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Are Gas Price Caps in Hawaii Working?

April 20, 2006

Despite a unique law capping gasoline prices, Hawaiians pay more than $3.00 a gallon for regular, the most in the nation, the Associated Press reports. With prices are expected to rise another 12 cents next week, does the gas cap law in Hawaii work?Lawmakers are meeting this week to consider revising or repealing the law. In a vote in March, only one of Hawaii's 51 state representatives voted to retain the cap as it is.The price limit, set weekly, is determined by the average wholesale prices in New York, Los Angeles and the Gulf Coast with allowances for shipping and distribution in Hawaii. The caps don't include taxes or dealer markup, which varies widely.The cap went into effect three days after Hurricane Katrina. One gas station owner said the caps linked the price directly to the mainland and intensified the impact of a hurricane thousands of miles away.Gasoline distributors and retailers said this week that the gas caps are squeezing their profits while doing little to restrain oil companies or help consumers.A study released in February by the state's Department of Business, Economic Development, and Tourism concluded that the caps cost consumers as much as $55 million, largely because of the ties to mainland pricing.A series of investigations have found no evidence of conspiracy to fix prices, but backers of the gas cap contend that wholesale prices there move in tandem as a result of "conscious parallelism."Timothy Hamilton, an oil industry analyst who worked with the sponsors of the cap legislation, told the New York Sun it's impossible to predict what wholesalers and retailers would have done if the caps were not in place. He said the caps wouldn’t have increased prices because wholesalers are free to charge prices lower than the cap. Others say the caps encourage wholesalers to hike gas prices, because if there is uncertainty about making money when prices go down, wholesalers will make all they can when prices go up. At any rate, many think a cap or no cap will not fend off economic forces from rising gas prices dramatically.
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