Some lawmakers urge gasoline price controls

But economists warn caps would hurt more than help

September 02, 2005|By COX NEWS SERVICE

WASHINGTON - Some consumers, lawmakers and other leaders are calling for gasoline price controls after Hurricane Katrina's devastating impact on domestic oil and gasoline production sent prices soaring over $3 a gallon in many places.

But economists overwhelmingly say price caps hurt consumers more than they help.

Yesterday, Hawaii became the nation's first state to begin controlling gasoline prices, placing limits on wholesalers Chevron Corp. and Tesoro Corp., which own the state's two refineries.

Some politicians are cautiously suggesting the same medicine might be good for the whole country.

"If you think there's no other way to keep excessive prices from being charged, and you think there's enough fuel to go around, then a cap might be appropriate for a very limited time," former President Bill Clinton said yesterday in an interview with CNN.

"Big oil companies created California's dysfunctional market for gasoline at the expense of commuters," said state Sen. Joe Dunn, a Democrat from Santa Ana. He introduced a constitutional amendment this week that would allow the California Public Utilities Commission to set profit margins for oil and gas companies, and regulate retail prices as a last resort.

"Price caps are not a solution to a dysfunctional market," Dunn said. "However, they are a damage-control measure until solutions are developed."

Joan Claybrook, president of Public Citizen, a consumer advocacy group, issued a statement saying, "President Bush and Congress should enact temporary, adjustable price controls to ensure that gasoline and home heating oil prices charged to consumers will be directly tied to costs, not speculation or price-gouging."

Most economists say it would be wiser to resist the temptation to impose caps.

"They only make things worse in the long run," said David Hackett, president of Stillwater Associates, an energy consulting firm in Irvine, Calif. "They lead to shortages and gas lines," he said, because many refiners choose to hold back gasoline when their ability to make profits is restricted.

Hawaii hired Stillwater Associates to study rising prices and make recommendations. The firm concluded price caps "typically lead to higher prices for consumers and poorer service," Hackett said.

Nevertheless, Hawaii officials moved forward with regulations. "It's an emotional response because people don't understand the market forces" that are driving up prices, Hackett said.

The nation experimented with price regulation when President Nixon ordered controls in 1973 after the Arab oil embargo, and the caps continued until 1979. During that period, many motorists were forced to wait in long lines at the pump because of gas shortages.

After controls were lifted, prices shot up, rising from a national average of 90 cents a gallon for unleaded regular gasoline in 1979 to $1.38 in 1981, a record at the time. In today's dollars, that would be $2.97 a gallon.

But prices fell dramatically in subsequent years. According to the Energy Department, the national average for a gallon of unleaded regular gasoline in 1998 was just $1.10. Without adjusting for inflation, that's about a third of what many Americans are paying today for gasoline.

Over the past three years, gasoline prices have been pushed up by soaring global demand for oil and continuing fears about supply interruptions caused by war or terrorism. The rise has been especially steep this year, with the national average hitting $2.61 - 40 percent higher than a year earlier - the week before Hurricane Katrina struck the Gulf coast.

According to an AP-Ipsos poll released yesterday, 24 percent of respondents listed gasoline prices as their chief concern. Only the war in Iraq was listed more often as the top concern.

Hackett said the price spike will ease as companies adjust to conditions. After the storm, the industry was forced to shut down 95 percent of oil and natural gas production and nine refineries in the Gulf area, effectively cutting off about 25 percent of all domestic production.

In addition, major oil and gasoline pipelines were shut down for several days by power outages, wind damage and flooding. Louisiana's Port Fourchon, which handles a significant proportion of crude oil and natural gas imports, also was hit by the storm.

"The spot markets went up over a dollar this week because of all of the plants that went down," Hackett said. The high prices "will draw in supplies from around the world," which soon will relieve shortages, he said.

If the government were to cap the price, foreign suppliers won't send gasoline here because of uncertainty about what lawmakers might do, he said. "The market requires clear rules to get the prices down as quickly as possible," he said. "There will be shortages for a while, but it will sort out."

The White House has previously stated its opposition to energy price controls. This week, it has tried to help ease the fuel shortage by temporarily easing pollution standards on gasoline and diesel fuel in several states and releasing crude oil from the U.S. strategic reserve, the government's emergency stockpile of roughly 700 million barrels of oil.

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