Gas price not pumped up;

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State report says that oil companies didn’t withhold supplies


Free-market forces, not market manipulation, caused California’s sharp spike in gasoline prices in spring, a state report concluded Tuesday.

Gov. Arnold Schwarzenegger ordered the report in April as pump prices in the state soared to new highs, peaking at $3.38 for a gallon of regular on May 18. The spike perplexed analysts, because California’s prices kept rising well after nationwide prices had leveled off.

Tuesday’s report from the California Energy Commission found no evidence that oil companies caused the spike by withholding gasoline supplies or otherwise gaming the market, said Joe Desmond, Schwarzenegger’s undersecretary of energy affairs.

“The commission in its analysis did not find a smoking gun,” Desmond said. “We found no evidence of market manipulation.”

Instead, the report blamed circumstances that, together, pushed prices higher:

— An unusually high number of gasoline refineries were closed during the period, either for planned and unplanned maintenance.

— Gasoline exports to neighboring states, particularly Nevada and Arizona, rose to a five-year high. California supplies all of Nevada’s transportation fuel and 62 percent of Arizona’s.

— Congestion at seaports delayed the unloading of gasoline imports.

— Prices of a key chemical component of California’s gasoline rose.

Consumer advocates greeted the report with scorn. They compared the price increase to California’s energy crisis five years ago, when some power plant operators drove up electricity prices by shutting.

“When outages or shutdowns of refineries are behind a big price spike, it shows there is a motive for the industry to keep supplies artificially low so prices can go up,” said Jaime Court, president of the Foundation for Taxpayer and Consumer Rights, a group frequently critical of oil companies.

Severin Borenstein, director of the University of California Energy Institute, said the report’s conclusions are plausible. But so is market manipulation, he said. Manipulation is very difficult to prove, short of uncovering incriminatory documents from the oil companies.

“All of those factors (in the report) are credible,” Borenstein said. “What’s also credible is that when the market got tight, due to those factors, some refiners may have made money by putting a little less gasoline on the market.”

Desmond said the energy commission staff reviewed refinery documents related to each outage. The state’s gasoline refineries experienced 175 unplanned outages in the first six months of 2006, compared with 58 in the same period last year. As a result, production of the state’s unique gasoline blend was lower than it had been in the previous five springs.

California Attorney General Bill Lockyer began his own investigation into the price spike and is still collecting information subpoenaed from the state’s refiners.

Although the energy commission noted the drop in gasoline production while it was happening this spring, analysts at the time considered it an insufficient explanation for the price spike. Gasoline production nationwide had dipped as well, they noted, yet retail prices in the rest of the country leveled off weeks before they did in California.

From the start of the year through mid-May, gasoline prices in the state jumped $1.16 per gallon. Nationwide, they rose 70 cents. The increase cost California consumers $1.3 billion, according to the energy commission.

Since peaking in May, California’s average price for regular has drifted down to $3.22, despite last week’s disruption of crude oil supplies from Alaska’s North Slope. Nationwide, prices have risen to $3, according to the AAA of Northern California auto club.

The authors of Tuesday’s report recommended that legislators give the energy commission authority to examine, on a regular basis, financial data that would show California refinery profit margins. The commission can demand such information now as part of an investigation, but not as a regular practice.

Desmond said that the commission had requested that data from refiners as part of its investigation into the spring price spike but needs more time to collect and analyze it, possibly releasing another report later this year.

Consumer Watchdog
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