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Gathering Place
Tom Malone |
We will pay high price
for controlling fuelMany people know that Act 77, popularly called the "gas price-cap law," is scheduled to go into effect July 1. What most people don't know is that if that happens, it will put into motion events that could hurt many businesses and consumers throughout the state. Simply put, price controls affect everyone.
Under Act 77 price controls, the first group to be hit will be the jobbers, the wholesale distributors who do business on Oahu, Maui, Kauai, Lanai, Molokai and the Big Island. Jobbers are generally small businesses that buy fuel from refiners and then deliver it to both small and large businesses, as well as to remotely located "mom and pop" gas stations not served by the major oil companies. Price caps could reduce jobbers' profit margins, possibly to the point that some jobbers could be forced out of business or might not be able to deliver to remote gas stations and other businesses.
There are about a dozen jobbers in Hawaii, but they serve hundreds of business customers who also could be victims of the price cap. Typical customers include farmers, hospitals, construction companies, schools, power plants, police and fire departments, hotels, the postal service, landfills and many more. The list of those who rely solely on jobbers to deliver their fuel is long and their contribution to Hawaii's economy, especially on the neighbor islands and rural Oahu, is large. Businesses served by jobbers employ thousands of workers. If jobbers shut down as a result of the price cap, that could leave their customers struggling to get the fuel they need to operate.
It's not just businesses served by jobbers that might suffer, but also people who live away from population centers. That's because many rural residents get their gasoline from small, independent gas stations located in areas where the major oil companies don't deliver. In one of those areas, a gas station closure would mean the people they serve would have to drive longer distances to fill up their tanks. Even if Act 77 succeeds in lowering pump prices (and that's a big "if"), rural residents might lose the convenience of their neighborhood station and any savings they might realize will likely be eaten up by having to drive farther for a fill-up.
Even for urban residents, the promise of Act 77 is hollow. Several industry and government experts, along with many business leaders, agree that this is a bad law. The Federal Trade Commission, the state Department of Business, Economic Development and Tourism, and Stillwater Associates, which conducted a state-funded study, have warned about the harmful consequences of the gas price-cap law. They warn us that the price controls in the U.S. have resulted in gas shortages and long lines.
Some of those in favor of the gas price-cap law will tell you that these experts are somehow beholden to the big oil companies. The truth is, if price caps are implemented, no one knows for sure what will happen to the price of gas at the pump. What we do know is that it will create many problems with no guarantee of lower gas prices. If some jobbers go out of business, the direct effect on many businesses and rural Hawaii will be real and lasting.
The few lawmakers who are steering this legislation need to realize that price controls don't work in a market economy. Lawmakers have the tools to encourage more competition and it is through competition that prices are set properly and businesses are encouraged to create jobs in a community. Price controls will almost certainly destroy any hope Hawaii has of attracting more competition in the gasoline business.
What kind of message are we sending to possible investors when the state Legislature acts to interrupt the free flow of commerce in the marketplace? This message is contrary to the state's initiative to recruit businesses to invest in Hawaii to produce more highly paid and skilled jobs. Investors need to understand the economic and legal environment in which they will conduct business before committing funds. If Hawaii's business environment is perceived as unfriendly, businesses are likely to invest elsewhere.
The potential negative consequences of Act 77 are too serious to ignore. Act 77 should be repealed, but at a minimum the Legislature should act to defer the implementation of Act 77 until gasoline price controls can be better understood and lawmakers fully explore the potential dangers that this law poses to our community.
Tom Malone is president of Hawaii Petroleum Marketers Association.