Rising gas prices look like California’s electricity crisis

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The following commentary was broadcast on Marketplace from Minnesota Public Radio on Wednesday, March 17th, 2004:

DAVID BROWN, anchor: This is MARKETPLACE. I’m David Brown.

Got the gas pump blues? If it makes those of you elsewhere in the country feel any better, we got it worse here in California. Yes, it’s true that crude oil prices are up but that doesn’t entirely explain the wildly divergent price spikes around the country. Consumer activist and Californian Jamie Court is experiencing both sticker shock and deja vu.

JAMIE COURT: Every time I see the price at the pump jump another dime, it reminds me of California’s electricity crisis. You see, along with the rest of California, I lived through the heyday of Ken Lay. Enron and other energy companies turned off the lights and robbed Californians blind. They did it by closing power plants and artificially withholding electricity to give the illusion of scarcity. That made the price of electricity soar. Big oil’s playing the same game. A handful of refiners control regional gas supplies, and only they make the special environmental mixture required in that region. Refiners rig the system by limiting the number of refineries and running on low inventories. That way when a refinery fire hits, the commodity appears scarce and the market price goes sky high. But it doesn’t cost refineries any more to make the gas.

In California, oil companies have closed nearly half the state’s refineries since federal gasoline deregulation in 1981. Shell is scheduled to shutter another this year. In the Midwest, after prices spiked two years ago in the wake of a pipeline break, the Federal Trade Commission blamed low inventories. One refiner even told regulators that it had no incentive to bring in supply quickly since that would lower the price.

Refiners are cheating, not competing. Instead of competing to create more supply, they work together to restrict supply and profit wildly. And if you doubt that the spirit of Enron is alive and well in the gasoline business, consider this: Back in January, Royal Dutch-Shell said it had overestimated its proven oil and gas reserves by one fifth. That inflated Shell‘s stock price. If regulators don’t take action sooner than with Enron, $3-per-gallon gasoline likely won’t be the only consequence of big oil’s cost. In Los Angeles, this is Jamie Court for MARKETPLACE.

BROWN: Jamie is a founder of consumerwatchdog.org.

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