Hawaii set to become first state in nation to set ceiling on gasoline prices

<br>HONOLULU (AP) _ Hawaii is on the verge of becoming the first state to cap gasoline prices _ a move critics described as an election-year tactic that will simply drive gas stations out of business.

Wednesday, May 1st 2002, 12:00 am

By: News On 6

HONOLULU (AP) _ Hawaii is on the verge of becoming the first state to cap gasoline prices _ a move critics described as an election-year tactic that will simply drive gas stations out of business.

Both the House and Senate are to take up a bill Thursday that would allow the state to set a maximum price on gasoline based on an average of prices in West Coast markets. Narrow approval is expected.

A vote scheduled for Tuesday was deferred after the bill was amended to push back the cap's start date by a year to July 1, 2004.

Supporters of the price cap proposal say the law is needed to protect Hawaii's consumers, who have traditionally paid among the highest prices in the country.

The average price for gas in the state was $1.63 a gallon on Tuesday _ second only to California's $1.65 and 23 cents higher than the national average, according to AAA.

Opponents of the price-cap proposal call the measure anticompetitive, saying it will prevent others from trying to enter the Hawaii market and will force small, independent gas stations out of business. They also say supporters are pandering to consumers during an election year.

"This is political gamesmanship at its worst," said Republican Sen. Fred Hemmings.

Oil companies say high taxes, few suppliers at the wholesale level and barriers to entry for competitors all contribute to Hawaii's high gasoline costs.

The so-called "price of paradise" _ the notion that goods are bound to cost more simply due to Hawaii's location _ also has been blamed for the high cost of gasoline.

The bill's supporters, who include Gov. Ben Cayetano and Attorney General Earl Anzai, say evidence shows there is no economic reason why Hawaii's gas prices have traditionally been so high.

"There is no real competition in the gasoline industry in Hawaii," Cayetano has said. "When you have industries with such a captive market, it is appropriate for government to step in to provide relief to beleaguered consumers."

Anzai's office in January settled a $2 billion antitrust lawsuit against five major oil companies in Hawaii for $20 million _ 1 percent of the original claim.

The state filed the lawsuit in 1998, accusing divisions of Chevron, Shell, Texaco, Unocal and Tosco of fixing prices and allocating market share among themselves as early as 1987. BHP Hawaii and Tesoro, named in the original lawsuit, were dismissed from the case as part of a $15 million settlement in November 1999.

The price cap measure comes as lawmakers on Capitol Hill are looking into the volatility of gas prices.

Oil industry executives have denied charges that they manipulated gasoline supplies to increase prices. But Sen. Carl Levin, D-Mich., said there is strong evidence that oil companies work to maintain tight markets that produce price spikes.