Market cited in high gas prices

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The San Diego Union-Tribune

An investigation by the California Energy Commission into the spike in gasoline prices this spring found that the number of refinery shutdowns and the duration of the outages soared during the first six months of the year.

At the same time gasoline production fell to five-year lows, exports of the fuel from the state rose to five-year highs, the commission found. The production decline and export surge, along with other factors, created a spike that cost gasoline consumers $1.3 billion from May through July, the study found.

But the commission concluded that the gasoline market behaved in a predictable fashion, without evidence of collusion or tampering by oil companies.

“Our unprecedented study of the oil industry’s financial performance did not uncover any ‘smoking gun’ that demonstrates market manipulation,” said Jackalyne Pfannenstiel, who chairs the commission.

The investigation found that during the first six months of this year, refinery outages increased to 175, compared with 58 in the same period last year. In addition, the commission said the length of shutdowns nearly doubled compared with those in 2005.

While the price of gasoline and diesel fuel during the April-to-May spike rose by 44 cents and 33 cents, respectively, the investigation concluded that just 8 cents of the increase could be attributed to higher crude-oil costs.

While the state’s gasoline supply was constrained and exports of the fuel increased, the commission found that import terminals capable of bringing fuel into the state were congested.

The report concluded that refineries in California posted the highest profits in the nation. But the commission said more financial data from the industry are needed to do accurate monitoring.

At a news conference accompanying release of the study, Joseph Desmond, undersecretary of energy affairs, said the “market was operating in a fashion markets were expected to operate.”

Desmond said there was no incentive for refiners to shut down production to limit production. The investigation regarding the high number of refinery shutdowns consisted of questioning the refiners, he said.

The shutdowns contributed to three straight weeks in which gasoline production fell to five-year lows, an event that the commission report said “appeared to contribute” to the spring price spike.

The commission also found that the cost of a key additive called alkylate had risen sharply since April but did not quantify the impact of the increase on pump prices.

The report was ordered by Gov. Arnold Schwarzenegger in response to record prices of gasoline in May, when the California average reached $3.33 per gallon.

Desmond noted that the governor also asked the commission to complete its report a month earlier than first planned. He also said the commission did not look into possible connections between refiners and gasoline trading, a link that proved crucial to understanding the state’s electricity crisis in 2000-01.

Desmond added that the commission was not mandated with investigating possible civil or criminal wrongdoing in the gasoline market. That is being done by California Attorney General Bill Lockyer.

Consumer advocates say the commission’s findings confirm their belief that the state gasoline market is being manipulated by a small number of major companies.

“The result of this investigation is more than just a whitewash,” said Charles Langley, who oversees the gasoline monitoring project for the Utility Consumers’ Action Network. “The conclusion is an attempt to brainwash consumers into thinking nothing can be done.”

Langley said the state needs “refinery cops” who can properly investigate the legitimacy of outages, and he criticized Desmond’s assertion that refiners had nothing to gain from shutdowns.

“That they can make more money by shutting down one of their refineries is basic ‘gougonomics,’ ” Langley said.

Jamie Court, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica, likened the state’s gasoline market to what took place during the electricity crisis.

“Oil companies are ripping off Californians in exactly the same way as electricity profiteers — by shorting the market,” Court said. He called on Schwarzenegger, who ordered the report, to return millions of dollars of campaign contributions from the energy industry.

But Anita Mangels, a spokeswoman for the Western States Petroleum Association, which represents many large state petroleum companies and refiners, said the report vindicated the industry’s assertions about the price spike.

“The energy commission has confirmed what WSPA has maintained: It was market conditions that were responsible for price volatility earlier this year,” Mangels said.

She added that while the association would continue to study the report and its recommendation for more reporting by the industry, “California already has more comprehensive information than most states do.”

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