Screwing On The New Gas Cap

Larry Price
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Wednesday - August 31, 2005
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The gas cap has been a long time coming, and now it is here. What will happen? Many experts guarantee that the retail price of gasoline will rise. Some critics say the new gasoline cap will serve as a motivation for at least one of our oil refineries to close up operations.

I’m definitely not an expert on energy. But if the new state law caps the price of wholesale gasoline and the prices go up, in my simple way of thinking, that’s not a gas cap.

Being that we are the only state in America that has a gas cap, I thought it would be interesting to find out how we arrived at such a momentous decision.

The interest in a gas cap began with an investigation into a petroleum spike in the wake of the temporary shutdown of Alaska North Slope crude oil shipments because of the 1989 Exxon Valdez spill. At that time, approximately 50 percent of Hawaii’s crude oil was supplied from Alaska North Slope refinery. The investigation found no criminal activity and no prosecution was necessary. The concern about gasoline prices continued with legislators imposing divorcements on refineries’ownership of retail service stations. Additionally there were moratoriums in 1995 to give the AG and the DBEDT cause to study Hawaii’s petroleum industry policies.

The idea of regulating Hawaii’s petroleum industry died in the Legislature in 1995. In 1997 they decided to collect petroleum industry data because there was no money to implement the plan. At this point, the DBEDT formed a powerful Petroleum Advisory Council (PAC) to examine the gasoline market. It was at one PAC meeting that state Attorney General Margery Bronster told the PAC Council that the state intended to file an antitrust lawsuit and called for a halt to further PAC meetings. Obviously, the action came from the Executive Branch of government.

That year, as promised, the state of Hawaii filed a $500 million suit (Antitrust Litigation Anzai v. Chevron). The suit alleged over-charging customers for several years, naming 13 corporations. In March 1999, the state of Hawaii raised the suit to $1 billion, charging illegal profits higher than first anticipated.

Surprisingly, BHP Hawaii Inc. and Tesoro Petroleum Corp. settled in January 2000, and admitting no wrongdoing paid the state $15 million. In 2002, the remaining defendants settled, also not admitting any wrongdoing, for $20 million.

In 2002, a flurry of proposals were introduced to regulate the petroleum industry. Most of them originated in the House of Representatives. The DBEDT urged caution on any attempts to regulate the petroleum industry. It pointed out that price controls could send anti-investment signals and cause greater market concentration, create exacerbating barriers to entry and create shortages based on historical evidence.

Contrary to all the evidence produced in the legislative process, Act 77, as it’s known, passed calling for implementation of price caps. It became law without the governor’s signature, so the implementation was delayed until Sept. 1, 2005.

The language of the bill is somewhat baffling. For instance, the bill’s stated objective is to “enhance the consumer welfare by fostering the opportunity for prices that reflect and correlate with competitive market conditions.” What does that mean? There is nowhere in the bill that commands the petroleum industry to admit how much profit it is making by selling gasoline at either the wholesale or retail price. It’s almost comical that the bill also mandates the establishment of a task force (just like PAC earlier) to investigate the petroleum industry and its operations on the neighbor islands. They have not done this yet. Neighbor island consumers are evidently on their own.

So what can we expect to happen? My bet is nothing much. The governor has emergency powers to stop the implementation; however its use is explicitly controlled in the language of the bill. After that, it’s up to the legislators to pass more legislation. If the past is any indication, attempts to regulate our petroleum industry are going to receive a lot of national attention, both good and bad. And yes, more legislation.

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