State House and Senate leaders, following up on a similar request by Gov. Linda Lingle, asked Chevron and Tesoro yesterday not to set wholesale gasoline prices at the maximum under Hawai'i's new gas cap law unless it is absolutely necessary to cover production and distribution costs.

In letters to executives of the state's two refineries, House Speaker Calvin Say, D-20th (St. Louis, Palolo, Wilhelmina Rise), and Senate President Robert Bunda, D-22nd (North Shore, Wahiawa), wrote that the purpose of the law is to protect consumers from price-gouging in a market Chevron and Tesoro dominate.

"If unfair profit-taking is an unintended consequence of the law, then Hawai'i's consumers have a right to demand even more stringent enforcement and transparency than currently exists today," the lawmakers wrote.

Over the first three weeks of the law, the baseline wholesale price by the state's Public Utilities Commission has increased by 71 cents, influenced heavily by the impact of Hurricane Katrina on the energy market. Wholesalers are expected to factor in a reasonable profit, as well as production and distribution costs, when choosing the prices they offer to retailers.

Retail gas prices could jump to $3.60 a gallon for regular on Monday on O'ahu and nearly $4 a gallon on the Neighbor Islands if wholesalers use the maximum prices under the law and retailers add typical 12-cent markups.

Albert Chee, policy and government affairs manager for Chevron, said yesterday that supply, demand, the gas cap and competition would influence prices next week. Chevron's goal, he said, is to keep its retailers competitive.

"It is the marketplace that sets the price," Chee said.

Lingle said yesterday her administration will continue to monitor the progress of the gas cap, but that she has no immediate plans to use her power to suspend the law. In late August, just before the gas cap took effect, the governor asked Chevron and Tesoro to use restraint because unexpected price increases had potential to damage the state's economy.

Lingle released a response to her letter yesterday from Bruce Smith, the chairman of Tesoro, who strongly recommended the state immediately end the gas cap. Chevron has yet to formally respond.

Smith wrote that Hawai'i is fortunate to have two refineries that increase the security of local supply when other markets may be tight because of disruptions such as Katrina. But he said artificial limits on the market, such as the gas cap, could threaten that security and lead to gas shortages.

Smith said the world market is reacting to Katrina by increasing prices to attract supplies. "This is what happens in a free market," Smith wrote. "Price controls such as the cap artificially interfere with the market process and have historically created supply problems and consumer hardships."

Lingle said yesterday that she would again propose legislation to make the oil companies' pricing policies more transparent, an idea Say and Bunda also referred to in their letters to Chevron and Tesoro.

Democrats supported the gas cap over Lingle's opposition and are concerned about a public backlash if gas prices continue to rise. Democratic leaders say that given time, the law will benefit consumers by keeping the state's traditionally high gas prices closer to Mainland averages.

"Community confidence is not built by pricing up to the maximum simply because the law permits you to do so," Say and Bunda wrote the companies.

Republican leaders have opposed the gas cap and have called for an immediate repeal to spare consumers higher costs.

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com.