ISLAND VOICES
Gas-price cap would backfire

Tom Malone is president of the Hawaii Petroleum Marketers Association.

Many people know that Act 77, popularly called the gasoline price-cap law, is scheduled to go into effect on July 1. What most people don't know is, if that happens, it would put into motion events that could have a negative impact on many businesses and consumers throughout the state. Simply put, price controls affect everyone.

Under Act 77 price controls, the first group to be hit will be the jobbers. Jobbers are wholesale distributors on all islands. They are generally small businesses that buy fuel from the refiners and then deliver it to both small and large businesses, as well as to remotely located "mom and pop" service stations that are not served by the major oil companies. Price caps could reduce jobbers' profit margins, possibly to the point that some could be forced out of business or might not be able to deliver to remote service stations and other businesses.

There are approximately a dozen jobbers in Hawai'i, but they serve hundreds of business customers who could also be victims of the price cap. Customers served by jobbers include farmers, hospitals, construction companies, schools, power plants, police departments, fire departments, hotels, the Postal Service, landfills and many more.

The list of those who rely solely on jobbers to deliver their fuel is long and their contribution to Hawai'i's economy, especially on the Neighbor Islands and rural O'ahu, is large. Businesses served by jobbers collectively employ thousands of workers. If price caps are implemented, however, a number of jobbers could shut down, leaving their customers struggling to get the fuel they need to operate.

It's not only businesses served by jobbers that might suffer, but also Hawai'i residents who live away from the main population centers. That's because many rural residents get the gasoline they need from small independent service stations located in areas where the major oil companies don't deliver. Rural residents rely on jobbers too. Without jobbers, many mom-and-pop service stations could be hard-pressed to get the fuel needed to keep their businesses open. A service station closure would mean the people they serve would have to drive longer distances to fill up their tanks.

Several industry and government experts, along with many business leaders, agree that this is a bad law. The Federal Trade Commission, DBEDT and Stillwater Associates, which conducted a state-funded study, have warned about the harmful consequences of this law. They warn us that the history of price controls in the United States has resulted in gas shortages and long lines at gas stations.

Some of those in favor of the gas price-cap law will tell you that these experts are somehow beholden to the big oil companies. The truth is, if price caps are implemented, no one knows for sure what will happen to the price of gas at the pump. What we do know is that it will create many problems with no guarantee of lower gas prices. If some jobbers go out of business, the direct effect on many businesses and rural Hawai'i will be real and lasting.

The few lawmakers who are steering this legislation need to realize that price controls don't work in a market economy. Lawmakers have the tools to encourage more competition, and it is through competition that prices are set properly and businesses are encouraged to create jobs in a community. Price controls will almost certainly destroy any hope Hawai'i has of attracting more competition in the gasoline business.

What kind of message are we sending to possible investors when the state Legislature acts to interrupt the free flow of commerce in the marketplace? This message is clearly contrary to the state's initiative to actively recruit businesses to invest in Hawai'i to produce more highly paid and skilled jobs.

The potential negative consequences of Act 77 are too serious to ignore. Act 77 should be repealed, but at a minimum, the Legislature should act to defer the implementation of Act 77 until gasoline price controls can be better understood, and lawmakers fully explore the potential dangers that this law poses to our community.