 Chapter 3
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Chapter 4
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 Table of Contents
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125. Hawaii, Department of the Attorney General, An Investigation
of Gasoline Prices in Hawaii: A Preliminary Report
(Honolulu: Sept. 1990) (hereinafter, "AG (1990)"); Hawaii,
Department of the Attorney General, Gasoline Prices in
Hawaii: The Impact of Oil Company Divorcement on Consumer
Prices (Honolulu: 1993) (hereinafter, "AG (1993)"); and
Hawaii, Department of the Attorney General, The Attorney
General's 1994 Interim Report on the Investigation of
Gasoline Prices (Honolulu: 1994) (hereinafter, "AG
(1994)").
126. Julia E. Schoen, The Consumer and Gasoline Marketing in
Hawaii: The Impact of Direct Retailing of Motor Fuel by
Refiners and Distributors on the Consumer (Honolulu:
Department of Commerce and Consumer Affairs, 1992 and 1993).
127. Walter Miklius and Sumner J. LaCroix, Divorcement
Legislation and the Impact on Gasoline Retailing in the
United States and Hawaii (Honolulu: University of Hawaii,
January 20, 1993).
128. Hawaii, Department of Planning and Economic Development,
Gasoline Prices in Hawaii, 1920 - 1980 (Honolulu: Aug. 8,
1980).
129. Hawaii, House of Representatives, Special Committee on
Energy, Investigation of the Hawaii Gasoline Market
(Honolulu: March 1974); Hawaii, Department of Planning and
Economic Development, Managing a Gasoline Shortage in
Hawaii, 2 vols. (Honolulu: October 1981) (hereinafter,
"DPED (1981)").
130. See, e.g., Hawaii, Department of Planning and Economic
Development, Ethanol/Gasohol for Hawaii (Honolulu: Jan.
1980); Robert Schleser, Ethanol Production in Hawaii:
Processes, Feedstocks, and Current Economic Feasibility of
Fuel Grade Ethanol Production in Hawaii: Final Report
(Honolulu: Department of Business, Economic Development,
and Tourism, July 1994); Act 199, Session Laws of Hawaii
1994 (authorizing the Director of Business, Economic
Development, and Tourism to adopt rules to mandate the use
of ethanol in transportation fuel); and Act 219, Session
Laws of Hawaii 1994 (authorizing the issuance of special
purpose revenue bonds to provide financing for the
construction of a demonstration fuel-grade ethanol
production plant in the Hawaii). See also United States,
House of Representatives, Committee on Energy and Commerce,
Subcommittee on Fossil and Synthetic Fuels, Methanol as an
Automotive Fuel (Washington: 1984); United States, General
Accounting Office, Federal and State Methanol Fuel Projects,
Coordination, and State Tax Incentives (Washington: May 3,
1985); and United States, Department of Energy, Alternatives
to Traditional Transportation Fuels: An Overview
(Washington: June 1994) (hereinafter, "DOE (1994)").
Replacement and alternative fuels and related alternative
energy issues are beyond the scope of this study.
131. A 1995 Legislative Reference Bureau feasibility study on the
establishment of a state energy commission outlined the
following reasons for Hawaii's reliance on imported oil:
The Hawaiian Islands are volcanic in origin.
Therefore, Hawaii has no indigenous fossil fuels such
as oil, coal, or natural gas. Unlike the other fifty
states, Hawaii must rely almost exclusively upon
imported fuel for its energy needs. Furthermore, oil
is the source of almost ninety percent of Hawaii's
electricity. This is in dramatic comparison to the
rest of the nation, where the majority of electricity
is generated by coal, followed by nuclear power, natural
gas, and hydroelectricity. Oil, on the other
hand, generates only three percent of the nation's
electricity. ...
Hawaii's oil supplies have historically come from
Alaska and producers in the Asia/Pacific region. ...
If Alaskan crude is counted as an import also, Hawaii
is 100 percent dependent on imports to meet its demand
for oil. Hawaii's situation is shared by its
Asia-Pacific neighbors Japan, Korea, and Taiwan.
However, even if we exclude Alaskan crude and consider
imports from foreign sources only, Hawaii's import
dependence still ranks above both the United States
average and the world average. Hawaii's oil demand
per capita (approximately forty barrels per year) far
exceeds the per capita demand in the United States as
a whole, as well as other imported oil dependent
countries such as Japan, Korea, Taiwan, Germany, and
France. Among the states, only Alaska boasts a
greater demand for oil per capita, due primarily to
its long cold winter.
