Monday, August 17, 2015
How Refined is California?
It’s been awhile since I lived on the East Coast – D.C. area and Southern Connecticut – but I remember the little derisive twitters (can we use that word that way anymore?) of laughter, sometimes spoken in Valley Girl mimics fer sure, about California’s greatest cultural contribution to the world: legally making a right turn on a red light. That was before the Silicon Valley, bolstered by Stanford and Berkeley rose to their present financial heights and before New York conglomerates swallowed up the media and entertainment industry in Los Angeles. But still there remains this cultural smugness from the east, tittering (better?) about the vapid intellectual void they call California.
We are disliked, sometimes more than even self-aggrandizing Texas, but as big as Texas might be, California is bigger. It has the largest economy and biggest population in the United States. If it were a country, while it would rank only 34thin population, it would rank seventh in economic size. We are America’s fruit and vegetable breadbasket with powerful rural conservative areas, but we are decidedly an urban, ethnically diverse and basically liberal state. Beaches to ski resorts, we seem to have it all… sort of… but we still get those East Coast sneers.
But life out here, despite the better weather and greater emphasis on the outdoors accordingly, is still tough. High rents and real estate prices. Wildfires, drought and earthquakes. Gang wars. In spite of wonderful universities, public schools that are just plain awful. Taxes that make us shudder. And restaurant prices that are only trumped (can I use that word anymore?) only by New York City. Despite a slow layering of modern transportation networks – like B.A.R.T. in the Bay Area and the Metro in Los Angeles – we are decidedly the number one car culture state in the land.
High costs are stemming some of the once overwhelming pattern of easterners flowing west, and even for those who cannot tear themselves away from California, we occasionally (rarely) look with envy to the East Coast. The one area that most Californians just do not understand is the price of gasoline, even when corrected for the gas tax differential. Recently, regular in California averaged well over a dollar a gallon more than most of the rest of the country.
We are told it is because of “refining anomalies” stemming from both California’s stricter environmental standards and the need to switch out fuel types to match the seasonal temperature changes. Huh? We don’t have that much in the way of seasonal changes out here! We understand the higher costs in Hawaii where gasoline has to be shipped across an ocean, but California, itself an oil producing state?
Even as Washington considers allowing domestic oil extractors to sell their crude into overseas markets (they can’t now), refiners are shaking at the prospect of losing that business… and there will be more pressure on them to raise their prices to make up for the loss. The price differential here in California is staggering. “A consumer advocacy group says Californians paid a $4.8-billion premium compared with prices in the rest of the nation during the first half of 2015 because of the state's gasoline price spike, and it proposed legislation to fix what it sees as problems in the market.
“At a news conference [August 5th], Consumer Watchdog, backed by billionaire environmentalist Tom Steyer, criticized the fuel refining industry for overcharging Californians while the rest of the nation paid as much as $1.50 less. In July, Californians paid $1.2 billion extra, the group said.” Los Angeles Times, August 5th. It’s a simple question, really, are Californians simply being gouged as local refiners move in lockstep to push prices higher? Steyer and his organization want full disclosure of refinery profits and a mandate for minimum reserves to level off any spikes across refinery “changeovers.” They also want violators to pay!
Citing California-specific regulations and high taxes, the local refining industry asks legislators to look at the price cycle and refinery profits over an entire year and not season-by-season. But why were California prices rising fast when the rest of the country was experiencing a drop in the cost at the pump? “For the week of July 13, California refiners garnered gross profits, also known as refinery margin, of $1.61 a gallon, a record. The refinery margin, composed of refiner costs and profits, is calculated each week by the California Energy Commission… The gasoline price surge has been worst in the Los Angeles area, in part because of regional refinery outages and low inventories.
“Braden Reddall, a Chevron Corp. spokesman, said gasoline prices are cyclical, and although some refineries received substantial profits during part of this year, at other times, those margins have been razor thin… ‘It is clearly misleading to focus on one part of the results from one part of the business from just one quarter,’ Reddall said.” LA Times. Is this a political protest against regulation? Does it matter that when California refinery profits were “razor thin” (by the way, Reddall, define “razor thin” in the petroleum industry!) but the price at the pump then matched the rest of the nation when corrected for gas tax differentials? Do the words “because we can” mean anything to you? See any price gouging or antitrust issues anywhere around these numbers?
But then, the oil business is used to a privileged place in our economy: tax benefits, de facto subsidies and deferrals. To this day, by law, the EPA cannot mandate disclosure of the chemicals used by oil extractors in their fracking process. The oil business, at all levels, has strongly opposed just about every environmental control ever suggested by any governmental body (American cities would otherwise look like Beijing!), and wallows in a purposeful lack of transparent details in their economics… You can just guess why.
They decry the attempts to bring this California refining anomaly under control while telling all of us that it’s just too hard to explain their money chain: “Tupper Hull, a spokesman for the Western States Petroleum Assn., said it is difficult to determine what exactly the oil refineries' profits are from the refinery margin figures alone. He called the efforts by Consumer Watchdog and Steyer a ‘campaign of disinformation.’” LA Times. They apparently don’t like the numbers even from the California Energy Commission, numbers that do not separate out actual profits anyway. Transparency, it seems, is just not something the oil business is really comfortable with. Hmmmm…
I’m Peter Dekom, and big business is clearly entitled to make big profits… as long as those profits are legally garnered with a full conscious consideration for overall social and consumer needs.