A month ago, Hawai'i drivers had little reason to worry about a fire at a California oil refinery or a hurricane in the Gulf of Mexico.

That's no longer the case.

When Hawai'i's new gasoline price cap takes effect Thursday, the cost at pumps here will be tied to prices in Los Angeles, the Gulf Coast and New York.

This week it became apparent how that might play out.

A fire at a Tesoro Petroleum Corp. refinery near San Francisco on Wednesday cut gasoline production and led to higher prices in Los Angeles. Hurricane Katrina caused production to drop in the Gulf of Mexico.

The combination of those two events could lead to as much as a 14-cent jump in Hawai'i's wholesale gas prices starting Sept. 5, the second week the caps will be in effect.

"We're going to get hammered," said Jack Suyderhoud, a business economics professor at the University of Hawai'i at Manoa. "You're going to have these things happening because we're linking our prices to those markets, and they're volatile, even without these events."

Hawai'i's mostly Democratic Legislature adopted the gasoline price controls last year to bring the state's traditionally high prices more in line with the Mainland. They were frustrated by years of watching Mainland retail prices drop in response to dips in crude costs without a corresponding drop in Hawai'i prices. But because the price cap is taking effect at a time of high Mainland prices, it could actually lead to a rise in rates here.

"These are some of the problems that we do face," said Rep. Hermina Morita, D-14th (Kapa'a, Hanalei), a proponent of price caps. Morita said the law's goal was to make Hawai'i prices fair by linking them to larger markets. While that may mean Hawai'i prices will rise now, they will fall when Mainland prices fall, she said.

"We need to reflect and to correlate to a competitive market," Morita said.

But competitive also means volatile.

Just how volatile the California market can be was illustrated last week.

The fire at Tesoro's Golden Eagle refinery drove wholesale gasoline prices in Los Angeles up 10.5 cents Thursday followed by a further 13-cent jump yesterday when the price closed at $2.28 a gallon, excluding taxes, according to Bloomberg News. The retail price for regular gasoline in Los Angeles yesterday was $2.80, according to the AAA Daily Fuel Gauge Report.

Sarah Simpson, a Tesoro spokeswoman, said the company would know more next week about when production at the refinery might return to normal.

On the Gulf Coast, where Katrina threatened key production areas, wholesale prices rose nearly 18 cents last week to close at $1.945 a gallon for regular. The retail price for regular gas in Mobile, Ala., was $2.52.

Both incidents were considered temporary problems, which in the past likely would have had minimal impact on Hawai'i prices. However, under the law, wholesale prices in Los Angeles, the Gulf Coast and New York are averaged each week to come up with Hawai'i price caps for the next week.

Wholesale prices in the three Mainland markets on business days between Aug. 24 and 30 will be used to set Hawai'i's maximum wholesale prices Sept. 5-11.

The wholesale cap is an average of those prices plus a margin to account for the costs of shipping, distributing and marketing gasoline in Hawai'i.

The average wholesale price in the three Mainland markets from Wednesday through yesterday was $1.983 a gallon. If those prices hold, O'ahu's wholesale cap effective Sept. 5 would be $2.26 a gallon. Tack on 60 cents in taxes and an estimated 12-cent dealer markup, and retail prices could rise to $2.98 a gallon in the second week of the price cap.

That's 21 cents more than O'ahu's average retail price of $2.77 for regular gas yesterday.

"That's the way this is headed," said David Hackett, president of Stillwater Associates, which has produced a report critical of gasoline price caps.

The caps don't require wholesalers to price at the maximum allowed, but economists and oil industry analysts say it is likely they will to offset times when they are forced to lower prices.

The gas caps are supposed to give oil companies acceptable profit margins. However, the oil industry opposes the caps. Industry officials and other critics contend the caps could result in shortages and higher prices, and possibly close one of the state's two refineries, which would result in hundreds of lost jobs.

Gov. Linda Lingle also opposes the caps, saying there are better ways to address the problem of high prices in Hawai'i. Lingle also said she hopes for the sake of consumers that she is wrong about the price caps and that they do bring down prices.

An Advertiser analysis of the impact that price caps would have had, if they had been in effect over the past year, shows that there would have been periods when the caps saved consumers money. However, overall, the caps could have resulted in slightly higher average prices.

Morita, the Democrat from Kapa'a, and Sen. Ron Menor, D-17th (Mililani, Waipi'o), said this week that the Public Utilities Commission, which administers the program, should alter the gas cap formula to bring prices down at least on O'ahu.

The PUC responded yesterday that it will be difficult to change the formula before the Sept. 1 start date.

Reach Sean Hao at shao@honoluluadvertiser.com.