Hawaii Puts Cap On Gas Prices

[Isaac]

The state's Public Utilities Commission said Wednesday that, beginning Sept. 1, wholesalers in Honolulu may not charge more than $2.1578 a gallon for regular unleaded, or about $2.74 a gallon when taxes are included. The commission set the caps, which will fluctuate from week to week, at different levels for other islands.

The law does not establish a cap at the retail level. But if retailers keep their usual 12-cent-per-gallon markup, prices for regular unleaded in Honolulu could in theory rise to about $2.86 per gallon.

On Wednesday, the average retail price of regular unleaded in Honolulu was at a record $2.761, some 15 cents above the nationwide average. Statewide, prices average $2.84, the highest in the nation, according to AAA's Web site.

Prices on Maui have already topped $3 a gallon this week.

Full story here (http://news.yahoo.com/s/ap/20050825/ap_on_bi_ge/gas_prices_hawaii_caps).

[€uroMeinke]

So if gas costs more in the market, I guess Hawaii goes without?

[Not Afraid]

So if gas costs more in the market, I guess Hawaii goes without?

Heh. It's an ISLAND! How far do they need to go?

[Ghoulish Delight]

So if gas costs more in the market, I guess Hawaii goes without?Well, the price floats, and it's base on an average from Los Angeles, New York harbor and the U.S. Gulf Coast (which seem to me would be some of the highest priced markets on the mainland), + a premium for shipping costs. It doesn't sound like it's an unreasonably low cap.

[Monorail Man]

Well, the price floats

I think there's a pun in there. ;)

[Betty]

I just don't get how the price can go up nearly 80 cents in a few months. 6 months ago I had a local station that was at 1.99 - a brand name place that was the cheapest in town. (Shell I think). It is now at 1.77. Ridiculous. Filling up my van on Monday was over $65. Bah!

[scaeagles]

Price controls are always a bad idea, IMHO.

Thomas Sowell is perhaps my favorite syndicated columnist. He's a Stanford economist and a senior fellow at the Hoover Institute. Here's a couple of recent columns regarding oil, gas, and price controls -

http://www.townhall.com/columnists/thomassowell/ts20050823.shtml

An excerpt:

Why, then, are oil prices so high?

There is no esoteric reason. It is plain old supply and demand. With the economies of huge nations like China and India developing more rapidly, now that they have freed their markets from many stifling government controls, more oil is being demanded in the world market and there are few new sources of supply.


http://www.townhall.com/columnists/thomassowell/ts20050824.shtml

An exerpt:

Prices are what pay for costs. The government can impose price controls on gasoline or petroleum tomorrow but that will not have the slightest effect on the cost of oil exploration or the cost of extracting and processing the oil that is found.

When the costs are no longer being fully covered by prices, production is likely to be cut back, whether it is the production of oil or anything else. This is not speculation. This is what has been happening for literally thousands of years, going back to price controls in ancient Rome and Babylon.

Yet price controls have always been popular politically, despite being counterproductive economically. After all, how many votes do economists have and how many voters know economics?

Some people love to believe that prices should be kept down to a "reasonable" level, something that everyone can "afford." Yet the notion of "reasonable" prices is itself unreasonable. The costs of producing oil don't depend on what we can afford or consider "reasonable." Nor does the cost of anything else.

[Name]

Price controls are always a bad idea, IMHO.

So, does that include minimum wage too? Just curious.

But as far as gas prices go, screw em, I pay about $10 a week for gas. Sure it would be nice to pay only 4 or 5 dollars a week, but I can handle the $10 a week. Why so cheap, because I ride a motorcycle that gets about 50 miles/gallon, I am also limiting my driving around to as little as possible. Back and forth to work, and the occasional errand. As gas prices go up, research into more economical methods of converting fuel into energy need to be found.

And I'm spent.

[Morrigoon]

So, does that include minimum wage too? Just curious.


Yes, it does.

Price controls are a bad thing. Period.

[scaeagles]

I am against the minimum wage.

I also do well in terms of gas expenditures. I work from a home office, so no commute, and my wife teaches at a school only 2 miles from our house.

[Ghoulish Delight]

I am against the minimum wage.

I also do well in terms of gas expenditures. I work from a home office, so no commute, and my wife teaches at a school only 2 miles from our house.Wiat until the price of every product you buy goes up because of increased fuel costs.

Price controls are a bad thing. Period.A pure free market economy is a bad thing. Period. Gasoline, right now, is as close to a purely inelastic product there is. Oil companies can increase the prices through the roof and stil make a profit. People will buy it. Sure, you can choose to ride your bike to work, or move closer, or take public transportation...but companies can't choose not to ship their products. And that's what it comes down to. There will always be a market for gasoline at any price. Left to their own devices, oil companies can keep raising prices, and the demand will be there. All well and good, hooray free market. But this doesn't happen in a vacuum. It will have a disastrous impact on the entire economy. Every product is dependent on fuel prices. And there are no natrual checks on fuel prices in the market.

[scaeagles]

Wiat until the price of every product you buy goes up because of increased fuel costs.

A pure free market economy is a bad thing. Period.

The costs are already increasing on certain things I "consume". My post was in reference to Name's post on how he saves money on fuel because he rides a motorcycle. Not very practical in a family with three kids, but it works for him.

