Probing gas prices - Costly: Is the market being manipulated?

www.presstelegram.com Article Last Updated: Monday, March 17, 2003 - 9:38:56 PM PST

With the energy crisis still fresh in our minds, it's no surprise that many Californians are eyeing the rise in gasoline prices now at about $2.14 a gallon and climbing with intense suspicion. If energy and natural gas companies could hoard supplies and reduce production to drive up retail prices, as was alleged, what's to stop gas companies from doing the same?

There is no evidence that current gas prices are the result the kind of market manipulation alleged in the energy crisis, but residents deserve to know for certain what is going on. The increase is costing consumers and businesses an extra $18 million a day, according to state estimates.

Gov. Gray Davis last week called on the Public Utilities Commission and the California Energy Commission to investigate the rise in gas prices. The current average retail price of $2.14 is an all-time high for California, though when adjusted for inflation is lower than record prices during the Iran hostage crisis.

The spikes could very well be explained by market forces some combination of war jitters, unrest in Venezuela, higher costs of adding Ethanol to gasoline instead of the more toxic MTBE (by federal mandate), and other factors.

Then again, as state Energy Commission spokesman Rob Schlichting told the Press- Telegram's Felix Sanchez, refinery production has increased by 8.2 percent since March 7. Why the production increase hasn't led to price stabilization or reduction should be a key question before the investigative commissions. They must also examine whether more refineries than normal were shut down for maintenance in February and early March, and why.

The state has examined price spikes at the gas pumps many times before, and usually determines that market forces are to blame. Such was the case in 1999, when Attorney General Bill Lockyer found that California's isolation from other gas-producing states left it vulnerable to price increases.

However, as Davis noted last week, gas prices tend to go down once the state starts looking into things. That's reason enough for investigators to get started.