State to Investigate Gasoline Price Hikes

As gasoline prices hit another record high Monday, California legislators launched an investigation into the market tactics of oil companies, which are posting big profits in the state as gasoline and diesel prices soar.

The probe by the new Senate Select Committee on Gasoline and Diesel Pricing, unveiled Monday, will be patterned after an aggressive investigation by lawmakers into price manipulation during California’s electricity crisis, said Senate President Pro Tem John Burton (D-San Francisco).

“Gas prices are way out of whack up and down the state,” Burton said in a statement. In an interview, he added: “Is this a natural phenomenon, or are they gaming the system? We’ll find out.”

The statewide average price of self-serve regular jumped 4.6 cents in the last week to a new high of $2.269 a gallon, according to the weekly survey by the Energy Information Administration, an arm of the U.S. Energy Department.

Adjusted for inflation, current prices still don’t approach the levels of 1981, when California pump prices averaged $2.426 a gallon in constant-dollar terms, according to the California Energy Commission. But they’re getting closer.

Nationwide, the average cost of gasoline rose 7.6 cents to $2.017 a gallon -- the first time pump prices have averaged more than $2 a gallon nationwide, the EIA survey showed.

California’s average retail price for diesel, which has been wreaking havoc in the trucking industry, fell 1.6 cents from last week’s record high to $2.34 a gallon as of Monday.

Nationally, gasoline prices have been boosted by high demand and the soaring cost of oil, which hit an all-time high of $41.55 a barrel in New York on Monday. In California, where demand is 4% ahead of last year, tight supplies continue to be the biggest factor.

State Sen. Joe Dunn (D-Santa Ana) believes oil companies have had a hand in creating California’s fragile balance between supply and demand, and as chairman of the new bipartisan gasoline price investigation, he intends to prove it.

“Is there a supply problem? Yes. But there’s a supply problem as a result of a deliberate strategy of the gasoline industry,” Dunn said. “They have purposely eliminated their excess inventories [of fuel], they claim in an effort to save costs, but conveniently, it also gives rise to market power and their ability to dictate the prices at will.”

Much of the discontent from politicians has focused on Shell Oil Co.’s plans to close its Bakersfield refinery this year. The facility makes 2% of California’s gasoline and 6% of its diesel, and the company has said the closure is necessary because of declining crude supplies. But Dunn, U.S. Sen. Barbara Boxer and others have said they suspect Shell of intentionally crimping supplies.

At Boxer’s request, the Federal Trade Commission is reviewing the circumstances surrounding Shell’s decision. The state attorney general also has questioned Shell’s move, and legislative committees have held hearings to discuss rising fuel prices in California.

Joe Sparano, president of the trade group Western States Petroleum Assn., defended the industry Monday, saying gasoline prices are set by market forces such as supply and demand, and by the price of oil.

Sparano said Dunn’s committee would be no different from other investigations into gasoline prices and oil companies, all of which “have found ... no price gouging, nothing illegal whatsoever.” He added: “Our resources are probably better spent working on possible solutions and then cooperating to get there instead of continuing to investigate in areas where there has been no wrongdoing.”

Dunn said the committee would subpoena documents from the oil companies in about a week. Eventually, it will compel executives to testify before the panel under oath, he said, and bring contempt charges against uncooperative companies and witnesses.

“We are after the documents maintained by these companies that monitor their own market behavior as well as their competitors’ market behavior,” Dunn said. “We intend to go to the highest levels of each company, right up to the CEO.”

Other members of the committee include vice chairman Sen. Bill Morrow (R-Oceanside), Sen. Debra Bowen (D-Marina del Rey) and Sen. Martha Escutia (D-Whittier).

Dunn headed the committee that investigated companies involved in the state’s 2000-01 energy crisis, which caused the cost of electricity to soar and led to blackouts. Over 2 1/2 years, Dunn’s electricity committee fought off a lawsuit and legal objections from Enron Corp. and other power-trading firms to gain access to documents that revealed unflattering and questionable market behavior and ultimately helped the state build a case for refunds from many of the companies.

However, although federal regulators have conceded that California is owed refunds, the state has won only a small slice of the billions of dollars it believes it’s due.