Gas Price Swings Prompt Questions About California’s Market

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SACRAMENTO, Calif. (AP) – State lawmakers on Tuesday questioned the recent wild swings in California's gas prices and asked whether regulators can do more to reduce market volatility while government promotes alternative fuels to increase competition.

"How can such a well-functioning market be subject to such volatility?" asked Sen. Jim Beall, D-San Jose, who helped lead the legislative hearing in Sacramento.

California has experienced one of the largest price swings in recent history. State energy officials said two refineries that make up 17 percent of the state's crude-oil processing capacity remain offline after a recent plant explosion and labor dispute.

Gas prices surged as much as 25 cents a gallon last month after an explosion stopped gasoline production at an Exxon Mobil refinery in Torrance, a plant that provides about 10 percent of the state's gasoline supply. At that time, Tesoro's oil refinery in Martinez, in Northern California, also wasn't producing oil because of labor unrest.

The average statewide price for regular gas was $3.27 on Monday, according to the California Energy Commission. That's compared to $2.46 for the national average, meaning Californians are paying 81 cents more per gallon.

"It is true that Californians do pay premium for their cleaner-burning gasoline, but current prices are well beyond the 20 or 30 cents more that Californians pay typically," said Sen. Ben Hueso, D-San Diego, co-chair of the joint Senate Transportation and Housing and Energy, Utilities and Communications Committee.

Despite low crude oil prices, California drivers tend to pay more than the rest of the nation because of higher taxes and higher fuel blend standards to meet air-quality rules that aren't used anywhere else in the U.S. Because of that, California is economically isolated and can't easily or quickly purchase fuel from outside the state in a crisis.

A more recent concern is the inclusion of transportation fuels in the state's cap-and-trade program to reduce greenhouse gases. Senate Democrats have asked the Attorney General to monitor prices and investigate market manipulation if necessary.

Consumer Watchdog, a consumer group backed by attorneys, issued a report Tuesday blaming oil refiners for gouging Californians, saying the refineries have profited handsomely from price spikes.

The group said California refineries consistently keep one week less of gasoline inventory than the rest of the country and lack transparency about refining operations that makes it difficult for government to track volatility.

"They have every incentive to want to create a price spike like this because their crude oil contracts are consistent, their taxes are consistent, and when the prices go up, refiners make a lot of money," Jamie Court president of Consumer Watchdog told lawmakers at the hearing Tuesday.

Philip Verleger, an economist representing the Western States Petroleum Association, said spikes in oil prices are not unique to California and said recent price changes are simply the result of economic supply and demand.

Because of oil company mergers, there are now only a handful of refiners in the state, giving each one greater market share, said Kathleen Foote, senior assistant attorney general and anti-trust chief at the California Attorney General's Office.

As a result, she said price fixing is even harder to prove.

Democratic lawmakers touted the need for alternative fuels to increase competition against oil producers.

"In the future, we shouldn't have gas stations; we should have fueling stations. We should have a lot of electric cars," said Sen. Fran Pavley, D-Agoura Hills. "Don't let them control our economy like this."

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