Davis Orders State Agencies to Probe Soaring Cost of Gas

Times Staff Writer

Concerned about what he called "unexplained price spikes" for California gasoline, Gov. Gray Davis on Thursday ordered two state agencies to investigate whether the oil industry is manipulating prices or holding back supplies to boost prices at the pump.

"In recent weeks, nearly every Californian has felt the effects of sudden increases in the price of gasoline, diesel fuel and natural gas," Davis said in letters to the California Energy Commission and the state Public Utilities Commission. He asked both agencies to report back to him in 15 days.

The California Energy Commission tracks the state's refineries and fuel supplies. The state PUC regulates the pipeline systems that carry gasoline, crude oil and natural gas.

Jeff Wilson, spokesman for the Western States Petroleum Assn., said the oil companies will cooperate with the state investigations.

"We are confident that the state will reach the same conclusion that some 25 similar state and federal investigations of the industry over the last several decades have reached -- and that is that the California gasoline marketplace is competitive and that our members are not engaged in price gouging," Wilson said.

William J. Keese, chairman of the Energy Commission, said his agency "is carefully analyzing the increase in our state's gasoline prices ... and will present a detailed assessment" to the governor.

The PUC, which has subpoena powers, said it has been monitoring statewide increases in natural gas prices.

Gasoline prices have been hitting record highs throughout the state, with the cost of regular fuel averaging $2.127 per gallon Thursday, according to the AAA. The price is well above the national average of $1.708 per gallon, and 66 cents higher than California's average a year ago. The state estimates that higher gasoline prices since January are costing consumers and businesses an extra $18 million a day.

Oil companies say higher prices are tied to increases in the cost of crude oil. In addition, California's gas market is suffering through a bumpy transition to "summer" gas formulas and a switch in fuel additives from MTBE to less-toxic ethanol.

Consumer groups remain skeptical. Energy Commission figures show that refinery margins -- defined as non-crude oil expenses and profit -- are now significantly higher than their five-year average. Because non-crude expenses have been relatively stable, state officials say, the higher margins reflect higher profits.

Even so, previous investigations have failed to prove oil company wrongdoing, and the U.S. Department of Energy's statistical arm this week declared that recent price hikes "are almost entirely driven by changes in spot prices."

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