Putting A Lid On Gas Prices

The U.S. Energy Department says gasoline prices in this country are averaging a $1.40 a gallon, but in Hawaii, the average is $1.88.

Gasoline prices there are usually highest in the nation, reports CBS News Correspondent John Blackstone. People often call it the "price of paradise." But for oil companies Hawaii may be paradise no longer…with new legislation passed Thursday that will impose price caps on gasoline.

"The corporations felt this way there is nothing wrong with making high profits," said Gov. Ben Cayetano. "From our standpoint these profits were unreasonably high."

The isolation of the islands has left the state at the mercy of the oil industry, said Hawaii's attorney general.

"Market forces are not at work here," Earl Anzai told CBS News. "Oil companies can price at what ever they want."

The bill would allow the state Public Utilities Commission to set a maximum price on gasoline based on an average of prices in West Coast markets. Profit margins for dealers would be capped at 16 cents per gallon on regular unleaded gasoline.

Opponents contend the law is an attempt to appease beleaguered consumers in an election year. They say the measure will raise pump prices by shuttering gas stations and driving some oil companies from the state completely, reducing competition.

Hawaii's refiners and retailers, which include Tesoro and ChevronTexaco, respectively, won't hesitate to ship gasoline to more profitable markets or shut down stations if they cannot make a profit, said Fadel Gheit, an oil industry analyst at Fahnestock & Co.

"Their ego won't be bruised if they shut down," Gheit said. "They sometimes exit whole countries where they don't make money."

Hawaii is not the only state where there are suspicions high prices at the pump are the result of reduced competition.

In California, just six refiners control more than 90 per cent of the gasoline supply. California's attorney general charges that has brought high gas prices and generous profits.

"It's not the guy at the corner station but the big refiners reaping huge profits," said Attorney General Bill Lockyer.

Rather than price controls, the state is looking for ways to encourage more competition. But for Californians now paying 25 to 40 cents above the national average for a gallon of regular, a price cap sounds like good idea.

"I feel comfortable with it," said one motorist. "I would support it."

"It somewhat evens the playing field to a point," said another.

But in Hawaii, gas station operators say price controls may ruin paradise.

"The profit police are out there and anybody in business in the state of Hawaii better watch out," warned Chevron dealer Barney Robinson.

"It gives the appearance of doing something positive, but is going to lead to negative economic consequences" — a lesson the United States learned during the 1970s, when the federal government imposed price caps on gasoline, Lawrence Goldstein, president of the Petroleum Industry Research Foundation, said.

The price caps in Hawaii won't take effect for two years but if other states with high prices don't find solutions by then, there may be pressure to follow the Hawaiian lead.