Price Spike Fuels Hearing

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State legislators seek answers for California's much higher gasoline costs

As Inland Southern California motorists forked out more than 80 cents per gallon more than the national average for gasoline Tuesday, state lawmakers questioned the recent wild swings in prices and urged regulators to do more to reduce market volatility.

"How can such a well-functioning market be subject to such volatility?" asked Sen. Jim Beall, D-San Jose, who helped lead a legislative hearing on the topic 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 with $2.46 for the national average, meaning Californians are paying 81 cents more per gallon.

According to the AAA Fuel Gauge Report, the average price in Riverside and San Bernardino counties was $3.28 per gallon on Tuesday. That's down 11 cents from one week ago, but a 23-cent jump from a month ago.

A year ago gas sold for an average of $4 a gallon in the Inland region.

California as a whole, which has the dubious distinction of paying the highest prices of any state, is one of two states with a per-gallon average above $3.
The other is Hawaii.

Aside from the sharp ups and downs, what's catching motorists' – and lawmakers' – attention is the widening gap between California and the rest of the nation.

"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.

Sen. Jeff Stone, R-Temecula, blamed the new carbon tax in part for the widening gap between California and the nation.

Stone also blamed what he characterized as California's strict regulations governing refineries – and the dominant party.

"We all want clean air. We all believe in a clean environment," Stone said by email. "But the bottom line is that the Democrats in the Legislature and in state agencies have crafted laws, rules and regulations that make our gasoline much more expensive than it needs to be."

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, making 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.

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