California probe: no evidence of gas price-fixing
- Published Wednesday, April 2, 2003, in the San Francisco Chronicle
State finds no fixing of gas prices
By Verne Kopytoff
Chronicle Staff Writer
An investigation ordered by Gov. Gray Davis into California's
escalating gasoline, diesel and natural-gas prices has found no
evidence of illegal manipulation.
Rather, the probe attributed the higher costs this year primarily to
tensions over the war in Iraq, a strike in Venezuela and an unusually
cold winter on the East Coast.
The conclusion, to be officially released today, is a setback for
those who believe that the soaring gas prices and heating bills this
year are due to collusion. But it is an obvious victory for the oil
and natural-gas industries,
which have maintained all along that market forces, not manipulation,
"The governor was rightly concerned about prices," said Steven
Maviglio, a spokesman for the governor. "Just because they can't find
anything, that doesn't mean it doesn't exist. We're going to keep our
eyes on it."
Dave Fogarty, a spokesman for the Western States Petroleum
Association, an industry trade group, applauded the findings. "We
understand consumers are angry about the increase in gas prices, and
we are pleased that the report validated what many other
investigations have validated."
Davis ordered the probe on March 13 when the average price for a
gallon of unleaded was about to hit a state record of $2.15. Natural-
gas prices had also increased, but were still lower than during the
2001 energy crisis.
Davis said any evidence of wrongdoing would be forwarded to state
Attorney General Bill Lockyer for further investigation and possible
The California Energy Commission, the state agency that oversees
energy planning and policy, completed the gasoline and diesel portion
of the investigation. The Public Utilities Commission, the state
energy regulatory agency, focused on natural gas.
The report found that higher gasoline prices are being driven mostly
by a big surge in oil costs. The price for a barrel of crude on the
spot market leaped nearly 40 percent to a high of $37.96 last month,
compared with $26.80 in December.
But some of the responsibility also lies with California's peculiar
gasoline market, the investigators found. Prices here usually rise in
March when refiners perform maintenance and retool their equipment to
produce a summer blend of fuel.
This year, the process was complicated by a change in additives to
reduce smog. MTBE is being phased out in favor of ethanol.
The overall effect was tight gasoline supplies, the probe found.
Investigators noted that refiner margins had reached unusually high
levels. Margins are the refiners' combined costs -- not counting oil
-- and profit.
The seven-year average margin for each gallon of gas sold is between
29 and 32 cents. But since the beginning of the year, the margin has
ranged from 19 to 76 cents.
The conclusions reached in Davis' investigation aren't new. Many of
the problems were cited in a probe by Lockyer of a gas price spike in
No criminal charges or civil suits came out of that probe. The
investigation is still open.
"This pretty much verifies what we've been saying in our report
issued in 2000," said Tom Dresslar, a spokesman for Lockyer. "That
there's some market conditions in California that make us susceptible
to price swings."
Gasoline prices have ebbed modestly since their peak last month.
They're down 1.5 cents per gallon during the past two weeks, though
they are poised to go far lower, according to William Keese, chairman
of the California Energy Commission.
He said retail prices should fall below $2 across much of the state
by the end of the week because wholesale gas prices have dropped 42
cents per gallon since mid-March.
Maviglio and Keese stressed that this investigation was done in only
15 days and that the investigation will continue until June, at which
time recommendations will be made to stabilize the state's volatile
Possibilities include encouraging the development of alternative
fuels or building a state fuel reserve that can be tapped in
Charles Langley, gasoline project manager for Utility Consumers
Action Network, a public interest group in San Diego, said he is
disappointed that the investigation didn't uncover any wrongdoing.
But he added that any legal action would have to come from the
"I was hoping there would be some positive news here," Langley
said. "But there's not a lot that can be done at the state level."
E-mail Verne Kopytoff at vkopytoff@...