Questions (9) and (10) of the Resolution request the views of survey
participants on the following issues:
		
     (9)  The effects of requiring manufacturers, terminal
          operators, and jobbers of petroleum products to file
          with the State, a tariff listing all prices at which
          the manufacturer or jobber offers goods or services for
          sale or lease;

    (10)  The effects of prohibiting any terminal operator having
          excess capacity from refusing to provide terminalling
          services to any person at the prices published in the
          tariff that the terminal operator filed with the State.


	State Government
	
	AG:  The Attorney General noted that it recommended the filing of a
tariff, as proposed in question (9), in its 1990 report.433 The
Attorney General further noted that a requirement that manufacturers,
jobbers, and terminal operators post price information would tend to
have the pro-competitive effect of enabling buyers to be better
informed of available prices; however, "great care would be required in
drafting such a measure":

          Note should be taken, however, of United States.
     v. Container Corp. of America, 393 U.S. 333 (1969).  In
     that case, the United States Supreme Court held that
     when manufacturers of corrugated boxes exchanged price
     information in an oligopolistically structured market,
     and the prices in the market tended to stabilize within
     a narrow range, the inference was irresistible that the
     exchange of price information was anticompetitive, and
     that the effect of the exchange was to stabilize
     prices, a per se violation of the Sherman Act.

          If a consumer sued the State for price fixing on a
     theory based on the Container Corp. case, viz., that
     the effect of a law requiring the exchange of pricing
     data was illegal price fixing, the State would likely
     plead the so-called "state action" defense established
     under Parker v. Brown, 317 U.S. 341 (1943).  The
     critical issue is whether the state action, i.e., the
     law requiring sellers to post their offering prices, in
     effect defers to price fixing discretion in private
     sellers.  F.T.C. v. Ticor Title Ins. Co., 112 S.Ct.
     2169, 2176, 2179, 2180 (1992).  If it does, the defense
     would not work.  see, e.g., 324 Liquor Corp. v. Duffy,
     479 U.S. 335 (1987).434 

	In response to question (10), the Attorney General noted its earlier
recommendation of such a measure in its 1990 report,435 and further
stated that "[t]he effect would be to preclude terminal operators (i.e.
the oil companies) from refusing to deal with competing sellers looking
for storage space.  The price in the tariff would likely include a
profit increment.  But price gouging probably could be prevented by an
enforcement action under HRS §480-2 by the government or by the party
harmed."436
	
	DBEDT:  The Department was generally opposed to the proposals made
in questions (9) and (10), arguing that there were few advantages with
respect to the filing of a tariff under question (9) if the purpose was
to regulate prices: 	
     
     The effects of filing such a tariff listing depend
     largely on the purpose for this type of reporting.  For
     example, if the purpose is to simply monitor prices,
     the effect on the market is likely to be negligible.
     However, filing such tariffs solely to monitor prices
     seems to conflict with the state's efforts to unsaddle
     industry of unnecessary forms and regulation.  If,
     however, the purpose of filing this information is to
     regulate prices, we see no advantage....437 

	With respect to question (10), the department stated that imposing a
requirement to provide terminalling services runs counter to free
market principles:

     In a free-market economy, competition is key.
     Competitive advantage often comes from an enterprise
     possessing economies of scale that a competitor does
     not possess; e.g., owning sufficient petroleum storage
     capacity to handle fluctuations of supply and demand in
     the market.  Requiring terminal owners/operators to
     provide their services and use of their facilities to
     those who have not invested the necessary capital to
     serve their customers is simply not consistent with the
     principles of a free-market.  Finally, we know of no
     evidence or detailed cost-benefit analysis which would
     support such action.438 

	
	Gasoline Dealers
	
	HARGD:  With respect to question (9), the Association argued that
requiring the filing of tariffs would be in the interests of consumers
and would be less costly than price controls: 	
    
     Without such requirement, there is no means of
     establishing whether a petroleum supplier that also
     retails, is utilizing its multi-level gross profits to
     control retail market share and retail prices.

