Cut the Profit-Taking or Prepare for Some ‘Help’

High gasoline prices have rocked the state and nation, and they couldn’t have come at a worse time. Just as thousands of Californians are starting to plan their summer vacations, those who are going to drive are suddenly forced to increase by one-third or more their budget for getting to and from their destinations.

Although gas prices are largely set by forces outside the control of state government (the price of oil on the world market, national energy policies and the normal laws of supply and demand), those of us who represent the people of the state must look for some way to help.

Some of my friends in the Republican Party suggest that if we repealed the sales tax on gasoline, we could immediately reduce the price consumers pay at the pump by 7 to 15 cents a gallon. But every expert in gas pricing who has examined the Republican plan, from the California attorney general to the director of the University of California Energy Institute, finds it flawed.

If we reduce the tax, the oil companies could simply raise the price by that much or even more. In fact, they seem intent on raising the price to whatever the market will bear.

How do we know this to be true? Because through studies by the attorney general’s task force and reports from the California Energy Commission, it is clear that the huge escalation of gas prices in California is a result of windfall profit-taking by oil refineries. On Jan. 13, when gasoline cost $1.36 a gallon, the crude oil needed to make that gallon cost 58 cents, and the profit margin at California oil refineries was a reasonable 24 cents. The profit margin for gas stations was 8 cents.

Just three months later, service station margins had actually dropped by 6 cents, and the price of crude had gone up just 4 cents. But oil refinery profits had escalated by 42 cents a gallon, driving the overall price to $1.79 a gallon.

Perhaps some of that is a reflection of new costs, but with all other costs remaining relatively static, the huge jump in refinery margins seems to be the byproduct of price-gouging. There is nothing wrong with a company making a profit. But when oil company profits increase at the pump 10 times more than their cost of doing business--just as Californians are planning their summer trips--something doesn’t pass the smell test.

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Permanently ending the sales tax on gasoline--just to watch the oil companies pocket the tax and keep prices high--is a bad idea. Instead, my Assembly Democratic colleagues and I have told the oil companies to stop inflating their profits and allow the price of gas to be an accurate reflection of oil refinery costs plus a reasonable profit. We think that would be the responsible course for the oil industry to take.

If the oil companies disagree, we are prepared to propose a surcharge on their windfall profits--profits we all agree are out of proportion to their costs--and return it to the driving public at the pump. We have called on our Republican friends to join us in this effort, a plan that would immediately reduce the price of gas at the pump by about 20 cents per gallon.

Even during this time of budget surpluses, we Assembly Democrats believe that we should prudently spend one-time money on one-time projects. And that means not allowing a short-term problem, such as gas prices, to force us into a quick fix with serious negative repercussions.

What is at stake is nothing less than our commitment to California’s working families, which are looking to us for better schools, improved access to health care and significant new investments in our transportation systems.

I hope the oil companies will see the wisdom in lowering the price at the pump now. If they decide not to, I trust that they will hear us loud and clear when we tell them we will do it for them.