Gas cap foes should endorse windfall profit tax on oil firms
SINCE the implementation of the state's gasoline price cap law, critics have insisted that we should let market forces set prices instead. Lately the best defense of the price caps has come not from consumer advocates but from the big oil companies themselves -- specifically, their financial reports.
After the energy "crisis" following Katrina, the oil companies broke all previous profit records and cumulatively pocketed more than $30 billion in the third quarter of last year. ExxonMobil alone reported annual profits of more than $36 billion, up 40 percent from the year before.
Tesoro reported its most profitable quarter in at least three years for its Hawaii refinery, with fourth-quarter profits jumping 217 percent! Nationally, Chevron's fourth-quarter 2005 profits jumped 20 percent to a record $4.14 billion, the most Chevron ever made in any three-month period since the company was founded in 1879. Its annual profit of $14.1 billion was also a record for Chevron.
On the mainland, oil executives had the audacity to try to explain away these profits as the result of supply and demand. In spite of the cry against "government interference" from those who profess to support a free market, there is no competition for wholesale gasoline in Hawaii -- not when one company controls 80 percent of all gasoline shipped to the islands.
The oil companies want us to believe that it is the gas cap that is "forcing" them to charge the highest prices in nation. But just the opposite is true: The cap is substituting for market forces that do not exist because the oil oligopoly has a stranglehold on the local market. Does anyone truly believe that the oil companies, of their own volition, would have adjusted prices as quickly as they have under the gas cap law without someone holding their feet to the fire?
The intent of the law was to establish a ceiling to protect consumers from price gouging. But wholesalers and retailers appear to be using the law to push prices to the limit, in the same way that they previously pushed prices to whatever the local market would bear. The law was designed to allow retailers a margin of profit to encourage competition at the pump. No one is forcing them to persistently charge the maximum allowable under the law.
There are a number of bills moving through the Legislature to improve the law. In spite of those efforts, some have called for doing away with the law altogether, suggesting that by simply providing more "transparency" the market place will correct itself. One way to increase transparency is to amend our laws to require oil companies to report not just national profits, but also profits made here in Hawaii.
Any move to repeal the gas cap law should be accompanied by a call for a state windfall profit tax with the monies to be returned to consumers. Hawaii would not be alone if we moved in this direction. There are similar initiatives in California and in Congress, supported by both Republicans and Democrats.
The days when the big oil companies can hide record-breaking profits behind blind faith in a laissez-faire doctrine are over. No one is against making a reasonable profit. But the numbers we are seeing for the big oil companies' profits are far beyond anyone's definition of reasonable.
Robert Bunda is president of the state Senate.