California Committee Looking At High Gas Prices Sets Its Sights on Market Power

The Energy Commission committee charged with finding a solution for California’s high gas prices has sometimes been a hostile place for consumers over the last year and a half. At Tuesday's meeting, that changed. The Air Resources Board, NRDC, four members of the committee, and even oil trader Vitol SA echoed Consumer Watchdog to question refiners' market power and lack of transparency for price spikes.

The first Petroleum Market Advisory Committee (PMAC) meeting Consumer Watchdog attended was in June of 2015, four months after the Torrance refinery accident that sent California’s gasoline market haywire. At the time the five committee members, mostly academics and economists, were sure there was some feasible business or economic reason for the strangely large gas price increases, which were almost a dollar above the US average. Our presentations investigating market power and identifying problems with retail pricing were largely ignored. On Tuesday, PMAC members and stakeholders seemed to think our analysis warranted another look.

The deputy executive director of the Air Resources Board, Edie Chang, pointed to the fact that the main difference between 2015 prices and historical gas prices in California was profit. “There are some differences in spot prices, some differences in taxes & fees, but a fair amount of difference in terms of the revenue piece.”

The committee was meeting to discuss proposals for solving California’s high gas prices – such as requiring inventory & allowing dirtier gasoline to be sold during shortages. But the committee came away thinking these solutions were not going to be a silver bullet to solve California's gas price crisis. They agreed that market power at the retail level deserved investigating.
Chair of the committee, Severin Borenstein, commented on the possibility of market power impacting retail prices: “Consumer Watchdog has convinced me that this could be a piece of the puzzle, and we should be looking more into it.”
Watch the full meeting here: http://www.energy.ca.gov/assessments/petroleum_market/#08162016

Kathleen Foote, the California Attorney General’s anti-trust chief who sits on the committee, 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.”  Foote's office is said to have subpoenaed oil companies to investigate the price spikes.

Even members of the oil industry began turning on each other. The largest independent oil trader in the world, Vitol, claimed ExxonMobil wasn’t transparent about their operations, leading to supply problems. Vitol West Coast oil trader Brad Lucas stated, “In my opinion, there was a lack of transparency with what going on with Torrance… Basically the lack of transparency kept cargoes at bay.” Consumer Watchdog has consistently called for more transparency in the California refining industry.

The tone of the committee has changed – but unfortunately they are under-resourced and over-burdened. As committee members stated, only an agency with subpoena power can truly get to the bottom of the issue. But with a sea change in attitude, the committee will now try to work through how oil companies are using retail pricing to rip off drivers. Their recommendations could be the basis for reform in the legislature.
 

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