California drivers worried about gouging at the pump;

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Cost per gallon has jumped 8 cents on average since storm

The San Francisco Chronicle

Allegations of price gouging at the gas pump surfaced Thursday as California’s average cost for regular neared $3 per gallon in Hurricane Katrina‘s aftermath.

Consumer groups questioned why California, which doesn’t rely on the Gulf Coast’s battered oil wells or refineries, should see its average rise 8 cents since the storm hit shore, reaching $2.88.

“We know that none of our oil and none of our gas comes from the South, so there’s no clear explanation for the run-up,” said Michael Shames, executive director of the Utility Consumers’ Action Network in San Diego, who called on the California Energy Commission for an investigation.

Many stations in San Diego, he said, had increased prices 15 cents to 25 cents in the past five days.

A separate watchdog group released a report Thursday arguing that oil companies have systematically gouged California for years, a situation that Katrina could worsen.

Hurricane Katrina will only increase the probability of profiteering and should be a wakeup call to legislators,” said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights — California. The organization’s report argues that oil companies have exported refined gasoline from California well before the hurricane to keep prices high.

Oil industry executives call gouging claims nonsense. California, they say, has been caught in the same crisis gripping the rest of the United States.

Although California uses little if any crude oil from the gulf, the cost of oil everywhere has risen after the hurricane, with prices set by the global market. The state refines most of its own gas, but prices here are still affected by gasoline futures traded on the New York Mercantile Exchange. Those futures — contracts to buy gas at a specific date — soared after Katrina knocked out 10 Gulf Coast refineries.

“This is the biggest body blow to the petroleum supply system in history,” said John Felmy, chief economist for the American Petroleum Institute. “What we’re talking about is market competition in a situation where in the United States, we’ve lost at least 11 percent of our refining.”

Gas station owners, meanwhile, say they’re facing a sudden, steep hike in wholesale gasoline costs and have to raise their retail prices in response. Northern California’s average wholesale price for regular gas jumped 21 cents between Monday and Wednesday to hit $2.44 per gallon, according to the California Energy Commission.

Station owners are starting to pass those costs straight to their customers.

“There’s nothing we can do about it,” said Bill Currie with Currie’s Automotive, which runs seven Bay Area gasoline stations. “We’re just trying to stay in business like everybody else.”

At one of his stations, in San Francisco’s Sunset District, Currie was charging $2.97 for regular Thursday, giving him a margin of 10 cents per gallon. Not enough to make a profit, he said.

“We’ve got a garage,” Currie said. “That’s what’s keeping us going.”

Other states have it worse.

Gas lines and shortages have hit the Midwest and the South, regions that depend on Gulf Coast refineries and oil wells for supplies. Some stations in Atlanta were charging more than $5 per gallon Thursday, as other cities passed the $3 mark.

San Francisco had not yet reached that milestone Thursday morning. Figures released by the AAA auto club showed the city’s average price for a gallon of regular hitting $2.95, up 5 cents overnight.

Most station owners — technically — can charge whatever they want. But they may have little control over the costs they must pay.

Many lease their stations from the large oil companies but operate largely as independent businesses. Their contracts, however, usually force them to buy gasoline from that company. They can’t shop around for a better price.

Independent station owners who don’t sell branded gasoline have more leeway. They can buy from a number of wholesalers, often giving them a competitive edge over the leased stations. But with prices soaring on the spot market, where independents sometimes buy gas for immediate delivery, that edge may disappear.

Other stations are essentially run by the large oil companies themselves, which allows the company to set the retail price. The companies say they aren’t gouging. Shell, for example, is telling dealers to “practice restraint,” spokeswoman Anne Bryan Peebles said.

“I would like to mention that Shell does not condone price-gouging, and we will be investigating any allegations,” she said in an e-mail to The Chronicle.

The report released Thursday by the Foundation for Taxpayer and Consumer Rights argues that oil companies have exported gasoline from California to countries such as Chile as a way to raise prices in the state.

Tim Hamilton, author of the report and director of an auto trade association, said the strategy isn’t illegal, just harmful.

“It’s their gas,” he said. “They can haul it out of there if they want to. And they do.”

The petroleum institute said such shipments have been too small to make a substantial difference in prices.

“To us, it’s an urban legend, the exports leaving the United States when they shouldn’t,” said Rayola Dougher, manager for energy market issues for the group.
E-mail David R. Baker at [email protected]

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