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Hawaii to Cap Wholesale Gas Prices

HONOLULU -- Hoping to curb the sting of the nation's highest gas costs, Hawaii next week will become the first state to cap the price of gasoline.

The state Public Utilities Commission 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 Associated Press reported.

Statewide, prices average $2.84, the highest in the nation, according to AAA's Web site.

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

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.

But critics are now warning that the caps could lead to supply shortages.

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."

Chevron Corp. said in a statement 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 owns a 54,000-barrel-per-day refinery in Hawaii and Tesoro has a 95,000-barrel-a-day refinery.

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

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. She 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.
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