Legislator Pushes for Hearings on Gasoline Price Cap

June 10, 2011

Investigative Reports

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The NerveIf S.C. Sen. Dick Elliott has his way, not only will gasoline prices be capped across South Carolina, but executives from large oil companies will have to face questioning from legislators and other Palmetto State residents.

Eliott, D-Horry, who is pushing for South Carolina to become the only state in the nation to cap gasoline prices, wants to hold public hearings across the state this summer on the topic of rising fuel costs. He said he may even try to get the Senate to act when legislators return next week.

“In the past year, an extra $1.5 billion has gone out of the pockets of South Carolinians to oil companies compared to the year before,” Elliott said. “That’s money that could have been used here, in family bank accounts and to hire people. The increase is breaking families, and it’s breaking businesses all over the state.”

Elliot’s bill (S. 850) would cap the wholesale price of gasoline as determined by the S.C. Department of Revenue. It calls for the cap to extend for one year.

“Hopefully, that will give Congress time to step up to the plate and do something to drive the price of gasoline down,” he said. “Congress needs to set a national uniform public policy to deal with this energy crisis, and we need to move forward and do what we can to set the pace here in South Carolina.”

Elliott’s bill would put any excess charges by retailers above the wholesale gas price into a trust fund. The Legislature would decide how to use that money.

Ironically, South Carolina’s gas prices are among the lowest – if not the lowest – in the nation.

Elliott’s proposal is generating national attention. Since The Nerve broke the story of Elliott’s proposal in late April, the Grand Strand lawmaker has received calls from Fox News and USA Today.

However, those familiar with the effects of price caps say such legislation would be damaging to South Carolina consumers and businesses.

“It sounds great from the perspective of the consumer, but politicians do not talk about the supply effects,” said College of Charleston economics professor Pete Calcagno.

“Capping the price will lead to gas station owners offering less gasoline for their customers,” Calcagno said. “If they cannot cover the cost of the product they will not supply the quantity that consumers desire. Consumers seeing and knowing that the price will or cannot rise will purchase more. The end result will be lines and people searching for gasoline.”

Calcagno said the problems would extend beyond mere inconvenience.

Some gas stations will go out of business; wholesalers won’t want to sell gasoline in South Carolina if they can get a higher market price elsewhere; and there is the potential for underground activity to emerge and create criminal activity that wouldn’t exist otherwise, he said.

It’s unlikely that Elliott’s bill will be discussed when lawmakers return Tuesday. Under a concurrent resolution known as a “sine die” resolution, lawmakers can act only on a limited number of subjects, including vetoes by Gov. Nikki Haley, the state budget, the redistricting of the state’s legislative and congressional districts and bills that have passed both houses.

The Legislature could take up additional bills if two-thirds of House and Senate members agree to amend the sine die resolution. Otherwise, ancillary bills will be taken up when lawmakers return in January.

Elliott said he plans to talk with Senate President Pro Tempore Glenn McConnell about the possibility of bringing the gas price cap up next week.

Even if that doesn’t work, Elliott plans to talk with Sen. Danny Verdin about holding meetings later this year to talk about his bill. Verdin, R-Laurens, is chairman of the Senate Committee on Agriculture and Natural Resources, the committee that Elliott’s bill was referred to after it was introduced in April.

“My goal is to hold meetings around the state and invite the oil companies to come in and tell us why they’ve had to increase the price of gasoline so much over the past several months,” Elliott said.

It’s not clear what power, if any, Elliott would have to force oil company executives to come to South Carolina to face questioning.

Capping gas prices is a drastic move that drew the ire of the American Petroleum Institute’s chief economist John Felmy when The Nerve first reported on Elliott’s bill back in the spring.

“For a state like South Carolina, which has no refineries, it’s a particularly bad idea because if you’re unwilling to pay the market price for gas, you’re unlikely to get anyone outside the state to send any gas your way,” Felmy said.

“If you mandate this and the market price for gas goes higher than the cap, how are you going to get gas in South Carolina?” he added. “You don’t have any refineries, so it’s not like you can order gas refined in South Carolina to be distributed within the state.”

Hawaii is the only other state that has attempted to cap gas prices this year, but the bill didn’t get far before the legislative session ended, according to USA Today.

However, Hawaii did institute a limit on wholesale gasoline prices for a nine-month period beginning in August 2005. It was suspended amid public outcry and generally decried as a failure.

One study showed the 2005 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.

Elliott blames rising gas prices on speculators, the United States’ unwillingness to open up more area to oil drilling, and the nation’s inability to make better use of alternative sources of energy.

In addition, Elliott says he doesn’t believe the free market is working.

But Calcagno, the College of Charleston economist, says rising gas prices are actually an indication that the free market is operating correctly.

“Prices are the key signals to consumers and producers on how to allocate their resources,” he said. “If you mask that signal it will distort economic activity. Higher gas prices provide information to consumers to adjust their activity: drive less, carpool, find alternative forms of transportation. All of this is part of a feedback mechanism that markets use.”

Prices don’t rise without a reason, Calcagno said. Prices increase because of greater demand, higher costs of production, or both.

“Lowering the price using price controls does not let the market react to this higher price and does not help anyone,” he added. “Everyone who could afford gas before can still afford it after. It is simply rationed based on who can wait the longest.”

Still, Elliott said he’s confident that instituting a price ceiling on wholesale gasoline prices in South Carolina can force national leaders to take action.

“Once we make the point in South Carolina that we need relief, I think Congress will pick up on it and do something to stabilize the rising price of oil,” he said.

The problem, Calcagno said, is constituents have become convinced that government can and should do something,

“One would think that (President Richard) Nixon’s attempt at price and wage controls in the 1970s and the gas lines would serve as a good warning not to repeat these same mistakes,” he added.

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