     Suppliers that market products other than petroleum
     generally must offer all customer of like categories a
     price list that is non-discriminatory based on quality,
     quantity, and terms.  The petroleum industry limits
     such knowledge and such categories.  Requiring such
     information to be public knowledge must be in the
     public's interest.  This would also be less costly than
     price controls.439 
	
	Regarding question (10), the Association similarly noted that "[t]he
mere fact that such a requirement were in existence would have an
[effect] on the petroleum industry's control and prices at the supply
level.  Any such [effect] would be positive for the consumer."440 	

	Jobbers
	
	HPMA:  In response to question (9), the Association noted that
tariffs and other government regulation will hurt consumers, and that
existing antitrust laws are adequate to address price fixing and other
illegal activities: 	
    
     Filing tariffs and government intervention in this
     free-market system will only hurt the consumer and
     create a regulatory environment which will encumber all
     aspects of the petroleum marketing system.  Prices can
     be subpoenaed in antitrust and price fixing
     investigations.  There are laws on the books to allow
     investigations now.  To do it on a regular basis
     without any illegal activity, is a burden to the
     industry and government.

     The petroleum industry in the free enterprise system
     remains the most competitive industry in the world.
     Manufacturers/refiners expend huge amounts of money
     attempting to differentiate and add value to their
     product through service and relationship and brand
     awareness.  Dealers attempt to attract customers
     through location, convenience, service, and customer
     relationship building.  Consumers have choices, and the
     more choices that are available, the higher the level
     of competition.  HPMA believes that the consumer is
     successful when the marketplace is aggressively
     competing for their business and they have several
     alternative choices.  Gasoline is a commodity and all
     major manufacturers produce a high-level product that
     exceeds automobile manufacturers' specifications.  To
     differentiate your product from your competitors, a
     tremendous amount of investment and salesmanship is
     necessary to sell your product.441 

	In response to question (10), the Association asserted that the
refiner has a "fundamental right" to use private property in accordance
with the refiner's choice: 	
     
     HPMA believes that there is a fundamental right of the
     refiner/manufacturer or a jobber to utilize his storage
     facility to the best and highest use that he so
     chooses.  Government appropriating or forcing a
     terminal operator to terminal a competitor is contrary
     to the American free-enterprise system.

     Excess capacity may be considered head space in tankage
     presently, holding product and/or empty tanks that are
     held in reserve to support an ongoing maintenance
     program.  To utilize either of these two capacities
     would cause either commingling of product or compromise
     a proper maintenance program.  A serious competitor
     should be capable of either providing their own storage
     space or making their own arrangement without
     government intervention.  If they are unwilling or
     unable to make this investment, one must question their
     commitment to the Hawaii market and their staying
     power.442 

	Aloha Petroleum:  In response to question (9), Aloha Petroleum stated
that listing prices with the State would appear to violate antitrust
laws and would create additional taxpayer burdens:

     It is our opinion that listing prices with the State as
     contemplated in this question would appear to be in
     violation of anti-trust laws.  The petroleum market is
     subject to extensive anti-trust legislation.  It is
     unclear what the objective is for requiring tariff
     listings, but this action would require additional
     government resources to regulate this proposed
     requirement.  Creating more taxpayer burden through
     more government is not the answer.443 

	Regarding question (10), Aloha Petroleum believed that this proposal
would encourage existing terminal operators to maintain high
inventories or tear down unused or underused facilities, as well as
discourage the construction of new facilities:

