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The Honolulu Advertiser
Posted on: Monday, July 22, 2002

Gas price issue could tilt race for governor

By Kevin Dayton
Advertiser Capitol Bureau Chief

Oil and politics have long been a volatile mix in Hawai'i, but the blend appears particularly unstable this year. A new state law to cap gasoline prices may help fuel the campaigns of Democrats, or it could blow up in their faces.

In an issue that draws sharp distinctions between the Democrats and Republicans early in the governor's race, Republicans Linda Lingle and John Carroll both said they would probably block implementation of the gas cap law if elected.

The Democrats contend the law will stop oil companies from taking advantage of captive Hawai'i consumers, while Lingle is portraying state government as part of the problem rather than a credible solution for the problem of high gas prices.

"State government intrusion into the marketplace in this case will drive up the cost of gasoline, it will increase the size of government, and it will discourage investment and job creation in Hawai'i," Lingle said. She contends the new law sends the "wrong message," and will discourage new business investment in Hawai'i by perpetuating the image of a state with an ineffective and meddlesome bureaucracy.

Although Hawai'i consumers have long been unhappy with the prices they pay for gasoline, there is danger for the Democrats if Lingle's criticism resonates with the voters. The new law would make Hawai'i the only state in the nation to take on the complex and technical job of regulating gas prices, a prospect that may actually alarm some voters and backfire politically.

After all, the new price caps would be set by the same government that runs the Child Support Enforcement Agency and the Department of Education, to name two often-criticized bureaucracies.

"Nobody likes to pay more for gas than is necessary, but this kind of excessive government intrusion into the economy is simply going to lead to bigger government and higher cost of living," she said.

The issue is front-and-center in the governor's race partly because the new gasoline price cap law grants the governor the power to suspend the caps if the governor concludes they would cause a "major adverse impact" on the state economy.

Two of the Democratic candidates, Lt. Gov. Mazie Hirono and state Rep. Ed Case, said they would allow the price caps to take effect because there is no indication new companies are poised to jump into the Hawai'i gasoline market to make it more competitive.

The third Democratic candidate, D.G. "Andy" Anderson, said he would allow the gas cap law to take effect temporarily while he presses the Legislature to try a different approach to bring gas prices down. The long-term solution is to create a nonprofit "fuel authority" that would import and sell gas in Hawai'i, forcing prices down by competing with the oil companies, he said.

All three Democrats cite information turned up in the state's anti-trust lawsuit against the oil companies as proof the companies make excessive profits in a noncompetitive Hawai'i market, all at the expense of consumers.

"That data now is not political ... these are court depositions under oath, and the information is so damaging," Anderson said. "If I am going to be your governor and I see that kind of abuse, if I do nothing I'm irresponsible."

Pointing to profits

Case recalled that in his six years on the House consumer protection committee, the committee repeatedly questioned the high cost of gasoline in Hawai'i, and the oil companies repeatedly pointed to the generally higher cost of doing business coupled with the costs of shipping oil across the Pacific. The committee accepted that, Case said.

"Then the state filed its lawsuit and the oil companies had to produce evidence under oath of exactly how those prices were calculated, what the breakdown was, and lo and behold, they were making profits substantially in excess of profits anywhere else in the country," he said.

As for Lingle's claim that the gas caps will actually drive up the price of gas, Case said: "She simply has absolutely no understanding of exactly what's going on in the gas market in Hawai'i, or she chooses to favor the oil companies interests over the interests of Hawai'i's consumers and business."

Hirono, an attorney with a background in antitrust law, agreed the oil companies are taking extraordinary profits from the Hawai'i market.

"I think consumers here need protection," she said. "I am going by what the attorney general's office came up with in their litigation, and there's a lot there to support the contention that the market is not working and that our consumers are paying more than they need to."

Governor's role

Gas pricing last mixed with gubernatorial politics in 1998, when Gov. Ben Cayetano was struggling to win re-election in the face of a strong campaign by Lingle. A month before the election, then-state Attorney General Margery Bronster filed the landmark anti-trust lawsuit against divisions of Chevron, Shell, Texaco, Unocal and Tosco.

At the time, Chevron called the state's antitrust accusations "preposterous," and noted the possible political implications. "Chevron finds it curious that the state has elected to file a lawsuit without further investigation this close to the upcoming general election," the company said in a statement.

Cayetano went on to win the election by a margin of about 5,000 votes, and the state pressed ahead with its lawsuit seeking $2 billion for alleged price-fixing.

Companies settle

BHP Hawaii and Tesoro paid $15 million to settle state claims against them in 1999, and Chevron and remaining companies agreed early this year to pay a total of $20 million to settle the claims against them. The companies admitted no wrongdoing and the settlement of the cases had no effect on the prices at the pump.

But enough information about possible price manipulation was revealed in court documents that the lawsuit compelled legislators to consider regulating gas prices. In one case cited by lawmakers, a Chevron executive agreed with the statement that the Hawai'i market was the most profitable in the nation for Chevron "most of the time."

The Legislature this year approved the new law to calibrate the maximum gasoline prices charged in Hawai'i to California prices, with built-in differentials to allow wholesalers and retailers to charge extra to cover costs of transportation and marketing in Hawai'i. Wholesalers and retailers would be prohibited from selling gas priced higher than the price established by the state.

Albert Chee, Chevron public and government affairs manager, said the law discourages businesses from investing or expanding in Hawai'i. Chevron is "having to factor these things in and make some tough decisions about how we run our business and how we invest into this marketplace right now," he said.

"We believe that price controls never provided the long-term benefits, and in fact have often had unintended consequences," Chee said. "While it's impossible to forecast what will happen in any market, creating a hostile climate for business will inevitably hurt Hawai'i and its people."

The price caps are slated to take effect in 2004, but Lingle predicted they will never actually take effect. She contends the new law is a political ploy, and will likely be overturned by a court challenge, watered down in future sessions of the Legislature or blocked by the new governor.

Carroll, a Republican and former state senator, called the price cap bill "utter nonsense."

"We've already seen what's happened in Russia, Italy, France, England, everybody whose tried to socialize the free market has gone down the chute and of course they've all moved the other direction," Carroll said.

He proposed easing the restrictions imposed by a federal law that regulates shipping, the Jones Act, to make it less expensive to ship oil and gasoline to Hawai'i, and suggested antitrust laws be amended to require the courts to accept circumstantial evidence as proof of collusion in anti-trust cases.

Reach Kevin Dayton at kdayton@honoluluadvertiser.com or 525-8070.