honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Saturday, May 6, 2006

Gasoline price cap repeal won't cut costs

By Sean Hao and Dan Nakaso
Advertiser Staff Writers

Hawai'i's eight-month experiment with gasoline price controls ended yesterday, but the pain consumers are feeling at the pump will likely continue.

Gasoline prices should return to the pre-cap pattern of tracking consistently higher than the Mainland without any dramatic changes from week to week. There should be less difference between stations and no need to top off on Sunday night to avoid a jump in prices Monday.

"You will see more stable prices," said Barney Robinson, who operates Chevron stations in Kahala and near Honolulu International Airport. "You're not going to see these huge swings up and down like we've been having."

Gov. Linda Lingle signed a law yesterday that ended the price cap.

But if you had hoped prices would fall, you may be disappointed. "Hawai'i prices will still be higher than the Mainland," said David Hackett, president of oil industry consultant Stillwater Associates.

The reasons oil companies often cite for higher prices in Hawai'i will remain, including the cost of doing business here, high taxes, geographic isolation, lack of wholesale competition and a relatively small market.

That plus crude oil at near-record highs means Hawai'i drivers will be forking over plenty. And if prices drop on the Mainland, it will likely take longer for the decline to reach Hawai'i.

"You're getting rid of the price cap at a time when prices are high, so you would expect prices will come down slower in Hawai'i than on the Mainland," said Hackett.

The nation's only gasoline price controls were intended to bring Hawai'i more in line with the Mainland, where prices were historically lower but more volatile. What the cap designers could not anticipate was the controls would take effect just as Mainland prices soared to record highs.

For many consumers, who hoped the caps would bring prices down, the controls failed.

"What's the point of having a cap if prices keep going up," asked Mark Lucas yesterday as he pumped $22 of unleaded into his 1990 BMW 735i.

Lingle released a statement yesterday after signing the law that repealed the price controls. She cautioned drivers not to expect the price of gasoline to decline anytime soon, given the global demand for petroleum and limited supplies.

The gas cap law set a maximum wholesale price but left retailers free to set whatever price they wanted. The wholesalers, worried that the cap might drop in the coming weeks, had an incentive to price at the maximum.

"The oil companies set their prices to the cap," said Bill Green, a former owner and now consultant to Kahala Shell. "They didn't have to, but they were unsure what would happen on the back side, so they priced at the cap."

If wholesalers were keeping rates high because of the cap, there could be a slight drop as the market shakes off the law's effects.

"I wouldn't expect anything to happen for at least three or four days," said Chevron-station operator Robinson.

That would be short-lived, Green said, and then prices would resume their rise based on the cost of crude and other factors. With the price cap gone, gasoline prices "will continue to be driven by the cost of crude oil but at a slower rate," Green said.

Refinery outages and supply concerns have driven Mainland prices to near record levels in recent months. Potential problems from Bolivia to Iran are likely to continue to put pressure on crude oil prices.

Yesterday's average price for regular gas in Honolulu was $3.283 a gallon, according to the AAA Daily Fuel Gauge Report. The national average was $2.920 a gallon.

Several drivers yesterday said they were glad to see the end of the cap.

"I'm very happy," said Terrie Tatum of Kane'ohe as she flashed a thumbs-up.

Tatum works in market planning for a major bank and paid $29 to fill up her 2002 Toyota Rav4 with 8.9 gallons of regular gas yesterday. "I don't think controlling the market is ever a good thing," she said.

Others, however, were ambivalent about the move because they doubted the presence — or absence — of a cap would make a difference in the prices they pay.

"The gas companies are going to do whatever they're going to do," said Mark Sasaki of Kaimuki, who manages the Big City Diner restaurant in the Ward Complex of shops. "I was never for or against the cap because the prices are still going up."

The price cap helped spur a confusing era in Hawai'i consumer history in which drivers and station owners saw prices rise by as much as 44 cents in one week and fall by as much as 50 cents the next.

Island drivers learned to adjust their gasoline purchases depending on the Wednesday announcement by the Public Utilities Commission of each week's gas cap.

Some drivers learned to fill up in weeks when the cap was low — or eked out what little fuel they had in their tanks during weeks when the cap was higher.

Other drivers acknowledged spending precious fuel driving around to find stations with lower prices. At times, prices would vary as much as 20 cents among stations on O'ahu. And station owners often found themselves explaining to skeptical customers that their prices fluctuated depending on whether their own tanks were full of older gas bought under the previous week's cap or fresher fuel based on the current week's cap.

Some drivers said they were always confused by the cap, and so they don't know whether to be happy or sad about its death.

"I thought we needed a cap, but I didn't understand how it worked," said May Lyon of Waipahu. "It didn't seem like we gave it a chance."

Reach Sean Hao at shao@honoluluadvertiser.com and Dan Nakaso at dnakaso@honoluluadvertiser.com.

• • •