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For Immediate Release: August 15, 2006
Media Contact: Rob Schlichting - 916-654-4989

Energy Commission Releases Results of Gas Price Spike Investigation
Report Follows Governor's Request to Determine Cause of Sudden Increase


Sacramento - The California Energy Commission today released a report detailing results of their investigation into a spring gasoline price spike.

"We discovered a number of factors that, together, drove California gasoline prices to an all-time high of $3.33 a gallon in May," said Energy Commission Chairman Jackalyne Pfannenstiel. "Our unprecedented study of the oil industry's financial performance did not uncover any "smoking gun" that demonstrates market manipulation."

In April, Governor Arnold Schwarzenegger directed the Energy Commission to investigate the sudden increase in gasoline and diesel prices. He specifically asked the Commission to look for evidence of market manipulation that could be turned over to the Attorney General's office and asked the Commission to identify any legal constraints that hampered the investigation.

Although gasoline and diesel prices rose nationally in March and early April, California, Arizona and Nevada experienced a price increase between April 17 and May 8 that did not occur in other parts of the country. The wholesale price spike lasted three weeks, while the retail price increase extended to three months.

The report identified several unusual factors that tightened supply and contributed to the gasoline price hike:

  • Refinery problems and unplanned outages dropped production of gasoline to levels not seen in the past five years.

  • Increased congestion at California marine ports in late April delayed the arrival of gasoline and diesel imports, further tightening the market.

  • Higher than usual amounts of fuel were shipped by pipeline to Nevada and Arizona. California refiners normally supply nearly 100 percent of Nevada's gasoline and diesel, and 60 percent of Arizona's. This spring California shipments to those states were the highest in over five years.

  • Alkylate and other components for gasoline production were in temporarily tight supply as refiners in other parts of the country switched to MTBE-free gasoline.

According to the investigation, consumers paid an additional $1.3 billion in gasoline costs. Slightly lower production rates, delayed imports and higher-than-normal pipeline shipments to Arizona and Nevada also drove up diesel prices, costing consumers an estimated $170 million between May 1 and July 31. State refiners also switched to making an Ultra Low Sulfur Diesel on June 1, which influenced inventory levels and retail prices.

With technical assistance provided by the State Board of Equalization and the Attorney General's office, the Energy Commission examined the financial performance of the petroleum industry. Not surprisingly, it found that industry profits are increasing, regardless of what financial assessment is used to measure profit. Exploration and production of crude oil generate much more income than do refining and marketing, although the report notes that refinery profits jumped during the first two quarters of 2006. Retail outlets - gasoline stations - did not share in the increased profits generated by the price spike, and in some cases lost money.

The report determined that California refineries are more sophisticated than the national average, producing more exacting types of fuel. As a result, refinery costs in California are often higher than the US average, but profit margins are also higher than in other states.

The Energy Commission lacked enough California-specific data to thoroughly assess the profitability of major oil companies doing business in the state. As directed by Governor Schwarzenegger, the report makes recommendations about additional financial information, cost figures and inventory numbers, import data and marine terminal reports it needs to further examine the complex California market.

The Spring 2006 Price Spike Report to the Governor is available on the Energy Commission's website at:

www.energy.ca.gov/consumerfuels

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