     Although it would appear as if the basic premise of
     this proposal is beneficial.  It also raises many other
     issues that outweigh its proposed intent.  For example,
     how would excess capacity be determined?  [H]ow would
     terminaling services and ownership of the product be
     accounted for?  Enacting such regulations would only
     encourage existing terminal operators to either keep
     inventories high, or tear down any unused or under used
     terminaling facilities.  Conceivably, no new terminals
     would be built.  The only new tankage that would be
     added would be to accommodate current needs; a premise
     that is contrary to Hawaii's emergency preparedness,
     good business judgment and most likely it would not
     justify the investment.  It is our understanding that,
     according to the Civil Defense Division, Hawaii's
     petroleum reserve would be inadequate in the event of
     an emergency.  Reducing existing terminaling facilities
     and/or discouraging the construction of new facilities
     would not serve the people of Hawaii.444 


	Oil Companies
	
	Shell:  In response to questions (9) and (10), Shell maintained that
tariff regulation would reduce competition, resulting in higher prices: 	
          
          There is no economic justification for tariff
     regulation in a competitive industry because such
     regulation reduces, rather than enhances, competition.
     Tariff regulation in competitive sectors of the
     economy, such as alcoholic beverage distribution and
     the trucking industry, have demonstrably reduced
     competition and increased prices.  Comprehensive
     economic studies of state motor carrier regulation, for
     example, have clearly established that such regulation
     increases prices and profits of carriers and results in
     economic loss to shippers.  For the most part, federal
     and state tariff regulations have been eliminated as
     their adverse effects on consumers have been
     recognized.  There is no apparent reason to subject
     Hawaii's gasoline consumers to such economic harm.445 

	BHP:  With respect to question (9), BHP stated that posted prices are
already available to qualified customers through inquiry notice, while
other prices are published in the public domain.  Requiring the posting
of prices would drive up administrative costs and could violate federal
antitrust laws:

     Supply transactions are generally based on negotiated
     supply contracts covering a specified time period, the
     terms of which, for obvious competitive business
     reasons are kept confidential.  Gasoline dealers
     typically pay a dealer price, which may vary depending
     on location, distance, volume purchased, term and other
     variables.

     Requiring the filing of all prices with the State is
     unnecessary and is not typical industry practice; no
     other industry is required to publish or post its
     wholesale prices.  Any posted price is currently
     available to qualified customers by direct inquiry with
     the company, and a large number of prices are already
     published in the public domain, including retail and
     dealer tank wagon prices.

     Such a filing requirement would duplicate existing
     public information; unnecessarily expand the State's
     administrative and regulatory burden; and, if
     confidential information is required, could potentially
     seriously compromise the competitive position of the
     company being forced to disclose such information.

     Posting prices could potentially violate federal anti-
     trust law by being characterized as a signal by one
     supplier to others when prices should move either up or
     down.  Should one supplier elect to increase the
     wholesale price, the other suppliers could merely
     follow suit in order to gain additional margins without
     sacrificing market share.  This process could keep
     prices at artificial levels, eliminating the natural
     market forces which serve to keep street prices
     competitive.

     Filing prices is unnecessarily duplicative and could
     potentially destroy the competitive environment which
     exists today, with little or no benefit to the
     public.446 
	
	In response to question (10), BHP noted that its refining process
yields a number of petroleum products, including jet fuel, diesel and
residual fuel oils, and gasoline, and that it is impossible to produce
only one of these products at one time. Prohibiting terminal operators
from refusing to provide terminalling services would not only reduce
the flexibility necessary in refinery production and terminal
operations but would create substantial logistical and operational
problems and expose the company to financial, physical, and
environmental risk and liability: 	
     
     It is BHP Hawaii's responsibility to manage production
     and storage of all of its products for the state's
     economy --  it must sell all of the products it
     manufactures, otherwise it would eventually exhaust its
     storage capacity.  Prohibiting the right to refuse
     terminal services to others would severely impair the
     required flexibility for refinery production and
     terminal operations including the scheduling of
     incoming and outgoing product movements.

