Accusations fly over volatile CA gas prices

by James Poulos | April 9, 2015 5:00 am

gas pump[1]In an unusual exercise of power, California lawmakers in the state Senate launched[2] a preliminary probe into the recent spike in Golden State gas prices. Although the numbers have dipped back down, and a big refinery explosion last month sidelined some production, concern has mounted that other factors were involved in the upward tick.

The probe complicated an already politically charged environment surrounding California gasoline. Cap-and-trade rules were applied this year that extended taxation to gas. Meanwhile, criticism has mounted over the cost and availability of the special blend of gas required by law in California.

Exploring collusion

Although the push toward alternative fuels could have contributed to the spike, Senate Democrats have focused the legislative probe on a much different idea: industry price-fixing. “Sen. Ben Hueso, D-San Diego, chaired the hearing and returned several times to one suspicion: that the tiny pool of refiners responsible for producing California’s unique fuel blends may be colluding to keep prices artificially high,” the Los Angeles Times reported. “Do we have monopolies on fuel in California?” he asked. “We want to know if we don’t have a competitive-enough market to keep prices low.”

The line of inquiry could hit an unusual political sweet spot. Though Republicans have long sought to shield the energy industry from environmentalists’ sweeping regulatory objectives, California conservatives and libertarians have also maintained a strong pro-car and pro-consumer stance. The state gas industry would be left with few allies amid any price-fixing scandal that took advantage of California’s limited supply of special-blend gas.

The cleaner-burning fuel, mandated during an environmentalist push in the 1990s, has never been available outside California itself, creating serious supply problems in the event of an interruption or crisis. “We are one of 17 states using reformulated gas,” the San Jose Mercury News explained[3], “and about 30 percent of gas sold in the U.S. is reformulated. The problem is that there isn’t a single blend required, or otherwise California could use other states’ fuel when it’s running low, and vice versa.”

An environmental agenda

Tom Steyer[4]

Tom Steyer

But Democrats have a bigger political interest in hitting up energy companies for money than they do keeping gas prices low. Party heavyweight and environmentalist donor Tom Steyer recently threw his support behind the probe. But as the Sacramento Bee reported[5], it has remained “unclear whether Steyer and his allies will get the answers they want. Political pressure from Sacramento over the years has resulted in few changes, and Democrats will not say whether they plan follow-up hearings or legislation in response to the latest price increases.”

Drawing cap-and-trade revenue from the gas industry has been seen as essential to distributing costs away from consumers alone. Although they’ll still pay at the pump, their driving habits have proven more responsive to policy nudges than their home energy use, where regulations and incentives have been seen as more invasive and unwelcome.

Republican countermeasures

In hopes of seizing the moment to revisit a key issue, Republican lawmakers have chosen to reintroduce[6] their effort to roll back the cap-and-trade extension to gasoline, backing a proposal introduced by Assemblyman Jim Patterson, R-Fresno. Democrats were divided last year over the extension.

“With oil companies and the nonpartisan Legislative Analyst’s Office warning of a spike in gas prices, a group of Democrats last year sent a letter to the California Air Resources Board urging a delay,” the Bee noted[7]. “While a bill doing so never got a hearing, the industry bankrolled advertisements during the election slamming candidates who support cap-and-trade.”

But the new Republican measure would go beyond what moderate Democrats had supported last year, leaving its fate, for now, still very much in question.

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