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Feinstein urges FTC probe of CA’s high gas prices

By Josh Richman
Tuesday, August 28th, 2012 at 1:35 pm in Dianne Feinstein, U.S. Senate.

Something’s fishy about the California’s recent spike in gas prices, U.S. Sen. Dianne Feinstein said today.

Feinstein, D-Calif., sent a letter to Federal Trade Commission Chairman Jon Leibowitz urging that the FTC launch an investigation of the sudden rise in prices at the pump.

“The recent price spike began on August 6th, when a refinery fire at Chevron’s Richmond Refinery reduced refining capacity at the state’s third largest refinery,” she wrote. “However, this dangerous incident has not resulted in a reduction of gasoline supply that would explain the recent rapid price increase.”

Feinstein noted gas prices have risen 30 cents per gallon since then, reaching $4.21. “As a result, California has the highest gas prices in the continental United States. The increase is more than double the increase in the national average over the same period.”

“It is important that the Commission use its statutory authority aggressively to pursue and remedy any market schemes or other market distorting activities that have led to either the August spike in California gas prices or the longer term trend of higher gas prices in California,” Feinstein wrote.

Read the entire letter, after the jump…

August 28, 2012

The Honorable Jon Leibowitz
Chairman
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580

Dear Chairman Leibowitz:

I am writing to request that the Federal Trade Commission immediately open an investigation into recent spikes in the price of gasoline in California that appear to be unjustified by supply and demand fundamentals. The Federal Trade Commission has unique authority to investigate and prevent any manipulative or deceptive device or contrivance that could be resulting in unjustifiably high gasoline prices.

Californians filling up at the pump this month have been greeted by rapid price increases. Since August 6th, gasoline prices have risen 30 cents per gallon, reaching $4.21. As a result, California has the highest gas prices in the continental United States. The increase is more than double the increase in the national average over the same period.

The recent price spike began on August 6th, when a refinery fire at Chevron’s Richmond Refinery reduced refining capacity at the state’s third largest refinery.

However, this dangerous incident has not resulted in a reduction of gasoline supply that would explain the recent rapid price increase. The California Energy Commission’s statistics show that just before the Chevron fire, the state’s refineries were producing about 6 million barrels of gasoline per week. The previous month, they were churning out 7 million barrels per week.

In fact, the state’s refineries churned out more gasoline the week after the fire than they did the week before the fire, not less. Production of California-grade gasoline jumped 12.4 percent, nearing 6.8 million barrels for the week after the fire, according to the California Energy Commission, as other refineries saw an opportunity to increase sales. The Richmond fire, therefore, never led to a shortage – a point emphasized by Chevron’s own spokeswoman Heather Kulp, who said “There is an excess of gas on the West Coast.” 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.

I also believe the that Federal Trade Commission should investigate why California gasoline prices consistently exceed prices in neighboring states, despite dramatic shifts in California’s fuel market in recent years. Gasoline sales in California have fallen from 8.5 million gallons per day in 2006 to 4.9 million gallons per day this year, as drivers switch to more-fuel-efficient cars and elect to utilize public transit. California refiners have been exporting fuel, and have been operating well below their capacity.

Despite this drop in demand, and a clear excess in capacity, Californians have continued to endure unusually high gasoline prices when compared to their neighbors to which fuel refined in California is being exported. Department of Energy statistics show that the average price of California gasoline was 14 cents higher than other western states in 2006, when high demand in California pushed refineries to their limits. Data this year shows that the price of gasoline in California has averaged 26 cents per gallon higher than other western states.

These statistics suggest other forces are at play. In 2009, the Government Accountability Office (GAO) published a thorough econometric analysis of gasoline markets nationwide which showed that highly concentrated markets – including San Francisco, San Diego and Los Angeles – were associated with higher wholesale gasoline prices, exceeding the prices in unconcentrated markets by an estimated 18 cents per gallon. This study suggests that refineries and fuel marketers in California have accumulated the market power necessary to move prices and maximize profits at the expense of California’s consumers.

