When California lawmakers met last week to begin asking questions about the recent rise in gasoline prices, Tom Steyer took notice.
Steyer, the billionaire environmental activist and Democratic mega-donor, signed his name to a letter Monday sharing his appreciation for the Senate’s preliminary probe into why gas prices rose by more than $1 a gallon in early March.
Using one of his signature phrases, Steyer told Senate President Pro Tem Kevin de León and colleagues that such inquiries are vital to giving consumers a “fair shake” at the pump.
Steyer and consumer advocates believe the market is rigged to benefit an oligopoly. The rules, they wrote, need to be changed to benefit consumers.
“Unfortunately,” the letter states, “the hearing raised more questions than it answered because those with the answers – representatives of the oil industry – refused to attend the hearing.”
It’s unclear whether Steyer and his allies will get the answers they want. Political pressure from Sacramento over the years has resulted in few changes, and Democrats will not say whether they plan follow-up hearings or legislation in response to the latest price increases.
There’s nothing unusual or unique about the way the market reacted to “a couple of unfortunate events” that resulted in concerns about supply interruptions, said Tupper Hull, a spokesman for the Western States Petroleum Association. “And, just as predictably, certain political individuals tend to jump on those and want to have investigations … and ask questions they think consumers will enjoy hearing,” he said.
“We have a sheet of several dozen investigations over the last 25 years, and they all reach the same conclusion: This product, like other very competitive commodities, is quite sensitive to supply and demand imbalances. And when there are imbalances, the market responds very quickly and very decisively.”
A top aide to de León said the complicated gasoline market “requires careful scrutiny to unwind and understand.” The Senate is investigating options for any next steps, said Dan Reeves, the chief of staff to the senator.
“Given the importance of energy issues to the future our state, the issues oil companies are pursuing here and the amount of revenue they generate from California, we think it is important that the actual executives of these companies engage in the process,” Reeves said.
The calls for action come amid ambitious greenhouse gas reduction plans, including legislation by de León to reduce petroleum use in cars by as much as 50 percent by 2030. Steyer and others also have not ruled out placing an oil-extraction tax on the ballot, creating another leverage point in the fight with oil companies.
Democrats convened the latest hearing after a pair of refineries, Exxon Mobil in Torrance and Tesoro in Martinez, went offline following an explosion and labor dispute, respectively. They account for about 16 percent of crude-oil processing, and prices in the state rose much faster than the rest of the nation’s.
Last Monday, the average California price for regular gas dropped 8.9 cents from the previous week, to $3.27. Still, the national average, at $2.46, was 81 cents lower, according to the California Energy Commission.
Hull said what typically happens is that the proposed solutions tend to have far greater potential for negative implications than allowing the market to function.
Asked why industry representatives did not go before the Senate Energy, Utilities and Communications and Transportation and Housing committees, he said the joint hearing happened to coincide with a previously scheduled executive committee meeting.
It has been more than 15 years since then-Attorney General Bill Lockyer investigated pricing practices. Lockyer’s findings on why gas costs more in California still largely hold up: the concentration and control oil companies maintain over production and sales; mandates for unique, cleaner-burning gas formulas; and the state’s isolation from backup fuel supplies. When disruptions occur, it’s difficult to obtain fuel from outside sources.
Californians already pay higher gas taxes, and some oil industry representatives fear a new policy that puts motor fuels in the state’s cap-and-trade program could increase the cost at the pump.
In 2004, Lockyer acknowledged there was no “quick fix.” Still, more questions and proposed legislation followed over the years.
Three years ago, after refinery disruptions and a pipeline shutdown, prices jumped to similar levels reached this year. At the time, Severin Borenstein, an economics professor at UC Berkeley’s Haas School of Business, forecast that politicians would soon be wringing their hands.
Borenstein, who served on Lockyer’s task force and is now a member of the Energy Commission’s Petroleum Market Advisory Committee, said the question then, and today, is do oil companies take advantage of periodic problems at refineries and reduce their output in order to drive up prices?
Consumer Watchdog, which drafted the letter with Steyer, charged in a report last week that oil refiners are gouging customers by keeping low gasoline inventories. The group wants refiners to maintain an additional week of gasoline on hand. They also are asking that refineries be made to disclose real-time information about their operations.
As the state’s cap-and-trade program took effect for transportation fuels in January, Democratic senators asked Attorney General Kamala Harris to monitor and, if warranted, investigate industry activities to stop potential price manipulation by oil companies and their subsidiaries.
Senior Assistant Attorney General Kathleen Foote, a veteran of the state’s gas price standoffs, said she has worked on close to a dozen probes into the industry, including merger reviews and investigations into price fixing and collusion. Between 2005 and 2007, she investigated California price increases following Hurricane Katrina.
Foote described a “very consolidated” statewide market of just five or six major and several smaller refiners, “what is generally called an oligopoly.”
Under the current situation, she said, “if you are looking for price-fixing, it takes relatively little in the way of signaling or some kind of tacit coordination – not a conspiracy – to reach some kind of a competitive détente that has a lot of effects rather similar to a price fix.”
The paradox, she said, is the more conducive a market is to collusion, the less proof there is going to be, making for a weaker case.
Borenstein said he believes the chance of bringing successful antitrust prosecution against the current players is “exceedingly small.”
“The only way I think we’re going to really find collusion is if somebody comes upon a smoking gun document or if there is a whistleblower,” he said.
“But I am not even suggesting there is collusion. I think it’s quite possible that the individual firms are just thinking about what their output will do to the price and adjusting it accordingly.”
Call Christopher Cadelago, Bee Capitol Bureau, (916) 326-5538. Follow him on Twitter @ccadelago.