Input sought on changes to gas cap calculations
Different profit margins for various suppliers are being considered
Changes could be in store for the state's gasoline price-cap law formula.
The Public Utilities Commission has given oil companies and the state Division of Consumer Advocacy until Nov. 1 to submit proposals for adjusting the formula that is used each week to set the maximum price at which wholesale gas can be sold in Hawaii.
Specifically, the PUC is seeking proposals for creating different profit margins at various steps in the gasoline supply chain -- a concern that has been raised by legislative Democrats who have criticized the PUC's implementation of a "gas cap."
The commission also is seeking proposals on how the price-cap law should address upcoming ethanol blending requirements for gasoline.
The requests were made in a PUC order issued Wednesday.
Oil companies being asked to submit proposals were Chevron USA Inc. and Tesoro Hawaii Corp., which own and operate the state's two oil refineries, and Shell Oil Co. All three companies, along with the Hawaii Petroleum Marketers Association, had previously asked the PUC to delay the Sept. 1 implementation of the price-cap law in favor of further study.
Since the price caps took effect last month, only Shell has challenged the law in court. Its appeals to the Honolulu Circuit Court and Supreme Court are pending.
Albert Chee, a spokesman for Chevron in Hawaii, said the order was being reviewed and it was too early to determine what type of proposal may be submitted. Officials for Shell and Tesoro, both based in Texas, could not be reached for comment after business hours yesterday.
House Majority Leader Marcus Oshiro applauded the PUC's request, calling it a positive move on the commission's part.
"This is a good sign, especially with the concerns many have raised that the refineries have been taking the entire marketing margin amount," said Oshiro (D, Wahiawa-Poamoho).
The wholesale price caps are determined by taking an average of spot prices in three mainland markets and adding fixed costs to account for shipping, storing and delivering gasoline across the state. The formula also sets the profit margin that wholesalers can claim.
Adjusting that margin would address a concern raised by jobbers, middlemen who buy gas from refiners and resell it to stations at wholesale.
If refiners charge up to the maximum of the cap, jobbers say they are unable to make any profit because they would not be able to charge above the cap when reselling that gas to stations. This makes it difficult to recoup costs for delivering smaller volumes of gas to remote locations.
Democrats and other supporters of the law had criticized the PUC for not considering multiple price caps for different steps in the supply chain, a recommendation that also was made by ICF Consulting, a firm retained by the PUC to help with the law's implementation.
In setting the price-cap formula, the PUC said ICF's proposal was "reasonable," but the commission had concerns with how the consultant had calculated the various margins for the different points of sale.
The commission concluded that it would use the single marketing margin upon implementation and continue studying whether further changes would be needed.
In its order last week, the commission asked the parties to submit all data and information necessary to support their proposals.
It also said it was seeking proposals on how to account for ethanol requirements that will be required next year.
The PUC noted that ICF had said the "impacts of ethanol blending are clearly a factor which may need to be considered by the commission in future gas cap administration."
Ethanol regulations, passed by the Legislature in 2004, require 85 percent of the gasoline sold in Hawaii to contain 10 percent ethanol by April.
Chee said Chevron previously submitted information to lawmakers regarding ethanol blending and will do so again.
"We certainly have already told the Legislature and the PUC that ethanol blending will increase our costs, both operationally and our capital expenses to prepare our terminal with the blending equipment," Chee said.
Hawaii's statewide average for regular unleaded yesterday was $3.24 a gallon, the highest in the country and 10 cents above runner-up Washington, D.C., according to AAA's Fuel Gauge Report. The auto club reported the national average at $2.94 a gallon.