Gas price caps, station
rental caps far apart


The 9th U.S. Circuit Code of Appeals is backing a judge's ruling that a state law capping rents on gas stations is unconstitutional.

OPPONENTS of caps on gasoline prices in Hawaii are pointing to a federal appeals court decision upholding the striking down of a state law aimed at placing rental caps on dealer-operated gas stations. The 1997 rental-cap law and the gas-cap law, enacted two years ago, are not comparable, although their purposes and the arguments against the two might be the same. The ruling provides no reason to dismiss the gas-cap law as unenforceable.

A divided three-judge panel of the 9th U.S. Circuit Court of Appeals last week upheld federal Judge Susan Mollway's 2002 decision finding the law capping rents charged to dealers by oil companies to be unconstitutional. Mollway ruled that the rental caps did not "substantially advance a legitimate state interest" needed to warrant such a law. In fact, she said, the rental caps could result in higher gasoline prices.

That is precisely the argument used by opponents of gasoline price caps, scheduled to start July 1, but the facts are very different. Both the rental caps and the gas price caps were intended to lower gasoline prices, but the rental limits could have backfired. Mollway agreed with Chevron's expert, John R. Umbeck, chairman of Purdue University's economics department, that Chevron "would try to raise the wholesale price (of gasoline) to recoup as much of the lost rent as they could," causing prices at the pump to rise, not despite the law but because of it.

Senate Republican Leader Fred Hemmings says Mollway's conclusions in that case "put out the biggest message regarding the foolhardiness of gas caps." That is nonsense, since the gasoline price caps, if put into effect, would specifically limit the oil companies' ability to raise prices beyond the caps.

Stillwater Associates, a California consulting firm hired by the Cayetano administration to study the effects of gas caps, puts forth a more realistic scenario -- that oil companies would "game the market" by reaching for the upper limits of the cap. The current law would allow prices to exceed West Coast averages by as much as 38 cents a gallon on Oahu and 46 cents on neighbor islands.

The problem is that average prices in Hawaii and California are now the same -- $2.13 for self-serve regular -- so the caps, if imposed now, would allow enormous price hikes in Hawaii. A bill before the Legislature would peg Hawaii's wholesale prices instead to the national average and apply them to all grades of gasoline. The national retail average of regular is about $1.75 a gallon, so the price caps, if applied now under that formula, probably would have little if any immediate effect.

If the Hawaii caps are imposed on schedule, the intended effect will occur when market forces cause mainland prices to decline. The Hawaii prices also will be required to dip instead of hovering far above, as they have in the past.



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