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The Honolulu Advertiser
Posted on: Friday, March 24, 2006

Gasoline price cap could be suspended

By Sean Hao and Treena Shapiro
Advertiser Staff Writers

The days for Hawai'i's gasoline price cap law appear numbered.

With the House already calling for repeal, the Senate yesterday advanced a bill that would suspend the cap but create a monitoring system that would bring it back if prices exceed a "fair price" level.

The move marked a major shift in sentiment by the Senate, which previously had staunchly opposed any suspension of the cap, which took effect last September. Price cap architect Sen. Ron Menor, D-17th (Mililani, Waipi'o), yesterday said his proposal is meant as a compromise with the House.

Rather than repeal the cap, Menor's amendments to House Bill 3115 would suspend it. Under the measure, the Public Utilities Commission would continue to monitor wholesale gasoline prices. If those prices exceed a revised price cap level for two straight weeks, the cap would kick in for a two-week period before being automatically suspended again.

Under the changes proposed by Menor, Hawai'i's wholesale price cap this week would be about 10 cents lower, at $2 a gallon, excluding taxes and a retail margin, according to Advertiser calculations. The cap currently is set at $2.10 a gallon for regular unleaded gasoline on O'ahu. The price cap, which is adjusted weekly, has been on the rise since mid-February in response to an increase in Mainland gasoline prices.

"I propose that we suspend the maximum wholesale price cap indefinitely, while leaving the mechanisms in place to ensure oil companies do not again raise prices artificially high," Menor said.

In the House, lawmakers yesterday passed a bill that would compel the state to stop enforcing the cap on July 1, and repeal the cap at the end of 2011. In addition to suspending the gas cap, an amended Senate Bill 2911 would boost oversight and monitoring of the state's oil industry. Under the proposal, oil companies would have to disclose crude oil costs and sources, refinery operating expenses, marketing and distribution expenses and corporate overhead expenses.

State lawmakers created the price cap law amid concerns that the oil industry earned excessive profits, which resulted in high gasoline prices. The gas cap law, the only one of its kind in the nation, ties wholesale prices in Hawai'i to those on the Mainland.

Whether consumers are better off with or without the cap remains debatable. But since the price cap took effect, prices have been more volatile and geographically disparate. Meanwhile, consumer sentiment over the cap remains mixed.

Fred Gartley, a retiree who lives in Kane'ohe, wants the Legislature to take more decisive action to kill the cap.

"Suspension is not good enough," he said. "I think the whole thing should be repealed, period."

But Kailua resident Charles Chou thinks it's too late for a repeal because he suspects gas companies would continue to use the formula to their advantage. The law doesn't force the oil industry to charge the highest allowable prices for gasoline. However, since the cap took effect, wholesale prices have hovered at or near the cap levels.

Chou, a computer software engineer, would rather see the formula for calculating the cap readjusted to use more appropriate comparison markets.

"Why not have a few other formulas out on the table and see which one benefits the consumer the best," he asked.

Rep. Hermina Morita, chairwoman of the Energy and Environmental Protection committee, said she's in favor of the bill her committee passed yesterday that would suspend, then repeal, the cap.

"I think an outright suspension while we're gathering information is a more prudent approach than on-and-off, on-and-off," said Morita, D-14th (Kapa'a, Hanalei).

Morita expects that House and Senate members ultimately will end up at the conference table trying to hammer out a compromise. While she is not yet confident the session will end with a suspension of the cap, Morita was more optimistic after reading Menor's statement.

"It's sort of encouraging to see that there is some movement, that discussion is possible, that the Senate isn't real firm in its position in keeping the gas cap active," she said.

Critics of the cap, including the oil industry, contend that Hawai'i's gasoline prices are not excessive and are a result of the state's small, geographically isolated market and the high cost of doing business.

Melissa Pavlicek, a spokeswoman for the Western States Petroleum Association, which represents Chevron, Shell Oil and Tesoro Petroleum, said the Senate proposal doesn't seem like a real suspension.

"It doesn't seem to me to make sense to put another version of the cap in effect with a trigger without first getting the information they're trying to look at" via stepped-up monitoring of the industry, she said.

Frank Young, a member of consumer advocacy group Citizens Against Gasoline Price Gouging and a price-cap proponent, supports suspending the cap but leaving in place a mechanism to trigger them if needed.

"I don't think (transparency measures) are going to change the behavior of oil companies," he said. "I think (the proposed cap) will be kicking in a lot."

Reach Sean Hao at shao@honoluluadvertiser.com and Treena Shapiro at tshapiro@honoluluadvertiser.com.