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The Honolulu Advertiser
Posted on: Thursday, May 4, 2006

Phantom gas-cap law near passage

By Sean Hao
Advertiser Staff Writer

State Sen. Ron Menor rose on Tuesday to oppose a Senate floor amendment that would have removed Singapore gasoline prices as a factor in the monitoring and possible control of Hawai'i prices. One opponent said Menor's plan could give the public false hopes.

BRUCE ASATO | The Honolulu Advertiser

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A new gasoline price-cap law about to be passed by the Legislature would shave more than a quarter off the price of a gallon of fuel, but only in the unlikely event that the governor implements it.

Today, the last day of the Legislature's session, lawmakers are expected to adopt a bill that suspends the state's controversial gas cap law and replaces it with a phantom price limit.

Under the new formula, the maximum wholesale price for gasoline would be slashed by 27 cents a gallon this week, according to Advertiser calculations. The cap, however, could only be implemented at the governor's discretion and only for a 30-day period. Since Gov. Linda Lingle opposes price caps, it's unlikely she would choose to enforce it.

The formula for the nonfunctional price cap, which was developed by the state Senate, adds Singapore to the three Mainland markets whose prices will be used to calculate the cap. Only the three lowest markets would be used to calculate the caps.

Under the new formula, the cap next week would be nearly 33 cents lower than the actual cap.

"I think that this demonstrates that if the Legislature had adopted my original proposal to strengthen the original gas price-cap legislation, consumers would be seeing significant savings at the pump," said Sen. Ron Menor, D-17th (Mililani, Waipi'o), a key supporter of the gas cap.

The phantom cap will allow consumers to judge for themselves whether pricing controls should be reinstated, Menor said.

Support for the phantom cap has been less robust in the House, where members contend Menor's price-cap formula may give consumers the impression gasoline prices are unduly high.

"The numbers of the senator from Mililani (meaning Menor) are arbitrary, and for that reason, are dangerous and misleading for consumers," said Rep. Kirk Caldwell, D-24th (Manoa). "Even though it's not a gas cap, people will look at it and they will use it to say, 'This is where prices should be.' It will provide the public with false expectations and false hope."

Hawai'i's price-cap law took effect in September. It has become increasingly unpopular as pump prices have continued to increase.

Menor said the proposed, lower price-cap formula still allows Hawai'i oil companies to earn a higher profit than companies in more competitive Mainland markets.

"The (price-cap calculation) numbers were not pulled out of thin air," Menor said. "We wanted to ensure the oil industry would continue to earn a reasonable profit."

This week and next week's proposed, noneffective wholesale price cap would be sharply lower because high prices in Los Angeles would be eliminated from the cap calculation in favor of Singapore prices. Yesterday, the closing price for Singapore gasoline was 63 cents a gallon lower than the California price, according to the Bloomberg News Service. In addition, the new price-cap formula reduces the profit margin on gasoline sales.

Under the bill, the state Public Utilities Commission would no longer be responsible for calculating and publishing the price-cap levels, which change weekly. That responsibility would be left to the general public. The bill also would boost oversight and monitoring of the state's oil industry. Oil companies will have to disclose crude oil costs and sources, refinery operating expenses, marketing and distribution expenses, and corporate overhead expenses under the proposal.

Melissa Pavlicek, a spokeswoman for the Western States Petroleum Association, which represents ChevronTexaco, Shell Oil and Tesoro Petroleum, said the new cap is still a bad idea.

"The new formula seems to be just a desperate attempt to salvage a failed experiment by cherry-picking new criteria that proponents hope will achieve better results," she said. "We question whether or not gas-cap proponents will change the formula whenever they're unhappy with the results."

Reach Sean Hao at shao@honoluluadvertiser.com.