Hawai'i's gasoline price cap could have cut prices 5 cents to 10 cents a gallon — if they weren't suspended in May 2006, according to a new report on the state's petroleum sector.

However, the report, which was paid for by the state Public Utilities Commission, does not recommend bringing back the controversial wholesale price cap, which caused pump prices to whip up and down for more than eight months starting in September 2005. Instead, Fairfax, Va.-based ICF Consulting recommends the state keep a modified, but suspended, gasoline price cap in place to deter possible oil industry misbehavior.

The report, which was produced as part of a new oil industry monitoring program, is likely to serve as a framework for any regulatory changes the Legislature may make during the session that starts in January. So far it seems unlikely state lawmakers will push to reinstate price caps.

"Going back to a full price cap would not be the way to go, in my mind," said state House Majority Leader Kirk Caldwell, D-24th (Manoa). "At this point, I think we should keep it in suspension and see how we can improve the reporting system."

Lawmakers suspended the unpopular wholesale gasoline price controls in favor of a stepped-up petroleum industry monitoring and reporting program. It was hoped that a public spotlight would discourage unfair pricing while being more market-friendly than price caps.

Under the $1.2 million-a-year reporting program, oil companies must disclose crude oil costs and sources, refinery operating expenses, marketing and distribution expenses, and corporate overhead expenses to the state Public Utilities Commission.

Although most of the data gathered by the PUC remain confidential, the agency was required to submit a report to the Legislature by the end of this week.

According to the report, profit margins at Hawai'i's two refineries — Tesoro and Chevron — are lower than on the Mainland. However, the state's high gasoline prices are driven by dealer and supplier margins that are well above Mainland markets. That's partly the result of Hawai'i's higher costs and a lack of Mainland-style competition. Margins are the difference between the cost and the selling price for oil and oil products.

Despite the higher margins, Hawai'i pump prices generally track world prices and aren't caused by "collective" price changes, according to the report, which is based on September 2005 to May 2007 data.

Tesoro and Chevron officials declined to comment yesterday.

ANSWERS WANTED

The report provides good insight into industry margins but does not answer whether oil profits in Hawai'i are excessive or a result of anti-competitive behavior, Caldwell said. He said he expects the Legislature to refine the petroleum industry program in hopes it provides such answers.

"We do have some information now on margins, but we don't know what profits are," Caldwell said. "Is there excessive profit or not?

"We need that information and we don't have it."

The ICF's findings seem similar to the 2003 Hawai'i oil industry report conducted by Stillwater Associates of Irvine, Calif.

Stillwater pegged Hawai'i's high prices to a lack of competition, geographic isolation and Hawai'i's small market size, among other things.

"Given all that, prices tend to settle in, people find their share of the market and not much changes," said Stillwater President David Hackett.

Stillwater also recommended the state avoid implementing price caps.

"We thought they were a bad thing going in, (and) they turned out to be a bad thing," Hackett said yesterday. "Some time later you can say, 'Well, if they had been maintained, the price would have been lower.' Yeah, but they never would have gotten so high in the first place."

UP-AND-DOWN PRICING

The caps, which tied Hawai'i prices to Mainland markets, caused Hawai'i prices to rapidly rise and fall. If the caps were left in place, they would have forced wholesale prices to more rapidly fall in the summer of 2006. However, the same caps would have forced gasoline prices artificially higher this spring.

"Overall, wholesale prices to retail stations may have been lower by 5 cents to 10 cents (per) gallon across different zones had gas caps been continued and suppliers maintained their normal pricing patterns versus each other," according to the report.

Bob Swartz, who operates Chevron stations in Kane'ohe and Kailua, said Hawai'i's high gasoline prices are a result of Hawai'i's higher costs.

"These are highly regulated oil companies that have a responsibility to their shareholders to make money," he said. "They also have a responsibility to provide product, and it costs money to provide product.

"I'm saddened that the Legislature can't figure out better things to do with its time than to look at the books of an oil company."

Reach Sean Hao at shao@honoluluadvertiser.com.

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