[ OUR OPINION ]
Make use of gas-cap
delay for further analysisSTATE legislators corrected some glaring flaws in the two-year-old law designed to put price caps on gasoline and were circumspect in further delaying the implementation of such a drastic measure for more than a year. The pause can be partly attributed to skyrocketing gasoline prices on the mainland; Hawaii motorists can find comfort in numbers. That situation may be only temporary, and the price-cap strategy should undergo more vigorous scrutiny before being imposed.
THE ISSUE
The Legislature has approved a bill that would change the law capping gasoline prices and delay its implementation until September 2005.
The law was scheduled to take effect July 1, but the amendments approved by the Legislature will postpone the startup to September 2005. Any veto by Governor Lingle, who dislikes the legislation in its entirety, would backfire, prompting an even earlier implementation of the caps.
The other changes peg price caps to the national average instead of West Coast prices, apply to all grades of gasoline instead of just regular unleaded, and put a lid on only wholesale prices instead of both wholesale and retail prices. While the oil companies in Hawaii comprise what their own attorney has called an oligopoly, competition at the retail level is healthy.
Other changes allow for adjustment aimed at protection of neighbor island jobbers, the middlemen who buy fuel from the refiners and deliver it to remote gas stations and businesses that keep a stock of gasoline on their premises. It does not apply to jobbers whose clients are on rural Oahu, and further protections may be needed.
The entire notion of putting lids on prices is repugnant, even unconstitutional, some contend. They maintain that the domination of the market and the resulting high prices merely reflect the cost of doing business in Hawaii -- the price of paradise. However, the oil oligopoly is different from the food industry and other sellers of merchandise, where prices are high but competitive.
The state sued six major oil companies in 1997 for price fixing but agreed to a settlement of $35 million, far less than it sought. It became clear in the litigation that the companies had not acted illegally but had engaged in a permissible practice known in antitrust-law circles as "conscious parallelism." In such cases, an industry leader sets a price that is consciously followed by competitors, having the same effect as if price-fixing had been involved.
Following enactment of the 2002 law, a California petroleum consulting company hired by the Cayetano administration to assess it predicted that price caps would distort the market in Hawaii, reporting additionally that such caps had failed wherever they had been tried. Proponents of the caps countered that the company, Stillwater Associates, had numerous oil-industry clients and thus presented "a largely industry viewpoint." Those analyses need further review before the caps are put into effect.
