Opponents fear
isle gas-cap law
will only add
fuel to the fire

As the state prepares to post the first price caps on the cost of wholesale gasoline, most preliminary calculations show that the regulations could drive prices at the pump above current levels.

So what's the point?

Even supporters of the so-called "gas cap" admit that as long as prices everywhere else are going up, so will prices in the islands.

But in the past, "when prices on the mainland went down, ours didn't" said Richard Miller, former dean of the University of Hawaii's law school and a member of the consumer advocate group Citizens Against Gasoline Price Gouging. "The gas cap would take care of that."

Driven by record-high oil prices, the cost of gasoline nationwide seems to be setting record highs everyday.

According to AAA's Fuel Gauge Report, the nationwide average for regular unleaded set a high of $2.60 a gallon Friday.

The story has been similar in Hawaii, where Friday's averages of $2.69 in Honolulu and $2.99 in Wailuku were new records. Prices in Hilo last week also topped out at a record $2.81 a gallon.

Preliminary calculations show that if the price caps were in effect today, the cost for regular unleaded on Oahu would be about $2.87 a gallon, not including any markups that dealers could charge. Dealers have traditionally tacked on a 12-cent markup. Prices would jump to about $3.03 a gallon on Maui and $2.95 a gallon in Hilo.

"You've got surging crude oil prices and surging wholesale prices right now (nationwide)," said John Felmy, an economist and director of the Washington, D.C.-based American Petroleum Institute, an oil and natural gas industry trade association.

"You've got a lot of things that are happening at the same time, and it's going to be challenge for them to calculate what the price is, just because things are changing so quickly," he said.

Supporters of the cap say prices are not likely to remain high forever. "Under the gas cap, the prices will have to come down (in Hawaii)," Miller said.

The first caps are scheduled to be posted by the state Public Utilities Commission on Wednesday and would take effect Sept. 1.

The PUC already has run preliminary calculations and presented figures to the oil industry in Hawaii.

Under the law, industry officials may petition the PUC to adjust the cap numbers if they believe the caps will negatively affect their operations. The PUC also has broad authority to adjust the caps.

So far, no petitions have been filed, and there are no plans to make any adjustments to the formula, said Lisa Kikuta, chief researcher for the PUC.

Naysayers continue to predict dire consequences, including higher prices, shortages and lines at the pump.

Gov. Linda Lingle is among those who say the caps won't work.

"Having said that, I hope I'm wrong," Lingle said recently. "This is one case where I don't want to be right; I want them (the Legislature) to be right.

"I want the Legislature to be able to achieve its goal. I just don't believe this law is going to do it."

Majority Democrats, most of whom supported the price caps when they were passed and approved by then-Gov. Ben Cayetano in 2002, say the law should be given a chance to work, and the governor and PUC have the authority to make the necessary fixes if it fails.

"The way that the law is set up, it says if there is a problem the governor can suspend the law," said Rep. Ken Hiraki, the outgoing House Consumer Protection Committee chairman who was one of the key authors of the price-cap law. "Number two, it allows the PUC to make adjustments, so the PUC at any time in the future can alter the formula.

"For the Legislature ... we set up the framework, but as far as implementing (the law), we are out of it. It's up to the PUC and the executive branch to implement the law."

Lingle said she would have to see some tangible negative effect before she uses her authority to suspend the caps; high prices alone will not be enough.

Lingle said she plans to pay special attention to neighbor islands, where some have predicted that the cap could lead to "jobbers" leaving the market or cutting back on the areas they service. Jobbers are middlemen who buy gasoline at wholesale and resell it to stations.

"If the law results in decreased margins for suppliers, they will likely seek to take it out of our margins," Brian Barbata, a jobber who serves Maui and Kauai counties, said in an e-mail message. "Reduced margins for jobbers means reduced ability to supply small, distant stations. ... The unintended consequences of this law are insidious and far-reaching."

Miller doesn't buy any of the arguments being made against the cap.

"They (opponents) are just trying to scare the hell out of the Legislature right now, and they're not going to succeed," he said. "This is one of the most profitable markets in the United States -- one of the states where they gouge to the excess."

Price-cap supporters argue that oil companies have kept prices artificially high in Hawaii for decades.

They often cite research released by the state attorney general's office in the late 1990s that showed Chevron Corp. (now ChevronTexaco Corp.) made about 23 percent of its profits in Hawaii, which accounted for only 3 percent of its market. In legislative hearings, ChevronTexaco had said its Hawaii business provided no more than 5 percent of its profits in recent years.

Industry officials have said some arguments on oil industry profits are misleading and arise from selective legal arguments in a 1998 price-fixing lawsuit against the oil companies. Companies settled the lawsuit by paying the state $20 million in 2002.

Cap opponents say gasoline prices are higher because of the state's high tax structure and the inherent costs of doing business in a market as isolated as Hawaii.

Lingle said she believes a better approach to controlling gasoline prices would be to force oil companies to open their books so consumers could see how much money was being made at every stage of business.

"That's been an issue of inquiry and lawsuits," she said. "It's a feeling people have that they're being gouged. I think that's what bothers people most, is that they feel they're being charged unfairly simply because we have no other choice."