The FTC’s Prohibition on Market Manipulation Rule (16 C.F.R. Part 317) specifically prohibits a single actor or a few collusive actors from setting the market price. Given the unusually high prices in California and the GAO’s conclusions, I ask that the FTC thoroughly investigate whether the use of market power is inflating gasoline prices in California.

High gasoline prices are contributing to significant economic pain for consumers and businesses in California and are jeopardizing our fragile economic recovery. A report by the University of Southern California’s Marshall School of Business estimated that for every penny increase in a gallon of gas, as much as a billion dollars is pulled from the U.S. economy each year. Californians could be spending these dollars to keep up with mortgage payments, paying college tuition, or investing in their local communities.

It is important that the Commission use its statutory authority aggressively to pursue and remedy any market schemes or other market distorting activities that have led to either the August spike in California gas prices or the longer term trend of higher gas prices in California.

Thank you very much for your consideration of this matter. If you have any questions or concerns, please do not hesitate to contact me in my Washington, DC office. I look forward to your timely response.

Sincerely,

Dianne Feinstein
United States Senator

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  • GV Haste

    Yada yada yada… What a useless call for a investigation that EVERYONE knows will result in ZERO changes.

    Next thing, we’ll appoint a commission to find out why lettuce is so green.

  • Janice Holley

    I applaud you for attempting to remedy the outrages increases in gas prices without justification. Perhaps gas should be priced the same throughout the Continental United States. It is unjust for Californians to be paying higher costs.

  • RR senile columnist

    What happened to DiFi’s campaign to limit boozing on
    airliners?

  • Elwood

    Janice, the slightest bit of research would have told you that in CA we have specially formulated “clean air” gasoline which costs more to manufacture.

    Also, in case you hadn’t noticed, everything costs more in CA.

  • JohnW

    Re: #4

    Agreed about the blend and costs in general being responsible for higher gasoline prices in CA. We also have less auto pollution than before as a result, right?

  • GV Haste

    Re: #5.. NO we don’t have less auto pollution than we would have if we used one of the other blends that are common in many states.

    Our blend is unique because it was a early blend.
    Other states did not follow our unique blend and opted for blends that are widely available. Thus they can buy from anywhere if one plant goes down, whereas California is suddenly in shortage.

    But the other blends have been proven to be just as effective in reducing pollution. California only keeps their unique product in place (enforced) because they can make more money doing so.

    As usual, follow the money. Like the madness that went along with the poison MTBE.
    Remember all those gas tanks that were dug up and replaced. Look at Santa Monica, water system ruined.
    All during the entire process MONEY was made.
    Costs so high all the independent stations went out of business, leaving us with less competition.
    Add it all up and for decades we’ve been paying 25 cents to 50 cents more pre gallon for gas that is no cleaner.
    A combination of greed and “green” ignorance is to blame.

  • JohnW

    Re: #6 GV Haste,

    MTBE and all those gas tanks are before my time in CA. I don’t claim to be fully informed on the topic, so I’m just trying to understand what is real and what isn’t.

    I’ve heard about the MTBE debacle, but I’m going to guess that CA jumped into the special blend business earlier than other states because of the severity of the problem, especially the smog in Southern CA and in the Valley.

    I’m skeptical that shifting to the more widely used and available blends would significantly reduce gasoline costs here but would certainly be in favor of shifting if it would save money. However, the difference between what we pay and the national average is about 15%. If you account for higher costs in general here plus higher state gasoline sales taxes, that doesn’t seem to leave much left that you can blame on the blend issue.

  • GV Haste

    JohnW, using the nationwide blend makes a much larger difference when supplies get tight, especially when something happens to a refinery as it seems to almost every year. Or when refineries close for routine maintenance.
    When those fairly expected events happen, California goes into shortage and is not allowed to even temporairly bring in the other (equally clean) blend because the law is written in a special way.

