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The Honolulu Advertiser
Posted on: Monday, March 22, 2004

Gasoline price caps make bitter medicine

Hawai'i's gasoline refiners have mounted a full-court press to stop Hawai'i from imposing the nation's only gasoline price caps, which had been scheduled to take effect July 1.

The effort may be working: lawmakers are talking about delaying implementation of the caps, perhaps for a year.

A one-year delay was included in a bill amending the price-control law to allow for further study of how to formulate and enforce it. Sen. Ron Menor, an architect of the gasoline price-cap law, said that while it may not be feasible for price caps to take effect this summer, a one-year wait is too long.

In any case, a delay of some sort may not be a bad thing. There are plenty of reasons to hate the idea of price caps, detailed below.

Chevron's claim

That said, however, we can't help thinking the industry has brought price caps on themselves.

As part of its public relations campaign, ChevronTexaco Corp. has released numbers that purport to demonstrate that the profits from its Hawai'i operations are in line with the amount of business it does here.

That gives Hawai'i consumers two sets of numbers to compare — one old and one new.

The new ChevronTexaco numbers, as reported by Advertiser staff writer Sean Hao, say its Hawai'i business contributed 4 percent to 5 percent of the company's national refining and marketing profits in the past five years, only slightly more than the 3 percent to 4 percent that Hawai'i contributes to national refining volume.

Unverifiable numbers

These new numbers, unfortunately, are unverifiable by the public. No one knows, just for starters, what ChevronTexaco is paying for the crude oil it imports.

Such numbers, properly so, are proprietary. But you can't withhold substantial parts of your financial picture while claiming to have publicly revealed the entire truth.

The other set of numbers was obtained under oath in a 1998 state lawsuit, and as such we treat it as veritable gospel. Those numbers say ChevronTexaco's Hawai'i operations generated 22 percent of national dealer profits on just 3 percent of sales.

Of course, it's possible that the 1998 numbers were an anomaly, an unusual spike long since past. It's true that the industry sees a lot of volatility.

But because there's no way for the public to know for sure, there's a serious credibility gap here. As Menor put it: "Who are you going to believe — the attorney general's office, which conducted a four-year investigation, or the oil companies who have a vested interest in derailing this legislation?"

The powerful belief that Hawai'i consumers have been grossly overcharged for many years has led lawmakers to take the momentous step of legislating price caps for wholesale gasoline, although they now appear to be prepared to hesitate.

Problems with caps

And there are many reasons not to like this step:

• Price caps are a problem in principle in an avowedly market economy — especially if lawmakers decide they work so well on gasoline, why not extend them to, say, poi or toilet paper, or real estate? A Legislature bent on "controlling" prices in Hawai'i would be an economic catastrophe.

• Price caps surely reinforce the long-held perception elsewhere of anti-business attitudes and procedures in Hawai'i.

In fairness, we think this cuts both ways — that is, why is it seen as pro-business if most Hawai'i companies are forced to pay too much for the gasoline that moves their goods and services?

On balance, however, the chilling effect of establishing price caps is sure to diminish investment in Hawai'i.

• The Legislature has yet to formulate an effective mechanism for capping gasoline prices. At first, they were pegged to an average of California wholesale prices. When those prices rose even higher than Hawai'i prices, lawmakers looked to a broader Mainland average.

The problem with this approach is that it treats Hawai'i in isolation. In fact, the oil companies, including the same ones that operate here, are cutting refining capacity and combining in ways that allow them to manipulate Mainland prices as much as they do here.

National problem

The bottom line is that we don't much like the idea of price caps on gasoline and we doubt seriously they will work.

But clearly the Hawai'i refiners, as a result of their demonstrated pricing practices practices, have brought this development on themselves.

Ultimately we have a national problem with gasoline prices, begging a national solution.