May 9, 2006 in Business

Failed experiment

Associated Press The Spokesman-Review
 
Associated Press photo

Calvin Reddick pumps gas into his car last week in Honolulu.
(Full-size photo)

HONOLULU — Hawaii’s gasoline price controls have sputtered to a stop.

The island state whose drivers pay the highest pump prices in the nation has given up on price caps after an eight-month, first-in-the-nation experiment. Some complained that the restrictions actually led to higher prices, because oil companies knew they could charge up to the maximum allowed.

“In a lot of people’s minds, they thought the gas cap wasn’t working,” said Republican state Sen. Paul Whalen, a strong supporter of the price controls. “It was hard to generate lots of support for it because we’re paying more than we ever were before.”

Gas is particularly expensive in Hawaii because of high state taxes and because of the costs of transporting oil across the Pacific. Last fall, Hawaii became the only state to cap the cost of fuel to try to give some relief to motorists.

Under the price control legislation, Hawaii set weekly caps on wholesale gas prices. Those caps were based on the average of prices in Los Angeles and New York and on the Gulf Coast. Then allowances were added for what it costs wholesalers to ship to Hawaii and distribute gas to more remote islands.

But there was no cap on the markup added by gas stations.

With regular gasoline climbing past an average of $3.38 per gallon in the past few weeks, lawmakers sent Republican Gov. Linda Lingle a bill last week to suspend the controls. She signed it on Friday.

Because the oil refiners keep their profit margins and costs private, it was difficult for even experts to say whether Hawaii drivers were paying more or less than they would without the gas cap.

“It’s ridiculous. Prices jumped up 20 cents in the last couple of days,” said Calvin Reddick, who paid $15 for just over four gallons of gas for his Volkswagen Beetle. “Usually when you have a cap, it’s supposed to freeze prices off. Obviously, their idea of a cap is different from mine.”

One study by an economics professor showed the gas cap cost consumers 5 cents more per gallon. An analysis by the state Department of Business, Economic Development and Tourism estimated that island motorists paid $54.9 million more than they otherwise would have in the first five months under the cap. But research by cap supporter Rep. Marcus Oshiro indicated the limits saved drivers $33 million.

“It was a failure, and other experts that have looked at it have said the same thing,” said Anita Mangels, a spokeswoman for the Western States Petroleum Association, which represents ChevronTexaco and Shell Oil. “It was well-intended, but apparently according to the state’s own agency has not served consumers well.”

With customer unrest mounting, oil companies lobbying aggressively to get rid of the cap, and the November elections looming, lawmakers felt compelled to act.

Rather than forcing down gas prices with a lower price ceiling, the mostly Democratic Legislature suspended the cap and gave Lingle, who had opposed any regulation of gas prices, the power to bring it back if she decides fuel has gotten too expensive. The legislators passed the responsibility to the governor.

At the same time, the new law provides for the computation of a hypothetical gas cap to let customers know what gasoline would cost if there were price controls.


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