How Hawaii's Gas Cap Raises Prices
By Andrew Walden, 11/3/2005 2:16:43 PM
- Andrew Walden is the publisher and editor of Hawaii Free Press, a Big Island-based newspaper.
Visiting the Big Island Oct 26 to discuss the Gas Cap Law in meetings with dozens of gas station owners and with students at UH Hilo, State Senator Sam Slom encouraged everybody involved to rely on their own efforts to educate the public about the Gas Cap’s effects. Station owners are working to explain to their customers about the law which suddenly caused Hawai`i gas prices to shoot up to nearly $4 per gallon.
One question which comes up frequently is, "How does a ‘cap’ make prices go up?"
Hawaii’s Gas Cap Law sets the maximum price at which gasoline wholesalers may sell gasoline to retail gasoline dealers.
* By fixing that maximum price, the State is also informing our two refiners, Tesoro and Chevron, of the highest price at which their customers, the wholesalers, may sell.
* Armed with that information it is a simple decision for the refiners to raise the price at which they sell to wholesalers to just below the wholesale cap price.
* This in turn forces wholesalers to set their prices at the cap maximum.
* That price is passed on to independent dealers who buy from the wholesalers.
* The higher independent-station retail prices allow refinery-owned service stations to raise their retail prices accordingly.
The state legislators who foisted this law on Hawai`i have completely short-circuited the competition which normally keeps prices in check.
It may seem to prove legislators are ignorant of basic economics. But the five-step process shows they know exactly what they are doing.
Some believe the law is an effort to "get Chevron" in revenge for failed 1990s state litigation. If so, the law is working strangely, pumping millions into the coffers of both Chevron and Tesoro. But the drama is not yet over. On October 12 State Attorney General Mark Bennett called on the Federal Trade Commission to investigate "price gouging" by oil companies. One regulation creates the excuse for the next.
If the Gas Cap ever reaches a point where it actually cuts prices, Hawai`i may see massive shortages. Who would sell gasoline below their cost of production?
Hawai`i motorists are now seeing spot shortages as station owners run their tanks dry near the end of the week to avoid getting stuck with last week’s expensive gas as their competitors sell the next week’s cheaper gas.
Further shortages occur mid-week as motorists who let their tanks run dry all fill up at once when prices drop. In the event of more serious supply disruptions, socialist-minded Democrat legislators can be counted on to attempt a state takeover of one or both refineries. Then they would finally achieve their goal of "getting Chevron." One government regulation creates an excuse for the other and then finally brings nationalization.
Instead of piling on regulations, driving prices up, causing shortages and taking private property, the Gas Cap law should be repealed.
If low prices are the goal, expand port facilities to allow more importation of refined gasoline from out of state. Competition keeps prices in check. Regulation leads to higher prices, shortages and more regulation.
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