California measure would give state price-cap power

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Platts Oilgram News

A proposed amendment to the California constitution would turn refineries and pipelines into public utilities under the jurisdiction of state regulators who would have the power to slap a cap on wholesale gasoline prices.

If passed, the amendment unveiled this week by State Sen. Joseph Dunn would give the California Public Utilities Commission — and ultimately the Legislature — the same regulatory power over the oil industry that it currently has over electric power.

The agency would have the authority to cap motor gasoline prices, although it would likely be as a last resort. More likely, the PUC could require mandatory fuel reserves, pipeline construction and limits on refiner profit margins.

“Hawaii is taking the absolutely correct approach to the gasoline industry,” Dunn told the Los Angeles Times in reference to Hawaii’s new price cap regime. “The more states that follow Hawaii’s lead, the sooner we’ll be able to force this industry to get back to normal market behavior that benefits the consumer but also allows them a reasonable profit.”

The bill faces a daunting journey before it becomes the law of the land in California. The measure must first pass the Legislature by a two-thirds majority that will have to include a sizable number of votes from staunch pro-business Republicans. The measure would then be put to a public vote and could be challenged in court if there are legal grounds.

Dunn’s bill, SCA 18, has not yet been assigned to the committee process and the current spike in pump prices could conceivably be a distant memory by the time it comes up for a public vote. Industry officials have already denounced the measure as one that would distort the market and lead to gasoline shortages in California.

Nevertheless, public ire over $3/gal pump prices has been building as consumers tell media outlets they have been forced by economics to look for ways to cut back on driving.

One consumer group Sep 1 issued a statement blaming California officials for failing to prod the oil industry into expanding its refining capacity in California in order to ensure adequate supplies of CARB fuel, and preventing refiners from shipping CARB gasoline out of the state rather than adding it to the state’s inventories.

“The continued failure of California officials to compel refiners to create more refining capacity and increase inventories will result in gasoline prices rising to $4 per gallon relatively soon,” stated Tim Hamilton, an analyst for the Foundation for Taxpayer and Consumer Rights in Santa Monica. “The system is rigged for price spikes and the refiners know it.”

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