Hawaii's heavy reliance on oil is an outgrowth of
its primary economic structure. Although Hawaii's
economy has grown considerably during the last decade,
the structure continues to be dominated by tourism,
the military, and agro-processing. As one might
expect, transportation is the largest energy consuming
sector in Hawaii, accounting for 63 percent of
petroleum use and 57 percent of total energy
consumption. Jet fuel dominates Hawaii's demand,
accounting for approximately 35 percent of Hawaii's
oil demand, versus 16 percent for United States west
coast region states (Alaska, Arizona, California,
Hawaii, Nevada, Oregon and Washington), and only 9
percent for the nation. This is attributable to
Hawaii's geographic location as a tourist destination
and refueling site for military and civilian
trans-Pacific flights. Of Hawaii's three lead
industries--tourism, the military and
agro-processing--only agro-processing contributes to
the energy supply through generation of electricity by
burning sugar bagasse, a by-product of sugarcane
processing, and selling the excess to island electric
companies.
Another major difference between Hawaii and the
nation as a whole is in fuel oil consumption; at the
national level, fuel oil represents only 8 percent of
total demand, while in Hawaii the figure is 30
percent. Most of Hawaii's fuel oil is used for
electric power generation. In 1992, over 84 percent
of Hawaii's total electricity production depended on
oil. The nation as a whole used oil for only about
three percent of its electricity production. Unlike
other states, Hawaii has little by way of competitive
fuels and alternative energy resources such as wind,
geothermal, biomass, solar, and ocean thermal energy
conversion are, for the most part, not able to compete
economically with fuel oil at the present time. Other
states have many other types of fuel, including
natural gas, hydro electric power, coal, and nuclear
for use in power generation.
Jan Yamane, Establishing an Energy Commission: A
Feasibility Study, Report No. 3 (Honolulu: Legislative
Reference Bureau, 1995) at 6-7 (footnotes omitted); see also
Nancy D. Yamaguchi and David T. Isaak, Hawaii and the World
Oil Market: An Overview for Citizens and Policymakers
(Honolulu: East-West Center Energy Program, August 1990) at
41-51; Charlotte A. Carter-Yamauchi, Utility-Financing of
Energy Conservation: A Short-Term Approach to Hawaii's Oil
Dependency, Report No. 3 (Honolulu: Legislative Reference
Bureau, 1988) at 6-7; Brad S. Petrus, "Decentralized Power
Generation: Alternative Energy Exemption from State Public
Utility Regulation--In re Wind Power Pacific Investors-III,"
8 U. Haw. L. Rev. 227 (Spring, 1986).
132. Hawaii, Department of Planning and Economic Development,
Hawaii's Fuel Requirements for Essential Services (Honolulu:
Feb. 1983) at 97 (hereinafter, "DPED (1983)"):
Basic to Hawaii's planning outlook is the fact
that the State is far more vulnerable to curtailments
of its vital energy supply than is any other State.
No other State is as dependent for its energy needs on
a single source of energy--petroleum. Hawaii, unlike
other States, is without overland access to energy
sources and without indigenous oil, coal, gas, or
significant hydropower resources. No other State is
as isolated geographically from its energy sources.
133. Hawaii, Department of Business, Economic Development, and
Tourism, State Energy Resources Coordinator's Annual Report
1993 (Honolulu: 1992-1993) at 1.
134. Id. at 1 (emphasis added). The Hawaii Legislature has found
that "[t]he State of Hawaii, with its total dependence for
energy on imported fossil fuel, is particularly vulnerable
to dislocations in the global energy market." Haw. Rev.
Stat. §196-1(1). The Legislature further found that
"adequate supplies of petroleum products are essential to
the health, welfare, and safety of the people of Hawaii, and
that any severe disruption in petroleum product supplies for
use within the State would cause grave hardship, pose a
threat to the economic well-being of the people of the
State, and have significant adverse effects upon public
confidence and order and effective conservation of petroleum
products." Haw. Rev. Stat. §125C-1.
