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Letter: Californian gasoline prices

Hydrocarbon Engineering,

Below are highlights from a letter sent to the California State Senate by Consumer Watchdog and Nextgen Climate on gasoline prices in California.

“Your investigation of the cause of the one dollar run up in February gasoline prices is vital to giving consumers a fair shake at the pump. Unfortunately, the hearing raised more questions than it answered because those with the answers, representatives of the oil industry, refused to attend the hearing. Instead the oil companies sent at economist, Phil Verleger, whose first words were that he doesn’t speak for the industry, though Western States Petroleum Association paid him to attend.

“Mr. Verleger avoided a straight answer to Senator Hueso’s questions as to why price spikes rise so precipitously in the wake of refinery outages and shutdowns and whether refineries should have to publicly justify their price hikes as is done with auto and home insurance. The Senator asked, ‘we try to scrutinise insurance rates, we try to scrutinise utility rates, we have the PUC who does it, why can’t we do that with gasoline?’ Mr. Verleger answered, ‘you have walked into a really dark part of economics.’

“It’s outrageous that the oil industry would refuse to answer for the US$550 million extra California consumers were forces to pay in February for their gasoline above the US average, particularly as the hearings proved the oil companies were the ones profiting from the California price spike. The oil industry must answer for this half billion dollar cost to Californians. The Senate hearing on March 24 provided some tantalising insights into the opaque workings of the gasoline market that are a solid basis for future inquiry. The hearing confirmed that the market is rigged to the benefit of an oligopoly and the rules need to be changed to benefit consumers rather than the oil industry.”

“In summation, Senator Hueso made a logical point at the hearing. ‘If my competitor has a disadvantage, why am I going to help them by increasing my prices, it doesn’t seem like I am contributing to a competitive market. That’s what we call gouging.’ Hueso’s comments highlight a fundamental problem, the market in California is structured to benefit oil producers and refiners at the expense of consumers.”

Big questions

“We call upon the Senate to demand answers to the following questions directly from the oil companies:

  • Why did Tesoro tell investors that the company can continue operating refineries indefinitely even with the steel worker strike, yet shut down its refinery, precipitating the price spike?
  • Why didn’t the refineries act more quickly to increase supply when it became clear that prices were going to spike?
  • Why do refineries keep so little inventory on hand compared to the rest of the country?
  • Why should they not be required to keep the same amount as the national average?
  • Why won’t refineries publicly disclose real time information about their operations and outages?

“If oil company executives refuse an invitation to answer these and other questions, we urge you to use your subpoena power to compel them to testify. In addition, others with knowledge about refinery operations should be brought forth under oath to answer these outstanding questions.”

Edited from letter by Claira Lloyd

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