The key to understanding the gasoline price cap is to remember that it is a cap on wholesale prices. The state's major wholesalers, Chevron Corp. and Tesoro Petroleum Corp., are not saying what they plan to do after Sept. 1.

If the gas cap took effect this week, the maximum wholesale price would be set at about $2.70 a gallon, based on Advertiser calculations. That's an estimated 21 cents per gallon more than the wholesale price last week. So if wholesalers decide to price at the maximum, they would have to raise their rates by 21 cents. And if retailers pass that 21 cents on to consumers, the gas cap could push prices even higher.

State and county officials are hoping the possibility of higher prices will not lead to a run on gasoline. At the same time, they are working on plans to cope with a spike in demand. The plans could include measures ranging from telling the public not to change gasoline buying habits to setting aside reserves for public safety vehicles.

"All we want to do is be prepared, be cautious (and) be prudent," said Ted Liu, director for the Department of Business, Economic Development and Tourism. "Obviously, we think education is important. How and when and what we say is something we're looking at now.

"We don't want (a run on gasoline) to be a self-fulfilling prophecy."

Whether prices spike under the gas cap depends primarily on wholesalers, who may decide to raise prices to the maximum allowed by law to offset potential losses if the cap eventually forces prices lower. A drop in Mainland prices would lead to a corresponding drop in the gas cap, and that would compel wholesalers to price at levels below what they are used to.

"I can't think of a reason why a profit-maximizing producer or distributor would not charge the highest regulated price," said Paul Brewbaker, Bank of Hawaii chief economist. "I would. You (the state) gave me an excuse to charge that price."

David Hackett, president of Stillwater Associates, which has produced a report critical of gasoline price caps, said there's precedent for such pricing. Oil companies operating in areas in Canada that regulate gasoline prices, such as Newfoundland and Prince Edward Island, typically set price at maximum levels allowed by law, he said.

"How fast are they going to do it (in Hawai'i)? I don't know, but it will happen," Hackett said.

If wholesale prices rise, dealers will have no choice but to pass the increase on to consumers, said Bill Green, a former owner and now consultant to the Kahala Shell gasoline station.

"There's no room for dealers to eat that (loss)," he said. "I think dealers would continue to take the same margin they have now."

Not all analysts expect wholesalers to price at the maximum.

John Felmy, chief economist for the trade group American Petroleum Institute, said market forces could keep wholesale prices in check. "It's not clear to me that they have the market power (to set prices to the maximum allowed by law)," he said.

If prices rise too high, the law allows the Public Utilities Commission to adjust the formula to bring the gas cap ceiling down.

There's also the chance a legal challenge could forestall the caps, though that seems unlikely.

"The Supreme Court has upheld wage and price controls," state Attorney General Mark Bennett said. "So I would be hard-pressed to see a successful legal challenge."

Gov. Linda Lingle could suspend the caps if there's a major adverse impact on the economy, public welfare, or the health and safety of people.

State officials are already concerned that consumers could react to price caps by filling their tanks more frequently, or by hoarding gasoline — developments that would strain the state's gasoline distribution system and potentially create shortages.

"It is a fragile system," said API's Felmy. "Even little runs (on gasoline) could upset things."

The potential for higher prices and supply shortages were key arguments against the state law passed last year. Lawmakers intended for the gas cap — which applies to all grades of gasoline — to force Hawai'i prices to react more closely to changes in crude oil while ultimately lowering prices for consumers.

On the Mainland, competition tends to force prices down when crude oil prices fall. In Hawai'i, prices react less often to changes in crude oil costs.

The price cap was intended to change that by preventing O'ahu wholesalers from charging more than 28.5 cents above the five-day average spot price for regular gasoline sold in Los Angeles, on the Gulf Coast and in New York during a preceding one-week period. The law also provides for an added adjustment for Neighbor Island sales.

Hawai'i's relatively high gasoline prices have been attributed to, among other things, the high costs for land and labor and the nation's highest gasoline taxes. Other industry practices such as the export of excess gasoline also support high retail prices.

Price-cap proponents, including legislators and consumer groups, contend the price-cap law will save consumers money in the long term. Meanwhile, oil industry officials and economists contend that forcing gasoline prices down could cause oil companies to shut down or consolidate, which would lower competition.

Attrition in the oil industry could occur over a longer period.

One thing both proponents and opponents of the gas cap acknowledge is we are heading into the unknown.

"Nobody knows what the public reaction will be," said Frank Young, a member of consumer advocacy group Citizens Against Gasoline Price Gouging and a price-cap proponent. "Nobody knows what the oil companies might do. The thing has to run its course."

Albert Chee, a spokesman for Chevron, added: "We don't know what to expect. Nobody can truly know what will happen."