Hawai'i's two oil refiners are warning that more turmoil could occur next year under the state's wholesale price cap law as refiners and service stations begin selling gasoline blended with ethanol.

The refiners, in filings with the state Public Utilities Commission, said uncertainty revolving around ethanol pricing as well as supply, storage, blending and distribution costs will compound the complexity in calculating the gas cap. Tesoro Hawaii, the state's largest refinery, is recommending the state delay an April 2006 deadline for selling gasoline containing 10 percent ethanol content.

"Under the circumstances, Tesoro Hawaii believes the state should suspend the ethanol mandate for at least 24 months based on, among other items, the logistical challenges associated with factoring in the impact of ethanol into the gasoline price caps," the refiner said in a 25-page letter to the PUC.

The refiners and others in Hawai'i's petroleum industry have fought the cap law, the only one in the nation, saying the price limits lead to price swings, higher prices and consumer runs on stations. Cap proponents say Hawai'i's gasoline prices rarely dropped the way they do elsewhere in the U.S., and that recent cuts show the law is working.

Chevron Corp., the state's other refiner, said ethanol blending will increase the cost of producing gasoline in Hawai'i and that the expenses need to be included in the gas cap calculations. It cited fluctuating costs for importing ethanol as being difficult to project because local ethanol production won't commence until 2007.

The refiners should already know those costs because they have experience with ethanol elsewhere, said Frank Young, a former Chevron station owner and a proponent of the gas cap.

"Chevron and Tesoro are already running refineries all over the country with ethanol," Young said. "There have to be 20 states already with ethanol."

The refiners were responding to a state call for suggestions on how to integrate ethanol costs under the gas cap. The law went into effect on Sept. 1 and places a ceiling on what wholesalers can charge based on prices in New York, the Gulf Coast and Los Angeles.

Tesoro and Chevron used their responses to the PUC to call for a repeal of the law. Additionally, Chevron said it is considering asking for an increase in an 18-cent margin used in calculating the cap because of increased costs.

The refiners both criticized efforts to implement more cap categories with different marketing margin limits for various types of wholesalers and distributors.

"Hawai'i's gasoline price cap law is unworkable and fatally flawed," said Tesoro in its filing. "Tinkering with the marketing margin formula will not address these overarching serious problems."

Reach Greg Wiles at gwiles@honoluluadvertiser.com.