Are these prices for real? Consumers aren't being gouged--there is a range of reasons for $3 gas.

WITH gasoline prices increasing so much recently, people are understandably asking: Are consumers being gouged at the pump? In a word, the answer is "no." That being said, the public needs factual answers about why prices have increased and what should--or shouldn't--be done about it.

There are well-documented reasons for the current situation. According to the U.S. Energy Information Administration and others, these include: the escalating cost of crude oil--comprising more than half the retail price of a gallon of gasoline--which reached record high levels in April; reduced refining capacity post-Hurricane Katrina; decreased supplies due to government-mandated gasoline formulas, notably the phase-out of MTBE and introduction of ethanol; the cost of the state-required transition from winter to summer gasoline blend; and the increased demand that accompanies the summer driving season.

But what about the role of oil company profits? Granted, they're high. But the figures are large because the companies are large, encompassing earnings from operations world-wide. And published reports indicate that oil and gas industry earnings for the fourth quarter of 2005, expressed in cents per dollar of revenue, were not much higher than the average earnings of all U.S. industries for that period. They were substantially less than those of other businesses such as pharmaceuticals/biotechnology, banking, semiconductors and software, and over the last five years were virtually the same as the average for all U.S. industries.

Dozens of government investigations over recent decades have found no petroleum industry wrongdoing, concluding that it has been market conditions, not oil company pricing or business practices, that have primarily determined the retail price of gasoline. New inquiries commissioned by the governor and attorney general will undoubtedly reach similar conclusions.

The public would be well served, however, if these new studies examined not only how oil companies do business, but the impact of regulatory barriers and government policies on supplies and prices. Government-mandated fuel specifications for gasoline and diesel, for example, have increased costs and reduced production capacity.

And for years, the California Energy Commission has acknowledged that demand for gasoline has grown far faster than our capacity to produce it, making us more reliant on imported supplies. Yet costly regulations and community opposition have prevented a new refinery from being built in California in over 35 years. Similar barriers have thwarted much-needed increases in petroleum production, refining and distribution infrastructure.

In the Los Angeles area, attempts to increase supplies through the development of liquefied natural gas facilities, pipelines and tanker access are facing stiff regulatory hurdles and strong neighborhood resistance. The Port of Los Angeles recently refused to renew a key lease for a fuel storage facility, and repeated attempts to reopen the closed Powerine refinery were rejected.

More taxes

Taxes are another significant component of the retail price of gas, and Californians pay the third highest taxes on gasoline in the country, averaging over 60 cents per gallon with Los Angeles motorists paying more thanks to the higher sales tax rate here. Amazingly, the Legislature is currently considering a package of new laws which, if adopted, could more than double the taxes on gasoline and increase other costs, all of which can be expected to add to consumers' already considerable pain.

These include: a 25 cents per gallon tax increase, to be assessed at the rate of five cents annually over five years; a bill to mandate arbitrary reductions in gasoline usage, which government agencies have suggested would require a new 50 cents per gallon gasoline tax, a new two-cents-per-mile tax for every mile Californians drive, and a new $3,500 tax on every SUV, mini-van and truck bought by California consumers; a "public goods service charge" that could cost 2.57 cents per gallon; a windfall profits tax costing hundreds of millions of dollars; and mandates for the use of biofuels. A $4 billion oil tax initiative is headed for the November ballot.

These Draconian measures will do nothing to reduce the cost of gasoline. Indeed, they will do just the opposite. And they will do nothing to provide desperately needed increases in gasoline or energy supplies.

There are no easy answers, but burdening consumers and our economy with punitive taxes and other costs is clearly a flawed approach. What's needed is a realistic and practical, market-based energy policy that will encourage the expansion of infrastructure and supplies, not only of conventional fuels but viable alternatives as well.

The petroleum industry is committed to this goal and is focused on working with government and the community to assure clean, reliable and adequate energy supplies for California's future.

Joe Sparano is president of the Western States Petroleum Association, a non-profit organization representing energy companies in California, Arizona, Nevada, Washington, Oregon and Hawaii.