Hawaii Caps Oil Prices

Hawaii (search) will begin enforcing a cap on the wholesale price of gasoline next week, hoping to curb the sting of the nation's highest gas costs.

The limit would be the first time a state has capped the price of gasoline — a move critics warn could lead to supply shortages.

But many Hawaii residents are just looking for some relief from soaring costs.

"The gas prices that are continuing to go up — how am I supposed to afford it?" Nathan Slenk, a 25-year-old student at Kapiolani Community College (search), said as he pumped regular unleaded gas into his black sedan for $2.79 a gallon in Honolulu.

On Wednesday, the average retail price of regular unleaded in Honolulu was at a record $2.761, some 15 cents above the nationwide average. Prices on Maui have already topped $3 a gallon this week. Statewide, prices average $2.84, the highest in the nation, according to AAA's Web site.

The state Public Utilities Commission (search) said the initial price ceiling is due to take effect Sept. 1. Wholesalers may not charge more than about $2.74 including taxes in Honolulu for a gallon of regular unleaded. The commission set separate price caps for other islands.

If retailers keep their usual 12-cent-per-gallon markup, prices for regular unleaded in Honolulu could in theory rise to about $2.86 a gallon.

The ceilings will be in effect through Sept. 4. The following week, the commission will announce a new set of caps.

The 2004 law passed by the Legislature that authorized the caps was intended to force Hawaii's two refiners, Chevron Corp. and Tesoro Corp., to set their wholesale prices closer to mainland rates. Proponents of the law said the refiners were taking advantage of the small, isolated market to charge exorbitant prices.

Chevron said in a statement Wednesday it believes the law "is flawed and not in the best interest of the state," The Wall Street Journal reported on its Web site. Tesoro said its Hawaii operation believes any cap "will only serve to distort market forces and will result in long-term negative impacts to the citizens and the economy of Hawaii."

The oil companies also have said the state should cut back on Hawaii's excessive regulations to reduce prices rather than setting price caps.

Chevron and Tesoro did not return calls by The Associated Press Wednesday seeking comment. Chevron owns a 54,000 barrel-a-day refinery in Hawaii and Tesoro has a 95,000 barrel-a-day refinery.

Fereidun Fesharaki, an energy expert with the East-West Center in Honolulu, said the caps were a futile attempt to hold down oil prices as they rose around the globe.

"This kind of thing it just gives us a bad name, frightens people from investing — it may make one of the refineries shut down and leave Hawaii," Fesharaki said. "It reduces competition and does all harm but doesn't gain us anything."

Direct comparisons between the gas cap and current wholesale prices are not possible because the oil companies do not release wholesale price data.

The caps are based on a baseline price calculated from the five-day average of spot rates from three mainland markets: Los Angeles, New York harbor and the U.S. Gulf Coast.

The commission then adds on allowances for the cost of shipping to the state and for transporting gasoline from Oahu to more remote and less populated islands.

For example, under next week's cap wholesalers may not charge more than $2.3058 — about $2.86 including tax — for a gallon of regular unleaded gas in Hilo on the Big Island. Allowing for a retailer's markup, prices at the pump in Hilo could be close to $3 a gallon or more.

Federal, state, and county authorities each impose a fuel tax on wholesale gasoline. The state's excise tax is also imposed on gasoline at the wholesale and retail levels.

Frank Young, a member of Citizens Against Gasoline Price Gouging, said the price caps were pretty much in line with current market rates in the state.

"The purpose of the cap is so that we move with the rest of the country," he said.

Gov. Linda Lingle, who unsuccessfully sought repeal of the 2004 law, has said she worries the cap will actually increase prices and create fuel shortages. The governor has the power to suspend the price caps if she determines they would cause a major adverse impact on the economy, public order, or the health, welfare or safety of the people of Hawaii.

Crude oil prices hit a record US$68 a barrel Thursday after the United States reported a decline in gasoline stocks and China said its crude imports spiked in July. Storms brewing close to Gulf of Mexico production facilities and fears that it could hurt output also contributed to the upward march.