135. Hawaii is included in U.S. Petroleum Administration for
Defense District (PADD) V. Because of high levels of crude
production in Alaska and California, this region is a net-
exporter of oil to other U.S. regions. However, oil
production in Alaska and California has peaked and is now
headed into a period of decline. See Yamaguchi and Isaak
(1990) at 41-42; see generally United States, Department of
Energy, The Motor Gasoline Industry: Past, Present, and
Future (Washington, DC: Jan. 1991) (hereinafter, "DOE
(1991)") at 22-24; United States. Department of Energy, The
U. S. Petroleum Industry: Past as Prologue, 1970 - 1992
(Washington, DC: Sept. 1993) (hereinafter, "DOE (1993)") at
31-38.
136. The Asia-Pacific region's rapid economic growth and
increasing population have caused the region's energy
demands to grow faster than anywhere else in the world in
recent years. Fereidun Fesharaki, Allen L. Clark, and
Duangjai Intarapravich, "Energy Outlook to 2010: Asia-
Pacific Demand, Supply, and Climate Change Implications,"
AsiaPacific Issues, Series, no. 19 (Honolulu: East-West
Center, April 1995) at 1-2. "The Asia-Pacific region is the
only part of the world that has seen major new demand in the
world oil market in recent years. Between 1990 and 1993,
the region's demand rose by three million barrels per day
(mmb/d), which more than offset the declining demand in
other regions. The consequent net increase was 0.5 mmb/d in
global oil demand." Id. at 2.
137. Yamaguchi and Isaak (1990) at 46.
138. DPED (1983) at 15-22.
139. DOE (1993) at 58-59; see also Stephen J. Darmody, "The Oil
Pollution Act's Criminal Penalties: On a Collision Course
with the Law of the Sea," 21 B.C. Envtl. Aff. L. Rev. 89
(Fall, 1993). See generally "Heeding the Valdez," Honolulu,
vol. 25, no. 9 (March 1991) at 57; Cynthia Kyle, "The States
Beef Up Oil Spill Response Plans," Governing, vol. 2, no. 12
(Sept. 1989) at 70; Glenn T. Gray, Direct Action Provisions
in Other State's Oil Spill Laws, Research Request 92.190
(Juneau: Alaska Legislative Research Agency, March 13,
1992); "Learning the Lessons of the Star Connecticut,"
Environment Hawaii, vol. 1, no. 6 (Dec. 1990) at 1; Hawaii,
Department of Health, Report to the Fourteenth Legislature
on HCR No. 173 and HR no. 288: Requesting that the
Department of Health Test Dispersants, Develop
Recommendations on Stockpiling Dispersants, and Establish
More Efficient Operating Procedures in the Event of an Oil
Spill (Honolulu: 1988); Rose T. Pfund, ed., Oil Spills at
Sea: Potential Impacts on Hawaii, prepared for the Hawaii
Department of Health by the University of Hawaii Sea Grant
College Program (Honolulu: 1992); API Task Force Report on
Oil Spills (Washington, DC: American Petroleum Institute,
June 14, 1989).
140. See Hawaii, Department of Business, Economic Development,
and Tourism, [Updated Issue Paper on the U. S. Oil Petroleum
Act of 1990 and the Subsequent Discontinuation of Shipments
of No. 6 Fuel Oil to the Neighbor Islands by Pacific
Resources, Inc.] (Honolulu: Feb. 1992 and March 18, 1992
Addendum). BHP (Broken Hill Proprietary Co. Ltd. of
Australia) acquired Pacific Resources Inc. and its refinery
in 1989. See also "BHP's Game Plan," Hawaii Business, vol.
34, no. 10 (April 1989) at 25.
141. 1992 Haw. Sess. Laws Act 130, §1. Section 1 of that Act
became effective on June 3, 1992 (the date of approval of
Act 130), and is repealed on June 30, 1996. Id., section 5.
See also 1993 Haw. Sess. Laws Act 29 and 1994 Haw. Sess.
Laws Act 209.
142. Bruce W. Wilson, A Review of Factors Relating to the
Establishment of a Regional Petroleum Reserve in Hawaii
(Honolulu: Department of Business and Economic Development,
Nov. 1988) at 66; see also notes 16 to 22 and accompanying
text in chapter 8.
143. See Miklius and LaCroix (1993) at 56; DPED (1981) (vol. 2)
at 45; AG (1990) at 3-4.
144. Yamaguchi and Isaak (1990) at 29-39; AG (1990) at 3.
145. Yamaguchi and Isaak (1990) at 36-39; see generally id. at
1-41 for a discussion of the oil industry, including the
international crude market, oil cartels, refining, and
petroleum products.
