Posted on: Wednesday, April 20, 2005
Report lifts hope for gas cap
| • | Current Hawai'i gas prices |
By Sean Hao
Advertiser Staff Writer
A day of hearings on the state's new price cap law — set to take effect in September — left a key proponent confident the law will withstand the latest challenges.
"I'm optimistic that the cap will survive," said state Sen. Ron Menor, D-17th (Mililani, Waipi'o), chairman of the Senate Consumer Protection and Housing Committee.
Lawmakers were briefed yesterday by the company hired to develop a formula to cap Hawai'i gas prices so consumers in the state are not forced to pay prices well in excess of Mainland prices.
ICF Consulting, a Fairfax, Va., company specializing in energy and environmental policy, says its gas cap formula could lead to more competitive and often lower wholesale gasoline prices.
"I think the (ICF report) provides me with an additional basis to substantiate and justify the position of those who have supported this kind of strong regulatory measure which I think is needed to provide relief to consumers who for too long have been paying excessive and unreasonable prices," said Menor, an architect of the price cap law.
The caps, however, don't guarantee any savings for consumers because they are placed on wholesale prices, not retail prices. ICF also warned that gas caps, while possibly lowering prices, could cause oil companies to consider leaving the state, which might disrupt supplies.
Hawai'i is the only state in the nation with a gasoline price cap law, and some lawmakers are attempting to kill the law before the Sept. 1 effective date.
The ICF report is likely to be the basis on which the Public Utilities Commission sets gasoline prices if the new law takes effect. The law was passed in 2002 and amended last year.
Oil companies and gasoline retailers say Hawai'i prices are typically the highest in the nation partly because of the high cost of doing business in Hawai'i and the state's high taxes. Other factors include the state's geographic isolation, lack of wholesale-level competition and relatively small market.
Any potential savings under the law hinge on gasoline dealers' passing savings on to consumers. However, some O'ahu retailers contend the savings may not be passed on because margins on gasoline are low relative to high land, labor and tax costs.
That leaves little potential savings to pass on to consumers, said Bill Green, a former owner and now consultant to Kahala Shell.
"If there was savings we would pass it on if we could," he said. "It may be a penny or two but there isn't much there. We're all operating on such skinny margins."
According to ICF, margins on wholesale gasoline sales typically well exceed margins on comparable sales on the Mainland. ICF proposes capping the wholesale price based on Mainland margins, which would have cut gasoline prices to dealer-owned and run stations between 2 cents and 22 cents a gallon in Honolulu in recent years.
However, if the caps were in effect today, wholesale prices would be 20 cents a gallon higher on O'ahu, ICF said. Last year such a formula would have raised prices by about a penny, ICF said. Still, over a longer period prices would have been lower by an average of 10 cents a gallon.
"The market here in Hawai'i ... is not as responsive to changes in spot market conditions as it is on the Mainland," said Thomas O'Connor, project manager for ICF.
While the caps designed by ICF are meant to ensure continued profitability of Hawai'i's oil industry, they will crimp profits particularly for gasoline marketers, O'Connor added.
Rep. Kirk Caldwell, D-24th (Manoa), said neither the ICF report nor the Public Utilities Commission, which sponsored the report, has a plan to address such supply shortages.
Caldwell has introduced a bill to give the governor the option not to implement the caps. Gov. Linda Lingle opposes price caps.
The oil industry and others will provide input on the ICF proposal before the PUC decides on a final formula for the gas cap.
PUC Chairman Carlito Caliboso yesterday said the caps will create new risks for Hawai'i's gasoline supply. "There are some risks to implementing this law," Caliboso said. "That's why we're taking a serious look at this."
Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.
