State Finds No Foul Play in High Gasoline Prices

California’s record-high gasoline prices were triggered mainly by in-state production problems and crude oil costs that climbed in advance of the war with Iraq -- not by manipulation by oil companies, according to a probe by the California Energy Commission.

The commission’s study, to be released today, found that the state gasoline market is ripe for “tacit collusion” among refiners, in which they coordinate their activities indirectly by observing and anticipating the behavior of rivals. The study said that sort of cooperation “is still a possibility.”

But Energy Commission investigators found no evidence that oil companies intentionally limited production or took other steps to boost profits as gasoline prices soared 36% from Jan. 1 to a record-setting $2.15 a gallon March 17.

The study joins a long line of gas-price probes that have failed to fault the industry. In a briefing with reporters, however, Energy Commission Chairman William J. Keese made it clear that his agency intends to continue monitoring the market.

Keese noted that the wholesale price of the most commonly purchased gasoline has fallen 27% over two weeks, to $1.15 a gallon March 26. Pump “prices should be under $2 a gallon at most places by the end of this week,” Keese said. “And we will be concerned if they are not.”

The report said the commission “must be better able to track inventory levels” to get a clearer picture of what the market is doing.

It recommended that the petroleum industry -- including oil producers, refiners, marketers and storage facility operators -- voluntarily provide more information, including import and export levels, to the state on a weekly basis.

The report also said a strategic fuel reserve should be considered to insulate Californians from market volatility.

David Fogarty, a spokesman for the Western States Petroleum Assn., an oil industry trade group, applauded the commission’s conclusions.

“We’re pleased but not surprised that the report found that oil companies are not exercising market power or behaving illegally, the same conclusion that 25 other state and federal investigations have arrived at,” Fogarty said.

Fogarty also said oil companies “will cooperate and consider any additional requests for information.” The Energy Commission is considering making additional weekly information mandatory, but that action could be months away.

Gov. Gray Davis ordered the Energy Commission probe into high gas prices March 13. He also asked the Energy Commission and the Public Utilities Commission to investigate the cause of sharp increases of natural gas prices.

In their gasoline report, Energy Commission officials said steep pump prices stemmed primarily from world events: fears that the impending invasion of Iraq would disrupt supplies added a “war premium” to the price; there was also a strike that shut off exports from Venezuela.The cost of crude oil rose to just shy of $40 a barrel from around $25 a barrel in mid-November.

In addition, an unusually cold winter in the East shifted crude supplies to make more heating oil, and several production glitches at California refineries tightened gas supplies throughout the state, the report said.

To top it off, the state’s unique gasoline formula requirements prevented timely delivery of added gasoline from out-of-state refineries.

Davis asked state energy officials Tuesday to keep watching the markets and to file monthly reports on both gasoline and natural gas prices.

“California learned a lesson from the energy crisis -- never let down your guard when energy companies are around,” Davis said, adding that monitoring will ensure that “no illegal activity occurs.”

Charles Langley, a gasoline price expert at the Utility Consumers’ Action Network, wasn’t surprised that the state found no proof of illegal activity by oil firms.

“What UCAN has been saying for years and years is that the market is so uncompetitive that there is no need for market manipulation,” he said. “Does that mean we’re not getting gouged? No.”

Gasoline prices have recently started to decline. The most recent survey from the government showed that the average price for regular gasoline fell 1.3 cents to $2.130 a gallon during the week ending Monday.

In their natural gas report, the Energy Commission and the PUC concluded that a natural gas price hike also was caused by economic factors and not by manipulation.

Although the cost of natural gas jumped 68% over two days, from $5.68 per million British thermal units on Feb. 24 to $9.54 per million BTU on Feb. 26, investigators have “not found any evidence of manipulation,” the study said.

Natural gas prices have since returned to normal levels of around $5 per million BTU, according to PUC President Michael Peevey.

“I’m not saying everything is OK,” Peevey told reporters Tuesday. “But in this instant case, there is no evidence to date that there was manipulation.”