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Island gas prices set
for large increase
A 27-cent jump seems likely
thanks to a new state pricing
formula and Hurricane Katrina
Isle gasoline prices could jump as much as 27 cents on Monday, the likely result of Hawaii's one-of-a-kind price cap law coupled with Hurricane Katrina's effects on the nation's oil supply.
If oil companies charge up to the maximum allowed and retailers maintain their usual markups, motorists could be looking at prices of about $3.15 a gallon for regular unleaded on Oahu, with higher costs on neighbor islands.
The first price caps take effect today, but increases are not expected to be as dramatic because the current price ceiling on wholesale gas was set last week, before Hurricane Katrina made landfall.
With analysts predicting moderate increases under the current cap, some motorists prepared by topping off their gas tanks yesterday, while Gov. Linda Lingle urged the state's two oil refineries to show restraint and not charge the maximum allowed under the law.
"It's ridiculous, that's why I'm filling up right now," said Nanette Gaspar, 23, of Aiea as she paid $18 for 6.4 gallons of regular unleaded at Lex Brodie's in Kakaako. "I've got to fill up today and then again Saturday."
At 9 o'clock last night, the line of cars at the Iwilei Costco gas station stretched to Dillingham Boulevard.
Several gas stations contacted yesterday said they likely would not know what their prices would be until early today.
Bill Gray, marketing director for Lex Brodie's, said he did not expect any big changes today.
"If it changes, it won't fluctuate much either way," he said. "We try to stay competitive with surrounding areas."
Statewide, the average price for regular unleaded was at a record $2.92 a gallon yesterday, 30 cents higher than the national average, which also was at a record high, according to AAA's Fuel Gauge Report.
Lingle, meanwhile, wrote letters to Chevron USA Inc. and Tesoro Hawaii Corp., urging the companies to consider the economic impact that unreasonably high gas prices could cause.
"I am concerned that if they charge up to the maximum allowed under the law, it is going to have a very negative impact on the economy and on families all across the state," Lingle said.
The governor has the power to suspend the price caps if it can be shown that they are causing economic hardship or threatening public safety. Lingle has said her administration will monitor the situation and investigate any perceived problems the caps are causing.
Chevron spokesman Albert Chee in Honolulu said the company reviewed Lingle's letter, but he added that market forces ultimately determine prices. "We weigh the factors of supply, demand and competitive forces, and then we make a determination on the wholesale price that will keep our retailers competitive," Chee said. "The marketplace determines the price."
Sarah Simpson, a spokeswoman for Tesoro in San Antonio, said top executives had not yet seen the letter late yesterday, and the company had no comment.
Neither Chevron nor Tesoro has said whether they will price up to the maximum. Some analysts say companies probably will charge the maximum while they can to maximize profits in case they are forced to charge lower prices in the future.
Hawaii's law requires the state Public Utilities Commission to set a new price ceiling each week based on the weekday average of spot wholesale prices in the Gulf Coast, New York and Los Angeles. Fixed costs to account for shipping, storing and delivering gasoline across the state are added to that baseline price to arrive at the maximum wholesale price.
Retail prices are then set after taxes and dealer markups are added. There is no cap on what retailers may charge.
The baseline for the current wholesale cap was set at $1.87 a gallon based on data from the three target markets from Aug. 17-23. Next week's baseline price was set 27 cents higher at $2.14, using data from Aug. 24 through Tuesday, which reflect the record surge in energy prices nationwide in the aftermath of Katrina.
Elsewhere, gas prices jumped by more than 50 cents a gallon overnight in Ohio, 40 cents in Georgia and 30 cents in Maine. The increases followed price spikes on wholesale and futures markets after the hurricane knocked out refineries and pipeline links along the Gulf Coast that provide about a third of the country's gasoline supplies.
Supporters of the price cap law say the PUC should use its powers under the law to adjust the price cap formula to minimize the negative effects to the state. The PUC already has adjusted the price cap formula for Kauai after concerns were raised about potential shortages in some remote regions.
Jack Suyderhoud, a business and economics professor at the University of Hawaii who has tracked the price cap legislation, said Hawaii's prices probably would have increased along with mainland prices but not as dramatically as they will under the new law.
"They were certainly trending up," said Suyderhoud, who has tracked Hawaii gas prices and run simulations on how prices would have been affected during the past year with and without the cap. "I doubt that they would've moved as much as the cap moved."
the Associated Press contributed to this report.
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PUC raises
Kauai’s gas cap
A last-minute, 7-cent increase to the gas cap for Kauai yesterday should keep the gasoline flowing throughout the island, at least for now.
The Public Utilities Commission tacked on the extra 7 cents for Kauai after suppliers complained that the new gas cap, which takes effect tomorrow, did not account for the additional costs of delivering to the far corners of the island.
The PUC, which announced the revision to Kauai's zone price adjustment yesterday, made the change as a reaction to financial records and letters it received from Senter Petroleum and Kauai Petroleum, two "jobbers" that deliver gas to stations. Both companies had asked the commission to take into account trucking costs to outlying areas.
The zone price adjustment for Kauai was raised to 20.6 cents from 13.6 cents. It puts Kauai's cap at 0.2 cents higher than the cap on the Maui zone, not including Hana.
Before the increase, one of the retailers that Senter supplies, the Princeville Service Station, was preparing to close Friday because Senter was going to stop delivering to the North Shore retailer.
But "right now, it looks OK," Senter President Brian Barbata said yesterday. He said that even with the 7-cent increase, the fate of the Princeville station, as well as the other gas stations that Senter delivers to, rests with his supplier, oil refiner Chevron.
"The ultimate risk (is) that the supplier decides to sell (the gas to Senter) at the max" allowed by the gas cap, Barbata said. "The worst case, when a supplier prices to a jobber at the price cap, we can't deliver to a station across the street," let alone to Princeville.
Barbata said the fate of their jobber business and its deliveries to Chevron is a week-to-week matter, as the PUC sets the cap and Chevron gives its price to Senter. As long as Senter can turn a profit delivering to Princeville, it will continue to do so, he said.
Kauai Petroleum, the other jobber on the island, sent letters to its supplier, Tesoro, saying that it could no longer supply the Navy Exchange at the Pacific Missile Range Facility, at least 30 miles from Kauai Petroleum's offices in Lihue, and to two Lihue rental car companies.
To continue their deliveries would not be "cost-effective," the letter said. The delivery charge allotted by the PUC was half of what it cost to deliver premium to the west side Navy base. Kauai Petroleum company official did not return calls for comment.
Jack Suyderhoud, a professor of business economics at the University of Hawaii, said the PUC's revision of Kauai's zone price adjustment is indicative of things to come.
"It tells me that any effort like this is going to be a continuous exercise of tinkering with the formula and with the values in the formula," he said. "I don't think they're ever going to get it right."
But Rep. Hermina Morita, who represents Kauai's North Shore, said all the cap needs is a change to separate refinery profit margins and delivery profit margins. "The bottom line is Chevron was squeezing the jobbers and eating up the margins," Morita said.
www.hawaii.gov/budget/puc/
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