Gas prices set to drop with halt of tax

Legislators vow to hold oil industry accountable

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Hawaii's highest-in-the-nation gas prices are expected to take a big plunge tomorrow when the state begins a two-year suspension of the general excise tax on gasoline.

Lawmakers say that if the petroleum industry does not pass the savings on to customers, executives should expect to get a grilling in the next legislative session.

Not to worry, industry insiders respond.

"We can expect exactly what they anticipate. ... I think every dealer will immediately reduce their price by whatever that calculated number is," said Bill Green, the former owner of, and now a consultant to, the Kahala Shell.

But even if the pump price drops the anticipated dime or more tomorrow, isle drivers still will be paying the highest prices in the nation.

If the price of gasoline does not drop by a dime or more tomorrow -- as many in the petroleum industry have pledged -- industry officials should expect to find themselves before lawmakers next year answering questions.

Tomorrow marks the start of a two-year period in which the state will suspend collection of the general excise tax on virtually all gasoline sold in Hawaii.

"This tax forgiveness should be passed on to the consumer," House Majority Leader Kirk Caldwell said. "If it isn't, I think the Legislature's going to be looking into why and was this then a windfall that is being provided to the oil industry at the expense of the taxpayers and the consumers of our state."

But by all accounts, motorists should wake up tomorrow to see savings at the pump.

"We will be dropping out prices on July 1," said Nathan Hokama, a spokesman for Tesoro Corp. in Hawaii.

Aloha Petroleum President and Chief Executive Bob Maynard, who pledged in May to pass along the tax savings, got the price drop started early yesterday, climbing a ladder to change the price sign at a station near the Capitol.

At current prices, the exemption is expected to drop prices by 12 to 14 cents, depending on the grade of gasoline.

Thursday's statewide average for regular unleaded was $3.42 a gallon, the highest in the country according to AAA's Fuel Gauge Report. A 12-cent drop would have no effect on Hawaii's ranking, which would still be above the next-highest states, Connecticut and New Mexico, where regular unleaded was selling for $3.20 a gallon.

While the national average has come down 25 cents since reaching a record high $3.23 a gallon on May 24, Hawaii's average has varied just slightly, remaining within a few cents of $3.40 a gallon over that span.

Oil companies say that's a result of market forces, such as higher costs for crude oil coming out of Asia, where Hawaii refiners secure much of their stock. Critics say it's another example of oil companies keeping prices artificially high in an uncompetitive market.

State regulators should be able to get to the bottom of that issue by August, when the first weekly reports are due from oil companies using new informational forms developed under transparency requirements passed this year.

Senate Bill 990 provided full funding to the Public Utilities Commission to collect certain pricing data from oil industry participants.

The PUC is charged with analyzing the information and publishing whatever information it can to give the public insight into how gasoline is priced in Hawaii. Proprietary, competitive information will not be disclosed.

"Once the first weekly (oil industry) reports are filed, the PUC will review the data for responsiveness, consistency and quality, among other things," Lisa Kikuta, chief researcher at the PUC, said in an e-mail. "The PUC will also conduct analyses of the data and make a determination of what data will be published on the PUC's Web site."

If consumers believe they are being gouged, public pressure could be brought on Gov. Linda Lingle to reinstate wholesale gasoline price caps that were suspended last year.

If PUC officials find any irregularities, they also could forward that information to the Attorney General's Office and request an investigation.

The transparency law carries with it fines of up to $500,000 for those found to be reporting false information.

The tax suspension is expected to cost the state about $32 million and comes at a time when forecasters are predicting a slight decline in the state's economic prosperity.

One economist said he does not expect the exemption to hurt the state's economy too badly.

"It's just a drop in the bucket," said Fereidun Fesharaki, a senior fellow in economics at the East-West Center. "Here, the state is full of riches with all the additional money from property taxes, so a little bit less from (gas taxes) means they just have less of surplus."