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Don’t overreact to
state’s gasoline price caps

THE ISSUE The state's ceiling on the wholesale prices of gasoline will go into effect on Thursday.

YEARS of disagreement about the effects of the state putting a ceiling on gasoline prices will come to a head Thursday when the caps take effect. The question of which side was right will not quickly be answered, so motorists should be prepared for a lengthy test period, treating with skepticism anecdotal accounts by those who predicted disaster.

The price caps, enacted two years ago but delayed until now, will allow oil companies to raise wholesale gas prices to dealers but at no greater pace than prices rise nationally. In the unlikely event that mainland prices fall, the cap will be lowered in Hawaii. Crude oil prices are at a record high of more than $67 a barrel, and doomsayers are predicting three figures.

In just the last month, the national average for a gallon of regular gasoline rose 32 cents to a record high of $2.61 -- 73 cents higher than a year ago -- while Hawaii's average price went up by 20 cents to $2.87. If the oil companies exercise their ability to raise prices to the limit, Honolulu's price at the pump could rise from last week's $2.76 to $2.87 a gallon. The cap will be adjusted weekly.

House Speaker Calvin Say, a supporter of the price cap, suspects the oil companies "have suppressed the price of gas in Hawaii" in anticipation of the the caps' implementation. If the companies abruptly wiggle prices to the limit, they will fulfill Say's prophecy.

Say also asks that Governor Lingle, who has opposed the caps, will give them "at least four months on a trial basis" before shutting them down. The request is strangely arbitrary and ignores the constraints placed on the governor in doing so.

The law allows Lingle to suspend the caps but only after providing evidence that they have caused economic hardship or a threat to public safety. The requirements are specific and allow her little flexibility. She will be unable to act on a whim.

During the 1990s, Hawaii's gas prices coasted along at a fairly constant level, as high as 57 cents above the fluctuating market-driven prices on the mainland. The conclusion that the oil companies were a noncompetitive oligopoly unaffected by the normal elements of supply and demand led to enactment of the caps.

A California petroleum consulting firm hired by the Cayetano administration to examine the issue predicted that caps "would bring volatility, market distortions and opportunities for profiteers to game the market." Proponents of gas caps branded the report "a largely industry viewpoint." At some point, it should become clear about which side was right.

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