Californians finally saw $5 per gallon at their pumps last week. Unfortunately, it's not likely to be the last time.
The Los Angeles Times published my oped Friday, "Refueling California," where I detail how sudden price spikes will plague drivers here until we adopt some simple reforms recommended by a state taskforce more than a decade ago.
This price surge is not a freak phenomenon or the result of a convergence of refinery problems, as the oil industry has argued. It's happened before (only the $5 level is new) and will happen again and again because California oil companies can make more money by making less gasoline.California's under-regulated gasoline market resembles our briefly deregulated electricity grid during 2000-01, when energy pirates such as Enron manipulated prices. Why? The market is geared to shortages and scarcity. So when an inevitable problem occurs to shock the system, such as a refinery outage or pipeline problem, gasoline prices and company profits go through the roof in tandem.
For more than a decade, California has had the answers to the problem. We have just lacked the political will in Sacramento to do what's needed.
About a decade ago, after some sharp, unexpected price hikes, then-Atty. Gen. Bill Lockyer formed a gas pricing task force that included industry experts and me. We viewed industry documents and cross-examined industry representatives. Among the conclusions: "Supply disruptions that contributed to major price spikes of 1999 are likely to continue … because (1) California refiners have little spare capacity to cover outages; (2) California refiners maintain relatively low inventory levels." The report also noted: "Refiners have significant market control."
The task force recommended a series of measures, including building a strategic gasoline reserve that could flood the market when supply is most scarce. But the Legislature didn't listen. And now we are near 5 bucks a gallon.
There's a simple policy fix to the gasoline woes in California: more regulation and less consolidation.
If the state doesn't have the wherewithal to build a strategic gasoline reserve, a simple requirement that refiners keep at least three weeks of inventory on hand will do.
Will things change in Sacramento?
One simple test is coming soon.
Tesoro is seeking to buy the low-cost Arco brand and its California assets from BP. More than 800 stations carry the Arco brand. If state Atty. Gen. Kamala Harris and federal regulators approve the merger, two refiners — Chevron and Tesoro — will control 51% of the refining capacity in the state. That would be like writing a blank check from California drivers to the oil industry.
Consumer Watchdog has weighed in against the merger. If it's denied that could be new beginning. But I'm betting it will take a ballot measure to get Sacramento to do what it should have done more than a decade ago and regulate our gasoline supply.
