Report: Storms, refineries blamed for high California gas prices

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San Jose Mercury News

SACRAMENTO, CA — Blame Gulf Coast hurricanes and outages at several California oil refineries for the $3-a-gallon gasoline in California earlier this year, not gouging by retail gas stations, according to a report released Friday by the California Energy Commission.

What the report didn’t address was the role of major oil companies, which set wholesale gasoline prices and reaped record profits this summer and fall. The reason: California officials don’t have the authority to get detailed information from them, Commission Chairman Joe Desmond said.

The energy commission asked for the report in September, when California prices hit an all-time statewide high of $3.06 per gallon. The report, “2005 Gasoline Price Movements in California,” concluded that California’s fortunes at the pump were tied to events elsewhere.

Desmond said the state’s per-gallon pump prices peaked at the same time as prices spiked nationally.

While California refineries weren’t directly affected by hurricanes Katrina and Rita, the storms put such a dent in national supplies that it drove California’s gas prices higher, Desmond said.

In addition, California’s wholesale gas purchases are calculated using a benchmark posted by the New York Mercantile Exchange – further tying the state’s prices to national conditions, the commission said.

In the month following Hurricane Katrina, California’s refineries increased by 45 percent their exports of gas to Nevada and Arizona, which relied more heavily than California on supplies from the battered Gulf States. This further tightened supplies in California.

“That tells you that gasoline will flow to where prices increase,” Desmond said.

As the hurricanes shut down 26 percent of the nation’s crude oil production, several California refineries also had unexpected outages of their own.

Fires or other problems at three California refineries were immediately followed by wholesale price increases. A widespread power outage in Los Angeles on Sept. 12 also cut production at three plants, officials said.

All those pressures on the wholesale market caused a jump of 72 cents per gallon at the pump between mid-June and early September, the report said. It found no evidence that gas stations contributed to the steep price spikes.

But consumer advocates said the report was incomplete because it failed to examine the concerns about gouging on the wholesale level by oil companies.

 “The story about gas prices isn’t about the local gas stations, but the few mega-refiners who have seen their profits hit record levels while the nation suffers,” said Doug Heller, consumer advocate with the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

Desmond responded that the proper place to investigate wholesale gasoline prices is in Congress.

“This is a deregulated market, and it’s been that way 1981,” he said.

Congress had similar concerns about profits and last week questioned executives of five major companies. Those companies, along with their parent corporations, earned more than $32.8 billion during the July-to-September quarter. During that time, consumers nationwide saw retail gas prices soar to more than $3 a gallon.

The executives defended their profits and denied gouging consumers. They said failing to increase the pump price would have led to a run on gasoline, which would have threatened supplies.

To avoid future price spikes, the California Energy Commission is recommending that the Legislature and governor consider establishing a public goods charge, similar to the surcharge on electricity and natural gas bills.

The money raised by the charge could go toward assisting low-income families hit hardest by high gas prices, create incentives for consumers to buy alternative fuel and high-efficiency vehicles, and provide funding for projects intended to keep the state’s fuel prices stable.

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