Sunday, August 28, 2005

Hawaii caps gas prices

CNBC News - Hawaii became the first state in the nation to take government action against rising gasoline prices today, placing a cap on wholesale gas prices starting Sept. 1 to prevent what legislators see as price gouging on the islands.

But if crude prices climb as high $100 per barrel -- as one expert, who made a spot-on prediction last year, says -- more states could try to find ways to keep energy prices in check. Michigan, for example, has a proposal on the table that would suspend the state gas tax when prices rise above $2.30. Oregon, California, New York and Connecticut all have debated the merits of regulating the price of gas.

The American Petroleum Institute, an oil industry trade association, says regulating prices would bring disaster.

"That would be the stupidest thing on Earth we could do. It would throw us back into the 1970s," John Felmy, the institute's chief economist, told Knight-Ridder Newspapers. Price controls in force from 1973 to 1981 were blamed for that decade's volatility and shortages.

Could the cap backfire?

Hawaii has the highest average gas price of the 50 states and supporters of the cap say refiners are jacking up the prices because of the state's isolated position. Starting Sept. 1, wholesalers in Honolulu won't be able to charge more than $2.1578 cents per gallon, which should keep retail prices no higher than $2.86 per gallon, the Associated Press reported.

Statewide prices average $2.84 per gallon right now and the cap, based on five-day prices in New York harbor, Los Angeles and the U.S. Gulf Coast, will be adjusted to stay in line with nationwide prices.

Not surprisingly, the oil industry isn't happy with caps, saying Hawaii's gas prices are due to high taxes, CNBC's Rob Reynolds reported.

"I'm very concerned about this legislation," John Llemy of the American Petroleum Institute, told CNBC. "It could have strong negative effects for Hawaii and it could have limited positive benefits for consumers because, while wholesale prices are capped, retail prices are not."

Hawaii Gov. Linda Lingle, has said she worries the cap will actually increase prices and create fuel shortages, the Associated Press reported. The governor has the power to suspend the price caps if she determines they would cause a major adverse impact on the economy, public order, or the health, welfare or safety of the people of Hawaii.

Fereidun Fesharaki, an energy expert at the University of Hawaii's East-West Center in Honolulu, said the gas cap was "a stupid idea" that could force one of Hawaii's two refineries to leave, according to the AP.

Consumer groups disagree.

"Price caps are a great idea, because they are providing a solution to an uncompetitive market," Tyson Slocum, analyst and the consumer advocacy group Public Citizen, told CNBC. "Right now gasoline markets, particularly in Hawaii are very dysfunctional. You have a direct correlation between the record profits oil companies are making and the record prices consumers are paying."