Fuel costs driving
talk of cuts

Public services from TheBus
to landscaping might have to be
scaled back or pass on costs

Escalating fuel costs are draining government coffers, triggering consideration of higher fares and cuts in services, city and state officials say.

Officials are preparing for the worst, they said, although the full effect of the cost increases probably will not be felt for months, due to state and city fuel purchasing contracts.

"We're not waiting for a crisis to occur before we come up with a game plan," Mayor Mufi Hannemann said.

"We need to start looking for solutions now because a year from now, the way things are going ... it's really scary," said Blanche Fountain, Department of Education Student Transportation Services manager.

Hannemann said preliminary estimates show that TheBus system is already $2 million to $4 million in the red in the current fiscal year because of fuel costs. That amount does not factor in fuel costs for other vehicles in the city's automotive fleet, which the administration is still calculating.

"I've asked our budget director to give me some scenarios, how we're going to make up for the shortfall," Hannemann said.

The mayor said he is not ruling out raising fares or cutting service, but it is too early to make any decisions.

Budget Director Mary Pat Waterhouse said the city would look to reduce costs first, and raise fares as a last resort. For example, she said the Police Department is looking to use lower-octane gasoline in its vehicles, which will save the department $100,000.

Waterhouse said the amount the city pays for fuel is adjusted monthly based on the current fuel price indexes. That means the cost of fuel this month will not affect the city until next month.

City bus fares were raised twice in 2003. The second time fares went up that year was to raise $6.8 million to settle a crippling bus strike over issues such as layoffs and cutbacks. The city was looking at layoffs and service cuts at the time due to a budget crunch brought on in part by rising fuel costs.

James Burke, acting city transit chief, said that the amount of revenue generated so far at the fare box continues to make up between 27 and 33 percent of bus operation costs, the range set by the City Council five years ago.

John Felmy, an economist and director of the Washington, D.C.-based American Petroleum Institute, said prices for diesel fuel have risen faster than for gasoline, and governments across the country have been hit with those extra costs, especially in bus transportation.

"For municipalities and schools, it's been a huge increase in cost," Felmy said.

Hawaii has the second-highest diesel prices in the country, according to the latest figures from AAA's Fuel Gauge Report.

Felmy said governments have been more reluctant to pass on increased costs. "It's very hard when you raise your fares. You are raising the cost on the poorest constituents, and there's a justified reluctance to do so," he said.

Fountain said the Department of Education has started talking about increasing student bus fares because the current 35-cent cost to ride school buses is not enough to cover rising expenses.

Fountain said the school bus budget is already in the red: She has $25 million budgeted, while her actual cost for school bus contracts is $30 million for the current school year.

School bus fares went up a dime, to 35 cents, in 2004.

But city and education officials said they have to balance the need to generate additional revenue with the potential impact on ridership.

Both Hannemann and Fountain said they believe ridership on their respective bus systems could be on the rise as a result of rising gas prices.

"It's making more people ride public transportation. To me, that's good if it translates into less people driving on the road," Hannemann said.

"As fuel costs continue to rise ... I have a feeling we're going to see an increase of parents who want their children to ride the bus," Fountain said.

City officials say bus ridership is up 6 percent in the first days of September, but it is difficult to pinpoint whether rising fuel costs have anything to do with that.

Burke said current bus ridership -- about 220,000 passengers a day -- is nearing pre-strike levels of 225,000 in 2003.

State Comptroller Russ Saito, whose Department of Accounting and General Services oversees the 5,000 vehicles in the state motor pool, said the state is paying a lower price than retail because of the two-month lag in the way one of its fuel contracts is set up.

If fuel cost continues to increase during the next few months, it might be difficult to cut expenses, because state vehicles are used for work, he said. "The only variable is how much you drive, so we don't want to say, 'Don't do your work because the price of fuel is going up,'" Saito said.

State Department of Transportation spokesman Scott Ishikawa said that if cost does become an issue, the department could reduce landscaping services, but core services such as maintaining the roads would continue.

Ishikawa said the Transportation Department is concerned that a fuel shortage could reduce state highway revenue generated through the gas tax.

Smaller retailers
see gas shortages

Delivery firms blame slim margins from
price caps for their current supply woes

At least two Oahu retailers have been unable to obtain gasoline from their suppliers since gasoline price caps took effect, and one terminal owner on Maui is rationing supplies, according to the Public Utilities Commission.

In letters to Gov. Linda Lingle and the Legislature yesterday, PUC officials described the actions as "significant trends and conditions that may adversely impact gasoline consumers in the state of Hawaii as a result of implementing the Gasoline Price Caps Law."

It is unknown whether the conditions would be enough to prompt Lingle to use her executive powers to suspend the price caps. A message left with a governor's spokesman after business hours was not immediately returned.

Earlier yesterday, the governor said her administration continues to monitor the situation, but she had no immediate plans to suspend the price caps, which tie Hawaii's prices to mainland markets. She has said high prices alone will not be enough to force her to act, "unless that rise in price is so severe that it's starting to have a negative effect on the economy."

The PUC letter also said preliminary figures show price caps being calculated for the week of Sept. 19 "may begin to decrease" from current levels.

The PUC sets the maximum price each week at which wholesale gas can be sold based on an average of spot prices in the Gulf Coast, New York and Los Angeles. Caps set to take effect Monday are 45 cents higher than the current price ceilings and 72 cents higher than when the law took effect Sept. 1.

The PUC notified the governor and lawmakers of two cases where jobbers, companies that deliver gas to stations, have been unable to supply gas to retailers on Oahu: Priam's Automotive Service & Repair in Pauoa and Elmer Udd, who owns a retail service station at Dillingham Airfield.

Some jobbers have said the slim margins provided by the price caps make it impossible to deliver gasoline to remote locations and small-volume retailers such as Priam's and Udd.

The PUC also said Maui Petroleum Inc., a jobber, reported that a terminal owner on the island has started rationing fuel, "setting restrictive supply allotments according to established time periods." It gave no specific details.

Meanwhile, Senate President Robert Bunda and House Speaker Calvin Say issued letters yesterday to the state's two oil refineries asking them to set fair prices and not charge up to the maximum allowed by the cap if it is not a true reflection of their operating costs.

Lingle sent similar letters to refiners Chevron USA Inc. and Tesoro Hawaii Corp. last week.

Both sets of letters noted that gasoline being sold in Hawaii now was produced from oil that was purchased well before Hurricane Katrina disrupted Gulf Coast oil production early last week. But the hurricane's effect on mainland prices directly affects Hawaii because the maximum price at which refiners can sell gas to dealers under the law is based on an average of spot prices in the Gulf Coast, New York and Los Angeles.

Albert Chee, a spokesman for Chevron in Hawaii, stressed that prices are driven by market conditions.

For competitive reasons, neither refiner has disclosed what it charges for wholesale gas, but analysts have said refiners are likely to charge up to the maximum to make up for times in the future when the cap could force them to sell at lower prices.

According to AAA's Fuel Gauge Report, yesterday's national average at the pump for regular unleaded gas was $3.02 a gallon, down 4 cents from the record high set Monday. Hawaii's average was $3.22 a gallon, the fourth highest in the country.