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Feinstein to FTC: Investigate Spikes in California Gas Prices

Senator Dianne Feinstein (D-Calif.) today sent a letter to Jon Leibowitz, chairman of the Federal Trade Commission, calling for an investigation into recent spikes in the price of gasoline in California.
“The recent price spike began on August 6th, when a refinery fire at Chevron’s Richmond Refinery reduced refining capacity at the state’s third largest refinery,” Senator Feinstein wrote. “However, this dangerous incident has not resulted in a reduction of gasoline supply that would explain the recent rapid price increase.”
The letter continues: “Since August 6th, gasoline prices have risen 30 cents per gallon, reaching $4.21. As a result, California has the highest gas prices in the continental United States. The increase is more than double the increase in the national average over the same period.”
Text of the letter follows:
August 28, 2012
The Honorable Jon Leibowitz
Chairman
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
Dear Chairman Leibowitz:
I am writing to request that the Federal Trade Commission immediately open an investigation into recent spikes in the price of gasoline in California that appear to be unjustified by supply and demand fundamentals. The Federal Trade Commission has unique authority to investigate and prevent any manipulative or deceptive device or contrivance that could be resulting in unjustifiably high gasoline prices.
Californians filling up at the pump this month have been greeted by rapid price increases. Since August 6th, gasoline prices have risen 30 cents per gallon, reaching $4.21. As a result, California has the highest gas prices in the continental United States. The increase is more than double the increase in the national average over the same period.
The recent price spike began on August 6th, when a refinery fire at Chevron’s Richmond Refinery reduced refining capacity at the state’s third largest refinery.
However, this dangerous incident has not resulted in a reduction of gasoline supply that would explain the recent rapid price increase. The California Energy Commission’s statistics show that just before the Chevron fire, the state’s refineries were producing about 6 million barrels of gasoline per week. The previous month, they were churning out 7 million barrels per week.
In fact, the state’s refineries churned out more gasoline the week after the fire than they did the week before the fire, not less. Production of California-grade gasoline jumped 12.4 percent, nearing 6.8 million barrels for the week after the fire, according to the California Energy Commission, as other refineries saw an opportunity to increase sales. The Richmond fire, therefore, never led to a shortage – a point emphasized by Chevron’s own spokeswoman Heather Kulp, who said “There is an excess of gas on the West Coast.” If the spike in California’s gasoline prices cannot be explained by supply and demand fundamentals, I believe it is vitally important that the Federal Trade Commission look into this matter expeditiously.
I also believe the that Federal Trade Commission should investigate why California gasoline prices consistently exceed prices in neighboring states, despite dramatic shifts in California’s fuel market in recent years. Gasoline sales in California have fallen from 8.5 million gallons per day in 2006 to 4.9 million gallons per day this year, as drivers switch to more-fuel-efficient cars and elect to utilize public transit. California refiners have been exporting fuel, and have been operating well below their capacity.
Despite this drop in demand, and a clear excess in capacity, Californians have continued to endure unusually high gasoline prices when compared to their neighbors to which fuel refined in California is being exported. Department of Energy statistics show that the average price of California gasoline was 14 cents higher than other western states in 2006, when high demand in California pushed refineries to their limits. Data this year shows that the price of gasoline in California has averaged 26 cents per gallon higher than other western states.
These statistics suggest other forces are at play. In 2009, the Government Accountability Office (GAO) published a thorough econometric analysis of gasoline markets nationwide which showed that highly concentrated markets – including San Francisco, San Diego and Los Angeles – were associated with higher wholesale gasoline prices, exceeding the prices in unconcentrated markets by an estimated 18 cents per gallon. This study suggests that refineries and fuel marketers in California have accumulated the market power necessary to move prices and maximize profits at the expense of California’s consumers.
The FTC’s Prohibition on Market Manipulation Rule (16 C.F.R. Part 317) specifically prohibits a single actor or a few collusive actors from setting the market price. Given the unusually high prices in California and the GAO’s conclusions, I ask that the FTC thoroughly investigate whether the use of market power is inflating gasoline prices in California.
High gasoline prices are contributing to significant economic pain for consumers and businesses in California and are jeopardizing our fragile economic recovery. A report by the University of Southern California’s Marshall School of Business estimated that for every penny increase in a gallon of gas, as much as a billion dollars is pulled from the U.S. economy each year. Californians could be spending these dollars to keep up with mortgage payments, paying college tuition, or investing in their local communities.
It is important that the Commission use its statutory authority aggressively to pursue and remedy any market schemes or other market distorting activities that have led to either the August spike in California gas prices or the longer term trend of higher gas prices in California.
Thank you very much for your consideration of this matter. If you have any questions or concerns, please do not hesitate to contact me in my Washington, DC office. I look forward to your timely response.
Sincerely,
Dianne Feinstein
United States Senator

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