Oil firms seek price-cap relief
By Sean Hao
Advertiser Staff Writer
Chevron Corp., Shell Oil Co. and Tesoro Petroleum Corp. have asked state regulators to delay or shelve a gasoline price cap set to take effect Sept. 1, arguing the controls could lead to potential gasoline shortages and other problems.
Hawai'i is slated to become the first state to regulate gasoline prices under a controversial law passed last year that would cap wholesale gasoline prices based on the cost of importing gasoline from Singapore and the Caribbean.
State consultant ICF Consulting of Fairfax, Va., has said the caps could lead to more competitive and often lower wholesale gasoline prices. The caps, however, don't guarantee 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.
In opinions filed with the state Public Utilities Commission on Friday, the oil companies said the new law could result in higher, more volatile gasoline prices and supply shortages.
PUC members now are developing a plan to implement the price caps on Sept. 1. The PUC will consider the input from the oil companies and others before they make a decision on how to implement the law, said Kris Nakagawa, chief legal counsel for the PUC.
The caps as proposed are meant to ensure the industry remains profitable. However, limits on industry profits could cause some companies and the state's two refineries to re-evaluate their financial viability. In addition, oil companies could opt to sell gasoline in more profitable markets than Hawai'i.
Chevron, one of the state's two refiners, asked that the PUC delay implementation and re-examine the state's gasoline market in light of a separate mandate that ethanol blended gasoline be sold in Hawai'i starting in April.
"Chevron continues to believe that price caps are bad public policy which will not be in the best interest of Hawai'i's consumers, and that free markets perform most efficiently and effectively in balancing supply and demand," the company's filing stated.
Part of the impetus for the cap was public frustration over Hawai'i's high gasoline prices. Oil companies operating in the state argue gasoline prices remain high because of the cost of doing business in Hawai'i and the state's high taxes. Other commonly cited factors include the state's geographic isolation, lack of wholesale-level competition and relatively small market.
Tesoro, Hawai'i's other refiner, opposed the price cap outright.
"Price controls of any type or design do not work and will create harmful market distortions that may increase the risks to Hawai'i consumers and the economy and may jeopardize the viability of Hawai'i's refining industry," Tesoro wrote.
Shell, which distributes gasoline in Hawai'i, asked that Gov. Linda Lingle exercise emergency powers to stop the cap. The Hawaii Petroleum Marketers Association, which represents gasoline wholesalers, recommended monitoring the industry until the impact of the regulation is better known. The group also asked that the caps be adjusted to allow for the continuation of historical wholesale margins.
The state consumer advocate, the only other party to weigh in on the caps, suggested changes to the price cap formula currently being developed by the PUC. John Cole, executive director of the state consumer advocacy office, wrote that the caps could increase the risk of gasoline shortages and lead to the closure of a local refinery and some gasoline wholesalers among other things. However, the office generally supported implementing the caps.
"The regulation of wholesale gasoline prices is a first in this country and the risks outlined above are just that — risks," Cole wrote. "They are not certain to happen."
Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.
