Gasoline Price Changes - Federal Trade Commission

GASOLINE PRICE CHANGES:
C. Government Regulations Can Affect Retail Gasoline Prices.
In addition to zoning regulations, a number of other government regulations can affect
retail gasoline prices. See Box 5-1 for an example of how various regulations can effect retail
gasoline prices. Local and state taxes and regulations regarding how stations may sell gasoline
are two examples.
Box 5-1: Hawaii
Hawaii provides an example where a number of local factors and regulations contribute to higher
gasoline prices. For example, the price for regular unleaded gasoline in Hawaii for May, 2005,
averaged $2.45 per gallon, including federal, state and local taxes, compared with $2.13 per gallon
nationwide. (These prices reflect the average of retail prices collected and published by the Oil Price
Information Service (OPIS), a private company). There are several reasons for this.
First, costs are higher in Hawaii than on the mainland. Crude oil and gasoline must be shipped via
tanker several thousand miles to reach Hawaii. The shipping costs may reach as high as $0.14 per
gallon. See ICF Consulting, Implementation Recommendation for Hawaii Revised Statutes Chapter
486H, Gasoline Price Cap Legislation, at 21, exhibit 2.5 (2005), at http://www.hawaii.gov/budget/
puc/dockets/05-0002_ICF_2005-04-15.pdf. Part of the shipping costs includes the cost of complying
with the Jones Act, which adds additional costs to any product transported by vessel between U.S.
ports. See Chapter 4(III) supra. In addition, Hawaii’s two refineries are small by mainland standards.
Also, land in Hawaii is expensive, which contributes to higher retail costs. These higher retail costs in
Hawaii are reflected in higher retail margins on gasoline. The retail margin for 2004 averaged $0.213
per gallon in Hawaii compared with $0.076 per gallon nationwide. EIA, DOE/EIA-0487(04),
Petroleum Marketing Annual 2004, at 57 tbl.31. (We define retail margin here as the price of regular
gasoline sold through retail outlets excluding taxes less the DTW price.).
Second, gasoline taxes are significantly above average in Hawaii. In December 2004, state and local
taxes averaged $0.256 per gallon nationwide, but were $0.388 per gallon in Hawaii. This accounts for
roughly $0.13 per gallon of the pump price difference. See API, Nationwide and State-by-State Motor
Fuel Taxes (Nov. 2004), at http://api-ec.api.org/filelibrary/GastaxNovember2004Final.pdf. The
amount of local taxes varies within Hawaii and is higher on Maui and in the city of Honolulu than
elsewhere. See HawaiiGasPrices.Com, GasBuddy Organization Inc., US Fuel Tax Rates by State, at
http://www.hawaiigasprices/com/tax_info.aspx, (June 22, 2005).
Third, a variety of state laws likely contribute to higher gasoline prices in Hawaii. Hawaii enacted
“anti-encroachment” legislation in 1997 that limits oil companies and jobbers from opening stations
near dealer-operated stations. This has an effect similar to that of divorcement legislation. See Section
III, supra. Also, Hawaii set rent caps for lessee-dealer stations. The caps may prevent wholesalers
from obtaining a competitive rate of return on lessee-dealer stations and may result in fewer such
stations and higher wholesale prices. Within Hawaii it is difficult to obtain fee-simple ownership to
land, and this may reduce the incentive to invest in gas stations. Finally, in September 2005, a
wholesale gasoline price cap is scheduled to go into effect. Although the contours of the price cap are
not yet set, this legislation has the potential to induce exit or discourage future entry from the
wholesale market, creating shortages, while allowing retailers to continue to charge market rates.
Competition and the Effects of Price Controls in Hawaii's Gasoline Market Before the State of Hawaii,
(Jan. 28, 2003) (Statement of Jerry Ellig, FTC, Office of Policy Planning), at
http://www.ftc.gov/be/v030005.htm.
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FEDERAL TRADE COMMISSION, JUNE 2005