Friday, June 25, 2004

Experts criticize
state’s gas price cap

Trying to lower the cost of gasoline using a price cap or any other form of regulation is a "waste of time" because prices are driven by unpredictable market forces, an energy expert said yesterday.

Fereidun Fesharaki, an East-West Center senior research fellow on energy policy and planning, compared the oil market to a large swimming pool.

"In this big swimming pool, if you threw a little piece of leaf on it and try to say, 'OK, with this leaf I'm going to control the movements of the swimming pool,' you won't," Fesharaki said. "The forces, whether it's OPEC, whether it's terrorism ... are so huge that, essentially, trying to put some order and structure in this is something I think is a waste of time."

Gasoline prices have come under close scrutiny over the past few years as policy-makers have wrestled with different ways to bring down prices in Hawaii, where the average has traditionally been higher than the rest of the country.

The average price for regular unleaded in Hawaii was $2.34 a gallon yesterday, according to AAA's Fuel Gauge Report. Maui had the highest average price at $2.66 a gallon, followed by Hilo at $2.35 and Honolulu at $2.25. This week's national average reported by the government's Energy Information Administration was $1.94 per gallon.

Meanwhile, price caps for wholesale and retail gasoline passed by the Hawaii Legislature two years ago are scheduled to take effect Thursday, unless Gov. Linda Lingle signs a bill passed this year that would delay their implementation for another 14 months.

That bill was passed to fix flaws in the 2002 legislation that critics said would drive up the cost of gas in Hawaii.

If Lingle, who opposes price caps, vetoes the bill, then the 2002 price caps would take effect as scheduled. There is an exception that allows the governor to suspend implementation of the cap if it would cause economic hardship.

Lingle hasn't said what her plans are.

Fesharaki called the legislation counterproductive.

"It will never work because the forces outside are so big and have moved the price of oil now substantially up, that that itself is driving the market, not regulation in one country or another," he said.

Fesharaki said he expects prices in Hawaii to remain between $2 and $3 a gallon for at least the next year, which goes against what he and other experts said a year ago when they predicted prices would go down once major fighting in the Iraq war ended.

Instead, prices have remained steady, Fesharaki said, because of factors including increased fear of terrorism worldwide and recovering economies.

One of the biggest recoveries has been in China, where the economy has bounced back significantly from the SARS scare a year ago, said Kang Wu, a specialist in energy policy at the East-West Center.

As the economy recovers, he said, the forces that drive it need more fuel.

"If the (gross domestic product) grows by 9 or 10 percent, energy demand grows by 9 or 10 percent -- even higher -- to catch up," he said.

Though he mostly agreed with Fesharaki that market forces play too big a role in the price of gasoline for a price cap to have a significant effect, Wu added that the unpredictability of the market could prove them wrong.

"It is a possibility," he said. "We cannot rule it out. We don't know."

The East-West Center, located at the University of Hawaii, is an organization funded by Congress to study and strengthen U.S.-Asia ties and understanding.


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