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The Honolulu Advertiser
Posted on: Sunday, September 11, 2005

COMMENTARY
Without gas-price cap, sky would be the limit

By Ben Cayetano

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A major disinformation public-relations campaign is being conducted by some gas cap opponents: The goal is to convince the public that Hawai'i's gas cap law is responsible for Hawai'i's rising gas prices.

The governor argues there are "better ways" to deal with high gas prices but offers no specifics. Republican legislative leaders pontificate shamelessly that gas prices in Hawai'i should be left to the competitive forces of "free market" when they know or should know that even the oil companies themselves agree that there is no free market, that an oil oligopoly governs Hawai'i's gasoline industry.

The critics' arguments are specious, but they know that if they are repeated enough, the public may actually believe them.

The public gets information mainly through the news media, in particular, the newspapers. Unfortunately, with few exceptions, newspaper and television reporters act as passive observers, eschewing probing questions and too often regurgitating what people tell them.

For skilled spin artists like Kitty Lagareta and Lenny Klompus, dealing with Hawai'i's news media is like shooting fish in a barrel.

Meanwhile, ChevronTexaco forget Tesoro, ChevronTexaco is the 800-pound gorilla in Hawai'i must be pleased with the confusion created. The stakes are big.

Legislators across the nation are considering gas cap laws to curb skyrocketing gasoline prices. The thought that gas cap laws could be popping up across the country must cause nightmares for gasoline company executives.

For critics to blame the gas cap law for the rise in gas prices is mind boggling. After all, there are 49 other states that do not have a gas cap law linking them to other gasoline markets, but the impact of Hurricane Katrina, rising crude oil prices and, in some areas, profiteering by oil companies and gasoline dealers, have caused their prices to skyrocket.

Historically, whenever Mainland gas prices increased, Hawai'i prices quickly followed suit. The big problem was when Mainland gas prices went down, Hawai'i's prices did not.

If history repeats, Hawai'i's gas prices today should be the highest in the nation. They were a week before the gas cap was implemented. The week after, however, the American Automobile Association's survey of state gas prices ranked Hawai'i 35th in the nation.

Will this change? Most likely. Last week Hawai'i was 22nd.

At this point, it may be useful to re-examine why the gas cap law was enacted in the first place. Contrary to recent news stories, the state's investigation of Hawai'i's high gas prices did not begin with the state's lawsuit against the oil companies. It started in the early 1970s and the oil companies stonewalled the state at every turn.

Not until the state sued the oil companies in 1998 was there a breakthrough. The case was settled for $35 million, but through the discovery process, state lawyers and experts finally had access to the records of oil companies.

The information revealed two startling findings:

  • There was virtually no price competition in gasoline sales.

  • The oil companies were raking in huge profits in Chevron's case, its highest profits in the nation.

    It may come as a surprise to many, but even the defendant oil companies did not dispute these findings. Don't take my word for it take the words of the executives and lawyers who represented the oil companies in the lawsuit.

    Here is what Maxwell Blecher, attorney for one of the defendant oil companies, argued in federal court:

    "High gas prices in Hawai'i are the result of a lack of competitive market forces, not collusion. Once you decide it's an oligopoly, you've got an explanation for the phenomenon of the high prices, the high margins, the high profits, and the lack of vigorous price competition. That explains it all."

    In other words, the oil companies can charge anything they want. Unless they conspire it's legal. The public can take it or leave it. Given this attitude, is there any wonder why the Legislature enacted a gas cap law?

    And read the following colloquy from the deposition of a Chevron executive named Traeger taken during the state's 1998 lawsuit. His answers to questions by the state's lawyer reveal how good business was for Chevron in Hawai'i:

    Q. Now, Hawai'i was a very profitable gasoline market for Chevron, was it not, sir?

    A. It was.

    Q. One of the most profitable in the country most of the time?

    A. It was.

    Q. In fact, the most profitable in the country most of the time?

    A. I believe that's a fair statement.

    State lawyers also found that although Hawai'i made up only 3 percent of Chevron's national gasoline market it accounted for a whopping 23 percent of its annual profits in gasoline sales!

    In other words, ChevronTexaco squeezed the people of a small state with a population of 1.2 million for 23 percent of its profits! There are approximately 294 million Americans living among the other 49 states. Exact numbers are not available, but ChevronTexaco, the world's second-biggest oil company, serves most of them.

    Was ChevronTexaco fair to Hawai'i?

    Gov. Lingle has argued that there are "better ways" to deal with gas prices. Republican legislators argue Hawai'i's gas prices should be left to the "free market." Talk is cheap. What are these "better ways"? What "free market?" When will the governor put her "better ways" on the table for public discussion?

    So far, the governor's only action was to plead with the oil companies not to raise their prices to the maximum allowed by the gas cap. Her reasoning is that the oil companies don't have to charge the maximum, because the crude oil they will use to refine gasoline was bought before prices shot up.

    Unfortunately, the oil companies do not set their prices that way. Instead, they use a complex, cost-averaging pricing formula that allows them to minimize risk and maximize profits over time. Price setting in the sale of gasoline is tricky business.

    The governor's political guru, Kitty Lagareta, should know ChevronTexaco, is her public relations company's biggest account.

    Critics gloss over the fact that the gas cap law does not force the oil companies to charge the maximum price. Indeed, their arguments are often framed to give the false impression that it does. The truth is that the gas cap law requires only one thing of the oil companies that they set prices no higher than the maximum set by the Public Utilities Commission.

    The spike this week in Hawai'i's gasoline prices indicates that the oil companies sold gasoline at the maximum price allowed under the gas cap. The governor should have saved her breath. The oil companies, after all, are not charitable organizations.

    The fact that the governor was reduced to pleading with the oil companies reveals how much of a stranglehold they have over Hawai'i's people. It's time for the governor and Republican legislators to put their money where their mouths are and come up with a viable solution to Hawai'i's high gasoline prices or shut up.

    Only time will tell if Hawai'i's gas cap law is effective in giving Hawai'i fair gas prices. But without a cap on wholesale gasoline prices, gasoline consumers would be at the mercy of the oil companies and the sky would be the limit.