HONOLULU -- Wholesale gasoline price caps, which were suspended indefinitely last year, should remain a backup tactic to guard against potential oil industry misbehavior, a new report to the Hawaii Legislature recommends, said The Honolulu Star Bulletin.
The analysis, prepared for the state Public Utilities Commission (PUC), finds no indication of wrongdoing, but it indicates that some suppliers and middlemen increased profit margins after price caps were suspended, some middlemen by 10 cents a gallon.
One key lawmaker said he [image-nocss] was not satisfied with the report, and he plans to introduce legislation next year to address concerns. "I believe that it is somewhat biased to the petroleum industry's viewpoints," said state Senate Energy Chairman Ron Menor (D), who authored the original price cap law. "I would still prefer the implementation of a system of true transparency under which the PUC would make public detailed company-specific information at all wholesale transactional levels so that consumers can decide for themselves what's going on."
The report was prepared by Fairfax, Va.-based ICF Consulting, which also served as a consultant for the implementation of the gas cap legislation, as part of the state's ongoing Petroleum Industry Monitoring, Analysis & Reporting Program (PIMAR). While the PIMAR program was intended to replace the gas price caps and provide the public with more transparency of oil industry pricing, it is too early to tell whether it will work as intended, said the newspaper.
"It may be necessary to keep the gas cap legislation in a suspended mode (rather than repealing the legislation) as a possible control mechanism if the PIMAR process does not achieve desired results," the ICF report said.
Spokespersons for Chevron and Tesoro, Hawaii's only two oil refiners, told the paper that company officials were still reviewing the 162-page report, released last week, and could not provide specific comment.
Click here to view the PIMAR report, portions of it redacted to ensure that proprietary, competitive information remains confidential.
Regarding profit margins, it does not specify how much supplier margins increased, only that many were higher after the suspension; however, the report said that suppliers on average set prices a few cents below the price caps while they were in effect.
Some jobbers increased margins by about 10 cents a gallon, the report said. It did not indicate what happened to refiners' margins, saying only that their prices appeared to be in line or similar to other global markets.
Retail gas stations were not subject to the price cap requirements, although the report indicated that retail margins on Oahu "were not materially different" before or after the cap, said the paper.
Hawaii became the first state to regulate gasoline prices, at the end of August 2005. After a public outcry and an about-face by the state House, which previously supported the proposal, legislation to suspend the caps indefinitely was signed by Governor Linda Lingle in May 2006.
The suspension included a proviso that the governor would have the power to reinstate the caps along with a requirement that hypothetical gas caps continue to be calculated to serve as a benchmark for Hawaii prices. The idea was that if prices appeared out of line, the public could bring pressure on the governor to reinstate the caps. Lingle, a staunch opponent of price controls, has said she does not see any circumstance in which she would exercise that power.
Meanwhile, no hypothetical caps have been calculated.
When the suspension was passed in 2006, the Lingle administration said lawmakers did not include any funding or additional staff positions to carry out the monitoring duties.
This past session, lawmakers approved $1.2 million a year for the PIMAR program, which has focused on the reporting and analyzing mandates, said the Star Bulletin.
Oil industry participants are required to report on a variety of operational factors and on price data for as many as 18 different types of products. Weekly reports from that data have been criticized as misleading for including, and excluding, certain price information that could potentially distort the averages. The ICF report said that even though extensive data was examined, some "desirable data," such as distributors' cost of doing business in the state, was simply not available.
"Without information on the cost of doing business, it is not possible to ascertain the margins necessary to sustain the business," the PUC said in its summary of the ICF report. "Any conclusions regarding wholesale prices or margins cannot be automatically extended to explain retail prices."
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