GIVE LAW A CHANCE TO MAKE PRICING FAIR

On Thursday, Hawai'i will become the first state in the nation to implement a new law designed to protect consumers from price gouging and to ensure that gas prices in Hawai'i are fair in comparison to Mainland prices.

On the eve of this historic moment, it is important that all of Hawai'i's consumers understand what this legislation accomplishes.

The legislation sets a limit on the wholesale price of gasoline in Hawai'i. Why wholesale and not retail? It's because many of Hawai'i's gas stations, especially on the Neighbor Islands, are owned by small-business people — "mom and pop" type operations — that survive on a thin profit margin in order to provide gasoline service to their neighborhood. If we were to cap their retail price and the wholesale price went up, their earnings would be squeezed even further.

Simply put, the big oil companies could run them out of business.

Additionally, the wholesale rate is generally what drives prices at the pump. These rates are set by the big oil companies, who many feel have been taking unfair advantage of Hawai'i consumers. Why is it that when the price of crude oil goes up, Mainland and Hawai'i prices go up, but when the price of crude goes down, Mainland prices go down and Hawai'i prices stay up?

Since the costs of refining and transporting gasoline in Hawai'i do not change as frequently, there is no explanation for this tendency other than profiteering.

When the fair gas price law was initially written, Hawai'i's policymakers realized that local consumers needed to be protected in two ways: first by lowering gas prices, and second by ensuring that refiners would be able to continue to operate and not cause gas shortages.

This is the reason the law ties Hawai'i wholesale gas prices to those in the major North American markets of Los Angeles, New York Harbor, and the Gulf Coast, providing for a balance of sorts.

On the one hand, this recognizes the need to equate our local market with those of major cities where prices tend to be higher than the national average. On the other hand, this brings parity for Hawai'i consumers, since prices in those very markets have historically been lower than in our state.

In fact, sometimes as much as 50 cents per gallon lower.

While much of the attention has been focused on gas prices in Honolulu, we realize that Neighbor Islands have an even bigger stake in reducing prices, since their per-gallon costs are consistently higher than on O'ahu.

The primary reason for their higher prices is transportation. Gasoline that is refined on O'ahu must be moved by ship to their ports and then trucked to their gas stations. This means additional costs that are currently passed on to consumers.

A problem would occur if a single wholesale rate were mandated for gas sold on all islands, since Neighbor Island jobbers, who buy gasoline from the major oil companies and transport and sell it to independent gas stations, would have to bear the cost of transporting the fuel.

Some say that this would drive jobbers out of business, leaving "mom and pop" gas stations unsupplied.

The Legislature recognized this special circumstance and gave the governor, through the Public Utilities Commission, the ability to adjust prices to account for added transportation costs. These "zone price adjustments" are added on to the mandated wholesale rate, and varies by geographic location within the state.

Transportation costs and Neighbor Island destinations should not be sufficient reasons for oil companies to cut off supplies, and will not drive jobbers out of business. Should transportation costs change, the PUC has the ability to tweak the zone price adjustments further, providing flexibility to the system.

The law allows the PUC to adjust virtually every other factor in the price limit equation, and also allows manufacturers, wholesalers, and jobbers to petition the PUC for additional changes. Therefore, there is no single rate applicable to the entire state, and the arguments used by the opponents to fair gas prices are unfounded.

As a fail-safe, the governor has the ability to suspend the law if any part of it ends up posing an adverse impact on the economy, public order, health, welfare, or safety of the people of Hawai'i.

While the legislation is intended to bring parity between Hawai'i gas prices and those elsewhere in the country, it should be noted that effects may not be immediately felt because of the current special circumstances of the petroleum market.

Skyrocketing prices of crude oil are increasing the costs of gasoline throughout the nation and the world, and it is likely that we will continue to see increases locally, even with the fair pricing legislation in place. However, if the law is allowed some time to work, the payoff will occur when crude prices start sliding back down.

At that point, Mainland wholesale prices will decrease, and the law will cause Hawai'i gas prices to decline as well. This will be nearly unprecedented in the history of our state's gasoline industry, and will ensure that Hawai'i consumers on all islands get fair prices on gasoline.