April 6, 2004 — In the name of consumer protection, Department of Licensing and Consumer Affairs Commissioner Andrew Rutnik is warning gasoline wholesalers and retailers not to raise their prices for the next 30 days. On Monday, Rutnik spelled out the areas where he expected merchants to hold the line and promised to levy fines of up to $200 a day if they hike prices without first getting permission from DLCA.
But even as Rutnik sought to exercise temporary authority over gas prices, the territory's premier gas producer, Hovensa, appeared to thumb its nose at the entire process, announcing on Monday a new round of price changes. A top executive at the company said Hovensa has the right to set its prices to offset increases taking place on the world oil market.
Rutnik acknowledged the changes in wholesale prices at Hovensa and said he expects to see them drop soon.
The 30-day price freeze takes place as a new flexible petroleum tax takes effect in the Virgin Islands. Rutnik has been pondering how best to apply the tax in order to create the greatest revenue stream for the V.I. government. A previous attempt to tax gas sales in the 1980s produced far less revenue than expected. The reason, according to Rutnik, was because of exemptions applied to some gas wholesalers, particularly in the marine industry.
This time, Rutnik said the local gas tax will be borne proportionately.
The commissioner says he has the power to regulate how the tax is applied by virtue of powers originating from Government House. "We use that authority and we don't use it lightly. We are not in the business of setting prices in the Virgin Islands, but we have gotten a reaction from some service stations and wholesalers," Rutnik said.
He continued: "We have been working with them, I've spoken to some of them on the phone, especially in the St. Croix market, and told them that the procedure for the new prices going into effect will be very simple and will be very responsive, so there should be a seamless transition."
According to Monday's DLCA directive, gas wholesalers and retailers are constrained from: either raising or lowering the price at the pump; changing the price of gas at the time of delivery; adjusting the gross receipt tax paid on gas sales; and instituting anything other than reasonable adjustments in their overhead costs.
Hovensa Senior Vice President Alex Moorhead argues that his company's recent price adjustments are not subject to the DLCA decree. "The deposition by Commissioner Rutnik, in his position as the head of the Deparment of Licensing and Consumer Affairs, only applied to retail establishments. The action Hovensa took … is just a normal adjustment of prices. The price of crude and the market price of gasoline continued to increase nationally and we have to pass on our increase in cost," Moorhead said Monday.
The wholesale price at Hovensa as of Monday reflects a 5-cent increase per gallon on regular gas, a 7-cent increase per gallon on premium and a 2.5-cent decrease per gallon on diesel fuel.
However, Commissioner Rutnik disagreed with Moorhead's assessment that those prices could go through unchallenged by the government.
Hovensa is considered a gasoline wholesaler, he said, and despite the fluctuation of petroleum on the world oil market, Rutnik said the price of gas just dropped on the U.S. mainland and that he expects Hovensa to adjust its prices accordingly. However, the commissioner did not suggest he would take immediate action against the giant St. Croix refinery as a result of their recent price adjustments.
The DLCA guidelines allow for price adjustments during the 30-day freeze period, but those wholesalers and retailers who decide they have to make changes are directed to file a request with the agency and not to raise or lower those prices until they receive formal permission. Those found in violation face a $200 fine for every day their prices do not comply with the terms of the moratorium.
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