What's more, the rest of the country isn't far behind. Many characteristics once unique to California — specialty fuels, a refinery shortage, the growing dominance of a few companies — have begun to plague other gasoline markets.
Tinkering with the lifeblood of a car-crazed state was no easy task. It required years of jousting over nearly every aspect of California's new recipes for diesel and gasoline, which debuted in 1993 and 1996, respectively, representing the most effective assault on smog since catalytic converters were added to cars in the 1970s.
In the early phases of the fuel debate, the oil companies tried to kill the new gas idea, going so far as to say it was technically impossible to make, said James D. Boyd, then the air board's executive officer.
"Their initial reaction was that it would be outrageously expensive and difficult," said Boyd, now a member of the California Energy Commission. The Western States Petroleum Assn. declared that the fuel proposal was "the most costly regulation ever considered for our industry."
Then, virtually overnight, oil companies changed their stance, Boyd recalled.
State legislators seemed poised in 1989 to push methanol, a derivative of natural gas, as a replacement for gasoline. Hoping to head off a mandate that would kill demand for its fuels, Arco broke ranks with its brethren and disclosed that the industry could make cleaner-burning gasoline after all. In fact, Arco executives revealed at a hearing that the Los Angeles-based refiner had already cooked up some of the revamped gas and was ready to sell it to the public.
"It was a shocker," Boyd said. "I elbowed my deputy and said something to the effect of: 'We just won the battle, if not the war.' "
Thomas D. O'Malley, whose Tosco Corp. owned a refinery in Northern California, was among the first to see how he and others would profit from the new regulations.
In a speech to fellow oil executives in Reno less than two years before the new gas was introduced, O'Malley, then Tosco's chairman, predicted that the in-state supply would barely cover demand and that the new formula would command 6 cents a gallon more than the old.
"This is a very finely balanced system," O'Malley told the group. "If any of the large refiners in California experiences an unplanned shutdown, the premium of 6 cents could easily be two or three times that number."
O'Malley underestimated: The premium in times of duress has been more than 40 cents a gallon, Energy Department statistics show.
"My view for the industry was: Why in the world would you fight clean fuels? That's what the consumer wants," O'Malley, now the chairman of Connecticut refiner Premcor Inc., said in an interview. Make no mistake about it, the more stringent you make specifications, those become barriers to entry . Strong companies would have an advantage."
The state's move to strict new fuel formulas helped put 10 of 31 refineries out of business, cutting oil-refining capacity by 20%, according to the state Energy Commission.
The most conspicuous of the casualties was a small refinery in Santa Fe Springs known as Powerine. It closed in 1995 amid heavy losses, but less than a year later its owners wanted a reprieve from the new rules so they could jump back into the market or sell the plant.
The reemergence of Powerine, which could make a significant amount of gasoline despite its small size, was a threat to California's delicate market balance. In a February 1996 internal e-mail, a Mobil executive opined that if Powerine resumed production an expected 10-cent-a-gallon premium could shrink by as much as 2 or 3 cents.
"Needless to say, we would all like to see Powerine stay down. Full-court press is warranted in this case," the Mobil manager wrote in the message, which came to light through a lawsuit and subsequent U.S. Senate hearing. If the refinery were to reopen, Mobil could purchase and resell the output to protect prices, he added, noting that the company had tried that the year before and it "was a major reason" gasoline prices jumped 2 to 4 cents for several months.
Exxon Mobil executive James S. Carter told the Senate panel in 2002 that "we were protecting our investment."
Still in mothballs, Powerine was sold in 1997 to an investment trust run by televangelist Pat Robertson, who planned to spend $130 million to modernize and reopen the plant.
Neighborhood groups that remembered Powerine's environmental lapses had no interest in seeing the plant revived. Robertson accused unnamed oil companies of interfering with his efforts to raise funds for the project. He offered no proof at the time, and he declined requests for an interview.