I didn't say anything about "pure free market" economy. Predatory and monopolostic practices are against the law and well should be. I simply said price controls are a bad idea. Period.

Let's say the cost of production of a gallon of gas goes to 2.50. That's production only. Let's say a price control in Hawaii says wholesale gas can only go for 2.40. What happens? The oil companies won't be selling gas in Hawaii.

Read the links to the Sowell columns. He explains it well.

[Ghoulish Delight]

Let's say the cost of production of a gallon of gas goes to 2.50. That's production only. Let's say a price control in Hawaii says wholesale gas can only go for 2.40. What happens? The oil companies won't be selling gas in Hawaii.But it won't. The price control is based on market price elsewhere and has built in allowances for shipping costs. It's simply to ensure they aren't gouging above and beyond mainland market price, it's a formula that will never allow it to drop below production cost.

[Name]

My post was in reference to Name's post on how he saves money on fuel because he rides a motorcycle. Not very practical in a family with three kids, but it works for him.
Obviously never been to Spain, where they transport three kids, wife, groceries, and a dog on a moped (at the same time, and yes, I have seen that):D

[scaeagles]

The price control is based on market price elsewhere

Then I propose the Hawaiian government do the same thing with land costs. I believe they should put price controls on their land based on the averages of the market in Phoenix, Omaha, El Paso, Grand Rapids, and Helena.

Same principle. There is a finite amount of land available, and I don't think it's right that if someone wants to sell their land that they be able to charge more than I would pay for it on the averages from those other cities.

I admit this is a bit extreme, but it isn't really much different.

[Name]

Then I propose the Hawaiian government do the same thing with land costs. I believe they should put price controls on their land based on the averages of the market in Phoenix, Omaha, El Paso, Grand Rapids, and Helena.

Same principle. There is a finite amount of land available, and I don't think it's right that if someone wants to sell their land that they be able to charge more than I would pay for it on the averages from those other cities.

I admit this is a bit extreme, but it isn't really much different.
And I have this bushel of apples that are X price, why can't I get the oranges for the same price?

[scaeagles]

Well, it's being said that the price controls on gas are OK because it's tied to market prices in other areas. Why not tie the price of land there to market prices in other areas as well? Or the price of whatever?

I said it was a bit extreme, but if linking the price controls of one thing to the market prices in another area of the country, why is it not OK to do that for everything?

[Name]

well for one, in my opinion, the fair market value of land is negotiated by two independant persons(in most occasions), and the supply of land in hawaii is extremely limited unlike other parts of the continental US where there are parts that have a vast supply of land. while gasoline can have a limited supply, there are unscrupulos folks out there that may desire to gouge an area like the hawaiian islands and force them to pay twice the wholesale price for gasoline, which is what this price control is aiming at preventing. is it right? who knows, is it fair, I think so. And I think it was said earlier here that this is just a wholesale control, not a retail control, so the stations can still freely mark up as they see fit to maintain a profit in accordance with their business plan.
It sounds, in all fairness, that the state of Hawaii is forcibly negotiating buying prices for importation for all the players, based on an average wholesale price at various locations in the continental US, more then outright controlling the prices at the pump.

[Alex]

Price controls rarely have the desired effect. Tagging the control to a larger geographic area should help dilute it, but I would be surprised if it is effective in the long run. The government agency responsible for administering this program is on record saying it is a bad idea.

In the face of rising global demand for oil, pockets of price caps in the United States will just divert more oil away from here. Sure, Chevron might as well send oil to Hawaii as they do to California, New Orleans or New York City since the price is allowed to be the same. But what about when New York City decides it doesn't like a free-floating oil market and caps prices to the cost in Duluth, South Dakota, and Ketchican, Alaska?

Interestingly, in the short term is likely to raise prices as much as 0.20 cents since a capped market price almost always ends up also being a minimum price. In order to hedge against the risk of future articifially low prices, current prices will almost always get pegged at the maximum.

On top of all of this, gas is still relatively cheap. As a percentage of annual household expenses it remains remarkably low, and adjusted for inflation a gallon of gas still costs less than in 1983. Gas simply isn't that expensive, we're just used to it being godawfully cheap. If we really wanted to bring down gas prices we would create a national fuel composition standard so that refineries would not have to create different finished products for dozens of different areas. Instead every state and municipality creates their own fuel standards and it drives competition out of the area and jacks up prices through reductions in economies of scale. Not to mention that refineries are constantly retrofitting to accommodate rules that change over time (MTBE in everything, no never mind let's try ethanol, but ethanol is a boondoggle let's put 2% of a prayer in every gallon).

But Hawaii is a weird place and the marketplace is manipulated in all kinds of unusual ways. Maybe it'll work as intended. But when balancing the opinions of econimists and other experts against an inflamed public certain that they're getting reamed and demanding something be done about it I'm going to tend towards the experts.

[Alex]

Then I propose the Hawaiian government do the same thing with land costs. I believe they should put price controls on their land based on the averages of the market in Phoenix, Omaha, El Paso, Grand Rapids, and Helena.

Since much of the land you'd want to buy in Hawaii is already owned by the Bishop Estate, huge tracts of Hawaii already have price controls on the land: NOT FOR SALE.

You can, however, lease it at rates that tend to lag the marketplace by a half-decade or more.

[scaeagles]

Well said, Alex.