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The Daily News of Los Angeles

Californians, who have seen record gas prices in each of the past two years, can expect even bigger leaps this summer, with some forecasts of $3 a gallon at the pump. Though nearly everyone connected with the tumultuous state market agrees it needs a fix, few of the analysts gathered at a forum Thursday could agree on how to actually accomplish it.

Attorney General Bill Lockyer convened a panel in Los Angeles to discuss the recent run-up as part of a four-year investigation into the state’s volatile price spikes. Gas prices set records last March and again earlier this month.

With Los Angeles motorists paying an average of $2.192, off a cent from the record reported by the Automobile Club of Southern California on March 4, prices have spiked high enough for politicians to take notice.

First convened in 1999, the task force has monitored pump prices and investigated allegations of illegal price-fixing. Having never found any evidence of oil company collusion, Lockyer suggested that the problem lies in the system, rather than any lawbreaking.

“They don’t have to act illegally to gouge us,” he said. “The structure of this market makes it so they don’t have to price-fix. There’s insufficient competition.”

He listened to presentations from the state Energy Commission, oil company representatives, consumer advocates and economists who all offered varying proposals.

The oil companies’ lobbying group, the American Petroleum Institute, says the solution is to increase supply. The group’s chief economist, John Felmy, blamed the state’s strict environmental laws for the dearth of refineries, whose numbers have dwindled from 33 in 1990 to 22 today. As companies have shuttered their sites and the state’s crude oil output has dwindled, Felmy said, they have been hampered by regulations limiting expansion and construction of the massive fuel-producing sites.

“Your regulations make California a unique island, so when you raise prices, only a few refineries can supply you,” Felmy said in a previous conference callwith reporters. “We need more refinery capacity in California and the U.S., but we face enormous challenges to build them. Where would we put them? We regularly face opposition from environmental groups, and we’ve had very low rates of return on our investments.”

In his presentation before the panel, he recommended a streamlining of the permitting process for refinery expansion, which mirrors suggestions put forth by the Energy Commission and the Auto Club.

Felmy also suggested that states need to adopt more complementary formulation standards. There are currently 18 different types of gas sold in the United States, with California’s unique blend being both the cleanest and most expensive. By reducing the number of what Felmy called “boutique fuels” – either by California’s switching its formulations or converting other states to California’s standards – he said gasoline could be imported when supplies get short in the state.

California’s recent spikes came as refiners reported maintenance problems while they switched from winter- to summer-formulation gas, which tapped reserves and sent wholesale prices soaring. To try to maintain steadier prices in the future, state Sen. Joe Dunn, D-Garden Grove, has proposed an amendment to the California Constitution allowing the Public Utilities Commission to regulate the gasoline industry and mandate increased reserves. He introduced the amendment last August and, though he has doubts it will pass, plans on scheduling the first hearing within 45 days.

“In essence, the fruit of a robust competitive market doesn’t exist in the gasoline world, just like we saw in energy,” Dunn said in an interview. “There’s a deliberate attempt to keep down reserves, so when there’s a hiccup, the price goes up.”

Also on the supply side, the Santa Monica-based Foundation for Taxpayer and Consumer Rights has recommended that the state prevent Shell Oil from closing its Bakersfield refinery later this year. In his remarks, Lockyer said he was looking at options regarding the refinery, which mainly produces diesel fuel.

Examining the debate side of the equation, the Energy Commission also recommended that the federal government double the corporate average fuel efficiency or CAFE standard: the 28.5 miles per gallon target that auto manufacturers must make their fleets average. This would increase incentives to develop alternative fuel vehicles and gasoline-electric hybrids.

In another attempt to slacken demand, the Auto Club recommends that employers consider letting workers telecommute more frequently. The motorist group saw heightened interest in the practice during the big price run-up around the 1991 Persian Gulf War, with reduced freeway congestion and less demand for gas.
Contact the author Brent Hopkins – (818) 713-3738 or [email protected]

Consumer Watchdog
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