, may determine a more appropriate baseline or a more appropriate price information reporting service[.] or use multiple price information reporting services.

[(d) The location adjustment factor referred to in subsection (b) shall be $.04 per gallon or as otherwise determined by the commission and shall thereafter be subject to adjustment pursuant to section 486H-16(a).

(e)] (d) The marketing margin factor referred to in subsection (b) shall be [$.18] 14 cents per gallon or as otherwise determined by the commission and shall thereafter be subject to adjustment pursuant to section 486H-16(a).

[(f)] (e) The mid-grade adjustment factor shall be [$.05] 5 cents per gallon or as otherwise determined by the commission and shall thereafter be subject to adjustment pursuant to section 486H-16(a).

[(g)] (f) The premium adjustment factor shall be [$.09] 9 cents per gallon or as otherwise determined by the commission and shall thereafter be subject to adjustment pursuant to section 486H-16(a).

[(h)] (g) For purposes of this chapter, the State shall be divided into the following zones:

[(i)] (h) The commission shall establish zone price adjustments to the maximum pre-tax wholesale regular unleaded, mid-grade, and premium gasoline prices on a zone by zone basis.

(i) The zone price adjustments for zones 2 through 8, set forth in subsection (g) shall be divided as follows:

(j) Every manufacturer, wholesaler, or jobber, upon the request of the commission, shall furnish to the commission, in the form requested, all documents, data, and information the commission may require to make its determination on zone price adjustments. Any person who refuses or fails to comply with a request for information by the commission shall be subject to a fine of up to $50,000 per day. Each day a violation continues shall constitute a separate offense.

(k) The maximum pre-tax wholesale gasoline price imposed by this section shall take effect on September 1, 2005, notwithstanding the lack of the adoption of rules pursuant to this section.

(l) Any manufacturer, wholesaler, or jobber who knowingly violates any requirement imposed or rule adopted under this section, except for subsection (j), shall be subject to a civil penalty, for each violation, equal to three times the amount of the overcharge or $250,000, whichever is greater, and shall be liable for the costs of the action and reasonable attorney's fees as determined by the court. Within two years from the date the commission obtains actual knowledge of the violation, the commission may institute a civil action in a court of competent jurisdiction to collect the civil penalty, the costs, and attorney's fees. In the case of ongoing violation, the two-year period shall start from the date of the last violation. The commission may refer any such action to the attorney general as it deems appropriate. As used in this subsection, "overcharge" means the number of gallons of gasoline sold, times the wholesale price at which the manufacturer or jobber sold regular unleaded, mid-grade, or premium gasoline to a dealer retail station, an independent retail station, or another jobber or wholesaler, less taxes assessed, less the maximum pre-tax wholesale price established pursuant to subsection (b).

(m) The commission shall have the power to determine the extent to which a manufacturer, wholesaler, or jobber is complying with any requirement imposed or rule adopted under this section, including the power to compel a manufacturer, wholesaler, or jobber to submit documents, data, and information necessary and appropriate for the commission to determine such compliance. The commission may use data collected by the department of business, economic development, and tourism pursuant to chapter 486J, as well as obtain the assistance of that department in determining such compliance.

(n) The commission shall report to the governor and the legislature, in a timely manner, on any significant aberrations, trends, or conditions that may adversely impact the gasoline consumers in the State.

(o) The commission [shall] may adopt rules pursuant to chapter 91 as may be necessary to implement this section and section 486H-16."

SECTION 3. Section 486H-16, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) A manufacturer, wholesaler, or jobber may petition the commission to adjust the maximum pre-tax wholesale price of regular unleaded, mid-grade, or premium gasoline 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, the mid-grade adjustment factor, the premium adjustment factor, [or] a zone price adjustment[.] on a zone by zone basis, or an allocation of a zone price adjustment on a zone by zone basis. The petitioner shall bear the burden of proof to establish by clear and convincing evidence the need for and the amount of any adjustment. The adjustments shall be determined as follows:

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.