Hawaii To Cap Gas Prices, California Considering It

[KittyWampus]

August 30, 2005 latimes.com

California Watches Hawaii's Effort to Cap Gasoline Prices
By Elizabeth Douglass, Times Staff Writer


With chronically high pump prices straining its laid-back ethos, Hawaii embarks this week on a radical experiment to cap gasoline prices, a move being keenly watched nationwide by legislators and consumer groups eager to rein in record fuel costs.

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"Hawaii is taking the absolutely correct approach to the gasoline industry," said Dunn (D Santa Ana/CA), a strident critic of energy companies. "The more states that follow Hawaii's lead, the sooner we'll be able to force this industry to get back to normal market behavior that benefits the consumer but also allows them a reasonable profit."

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For starters, Hawaii's limits don't apply to the retail prices that consumers pay at the pump. Instead, the caps will be placed on prices charged by gasoline wholesalers Chevron Corp. and Tesoro Corp., which own the state's two refineries, and a range of smaller companies that act as middlemen, buying fuel in bulk and delivering it to service stations.

The law's proponents believe that capping wholesale prices will reduce the profits of refiners without hurting retailers, whose gasoline margins are relatively small. Even though gas stations aren't obligated to pass along any savings from the price controls, backers hope that "somebody will break ranks" and not pocket the entire amount, said Scott Foster of Advocates for Consumer Rights, one of two consumer groups that helped shape the gas cap law.

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Oil industry executives warn of unintended consequences, including gas shortages.

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Critics say that the state's gasoline prices tend to rise along with fuel prices elsewhere in the country, but don't retreat when prices fall in the continental United States. That pattern became a sore point after a state antitrust lawsuit against Chevron revealed that the oil company's Hawaii operations were far more profitable than similar facilities on the mainland.

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Chevron and Tesoro argued that limiting prices would artificially depress profits and discourage them from investing in and expanding their facilities. Republican Gov. Linda Lingle tried unsuccessfully to have the final version repealed.

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Gasoline price limits haven't been tried in this country since the early 1970s, when runaway inflation and the Arab oil embargo caused oil and gasoline prices to soar. President Nixon responded with a raft of price controls that included gasoline and oil.

There were fuel shortages and lines at gas stations in some areas as oil companies shifted supplies around in a nation accustomed to cheap and plentiful gasoline. The price controls were lifted in 1981.

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