Jan. 3, 2007 – With California drivers still reeling after a year of record-high gas costs, consumer advocates are warning that companies are gouging consumers while passing the blame off to market forces and state regulations.
- High Gas Prices Result of Industry Profits, Watchdogs Say (Aug 22, 2005)
- Oil Giants Planned to Manipulate Gas Prices, Memos Reveal (Sep 8, 2005)
- Watchdogs Blame Industry, Not Weather, for High Energy Costs (Feb 1, 2006)
The California Energy Commission reported last week that gas prices reached a "historic high" in inflation-adjusted terms in 2006, averaging about $2.80 per gallon.
Since California experiences greater price volatility than other states, industry and pro-business groups such as the Western States Petroleum Association (WSPA) link spiking gas prices to the stateâ€™s environmental regulations, which mandate cleaner-burning gasoline and diesel formulas.
The WSPA contends that the production process for the stateâ€™s unique fuel requirements drives up costs. The group has waged a similar argument against Californiaâ€™s newly passed greenhouse-gas emissions standards.
But the California-based Foundation for Taxpayer and Consumer Rights (FTCR) is challenging the industryâ€™s claim that state environmental regulations drives prices, pointing to familiar spikes in a neighboring state with weaker market and air-quality controls.
In Washington state, the group notes, drivers use ordinary gas and are taxed about 7 cents less per gallon compared to their California counterparts, according to industry data. Yet drivers in both states share the same pain at the pump.
Throughout December, a gallon of gas cost several cents more in Washington than in California, according to the Department of Energy. The recent increase parallels an earlier surge when gas prices in both states jumped more than 80 cents from late February through early May.
During that same time, West Coast prices overall outpaced nationwide trends.
In a recent analysis of gas markets in the Western states, the FTCR found that the price spike coincided with a dip in refinery inventories. The group also pointed out that oil companies have kept refinery supplies, which act as regional reserves, "critically low" compared to other parts of the country.
Low oil inventories set the stage for price swings when local supplies suddenly dwindle due to natural disasters or other shocks to the market. Public-interest groups like the FTCR say that pattern folds into a strategy to bilk consumers and inflate profits.
Judy Dugan, FTCR research director, argued in a statement last week that the pricing patterns suggest that corporations controlling the fuel supply are placing drivers across the country "at the mercy of a price roller-coaster for which the oil companies are running out of phony excuses."