     Inventory management would also be onerous and could
     result in logistical and operational problems.  A
     likely scenario is where products are backed-up waiting
     for someone else's product sitting in the company's
     storage tanks awaiting distribution.  Refinery
     production may need to cease until storage space
     becomes available.  Or, it could lead to short-term
     excess product having to be shipped off-island thereby
     increasing environmental risk and economic loss.  While
     a refiner may have some excess storage capacity
     available at various times, there is not sufficient
     storage that could be dedicated for any length of time
     without reducing the efficiency and effectiveness of
     the refiner and terminal operator.

     Terminal owners and operators should be entitled to the
     right to refuse service to anyone, particularly to
     those that are unable to meet any of the financial,
     operational quality and regulatory standards.  To
     prohibit this right would jeopardize control over the
     supply and distribution facility and unduly expose the
     company and its employees to financial, physical and
     environmental risk and liability.

     Quality assurance of product would become an issue
     since opportunities for product contamination would
     increase; fuel segregation would be necessary to
     protect product integrity.  Since January 1, 1995, new
     EPA regulations have been in effect that require
     biological testing of gasoline and diesel fuel to
     determine the long-term health impacts of emissions.
     Fuel manufacturers are also required to register all
     fuel additives and to ensure they meet proper
     concentration guidelines.  This situation already has
     resulted in an increase in the company's administrative
     burden due to increased reporting and data collection
     requirements.

     It is not likely that open terminal services would
     result in lower gasoline prices to consumers.  It could
     actually lead to higher prices and threaten the
     economic viability of local refiners and terminal
     operators.  It would increase the complexity of the
     distribution system rather than simplify it, increasing
     the likelihood for problems to occur, and reduce the
     efficiency of operations, discourage private parties
     from investing in the construction of new facilities,
     only to have them made available to other parties.447 

	Chevron:  In response to question (9), Chevron noted that the effect
of this requirement would be to raise prices by discouraging discounts:

     As a practical matter, it is impossible to extend a
     discount only to select customers (even to meet
     competition) if the discounts must be disclosed to all.
     Further, all price changes will be immediately
     available to competitors.  It would be impossible for a
     supplier to "steal a march" on the competition by
     reducing prices in an effort to gain marketshare.
     Therefore, suppliers are less likely to do so, and the
     consumer will again be the one hurt.448 

	With respect to question (10), Chevron stated that this proposal would
discourage the creation of new storage capacity by reducing incentives
to invest in new terminals, raise quality control problems, and result
in spot shortages and supply disruptions: 	
          
          This proposal would appear to be counter
     productive and unworkable.  First, there is little, if
     any, excess terminal storage capacity in Hawaii.
     Second, who would determine when in fact there is
     "excess capacity"?  We doubt anyone has extra tanks
     that are not being used.  How can the state determine
     if the storage volume in a one-quarter full tank is
     needed to accommodate the next tanker shipment?  This
     is particularly true for jet fuel and diesel fuel, both
     of which must be imported into the Islands in
     significant quantities.  There simply must be
     sufficient storage capacity to accept a cargo when it
     arrives.

          This proposal would probably have exactly the
     opposite effect of that desired.  It would discourage
     the creation of any new storage capacity, because a
     supplier would have little incentive to invest in such
     capacity, if it would immediately be available to
     competitors at a state-determined rental fee.

          Chevron does not commingle the gasoline it
     manufactures in Hawaii with gasoline manufactured by
     others.  Where this is done for other products, it is
     done under strict quality controls imposed by the
     terminal operator.  If the state is going to mandate
     the commingling of products at terminals in Hawaii,
     very difficult quality control issues will be
     presented--particularly for gasoline.  A regulatory
     scheme designed to balance all of the conflicting
     interests in this area would have to be extremely
     complex.

          On balance, any such proposal would likely have
     little benefit and would likely create endless
     operational problems which might endanger the smooth
     working of the present distribution system in the
     Islands.  At present, the marketplace gets petroleum
     products where they are needed when they are needed.
     If the Islands' limited storage capacity is to be
     subject to regulation by the state, it is almost
     certain that, on occasion, the system will not be able
     to respond to unanticipated problems and that there
     will be spot shortages and supply disruptions.449 


     Discussion

	Among the issues raised by questions (9) and (10) are those of price
discrimination, public utility regulation, and eminent domain.


