Dire effects of gas cap have yet to materialize
Costs are now well below pre-cap levels, after initial broad price fluctuations
Four months after the nation's first regulations on gas prices went into effect, both of Hawaii's refiners are still operating, emergency vehicles have been able to obtain the fuel they need and neighbor island gas stations have not shut down en masse.
The most dire consequences predicted by some never came to fruition.
Had the opposite occurred, Gov. Linda Lingle likely would have stepped in to suspend the price caps.
Instead, motorists watched as hurricanes crippled the nation's oil supply, sending gas prices to record highs all across the country. Hawaii's statewide average peaked at $3.68 a gallon in mid-September, and reportedly topped $4 a gallon on Lanai.
Drivers lined up to try and beat increases, forecast from week to week, and held off buying when the price caps were predicted to come down.
There were shortages as lower-priced gasoline sold out quickly, and the lines at Costco grew, but demand and fuel consumption never tapered off.
Price caps plunged 90 cents for an eight-week period starting in mid-October, but in recent weeks have fluctuated a few cents per week as the price of crude oil reacts to market forces on the mainland.
Today, with more stability in key mainland markets, the statewide average for regular gasoline is still about 50 cents above the national average, but prices are well below pre-cap levels.
With no caps placed on dealers, a variety of pricing strategies emerged, leading to wide variance in pricing at stations even a few blocks apart.
Some smaller stations had trouble getting deliveries, and the Public Utilities Commission is studying reports from the oil industry to see whether changes should be made to the formula.
Consumers appear to have adapted, and timing of gas purchases has largely stopped.
The verdict?
"I am satisfied that our gas pricing regulation is working and that many consumers would like to have it remain in effect," said Senate Consumer Protection Chairman Ron Menor (D, Mililani), the main author of the price cap law. "Consumers are realizing the kind of price relief that they would not have seen had we not had a gas pricing law in effect."
Industry officials remain unconvinced.
While Lingle has pledged to introduce legislation to repeal the law, some say the ultimate verdict on its effectiveness will not be seen until November.
"We are leaving it to the consumers to decide if it's really benefiting them," said Melissa Pavlicek, a spokeswoman for the Western States Petroleum Association, an industry trade group. "The industry's perspective is: There were unintended consequences predicted by the experts, and many seem to be happening, such as the increased volatility.
"I think it's really up to the consumers, and ultimately the voters, to decide if that's something that they want."
On its final survey for 2005, AAA's Fuel Gauge Report listed Hawaii's statewide average for regular gasoline at $2.71 a gallon, 52 cents higher than the national average and 27 cents above the next-highest state, Alaska. The auto club bases its price survey on credit card transactions from the previous day at more than 80,000 self- service stations across the country, including 222 in Hawaii.
Supporters of the law note that a year ago, the statewide average was about 60 cents higher than the national average.
Analysts say a better comparison is to look at the average over time.
Looking at prices only in Honolulu, the average price for regular unleaded was 44 cents above the national average from February 2003 until Sept. 1, the day the price cap law took effect, according to Jack Suyderhoud, a professor of business economics at the University of Hawaii who has tracked island gas prices.
Since the price caps took effect, Honolulu's average price for regular has been about 49 cents above the national average, Suyderhoud said.
"It has pretty much done what we thought it would do, which is introduce some variability into the prices that wasn't there before," Suyderhoud said. "It has also created a target for sellers and it has resulted in higher gasoline prices, on average, than we had before."
Supporters of the law note that although prices are higher, they track more closely to the rise and fall of mainland prices, whereas in the past Hawaii's prices typically remained high despite dips in the national average.
The weekly price caps are determined by taking a five-day average of spot wholesale prices in the U.S. Gulf Coast, New York and Los Angeles, then adding fixed charges to account for operating costs and profit margins. Once the price is set, refiners and wholesalers may not charge more when selling to dealers.
While he's confident that the law has worked in bringing fairness to Hawaii's prices, Menor said there is room for "fine-tuning and strengthening" the law.
"The fact that our pricing law is working does not mean that it cannot be improved," he said.
Some options that may be considered by the Legislature include lowering the markups that wholesalers may charge or changing the benchmarks that the cap formula is tied to.
Aside from repealing the law, Lingle has proposed more transparency within the oil industry, so consumers can see what goes into the cost of making gasoline and decide themselves whether they feel they are being gouged.
Lawmakers are unlikely to consider any measure that does not maintain the price caps.
"I'm for transparency," Menor said, "but I don't think that any legislation that is passed to require greater transparency should be enacted as a substitute for the pricing regulation that we now have in effect."
