South Carolina Lawmakers Consider Gas Cap After it Failed in Hawaii

BY KEVIN DIETRICH FOR THE NERVE – State Sen. Dick Elliott is not only pushing forward with a goal of capping wholesale gasoline prices in the Palmetto State, he’s confident that if South Carolina takes such a step, other states will follow.

“I believe that if South Carolina passes a price cap you’ll see states across the nation follow our lead and impose price caps of their own,” said Elliott, D-Horry. “The fact is, the oil companies will own us if we don’t do something.”

Elliott was one of several legislators who attended a state Senate Agriculture and Natural Resources subcommittee meeting last week at Horry-Georgetown Technical College in Myrtle Beach. In addition, a couple dozen citizens and representatives from the petroleum industry were on hand.

Elliot introduced a joint resolution (S. 850) in late April that would cap wholesale gas prices in South Carolina for one year. The resolution was referred to the Committee on Agriculture and Natural Resources. Because the state Legislature operates on a two-year cycle, and 2011 was the first year of the session, the resolution could move forward in 2012.

“The hearing went well,” Elliott said. “I think we’re going to be able to go forward and pass a freeze on the wholesale price of gas in the next year.”

Myrtle Beach retiree John Bonsignor was among those who attended the meeting. “I think we should try it for a year. Let’s see what happens. What’s going to be the big deal for one year?”

The big deal, according to one oil company official, is that South Carolina can likely expect a bevy of unintended consequences, such as service station owners offering less gasoline for their customers, resulting in lines at the pumps and consumers searching for fuel.

“I’m sure it’s well intended, but it would fall upon the hard rocks of economic reality if it were to ever be implemented,” said Dan Moenter, an executive with Marathon Petroleum Co., who spoke at the hearing.

“We’re talking about a commodity that can be sold just as easily in North Carolina, Georgia or Tennessee,” said Moenter, who serves as manager of state government affairs for Marathon in the Southeast. “To artificially cap the price in one state would invite suppliers to sell that product in another state where a cap is not in place.

“Our executives would make rational business decisions based on the realities presented to them,” Moenter added. “If a product is worth 10 cents, 20 cents or $1.10 more in a neighboring state than in South Carolina, the likely actions would be very clear, just as one would expect. In the long run, a cap would probably harm, not help, South Carolina consumers.”

Kay Clamp, executive director of the South Carolina Petroleum Council, concurs with Moenter’s assessment of what a gas cap would mean for the Palmetto State.

“If the people who refine and ship gas can’t make their money back in South Carolina, there’s a good chance they will ship it to where they will make their money back,” she said.

Elliott’s intent was to pass a gas cap that would give Congress time to “step up to the plate and do something to drive the price of gasoline down.” Elliott has said Congress needs to set a national uniform public policy to deal with what he calls an “energy crisis.”

Under the joint resolution, any excess charges by retailers above the wholesale gas price would be put into a trust fund, with the Legislature deciding how to use that money.

If Elliott’s proposal were to become law it would “certainly be challenged in court,” Moenter said.

Clamp said that throughout history price controls have failed in their goal to hold down consumer costs, instead resulting in reduced supply.

Indeed, price controls were tried as long ago as 2,000 B.C., according to the book Forty Centuries of Wage and Price Controls by Robert Schuettinger. The results have nearly always been ruinous.

In 284 A.D., for example, the Roman emperor Diocletian “fixed the maximum prices at which beef, grain, eggs, clothing and other articles could be sold, and prescribed the penalty of death for anyone who disposed of his wares at a higher figure,” according to Schuettinger’s work.

The book quotes an ancient historian who explained the results: “The people brought provisions no more to markets, since they could not get a reasonable price for them and this increased the dearth so much, that at last after many had died by it, the law itself was set aside.”

Ironically, South Carolina’s gas prices are among the lowest in the nation.

As of Wednesday, only Arizona had an overall lower average price for a gallon of regular unleaded, at $3.37, compared to $3.39 in the Palmetto State, according to AAA. In Georgia, the average price was $3.56, while Florida’s average was $3.59 and Tennessee’s was $3.45. Topping the list was Hawaii ($4.10 a gallon) and Connecticut ($3.92).

No other state in the nation has a cap on gas prices, but Hawaii instituted a limit on wholesale gasoline prices for a nine-month period beginning in August 2005. It was suspended amid public outcry.

Hawaii state Sen. Sam Slom, the lone Republican in the Aloha’s State’s upper house, said the gas cap was an unmitigated disaster.

“As a result of the cap, Hawaii experienced unprecedented swings in the price of fuel from one week to the next, and the gap between mainland and Hawaii gas prices increased,” he told The Nerve.

One study showed the gas cap cost Hawaiian consumers 5 cents more per gallon. The analysis, by the state’s Department of Business, Economic Development and Tourism, estimated that island motorists paid $54.9 million more than they otherwise would have in the first five months alone under the cap.

Clamp, of the state Petroleum Council, says that despite abundant proof showing the failure of price controls over history, she’s reluctant to say one way or the other what she thinks will happen with the resolution given that all 170 seats in the General Assembly will be up for grabs in the November 2012 elections.

“I would think the chance of this passing would depend on the price of gasoline at the time the Legislature is considering it,” she said.

Reach Dietrich at (803) 779-5022 ext. 110, or kevin@thenerve.org.

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