Report discourages gasoline price caps

Hawaii law imposing price caps to take effect July 1; consultant report says consumers would be hurt; citizens group disagrees

Bruce Dunford

Associated Press Writer

An �overdue� report prepared by a consultant hired by the state said Sept. 8 that Hawaii's gasoline price caps, scheduled to take effect July 1, would not benefit consumers and would hurt the state's gasoline market.

�We are convinced that the Hawaii gas cap law cannot be successfully implemented without significant risks to consumers and the Hawaii economy,� said David Hackett, president of Stillwater Associates LLC, a consultant firm hired by the administration to study the law.

A �citizens group� made up of two academics and several former oil industry executives joined U.S. Rep. Ed Case in immediately denouncing the report as flawed and inadequate and accusing Hackett of representing the oil industry's position against gas caps.

�It looks to us as though this report has not addressed the really interesting and complex issues that should have been addressed when you consider how much we as a people here in Hawaii are paying annually for gasoline,� said Richard Miller, former dean of the William S. Richardson School of Law at the University of Hawaii and member of Citizens Against Gas Price Gouging.

�We may be paying as much as 60 cents a gallon too much for gasoline, something like $250 million a year that is going out that should not be going out and should be in our pockets,� he said.

Law passed in May 2002

Part of the act called for the Department of Business, Economic Development and Tourism to analyze the gasoline market and make recommendations for any changes to the law to the 2003 Legislature, making the Sept. 8 report eight months late.

Case, D-Hawaii, who sat in on Hackett's public briefing in the Capitol auditorium, said the report started with the conclusion that the gas cap law should be repealed �and then proceeded to try to justify the result.�

Case was a member of the state House when the law was passed in 2002 and said he voted �with reservations� because he felt the caps should be imposed immediately instead of waiting until 2004.

According to AAA, the average price of regular, self-serve unleaded gas in Honolulu on Sept. 8 was $2.04 per gallon. The average was $2.16 per gallon in Hilo and $2.37 per gallon in Wailuku. When the gas cap law was passed in 2002, average per-gallon prices in Hawaii ranged from $1.60 in Honolulu to $1.88 in Wailuku on Maui and $1.81 in Hilo.

Frank Young, a former retail gasoline dealer and spokesman for the citizen's group, suggested the report was influenced by Chevron U.S.A's �substantial� political contributions to the governor and Republican candidates and past ties of several of Gov. Linda Lingle's aides and appointees to Chevron.

�Everyone's calling our governor 'Chevron Linda,'� said Young, who passed out a list showing Chevron's contributions to Republicans in 2002 totaled $67,500.

Effort to repeal cap expected next year

�Based on her previous statements on the act, we can only assume that she plans to selectively pull from the report those parts that support her opposition to capping gas prices and, using invited experts, stage manage a public attack on Act 77,� said a Sept. 3 letter to the administration from Sens. J. Kalani English, D-East Maui-Lanai-Molokai, and Ron Menor, D-Mililani and Reps. Hermina Morita, D-Hanalei-Kapaa, and Ken Hiraki, D-Kakaako-Downtown.

Senate Minority Leader Fred Hemmings, R-Lanikai-Waimanalo, noted that it was the administration of former Democratic Gov. Ben Cayetano � who signed the gas cap into law � and not Lingle, who hired Stillwater Associates to do the study.

The report echoes findings Hackett made to state lawmakers in a preliminary report in January. It also contains findings of the National Conference of State Legislatures and the Federal Trade Administration also opposing the gas caps. It recommends alternatives to price controls, pointing to problems created when they were imposed during the oil crisis of the 1970s.

�Our analysis demonstrated that gas caps are likely to raise, not lower, the price of gas in Hawaii, and price caps would result in wide swings in prices, like those in California, closure of some stations and gas shortages,� said Hackett.

Report finds no easy solutions

That would result in the loss of an estimated 1,400 jobs, loss of hundreds of millions of dollars from the state's economy and require added infrastructure to handle the import of petroleum products no longer refined locally, Hackett said.

Hawaii's gasoline market is complex, not as competitive as many other markets but still responds to global trends, the report said.

It's not perfect, but it is not broken, it said.

The report's findings include:

� Hawaii refiners compensate for lower profit margin products, such as jet fuel and fuel oil, with higher gasoline prices �but although they can be more profitable than mainland refineries, they do not make excessive profits.�

� Hawaii's retail stations have about half the sales volumes of mainland stations yet have higher real estate and overhead costs and pay higher taxes.

� Past state efforts to curb gasoline prices through restricting wholesaler-owned retail stations and lease rent caps have instead increased prices.

The report recommended repeal of the price cap law and creation of more transparency on the system of pricing gasoline at the wholesale and retail levels which has been �found to be more effective at preventing excess profit taking than gasoline price controls.�

Attending the hearing was Jeffrey Klurfeld, the Federal Trade Commission's Western Regional Director, who said that motorists should buy lower octane, and therefore cheaper, gasoline.

�The report shows that Hawaii motorists could save as much as $7 million a year by just buying the proper octane for their vehicle,� he said.