State gets closer to capping gas prices
By Sean Hao
Advertiser Staff Writer
Hawai'i moved a step closer to imposing the nation's first cap on gasoline prices after a ruling yesterday by the U.S. Supreme Court.
State law caps the wholesale price of gasoline, starting Sept. 1. Argument for: Could lead to lower gasoline prices. Arguments against: Could cause gasoline shortages and higher prices. Doesn't guarantee lower prices will be passed on to consumers. Could damage state's reputation as a place to do business. Why are Hawai'i prices high? Oil companies and gasoline retailers blame cost of doing business in Hawai'i and state's high taxes. Other factors include state's geographic isolation, lack of wholesale-level competition and relatively small market.
The court unanimously upheld a 1997 Hawai'i law that caps rent charged to dealer-run gasoline stations. The ruling could make a court challenge to a more far-reaching gasoline price-cap law — scheduled to take effect Sept. 1 — difficult.
Lower prices not guaranteed
"No question, I believe this opinion does eliminate a significant hurdle," said state Sen. Ron Menor, D-17th (Mililani, Waipi'o), an architect of the price-cap law. "The ruling definitely, significantly makes it easier to implement the price cap come Sept. 1."
Hawai'i lawmakers, frustrated with the highest gasoline prices in the nation, adopted the rent- cap law in 1997 and the follow-on price cap last year, contending the measures would help bring down gasoline prices. Hawai'i's oil industry and pro-business groups have opposed both laws as burdensome regulations with unpredictable results.
The Supreme Court took up the issue of the rent cap after Chevron Corp. questioned the legality of a law that takes property — in this case, rent — from a private owner without a compelling public interest. Chevron said the rent cap would reduce its rental income by about $207,000 a year without providing any guarantee that gasoline prices would go down.
The 9th U.S. Circuit Court of Appeals agreed with Chevron and ruled the law unconstitutional, but the Supreme Court reversed the decision, saying it is up to the state lawmakers to establish economic policy.
Gov. Linda Lingle was in the odd position of opposing the rent and gasoline caps but supporting the state's right to enact them. Lawmakers "have the right to do the wrong thing, and that's the concept here," she said in February.
Now that Lingle was successful in arguing for state's rights, the price-cap law she opposes is better able to withstand a constitutional challenge.
"This not only affects the rent cap and the gas cap but any challenge to economic legislation at the state and national level," said state Attorney General Mark Bennett, who argued the case before the Supreme Court in February.
Hawai'i was backed in its appeal by the Bush administration and 32 states and territories, which argued that judges should give deference to elected state and local governments to set economic policy.
The ruling means it's up to voters to decide whether they want laws, or lawmakers, that cap rents and gasoline prices.
Hawai'i lawmakers created the rent cap after some gas station dealers claimed "economic eviction," saying oil companies raised rents, forcing them from their locations. Lawmakers hoped that lower gasoline prices would result if stations were provided rent relief.
The rent cap was designed to work with the price cap by preventing oil companies from increasing rents to offset lost gasoline profits. The gasoline price cap — which sets a limit on the price oil companies can charge for wholesale gasoline in Hawai'i — is supposed to create a more competitive climate for retailers, while possibly lowering consumer prices. This year lawmakers debated, but did not pass, a law that essentially would have repealed the gasoline price cap.
The state Public Utilities Commission now is deciding on a formula for capping gasoline prices that is to be released before September.
"At this point, I think it (the price cap) will" go into effect, said Bob Swartz, who operates Chevron stations in Kalihi, Kane'ohe and Kailua. As for the impact on gasoline prices, "I have no idea whether the price at the pump will go down," Swartz said.
Under the caps. dealers could benefit from lower rents and lower wholesale prices. However, Swartz said. he's worried gasoline suppliers will exit the state if faced with lower profits.
"I'm afraid of my suppliers leaving," he said. "This is a business to them."
Chevron yesterday said it was disappointed with the Supreme Court's decision.
"As far as the price cap is concerned, we're still going to have to wait until the PUC renders its decision as to what is going to be implemented," said Chevron spokesman Albert Chee. "It is always going to be our intention to comply with what the law requires us to do."
Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.
