Senate Panel to Hear Controller Attack ‘Monopoly Power’ : Oil Firms Inflate Gasoline Prices, Davis Says

California Controller Gray Davis will tell Congress today that “we should not even think of leasing” the federal waters off California for oil exploration “until the monopoly power of the major companies is broken.”

In a strongly worded attack, Davis will blame the big oil companies for “unjustified price increases” in California after the March 24 oil spill in Valdez, Alaska.

“The monopoly power of the major oil companies over transportation of crude on the West Coast and their ability to cut off the independent refiners goes a long way toward explaining the sudden price increases,” Davis will tell the regulation subcommittee of the Senate Energy and Natural Resources Committee. A copy of his testimony was obtained by The Times.

The wholesale price of regular and unleaded gasoline in Los Angeles shot up 49 cents a gallon after the spill but since has “settled down” to a price increase of 28.5 cents, Davis will say.

Sharp Price Rise

Prices climbed sharply, despite apparently ample supplies of both crude oil and gasoline. Inventories on April 7, two weeks after the spill, were at approximately the level recorded for the same date last year, the controller will say.

California gasoline inventories totaled 27.46 days worth of consumption on March 31, then dropped to 23.91 days a week later on April 7. At the same time in April, 1988, inventories totaled 25.48 days.

Davis will charge that the major oil companies make higher profits by keeping the prices they pay for crude oil in California artificially low. At the same time, they charge more for gasoline and other finished products. West Coast refineries had a gross profit margin of $6.99 a barrel last week, compared to $2.60 on the Gulf Coast, Davis will testify.

Today’s hearing was called to discuss the impact of the Alaskan oil spill on the prices of gasoline and other petroleum products.

Bring in Oil

The big oil companies are net importers on the West Coast, needing more crude oil than they produce from their own properties. According to Davis, this provides an incentive to keep the price of crude “below its fair market value.”

The low prices also cost the federal government and the state millions of dollars in royalties on oil production, the controller will argue.

“Consumers on the West Coast are paying more for gasoline than consumers in the rest of the country, but the producers, the state and the federal government are not receiving fair market value for their crude,” he will testify. California has been rebuffed in efforts to get help on the oil pricing issue from federal agencies, according to Davis.

“Despite all the evidence of undervaluation of West Coast crude oil, most of the federal agencies which should have been active have been either sitting on their hands or actively trying to protect the major oil companies,” he will say.

Told to ‘Get Lost’

The Justice Department previously told the state “not so politely, to get lost,” when California officials tried to get the department’s antitrust division to investigate the pricing of California crude oil, the controller will note.

“I must admit, however, there is a glimmer of hope under the new Administration because they have recently expressed some interest in the issue,” Davis will tell the subcommittee.

Davis also is sharply critical of the Interior Department. “Quite frankly, I was never sure why the public was paying them since they appeared to exist for the sole purpose of protecting the major oil companies . . . “ he will say. The Interior Department was negligent in requiring the companies to pay proper royalties on oil production and was ineffectual in the enforcement of environmental laws “to prevent our coastline being befouled by oil spills,” according to the controller.

Cites Pipeline Control

Davis will make a fervent appeal for congressional action against the major oil companies, saying that “until the monopoly power of the major oil companies is broken, the public will remain vulnerable to these unjustified price increases.” His testimony will maintain that the majors derive this power from their control of pipelines, which permits discrimination against independents.

Until this situation is ended, he will testify, “we should not even think of leasing” the outer continental shelf, the federal waters off the coast of California. If the oil companies are allowed to lease and explore, “we, the public will have to bear all the environmental costs, but will not receive fair market value for our assets because they will reflect the artificially low price of West Coast crude.”