146. AG (1990) at 4. As noted in that report, Chevron and Shell
operate terminals on each major island, while Chevron
jobbers operate limited storage facilities at Kawaihae on
the Big Island and on Molokai and Lanai. Unocal maintains
terminals on Oahu, Maui, and the Big Island, and a jobber on
Kauai and at Kawaihae. Texaco operates a terminal on Oahu,
and a Texaco jobber operates facilities on the Big Island.
BHP operates an Oahu terminal and a small terminal on the
Big Island. Aloha maintains an interest in BHP's Oahu
terminal, but has no other terminal facilities of its own in
the State. Id.
147. Miklius and LaCroix (1993) at 5, 57 and Table 2-5.
148. A 1992 study prepared for the Hawaii Legislature by the
Department of Commerce and Consumer Affairs on the impact of
direct retailing of motor fuel by refiners and distributors
on Hawaii consumers indicated a trend toward fewer service
stations. In particular, that study noted Department of
Labor and Industrial Relations figures indicating that there
were 342 stations with payroll in 1980, 297 such stations in
1985, and 265 stations in 1990. While these figures do not
include gas pumps attached to stores or stations that do not
hire outside help, the study noted that this data is
representative of the trend towards fewer service stations.
Schoen (1992) at 3.
However, according to Miklius and LaCroix (1993), trends in
the number of gasoline stations in Hawaii are difficult to
establish because of a lack of consistent data series. The
number of gasoline stations, as defined by a 1987 United
States Census, has declined in the Hawaii since reaching a
peak in 1972. However, the Census figures do not include
all outlets selling gasoline; rather, they include only
service stations that derive more than fifty percent of
their revenues from the sale of gasoline. The increase in
the number of convenience store ("C-store") outlets that
derive more than half of their revenues from other sources
has resulted in a serious undercount of service stations.
According to the authors of that study, this undercount,
because of the substantial increase in uncounted C-store
outlets, means that the decline in the total number of
outlets selling gasoline was smaller than indicated by the
official data. The authors also cite a 1992 American
Petroleum Institute estimate that the number of stations in
Hawaii has actually increased from 496 in 1977 to 546 in
1987. Miklius and LaCroix (1993) at 3-5 and Table 2-3.
Miklius and LaCroix nevertheless concluded that, at least as
defined by the Census, the number of lessee and open dealer
gasoline stations in Hawaii has declined since reaching a
peak in 1972, although the decline has been smaller in
Hawaii than on the U.S. mainland. In addition, until 1981,
company-operated stations in the State accounted for a
negligible proportion of all stations; since that year,
however, there has been a significant increase in the
relative importance of these stations. However, the
increase in importance of company-operated stations in
Hawaii was due primarily to the entry of new marketers
rather than the conversion of lessee dealer stations to
company operations--namely, the entry of BHP into the market
in 1983 and the acquisition of the Circle K chain of C-
store/gasoline stations by Texaco in 1990. Id. at 5.
149. See notes 66 to 74 and accompanying text in chapter 15 for a
discussion of predatory pricing.
150. Id. at 17-18, 56-57.
151. See DPED (1981) (vol. 2) at 57, 65:
The rate of inflation during 1973-1980 must be
taken into account when looking at the effect of
rising gasoline prices on the consumer. In 1973 the
cost of living as reflected by the consumer price
index was 1.28 times higher than in the base year,
1967. In comparison, the price of gasoline was only
1.12 times higher than in 1967. In the subsequent
years from 1974 to 1978, inflation was generally
outpacing gasoline price increases, making gasoline
less expensive relative to all other goods. In 1979,
however, gasoline price increases were large enough to
outpace the general rate of inflation, making gasoline
more expensive even in real terms (adjusted for
inflation). The same was true in 1980. In other words,
while all goods and services combined cost 2.28times what
they had in 1967, gasoline cost three times as much as in
1967.
Consumers spend their money on many different
goods and services. In 1980 a family of four in
Hawaii on an intermediate budget had to spend 123%
more than they did in 1970 to maintain their standard
of living. But between the same years, average per
capita personal income increased only 113%. That
means that the cost of living in Hawaii increased more
than the income used to cover living expenses. The
average consumer therefore was forced to cut back on
some expenditures. Gasoline apparently was one of
them.
