FTC Is Examining State’s Gas Price Hikes

After spotting “anomalies” in California’s latest gasoline price run-up, the Federal Trade Commission said Thursday that it was looking into the matter.

Sen. Barbara Boxer (D-Calif.) met privately with commission Chairman Timothy J. Muris in Washington and said at a news conference that the agency could not explain why pump prices have climbed so high. She had written Muris on Feb. 24, asking him to look into the rising prices and whether market manipulation played a role.

Separately Thursday, California Atty. Gen. Bill Lockyer called the state’s gasoline market “dysfunctional” and urged the state Legislature to fix the problems.

Although Boxer said the FTC was beginning an “informal investigation,” an FTC official didn’t use those words. The FTC official, who spoke on the condition he not be named, said the agency had seen anomalies in California’s gas prices and, because it could not find an explanation, was looking further into the situation.

The FTC official couldn’t say how long the agency’s examination would take or what the anomalies were. A formal investigation will be ordered if the agency finds any hint of anti-competitive behavior, the official said, adding, “We can’t say this is at that point.”

John Felmy, an economist with the industry group the American Petroleum Institute, said such investigations were proper for the FTC. But, he added, the probes were expensive, and “we’ve had dozens of investigations over the last 10 years and we’ve been exonerated virtually every time.”

Felmy said he didn’t know what anomalies the FTC saw. “We feel very strongly that this is once again market fundamentals. We have tight supply-demand conditions, and small changes can lead to price impacts.”

California gasoline prices have been climbing steadily since the beginning of the year but leaped substantially toward the end of February, when one price survey showed that the statewide average cost of regular jumped 16.1 cents in a week. Since then, prices have either beat or nearly matched the record-high fuel prices that hit the state in 2003, depending on the price survey.

The most recent sampling, conducted by AAA, showed that the statewide average eased slightly Thursday, inching down less than a penny to $2.172 for a gallon of self-serve regular -- more than 44 cents above the current nationwide average. The survey also showed that in some parts of the state, the average pump price was more than $2.20 a gallon.

Industry and government officials have said California’s latest price surge was caused by a combination of unexpected mechanical troubles at gasoline-producing refineries and the steady increase in the price of crude oil, which typically accounts for nearly half of the cost of a gallon of gasoline.

Consumer groups and politicians aren’t buying that explanation.

“Gasoline price volatility that we’ve tracked since 2002 suggests that gasoline companies are taking increasingly bold steps to overcharge California consumers and will continue this strategy until California state officials take action,” said Michael Shames, executive director of the Utility Consumers’ Action Network, a San Diego-based group that studies fuel prices.

Shames and others appeared Thursday at a meeting in Los Angeles hosted by Lockyer, who in 1999 convened a task force to investigate gasoline price spikes in the state’s fuel market.

The report produced by that task force in 2000 recommended that the state work to reduce fuel demand, but also explore creating a gasoline “bank” that could be tapped when supplies run short. The task force also advocated freeing up dealers to shop around for gasoline instead of having to buy at prices set by the oil firms. In addition, the group suggested drawing gasoline from Texas through a pipeline.

“Those suggestions have not advanced much beyond the suggestion stage,” Lockyer said Thursday. And four years later, he added, the state’s fuel market remains dysfunctional, hampered by anemic competition and unique characteristics that preclude assistance from other states and independent importers when problems arise.

“The bottom line is in California, oil companies don’t have to break the law or engage in conspiracy to charge prices that many view as outrageous,” Lockyer said.

Joe Sparano, president of the Western States Petroleum Assn., bristled at suggestions that the oil industry is gouging California consumers.

The price hikes, he said, stem from the fact that over the years, California’s fuel demands have outstripped the production capabilities of the state’s 13 gasoline-making refineries.

“We’re producing close to record amounts, but it’s not sufficient to meet demand,” Sparano said. “The problem did not start in December. It did not start last year. It has been evolving over 30 years.”