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Analysts see need
for gas price cap law

In his case against the gas price cap law ("Consultants find flaws in gas price cap law," Star-Bulletin, April 28), petroleum jobber Brian Barbata makes several claims that would indeed be worrisome, if they were true. Fortunately, they are not.

Barbata is misinformed about the considerable documentation from numerous sources that supports the rationale for the law, as well as the construction of the law itself. Most puzzling of all is his creative interpretation of the report by ICF, the industry consultant hired by the Public Utilities Commission to analyze the law's proposed pricing system and provide guidance on its implementation.

Barbata states, "No consultant, no expert and no government agency has ever found that there is anything to be fixed in Hawaii's petroleum refining and distributing business." On the contrary, ICF noted that "evaluation of wholesale pricing practices in Hawaii indicates that wholesale pricing does not adjust on a daily or weekly basis consistent with those classes of trade on the mainland. This indicates a market that is not efficient."

Likewise, economists from the highly regarded firm EconOne, a host of expert industry consultants and the state's legal team clearly demonstrated in the state's price-fixing lawsuit against the oil companies several years ago that the Hawaii gasoline market is a noncompetitive oligopoly in which profits were maximized at the expense of consumers, regardless of the price of oil and gasoline in the global and national marketplace.

The case settled in 2002, when the oil companies agreed to pay $35 million to avoid admitting any wrongdoing. The Star-Bulletin prophetically stated, "Those court documents should be examined to better understand company practices in gouging Hawaii's motorists. Information derived from them could prove valuable in evaluating future gas prices and taking appropriate action."

This is precisely what the Legislature did and the resulting "appropriate action" is the gas price cap law we now have.

Barbata says that I "would like you (the public) to believe that the ICF report is an endorsement of the law's vague intent. ICF consultants simply did their job and recommended how the PUC can carry out its instructions. They were not asked to opine on whether the law is a good idea."

I guess the concept of a "good idea" is in the eye of the beholder. But it sounded like a good idea to me when ICF described the anticipated benefit of the law in this manner: "This legislation will primarily provide an ongoing, visible track of wholesale market pricing that has not previously existed."

Or this: "ICF's estimate of the impact of the recommended gas caps on Hawaii's wholesale gasoline prices (based on 1999-2004 data) indicates that the gas caps would have reduced Oahu wholesale unleaded gasoline prices by about 10 cents per gallon for dealer truck wagon sales and 13 cents per gallon for rack classes of trade. Premium grades would have been reduced an additional one to four cents per gallon."

I believe most Hawaii consumers, if not the middlemen in gasoline sales, like Barbata, would say a transparent system that accurately monitors pricing and delivers price savings between 10 and 13 cents per gallon on Oahu (and between 5 and 16 cents per gallon on neighbor islands) or an approximate savings of $250 million over the past five years was a good outcome.

Elsewhere Barbata quotes ICF report language that reads, "There is no obligation for retail dealers in Hawaii to modify their prices." Yes, that's correct. We didn't enact a retail cap and for good reason. The problem is lack of competition at the wholesale level. And wherever real competition exists, it is best to let market forces determine the price.

Retail dealers from all islands have responded in writing to this concern and have assured the Legislature that the retail market is, in fact, fiercely competitive. Importantly, dealers have noted that historically, almost all wholesale price reductions have been passed on to consumers.

If there is a group, besides the oil companies, that is part of the problem, it is not the retail a dealers or the retail market. The ICF report shows that over the last five years, jobber-wholesalers, such as Barbata, are the ones who have been charging dealers extremely high wholesale prices that are ultimately passed on to consumers as higher pump prices.

Consequently, the ICF report shows Barbata and his fellow jobbers in Hawaii have enjoyed margins 600 percent higher than their mainland counterparts. While we can speculate about retailers, it is clear how the wholesalers behave.

Let's consider the other ICF quotes Barbata provides:

I have no doubt Barbata is an excellent businessman. As such, it is his goal to maximize profits. However, as the chairman of the committee responsible for consumer protection, my first job is to protect the consumers of Hawaii, as well as local businesses, who have been repeatedly injured by the unfair pricing of wholesalers. Left unchecked, these practices will continue to reduce the quality of life in the islands and cause economic harm to the state. I simply cannot stand by and allow that to happen.

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