Price caps on gas are here...again.

Not sure how I missed this one (I guess the windows in my ivory tower are getting dirty).  I'm sure more people out there know a lot more about this than I do, but apparently Hawaii has legislation in place to cap the price of gas. 

From the 8/25 WSJ opinion piece:

In a thoroughly misguided attempt to stem the rising price of gas, Hawaii is set to impose Nixon-style price caps on all the islands' pumps. The law, set to take effect Sept. 1, ties the price of gas to the wholesale price of gasoline at three price points on the U.S. mainland.

It appears the cap is an attempt to prevent oil companies from earning 'excess' profits:

So why bring back price controls more than 30 years after Nixon tried them and failed miserably, causing shortages, rationing, inflation and an economic crisis? It's hard to find a reason, other than to retaliate against the big oil companies, namely Chevron, which many Democrats tried to punish unsuccessfully in court.

In the interest of full disclosure, the article is written by a member of a free-market think tank, so there is a little bias in the writing (unlike my writing of course), but it's hard to argue with the expected outcome:  Price caps cause shortages. What is often overlooked is that in a competitive market (I know the gas market probably isn't perfectly competitive, but give me a little latitude) a price cap may hurt consumers: it definitely hurts some.  Sure, some consumers pay a lower price, but the quanitity of gas supplied will also decrease meaning fewer consumers get gas. 

Here's the real irony.  The Hawaiian plan caps wholesale prices, but retail prices can still vary.  That's right, shortages at the wholesale level and price premiums at the retail level. 

Charged with the unenviable job of implementing the gas-cap program, Hawaii's Public Utilities Commission says local industry expects the caps to increase prices by an estimated 30 cents a gallon, with costs on Oahu rising from the current price of $2.68 a gallon to more than $3. PUC says industry leaders also expect more shortages (especially in remote areas), the closure of one of two oil refineries, the halting of wholesale marketers' operations, and reduced investment in the state after the caps go into effect. Owners of gas stations on remote neighboring islands say prices will likely soar after Sept. 1, from just over $3 a gallon to more than $4.

Lowell Kalapa, president of the Tax Foundation of Hawaii, says the consumer will see a big jump in price because the markup, applied by retailers or the gas station owners, is not subject to the cap.

Oh dear.  And now for the kicker.  Remember, the WSJ opinion was published on August 25th. 

Economist John Rutledge of Rutledge Capital, a resident of Maui, says Hawaii may not experience a crisis immediately, but any major event in the world could affect the market and lead to a shortage and rationing. [emphasis added]

Mele Kalikimaka...or something like that.  Anybody know if it's going into effect tomorrow?

Comments

[Tim Haab]

Here's the official web-page for the gas caps in Hawaii, and yes they go into effect tomorrow.

http://hawaii.gov/dcca/areas/dca/gascap