It’s a fact known by almost every driver who’s returned to
California from other parts of the country, including the neighbor
states of Nevada and Oregon: Californians pay far more for gasoline
than anyone else in America.
It’s a fact known by almost every driver who’s returned to California from other parts of the country, including the neighbor states of Nevada and Oregon: Californians pay far more for gasoline than anyone else in America.
The oil companies offer a variety of explanations for this, everything from shortages of supply to the state’s high gas taxes. And most drivers meekly take their word for it and pay up at the pump. Gasoline prices are now a bit like the weather: Everyone talks about them, but no ones does much about it.
Which means it’s high time for a real investigation, one that doesn’t whitewash the industry, as a so-called probe by the state Energy Commission did last year. In fact, Gov. Arnold Schwarzenegger called for just such an investigation this spring, but without giving the commission any hints at what to look into as possible tactics that led to price gouging. The result: A whine last month that oil companies wouldn’t give the commission the information it wanted.
Yet, the areas that need thorough looking into are obvious.
The commission – and state Attorney General Bill Lockyer, who is conducting a concurrent investigation of his own – ought to examine the real reasons for supply shortages that companies like Chevron and ExxonMobil and Shell often cite when prices rise.
If they do look into that, the state authorities will discover a longstanding pattern of refinery closures leading to an ever-reducing supply. Whenever oil companies close refineries, they claim the facilities are hopelessly outdated and can no longer be profitably run.
The latest example was Shell’s attempt to shut down its Bakersfield refinery in late 2004 and early 2005, claiming it could never be profitable. Under intense pressure from both Lockyer and the public – with Schwarzenegger taking no visible interest in the matter – Shell finally sold the Bakersfield plant to Utah-based Flying J Inc., which runs 178 large truck stops around the West.
A little more than a year after buying the refinery for about $130 million, Flying J announced it will invest $500 million more to double its size and output. So much for Shell’s claim that the facility was outmoded and unprofitable. Which raises doubts about the similar claims made when other oil companies closed other refineries over the last 25 years.
Then there’s the matter of supply. According to one previous Energy Commission report, state refiners during the springtime switched part of their production from the hyper-clean formula used for California gasoline to other mixtures that can be used in other states. Gasoline exported from California refineries to nearby states increased by 38 percent during just one week, while the output of gasoline usable in California dropped by more than 10 percent.
So refining capacity that could have been used to increase the California supply was not used for that and Californians paid the price at the pump. State investigators need to ask why. They need to ascertain whether this was an industry tactic specifically aimed at driving up California prices.
Oil companies also like to moan that they are subject to the price fluctuations of worldwide spot markets, which rose precipitately after last year’s Hurricane Katrina and never returned to previous levels. That excuse, however, only applies when the companies price oil from fields they own in places like Alaska, Oklahoma and California at the same levels reached by the spot markets. And if they also re-price oil supplies they receive under long-term contracts where the price was established years ago. Only pure greed compels them to do either of these things.
All of which implies that the explanations put forward by oil companies as pump prices rose above $3.50 and profits climbed to record levels might be about as reliable as those offered by electricity generators during the energy crunch of 2001-2002, all of which turned out to be lies.
Several electricity traders and executives now sit in prison because of the price manipulations they arranged then, and their companies have agreed to restitution settlements totaling more than $6 billion.
What state investigators really need to determine now is whether the only real difference between electric generating firms and oil companies is that manipulators from one industry have been convicted, while those from the other are still free.
Thomas Elias is a syndicated columnist and author of several books.
