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The Honolulu Advertiser
Posted on: Monday, August 18, 2003

Overdue report faults gasoline price caps

By Sean Hao
Advertiser Staff Writer

A state report criticizing Hawai'i's gasoline price-cap law and offering alternatives is about five months overdue and isn't expected to be released for several weeks, according to state officials.

Nancy Kolia of Lex Brodie's Tire Co. pumps gas for a customer. Prices here hit a high of $2.068 last week and showed little signs of retreating. A price-cap law could bring even higher prices, a yet-to-be-released report says.

Jeff Widener • The Honolulu Advertiser

Meanwhile, Hawai'i's gas prices remain the highest in the nation and, after hitting a new high of $2.068 last week, have shown little sign of retreating from peaks seen during the Gulf War.

The report is expected to provide ammunition for those opposed to price caps, including Gov. Linda Lingle.

The state Department of Business, Economic Development and Tourism, which is in charge of putting together the report, has said it will conclude that price caps scheduled to take effect next summer could result in higher prices as well as shortages. What is unknown are the alternatives that the report will identify.

"There are still items we want to clarify," said DBEDT director Ted Liu. "We just want to make sure it's good and ready" before the report is released.

The report was commissioned as part of the price-cap law and originally expected to be released in mid-March.

The law, adopted last year and before Lingle's election, ties gas prices to West Coast markets, but applies only to self-serve, regular gasoline prices. Critics contend the law ignores unique factors in Hawai'i's gas market, such as high land values, interisland distribution costs and low gas-station sales volumes.

If the gas price caps were in force today, they would provide little relief. Under the new law, Hawai'i's gas prices would have been capped at about $2.34 a gallon in Honolulu last week, which is about 18 percent higher than the average price of nearly $1.98 on Friday, says a AAA Auto Club survey. The Legislature will take up during the next session whether to keep the price caps or adopt other measures.

The report will include several alternatives to price caps, such as a tax on gasoline to pay for monitoring of the local oil industry and to pay for a marketing program to get drivers to buy less expensive regular gas, according to people familiar with the report.

About 35 percent of consumers in Hawai'i buy premium or mid-grade gasoline, versus 25 percent of consumers nationwide. Converting to regular gas could save drivers millions of dollars each year, said Fereidun Fesharaki, an energy expert at the East-West Center. Few autos require premium gas, he said.

ChevronTexaco spokesman Albert Chee said the decision on what kind of gas to buy should be up to consumers.

"I think what people need to be educated about in Hawai'i is, how much do we spend at the pump in terms of local taxes, and what does it go towards, and do we really need to pay that much?" he said.

The report, which costs $250,000, will combine previous recommendations made by the Federal Trade Commission with reports from the National Conference of State Legislatures and consultant Stillwater Associates.

Another recommendation discussed in the preliminary version of the report is to repeal laws that restrict where new gas stations can be built and repeal laws that limit the rent that oil companies can charge service-station owners.

Sen. Ron Menor, D-17th (Miliblani, Waipi'o), an architect of the price-cap law, said alternatives to price caps, such as a consumer-education program and added monitoring of the industry, won't address a flaw in Hawai'i's gas market that results in high gas prices. That is because Hawai'i's small, low-volume market has not attracted enough competition to drive prices lower, said Menor, chairman of the Senate Committee on Commerce and Consumer Protection.

"I think that the critics of the price-cap law have an obligation to come up with an effective alternative," he said. "In addressing the problem, the state should exercise the right to create more competition."

How that can be done will be the subject of public hearings once the price-cap report is released, Menor said.

Alternatives to price caps, such as repealing certain oil industry regulations, could help drive down prices over the long term, but aren't likely to address today's high prices, Fesharaki said.

"The fact of the matter is that there are certain things that God has pre-ordained, and this is one of them — Hawai'i has high gas prices," he said.

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.