Eyes Open, Governor’s Panel Takes On Gas Price Manipulation By Oil Refiners

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Being at the California Energy Commission to testify about how California oil refiners manipulated prices at the pump Tuesday was like prosecuting a case against a defendant who refused to show.

The state's oil refiners and their trade association would not participate. They sent a rude letter from their lawyers to the panel empowered by the governor to determine whether there was price and supply manipulation in California's gasoline market.  Their lawyers explained not only would the Western States Petroleum Association not appear or answer questions, but that the California Energy Commission (CEC) better be careful about keeping the data it has on them confidential.

Did you hear that?  Oil refiners won’t be explaining anything about the unprecedented $6 billion extra Californians paid for their fuel since February.

You can watch our case against the oil refiners and see our evidence of price and supply manipulation, also summarized in our press release, as well as hear questions from the experts appointed by the Governor.

The presentation was met by receptive ears on the CEC’s Petroleum Market Advisory Committee, or PMAC, who had noticed some of the same disturbing trends. Attending were Severin Borenstein of UC Berkeley Energy Institute, the chair; Jim Sweeney of Stanford, and Amy Meyers Jaffe of UC Davis. On the phone: David Hacket of Stillwater Associates.

You can watch Consumer Watchdog's presentation here: https://www.youtube.com/watch?v=q5yRPHQGpjE

It's very clear that the refiners are not only using their market power (4 control 78% of CA’s gasoline supply) to keep the state running on empty, so that gasoline is scarce and expensive. They are also using their market power to control prices at branded gas stations in order to keep pump prices high even when there’s ample inventories. That’s new and very troubling.

Among the additional information we learned from Tuesday's Energy Commission PMAC meeting:

•    Oil refiners have parked ships just off the shore of Los Angeles with California’s unique blend of gasoline so that they don't get counted as part of current inventories. If the price is high, the ship docks. If not, it goes to Mexico and unloads the gasoline in order to keep inventories low here and prices higher than they would have been. Committee members questioned the economics of diverting shipments from California.  Borenstein stated, “But the spot price for CARBOB throughout has been substantially higher than the US average, or the rest of PADD 5, or anything, so why would you?” Jaffe challenged the CEC staff for not investigating suspicious exports to Mexico, saying, “You didn’t think to investigate those two exceptions for any particular reason, and make us aware at the PMAC of those two exceptions; you didn’t think it was material?” She went on to challenge them to investigate whether CARB gasoline is being exported from the state under the guise of other cargoes.

•    There are no pipelines bringing gasoline into California, but the pipelines that bring gasoline from California to Arizona sometimes carry gasoline that meets California specifications. Kinder Morgan representative Johnny Thomasson stated, “How they’re refining it we have no control over. As long as it meets the specifications of the market being delivered.” Dave Hackett of Stillwater and Associates reminded listeners that CARB gasoline sometimes meets Arizona specs, and could sometimes be used in both locations.  

•    Experts who once believed California didn't have market problems have changed their mind. Borenstein stated, “Until 6 months ago, I was one of the people who basically said that’s all true, but it’s not a big enough problem to deal with, but now my view has definitely changed. Something has happened in the last 7 months that makes me think we need to take this more seriously.”

•    The coming months will have an unusually large amount of refinery maintenance. The Energy Commission’s lead petroleum analyst stated, “I think it’s unusual in terms of the overall amount of planned maintenance involving gasoline production equipment that’s significant, it’s something that happens cyclically.”

•    The length of the spike has caused suspicion among the experts. Borenstein said, “20 cents is a lot and we are seven months into this.”

•    Refinery margins are a huge concern. Committee member Jaffe noted how extreme the deviation was, “There have been some reports from independent analysts that the refining margins in California this summer were at levels that were historically above even the kinds of refining margins seen during hurricanes Rita and Katrina, when we had a substantial loss of refining capacity in the United States.”

•    Refiners have decided not to improve their refineries to be able to make more CARB gasoline. Member Jaffe asked Hackett why they had chosen not to make the upgrades. Hackett responded, “In General, because the economics have not been there to support that.” Those economics may have to do with the market power they wield over supply.

What’s next?  Talk of solutions at the next meeting, to be scheduled in November. We put our call for greater transparency and accountability on the table. We’ll see where it goes. Committee member Amy Meyers Jaffe stated in regards to policy options, “We could have another policy like the attorney general or some other entity to also investigate.”

The PMAC members also showed frustration about being deprived of data by the oil industry and by the inability of panel members to discuss what they learned outside of an official meeting, which are few and far between.  The state open meetings law, the Bagley Keene Act, is being interpreted by CEC attorneys to prevent conversations among PMAC panelists even though the committee has no power other than to make recommendations.  

The members appeared straightjacketed by the government procedures and deprivation of data by the industry.  Bagley Keene’s application to advisory committees is worth legislative scrutiny, as are the recommendations we’ve made about stemming oil refiners market manipulations.  

Big Oil escaped this year’s legislative session unscathed, but word is Governor Brown is looking for more accountability in 2016.

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