Gas price cap may fail, study warns
By Sean Hao
Advertiser Staff Writer
A preliminary study into the potential effects of caps on Hawai'i gasoline prices found the ceilings would result in higher, more volatile prices at the pump.
At a joint briefing of House committees yesterday, consultant Stillwater Associates discussed the early findings of its study of gasoline price regulations scheduled to take effect in 2004.
The report was commissioned after lawmakers passed a price cap last year with delayed implementation.
Stillwater president David Hackett said the gasoline cap, which ties Hawai'i prices to prevailing prices on the West Coast, would cause more seasonal fluctuations in local gas prices and discourage competition.
The study comes as concerns about a war in Iraq and a drop in Venezuelan crude oil are beginning to drive up gas prices in Hawai'i.
The findings concurred with testimony yesterday from officials with the Federal Trade Commission and the National Conference of State Legislators that could jeopardize the pending cap on wholesale and retail gasoline prices.
The law, which takes effect July 1, 2004, regulates prices through a complex formula, but would affect prices only of self-serve regular.
"One way or the other, it will be repealed," said Rep. Joe Souki, D-8th (Wailuku, Waiehu), who chairs the transportation committee. "The end result is we're always going to have higher gas prices than the Mainland."
Instead of establishing gas caps, Hackett recommended the state boost fuel price-monitoring efforts, explore alternative fuel sources such as ethanol, and create a state-owned oil terminal to lower barriers to imported fuel.
More recommendations are expected when the final report is released, in about six weeks.
Stillwater studied the effects of price caps elsewhere, including Canada, where such efforts were difficult to regulate, resulted in fuel shortages and in some cases raised prices.
The bottom line: The best way to lower gas prices is through increased competition, Hackett said.
"It generally leads to lower costs to the consumer," he said.
Part of the problem in Hawai'i is low-tech, small-volume refineries that refine expensive forms of crude oil. Also, local refiners charge higher prices for gasoline to compensate for lower-margin products such as jet fuel and fuel oil, which is used to generate electricity, the report found.
If gasoline prices were forced down, refiners would lose money and leave the state, lowering competition, Hackett said. On the retail side, high land values, interisland distribution costs and low per-station volumes contribute to high fuel prices, he added.
Nathan Hokama, a spokesman for gasoline refiner and retailer Tesoro Petroleum Corp., said the report's findings support many of the company's arguments against price caps.
"We didn't know what to expect from this report, but it's very positive from the company's perspective," he said. "These are the things we've been saying all along."
