You have a commodity that the world market sets the price for and you’re going
to set an arbitrary price cap on it?
There must be something I’m missing here. How can the Hawaii Government do this if the price to purchase gas wholesale is higher than the cap? How will it make any sense to sell gasoline?
I don’t know how they can do it, but I’m going to Hawaii from now on to buy gas.
I don’t see how this can work. Every gas station in Hawaii will have to go out of business. Do they think oil companies ship gasoline to Hawaii for fun?
It’ll be great for the consumers until the stations run out of gas, and then it’ll get real quiet and smog-free within a few days…
Ha! Someone screwed up. Here’s another copy of the AP article where the numbers in the last paragraph are completely different. Apparently the cap is a pre-tax wholesale number. After taxes and retail markup it would be about $2.86 / gallon which is actually rather close to the current going rate there.
A PDF that shows how the number is calculated. It’s basically a fixed adder to the average price at the ports, with adjustments for location.
Also, they have a lot more docs on their web site about this. The goal is to overcome high prices caused by low competition in the Hawaii wholesale oil market.
The point still stands. If you’re going to artifically limit the wholesale price a refinery can charge, and that price is limited to a below market point, why should the refinery sell to Hawaii?
The gift shop at the airport can now sell jerry cans of gas along with jars of macadamia nuts to the leaving tourists.
It sounds like the are regulating the price AT the market rate, as there is little competition on the island.
I’m guessing they will adjust the number to match wholesale prices, to avoid gouging. Hawaii is small enough to allow a small gas station conspiracy to skyrocket the prices artificially to something like $10 a gallon.
Isn’t coercively defining what a “market rate” is, sort of defeating the whole notion of a market rate?
I don’t understand it either. There has to be multiple gas companies serving Hawaii. If they are engaged in price fixing or something similar then they should be charged with it. Otherwise, that is just the way the market needs to work. This is not a good idea.
Just a WAG, but it could take months to years to convict these companies of price fixing, which doesn’t help consumers in the meantime. Maybe Hawaii is going to press charges eventually, but fears it will be too slow. If they couldn’t get a court ordered injunction to lower the price of gas while the case is pending, they might decide to resort to this.
If you look at other cases of price fixing where companies were convicted (Nintendo , music labels ) these companies were at it for years before the cases were finally finished. Gas is a bit more critical than video games and CD’s so maybe Hawaii didn’t want to wait that long.
Governments are already controlling the price of many commodities and services. Natural gas, electricity, water, cable TV, garbage pickup, etc. Why should gasoline be any different?
I think the argument for some of those items (esp cable and utilities) is that they are “natural monopolies” (ie a community cannot support more than one at a time) and govt price regulation is a part of maintaining them. I don’t think that argument can be made for something like wholesale gasoline distribution and pricing as there is no constraint to several suppliers operating iin the market.
It’s obvious to me. Fixed prices=No gas stations (eventally)=Federal Gov’t assistance. This cannot go on.
I’m too young to remember the gasoline shortages of the 70’s, but from what my parents and others have told me, they were caused, not by any real shortage in supply, but because of price caps that had been put in place. Gas stations couldn’t charge enough to turn a profit, so they just closed up shop until the economics of the situation improved.
Is this an accurate summary? If so, then it sounds like bicycle shops on Hawaii might be doing a heck of a lot of business really soon.
Depends where the refinery is. Tesoro has a large one there and I think Hawaii has a second somewhere. Its probably cheaper for the refiner to deal with the price control rather than ship it to California.
Hawaii is trying everything to keep prices down. The state won a case before the Supreme Court to allow them to impose rent control on what oil companies could charge independent dealers who lease their stations.
I doubt it will lead to a run on gas in the short term, but if I were Tesoro, I would certainly think twice before adding any capacity at a Hawaii refinery.
That’s not quite accurate. Governments control profit, not price. Public utilities are more or less guaranteed a profit through a cost+plus pricing system. That’s what makes utilities a safe investment (real utilities, not utility brokers).
I should qualify my last statement as a generalization. States have tried price fixing before and it usually puts the consumer in crap creek without a paddle. The almost guaranteed outcome will be a reduction in service at some future date. Electricity in California being a good example as the utility companies simply stopped upgrading (due to a lack of profit).