Have you checked out The Hot Seat? It's our opinion-page blog that brings in your elected leaders and people in the news and lets you ask the questions during a live online chat.

On The Hot Seat last week was Aloha Petroleum's president and CEO Bob Maynard.

Here is an excerpt from that session. To see the full conversation, go to The Hot Seat blog at http://honoluluadvertiser.com/opinion and click on the posting titled: "On the Hot Seat: Aloha Petroleum CEO Bob Maynard." (Names of questioners are screen names given during our online chat.)

Kyle: Please explain why our prices are and have been higher than average. I know there are shipping costs, but is this truly the reason? And what do you think is the biggest flaw in the state gas cap?

Bob Maynard: The correct, but not very satisfying, answer, in my view, is that the Hawai'i gasoline market is small and remote.

At the risk of sounding defensive about the question of prices, let me elaborate just a bit. Yes, it is true that Hawai'i gasoline prices are typically the highest in the country, though not at the moment.

Although not meant to be an argument, it should come as no surprise that the cost of an imported commodity is going to be high in a small, isolated island economy like ours.

It is an indisputable condition that the cost of most goods is higher in Hawai'i: labor, rent, taxes. These all find their way into pricing.

But the single largest reason is the size of the market. Smaller markets have higher total unit costs that ultimately impact market prices. Hawai'i is a small-population market that uses less fuel per capita than Mainland markets. In fact, the only states that use less than Hawai'i (359 gallons per person) are New York (293 gallons) and the District of Columbia (215 gallons), both of which have substantial and efficient rail and subway systems. The U.S. average is 464 gallons per person, and those unfortunate folks in Wyoming need 615 gallons per person to get around.

The next most important reason is Hawai'i's isolation, which means it cannot take advantage of the Mainland's extensive array of more efficient interconnected refineries, pipelines, terminals and transportation systems. Yet in Hawai'i we still need this same infrastructure: pipelines, terminals, barges, trucks and retail stations, and refineries that are just too small to be as efficient as the typical Mainland or Asian refinery. Those same costs, serving much smaller volumes, translate into higher unit costs for distribution and higher retail prices.

California is an interesting example of this "isolation effect." It has created a unique specification for its gasoline, unlike any other state's gasoline, and this makes it difficult to import gasoline from neighboring states. So it has therefore turned itself, metaphorically speaking, into an island, separate from its neighbors. Like Hawai'i, it cannot take full advantage of the Mainland's relatively more efficient petroleum infrastructure. California prices are almost always higher than the national average.

If you are interested in a more thorough analysis of the Hawai'i gasoline market, I refer you to the Stillwater Report, the most comprehensive study ever published about this market. The report was commissioned by the Hawai'i Legislature in 2003 — and promptly ignored. It can be found at: www.hawaii.gov/dbedt/info/energy/publications/gasoline.

Price controls are inherently dangerous to markets. We found that out when we tried price controls in the 1970s. The Stillwater report strongly urged that they not be implemented, as did the Federal Trade Commission, as did the National Conference of State Legislatures, as did Fereidun Fesharaki, a petroleum economist at the East-West Center, and many others. The results can only be bad and in a variety of ways. Its manifestation during Hawai'i's experiment with price controls resulted in greater pricing volatility and, as some have claimed, higher prices, though I cannot prove that claim.

Robert: Why does the gasoline industry charge high taxes to the consumer when compared to the Mainland? What, if anything, can the industry or our local government do to change this practice?

Maynard: It is the various governments, rather than the industry, that imposes these taxes. The purpose of fuel taxes, generally, whether imposed at the federal, state or county level, is to provide for the adequate maintenance of our roads and highways. In Hawai'i, not all these trust fund taxes have been used for these purposes and that might explain why Hawai'i taxes are a bit higher. The question of reducing these taxes has been addressed on many occasions. Aloha believes that our pledge to pass along the savings from the rollback of the excise tax on gasoline was a key to securing that legislative victory for consumers.

Steve Doyle: I would like to know why, during both the Cayetano and Lingle administrations, Hawai'i's oil/petroleum industry has refused to disclose financial information regarding its profits in this captive market? The appearance of lack of cooperation and transparency leaves many of us in Hawai'i wondering: What is your industry's reluctance in being forthcoming with Hawai'i consumers?

