GAS: Local gas prices soar higher, faster than nation's

Analysts cite refining, taxes and possible discrimination

By CHRIS BAGLEY - Staff Writer 

 Friday, June 13, 2008

NORTH COUNTY TIMES - Gasoline prices in North County continued to shoot up higher and faster than the national average last week, a gap that analysts attribute to California's unique refining requirements, higher sales tax and possible price discrimination by refiners and wholesalers.

North County stations were selling regular gas for an average of $4.59 a gallon Friday, up by about 17 cents in the last week, according to regular surveys by the San Diego-based Utility Consumers' Action Network.

The national average had risen by about 8 cents in a week, to $4.07 a gallon Friday.

Over the last year, the national average price has risen by $1.02, according to AAA.

North County drivers, in contrast, are now paying $1.38 more per gallon than they were paying a year ago. That translates into another $932 out of the pocket of a driver who uses 675 gallons a year, the state average.

Refiners and independent analysts have pointed to the skyrocketing price of crude oil on international markets as the leading cause of the price escalations.

But analysts say that doesn't explain the growing gap between California and the rest of the country, because oil costs roughly the same regardless of location.

Historically, Californians have paid 20 to 25 cents more per gallon than drivers in most other parts of the country.

North County's gap had been comparable, but it widened to 30 cents in early March, flirted with 40 cents in April and May, and topped 50 cents within the last week.

Gaps often grow in the springtime when California air-quality regulations begin to require different blends, analysts said.

That makes for less competition among refiners during the summer months because out-of-state refiners can't easily produce and deliver gas that meets California regulations, said Severin Borenstein, director of the University of California Energy Institute, at the Berkeley campus.

Even within California, prices frequently vary by as much as 20 cents a gallon from one community to the next.

Gas in San Francisco, among the state's most expensive cities a year ago, has risen only $1.06 in the last year, to $4.57, according to daily reports by the automobile association.

Gas in the Los Angeles area has risen by $1.31, to $4.58, according to the group.

Tupper Hull, a spokesman for companies that extract and refine oil in the western United States, said gas stations have historically charged higher prices in San Diego County because the ratio of stations to residents is lower than in Los Angeles.

This disparity is even more dramatic when tourists are included, Hull said, citing a 1997 study commissioned by the industry.

Competition in San Diego County is also thwarted because generally stricter land-use regulations slow down the process of setting up new stations, Hull said.

Most gas stations in Southern California are independently owned but operate under a sort of franchise agreements with Chevron, Shell or another refining company.

Margaret Felts, a Sacramento petroleum engineer who investigated energy-market manipulation during the California energy crisis of 2000-01, said it's easy for refiners to charge higher prices to affiliated stations in affluent suburban areas such as North County, translating into higher retail prices.

"It's a market where they know they can get a higher price, and so they do," Felts said.

Known as "price discrimination," such behavior is common in several industries and is generally legal as long as sellers act independently of one another, Felts said.

Borenstein said he's seen no recent evidence that refiners are colluding with one another to set prices. Still, he said, he can't rule it out.

"It would be very difficult to find evidence in this market," he said. "That's just a black hole."

David Hackett, an Irvine-based analyst, said Southern California prices have gotten an extra bump since mid-May, when a refinery in New Mexico began having problems.

The metropolitan Phoenix area, which had drawn much of its gas from New Mexico, began buying more from California refineries, Hackett said.

It's nearly impossible to determine how easily California refineries can react by producing more gas, Borenstein said. To do so might require state monitors at each refinery, he said.

"The solution has to be not second-guessing how refiners are producing, but making sure the market stays competitive," Borenstein said.

California's sales tax is also 2 to 3 cents higher than those of most other states, Borenstein noted.

When the price of gas rises by $1 at the wholesale level, the retail price rises by nearly $1.08 in California.

In Georgia, a similar wholesale increase pumps up the retail price by $1.04.

The increases have caused ever-greater disruptions in the lifestyles of North County residents and would-be residents.

Pam Mattox, who lives by herself in Temecula and works at a nearby casino, said she's been looking for a change of pace in her life.

She decided a few weeks ago that she'd like to live with a friend in Escondido, but is putting off the move until she can arrange a daily car pool to Temecula.

"If the gas keeps going up, I can't move," she said. "It's just too expensive."

Prices have changed other commuting habits, too. Several North County drivers have reported switching to smaller cars and leaving lower-mileage trucks and sport utility vehicles parked at home.

Such newfound frugality has pushed down gasoline use by 1 to 2 percent from year-earlier levels, according to a state agency.

The Associated Press contributed to this article. Contact staff writer Chris Bagley at (760) 740-5444 or cbagley@nctimes.com.