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California probe: no evidence of gas price-fixing

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  • 4/2 SF Chronicle
    Published Wednesday, April 2, 2003, in the San Francisco Chronicle State finds no fixing of gas prices By Verne Kopytoff Chronicle Staff Writer An
    Message 1 of 1 , Apr 2, 2003
      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,
      were responsible.

      "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
      legal action.

      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
      1999.

      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
      market.

      Possibilities include encouraging the development of alternative
      fuels or building a state fuel reserve that can be tapped in
      emergencies.

      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
      federal government.

      "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@...
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