On State Business
Ups and Downs of the gas cap
What the law regulating fuel prices really says and how it's enforced
The Public Utilities Commission is implementing the gas cap law exactly as prescribed by the state Legislature.
In Act 242, Session Laws of Hawaii (2004), the Legislature stated that the objective of the gas cap law is "not to guarantee lower gasoline prices," but rather to "enhance consumer welfare by fostering the opportunity for prices that reflect and correlate with competitive market conditions." As such, gas caps are designed to fluctuate with a virtual competitive market for gasoline in Hawaii. It is also important to remember the gas cap law does not set a maximum price for retail dealer stations (the price at the pump); it only sets a maximum price for wholesale transactions.
The gas cap law required the PUC to begin implementing the law on Sept. 1, and the commission has faithfully and objectively implemented the law precisely as required by the Legislature in Chapter 486H, Hawaii Revised Statutes. The law requires the commission to establish maximum pretax wholesale gasoline prices based on a formula and certain components or factors established by the Legislature. Although the commission has the discretion to make certain adjustments, only the Legislature can change or repeal the law.
The PUC does not have the authority to suspend the gas cap law. The governor has emergency powers to suspend the cap if she determines that it "will cause a major adverse impact on the economy, public order or the health, welfare, or safety."
The law specifies that the cap for wholesale regular unleaded gasoline shall consist of:
(a) a baseline price for regular unleaded gasoline (variable index based on Los Angeles, United States Gulf Coast and New York Harbor prices), plus
(b) a location adjustment factor ($0.04 per gallon), plus
(c) a marketing margin factor ($0.18 per gallon), plus
(d) for mid-grade gasoline, an adjustment for mid-grade gasoline ($0.05 per gallon), plus
(e) for premium gasoline, an adjustment for premium gasoline ($0.09 per gallon), and
(f) a zone price adjustment for each of the eight zones established by the gas cap law: Oahu ($0.065 per gallon), Kauai ($0.206 per gallon), Maui, except Hana ($0.204 per gallon), Hana, Maui ($0.284), Molokai ($0.312), Lanai ($0.403), and, on the Big Island, Hilo ($0.213) and Kona ($0.232).
All of the components, factors and values identified above were established by the Legislature, except for the values of the zone price adjustments, which the PUC is required to set under the law. The PUC set the zone price adjustments for each zone based on barging, terminal and transportation costs.
The baseline price is the variable portion of the gas cap. In Act 242, the Legislature determined that it was appropriate to tie wholesale gas caps to mainland wholesale gas prices.
Accordingly, the Legislature provided that the baseline price shall be adjusted weekly based on the weekly average of the spot daily prices for regular unleaded gasoline for Los Angeles, New York Harbor and the United States Gulf Coast, as published by the Oil Price Information Service for the five business days of the preceding week.
After an investigation, the PUC did not find a more appropriate baseline (or index) or reporting service and did not find justification to deviate from the baseline price and reporting service established by the Legislature. Since we are closely following the factors established by the Legislature, any criticism in the implementation of the gas cap law is a criticism of the Legislature's findings.
Hurricane Katrina and a costly fire at a major refinery in Los Angeles that occurred right at the start of the implementation of gas price caps around Sept. 1 resulted in an initial $0.27 increase after the first week and a further $0.44 increase in the gas caps the following week. Thereafter, the gas caps decreased by $0.49 and then by $0.06, but the latest gas caps that will become effective tomorrow will be $0.25 higher, mainly due to the effects of Hurricane Rita on mainland gasoline prices. Although these events and natural disasters were ill-timed for gas cap purposes, they would have occurred sooner or later, and they do serve at least to immediately illustrate their effects on our weekly gas cap determinations.
The PUC has the discretion to make certain changes or adjustments to various components or factors in the gas cap formulation. However, the commission will not abuse such discretion by making arbitrary changes or adjustments from week to week or day to day based solely on fluctuating gas caps. Since Act 242 expressly states that the objective is not to guarantee lower prices, but rather to have prices reflect competitive market conditions, changing the index on an impulse in an effort to influence gas price caps either up or down would not be consistent with the law's stated objective. A major change to the gas cap formulation, such as changing the index for the baseline price, would require the PUC to fairly and objectively consider all other factors that would be relevant in changing the index for the baseline price.
Also, the PUC will not abuse its discretion by making changes or adjustments based on unsubstantiated and unsupported requests or political pressure to make arbitrary changes. In situations where the PUC finds an adjustment is warranted under the framework of the gas cap law and there is adequate support in the record before the commission, it will act as promptly and as decisively as possible.
Unless the law is repealed or suspended, the PUC will continue to consistently implement the law as required, in a fair and deliberate manner.
Carlito P. Caliboso is the chairman of the state Public Utilities Commission.