In September and October of 2003 and 2004, Hawai'i's average gasoline price moved within a 7-cent range.

After the cap was imposed, the volatility of Hawai'i gas prices increased ten-fold. During that time period that Hawai'i prices traversed a 75-cent range, the national average moved within a 44-cent range.

STILL THE HIGHEST

To be sure, September and October were two of the most chaotic months for the nation's fuel market because of pricing fluctuations caused by hurricanes Katrina and Rita.

Still, Hawai'i's gas prices moved more than Mainland prices and remain the highest in the nation.

Last year, state lawmakers, noting that Hawai'i's prices rose steadily and rarely experienced the steep declines sometimes seen in Mainland states, designed the wholesale price cap so that Hawai'i consumers would also experience the declines.

The cap sets a maximum that can be charged on a pre-tax wholesale basis and is computed each Wednesday from spot-market prices in three Mainland markets over a five-day period. The announced price takes effect the following Monday.

Proponents of the law said retail prices have been tumbling in recent weeks because of the wholesale cap. During the past three weeks, the state Public Utilities Commission has announced cap cuts totaling 74 cents.

"This wouldn't have occurred if gas pricing regulation weren't in effect," said state Sen. Ron Menor, D-17th (Mililani, Waipi'o), chairman of the Senate Consumer Protection and Housing Committee and an author of the gas-cap law.

"Prior to the implementation, Hawai'i's prices were stable in that they were always consistently the highest in the nation, and Hawai'i consumers would only see increases but they would never see substantial decreases when Mainland prices would fall."

Moreover, Menor and Frank Young, a former Chevron service station owner and a member of consumer advocacy group Citizens Against Gasoline Price Gouging, said the volatility was always expected because of the tying to Mainland markets.

"We went up the fastest, but we also came down the fastest," said Young, referring to the drop in recent weeks.

Menor also noted there's been periods when the difference between Hawai'i and U.S. gasoline prices have been greater. For example, during a 7 1/2-week period in December 2004 and January 2005, the difference averaged almost 61 cents.

"The reason why the gas pricing law is generating savings and beginning to work is that the regulation is requiring the oil companies to lower wholesale prices when Mainland prices fall, which historically they had never done before," Menor said.

He also noted Hawai'i's volatility is in line with or less than price swings experienced by other markets, including those in Maine and Atlanta, and that the hurricanes were a major factor in the surges and plunges the state experienced.

Menor's and Young's arguments mean little to state Republicans who opposed the law. Gov. Linda Lingle said she continues to believe the cap law is failing to regulate gasoline prices and will seek its repeal during the next legislative session.

"I don't think people should be fooled just because they're lower than the highs of a week or two ago," Lingle said earlier this month.

Critics of the law say there is little reason to rejoice when the cap brings prices down after first pushing them higher.

"It's equivalent to saying 'It's a good thing you're recovering from that gunshot I did to your head,'" said Paul Brewbaker, Bank of Hawaii chief economist. "I'm pretty sure implementation has involved a loss of consumer welfare."

Part of Brewbaker's argument stems from the linking of Hawai'i's wholesale prices to those on the Gulf Coast, New York and Los Angeles while Hawai'i's refineries get most of their crude oil from Asia. Before the cap, Hawai'i prices might not have risen as much as they did after a hurricane on the Gulf Coast.

Besides more volatile prices, the cap brought with it substantial disruptions to service stations and consumer habits. Surges and lines at stations when prices declined caused headaches for distributors who were unable to reach some stations before they ran out.

Chevron, which saw only one of its stations run out of gasoline in the first eight months of this year, saw 50 run out in September, said company spokesman Albert Chee.

"I don't know how supporters of the cap continue to contend Hawai'i's consumers are better off in light of those facts," Chee said. He said Chevron, which has fought the cap from its inception, continues to believe the law is bad policy, and that the reasons for the high prices here stem from the state's higher cost of doing business, the size of the market, high gasoline taxes, rents and laws restricting some new service stations from being built.

At least one station had to stop selling gasoline for a month because its supplier needed to charge more than the cap to deliver the fuel profitably.

Priam's Automotive Service in Pauoa restarted sales on Oct. 13 after the supplier, B & E Petroleum of Kane'ohe, got PUC approval to sell gasoline to Priam's, which would then hire another company to deliver it. In effect, Priam's could pay more than the cap price to get the gasoline.

"I think the original intent was to slap the hand of the oil companies because the legislators felt they were making too much money," said Sharon Stewart, co-owner of Priam's. "Now they're making even more money than before this cap."

Exxon Mobil Corp., the world's largest oil company, on Thursday reported record third-quarter net income of $9.92 billion, a 75 percent increase from a year earlier. The report prompted U.S. Senate Majority Leader Bill Frist, R-Tenn., to say oil companies will be called to Capitol Hill to be grilled on high prices.

Richard Parry, president of Mid Pac Petroleum LLC, a distributor to 57 Union 76 stations in Hawai'i, said more of such PUC actions like the one granted Priam's supplier are to be expected in a regulated environment. As such, overseeing the gas-cap law will eventually become an administrative nightmare, he said.

ADDING ETHANOL

Even worse is a looming deadline for adding ethanol to gasoline next year and how that will work with the cap law, Parry said.

"If rationality prevailed, there would be a repeal of the price cap," Parry said.

Both critics and proponents say more time is needed to assess whether the cap is working.

David Hackett, president of oil-industry consultant Stillwater Associates, had recommended against the price cap in an August 2003 report to the state. He said more data will show the price controls were a bad idea. Besides the market disruption, Hawai'i motorists are having to devote energy to finding the best gasoline prices, wait in lines for cheap gas and use time they might have used for more productive endeavors, he said.

"They have to decide whether they are getting value from this or not," Hackett said.

James Husband, 32, who parked his Nissan Pathfinder to save on gas money by taking the bus, said the gas cap doesn't seem to have helped him.

"It doesn't seem like it's helping us that much. We're still the highest in the nation," said Husband, while waiting for a class at Hawai'i Pacific University.

"Maybe in the long run it will work out, but who can predict the future?"

Reach Greg Wiles at gwiles@honoluluadvertiser.com.