Guest Viewpoint for Friday — December 16, 2005

• Time to repeal the gas cap law

Time to repeal the gas cap law

Re: District 14 Enews, December 2005

I recently received a copy of Rep. Morita’s newsletter that was devoted to the gas cap law. Of course the letter is slanted towards support of this ill-conceived law that has cost us millions of dollars in additional fuel costs and taxes for our gasoline.

In the preamble, Rep. Morita states that in at least 28 states the gasoline market is a tight oligopoly, a situation we face here in Hawai’i. The difference is that we are an isolated small market where these other states may be isolated, but have the opportunity to obtain their supply from adjacent counties or states, a luxury we are not afforded. Still there are 28 states that operate in this environment and understand the value of allowing the free market to set price without interference from onerous legislation. It is amazing that Hawai’i’s legislators think that our situation is so unique that they need to have government intervention, a conclusion not reached anywhere else. I think this only points out that what we have here is a fact of life, we have a small market that will only attract a few sellers.

The gas cap law has done nothing to lower prices and in fact it has had just the opposite effect, unrealistically raising our prices by being tied to markets that have nothing to do with our supply or market size. The Honolulu Advertiser and others have calculated that pricing under the Gas Cap has been 5-7 cents higher than before Gas Cap, when compared to the AAA national average, actually it is probably considerably more. If this goes on for a year, it will have cost Hawai’i’s consumers well over $20 million dollars more for gasoline, for which we have gotten nothing. We had enjoyed the benefit of a stable price fluctuation unencumbered by mainland problems and shortages prior to the gas cap. Now we are subject to every little problem that is experienced in these markets. The inflated prices we have had to pay in the past three months will never be recovered by the insignificant savings that may be enjoyed for a short period of time when the market is stable on the mainland. It is not hard math to figure that we have had our pockets picked in the past few months by the meddling of our legislature in the free enterprise system of business.

The Gas Cap has been touted as the “Fair Gas Price Law” which is so far from what is actually happening it should not even be used in the same breath. It costs each of us real money, and makes our prices jump around wildly in response to every little quirk anywhere on the mainland. What’s “fair” about that? The complicated formula does nothing except protect the profits of the big oil companies that they were trying to punish for what they perceived as unfair profits. The little guy, the jobber/distributor who delivers most of the gasoline on the outer islands has no protection and could be left with absolutely no margin to deliver fuel to their customers. This is far from a “Fair Gas Price Law,” not only has it already cost each of us hundreds of dollars in inflated prices, but has also cost us in taxes which has been a windfall to the state treasury, while placing small businesses in jeopardy. What is fair about that?

The letter goes on to state that the reason for this legislation is a result of the failed anti-trust lawsuit against the oil companies. That statement speaks for itself. The courts are the proper place to resolve issues like unfair pricing. But those who just hate the oil companies have decided to make their own assumptions about a few facts submitted in that old legal proceeding. This lawsuit was inconclusive, and settled. Two consulting reports, commissioned and paid for by the state, have concurred that there is not a problem with the gasoline supply and market in Hawai’i and recognized the market as being what it is. A small market that is served by two refiners and open to imported product by others, providing a competitive free market place.

If two refinery competitors are not enough, how about three? Four? Why is it that a few legislators think they are suddenly economics experts? These same consultants, along with others, concluded that there is no problem in Hawai’i, except that the petroleum industry is over-regulated … and that is the only conclusion anyone has ever reached. Although seen as the giant, Chevron is actually the smaller of the two refineries. A small group of legislators have their grudge against Chevron and have carried it to a point where we are now all paying for their inability to see the real facts concerning our petroleum industry in Hawai’i.

The task of implementing the gas cap law was placed with the PUC, who is diligently posting the prices on their website every Wednesday causing additional disruption of the normal way we had previously conducted our businesses. People now rush out to get fuel if the prices are going up on Monday and cause long lines, shortages and overall disruption of the free market system as we had known it. This causes additional costs for the suppliers, distributors and dealers who must now cope with the irregularity of their business schedules. If the prices are going down, no one buys unless they have to, causing cars to run out of gas, causing additional traffic delays, towing charges and disruption of the normal business day. The erratic moves in price as predicted by all of the experts now has our market totally disrupted. While prior to the Price Cap Law we experienced fairly stable prices, now we are faced with this volatility that the legislators wanted to see. Prices do move up and down drastically based on unrealistic references to markets that have nothing to do with the market place in Hawai’i. They have selected three supply points across the U.S., which makes it a virtual certainty that one or more of them will always be affecting our prices. If there are temporary problems in all three, you can expect our prices to skyrocket! Thanks to the legislators who wanted to see prices move with the mainland, our market is chaotic.

The PUC was primarily set up to monitor public utility pricing and ensure that monopolies did not exist in our public transportation system. It is ironic that Hawai’i remains the only state that has failed to deregulate transportation (trucking), but yet we have the only regulation of gasoline prices. How long do we have to wait before the legislature realizes that this experiment did not work and needs to be repealed? Hopefully it will happen before more small businesses are forced out of the market giving a larger share to the big oil companies. The free enterprise, open market system is what our country is based on and has been extremely successful in making us one of the strongest in the world. Let’s not make it any worse for the business community and realize that to survive we need government to let the system work.

If our legislators want to reduce the cost of gasoline to the consumers, then remove or reduce the Hawaii General Excise tax on gasoline and diesel fuel. This adds 4to the cost and just bolsters the state treasury without helping to improve roads or infrastructure. At today’s prices these taxes are adding $.10 to $.15 to the cost of our fuel. Let’s look at the real reasons why our prices are high, taxes and cost of doing business in Hawai’i. Hawai’i’s state and county fuel taxes are 40-1660gher than the national average fuel taxes. Our legislators want gas prices here to follow mainland prices, but they don’t want taxes to do the same because that’s THEIR revenue to fund THEIR budgets. It is time to repeal the gas cap law and let the free open market set our prices fairly and competitively, as they have been for decades.

  • Roger Cable

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