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The Honolulu Advertiser
Posted on: Sunday, March 26, 2006

COMMENTARY
Numbers show gas cap works

By Ben Cayetano

Less than two months ago, state House Majority Leader Marcus Oshiro issued a press release stating that the gasoline price-cap law had saved consumers $33 million.

Since its September implementation, House Energy Committee chairwoman Hermina Morita publicly stated the gas cap was succeeding.

Last week, these two hard-working, honest and respected Democrats were made to look like liars by the House's sudden about face. These two are victims of "finger in the wind" politics a trademark of the House under Speaker Calvin Say's leadership.

As majority leader, Oshiro dutifully took the political heat while the rest of the Democrats hunkered down. Now that Say left Oshiro and Morita hung out to dry, at the very least he should publicly explain why he now supports repealing a law which his majority leader stated saved the consumers $33 million.

Clearly, as one newspaper columnist put it, Say and some Democrats are hearing (to borrow a word used in football jargon) "footsteps" as the elections loom. Indeed, when I asked one Democratic House member about the sudden about face, he lamented, "Backbone is not a norm in the House."

Sadly, as some may find out in the coming elections, if there is anything that voters dislike more than bullies, it is people who don't fight back.

As an alternative, Say and former Speaker Joe Souki have joined Gov. Lingle and House Republicans in proposing a so-called "transparency law." The proposed law sounds good, but upon closer analysis, it turns out to be shibai.

The proposed bill does not promote transparency. Under it, only the PUC is entitled to see the information provided by the oil companies. The public, the media, legislators, the governor and everyone not part of the PUC are left totally in the dark.

So secretive is the process that even if the PUC staff found wrongdoing by the oil companies, they could not make the information public. The public will get less information than it's already receiving about the oil companies' pricing practices.

Moreover, as Tim Hamilton, a nationally recognized independent petroleum-industry analyst recently concluded, the bill is cleverly written to reduce the PUC's current authority to look for evidence of price-fixing.

For example, the bill requires the oil companies to provide "weekly average prices" information which is literally useless because as Hamilton points out, "Average prices don't say exactly what time prices changed and the interval between each company's changes, so there's no way to tell if they are moving independently or in collusion."

Who wrote this preposterous piece of legislation? Surely it was not the same House research staff which concluded that the gas cap saved consumers $33 million.

Transparency? Hardly. The bill is more of a blindfold on the public's right to know.

Apparently Say and Souki have forgotten the lessons learned from the state's 1997 lawsuit against the oil companies. As the lawyers for the oil companies argued in court: Hawai'i's wholesale gasoline market is an oligopoly.

Oligopolies, by their very nature, are noncompetitive. There is nothing illegal about the oil companies charging the same prices for wholesale gasoline unless they conspired to do so. In Hawai'i, the two oil companies which control wholesale gasoline don't have to conspire all they need to do is virtually look across the street to see what the other is charging.

This reality is why my administration settled the state's lawsuit and then worked with the Legislature to establish the gas-cap law in the first place. The alternative was to do nothing.

Critics argue the gas cap hasn't lowered prices. No one really knows what the gas prices may have been without the gas cap. What is known, however, is that historically, while the oil companies were quick to raise prices when Mainland prices went up, they tended to keep prices up even after Mainland prices went down!

For decades, this is how Hawai'i consumers were gouged.

The gas cap saves the consumer money because when Mainland prices go down, the law forces Hawai'i prices to go down on a timely basis.

The best evidence of the gas cap's effectiveness in controlling wholesale gas prices is found by comparing the price of unregulated diesel fuel in Hawai'i with the price of diesel on the Mainland.

As the chart above shows, the price of diesel on the Mainland fell nearly 69 cents per gallon, or 21 percent. But in Hawai'i, the unregulated diesel only fell 18 cents, or 5 percent. Meanwhile, the gasoline prices regulated by the gas-cap law fell by the same percentage as gasoline on the Mainland, or about 26 percent.

If gasoline prices in Hawai'i (which historically tracked lower than and proportionately to the price of diesel fuel) had not been regulated by the gas cap and behaved in the same fashion as unregulated diesel fuel in Hawai'i, motorists in Honolulu would have paid $3.40 per gallon, or 73 cents more for regular unleaded on February 24, 2006 instead of the $2.67 reported by AAA.

Explaining how the gas cap saves consumers money is not easy. But a recent poll taken by the business-oriented publication Pacific Business News suggests business-oriented readers are beginning to catch on.

The PBN poll revealed 49 percent against the gas cap while 48 percent favored it. This is a far higher approval rate for the gas cap than other polls have shown for the general public. Since most PBN readers tend to be business-oriented people, the result may have come as a surprise to many.

Perhaps it is a good indication that business people for whom gasoline and diesel prices are important cost factors to their profit margins are beginning to understand how the gas-cap law is indeed working to their benefit.

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