Dishonor Among Thieves — The recent gas crisis should inspire reform

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Phoenix New Times (Arizona)

I don’t get the adrenal cascade of rage much anymore, and I can’t even remember the last time I saw the thin veneer of civil society collapse before my eyes.

I’m guessing that’s why it was so invigorating to sit in line for an hour last week in 105-degree heat waiting to pay $2.29 a gallon for gas at the Chevron station at Alma School and Riggs in Chandler.

Soon after I finally filled my tank — a once autonomic task made orgasmic by an hour of heated coveting — I got a call from Terry Goddard, the maintainer of civil society in Arizona. He was returning calls as he waited to go on a television show in Tucson, where he would be following Joe Arpaio, who had driven his gas-hog Crown Vic all that way to show off some precious puppy he had rescued.

Goddard was in a lather, too, and I was excited to hear the state’s attorney general so fired up that he was referencing Mad Max movies.

“It’s really wild, isn’t it?” he said in a high-pitched lilt of excited disgust. “I just keep thinking of those scenes of Mel Gibson driving the tanker truck across the desert and armed bands of thugs zooming around on motorcycles. Anarchy in motion. I’ve gotta say, we’ve got to make sure this doesn’t happen again.”

“I feel like I’m watching a cockfight or something,” I told him. “We don’t get much Lord of the Flies action in the Valley.”

“Nor should we,” our top prosecutor responded.

What I heard in Goddard’s voice was political will. You heard the same thing in Governor Janet Napolitano’s voice. You heard the same thing out of the mouths of every sad bastard sitting in line begging for the honor to buy overpriced gas.

Now the tough part: Hold that rage, folks. Don’t forget your anger once the prices drop again. Then focus that rage on finding real solutions that aren’t just another round of subsidies for the fossil-fuel industries.

The sad thing is, Arizonans have been getting gouged by energy-industry thieves for years. In both natural gas and gasoline, we rely on a single pipeline company with ancient, under-maintained lines and an ever-smaller cadre of giant shippers and refiners. And this small clique of massive companies has a well-documented, Enron-style pattern of just barely skirting federal antitrust laws with strategies meant to keep supplies unnaturally low to justify price spikes that net vulgar profit margins.

Earlier this year, the California-based Foundation for Taxpayer and Consumer Rights completed a comprehensive two-year investigation of the western U.S. gasoline market, which includes Arizona. The report’s title should appeal to Arizonans right now:

“The Solutions Needed to Keep Pump Prices Under $2.” (

Reviewing industry data and depositions and internal memos of oil company executives produced in civil case discovery, researchers determined that the high pump prices in California and Arizona were the result of “intentional actions of the oil companies.”

While oil industry executives have blamed price spikes on environmental regulation and the cleaner-burning fuels needed in areas such as Los Angeles and Phoenix, the researchers found the price increases were in fact attributable to inflated refiner profit margins.

“Recently released memos of oil company executives outline cooperative litigation and lobbying efforts intended to close down West Coast refining capacity, short the West Coast market of adequate inventories and insert language into environmental regulations that, unbeknownst to the policy makers, would ensure smaller competitors went out of business. The goal of the effort seems clearly identified in the memos as a means to legislate higher consumer pump prices for the benefit of the refiners.”

Also: “The constant increasing or decreasing of production by the oil companies at their local refineries had the greatest impact on prices at the pump. The level of gasoline inventories in storage tanks is kept as low as possible to maximize price, but just high enough to avoid the return of gas lines if an unexpected disruption of flow into storage draws the inventory down. Just in time inventories’ is the industry terminology for today’s practice of maintaining low levels of inventory.”

In Arizona, the game is more precarious for oil executives because we have no quick alternative source if the one major pipeline breaks. The short supplies dwindle quickly and cause the gas lines, and price spikes, you suffered last week.

The exact same games are played in the natural gas industry. And Arizona is just as vulnerable to thieves in the natural gas market as they are in the gasoline market.

Two years ago, I wrote about one such anti-competition industry plan, a plan hatched by natural gas executives in a secret meeting at the Embassy Suites Hotel near Sky Harbor Airport in 1996.

The meeting brought together senior management of SoCalGas, San Diego Gas & Electric and the gas provider for the Valley, El Paso Natural Gas.

At the meeting, SoCalGas executives agreed to stop competing with El Paso Natural Gas on a power plant project in northern Mexico if El Paso Natural Gas would cancel its plans to build pipelines into Southern California that would have broken SoCalGas’ monopoly in Southern California.