To summarize the gasoline picture from 1970 to
1980, it is evident that although total gasoline
consumption in Hawaii over this period increased in
absolute terms, the growth in consumption slowed down
following the shortages of 1973-74, and actually was
negative beginning in 1979 and continuing into 1980
and 1981. Why the declining trend in gasoline
consumption? It is very difficult to disentangle all
the possible contributing factors. Over the past ten
years, Hawaii had 50% more motor vehicles consuming
only 31% more gasoline in total. Gasoline consumption
per motor vehicle consequently declined from 579
gal./vehicle in 1970 to 508 gal./vehicle in 1980.
Probable reasons include a replacement of old vehicle
stock with newer, more fuel-efficient models, and
conservation through a decrease in miles traveled per
vehicle, with both factors being influenced by the
rising price of gasoline. The decline in gasoline
consumption in 1979-80, concurrent with significant
increases in the real price of gasoline, attest to the
impact of gasoline prices on consumption. It is also
likely that the erosion of personal real income over
the years has had some effect on gasoline purchases.
152. See DOE (1991) at 5-8. However, changing population
patterns, including the aging of the population and
increases in the number of people living in suburban
communities, may account for a somewhat greater demand for
gasoline. Id. at 41-42; see also DOE (1994) at 20 - 22.
153. Miklius and LaCroix (1993) at 18-21, 24-27, and 57-59.
Schoen (1992) also found an increase in company-operated
stations and the inability to find qualified workers as two
reasons for the decrease in number of conventional service
stations. The former reason cites the lower overhead of
company-operated stations compared to that of a conventional
dealer's station, since company-operated stations' "sole
business ... is to sell gasoline and have the customer do
the work of pumping the gas." Schoen (1992) at 4. The
latter cites the unreliability of workers and greater
availability of higher paying work in tourist related
businesses. "Not only are the workers not seen as being as
reliable as in previous years, but the romance of working at
the local service station has faded." Id. at 6.
154. Id. at 23-24. The major refiners entered the C-store
industry relatively late; by 1981, C-store stations
accounted for only seven percent of the stations controlled
by the eight major refiners. Id. at 24.
155. See "McDonald's, Chevron Plan Combined Stores", Honolulu
Star-Bulletin, August 1, 1995, at B-4; David Segal, "Managed
Auto Care like HMO for Cars," The Honolulu Advertiser,
November 23, 1995, at C7. Under managed care for
automobiles, "CMOs", or car maintenance organizations, which
are patterned after HMOs (health maintenance organizations),
are used to repair vehicles damaged in collisions. In a
CMO, drivers who have been in accidents would be required by
insurers to select specified repair facilities from a
network, rather than obtaining estimates from randomly
selected body shops. Insurers negotiate group discounts
with these facilities, which permits them to offer lower
premiums to consumers. Although drivers would save money
under this type of arrangement, they face more limited
choices of repair facilities. In addition, a number of
states have "anti-steering" laws, which prohibit insurance
carriers from dictating where consumers take damaged
vehicles for repair.
156. See generally Paul W. MacAvoy, ed., Federal Energy
Administration Regulation: Report of the Presidential Task
Force (Washington, DC: American Enterprise Institute for
Public Policy Research, 1977); Joseph P. Kalt, The Economics
and Politics of Oil Price Regulation: Federal Policy in the
Post-Embargo Era (Cambridge, MA: MIT Press, 1981) at 9-23.
157. Miklius and LaCroix (1993) at 21-23, 59.
158. Another consequence of decontrol was a change in refining
economics; production of heavy bulk oils was no longer
profitable or feasible. As a result, most refineries
increased their flexibility and complexity though expansions
in downstream processing capacities after 1981. Production
of light, transportation-type fuels claimed more of the
production from a barrel of crude oil. Another significant
change was the addition of downstream capacity to
desulfurize and process poorer quality crude oils into
lighter products through distillation. See DOE (1993) at
20-21.
159. Robert Fenili, "The Impact of Decontrol on Gasoline
Wholesalers and Retailers," Contemporary Policy Issues, vol.
3, no. 3, pt. 2 (Spring, 1985) 119, 129; see also H. A.
Merklein and W. P. Murchison Jr., Those Gasoline Lines and
How They Got There (Dallas: Fisher Institute, 1980) at 111-
112: "In freezing supplier/purchaser relationships, the
gasoline allocation controls have introduced a rigidity that
is intolerable in the normally dynamic market process. In
the six-year period since the allocation controls were
imposed, gasoline marketing has experienced a number of
changes. Self-service islands, high-volume outlets, and
convenience stores/gas operations have been introduced, but
development of these and other new marketing concepts has
been impeded by regulation." (citing a 1979 United States
Department of Energy internal memorandum).
