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U.S. to Probe Gasoline Prices

An Energy Department arm will investigate run-up that led to a record high last month.

September 04, 2003|Jonathan Peterson and Richard Simon | Times Staff Writers

WASHINGTON — Federal authorities will investigate the gasoline price spikes that angered motorists across the country, Energy Secretary Spencer Abraham told Congress on Wednesday.

Last month's run-up in pump prices "struck me as being unusually large ... and in need of greater explanation," Abraham said at a Capitol Hill hearing.

Abraham had been invited to testify on last month's Northeast power blackout. Instead, he was peppered with questions about the gasoline price hikes, reflecting the widespread public frustration over the increases and the potential political potency of the pocketbook issue.

" "What we'll look into ... is whether or not anybody took advantage of the situation," said Deputy Energy Secretary Kyle McSlarrow, who appeared with Abraham.

The national average price for self-serve regular gasoline hit an all-time high of $1.75 a gallon for the week ended Aug. 25. In California, prices soared 36 cents a gallon in the two weeks before Aug. 18 -- the state's steepest 14-day increase since at least 1995.

Prices appear to be leveling off; they averaged $1.75 in the nation and $2.10 in California for the week ended Monday. Experts say prices should start falling with the end of the summer driving season, as they typically do with reduced demand.

The Energy Information Administration, the statistical arm of the Energy Department, will conduct the inquiry.

The study will compare "recent supply and demand factors affecting gasoline prices, such as the Aug. 14 blackout, refinery production, seasonal demand, crude oil and gasoline inventories, and infrastructure issues ... to determine if these factors explain the recent price increases," the Energy Department said in a statement.

American Petroleum Institute spokeswoman Susan Hahn noted that gas prices had been exhaustively studied over the years. "Every single investigation has failed to show any evidence of collusion or other anti-competitive activity by the petroleum industry," she said.

Bob Slaughter, president of the National Petrochemical and Refiners Assn., said price increases stem from "unforeseeable outages occurring during a period of high demand and low inventories."

On July 30, a gasoline pipeline ruptured in Arizona, cutting off the flow of fuel to Phoenix from Texas. That resulted in California refineries picking up the slack and causing a further tightening of supplies.

Then, two weeks later, the blackout knocked out eight U.S. and Canadian oil refineries.

Hahn also cited the cost of crude oil, noting the price was recently at $32 a barrel, up from about $25 in April, because of political uncertainties in the Middle East, Nigeria and Venezuela.

Even so, Republicans and Democrats expressed concern about high gas prices during Wednesday's hearing before the House Energy and Commerce Committee.

"I'm not an expert on these issues, but I know a little bit about human nature," Rep. James C. Greenwood (R-Pa.) told Abraham. "If you can ride the wave a little bit longer ... you'll do it."

Michael Shames, executive director of the Utility Consumers' Action Network in San Diego, said tight supplies of gasoline and what he termed as "paltry regulation" by the Bush administration have "created this petri dish where the environment is fertile for market manipulation."

"What happened in the East Coast and West Coast both need to be investigated," he said Wednesday.

Previous state and federal investigations into gasoline pricing have typically failed to prove unlawful gouging by companies, however. One reason is that the refining business was changed by a wave of mergers in the 1990s. Some facilities closed, and remaining refineries operate closer to full tilt than ever before, said Severin Borenstein, director of the UC Energy Institute.

In such an environment, it is harder to compensate for legitimate supply disruptions. As a result, prices rise. Ultimately, he said, the answer is more suppliers.

The California attorney general's office has had an open investigation into gasoline prices since late 1999.

"We have not found substantial evidence of unlawful conduct at this point, but we're still looking," said Tom Dresslar, spokesman for Atty. Gen. Bill Lockyer. As for the federal probe, Dresslar added: "Welcome to the club."

In March, the California Energy Commission cited a range of factors pushing up gas prices in the state, including the then-pending war with Iraq, an unusually severe winter in the East and disruptions in supply from Venezuela. California's standards for gasoline formulation make it harder for the state to quickly shift its sources of gasoline in cases of disruption, experts frequently point out.

The commission said it had no evidence that firms were illegally raising the price of gasoline.

At Wednesday's hearing, Abraham acknowledged the political potency of gas price hikes.

Noting that "almost nothing" in the energy field captures his attention quicker than rising prices, he quipped, "Whenever the price goes about $1.50, I read articles that say it's my fault. Then when it goes back down, somehow the market is working."

On the blackout, Abraham said a U.S.-Canadian task force hopes to complete its investigation within weeks.

Late Wednesday, the House committee released a transcript of a conversation between officials from an Ohio utility and the manager of the region's grid that a committee spokesman said points to the confusion on the day of the blackout.

"Something strange is happening," a worker for the Midwest Independent System Operator says to a representative of Akron, Ohio-based FirstEnergy Corp., some of whose power lines were among the first to fail.

Asked by the grid manager what was happening, a FirstEnergy representative says: "We have no clue."

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