    These laws, making California unique have cost California driver billions and billions of dollars over the year.
    Again, you are fairly new to the state. For years we paid a even larger premium than now.
    PLUS a huge factor is that they forced thousand of independents out of business with the stupid and ineffective forced replacement of gasoline tanks.
    Even tiny leaks, causing zero environmental problems, make station owners fork over $250,000 or close.
    Half the stations in California closed.
    about 1 in three stations used to be independent.
    No less than 2% are.

    The system has been gamed by a collusion of Big Oil and Big Environmental groups. Each forcing the average Joe to spend billions upon billions of extra dollar.
    To this very day, we are still paying 25 cents or more extra per gallon.

    These groups buy off the legislators and try to come off as saving the environment. Baloney.
    Between that and the SMOG Check fiasco we are being screwed.
    Look into the ever tightening SMOG program and see who is making the money on equipment and the ever smaller effect the entire program is having on air quality.

    The SMOG program should be phased out as ever fewer polluting cars are still out there, yet millions and millions of cars are still required to be smoged at $50 or $60 each time.
    Another huge waste of money. I’ve easily spent $1,000 on tests and have never been found to fail.
    A waste of money and a huge waste of time.

    2012 circumstances and auto technology is not 1980 technology.
    Follow the money and you’ll see why so many of these situations and programs remain as they are.
    Everyone except for the poor average Joe driver is getting a financial benefit.

  • JohnW

    GV Haste,

    You may be right about all that. But, honestly, I’ve been here for eight years and kept an eye on the difference between the Bay Area and the national average during all seasons, refinery shutdowns, supply shortages and surpluses etc. Through all of those things, the difference seems to be rather consistent. Whatever problems the blend created in the past, they don’t seem to now. Logically, if the blend were the problem, you would expect to see more price differential volatility. The fact that the differential remains consistent suggests to me that higher general costs and gasoline taxes, which are constant, are the real factor at work. Not saying we shouldn’t go with the same mix as everywhere else. However, I don’t see where there would be a noticeable economic gain from that.

  • GV Haste

    JohnW, just a few weeks ago, after the Richmond fire, we saw a short lived but instant jump in California prices due the the perceived threat to the supply of the California blend.
    That tiny blip of about 25 cents a gallon cost California residents millions and millions.
    One fill up, and you paid about $5.00 extra.
    20 million fill ups during that blip, is about $100 million dollars.

    Just a example. You do admit we pay a premium. Everyone in the industry says that part of that premium is the lack of a competive market for our special blend, even when there isn’t a incident or a planned maintenance shutdown.

    Even if the cost of our special blend is only 10 cents per gallon, that still works out to a 1.5 billion dollar penalty each year. By way of comparison, that is far more than the expected savings of Browns new pension reform.

    You seem intent on minimizing the impact, of which I know of no expert who doesn’t indicate the extra cost for our unique blend is very real.
    And the expert opinion that our unique blend does NOT make our air cleaner compared to the blends found elsewhere in the USA.
    It has created a artificial market. Limited supplies.

    So many little penalties for living in California and for making it a pleasant place for business.
    You’ve been here only 8 years. From 2006.
    You have no idea of how this law or so many other useless laws have altered the economic environmentment we once had. Death by a thousand cuts. Each put in place to placate some special interest.

    As I indicated, prior to messing up our gasoline markets, we had tens of thousands of independent dealers. Eventually the new laws drove 98% of them out of the market, leaving us with no effective competition. This was all done by design, with the complicity of “environmental” groups who claim to be against the interests of Big Oil.

  • JohnW

    No, I’m not “intent on minimizing the impact” of anything. I just like to challenge conventional wisdom. Seems to me that, these days, “the blend” is no longer the major culprit in high gas prices that people think it is. But, you have a point in saying that even a small per gallon impact has a big economic effect.

    As for useless, obsolete or ill-advised laws, regs and red tape in general, I’m with you on that. The business climate here is horrendous. I’ve only been here since ’04, but I’ve seen it all. And I have the benefit of having lived in several other states for comparison purposes. However, even though I’m no cheerleader for the bloated CARB, I wouldn’t put clean air in the “useless” bucket.