160. Miklius and LaCroix (1993) at 59.
161. Id. at 31.
162. Miklius and LaCroix (1993) at 31.
163. Yamaguchi and Isaak (1990) at 52.
164. AG (1990) at 5-7.
165. For a discussion of credit cards in retail gasoline
marketing, see United States, Department of Energy,
Deregulated Gasoline Marketing: Consequences for
Competition, Competitors, and Consumers (Washington, DC:
March 1984) at 111-118; John M. Barron, Michael E. Staten,
and John Umbeck, "Discounts for Cash in Retail Gasoline
Marketing," Contemporary Policy Issues, vol. X (Oct. 1992),
89.
166. AG (1990) at 7-14.
167. See notes 21 to 32 and accompanying text in chapter 2 for a
discussion of oligopolies.
168. AG (1990) at 9-10:
To compete effectively on the wholesale level, you
need access to a bulk supply of gasoline, access to
terminal storage facilities, and access to a sufficient retail market. Many factors make it
difficult for new competitors to gain access to such
facilities and markets in Hawaii. Not the least of
these is the fact that it would not be in the interest
of the existing oil companies to supply a new
competitor with petroleum products in bulk quantities
or with terminal storage. On the other hand, the cost
of transporting bulk gasoline to Hawaii and storing it
in newly constructed facilities would not only require
a new competitor to bear higher capital and operating
costs than do the existing companies, but also
additional supply might depress the price of gasoline
below the price a new competitor would need to make
entry profitable. In other words, a new competitor in
Hawaii would run the risk of reducing the price of
gasoline to a point that, with the higher costs, he
would go out of business! Clearly, in Hawaii, the
economies of scale and the self interest of the
already established companies work against new
competition.
169. Yamaguchi and Isaak (1990) at 56:
Land prices [in Hawaii] are now shockingly high, and
therefore the cost of doing business is high. Land
prices have a substantial impact on petroleum refining
and marketing costs. Refineries themselves take up a
large amount of space, and tankage and terminals are
land-hungry. The cost of land affects the economics
of service stations themselves, which are often
located on prime commercial real estate. The effect
of land prices on the cost of petroleum is felt at
every stage of the process, from the loading pipelines
for crude delivery through the refinery, to the
parking lots where the tank trucks are parked, to
service stations.
170. AG (1990) at Exhibit 12.
171. Yamaguchi and Isaak (1990) at 56:
It is often observed that one reason that there
are not more companies present in Hawaii is that it is
a small market. This statement needs to be expanded:
Hawaii is a small market with very high overheads for
doing business. Wyoming, New Mexico, and the Dakotas
are also small markets, but wage levels are low,
transport is relatively cheap, and land and
infrastructure can be acquired for a small fraction of
what it would cost in Hawaii. Companies considering
entering the Hawaiian market weigh the costs against
the possible benefits, and decide that invading the
local market would be a poor business venture--the
Hawaiian gasoline market of 23,000 b/d is comparable
to a medium-sized mainland city, but requires marine
facilities, terminals, and a large local
administrative staff that would not be needed to
expand into a mainland city.
172. Id. at 72: "In most major mainland cities there are dozens
of alternate routes that a person might take to get to work,
and in the course of travel they will pass numerous gas
stations. Freeway access is typically easier, and most
major on-ramp/off-ramp junctures have at least one gas
station, and often three or even four. Under mainland
conditions, it is far easier to 'shop around,' and price
comparisons seem to result in greater price competition."
173. E. Thomas Sullivan and Jeffrey L. Harrison, Understanding
Antitrust and its Economic Implications, Legal Text Series,
2d ed. (New York, NY: Matthew Bender, 1994) at 14; see also
Graham Bannock, R. E. Baxter, and Evan Davis, The Penguin
Dictionary of Economics (London: Penguin Books, 1987) at
130.
174. AG (1990) at 10.
175. Id.; United States, General Accounting Office, Energy
Security and Policy: Analysis of the Pricing of Crude Oil
and Petroleum Products (Washington, DC: March 1993) at 55.
176. AG (1990) at 10.
177. Id. at 10-11.
178. See chapter 5 for a discussion of exchange agreements; see
also AG (1990) at 11-12; AG (1994) at 4-13; Yamaguchi and
Isaak (1990) at 73-75.