The canceled pipelines would have doubled the amount of gas reaching Southern California.

Prices soared in California, which pushed up prices in Arizona.

Without that extra pipeline, California will continue to need more natural gas from the pipelines that also serve Arizona. Compounding the danger to Arizona was another little-publicized decision this summer by the Federal Energy Regulatory Commission to cease Arizona’s status as a “full-requirement customer” of El Paso’s. In effect, as of September 1, El Paso will no longer be required to provide all the natural gas asked for by Arizona customers. The measure was
pushed by California officials to better secure their state’s supply.

“We will no longer have the safety and luxury of knowing that if we have greater demand in Arizona, that El Paso must provide it to us,” says Randy Dietrich, manager of fuels for SRP. “All of a sudden, we’re in a new game with new rules. And we’re not completely sure how it will affect us.”

Arizona has no major natural gas storage facilities that could be used to stockpile gas to mitigate a shortage. A major pipeline project designed to bring natural gas from the north has been scrapped. Another pipeline project is years off if it ever gets built.

“Arizona is still in a pretty bad position,” says Lance Astrella, the lead attorney in several natural-gas-related lawsuits across the West. “That’s why some sort of north-south line is so important. It’s all about competition.”

Thanks to El Paso executives and California officials, we could soon see a much more precarious and expensive market for natural gas and electricity.

I imagine a day when I’ll be unable to open the electric garage door to let out the car I can no longer afford to drive.

In our conversation, Terry Goddard suggested Arizona and other western states should all agree to use the same type of cleaner-burning gasoline. Currently, each state has its own requirements, which makes each state dependent on just a few producers that make their blend.

Goddard’s staff is already working on anti-price-gouging legislation to present to Arizona legislators. Sixteen states have similar legislation, but similar proposals in Arizona have always fizzled in committee.

“I think the political will is there this year,” he says.

We’ll see. In the past, Arizonans and their political leaders have quickly forgotten once an energy crisis has passed.

And they certainly haven’t been very creative, or forceful, in addressing these critical infrastructure problems.

For a heavy dose of both brains and balls, Arizona leaders should consult with the authors of the FTCR report.

The California report suggests much stronger antitrust legislation at the state and federal levels.

And the report authors suggest the most novel solution to California and Arizona’s problems, a solution that has yet to be considered by Arizona policymakers.

Their idea: Sell only one grade of gasoline.

“When studying the low inventory levels maintained by the (oil companies), FTCR determined that the three octane grade gasoline offering of regular, midgrade and premium results in under-utilization of the existing tanks, many of which sit partially filled with slower selling high octane gasolines.”

The researchers found that approximately 50 percent of the storage dedicated to higher octane gas is never used effectively.

The report suggests that state legislation mandating the sale of a single grade of gasoline in a state “would greatly reduce the ability of oil companies to create price spikes at the pump by increasing the use of existing storage tanks as means to combat the low inventory practices responsible for the spikes.”

Basically, we use the existing tanks below every gas station in the Valley as our strategic reserve against price manipulation.

The report’s authors argue that, contrary to oil industry marketing, only 5 percent of vehicles on the road in 2003 still need higher octane gas. Owners of those vehicles, mostly high-performance luxury cars or vintage cars, could easily boost their octane by occasionally pouring a small bottle of octane-boost additives into their tank. Such additives, the report’s authors argue, are considerably cheaper to buy in bottle form than at the pump and are identical to the additives used to turn normal gas into premium.

The FTCR report offers numerous other solutions and supporting documentation for all its claims and suggestions. This must-read for Arizona policymakers can be accessed at

But like so many other brilliant policy papers, the FTCR report will only sit collecting dust if the political will doesn’t exist to fight for needed changes.

Instead of smart, inexpensive policy changes like the ones proposed by FTCR, expect a bevy of industry-supported plans that use taxpayer dollars to purchase refineries or additional storage. State policy leaders are already beginning to propose projects that are little more than government handouts to the same people who have made massive profits off the people of Arizona while paying few taxes to state coffers.

Oil and gas executives are looters. We now know why they loot, how they loot and what it feels like to have them robbing our store.

The trick now is to hold this nasty thought until the next legislative session.

Then it’s payback time, a time for Arizonans to do a little looting of their own.

Consumer Watchdog
Consumer Watchdog
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