Increased competition helping lower gas prices

By Frank Cho
Advertiser Staff Writer

Hawai'i drivers have been paying far less on average for a gallon of gasoline than they did just a year ago, a reflection of rising competition, cheaper oil supplies and the threat of increased government regulation.

With new competition from Costco and the impending cap on gas-dealer profits, the average cost of gasoline in Hawai'i has fallen nearly 13 cents from a year ago. Gregory Yamamoto • The Honolulu Advertiser

Still, average retail gasoline prices in Hawai'i have fallen to $1.707 for self-serve unleaded gas, down nearly 13 percent from $1.961 a year ago, and off 17 percent from its all-time high of $2.06 in February 2001, according to the AAA.

Nationally, gas prices have fallen about 8.5 percent to $1.40 a gallon when compared to a year ago.

"We look at the market, and our goal is to keep our retailers competitive within that market," said Albert Chee, a spokesman for Chevron Hawaii. "Our marketing manager does not look at what the marketplace was a year ago; he has to look at the market today."

Experts say Costco's entry into the retail gasoline market has put a lot of pressure on dealers in nearby markets to keep their prices low or risk losing sales.

"They (Costco) represent a new competitive regime within the retail gasoline industry that gas station dealers did not have to contend with before," said Maurice Kaya, energy branch administrator for the state Department of Business, Economic Development and Tourism.

In Hilo, the price for self-serve unleaded gasoline has fallen nearly 10 cents on average to $1.80 a gallon during the past month. On O'ahu, prices were down about a penny. But on Maui, where Costco has not yet opened a gas station, gas prices have remained largely unchanged for the past month and down only about 8 percent for the past year.

"The entry of Costco into the market is a clear example that competition does exist and the market is working," Chee said.

Another reason some dealers speculated prices are lower has been Act 77 — the recently passed state law to cap wholesale gas prices.

State regulators are working out rules that will govern how the law will be implemented when it takes effect in 2004. But some dealers believe it is already having its intended effect. They say fear of upsetting consumers and the state during the rule making period has oil companies keeping prices low despite rising oil costs.

"Basically, it seems like the oil companies have stopped playing games with wholesale prices for a while," said Frank Young, president of the Hawaii Automotive Repair & Gasoline Dealers Association.

Young, a former Chevron gas station dealer and frequent critic of the company's pricing practices, said the oil companies that set retail gas prices are keeping prices low in hope that they will be able to overturn the law in the Legislature next year.

Despite the lower prices, however, Hawai'i drivers still pay more on average for a gallon of gasoline than drivers in any other state.

Part of the reason gas prices are higher in Hawai'i than anywhere else, oil companies say, is the increased cost of doing business here, an argument the state rejected in a $2 billion antitrust lawsuit it filed against several oil companies that was settled earlier this year.

Hawai'i has consistently led the country with the highest pump prices for gasoline, and in 1998 it filed an antitrust lawsuit against Chevron, Tesoro, BHP Hawaii, Tosco, Unocal, Texaco and Shell, alleging they colluded to fix gasoline prices artificially high. The heart of the suit was how the oil companies determined their prices in Hawai'i.

"The way oil companies price their products is something only they know. This is something people have wanted to know for a very long time," said Paul Gonzales, a spokesman for the automobile association.

Fearing it would be unable to prove its case, the state settled the nearly four-year-old suit earlier this year for $35 million, a fraction of the $2 billion it had been seeking, and the oil companies admitted no wrongdoing.

"The reasons for the price of gasoline and the way it is being priced is really because of the competition in the retail marketplace," said Nathan Hokama, spokesman for Tesoro Hawaii, "Even though crude oil prices have been up, it is the retail market that still dictates gasoline prices."

Oil prices were up 12 cents to $29.85 a barrel Tuesday on concern that an attack against Iraq would disrupt crude flows from the oil-rich Middle East and uncertainty surrounding the Organization of Petroleum Exporting Countries' desire to release more supply to the market.

"The wholesale prices have not changed very much lately and that is what we react to," said Madeleine Snow, business manager for Kahala Shell Auto Care Inc.

Despite the benefit of cheaper prices, Snow said, competition from discounters such as Costco will likely put many independent stations out of business over the next decade, leaving drivers only two or three suppliers for their gasoline. And that, she says, may not be good for drivers in the long run.

Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.