Maynard: During the Cayetano anti-trust litigation the industry, including Aloha, provided financial information to the courts. Today, there exists what has become to be called the transparency bill for the petroleum industry, under which we are now providing financial information to the PUC.

The real goal of transparency is to ascertain whether the oil industry is reaping excessive profits and/or overcharging for its products. We don't think so, and we expect that the analysis of the data will support that belief.

The biggest chunks of the gasoline dollar go to the oil producers and producing countries who are selling crude oil at $72 per barrel ($1.70 per gallon), the refiners who have been making $10 to $20 per barrel ($0.24 to $0.48 per gallon), the federal, state and county governments who are making $0.52 per gallon in taxes in Hawai'i. The remaining take on the gasoline dollar goes to transportation, terminalling, inventory costs, labor, rent and many other operating costs.

I'd be remiss here if I didn't mention one of the stealth costs that consumers generally are not aware of: credit-card fees. When a motorist fills up using a credit card, the credit-card company charges the retailer about 8 to 9 cents per gallon. This comes right out of their margin. Last year, credit-card fees in the U.S. for gasoline purchases reached $6.6 billion, more than the profits earned nationally by the entire convenience store industry.

Meheroo Jussawalla: Do you have any plans to use bio-fuels or invest in research for alternative fuels to help consumers on the Hawaiian Islands? If not how do you control your costs and prices?

Maynard: Although Aloha is not a technological research company, we have been in the bio-fuels business over the past three years. We were the first to import ethanol and have been selling bio-diesel produced by a local Hawai'i for several years. Our largest customer has been the City and County of Honolulu. We expect that the interest shown by the both the federal and state government, along with their incentives, will greatly increase the use of alternative fuels in Hawai'i. Currently, HECO is leading the way in searching for alternative energy sources for providing electrical power.

Mike Savage: I'm just curious: Who owns Aloha Petroleum? And I've heard that most of the crude oil refined into gasoline in Hawai'i comes from Indonesia. Is this true, and what percentage comes from the U.S., Middle East or other countries?

Maynard: Aloha is an independently operated company doing business solely in Hawai'i. It is owned by private individuals who are not associated with other oil companies. The ownership is not a hedge fund or private equity fund trying to pull the maximum dividends out of the company. In fact, during the 15-year tenure of their ownership, the owners have reinvested substantially all the Aloha's profits back into the business, which has allowed Aloha to grow and be competitive with the large oil companies present in Hawai'i. We think this has been to the benefit of Hawai'i's consumers.

Aloha is not a refiner; we buy refined gasoline from the refiners as well as import from around the Pacific Rim. So I don't have very good data on the sources of crude oil imported into Hawai'i. My understanding, however, is the refiners bring in crude from all over the world with probably the greatest portion coming from Malaysia and Indonesia. Alaska crude is probably on the wane, and I think I have heard about an increasing, but minority, amount coming from the Middle East.

Bob, Waikiki: I have lived in Hawai'i a long time and remember the cars lined up at the gas stations waiting for gas. Then we had a real gas shortage. Then we could understand price increases. However, in this so-called shortage, where are the gas lines? Can you document any gas lines at local gas stations in the last 10 years? There seems to be a supply of gas and agreements between companies not to lower prices.

Maynard: I should first say that there are no agreement between oil companies in Hawai'i that I am aware of and certainly Aloha is not part of any. There have been numerous investigations in Hawai'i and nationally regarding alleged illegal collusion activities, and none has been found.

With regard to your question of prices, I think prices have reflected international petroleum markets. Although we have seen a rapid increase in prices in the past couple of years, historically, prices are about the same as they were in the late '70s and early '80s on an inflation-adjusted basis. In fact, for much of the '90s and early 2000s, oil prices were well below those early periods, again taking into account inflationary factors. It was only with the rapid increase in demand from developing economies like China and India, coupled with a slow down in the development of new sources of oil, that prices caught up with inflation. If the International Energy Agency is correct in its forecasts, we are likely to see prices continue to rise.