COMMENTARY
Gas prices: The real enemy is ourselves

By Richard W. Baker

Gasoline prices are in the news again, and at the forefront of the race for governor.

What can you do about gasoline prices? You can comparison-shop. If enough drivers do the same, retailers will be more price-competitive. Advertiser library photo • Sept. 12, 2002

The act is aimed principally at the major oil companies that supply fuel to Hawai'i (and most pointedly, Chevron and Tesoro, who own the only refineries in the Islands).

The presumption behind this effort is that the fuel suppliers are price-gouging — even though state officials could not catch them at it convincingly enough to prove a case in court.

Does anyone seriously question that our two kama'aina suppliers are price-gouging? Why wouldn't they price-gouge? They have a captive market essentially all to themselves, and each is able to sell all of the product of their refinery at a more-than-comfortable profit.

Our suppliers charge what the traffic will bear, and the traffic here bears a lot because they have a semi-monopoly. They don't even have to collude, which would be a direct violation of price-fixing laws.

No, all these companies have to do is fail to compete. This is what they have been doing. They just sit back, charge a premium price, do not try actively to compete with each other on price; and the only people who get it in the neck are consumers on the one hand and small-station franchise owners on the other.

It is actually station owners, not consumers, who are the principal victims of suppliers' pricing policies. Owners basically have no choice but to pay the price charged by their suppliers, and they often actually lose money selling regular gas to credit-card customers at the market rate.

There are now too many stations for the market in the Islands (the same situation prevails on the Mainland), so this sector is due for a shakeout anyway.

But in most cases, station owners can sell their stations back only to the company whose name the station bears, at whatever price the company chooses to set.

Small wonder, then, that station owners almost unanimously supported the gas-cap bill — the "cap" arrangement would significantly shift the allocation of profits between suppliers and retailers, and could more than triple the amount that stations typically earn on a gallon of regular gasoline (from 5 cents to a possible 16 cents a gallon).

As for consumers, they don't even complain. When was the last time you saw a mass demonstration outside the Legislature demanding lower gas prices? The reason that you have never seen it is that this is a politicians' issue, not a public issue. It seems that every four years some politicians get all het up about the fact that we're paying too much for gas and decide that's a situation that just cries for executive or legislative solutions.

Which is why they're so happy around election time to prove their public spirit by being seen to be doing something about gas prices.

But where is the public demand for such action? It's just not there. And why is it not there? Well, look at the numbers.

I can keep my car in gas for almost a year for what it costs a two-pack-a-day smoker to keep himself in nicotine for a month. That's not going to be an unbearable burden for anybody, even someone with a modest income.

Do we wince (and complain) and scream when we pull into a gas station and fill up for $1.64 a gallon? No. So what if somebody in the Midwest is paying a dollar a gallon? This is no different from a lot of other things in Hawai'i that are exorbitantly higher than the Mainland cost. We're used to it, and this doesn't in itself mean bankruptcy.

So what might we consumers do about high gas prices — other than watch the politicians huff and puff every four years about this intolerable burden?

Well, if we are really worried about what we are paying for gas, there are some things we can do. I can name five off the top of my head. These are:

1. Comparison-shop. If the gas station on your nearest corner is charging, say, $1.73 per gallon for unleaded regular, drive down the block to a competitor who is charging only $1.64. That's 9-cents-a-gallon difference for you, or around a dollar every time you fill up.

Your mini-strike will take business from the offending station. If enough people do the same thing, what's the station going to do, sit there on its full gas tanks and go out of business? Of course not. Eventually even the most predatory retailer will get the idea that it has to be price-competitive to sell its wares, so the price will come down. At that point, we all win.

2. Join Costco. It charges around 15 cents a gallon less for regular than the major distributors' stations. This is about the same price that military families get at commissary/exchange facilities and is made possible by the same basic dynamic: The retailer in both cases uses its huge market power to bargain for the best possible price from the supplier. And these contracts are made on a regional or even national basis, so the Hawai'i suppliers are obliged to charge the negotiated rate.

3. Get rid of your gas guzzler. Sell that 13-mpg oversized SUV you have been trucking around and buy a standard-size car that these days will get twice the mileage — thereby cutting your gas bill in half without the oil companies (or the Legislature) doing a thing.

And if lots of people started doing that, guess what? The consumption of gasoline in the Islands would go down, and the refiners might not be able to sell everything they refine. They would be sitting on full storage tanks and would have to reduce the price to clear their stock, a less-expensive solution than shipping the surplus to the Mainland, where retail prices generally are lower.

So those who insist on continuing to drive gas guzzlers also could get a break if the rest of us started being fuel-efficient consumers.

4. Buy a really fuel-efficient car. My wife now drives a gas-electric hybrid (a Toyota Prius) that gets more than 40 miles per gallon. That translates into a third of the annual fuel cost of the 13-mpg SUV. How's that for really cutting spending on gas?

5. Press our legislators to take action on something they really can control — the gas tax. If you are really set on having the Legislature do something about gas prices, there's no need to play around with complicated pricing formulas that are most likely to be evaded or used against us by the majors anyway. Hawai'i's gas tax is the highest of any state's, at 55 cents a gallon.

If your legislator (or a candidate) is crying and hurting that his or her constituents have to pay so much for gas, why not ask that lawmaker to come out in favor of reducing the state's take rather than trying to lower the distributors' take?

So there is a truly radical solution to the problem of high gasoline prices in Hawai'i. It's called consumer awareness and concerted action, using our combined market power (yes, we do have some) to make the market work for us.

If we can't manage that much effort, we have no right to complain — or to expect the politicians to magically solve the problems for us.

Richard W. Baker is a retired U.S. Foreign Service officer and a political analyst who has lived in Honolulu for 15 years.