     Price Discrimination

	One of the purposes of question (9) is presumably to deter
manufacturers, terminal operators, and jobbers from price
discriminating, i.e., offering services or goods for sale or lease at
prices higher than posted prices for certain customers, while offering
the same services or goods for sale or lease to others, such as
affiliates, at lower prices.  Anticompetitive price discrimination is
already prohibited under federal antitrust laws.450


     Public Utility Regulation

	Enforcement of the proposals made in questions (9) and (10) would most
likely require public utility regulation, either by the Public
Utilities Commission or another regulatory body, such as a petroleum
regulatory commission proposed in question (7). The merits of
regulating Hawaii's petroleum industry as a public utility were
discussed in response to question (7) of the Resolution.451  Questions
(9) and (10), however, raise the related issue of tariffs.452
	
	One example of a tariff required in a regulated industry in Hawaii
is that imposed on motor carriers, which are administered by the Public
Utilities Commission.  In particular, section 271-21, Hawaii Revised
Statutes, requires common carriers by motor vehicle to file with the
Commission and maintain for public inspection tariffs showing the
rates, fares, and charges for transportation of people or property, and
prohibits common carriers from charging or collecting compensation that
varies from the tariff rates.  That section also prohibits common
carriers from making changes in any rates specified in a tariff, or any
other rule or practice affecting those rates, except after thirty days'
notice of the proposed change filed with the Commission.453
	
	Although not specified in the Resolution, the Commission, among other
things, may be called upon to determine whether the prices to be
charged for goods or services are "just and reasonable",454 inspect
books and records, conduct hearings, and take such other actions as may
be necessary and consistent with the State's policies.455  The Public
Utilities Commission or a petroleum regulatory commission, with respect
to question (9), would also be required to periodically monitor
manufacturers, terminal operators, and jobbers, to assure that their
posted prices were the same as those filed with the State, and that the
accounts and records of each party reflected those amounts paid for the
sale and lease of goods and services at those prices. With respect to
question (10), the Commission would additionally need to ensure that
excess capacity at terminal facilities was being offered to third
parties at published prices.  Although (9) and (10) do not specify
these additional requirements, they may be inferred under the
assumption that the State intends to enforce these provisions and is
not seeking voluntary compliance.456
	
	
	Eminent Domain
	
	Question (10) raises the issue of whether prohibiting terminal
operators with excess capacity from providing terminal services amounts
to an unconstitutional taking of private property for public use
without payment of just compensation. Assuming, for the purposes of
this discussion, that excess terminal storage capacity does exist in
Hawaii, does the requirement that that capacity be provided to any
person at posted prices filed with the State violate the United States
or Hawaii Constitution?457
	
	Taking.  Does the proposed regulation constitute a taking of private
property?  Although the private property in question- -terminal and
pipeline space and the use of appurtenant equipment458 --would not be
physically occupied by the State, "a government regulation which allows
someone other than the property owner to have permanent physical
occupation of a definable part of a piece of property should constitute
a taking."459  On the other hand, the United States Supreme Court has
recently commented that "in the case of personal property, by reason of
the State's traditionally high degree of control over commercial
dealings, he [i.e., the property owner] ought to be aware of the
possibility that new regulation might even render his property
economically worthless....".460
	
	While the proposed regulation in this instance would allow someone
other than the owner of the terminal to use unoccupied space in the
terminal, as well as the owner's pipelines and equipment to transport
the crude oil, or petroleum products, as the case may be, to that
space, it is questionable whether the use of the space amounts to a
"permanent physical occupation" of that space, since the amount of
space used may vary, at times, from zero to one hundred percent of the
space.  Nevertheless, it may be argued that the potential occupation of
that terminal space--and consequent need for additional logistical and
operational planning to accommodate that (presumably) objectionable
occupation--may be viewed as an impairment of the use or value of that
property.
	
