Group Sees Fuel Prices Driving Food Price Increase and Consumer Spending Cuts;

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Letter to Lawmakers Says Motorists Are Fed Up With Record Prices, Urges Legislative Action

Santa Monica, CA — Reports that food prices are rising nationally, and at unprecedented rates in California, are further reason for legislators to act swiftly on the fuel price crisis, said The Foundation for Taxpayer and Consumer Rights. Even as food prices rise, consumers are forced to cut their retail purchases to pay for gasoline, said FTCR. The nonprofit, nonpartisan group today sent a letter to California legislators outlining solutions to the gasoline crisis, both short-term and long-term.

“Californians are both worried and angry about paying near $3.50 for gasoline… and frustrated at their inability to do anything about it,” said the letter. View the letter here.

State and federal data show the increasing economic pressure of fuel prices. Tuesday’s federal report on the consumer price index stated: “Energy advanced at a 25.3 percent [adjusted rate] in the first four months of 2007 compared with 2.9 percent in 2006. Petroleum-based energy costs increased at a 40.0 percent annual rate… The food index has increased at a 6.7 percent [rate] thus far this year, following a 2.1 percent rise for all of 2006.” (See CPI report here.)

A report in today’s Los Angeles Times, based on the same federal data, found that food costs in California, which has the nation’s highest fuel costs, were up 5.7% this April over last April. Recent earnings reports from national chain stores have found middle-class consumers cutting their retail spending in large part because of record gasoline costs.

“What this adds up to is a growing weight not just on consumers but the economy, driven by fuel costs that have risen completely out of line with crude oil prices,” said Judy Dugan, research director of FTCR. “Federal lawmakers, especially in the Senate, are stirring to action with hearings and bills on pump prices that are fueling oil company profits. We urge the state to act more swiftly.”

The LA Times food-price report focused on the effect of rising corn prices as the crop is diverted to ethanol for fuel, but FTCR noted that petroleum fuel costs — for growing, processing and transporting food items — are also an important factor. In addition, financial analysts have noted that as fallow land is increasingly planted in corn, and as other forms of ethanol, for example from cellulose, reach the market, the price of corn will drop back. Fuel prices, however, continue to spike in large part because oil companies are reaping their record profits on refining gasoline, not on the price of crude oil, said FTCR.

FTCR’s letter to state legislators outlines a plan that, if enacted, would reduce prices overall, prevent steep price spikes, ensure an honest measuring of gasoline at the pump and encourage commercial development of biofuels. “We urge you to act before prices rise again at the onset of the summer driving season,” said the letter.

FTCR noted that although gasoline prices have temporarily halted their rise in California, they linger at nearly $3.50 a gallon on average, well above last year’s record even though oil prices remain lower than they were at this period last year.

“Legislators will be tempted to use discussion of the latest state budget proposals as a reason for inaction even if new proposals are put forward,” said Judy Dugan, research director of FTCR and its project. “But it will be too late to help Californians any if they put off acting until July, after the end of budget negotiations but well into summer driving season. This is a crisis that worsens with delay.”

FTCR’s letter calls for legislation giving the state power to oversee the refining business more closely and regulate adequate supply in the state. Legislators must put the needs of Californians above the power and money of the oil lobby, said FTCR.

“Oil companies and their refiners have encouraged and enabled the current record price spike by deliberately restricting California’s gasoline supply, to the point that any unanticipated refinery outage boosts gasoline prices more than enough to make up for refiners’ loss of sales,” said Jamie Court, president of FTCR. “Thus California drivers pay the nation’s highest gasoline price, while oil companies delight in the fact that they can make higher profits while making less gasoline. They don’t want legislators interfering with this profitable situation.”

In addition to suffering an artificial shortage of gasoline supply, said FTCR, Californians are not getting all the fuel they pay for at the pump. Gasoline expands as it warms, thus delivering less energy per gallon. But gasoline in California is sold at an assumed temperature of 60 degrees, not the actual temperature of 74 degrees on average that was measured by a federal study. This “hot fuel” is the reason that motorists see worse gasoline mileage in the summer months, when they are paying the most for gasoline.

Oil companies and distributors are resisting efforts to give motorists the full temperature-adjusted value of gasoline they’re paying for, which could be accomplished by measuring actual temperature at the pump, or simply selling gasoline at a measurement reflecting the average state temperature of gasoline, said FTCR.

Oil companies also resist, through contract limitations on their retails dealers, the sale of E85 and other biofuels in the state. The letter from FTCR includes recommendations for correcting this resistance, which inhibits development of a consumer market for biofuels.

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The Foundation for Taxpayer and Consumer Rights is a leading nonprofit and nonpartisan consumer watchdog group. For more information visit us on the web at: and

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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