Op-Ed Commentary: Big Oil Has Lots Of Explaining To Do On Gasoline Price Spikes

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To death and taxes, add one more certainty: Big Oil will always triumph at the expense of our families unless California starts standing up to oil companies by refusing to tolerate a system rigged in their favor.

In February, when two refineries were mismanaged and went offline, gas prices spiked – forcing California drivers to pay nearly $1 more a gallon than motorists elsewhere. The price gap with the average for other states is still 70 cents.

Why? California oil refiners have about half as much gasoline on hand as the rest of America, according to Federal Energy Information Agency data. This creates a volatile market vulnerable to price spikes – triggered by planned and unplanned refinery outages – that rob California consumers and pad the pockets of Big Oil.

Californians paid an extra $550 million in February due to higher prices, and $1 billion extra in March.

During recent legislative oversight hearings, a Senate staff analysis and the California Energy Commission confirmed that during gas price spikes, oil refiners reap all the profit. That’s because taxes, crude and production costs all remain stable.

What did the oil refiners have to say to justify this windfall? Nothing.

The oil companies didn’t send an executive, a lobbyist or even a representative from the Western States Petroleum Association to speak on their behalf at these hearings.

Oil company executives have argued that gasoline prices are higher in California because of higher taxes and environmental rules, but even by their flawed math, that’s only 25 cents extra per gallon, not $1.

Big Oil spent more than $20 million last year lobbying our leaders and the public with false claims that bringing fuels under the cap-and-trade carbon market would raise gas prices on Jan. 1. Of course, this didn’t actually happen; in fact, prices fell during January.

However, at the beginning of February, with poor planning in the face of a strike, Tesoro took 8 percent of the state’s refining capacity offline, shrinking oil supplies across the state. This action is particularly puzzling given statements by Tesoro’s CEO Gregory Goff to investors that he could keep his refineries running indefinitely during a strike. Then Exxon’s Torrance facility, another 8 percent of the supply, went offline due to an explosion.

How can two refinery outages allow oil companies to increase prices at the pump? Shouldn’t there be a clear justification for how and when oil companies raise prices?

As the state attorney general’s office pointed out during the oversight hearings, the oil companies have an oligopoly, making it difficult to determine collusion and price fixing – and even more difficult to prosecute.

The attorney general’s Task Force on Gasoline Pricing, comprised of industry and government representatives, first diagnosed the problem in 2000, finding that gas price spikes were likely to continue because California has little spare refinery capacity to cover outages and maintains relatively low inventories of gasoline.

These problems persist today. Two refiners control 56 percent of all gasoline production in the state, and inventories remain low. The oil companies have Californians over a barrel.

Oil executives need to set the record straight about the March price spikes. The Senate hearing was a first step toward holding oil companies accountable and de-rigging the market to protect hardworking consumers. Unless these executives agree to provide a clear justification for gas price increases, legislators should issue a subpoena to get the answers that we deserve.

Jamie Court is president of Consumer Watchdog and a former member of the attorney general’s Task Force on Gasoline Pricing.

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