Tuesday, January 29, 2002

Several bills in the state Legislature seek to regulate the price of gasoline sold to consumers in the state.

Little fueling drive
for gas regulation

Legislation seeks to tie consumer
prices to crude oil fluctuation

By Tim Ruel

Legislative proposals to regulate Hawaii's high gas prices face an uphill battle this year. Still, it's worth a fight, regulation advocates say.

One of the more bold propositions, a state law to peg Hawaii's wholesale gas prices as a simple percentage of the market's crude oil prices, is already drawing concerns from state Rep. Hermina Morita, who is chairwoman of the House Energy Committee. The bill had not been referred to committee as of yesterday afternoon, but if the legislation comes to the energy committee, Morita said she may not give it a hearing.

"Right now I'm not going to commit to this particular bill," she said yesterday. "There's a whole slew of bills dealing with the regulation of gasoline prices."

Rep. Terry Yoshinaga (D, McCully) is backing a separate batch of legislation that builds on existing laws and gives the state Public Utilities Commission the power to regulate gas prices. One of the proposals would allow the state to penalize oil companies up to $10,000 per day for failing to abide by the law. Critics point out that the PUC's oversight hasn't stopped Hawaii from having some of the highest electricity rates in the nation. Similar bills that were supported by Yoshinaga in 1999 were killed by Morita (D, Hanalei).

Morita noted that she has not yet made a final decision on the newer proposal to fix wholesale gas prices as a percentage of crude oil. She is still waiting for the official word of the state's recent settlement of a price-fixing lawsuit against the oil companies. People familiar with the settlement have said the state is getting $20 million from the five defendants, about 1 percent of the $2 billion the state had been seeking.

Much of the state's case against the companies has been sealed from public view, although an order to unseal the documents is expected soon.

Still, Morita worries about how far government should go to correct the general lack of competition in Hawaii's small marketplace.

"I think we all have concerns over price controls," Morita said. "To be talking about regulating that particular market is pretty difficult."

Advocates of pegging Hawaii's wholesale gas price to crude prices say there's nothing difficult about it. The proposal calls for fixing the price that dealers pay for gas statewide to 3.5 percent of the average crude oil price. A state agency would review and adjust the benchmark every three months. The result is that gas prices -- and profits for the oil companies -- would be more comparable to the mainland, said Rep. Paul Whalen, who is part of a bipartisan group of legislators who introduced the bill.

"I would prefer to have competition in the state and just let free market rule," said Whalen, a Republican from Kona. "The problem in Hawaii is there is no competition."

In court testimony in the state's antitrust lawsuit, attorneys for the oil companies have openly pronounced that the reason for high local gas prices is that only a small number of companies compete in the marketplace. In such oligopoly markets, none of the oil companies have an incentive to lower their prices, the attorneys argued. If one company lowers its price, every other company lowers its price and they all lose profits.

To Whalen, that kind of environment demands regulation. His bill, which was also introduced by Reps. Ken Hiraki and Jim Rath, is based on the state's accusation that oil companies made profits of up to 60 cents from each gallon sold to Hawaii residents, compared with near-zero profits in some markets on the mainland.

It remains to be seen how any of the legislation will do in an election year. Lobbyists for the oil companies are expected to turn out in force.

Frank Young, a long-time critic of the oil companies, said he favors the crude-oil peg because of its simplicity.

However, Young said he also supports a proposal by Yoshinaga that would strengthen existing laws to promote competition at the gasoline dealer level. In 1997, the Legislature passed a law to prevent oil companies from forcing dealers out of their stations with high rents.

The problem is that the law has several loopholes, one of which allows the oil companies to take over management of a station for up to two years, Young said.

Yoshinaga's proposal would only allow the oil companies to run the station for three months before having to find a dealer.

"They're not going to take them back and try and run it for 90 days," said Young, president of the Hawaii Automotive Repair and Gasoline Dealers Association.

Several Shell dealers on Oahu have recently walked away from their leases after Equilon Enterprises asked for rents that were so high that there was no way for the dealers to make money, Young said.

For example, Shell proposed a lease in Makiki that would start out at $4,835 a month and more than triple within two years to $16,242 a month. Those figures did not include maintenance and taxes, as well as all other costs of doing business, Young noted.

An Equilon spokesman on the mainland had no immediate comment yesterday afternoon.

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