Restore ethanol tax exemption and monitor gas pricing

THE ISSUE The Legislature is considering measures to reinstate a tax exemption for ethanol-blended gasoline and to monitor pricing practices.

TWO complementary bills that should be enacted in the final days of the Legislature would reinstate a tax exemption for gasoline blended with ethanol and provide funds for monitoring the oil industry's pricing practices. The monitoring should show whether the tax change would bring lower prices to consumers.

The general excise tax exemption for gas containing ethanol was enacted in 1980 to encourage the use of biofuel. It had no effect until a year ago, when regulations began requiring 85 percent of all gasoline in Hawaii to be blended with at least 10 percent ethanol. The exemption amounted to 11 cents a gallon, but it expired on Jan. 1.

A price reduction would be timely, as the statewide average price for regular self-serve unleaded rose above $3 a gallon this month for the first time since October. This week's average was reported to be $3.06 -- 20 cents above the national average but below three Western states, led by California's $3.33.

Senate Energy Chairman Ron Menor has questioned whether oil companies will pass on the reduction to motorists. In a recent letter to the editor, Waialae gasoline dealer Barney Robinson said the industry immediately passed on the savings to consumers when the ethanol requirement took effect, although "it was difficult to notice when the gas-cap legislation fiasco was causing weekly price jumps."

The industry's pricing practices have been difficult to detect because a law enacted last year directing the Public Utilities Commission to monitor Hawaii's two refiners, Chevron and Tesoro, lacked funding for the commission. An interagency transfer of $316,000 was inadequate.

Gov. Linda Lingle has asked the Legislature to provide $1.2 million to fully implement the law. The bill before a joint House-Senate conference committee does not specify an amount, but estimates being discussed are as low as $300,000, which has proven to be insufficient.

The ethanol exemption is estimated to be between 10 and 13 cents a gallon, but adequate monitoring is needed to determine its effect on prices at the pump.

"Transparency should show us if the savings are being passed on or not," says House Majority Leader Kirk Caldwell. "In a market system, there's no guarantee that will happen."

Such a free market does not exist in the oil industry's acknowledged oligopoly in Hawaii, which is why monitoring is needed. Full funding is necessary so the commission can "take the time to do this right," as stated by PUC Chairman Carlito Caliboso. "We don't want to put out information that could be inaccurate, misstated or misleading, because that could do more harm."