Gas cap study draws criticism
An analyst argues that a state report failed to take into account the effects of Katrina
A state study that suggests consumers have paid more for gasoline because of price controls is flawed because it does not recognize the severe impact of Hurricane Katrina on the oil industry, an independent analyst said.
"They refuse to recognize that Katrina and $60 a barrel crude oil ever happened," said Tim Hamilton, a mainland petroleum industry consultant who has testified before the U.S. Congress on oil issues.
Senate Consumer Protection Chairman Ron Menor agreed with Hamilton's conclusions, noting that the Department of Business, Economic Development and Tourism, along with Gov. Linda Lingle, have been frequent critics of the gas price cap law and have supported its repeal.
"The administration's line has been indistinguishable from the oil companies since Gov. Lingle came into office," said Menor (D, Mililani).
In a letter to House lawmakers, for whom the study was prepared, DBEDT Director Ted Liu said the analysis was reviewed by three "well-respected" local economists and determined to be sound, adding that the agency stands by the report.
The DBEDT analysis, which was obtained by the Star-Bulletin, attempts to determine what gas prices would have been without the price caps, which took effect Sept. 1, the same day oil and gas prices nationwide began climbing to record highs following Hurricane Katrina's landfall in the Gulf Coast.
It concludes that prices for regular unleaded were an average of 27 cents a gallon higher in the five months after the price caps took effect. The analysis studied market data from January 2002 through August 2005 to try and determine future trends.
Hamilton criticized the methodology.
"I've never seen an economist who would agree that you could predict the future like this," he said, noting that none of DBEDT's economists are named in the agency's report to the House.
He criticized the analysis for assuming that prices in Hawaii would have remained relatively flat after Katrina. The analysis, he said, makes that assumption based on similar trends following Hurricanes Ivan and Frances in 2004, which were not as damaging as Katrina.
"If we're going to assume that if the cap wasn't there the oil companies would have kept the price flat, it would've been the only geographical area of the world where that happened," Hamilton said. "They are giving the cap the full entire blame for $60 a barrel crude oil and a hurricane called Katrina."
Tesoro President Bruce Smith, in a letter to Gov. Linda Lingle in September, acknowledged that the devastation caused by Katrina was so severe that Hawaii likely would have been affected.
Menor stood by his analysis, backed by Hamilton, released last week showing that Hawaii gas prices could have been up to 73 cents higher without the gas cap law. The analysis was based on a review of diesel fuel, which is not regulated under Hawaii's law, and showed that while gasoline prices have followed a nationwide trend and come down about 26 percent since their post-Katrina highs, state diesel prices have only come down about 5 percent, compared with a 21 percent drop nationally.
"If some critics allege our gas pricing regulation is allowing the oil companies to charge higher prices than they would without the law, then why would the oil companies oppose it since their objective has always been to maximize profits?" Menor said. "The obvious reason is that the law is working as intended and forcing the oil companies to set their prices at lower levels than they would without any regulation."