California Bill Would Allow Oil Refineries to Be Sued for Price Gouging

SACRAMENTO _ Two top Democrats vowed Thursday to clamp down on oil companies for price gouging, introducing a measure to allow the state to prosecute oil refineries and wholesalers _ not just station owners _ for driving up prices at the pump.

The bill, authored by Assembly Speaker Fabian Nunez and sponsored by Attorney General Bill Lockyer, is an attempt to tap into the growing frustrations over gas prices that have settled in at well over $3 a gallon. The bill, however, provides no immediate relief to consumers.

“The price of gas continues to go up every single day,” Nunez said in a parking lot next to a Sacramento Phillips 76 station, which was selling unleaded for $3.22 a gallon. “The question is, is there no end in sight? Should we expect it’ll go up to $4 or $5 a gallon and we just have to make adjustments necessary to swallow the excuses we continue to get from the oil companies?”

Under current law, gas prices can not rise more than 10 percent for a 30-day period if the governor has declared a state of emergency. But that emergency has to happen in California _ and the only people who can be prosecuted are gas station owners.

The proposed law makes three important changes. It allows the governor to declare an emergency, even if it happens elsewhere _ such as a hurricane in the Gulf States _ that disrupts production; it extends the period to 60 days; and it allows the state to go after others higher up the oil chain.

“In the post-Katrina investigations where we collected hundreds of complaints, there were numerous cases where prices increased by around 17 percent or more,” Lockyer said, “and found it wasn’t the corner gas stations gouging people, but it was those further up the supply chain pushing costs onto corner stations. So, there was no one to prosecute and we couldn’t go after the refineries.”

Lockyer issued subpoenas in April to oil companies that operate refineries and will begin taking depositions from industry CEOs and executives, he said. The investigation is seeking explanations for oil companies’ increasing refining margins.

Since the beginning of the year, the price of world crude has gone up 14 percent, but the refineries’ margins, Lockyer said, have gone up 130 percent. Gas prices have gone up about 47 percent over that time.

“It’s the refineries that are making extraordinary profits,” he said. “If it’s the price of crude going through the supply chain, that’s understandable. But if they’re taking advantage of consumers during disasters, then we want them to be responsible and not take extra profits during times of crisis.”

Oil industry advocates questioned the need for the legislation.

“Our industry has been subject to investigation after investigation after investigation _ more than 30 from my count _ and in none of these instances was there a finding that the industry conducted itself in an illegal or improper way,” said Tupper Hull, spokesman for the Western States Petroleum Association based in Sacramento. “I’m not sure what the purpose of this is.”

Republican leaders contacted Thursday said they would not comment until they have had a chance to study the bill.

High gas prices are expected to be a prominent issue in the governor’s race. Democratic nominee Phil Angelides has accused Gov. Arnold Schwarzenegger of refusing to act on high prices at the pump, and has cited it as one reason voters are frustrated and want change.

At a campaign stop in Redding Wednesday, Schwarzenegger was asked what he could do about high gas prices.

“I cannot personally do anything about the gas prices,” he said, stressing that the energy commission is investigating gouging. If gouging is occurring, “we’re going to go after those oil companies in no time, I can guarantee you that. But oil prices, as you know, all depend on supply and demand. The more there is demand _ the more we drive, the more we use gas _ the more the price will go up. And this is why I say, let’s be vigilant about that,” by carpooling, buying energy efficient cars and promoting alternative fuels.

The bill, Lockyer said, does not go after the larger problem of “oligopolies” taking in “excessive” profits.

“The fundamental problem is that our supply is pretty fixed, our demand continues to grow, an oligopoly _ a handful of companies _ control the market, inadequate competition and there’s no incentive to lower prices,” he said. “These problems can only be addressed if there was a Teddy Roosevelt president and Congress. We don’t have one and probably won’t have one in the foreseeable future.”

Under the proposed bill, violators would be subject to a $10,000 fine and one year in jail. The legislation will be debated first in the Senate and then move to the Assembly.

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(Knight Ridder Sacramento Bureau staff writer Kate Folmar contributed to this story.)

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