Congress Presses Refiners on California’s Gasoline Price Spike, Supply Restrictions;

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Rep. Kucinich Requests Oil Companies’ Plan for Increasing Supply In West as California Far Outpaces U.S. Average Price

Santa Monica, CA — With California pump prices running about 50 cents a gallon above the U.S. average and nearly 30 cents above the next-highest states, the House Domestic Policy Subcommittee today sent a letter to major refiners requesting their plans to remedy the disparity. It also requests that the major oil companies lift restrictions that prevent retailers from offering motorists renewable fuels, including high-ethanol E85.

“The subcommittee is clearly expecting answers, and Californians want to see them,” said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights, which praised the Congressional initiative.

The letter, signed by the chairman of the subcommittee, Rep. Dennis Kucinich of Ohio, states:

“As we head into the summer driving season and the likelihood of higher gasoline prices, possibly reaching $4 per gallon [in California], the Domestic Policy Subcommittee of the Oversight and Government Reform Committee requests your assistance in understanding the causes of this price disparity.”

Read the Congressional news release and letter here.

In the news release, Kucinich says “Congress can no longer sit on the sidelines and watch as escalating prices continue to take a heavy economic toll on consumers and risk further harming our economy.”

The Foundation for Taxpayer and Consumer Rights noted the subcommittee’s acknowledgment that deliberate restrictions in California’s refining capacity are a driver of outlandish gasoline prices in the state, which AAA pegged at $3.281 a gallon for regular today. The national average was $2.792, with Hawaii and a few other states near $3.00.

“We hope that this is just the first shot across oil companies’ bow on gasoline prices,” said Judy Dugan, research director of the nonprofit, nonpartisan FTCR and its website, “Rep. Kucinich is on the right track in fingering the lack of refining capacity as the cause of California’s acute problem — gasoline prices that are far higher than the price of crude oil can justify.”

The letter noted that refiners, particularly in California, are making outlandish margins of up to $39 per barrel, up from their previous average of $17. This soaring profit was first noted by the San Francisco Chronicle on March 9. Read the story here.

The subcommittee’s letter said, “As we approach this year’s peak driving season, the Subcommittee wishes to know how these factors of decreasing capacity, decreasing supply, rising profitability and increasing market concentration may be related to cause new record highs in the price of gasoline.” It then asks the refiners who dominate California’s market, including Chevron, Exxon, Tesoro, Valero, ConocoPhillips and Shell, to state their plans for increasing the supply of gasoline as the summer driving season approaches:

“1. What is your strategic plan to raise the supply of gasoline for the onset of the peak driving season, which is only weeks away?

2. What steps are you planning to take, and when do you plan to take them, to bring back online refining capacity that you have removed from production? When do you plan to have attained maximum refining capacity?
3. What steps are you planning to take, and when do you plan to take them, to find supply other than your own production to bring your inventory to the national average of up to 30 days supply?”

“Refiners are unlikely to have persuasive answers to these questions,” said Jamie Court, president of FTCR. “The oil industry deliberately restricted refining capacity in California as population and demand grew, to the point that even planned refinery maintenance causes a price spike that boosts profits. This is fine for the oil companies, which no longer compete on price and can make more money without increasing sales.”

In addition, the letter asks that oil companies lift restrictions on their retail dealers that make the sale of E85 and other renewable fuels economically infeasible.

It also asks that the companies and their distributors withdraw their opposition to the sale of gasoline that is price-adjusted for temperature. Gasoline expands in higher temperatures, meaning motorists in warm states like California pay more money for less energy in their tanks. See for more details on both E85 sales and the “hot fuel” issue.

Oil companies will report first quarter profits in the next two weeks, and analysts widely expect another round of record profits, particularly refining profits, said FTCR.

FTCR urged the California Legislature to act on gasoline prices, now that Congress is grappling with the issue.

“Gasoline is up nearly 30 cents a gallon in just the last month, yet the silence in Sacramento is deafening,” said Court. “The state’s economy is at risk and motorists are right to wonder who’s watching out for their interests, It’s bad enough that Congress had to take the lead, and it will be worse if the Governor and Legislature continue to ignore the looming economic threat of gasoline prices.”

FTCR has urged that the state pass legislation to regulate refinery capacity so that the state has sufficient gasoline supplies to prevent price spikes during even routine maintenance shutdowns. Related legislation, which was proposed last year but not passed, should update price-gouging laws so that refiners could be investigated in periods of abnormal price spikes.

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Consumer Watchdog
Consumer Watchdog
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