179. See AG (1990) at 12-13:
The oil companies have each constructed elaborate
vertical networks for the distribution of gasoline to
consumers in Hawaii. They give their gasoline brand
names. They lease the service stations to the retail
dealers. They condition the supply of their gasoline
on the use of their signs, tanks, and other
facilities. They arrange promotional programs
providing benefits to dealers who meet sales goals.
These arrangements may involve important efficiencies
that reduce the cost of distributing gasoline in
Hawaii.
These arrangements, however, also may have
effects that lessen competition. They may exclude
potential competitors. A new entrant into the market
at the wholesale level would need the assurance of
sufficient retail outlets to justify risking the
substantial investment that entry into the Hawaii
market would require. But the branded distribution
networks of the incumbent oil companies are so
extensive that the likelihood of a new entrant
constructing an adequate and competitive distribution
system of its own seems remote at best. Aloha
Petroleum has made the effort. However, it is
dependent on Chevron, PRI, and the other incumbents
for its supply of gasoline.
These arrangements in the Hawaii market may be
yet another factor limiting aggressive price
competition. Generally speaking, branding a product
indicates that the product can be differentiated from
similar products in a substantial way. Gasoline,
however, is a relatively homogenous product. It's the
price that counts. Gasoline wars are fought over
prices. The vertical arrangements that make up the
branded distribution systems in Hawaii, however, tend
to promote price maintenance rather than aggressive
interbrand price competition, especially at the
wholesale level. This is because vertical
distribution arrangements in a context of a high level
of concentration, high entry barriers, and an
inelastic demand make price wars very foolish for the
industry.... Since sellers in an oligopolistic market
are interdependent in their market response,
aggressive price cutting would tend to cause a market-
wide war. The result would be that everyone would
lose--except, of course, the consumers. This may be
why, at least in recent memory, there has never been a
real price war over gasoline in Hawaii.
180. Id. at 13.
181. Hawaii's retail divorcement statute reads as follows:
§486H-10 Prohibition of manufacturer or jobber
from operating a service station. (a) From July 31,
1993, to August 1, 1997, no manufacturer or jobber
shall operate a major brand, secondary brand, or
unbranded retail service station in Hawaii to sell its
petroleum products; provided that for each dealer
operated retail service station owned by a
manufacturer or jobber opened on or after July 31,
1995, that manufacturer or jobber may open one
company operated retail service station, up to a
maximum of two company owned retail service stations.
For purposes of this subsection:
"Company operated retail service station" means a
retail service station owned and operated by a
manufacturer or jobber.
"Dealer operated retail service station" means a
retail service station owned by a manufacturer or
jobber and operated by a qualified gasoline dealer.
(b) For the purposes of this section, the term
"to operate" means to engage in the business of
selling motor vehicle fuel at a retail service station
through any employee, commissioned agent, subsidiary
company, or person managing a retail service station
under a contract and on a fee arrangement with the
manufacturer or jobber.
(c) This section shall not apply to any
individual locations operated by any manufacturer or
jobber on the effective date of this Act. Nor shall
anything contained in this section prohibit a
manufacturer or jobber from acquiring or constructing
replacement retail service stations to replace any
company-operated retail service stations in existence
on July 30, 1993, that have subsequently closed due to
the expiration or termination of the retail service
station's ground lease; provided that:
(1) The manufacturer or jobber shall negotiate
in good faith to renew the ground lease of
the retail service stations; and
(2) The replacement retail service stations
shall be located within a one-mile radius of
the retail service stations that they
replace.
As used in this subsection, "good faith" means an
honest and sincere intention to renew the ground lease
of retail service stations.
Haw. Rev. Stat. §486H-10, as amended by 1995 Haw. Sess. Laws
ch. 238, §2 (effective June 29, 1995). Prior versions of
Hawaii's divorcement law are contained in 1991 Haw. Sess.
Laws Act 295 and 1993 Haw. Sess. Laws Act 329. Copies of
these 1991, 1993, and 1995 session laws are contained in
Appendices D, E, and F, respectively.
182. See 1994 Haw. Sess. Laws Act 199, §§2, 5.
183. See also 1995 Haw. Sess. Laws ch. 180, §§30 to 33 (eff. June
14, 1995) and 1995 Haw. Sess. Laws ch. 201, §5 (eff. June
19, 1995).
