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Feinstein Calls for Investigation Into Soaring Gas Prices

Senator Dianne Feinstein sent a second letter to the chairman of the Federal Trade Commission, asking for an immediate investigation into soaring gas prices.

Senator Dianne Feinstein (D-Calif.) has sent a second letter to Jon Leibowitz, chairman of the Federal Trade Commission, asking for an immediate investigation into soaring gas prices, according to her office.

“California commuters are facing the highest gas prices and the longest commutes in the country,” Feinstein wrote in a news release.  “Paying hundreds of dollars to fill your tank every time you go to the pump is untenable, particularly because it does not appear the price spike and supply disruption are related to supply and demand.”

The average price of a gallon of regular gasoline today again rose to a record high in Los Angeles County. But according to the Automobile Club of Southern California, the increase of seven-tenths of a cent to $4.703 may indicate that prices will soon fall.

The increase was the smallest during a six-day span that has seen the price rise 50.2 cents, including 3.5 cents on Sunday, according to figures from the AAA and Oil Price Information Service.

The average price is 51.9 cents more than one week ago, 52.5 cents higher than one month ago and 89.2 cents greater than one year ago, according to City News Service.

In Glendora, the chepeast gas prices listed by Gasbuddy.com are lingering around $4.57.

Gov. Jerry Brown's order Sunday directing the California Air Resources Board to immediately allow oil refineries to make an early transition to winter- blend gasoline, which isn't typically sold until Nov. 1, and the resumption of operations at the ExxonMobil Torrance Refinery are expected to add to the supply of gasoline.

The record prices are the result of whole markets going "into a panic about the adequacy of California fuel supplies" following a power failure last Monday at ExxonMobil's Torrance refinery and closure of a Chevron pipeline that moves crude oil to Northern California, said Jeffrey Spring of the Automobile Club of Southern California.

Other contributing factors include local refiners dropping production levels, exporting supply to Mexico and other countries and allowing inventory to dwindle in anticipation of switching over to production of winter blend gasoline, Spring said.

Below is the letter the senator sent to Jon Leibowitz:

October 7, 2012

The Honorable Jon Leibowitz, Chairman

Federal Trade Commission

600 Pennsylvania Avenue, NW

Washington, DC 20580

Dear Chairman Leibowitz:

I am writing to express my deep concern that the Federal Trade Commission (FTC) is failing to take action to protect California consumers from malicious trading schemes in the California gasoline market.

In order to uphold the FTC’s consumer protection mandate, I ask the Commission to open an immediate investigation into price spikes in California, to begin collecting relevant data on California’s gasoline markets, and to establish a permanent market monitoring team.  In 2007, Congress gave the FTC unique authority to investigate and prevent any manipulative or deceptive device or contrivance that could be resulting in unjustifiably high gasoline prices.  I believe the FTC can only uphold this mandate by actively monitoring markets and investigating unusual behavior.

First, I request that the FTC immediately initiate an investigation to determine if the price spike in Southern California this week results from an illegal short squeeze. A Reuters investigation cites industry sources who believe that the 97-cent price spike in CARBOB gasoline this past week “has many of the hallmarks of a classic short squeeze.” Multiple trade sources say Tesoro Corporation was caught short on supply. In the severely concentrated Los Angeles gasoline market, the few sellers were reportedly able to squeeze Tesoro either through collusion or use of market power.  An FTC investigation is likely the only way to determine whether this reported squeeze took place.

Publically available data appears to confirm that market fundamentals are not to blame for rising gas prices in California.  Despite a pipeline and refinery shut down, gasoline production in the state last week was almost as high as a year ago, and stockpiles of gasoline and blending components combined were equal to this time last year, state data show.

Second, I ask that the FTC immediately seek data sharing agreements that will allow it to monitor gasoline and oil markets actively and effectively.  Data on prices, trading activity, refinery output, demand, stocks, and other information are vital to determine if trading activities reflect fraud, manipulation, or other malicious trading practices.  While much of this data is currently collected, but not released, by the CFTC, the Energy Information Administration, the California Energy Commission, and private sources, the FTC does not collect, compile, or analyze this information in any organized or ongoing way.  I believe that obtaining relevant data is a basic prerequisite of effective consumer protection.

Third, I request that the FTC establish a permanent gasoline and oil market oversight unit modeled on the Federal Energy Regulatory Commission’s (FERC) Division of Energy Market Analytics and Surveillance.  As you know, FERC’s anti-manipulation authority in natural gas and electricity markets mirrors the FTC oil market authority nearly word for word.  With its authority, FERC has built an entire division of market monitoring professionals who oversee trading in real time to protect consumers from malicious trading practices.  I fail to understand why the FTC has not yet set up its own unit to oversee oil markets.

California’s consumers are all too familiar with energy price spikes which cannot be explained by market fundamentals, and which turn out years later to have been the result of malicious and manipulative trading activity.  In order to prevent such abuse from occurring again, Congress has spent more than ten years building up the market oversight authorities of the CFTC, the FTC and the FERC.  However, our efforts depend on aggressive and serious enforcement within the Commissions.

It is with this history in mind that I call on the FTC to act immediately and aggressively to protect California’s consumers.  I look forward to your prompt response and action.

Sincerely,

Dianne Feinstein

United States Senator

Jake Mooney October 09, 2012 at 04:12 AM
Please keep us advised about her follow-up.
Vince October 09, 2012 at 05:31 PM
Someone needs to be asking the Senator why our refining has not kept up with the increasing population in California. It's been decades since we built a new refinery. She has been against any move to increase our output of fossil fuels. Unfortunately, we don't yet have another option, so ignoring the problem hasn't helped things. Democrats seem to think that ignoring a problem will make it go away. She now tries to deflect blame by making it look like it's a conspiracy from the oil companies. Remember that folks, the next time you are at the polls.
David Chess October 09, 2012 at 06:52 PM
Someone needs to ask the oil companies why they don't invest in new refineries. Could it be that it is a good way to conveniently manulipate the price of gas and to keep a near shortage situation at all times?
Vince October 09, 2012 at 07:03 PM
David, the oil companies don't invest in new refineries because it is prohibitively expensive in California. The politicians don't want more refineries, or drilling because they HATE fossil fuels. Years ago, Jerry Brown halted all freeway construction, because he hates cars. Thinking that would get away from using cars. Yeah, right. All those construction projects had to be restarted and at a much higher cost.
David Chess October 09, 2012 at 08:54 PM
Vince, Forget about California how about nationally? Check out the link. New refineries hardly keep up with demand. http://www.eia.gov/tools/faqs/faq.cfm?id=29&t=6

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