Hawaii’s Effort To Control The Cost Of Gasoline

The states of Hawaii and California have one thing in common, they both buy oil in bulk and then process their own gasoline. Hawaii has two refineries (Chevron and Tesoro) to support their states needs. Despite having control of their own gasoline production, Hawaii still pays the nation’s highest prices for gasoline.

In August of 2005, the state of Hawaii made a very controversial move to control the raging price of gasoline – they put a cap on the price of wholesale gasoline effective September 1 st, 2005. The controversy stems from the fact that while many Hawaiian residents and tourists alike were looking for relief against soaring gasoline prices, some experts feared that the cap could lead to supply shortages.

This is back in the days when gas was selling for $2.79 per gallon in Honolulu. Today, it is selling for around $3.50 per gallon. So, what happened to the cap? It turns out that rather than simply placing a ceiling on the pricing, the State of Hawaii chose a baseline pricing method which is based on the five-day spot rates from three mainland major markets: Los Angeles, New York and the U.S. Gulf Coast. The legislation then allowed for the cost of shipping and viola’, a moving ceiling or cap.

So, after all of the uproar, all the legislation did was allow the State of Hawaii to move in step with the rest of the country. More to the point, gas prices in Hawaii are still driven by “Big Oil”, however, the pricing is now driven by the oil companies on the mainland and not the local management. As long as you are willing to pay $3.50 a gallon for gas, I don’t think you need to fear any shortages.