Story by Bloomberg
Hawaii, the U.S. state with the most expensive gasoline and power, also stands to get the most benefit from the collapse in oil prices.
The string of remote Pacific islands is more dependent on oil than any other state, burning it in power plants as well as cars and trucks. The plunge in oil prices is already helping reduce electricity bills that are three times the national average and gasoline costs that are regularly $1 a gallon more than the mainland.
The 48 percent collapse in oil prices since June has rippled across the globe, threatening the economies of oil-rich Russia and Venezuela and squeezing North American shale producers. States like Alaska, which saw its credit rating outlook cut by Moody’s Investors Service last week, will be hard hit by the oil price drop. At the other end of the spigot is Hawaii, which imports 93 percent of its energy.
“For us, this is a big deal,” Sumner La Croix, an economics professor at the University of Hawaii in Honolulu, said in a phone interview. “This could be really beneficial to the Hawaiian economy.”
Average power bills in Honolulu are at the lowest level in about two years and have fallen about 10 percent since June when oil began its decline, according to Hawaiian Electric Industries Inc., owner of the state’s biggest power company. Oil-fired plants generated 72 percent of Hawaii’s power last year, compared with a national average of 0.3 percent, the Energy Information Administration reports.
NextEra Energy Inc., which agreed this month to buy Hawaiian Electric for $2.63 billion, plans to reduce the state’s reliance on oil, adding more natural gas supplies and renewable sources including wind and solar.
Meanwhile, prices at the pump have dropped about 18 percent since June, according to AAA. That’s not only leaving more cash in residents’ wallets, it may also help drive more sun-seeking tourists to the state if the oil price drop also reduces the cost of flights.
“Falling airfares would be a significant boost to the Hawaii tourism economy,” La Croix said. Tourism is the state’s largest economic driver, with visitors spending $14.5 billion last year, according to the Hawaii Tourism Authority. The state’s 4.1 percent unemployment rate in October was below the national average of 5.8 percent.
Consumers will benefit from a lower rate of inflation because of energy cost declines, said Eugene Tian, chief economist for the Hawaii Department of Business, Economic Development and Tourism. “We don’t have the numbers, but we know the direction — we know that inflation will be smaller than expected.”
Hawaii’s inflation rate was 1.1 percent in the first half of the year, less than the U.S. average of 1.7 percent.
Even with the recent plunge in energy prices, Hawaiians still pay the highest gasoline and power rates in the country. Energy costs account for about 10 percent of the state’s gross domestic product, according to government data.
Gas in Hawaii costs $3.585 a gallon, still above the national average of $2.394, which is the lowest in more than five years, according to AAA.
For now, residents say they are glad to see some relief. Don Morrison, who works for a swimming pool and spa building business with a fleet of 50 gas-guzzling trucks, said while prices at the pump on the islands haven’t dropped as sharply as on the mainland, the declines are still welcome. Morrison, who serves as treasurer of the Honolulu-based business, said his company spends about $12,000 a month on gasoline and diesel.
“It’s nice to see those bills coming down,” he said.
The drop is also helping his own wallet. “Whenever you fill up, it costs you $20 less than the week before. That’s obviously good news. I can buy a bottle of wine.”