'When needed' gas price cap would be effective

THE ISSUE Sen. Ron Menor has proposed that gasoline price caps be suspended and reinstated temporarily only after price indicators have been exceeded for two consecutive weeks.

FACED with a demand by most members of the House that Hawaii's gasoline price caps be lifted, Sen. Ron Menor has proposed a "fair price indicator" that would briefly cap prices only after being exceeded by the state's oil industry. His new stance should lead to a compromise that keeps pressure on an industry that lacks competitive market forces.

Menor, chairman of the Senate Consumer Protection Committee and a strong defender of the wholesale price caps, now suggests that the Public Utilities Commission continue issuing its weekly price levels. However, they would not be used to cap prices unless the industry's average price punctured the ceiling on any island two weeks in a row, in which case that island's price indicator would be imposed as a cap for the next two weeks.

Of course, the industry would be crazy to raise prices above the indicators, not because of the fortnight cap to be imposed but because it would prove that the caps are needed. Menor's "fair price indicator" for each island thus would be a de facto price cap.

Opponents of the current island-specific caps argue that they have resulted in higher gasoline prices. The Lingle administration claims that motorists paid as much as $54.9 million more than they would have spent on gasoline in the first five months of the caps if they had not been in effect. The PUC maintains that the caps would have added 5 cents a gallon to gas prices if they had been in effect in years preceding their imposition.

Those estimates are hard to fathom. The industry has been free to price gasoline below the caps since they went into effect last September, but has chosen to set prices at the highest limit. Prior to the caps, the industry's prices were established not by market forces but by a practice that is known in antitrust circles as "conscious parallelism."

The oil industry in Hawaii is an oligopoly, as described by its own attorney, and that is just the kind of industry where such uniform pricing occurs most frequently. One company will set a price and other companies will respond with similar prices, and a norm is settled upon. The resulting price uniformity is perfectly legal, even though it has the same effect as price fixing.

The House bill, which would deactivate and then repeal the caps, contains important provisions requiring oil companies to disclose their various expenses. Menor contends that the provisions are flawed because important information would be kept from the public and even from the Public Utilities Commission.

On the opposite page, Melissa Pavlicek, a lobbyist for the Western States Petroleum Association, praises the House for deciding to monitor and analyze the petroleum market. Legislators should find a way to force the companies to disclose meaningful information without infringing on their proprietary rights.