184. Haw. Rev. Stat. §342L-36(d) (1995).
185. Haw. Rev. Stat. §128D-2(b) (1995) (environmental response
revolving fund; uses) provides that revenues generated by
the environmental response tax and deposited into the
environmental response revolving fund are to be used for oil
spill planning, prevention, and remediation, as well as for
county used oil recycling programs, and may be used to
address concerns related to underground storage tanks.
186. Haw. Rev. Stat. §248-8 (1995) (special funds in treasury of
State), establishes the state highway fund, the airport
revenue fund, and the boating special fund as three special
funds in the state treasury, and provides that all taxes
collected under chapter 243 (fuel taxes) in each calendar
year, except the county of Hawaii fuel tax, city and county
of Honolulu fuel tax, county of Maui fuel tax, and county of
Kauai fuel tax, are to be deposited in the state highway
fund; provided that all taxes collected under chapter 243
with respect to gasoline or other aviation fuel sold for use
in or used for airplanes is to be set aside in the airport
revenue fund; and all taxes collected under chapter 243 with
respect to liquid fuel sold for use in or used for small
boats is required to be deposited in the boating special
fund.
187. See Hawaii, Legislative Reference Bureau, The Hawaii
Antitrust Act, Report No. 8 (Honolulu: 1961).
188. See text accompanying notes 60 to 71 in chapter 2 for a
discussion of federal antitrust statutes; see also Haw. Rev.
Stat. chapters 481 (fair trade regulations), 481A (uniform
deceptive trade practices act), and 481B (unfair and
deceptive practices); Lyle Harada and Randall Sing, "Note:
Island Tobacco Co., Ltd. v. R. J. Reynolds Tobacco Co. [63
Haw. 289, 627 P.2d 260 (1981)]: Federal and State Views of
Hawaii's Antitrust Laws," 4 U. Haw. L. Rev. 195, 195-206
(1982); Sumner LaCroix, Walter Miklius, and James Mak, "The
New Standards of Unfair Competition: An Economic Analysis
of the Du Pont v. FTC Litigation," 9 U. Haw. L. Rev. 457
(Fall 1987); and Edward Kemper, "Unfair and Deceptive Acts
and Practices Under Section 480-2, Hawaii Revised Statutes:
Revisited," Haw. Bar J. (May 1994) at 7.
189. Haw. Rev. Stat. §56-3 (leasing of space for commercial
purposes), allows the county councils to require the finance
director of the county to lease space within public
off-street parking facilities for use by the lessee for the
sale of gasoline and petroleum products, the sale of
automobile accessories, automobile repair or service, or any
other garage and fueling services.
190. Haw. Rev. Stat. chapter 125C (procurement, control,
distribution, and sale of petroleum products), establishes
general powers and procedures during a shortage of gasoline
or other petroleum products, requires the state energy
resources coordinator to adopt rules establishing a
petroleum products set-aside system during a shortage, and
provides for the preparation of biennial state and county
emergency preparedness plans.
191. Haw. Rev. Stat. chapter 437 (motor vehicle industry
licensing act), provides in section 437-11(b) (additional
requirements for dealer's and auction's license) that the
site for the retail sale of motor vehicles may be used for
related purposes, including gasoline and oil, storage,
parts, and service. Chapter 437D (motor vehicle rental
industry) provides in section 437D-14(f) and (g) (fuel
charges) that the price per gallon or per liter which is
charged for the amount of fuel required to refuel a rental
vehicle may not exceed the sum of the locally prevailing
retail market price for similar fuel sold at self-service
gasoline pumps by commercial gasoline dealers and a
reasonable surcharge not to exceed one-half of that retail
price; or, if a credit is applicable, the per gallon or per
liter amount which is credited may not be lower than the
locally prevailing retail market price for similar fuel sold
by commercial gasoline dealers.
192. Haw. Rev. Stat. chapter 486 (measurement standards), part II
(sections 486-50 to 486-56), establishes standards for
petroleum product accounting and inspection, including
requirements for price posting by gallon for retail
dispensers of gasoline in section 486-52.5, and provides for
civil and criminal penalties for violations.
193. Haw. Rev. Stat. §708-832 (theft in the third degree),
provides that a person commits the misdemeanor offense of
theft in the third degree if the person commits theft of
gasoline, diesel fuel, or other related petroleum products
used as propellants of any value not exceeding $200.
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