Refiners Not Faulted for Gas Prices;

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Consumer advocates immediately branded study as apology for oil industry

The Los Angeles Times

Unplanned refinery outages, unusually high fuel exports and tanker troubles — not misdeeds by the oil industry — were the primary drivers behind a springtime price surge that sent California gasoline costs to record heights, state energy officials said Tuesday.

But the California Energy Commission, in a report delivered Tuesday to Gov. Arnold Schwarzenegger, said it lacked the power to collect financial information from oil companies as well as data covering refining costs, fuel trading and port operations. The commission said it needed expanded powers to help close “information gaps” that hinder its ability to track trends and troubles in the state’s volatile gasoline market.

Consumer advocates immediately branded the study as an apology for the oil industry.

The report was ordered after Californians suffered through a mysterious pre-driving-season jump in gasoline prices.

In mid-April, the wholesale price for California gasoline jumped 60 cents above the comparable price in New York — a gap typically about 19 cents. Retail prices started to rise at the end of April and on May 8 the statewide average hit a record $3.332 for a gallon of self-serve regular. The run-up cost consumers an extra $1.3 billion by June 1, the commission said.

Joseph Desmond, a state energy official who until recently was chairman of the energy commission, said the agency’s investigation “did not find a smoking gun” that points to market manipulation or other misconduct.

Given the problems at refineries and other issues that afflicted the market at the time, he added, “the market operated in a fashion that you would expect markets to operate.”

Catherine Reheis-Boyd, chief operating officer of the Western States Petroleum Assn., wasn’t surprised at the commission’s findings.

“The report reached the same conclusions as the dozens of other investigations, and that is that there was no collusion, no market manipulation, no illegal or improper activity, no evidence of price gouging,” she said.

The energy commission’s report is far from the last word on the refining industry’s activities. Atty. Gen. Bill Lockyer, who has subpoenaed oil company documents and deposed some executives, continues to investigate oil company profits in California to determine “the extent to which their margins in this state are justified,” spokesman Tom Dresslar said Tuesday.

“The oil companies should not consider themselves exonerated with this report,” Dresslar said. “They still have a lot of explaining to do to the drivers of California regarding the chronic pain that they suffer at the pump and regarding the huge margins the companies are enjoying.”

Lockyer plans to sponsor legislation that would give the energy commission the additional data collection authority it seeks, Dresslar said. The oil industry considers the commission’s request for more information to be reasonable, Reheis-Boyd said, “as long as the confidentiality provisions are maintained.”

In its report, the commission said the state’s 14 gasoline-making refineries suffered an abnormally high rate of production shutdowns in the first six months of the year — 175 days compared with 58 in the first half of 2005 — and that stunted gasoline output at a time when inventories were falling.

A snag at a Southern California port terminal that delayed a tanker’s fuel delivery also contributed to the supply crunch, the commission said.

Supplies were further strained because refiners and others shipped more fuel to Arizona and Nevada than at any time in the last five years, according to the commission report. Nevada relies on California for nearly all its fuel; Arizona usually gets two-thirds of its supply from California and the rest from refineries to the east.

Desmond said there was also substantially less fuel than normal headed to Arizona from Texas during the study period, possibly evidence of the market’s re-balancing supplies. However, he said, “what we cannot conclude… is which is the cause and which is the effect.”

Jamie Court, president of the Foundation for Taxpayer and Consumer Rights, said he was outraged by the high number of unplanned refinery outages. He called the commission’s report a “whitewash” that ignored evidence that the oil companies “are artificially shorting the market to drive up prices.”

Court likened the refinery outages to power plant shutdowns during the state’s 2000-01 energy crisis — including some unwarranted production cutbacks ordered by traders who wanted to increase power prices.

“This is the equivalent of the electricity blackout… but instead of blackouts, there’s $3.50 gasoline,” Court said. “It’s the same formula.”

Desmond, however, said individual refiners had “no financial incentive” to stop or reduce production unnecessarily. In addition, energy commission officials “looked at the evidence” supporting the outages and found them to be legitimate.

Consumer Watchdog
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