Senator Feinstein Questions Conventional Wisdom that California Deserves Its High Gas Prices

Wednesday, August 29, 2012

Gregg Laskoski at U.S. News and World Reports says that California’s high gas prices are “self-inflicted wounds” caused by too few refineries, too many state regulations and too much “green” orthodoxy, which blind it to the realities of the energy market. The result, they say, is a shortage of supply that triggers a price surge.

It is not an uncommon sentiment among those who feel deregulation of energy markets and a more business-friendly economic climate would solve a lot of California’s problems. On Tuesday, California Senator Dianne Feinstein cast aspersions upon the industry and that line of reasoning, and asked the Federal Trade Commission if gasoline prices weren’t being manipulated by corporate interests.

The chairwoman of the Senate Appropriations energy and water subcommittee acknowledged that the latest spike in prices (up 30 cents to $4.21 a gallon) began shortly after the August 6 fire at Chevron’s Richmond refinery, the state’s third-largest, reduced its capacity. But she noted that the state’s refineries produced more gasoline the week after the blaze. Production jumped 12% to 6.8 million barrels, according to the California Energy Commission, as other refineries stepped up their sales.   

“If the spike in California’s gasoline prices cannot be explained by supply and demand fundamentals, I believe it is vitally important that the Federal Trade Commission look into this matter expeditiously,” the senator wrote.

The average price of a gallon of regular gas in California was $4.13 as of Tuesday, according to the Automobile Club of America (AAA),  compared to a national average of $3.76. The average price in California was $3.80 a month ago, compared to a $3.45 national average.

Gasoline sales in the state have taken a major hit since the economy tanked in 2008, although the trending downward has been going on since 2006, attributable in part to a switch by California drivers to more fuel-efficient vehicles and utilization of mass transit. Gasoline sales have dropped from 8.5 million gallons a day six years ago to 4.9 million per day this year.

California retailers have been exporting gasoline, she said, and operating below capacity. Yet fuel prices remain the highest in the country. Back in 2006, gasoline prices in California were 14-cents-a-gallon higher than other western states; now, they average 26 cents higher. Feinstein cited a 2009 report from the Government Accountability Office (GAO) that she said suggested refineries and fuel marketers in California were in a position to manipulate prices and maximize profits at the expense of consumers.

–Ken Broder


To Learn More:

Sen. Feinstein: Investigate California Gas Price Increases (by Keith Laing, The Hill)

Feinstein Urges FTC Probe of CA’s High Gas Prices (by Josh Richman, Bay Area News Group)

California's High Gas Prices Are Self-Inflicted (by Gregg Laskoski, U.S. News and World Reports)

Refinery Outages Can Have Varying Gasoline Price Impacts, but Gaps in Federal Data

Limit Understanding of Impacts (Government Accountability Office)

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