California Gouging

Do we really need a National Energy Policy? If we leave the supply of energy to the private sector energy companies and the legislation of energy demand to the voters of each state, wouldn't we have a better picture of what really works and what doesn't? How easy is it to hide fraud and abuse by nationalizing an industry and throwing out macro numbers instead of localized information?

From Investors Business Daily:

Like politicos everywhere, California's politicians wail like lost banshees whenever oil prices go up. Not because they actually believe that companies are price gouging, but because they know there are easy political points to be scored by ripping successful companies as corrupt, greedy and damaging to the car-dependent state.

This year's gasoline price run-up is a case in point. Some California politicians have been downright threatening. "Hurricane Katrina has broken families, devastated communities and destroyed lives," California's Attorney General Bill Lockyer said on Sept. 6, announcing a probe into price gouging. "To unjustly profit from tragedy is unconscionable." "People in California are no longer believing the excuses of the industry," added Democratic state Sen. Joe Dunn in mid-October. "If they can't fix their market behavior, we'll fix it for them."

They have a point: California has the highest gasoline prices in the country while its refiners have the highest profit margins in the industry.

Case closed? Not exactly. A new report from the state, looking into claims of price gouging by retail gasoline stations, found that a host of market ills caused California's gasoline prices to soar to record highs in August and September - but none included price gouging.

So what did the local markets in? In this case, wholesale traders, fearful of not having oil to supply customers, helped bid up prices after Hurricane Katrina. California boosted its sales of gasoline to Arizona, where shortages had also cropped up.

California's refineries, the only ones in the country to make the state's federally mandated "boutique blends," experienced production problems. Some oil that was headed for the Golden State was diverted to the Gulf Coast. And so on.

But no, gouging wasn't listed as one of the reasons.

Then again, it never is. There have been at least 26 state and federal investigations of price gouging in the energy markets over the last 30 years. None have found illegal activity or gouging. None.

The report from California's Energy Commission is only part of a national trend to blame large, profitable companies for problems, real or imagined.

What we've noted here many times bears repeating: California is what's known as a "fuel island." That is, rules on what fuels cars can burn are so strict, no one else makes gasoline California can use. Any shortages, anywhere, lead to higher prices.

Oil demand in California is growing 2% to 3% a year, as the population grows by half a million people each year. Yet the last oil refinery in the state was built in 1969. Is it any surprise, then, that just four refiners now control 70% of the market, making it one of the most vulnerable markets in the world to supply disruptions?

In addition to high gas prices, Californians also pay the highest taxes in the country on gasoline - 54 cents a gallon as of August. That's something politicians don't say. The oil industry pays another $8 billion or so a year in taxes.

Right now, both nationally and at the state level, there's a lot of talk about imposing "windfall profit taxes" on the oil companies. But who's really getting the windfall here? As prices rise, oil companies have been plowing money into expanding output - that means more energy, not less.

Politicians likewise have gotten their own windfall, but who knows what they'll spend it on.

We have a modest proposal. It turns out California's government is making money hand over fist from consumers' gas pains. So why shouldn't they rebate that money?

We know, we know. Even with California's budget now expected to be in balance next year, the chances of a rebate of anything is next to impossible.

Barring that, maybe a genuine apology from Lockyer, Dunn and others who have vilified an industry that adds $77 billion each year to the state's economy would be in order.

But don't hold your breath.