State should act
to lower gas prices

Price caps and a state-owned gas company have been proposed to lower fuel prices.

CONVINCING evidence of corporate greed contained in documents filed in the state's lawsuit against oil companies have prompted calls for drastic action. Governor Cayetano supports a price cap on gasoline, while gubernatorial candidate D.G. "Andy" Anderson proposes that the state go into the gasoline business in competition with the oil companies. The two proposals are radical but action of such magnitude is needed to assure fair prices at the pump.

Legislators conceivably could embrace both, using the Anderson proposal as an alternative if price caps were to become bogged down in court. Anderson says such a parallel strategy may be appropriate. The Legislature should choose one or both.

In defending the industry against allegations of price-fixing, an oil company attorney argued in court that the various oil companies operating in Hawaii amount to an oligopoly, in which a few sellers dominate the market and are able to charge high prices resulting in high profits. During one seven-year period, Chevron Corp. earned 22 percent of its profits nationally from Hawaii, which accounted for only 3.1 percent of its national market.

After failing to find direct evidence supporting its case, the Attorney General's Office accepted $35 million from the oil companies to settle the lawsuit, in which it had sought $2 billion. The companies had not put in writing any communication that indicated price-fixing, and the federal appeals court in San Francisco had ruled in another case that direct evidence was needed to prove a price-fixing allegation.

However, the circumstantial evidence in the case was overwhelming. The oil companies have declared victory because of the tiny settlement and have given no indication that they intend to change their ways. Further winks and nudges are sure to bring continued gasoline prices far above those on the mainland and immune from normal market forces.

Hawaii's prices can be expected to continue in a pattern similar to that from January 1991 to October 1998. As shown in the chart below, gasoline prices, before taxes, in Honolulu coasted along at a fairly constant level far above the fluctuating market-driven prices in San Francisco, Salt Lake City, Los Angeles and Seattle.

Anderson points out that the oil companies offered reasonable prices for jet fuel, made from the same refinery that produced the gasoline, because the airline industry formed a fuel consortium that succeeded in obtaining prices competitive with those on the mainland. While gasoline prices in Hawaii remained at high and little-changing levels, jet fuel brought competitive prices in Hawaii that were only slightly above those in California.

Anderson proposes the formation of a state-owned, independent, nonprofit authority that would import gasoline and diesel fuel to be sold at independent service stations. Legislative authorization would be needed, but Anderson predicts after-tax prices of $1.34 a gallon for gasoline on Oahu and 5 to 9 cents more on neighbor islands. Oil companies would be forced to lower their prices to compete.

Spencer Hosie, the state's lead attorney in the price-fixing case, is dubious about Hawaii entering the oil business. He says the only state that has made such an attempt is Alaska, which lost money on the experiment before it was abandoned in the early 1980s. However, that state's Alaska Petroleum Co., unlike Anderson's envisioned structure, involved a joint venture with a private company and included the costly construction of a refinery.

Hosie favors price controls pegged to West Coast prices recorded by the Oil Price Information Service, which monitors the market and is used by government and industry in contracting for gasoline sales. He suggests a formula allowing oil companies in Hawaii to make a profit of 10 to 12 cents a gallon, which would result in a price reduction of 20 cents a gallon for consumers.

Anderson supporter Walter Heen, a former judge, warns that the oil companies are likely to sue the state if it were to impose price controls, claiming that price caps would amount to unconstitutional interference with interstate commerce. While not necessarily agreeing with that argument, Heen warns that the legal challenge could take years to conclude. Hosie and gubernatorial candidate Ed Case, a state representative and lawyer, believe any court challenge could be dismissed in short order because price caps clearly would not violate the Constitution.


Published by Oahu Publications Inc., a subsidiary of Black Press.

Don Kendall, Publisher

Frank Bridgewater, Editor 529-4791;
Michael Rovner,
Assistant Editor 529-4768;
Lucy Young-Oda, Assistant Editor 529-4762;

Mary Poole, Editorial Page Editor, 529-4790;
John Flanagan, Contributing Editor 294-3533;

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