State's Probe Into Higher Gas Prices Finds No Manipulation

NBCSandiego.com POSTED: 11:21 a.m. EST April 2, 2003 UPDATED: 11:21 a.m. EST April 2, 2003

State Will Continue To Monitor Natural Gas, Gasoline Markets

SACRAMENTO, Calif. -- Recent price spikes in gasoline and natural gas prices were not the result of market manipulation, two state agencies concluded in a report, but officials say they'll continue to watch California's prices closely

Gasoline and natural gas prices rose sharply in March, prompting Gov. Gray Davis to order the California Energy Commission and the California Public Utilities Commission to investigate.

Retail gasoline prices peaked mid-March at an average of $2.15 per gallon, said William Keese, chairman of the California Energy Commission. Even though wholesale prices have dropped about 42 cents per gallon since then, retail prices have only dropped an average of one cent, he said.

Prices should be under $2 at most pumps at the end of this week, and "if they are not, we'll be concerned," Keese said, adding that it's not uncommon for prices to rise more rapidly than they fall.

The spike in gasoline was due to several factors, including the doubling of crude oil prices because of uncertainty about war in the Middle East.

"The cost increases that we have seen from crude oil shouldn't reflect that high a price," Keese said.

Other factors included an oil strike in Venezuela last year that cut supplies, a cold winter in the eastern states increased demand for heating oil and delays in refinery maintenance in California.

Natural gas prices generally run higher in the winter when demand is greater, said PUC Commissioner Michael Peevey.

"We didn't find any manipulation in natural gas prices," Peevey said. "But (we did find) a repetition of a pattern we've seen in California before, where there's a sharp price spike due to conditions outside the state."

The cold weather conditions in the East also contributed to California's higher natural gas prices, officials said. When consumers there are willing to pay higher prices "that sucks the gas in that direction rapidly, and California ends up having to pay," Keese said.

The report doesn't recommend the attorney general investigate the price increases, saying "the Energy Commission has no evidence to claim that any refiners are exercising market power."

Davis said the state would continue to monitor natural gas and gasoline markets "to ensure that no energy companies pull Enron-like tricks to artificially drive up the price of energy."

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