	In Kaiser Aetna v. United States,461 Kuapa Pond, a lagoon on the
island of Oahu, was historically considered to be private property
under Hawaii law.  The pond was leased to a resort and private
developer who converted the pond into a marina and dug channels to
connect the pond to a bay, thereby allowing ships to travel to the bay
and ocean from the pond.  The federal government argued that, as a
result of improvements converting the pond into a marina and connecting
it to the bay, it had become a navigable water of the United States. 
As such, the public acquired a right of access to that which was once a
private pond.  The United States Supreme Court held that the
application of a federal navigational servitude to the pond constituted
a taking.  The Court, citing Penn Central Transportation Co. v. New
York City,462 noted that there was no "set formula" for determining
when justice and fairness required compensation for economic injuries
caused by public action, but rather involved an ad hoc, factual inquiry
into several factors having particular significance, "such as the
economic impact of the regulation, its interference with reasonable
investment backed expectations, and the character of the governmental
action...".463
	
	The question whether the government's removal of the right to exclude
others from one's private property is a taking therefore requires a
balancing of the equities and a review of the facts of the case.  In
determining whether such a limitation constitutes a taking, a court
will generally consider "the character of the government's action in
terms of the degree to which it (1) promotes legitimate social goals,
(2) diminishes the value of the private property owner's economic
interest, and (3) interferes with reasonable expectations regarding the
use of the property."464
	
	Briefly, the government may argue, inter alia, that the proposed
regulation does not deprive terminal owners from all economically
viable uses of their property, and that such a measure is necessary to
generate more price competition in Hawaii's gasoline marketing industry
in order to protect consumers and independent dealers.  The oil
companies, on the other hand, would maintain that there are less
restrictive alternatives to the taking of their terminal space, which
threatens their economic viability, unduly interferes with their use
and operation of these facilities, and exposes them to financial,
physical, and environmental risk and liability.
	
	Public purpose.  Is the proposed taking for a public purpose?
Opponents of this form of regulation would argue that the proposed
taking amounts to an "expropriation for a strictly private use".465 
While the stated objective of the proposal is to increase competition
in Hawaii's gasoline markets, it may be argued that "the State's
interest in competition is nothing more than a desire to protect
particular competitors--less efficient local businessmen--from the
legal competition of more efficient ... firms...."466  Moreover, it may
be argued that the State finds regulation of Hawaii's large oil
companies "politically attractive" since the costs are borne "by a few
individuals rather than by the entire tax base, thus immunizing
legislators 'from normal democratic processes.'"467  Alternatively, if
the public purpose were to limit the economic power of vertically
integrated firms, there is no evidence that Hawaii's incumbent
integrated oil companies have been earning profits in excess of
competitive levels.468
	
	Proponents of this proposal, however, may argue that the State has
a legitimate public purpose in regulating the oligopolistic gasoline
markets in Hawaii.  In Hawaii Housing Authority v. Midkiff,469 the
United States Supreme Court upheld Hawaii's Land Reform Act of 1967,
which created a system of transferring residential property from
lessors to the lessees of the property, after providing just
compensation to the lessors, for the purpose of reducing the
concentration of land ownership in Hawaii.  In finding that the
exercise of eminent domain was for a public purpose, the Court noted
that the Act was intended to reduce the perceived social and economic
evils of a land oligopoly, and that "[r]egulating oligopoly and the
evils associated with it is a classic exercise of a State's police
powers."470  It may similarly be argued that providing for the renting
of unused terminal space at posted prices is a reasonable and necessary
regulation of Hawaii's gasoline markets, which are "highly concentrated
oligopolies."471 	
	

		Endnotes	Chapter 12 Table of Contents