Hawaii Caps Gas Prices

The state of Hawaii has decided to cap wholesale gasoline prices in an effort to cope with rising crude prices and the effects it has on the people of the islands. As any student of economics knows, holding prices artificially low results in over-consumption and shortage of a good. The Hawaiian government may just have made its situation worse. Good thing the islands aren’t conducive to major freeways.

The state’s public utilities commission, relying on a 2004 law that gives it the power, stated that on September 1, the wholesale price of regular unleaded in Honolulu will be $2.1578 a gallon before taxes – around $2.74 when completely taxed. Retailers usually get a mark up of 12 cents or so, meaning the price will be around $2.85 at the pump. The commission has allowed some variation for places outside Honolulu to take into account shipping costs and the like.

Where this idea may prove workable is in its adjustability. According to MSNBC, “The caps are based on an index calculated from the five-day average of spot rates from three mainland markets: Los Angeles, New York harbor and the U.S. Gulf Coast.” This will be adjusted on a weekly basis. This prevents the Soviet-style misallocation of resources due to long-term price imbalances. Of course, it also reduces the protection to the consumer.

However, there is also a concern that this regulation will make it less attractive to refine petroleum in Hawaii. Currently, the state has two such facilities -- Chevron has a 54,000 barrel-a-day refinery, and Tesoro a 95,000 barrel-a-day refinery. Industry analysts claim one of them may close down if price caps persist. That is alarmists and probably an outright error. Prices have risen 60% for crude in the last 12 months. Capping the windfall profits is hardly going to cut into the earnings per share of Chevron or Tesoro.

Of course, the best news in all of this is the state of motoring when one is on an island. The state of Hawaii (as distinct from the Big Island by the same name) ranks 45th of the 50 states in vehicles on the road, 43rd in miles driven, and 48th in fuel used. In other words, whether prices caps help or hurt Hawaii remains to be seen, but whatever the result, it won’t have anything like the effect such caps would have on places where driving is a way of life.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
Produced using Fedora Linux.

Home