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Consumer Watchdog: California investigates high gas prices

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Hydrocarbon Engineering,

Testifying before a state panel investigating California's high gas prices, oil-trading company Vitol blamed ExxonMobil's lack of transparency for the record 2015 gas price spike.

The California Energy Commission's Petroleum Market Advisory Committee was formed by the Governor to look into statewide gasoline price spikes. Consumer Watchdog has been urging the panel to recommend measures for greater transparency in the gasoline market so that importers can know to bring gas supplies in when refineries go down. Californians paid US$1 more per gallon for gasoline than Americans throughout 2015, and more than US$10 billion extra for their gasoline since Exxon's Torrance refinery went offline in February 2015.

Consumer Watchdog, staff of the Air Resources Board, and committee members have acknowledged, however, that supply shortages were not the the main cause of sustained higher California gas prices, but rather retail pricing by oil refiners who exert control over branded pump prices. In times of ample supply, refiners use their pricing power to keep prices unduly high. The five member committee agreed the next meeting should focus on the topic.

Consumer Watchdog has raised the issue of market power in California gas pricing at prior meetings. In June of last year, Consumer Watchdog revealed evidence showing that refiners were taking advantage of their contractual power to keep street gasoline prices high. Branded stations are forced to pay whatever price the oil refiner decides to charge them. Because nearly 80% of Southern California's stations are branded, this system keeps gas prices in the state perpetually high. Many branded stations are charged US$0.30 more than their independent counterparts for a gallon of the same gasoline.

Consumer Watchdog President Jamie Court presented to the committee, saying, "In California the laws of supply and demand have been suspended." He pointed out that recently California has had the lowest wholesale gas prices in America, the spot price refiners pay to each other, but the highest retail prices paid at the pump.

Committee members acknowledged Consumer Watchdog's concerns. Kathleen Foote, the California Attorney General's Anti-Trust Chief, is a member of the committee. Her office is said to be investigating the price spikes. Foote stated, "I find myself wondering if the source of the disconnect is simply the fact that all the retail outlets are owned by the majors."

Committee Chairman Severin Borenstein was talking about the ability of California's oil refiners to charge higher gas prices to their branded stations due to market power when he stated, "Consumer Watchdog has convinced me that this could be a piece of the puzzle, and we should be looking more into it."

The Air Resources Board presented testimony that wholesale prices did not correlate with retail prices. Comparing 2015 and 2016 to prior years, Deputy Executive Director Edie Chang put profits as the cause of California's high prices, "There are some differences in spot prices, some differences in taxes and fees, but a fair amount of difference in terms of the revenue piece."

Consumer Watchdog said the state's approval of the 2013 acquisition of BP's refineries and ARCO branded stations by Tesoro are to blame for the current pricing problems. Two refiners, Tesoro and Chevron, now control 56% of refining in the state. Tesoro, despite pledging to the California Attorney General to continue supplying ARCO as the low priced gasoline leader, has charged ARCO branded stations US$0.30 more than it charges unbranded and independent stations.

"The Attorney General's approval of Tesoro's acquisition of BP's assets doomed California to higher price gasoline," said Court, whose group urged Attorney General Harris to oppose the consolidation in 2013.

Adapted from press release by Rosalie Starling

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