Unrestricted diesel prices show gas cap works

THE ISSUE Diesel fuel prices, unregulated by the gasoline price cap, have remained high while gasoline prices have fallen.

HAWAII'S new gasoline price caps have been effective in bringing down prices after the post-hurricane spikes in September. The continuing high, unregulated price of diesel fuel is further evidence that oil companies would have kept gas prices at high levels if the caps had not been in place.

The average price of gasoline on Oahu reached a peak of $3.60 a gallon in September, following the Gulf Coast hurricanes. The price caps peg Hawaii's prices to those in New York, Los Angeles and the Gulf Coast, where crippled oil production and refining facilities drove up prices. Since then, Oahu's average has fallen below $2.50.

Diesel prices also soared following the hurricanes but did not drop significantly after the recovery. According to AAA's Fuel Gauge Report, the $3.41 price for diesel is 75 cents higher than the national average and 49 cents above the next-highest state, Idaho, while the state's average of $2.73 for regular unleaded gasoline is 54 cents above the national average.

Albert Chee, a spokesman for Chevron USA, contends that the comparison is unfair because the markets differ. He explains that diesel users tend to be large-volume, industrial businesses that receive deliveries according to negotiated contracts, unlike motorists who fill up at the pump.

Chee says the state has lacked a "free market" for gasoline since the price caps went into effect Sept. 1. He fails to point out that Hawaii lacked a competitive market before that date. Oil companies acknowledged that they comprised an oligopoly, which necessitated the price caps.

Some opponents of regulation contend that Hawaii's prices would track more closely to prices in Oregon and Washington -- in the range of $2.40 -- without caps. Like Hawaii, those two states experienced record high prices in September, despite their refineries' reliance on crude oil from Asia and Alaska -- not the Gulf Coast.

Those inexplicable price increases have brought accusations that oil companies used the hurricane damage to gouge customers in areas that are not dependent on Gulf Coast oil. Big Oil reported record profits during the post-hurricane period. Hawaii Attorney General Mark Bennett and other state attorneys general have urged the Federal Trade Commission to investigate possible unlawful conduct.

Hawaii legislators need to increase oversight of the oil industry here to determine whether companies are using the caps to set their prices -- called gaming the market -- regardless of supply and demand. A bill supported by Governor Lingle, an opponent of gas caps, to create a watchdog system of monitoring and reporting on the petroleum industry should be enacted in the next session.