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State to impose wholesale limit on gasoline cost



Published: Fri, August 26, 2005 @ 12:00 a.m.



Residents are unsure whether the caps will be helpful or harmful.

SAN FRANCISCO CHRONICLE

Surrounded by ocean, with just two refineries to make its fuel, Hawaii pays the nation's highest prices for gas.

The state's drivers spend an average of $2.84 for a gallon of regular -- less in the big cities, far more on outlying islands.

California might seem to be setting a price record almost every day, but that state's average is still 4 cents lower than Hawaii's.

Tired of those chronically high costs, Hawaii will begin limiting the wholesale price of gasoline next week, the first such effort in the United States.

The price cap won't cover retail sales, so gas station owners will still be able to charge drivers whatever they like. But wholesalers will see their prices set by the state.

The price caps would not force wholesalers and refiners to sell below market costs but seek to prevent gouging -- which many Hawaiians blame for their prices.

With the caps due to take effect Sept. 1, no one quite knows what to expect. Opponents have warned that the cap formula -- which links Hawaii's costs to those in Los Angeles, the Gulf Coast and New York -- could raise prices, not lower them. Warnings of gas lines and shortages have filled the islands' press.

Controversial experiment

But the experiment is drawing attention from the mainland.

Ever since retail price limits during the 1970s led to gas lines nationwide, many politicians and consumer advocates have been leery of caps. But they don't dismiss the idea, either. Many believe that if it works in Hawaii, maybe it would work elsewhere.

"Price caps are not a solution to a dysfunctional market. However, they are a damage-control measure until solutions are developed," said California state Sen. Joseph Dunn, who has called for state regulation of the gasoline market.

"If they're necessary to prevent the bleeding of consumers, then I would support price caps as a temporary measure while we develop real solutions."

Hawaiians are waiting to see whether their prices rise or fall.

"I think it's initially going to hurt," said William Aila Jr., 47, harbor master of a marina in Waianae.

"But if we're looking at a world where gas goes to $5 but it's capped here at $3, then that wouldn't be bad."

Current situation

The state released its first list of wholesale prices Wednesday, with different caps for different islands.

Wholesale gasoline on Oahu, for example, will be limited to $2.16 per gallon for regular.

If wholesalers charge the maximum price, then toss in taxes -- also the nation's highest -- as well as a typical 12-cent dealer markup, drivers could pay about $2.85 per gallon.

Regular now sells for $2.76 in the Oahu city of Honolulu.

The price caps will be updated every week.

The prospect that retail gas prices could actually go up instead of down has given cap opponents an argument for blocking the law. They have asked Gov. Linda Lingle to suspend it before it takes effect. Lingle, a Republican, criticizes the measures but has refused to block it, saying she can't unless it causes significant harm.

"At best, the gas prices will probably go up a little bit, and there will be some spot shortages," said state Sen. Sam Slom.

"If you're the governor, and you think it's going to harm people, especially on the neighbor islands, you've got to act. ... How much pain must taxpayers and small businesses go through?"

Oil companies also hate the idea. Although the state's politicians often accuse them of price gouging, the companies insist that Hawaii's geographic isolation, laws governing the location of new company-owned stations and overall high costs of business inflate local gas prices.




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