State's Price Controls on Gasoline Are Said To Have Cost Consumers

    Hawaii is about to scrap its effort to legislate away high gasoline prices, after the state's "gas cap" law failed to lower prices at the pump and led to claims that the regulation cost drivers tens of millions of dollars since it went into effect in September.

    "It's farcical, to be honest," the president of a gas station chain on the islands, Richard Parry, said in an interview yesterday. "Everyone sort of says, 'This obviously hasn't worked.'"

    In a vote earlier this month, only one of Hawaii's 51 state representatives voted to retain the cap. Even the state senator who led the drive to institute the cap last year has endorsed the idea of suspending the cap indefinitely, though he has also proposed modifying the price controls so they would only kick in under certain conditions.

    A study released in February by the state's Department of Business, Economic Development, and Tourism concluded that the caps cost consumers as much as $55 million.

    Mr. Parry said the caps encourage wholesalers to hike gas prices. "It's a natural business decision that if you're not sure if you can make money when the prices go down, I better make money when the prices go up," he said. "What happened is the market basically follows the cap. A bunch of independent decision-makers come up with the same logical choice."


    Mr. Parry said he was sympathetic to the lawmakers' desire to see lower gas prices, but didn't think they could fend off the economic forces at work. "You can't pick a piece of the market and regulate only that," he said. Mr. Hamilton contends that the gas cap may not have failed at all, but may have headed off even greater increases in price.

    The cost of diesel fuel, which is not covered by the cap, jumped in Hawaii by about 70 cents since last year, he noted. "It's not been in effect long enough to tell what it's done," said the analyst, who works with independent station owners often at odds with the oil companies.

    Hawaii's house has voted to address the price concerns by lowering gas taxes by 8 cents a gallon, but proponents of the gas cap have not given up on it altogether. The latest proposal from the state senator who initiated the legislation, Ron Menor, calls for adding Singapore's wholesale spot prices to the three mainland prices already included.

    The most expensive price would be dropped from the average in order to weed out local disruptions like hurricanes in the gulf. The cap, which already includes local adjustments for the costs of transporting fuel among Hawaii's six main islands, would be triggered only if prices exceed the "fair price" target over a two-week period.

    Mr. Parry said the escalating complexity of the caps and targets will only bring more volatility in what has traditionally been a stable market

    "It's artificially trying to emulate a free market and there's just no way government can effectively do that. We've proven that in the last six months," he said.