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Oil Company Greed Fuels Calls for Price Controls

Posted on: Thursday, 15 September 2005, 15:00 CDT

If gasoline price controls come to this state, big oil companies like ExxonMobil, ChevronTexaco, Shell and Arco/British Petroleum should remember it was their actions that invited Californians to consider seriously the idea.

They did this by raising gasoline prices about 20 cents per gallon in the two days immediately after Hurricane Katrina halted oil and gasoline production along the coast of the Gulf of Mexico.

At the time, it was easy to believe the instant price increase stemmed directly from the damage done by Katrina in the last days of August.

But that thinking was mistaken. For almost all California's gasoline is refined in the state and almost all the oil refined here comes from in-state wells or Alaska.

In short, California's supply of oil and gasoline was barely affected by Hurricane Katrina. Because no pipeline exists to carry Alaskan oil or California gasoline east, there also was no question of tapping this state's gasoline supply to help alleviate shortages in eastern and southern states.

If supply did not change, perhaps demand rose, driving prices up, some might suggest. But no, nothing much changed on the demand side.

So why the price increase? "Oil company profiteering and the government's failure to respond," suggests a new report from the consumer advocate Foundation for Taxpayer and Consumer Rights. That report also maintains profiteering by big petroleum nothing new.

The foundation study claims that while gasoline prices were rising by 65 cents per gallon between mid-January and mid-April of this year, refinery profits soared by 61 cents per gallon. That meant oil companies, not gas station owners, were pocketing the extra money.

The study also concluded that California's gas tax -- based on a percentage of the price -- gives incentive for state officials to let prices increases happen, justified or not. The state will reap an estimated $1 billion in extra revenues his year because of gas price hikes.

The foundation suggests the 20-cent post-Katrina leap was pure gouging, with no other apparent cause -- no new refinery failures, no shipwrecked tankers, no major leaks on the Trans-Alaska pipeline. There have so far been neither denials from oil companies nor other explanations for why prices for all brands rose in concert to record levels.

These phenomena now spur substantial talk of gasoline price controls in California. Democratic state Sen. Joe Dunn of Santa Ana is taking the lead, promoting a plan giving the state Public Utilities Commission power to regulate gasoline prices.

Dunn's plan comes close to copying what Hawaii did last month, when it clamped an adjustable cap on gasoline prices there. The Hawaii limits apply not to gas station prices, but to wholesale prices the state's two major refiners, ChevronTexaco and Tesoro Corp., can charge station owners. The price caps will change weekly, allowing for fluctuation with the five-day average cost of regular gasoline in New York, Los Angeles and along the Gulf Coast.

One early result of the Hawaiian cap: For the first time in modern memory, gasoline cost less immediately after the hurricane on the islands than in California.

The realities surrounding the gas hikes in California also caused state Attorney General Bill Lockyer to launch an investigation of possible illegal profiteering. He subpoenaed records from refiners and sent investigators to probe pricing by gas station owners.

Only time will tell whether his new investigation will prove any more fruitful than his past looks into the practices of oil companies, which led him to say in 2002 that it seemed there was illegal collusion among the oil companies as they raised prices together, but the evidence wasn't good enough to warrant prosecution.

If rising prices do spur regulation, for the oil companies it will be another acting out of a Biblical principle: Sow the wind, reap the whirlwind.

Tom Elias is author of The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government's Campaign to Squelch It, now available in an updated third edition. His e-mail address is tdelias@aol.com.

Source: Daily Breeze

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