Key legislator
blames PUC for
higher gasoline prices

The Public Utilities Commission has contributed to higher gasoline prices in the islands by ignoring the recommendations of its own consultant and implementing an unreasonable pricing structure, the main legislative backer of the price cap law says.

Senate Consumer Protection Chairman Ron Menor said he now is studying legal action to force the commission "to comply with the intent of the law" and implement changes being sought by lawmakers.

"Gasoline prices are high and we're all concerned about that, but I think the PUC has exacerbated the problem," Menor said.

A PUC official said the commission is confident it acted properly based on the evidence and information it studied in establishing the price caps.

"We feel that we've acted appropriately based on what's before us," said Lisa Kikuta, the PUC's chief researcher. "We are doing our best to implement the law within the parameters of the law."

The PUC has twice denied requests by Menor (D, Mililani) and House Energy Chairwoman Hermina Morita (D, Hanalei-Kapaa) to alter its price cap formula to address the issue of profit margins for wholesalers.

Weekly price caps on wholesale gas transactions 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.

A key concern of lawmakers is that the price caps do not account for multiple wholesale transactions that can occur before the gasoline gets to a retail service station. That mostly affects jobbers, middlemen who buy gas at wholesale and resell it to gas stations.

If refiners charge up to the maximum of the cap, jobbers are unable to make any profit because they may not charge above the cap when reselling the gas. Jobbers say this leaves no way for them to recoup costs of delivering to remote locations.

In a letter to Gov. Linda Lingle and the Legislature last week, the PUC identified at least two small-volume Oahu retailers that have been unable to get gasoline from jobbers who said the price cap's slim margins provided no way to recoup delivery costs.

Lawmakers say the PUC should consider additional margins for each step in the supply chain, a recommendation that also was made by ICF Consulting, a firm hired by the state to advise on implementing the gas cap law.

"If the problems that are being cited by the PUC are being caused by the jobbers and middlemen being squeezed, then that problem could have been avoided had the PUC done a better job of establishing a fairer and more effective gasoline price regulation," Menor said.

The current margins were established by the Legislature in the final version of the law passed in 2004, although lawmakers gave the PUC authority to use its discretion in setting the caps. After reviewing the recommendations from ICF -- which would have established 96 different weekly price caps -- the PUC said it found no "sufficient justification" to alter the methodology defined by the Legislature.

Lingle has said she feels the PUC is doing its best at implementing a policy that the administration disagrees with.

"Their effort involved months of research and of evidence gathering in order to settle on their decision," Lingle said yesterday, adding that she does not believe the PUC can arbitrarily change its formula.

To make any adjustments, "They're going to have to have a good, sound, reasoned approach," Lingle said.

Under the law, only gasoline manufacturers, wholesalers or jobbers can petition the PUC to adjust the formula. To date, only one jobber on Kauai has asked for and received an adjustment.

GAS CAP HELP How to contact the state about Hawaii's gas cap law: Public Utilities Commission www.hawaii.gov/budget/puc/gaspricecaps Commerce and Consumer Affairs www.gascap.hawaii.gov Hotlines for consumers: 586-2769, on Oahu; (800) 830-4295, toll-free, from neighbor islands. Business, Economic Development & Tourism www.hawaii.gov/dbedt/ert/gasoline/gasoline.html Hotline for owners and operators of gas stations: 586-2752 E-mail: gasoline@dbedt.hawaii.gov AAA Fuel Gauge Report: www.fuelgaugereport.com