  • http://www.silvadesigns.net Colleen Silva

    Re: gas prices
    This whole justification for the pricing of gas is b——t. Just before I learned of the fire at the Richmond Chevron refinery – I put gas in my car at a local Pittsburg station for $3.59/gal. As I was driving by later that evening (before the fire was even out) and the price had gone to $3.79/gal. By the next morning the price was up to $3.99/gal and within the next couple of days it had gone to $4.09/gal. Curious? Now you say that the fire has not impacted the production of gas. Maybe not in your mind – but obviously in their mind it has. And we are paying for it.

  • JohnW

    Re #12

    Obviously, the gas stations took immediate advantage of the situation. The rest is probably market traders pushing up the price. Same thing with the Hurricane Isaac.

    Obama’s fault, no doubt.

  • GV Haste

    One good thing about Obama, is that the future mileage standards have REALLY been raised.
    I used to laugh at the new goals, but these recent goals are substantial.
    Unless I am missing something in the fine print.
    I keep seeing headlines saying 54 mpg or something like that by 2025.
    If they add into that, making lots more cars run on natural gas, then we’ll be doing great.

    Old Honda 50′s use to get something like over 200 mpg in the late 60′s. Of course you could only go about 40 mph, but still. I miss the days of 26.9 cent gas.
    Even adjusted for inflation, its under $2.00 a gallon.
    However our air is indeed cleaner now, but about 90% of that is in the can, and NOT helped by the CARB and company gang.
    You could dump all automobile smog checks and there would be a minimal reduction in air quality.
    Perhaps 1% to 5% max. Probably about 2% worse.
    Just my guess, but current smog checks are nothing but a money grab.

  • JohnW

    You’re right about the 54 mpg. If it’s doable without forcing us into all-electric glorified golf carts that only go 100 miles before needing re-charging, that is a real game-changer.

  • Elwood

    The 54 mpg car will resemble a ping pong ball in shape, size and weight.

    Call me old fashioned, but I like a car with enough power to get out of its own way, and some iron wrapped around me and my loved ones.

  • hilltopper

    54 mph need not resemble a ping pong ball. Even with today’s technology, it resembles a Prius. I have an eight-year old Prius (five-passenger; mid-sized) and it gets 50 mpg. The newer model Prius does better.

    And look at today’s electric cars. The Leaf is as large as a Camry and uses no gas. The Chevy Volt runs all electric so, in theory, like the Leaf, it gets infinite mpg, but it uses some gas for extended trips. According to drivers who have written about it, they tend to get around 100 mpg.

    The key for today’s electric cars is that they are not for vacations, but for daily commutes. A Leaf should average 75-100 miles per charge. How many us commute that far in a day? The Volt goes fewer miles but has the gas charger so you keep going. So you drive to work, come how, and plug it in, as you do your phone.
    Give the industry some time to improve batteries (for longer life) and to set up recharging (or battery switching) stations and charging need be no worse than stopping for gas. But even in the near-future, having a household own one fuel efficient car and one not (for long trips) is pretty realistic. Give the industry 13 years and an average of 54 is quite realistic.

    BTW, electric vehicles also can have more power than gas. They accelerate fast because they have no gears. (Think of turning on a blender–it does not need to go through the settings from slow to fast, but can start on high speed.) I think it was on the Tesla that had to be prevented from being able to go over 130 mph.

    All-electric cars are not for everyone yet, but give them time. Think how much cell phones and other technology have improved in the last 13 years. Getting the “average” car up to 54 mpg in 13 years is pretty realistic. Get all cars up to 25 mpg and get a good percentage above 54 (all-electric, natural gas, fuel cell, and hybrids).

  • GV Haste

    In the Tribune and CC Times today

    Gasoline prices up 8.7 percent since refinery fire a month ago
    By George Avalos
    Oakland Tribunecontracostatimes.com
    Posted: 09/04/2012 04:48:18 PM PDT
    September 5, 2012 12:9 AM GMTUpdated: 09/04/2012 05:09:35 PM PDT