Rising diesel costs fuel gas cap backers' position

Supporters say prices are higher because of a lack of regulation

WHILE HAWAII GAS prices have consistently been the highest in the country under the state's wholesale price cap law, supporters of the measure say critics need only look at the soaring cost of diesel fuel to see how the law is keeping prices down.

Opponents say such comparisons are flawed because there is no accurate way to tell what Hawaii's prices would be without the price cap.

While the state average of $2.73 a gallon for regular unleaded is 54 cents above the national average, the $3.41 a gallon for diesel is 75 cents higher than the national diesel average and 49 cents above the next-highest state, Idaho, according to AAA's Fuel Gauge Report.

Hawaii's average diesel price reached a record $3.49 earlier this month and is currently 77 cents more a gallon than a year ago.

Diesel prices are not regulated under the state's price cap law, leading supporters to conclude that but for the cap, costs for regular gas would likely be in the same neighborhood.

According to an analysis prepared by House Majority Leader Marcus Oshiro, Hawaii's gas prices historically have tracked closely to diesel costs, which are about 35 percent higher today than a year ago.

Assuming current prices followed that trend, today's price would be about $3.29 a gallon. Instead, the current statewide average is only about 17 percent higher than a year ago, translating to a savings of about 56 cents a gallon, according to the analysis.

"We all know that the Fair Gas Price Law is working, in terms of Hawaii gas prices tracking mainland gas prices," said Oshiro (D, Wahiawa-Poamoho). "Now we can also say that the law has saved Hawaii consumers money at the pump."

Republicans, who oppose the price caps, argue that Hawaii's average price would track more closely to Washington ($2.41) and Oregon ($2.38) without the cap, because those states' gasoline -- like Hawaii's -- comes from in-state refiners that import crude oil from Asia and Alaska.

Economists say it is difficult to draw such conclusions without more detailed analysis of prices over a longer period of time.

A spokesman for Chevron USA Inc. in Hawaii, one of the state's two refiners, called the comparison of regular gas and diesel fuel flawed because they are two different markets.

Whereas gasoline consumers are typically drivers who fill up at service stations, diesel customers tend to be large-volume, industrial businesses that receive deliveries under negotiated agreements, spokesman Albert Chee said in an e-mail message.

He attributed a worldwide rise in diesel prices to expanding economies, mainly the United States and China, driving up demand. Additionally, the damage caused to Gulf Coast oil operations by hurricanes has caused U.S. inventories to be low when they would otherwise be higher in preparation for winter.

"There is no way to accurately gauge what the free-market price would have been," Chee said. "As of September 1st, the free market has ceased to exist for Hawaii's gasoline market. Any attempt to predict is guesswork."

Meanwhile, next week's maximum price for wholesale gas is set to drop by a penny under new price caps published yesterday by the state Public Utilities Commission.

If wholesalers charge up to the maximum allowed, the price for regular unleaded on Oahu is projected to be about $2.46 a gallon after taxes. The highest-priced gas would be on Lanai, at $2.82 a gallon. The statewide average could dip to about $2.62.

Estimates assume a dealer markup of 12 cents, although such retail charges vary from station to station and are not governed by the price cap.

The price caps, which represent the maximum at which gas can be sold at wholesale, have gone down 88 cents since Oct. 17.