SB1863

SECTION 1. The legislature finds that stability and fairness needs to be established in Hawaii's wholesale gasoline market. Act 78, Session Laws of Hawaii 2006, suspended the gas cap laws that were enacted in 2005, fearing that capping wholesale gasoline prices would cause more harm to Hawaii consumers by increasing prices and discouraging petroleum industry investors. However, eight months after the suspension, Hawaii's gas prices are still the highest in the nation and not one oil company has left the State where an estimated 1.3 million gallons of gasoline is sold every day.

In 2005, hurricanes Katrina and Rita and the refinery fires in Texas caused gas prices across the nation to sky-rocket. Disasters such as these, even those that are halfway around the world, would normally have the same effect on Hawaii and unreasonably influence our wholesale gas prices. However, in 2005 when these unfortunate events occurred, Hawaii had in place caps on wholesale gas prices which allowed for stability in Hawaii's wholesale gasoline market.

As of January 22, 2007, the retail gas prices were $2.809 per gallon on Oahu and $2.908 per gallon statewide, according to AAA. Had the gas cap been in place, under the formula in this act, estimated retail prices on Oahu would have been $2.436 per gallon, 37.3 cents lower than the average retail prices on Oahu.

Act 78, Session Laws of Hawaii 2006, requires oil refiners in Hawaii to periodically disclose the number of gallons sold, the wholesale fuel prices they charge, their operating expenses, and their profit margins. The two oil refiners in Hawaii have not disclosed this information because it is too sensitive to reveal, fearing that these disclosures could endanger the industry.

The purpose of this Act is to protect the gasoline consumers in this State from the predatory practices of an oligopolistic petroleum industry by reinstating the gas cap laws. 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.

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 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:

(1) The weekly average of the spot daily price for conventional regular unleaded gasoline for Los Angeles;

(2) The weekly average of the spot daily price for conventional regular unleaded gasoline for New York Harbor;

(3) The weekly average of the spot daily price for conventional regular unleaded gasoline for the United States Gulf Coast; and

(4) The weekly average of the spot daily price for conventional regular unleaded gasoline for Singapore, 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 marketing margin factor referred to in subsection (b) shall be 14 cents per gallon or as otherwise determined by the commission and shall thereafter be subject to adjustment pursuant to section 486H-16(a).

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

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

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

(1) Zone 1 shall include the island of Oahu;

(2) Zone 2 shall include the island of Kauai;

(3) Zone 3 shall include the island of Maui, except the district of Hana;

(4) Zone 4 shall include the district of Hana on the island of Maui;

(5) Zone 5 shall include the island of Molokai;

(6) Zone 6 shall include the island of Lanai;

(7) Zone 7 shall include the districts of Puna, south Hilo, north Hilo, and Hamakua on the island of Hawaii; and

(8) Zone 8 shall include the districts of north Kohala, south Kohala, north Kona, south Kona, and Kau on the island of Hawaii.

(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:

(1) Thirty per cent of the zone price adjustment shall be allocated to the shipper of the gasoline from zone to zone;

(2) Twenty per cent of the zone price adjustment shall be allocated to the terminal holding the gasoline in zones 2 through 8; and

(3) Fifty per cent of the zone price adjustments shall be allocated to the person or entity that delivers the gasoline to the retail station in zones 2 through 8.

(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,~~] 2007, notwithstanding the lack of the adoption of rules pursuant to this section[; provided that notwithstanding any law to the contrary, the maximum pre-tax wholesale price under this section shall be suspended indefinitely upon the effective date of Act 78, Session Laws of Hawaii 2006, and shall not thereafter become effective until and unless the governor publishes a notice statewide in accordance with section 1-28.5 that the reinstatement of the maximum pre-tax wholesale price under this section is beneficial to the economic well-being, health, and safety of the people of the State. The maximum pre-tax wholesale price shall become effective five days after the publication of the notice by the governor unless otherwise specified by the governor, and shall remain in effect for thirty days, after which time it shall be automatically suspended. Thereafter, the governor may reinstate the maximum pre-tax wholesale price for thirty-day periods on the same conditions as set forth above. Upon a finding that the maximum pre-tax wholesale price would impose a financial hardship upon a distributor within a zone, the governor, in the governor's discretion, may increase the maximum pre-tax wholesale price for the zone in an amount determined necessary to eliminate the financial hardship on any affected distributor who does not operate a refinery within the State. Any increase in the maximum pre-tax wholesale price shall be included in the notice published by the governor.

(l) The suspension of the maximum pre-tax wholesale gasoline price shall suspend the commission's duty to calculate and publish the maximum pre-tax wholesale gasoline price that would have been in effect but for the suspension, but shall not suspend or affect:

~~(1)~~ ~~Any duty to register, timely provide information, make a report, or file a statement under chapter 486J; or~~

~~(2)~~ ~~Any duty of the commission to:~~

~~(A)~~ ~~Timely obtain, analyze, or publicly disclose or report information under chapter 486J; and~~

~~(B)~~ ~~Enforce chapter 486B~~].

[~~(m)~~] (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 gasoline price established pursuant to subsection (b).

[~~(n)~~] (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 pursuant to chapter 486J collected in determining such compliance.

[~~(o)~~] (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.

[~~(p)~~] (o) The commission 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 marketing margin factor, the mid-grade adjustment factor, the premium adjustment factor, 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:

(1) The value of the baseline price 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:

(A) The weekly average of the spot daily price for conventional regular unleaded gasoline for Los Angeles;

(B) The weekly average of the spot daily price for conventional regular unleaded gasoline for New York Harbor;

(C) The weekly average of the spot daily price for conventional regular unleaded gasoline for the United States Gulf Coast; and

(D) The weekly average of the spot daily price for conventional regular unleaded gasoline for Singapore,

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, 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;

(2) The value of the marketing margin factor in effect at the time the petition is filed shall be adjusted by adding to the value the difference between:

(A) The average of the difference over the prior twelve-month period between:

(i) The dealer tank wagon price for sales for resale for "regular" gasoline; and

(ii) The bulk price for sales for resale for "regular" gasoline,

for Petroleum Administration for Defense (PAD) District V, as reported and published by the Energy Information Administration or its successor in Table 31 - "Motor Gasoline Prices by Grade, Sales Type, PAD District, and State" or other source containing the same information; less

(B) The average of the difference over the period from 1994 until the most current year between:

(i) The dealer tank wagon price for sales for resale for "regular" gasoline; and

(ii) The bulk price for sales for resale for "regular" gasoline,

(3) The value of the mid-grade and premium adjustment factors in effect at the time the petition is filed shall be adjusted by any material change in the mid‑grade and premium adjustment factor as published by an appropriate price information reporting service; and

(4) The value of any zone price adjustment on a zone by zone basis or zone price adjustment allocation, pursuant to section [~~486H-13(i),~~] 486H-13(j), on a zone by zone basis, in effect at the time the petition is filed, shall be adjusted based upon material changes in the operating costs for a zone, such as terminaling, storage, or distribution costs, and other empirical data the commission deems appropriate.

(b) If the commission adjusts the maximum pre-tax wholesale gasoline prices, the commission shall publish its findings and the adjusted prices by means that shall include the Internet website for the State of Hawaii.

(c) Regardless of whether a petition has been filed and notwithstanding a determination of the adjustments made pursuant to subsection (a), the commission, in its discretion, may make such other and further adjustments deemed necessary and appropriate to establish maximum pre-tax wholesale gasoline prices that reflect and correlate with competitive market conditions."

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.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	1863
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII