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The Honolulu Advertiser
Posted on: Monday, September 29, 2003

ISLAND VOICES
Gas cap criticism was faulty

By Sen. Ron Menor

I have the utmost respect for my colleague Sen. Fred Hemmings for the strength of his convictions, but his Sept. 12 Island Voices column ("Should Hawai'i keep gas price caps? No") raised the same erroneous arguments against the caps put forth by the oil companies, misinterpreting the central feature of the law: the price cap mechanism. The opponents of Act 77 consistently describe the law's formula for setting caps as a tool to set prices.

Sen. Hemmings even provides an example, saying that he bought gas at $1.58 a gallon, but that "under the Democratic (legislators') formula," he would have paid $1.64. This assertion is simply wrong. He would not have paid a penny more. The price cap merely sets a ceiling, a price that cannot be exceeded. The law does not require the oil companies to set prices at the ceiling. Nothing in the law prevents them from charging lower prices.

Moreover, the law's opponents continue to perpetuate the myth that Hawai'i's gasoline prices are high because of Hawai'i's cost of living and because our state's gasoline market is allegedly over-regulated. These myths ignore the indisputable evidence generated in the attorney general's antitrust investigation, which demonstrates that excessive profit margins earned by the oil companies, and not costs and taxes, are the primary drivers behind excessive gasoline prices.

For example, a gasoline dealer from Maui recently informed me that after factoring in his costs, taxes and retail mark-up, the oil company that supplies refined gasoline to his station is making approximately 80 cents per gallon in gross profit on the self-serve regular gas that he sells at the pump. This is at least twice the amount the oil companies charge to dealers on the Mainland, according to dealers with whom I have spoken.

Furthermore, oil companies are not subject to any government regulation over the wholesale prices they charge their dealers. Since the oil companies have been able to charge Hawai'i consumers the highest wholesale prices in the nation, in an unregulated market, I am puzzled by Sen. Hemming's argument that the answer to high gasoline prices is less regulation of the oil industry. This simply ignores the realities of Hawai'i's gasoline market.

What disturbs me most is Sen. Hemming's suggestion that Hawai'i's residents should somehow accept the high gas prices that they pay at the pump as yet another "price for living in paradise." Consumers will find little comfort in my colleague's penchant for blaming all of Hawai'i's cost-of-living problems on the bugaboos of regulation and taxes (Sen. Hemmings notes that without taxes, we are only paying 13 percent more for gas than everyone else). In fact, it is the lack of regulation that put us in our current situation with regard to gasoline prices.

The attorney general's investigation into gasoline pricing drew on oil industry experts to conclude that Hawai'i's market was monopolistic, dysfunctional and uncompetitive.

And with the oil companies firmly in control, Hawai'i is likely to remain a de facto monopoly.

Unless we want to return to the days of Standard Oil and the robber barons, we must protect consumers by regulating monopolies. The deregulation of the energy markets on the Mainland provided a sobering illustration of what can happen: skyrocketing bills, electricity grid failure and windfall profits for energy companies.

A gasoline monopoly at the wholesale level should be treated just like any other energy monopoly. The wholesale monopoly should make a reasonable profit, and consumers should pay a reasonable price.