Gas Cap Will be Extremely Costly for Hawaii

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Should Hawaii consumers pay an extra $27 million a year for gasoline for the dubious honor of being involved in a flawed government experiment that national and Hawaii experts say will decrease competition, increase the likelihood of gasoline shortages and raise gasoline prices?

Remarkably, that’s exactly what promoters of a gas-cap law are asking Hawaii consumers to accept. But it’s not necessary to conduct dangerous experiments on Hawaii consumers when rigorous historical analysis tells us what the likely outcome would be.


The distinguished Lundberg Letter compared what Hawaii’s historical gasoline prices might have been if the price cap had been imposed over the three-year period 1999 to 2002. So what did Lundberg find?

The average price of gasoline with the cap would have been 10.4 cents per gallon higher than the free-market average. While gas dealers would not be required to charge the higher cap price, economists have predicted that they would be likely to do so, to compensate for losses imposed by the cap. According to Lundberg, that would mean the flawed cap would have cost consumers $82 million more over the three-year period studied — money that could otherwise have been used to pay the rent or buy groceries.

In other words, based on the Lundberg analysis, the flawed gas cap law is likely to backfire on consumers by producing higher, not lower, gasoline prices. And that is exactly what local and national experts have been saying.

The Hawaii Legislature’s own expert, Stillwater & Associates, found that price caps would discourage competition, could result in higher, more volatile prices at the pump and possibly lead to supply shortages.

University of Hawaii professor Jack Suyderhoud said: “Ultimately, the price cap will be a failure. It may increase the volatility of gas prices, but it will not lower them.”

And the Federal Trade Commission found that the price control in Act 77 Hawaii Price Cap likely would create gasoline shortages. Furthermore, Oahu and the Neighbor Islands are very different markets in size, gasoline demand and even the county taxes collected at the pump. These factors and others shape the marketplace and are a part of what is accountable for the price differential. Check and you will find this true for most other consumer goods and services.

For a legislator to say “Neighbor Island residents would realize substantial savings” is at best highly speculative. The fact is that Act 77 is a “one size fits all” proposition that could cause many of the existing gasoline dealers to go out of business.

And don’t think that the price could fall and provide Neighbor Island motorists “substantial savings” without a consequence. Neighbor Island dealers lobbied hard against the passage of the gas cap as a matter of survival. Many of them have been openly critical and have said publicly they will have to close. How would the price change if there were fewer choices in the marketplace? The only likely answer is not one that would benefit consumers.

In conclusion, the real reasons why we all pay more include higher taxes, a small marketplace, which means we don’t benefit from economies of scale, and, according to the Federal Trade Commission, anti-competitive laws here in Hawaii. These are the expert opinions of U.H. professors, petroleum economists, past Hawaii attorneys general and countless taxpayer-funded studies.

Do Hawaii consumers really want to be guinea pigs in another costly and dangerous government experiment?

”’Melissa Pavlicek, an attorney with Alston Hunt Floyd & Ing, is an advocate for the Western States Petroleum Association, which is a non-profit trade association representing petroleum activity in the Western states.”’