As In Electricity Crisis, Close Oversight of Gasoline Producers Will Stabilize Price, Though More Is Needed

Santa Monica, CA — The spokesman for California Assembly Speaker Fabian Nunez says the legislative leader will propose new standards Friday for when oil companies in California can shut down refineries for maintenance, as a way to control gasoline prices. (See full Bloomberg story below.) The Foundation for Taxpayer and Rights said that the idea is on the right track, because as in the 2001 power crisis, it is restriction of gasoline supply that is raising prices — and refinery profits — to record levels .

“Speaker Nunez is taking the right path in treating refiners more like utilities and putting some state oversight on their shutdowns — just as much of California’s 2000-2001 electricity crisis could have been avoided if the state had taken some control over power producers,” said Judy Dugan, research director of FTCR. “Obviously this idea needs to be carried further, to include regulatory prods for expansions of capacity, and for maintenance of more days of supply, but at least the silence in Sacramento on gasoline prices has been broken.”

“Oil companies will certainly complain that the slightest interference with maintenance schedules will endanger refinery safety and cause all manner of disastrous effects, said Dugan. “That’s an argument to extend regulatory control far enough to fix the underlying capacity and supply problem, not a reason to back off of immediate oversight. We hope Nunez will stick to his guns and view this as only a beginning.”

FTCR also noted that although oil companies have blamed price spikes on refinery accidents and “unplanned outages,” the price increases began during a wave of planned maintenance outages, many of them lasting longer than expected, for reasons never publicly explained.

Bloomberg story:

California Assembly Speaker Plans Bills to Oversee Oil Refiners

By Michael B. Marois

May 17 (Bloomberg) — A leader in the California legislature will propose new standards for when oil companies in the state can shut down refineries for maintenance as way to control swings in gasoline prices.

Speaker of the Assembly Fabian Nunez, a Democrat, will unveil a package of gas-price related bills tomorrow, his spokesman Steve Maviglio said in a telephone call. The bill would set up a new board that would adopt and enforce refinery maintenance schedules.

“Somehow they simultaneously go down for maintenance and that causes prices to go up,” Maviglio said.
“We’re going to develop some procedures and standards to monitor the refineries to make sure that no funny business is going on.”

Californians pay the highest gasoline prices in the U.S. and refinery bottlenecks frequently cause the cost of the state’s specially-formulated blend to jump during the summer months. The retail price of the fuel has soared by about one-third since December and hit a record $3.49 per gallon on average statewide last week, according to data from AAA.

Gasoline prices are long-running political issue in the state, known for its Los Angeles highways and lengthy commutes. During the recall election that resulted in the election of Governor Arnold Schwarzenegger, then-Lieutenant Governor Cruz Bustamante called for changing the constitution to regulate prices. Lawmakers have frequently alleged price fixing.

Benchmark gasoline futures closed at $2.43 cents a gallon today on the New York Mercantile Exchange, 12 percent higher than a year ago, while California-blend wholesale gasoline for prompt delivery in Los Angeles surged to $2.6575 a gallon.

Refinery Shutdowns

High prices are not being caused by refiners planning their maintenance too close together, said Jim Byrne, an analyst at BMO Capital Markets in Calgary. Rather, unplanned maintenance and refinery mishaps are responsible, he said. Byrne rates shares of Tesoro Corp., which owns one California refinery and is
buying another, at “outperform” and owns none.

“The biggest impact has been the spate of unplanned outages,” Byrne said. “It’s just been a snowball effect, essentially.”

Another of the bills would require the state to study whether the installation of temperature-measuring devices on gasoline pumps would correct the price for so called “hot fuel” and whether the state should help pay for the devices. Consumers could be paying for less gasoline than what the pump
registers in warmer temperatures.

“It can be done, but someone’s going to have to pay for that,” said Jeff Lenard, a spokesman for National Association of Convenience Stores in Alexandria, Virginia. “I don’t think anybody has necessarily demonstrated that it would be a good thing for consumers in the long run.”

Another bill would create a state database of gasoline supply and demand and their affect on prices.
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With additional reporting by Jim Kennett, Victor Epstein and Amy Strahan in Houston, and William Selway in San Francisco. Editor: Dieterich.