State, city save
big on gas deal

Joint buying lets both
governments cut their fuel
bills way down

By Rob Perez
Star-Bulletin

Looking to get more mileage from their fuel purchases, the state and county of Honolulu have started buying gasoline together.

By one measure, the move is expected to save the financially strapped county -- and its taxpayers -- about $275,000 annually.

And the state will save thousands of dollars as well.

The two governments decided to change their buying practices after the Star-Bulletin reported in April that the way they were doing it then was costing them a premium.

Until switching to the joint arrangement in October, the state relied on a local pricing benchmark that critics claimed was grossly inflated and unlike the standard used by most mainland governments.

In September, it was paying Aloha Petroleum 70.8 cents a gallon, excluding taxes, for regular unleaded on Oahu. Monthly price adjustments were based on changes to the average dealer wholesale price for Honolulu, a benchmark that usually moves little from month to month.

Under the joint arrangement, which uses a benchmark pegged to Aloha's acquisition price from an out-of-state supplier, the state currently is paying 61.5 cents, a savings of about 9 cents a gallon, according to Harold Sonomura, a Department of Accounting and General Services administrator.

The county, which previously used relatively vague pricing guidelines, is reaping even greater savings, especially because it consumes far more gasoline than the state on Oahu.

Including police, bus and fire vehicles, the county uses about 2.6 million gallons annually, more than four times the state's Oahu total. For regular unleaded, the current price is about 11 cents a gallon cheaper than the September price, said county spokeswoman Carol Costa.

For premium, the fuel most often used by the county, the current savings is 10 cents a gallon.

If those figures remained constant throughout a 12-month period, the county's fuel bill would be about $274,400 less, Costa said.

"That's a tremendous amount for a city in a situation right now where as Mayor (Jeremy) Harris says, 'We need to find savings anywhere we can,' " Costa said.

The state has yet to calculate its expected savings.

But because the two governments are getting a better price due in large part to their collective purchasing, the savings will be considerable, officials said.

"You always get a better price when you're purchasing a lot more," said Ray Sato, state comptroller.

One mainland petroleum consultant who was highly critical of the state's old method of purchasing said the new way is a major improvement.

"Congratulation to the state," said consultant Tim Hamilton. "They're going to save taxpayers a lot of money."

Because price adjustments are pegged to what Aloha can get in the free marketplace outside Hawaii -- Aloha is the only local supplier to import gasoline -- the two governments aren't subject to the artificially inflated dealer wholesale prices, Hamilton said.

If spot market prices drop outside Hawaii, the governments will benefit, unlike under the old system, he added.

"They will no longer be held hostage by the oil cartel in Hawaii like consumers are every day of their lives," Hamilton said, alluding to Hawaii's highest-in-the-nation pump prices.

Officials from Aloha could not be reached for comment.

Aloha is the only major supplier that the state didn't name in its antitrust lawsuit in October.

The state accused the other companies of conspiring to keep wholesale prices artificially high, a charge the companies strenuously deny.

Among the companies that lost out on the bidding for the state and county contract were Aloha's two chief rivals, Chevron Corp. and Tesoro Hawaii Corp., according to state officials.

Despite the savings the state and county are reaping, the two governments can't come close to matching the federal government's ability to get a good deal.

The Army and Air Force Exchange Service, which purchases roughly 11 million gallons annually for gas stations on Oahu's military bases, earlier this month was paying Tesoro about 44 cents a gallon for regular unleaded.

By contrast, Oahu dealers pay nearly 90 cents a gallon to their suppliers.