CRUZ STUMPS AT PUMP OIL FIRMS 'GOUGING' STATE, HOPEFUL SAYS.

Byline: Brent Hopkins Staff Writer

Accusing oil companies of price gouging, Lt. Gov. Cruz Bustamante called on Thursday for Democratic-backed legislation to amend the state constitution to bring the gasoline industry under regulatory control.

Seizing on a new study that found California provides oil companies with their most profitable market, Bustamante took his campaign for governor in the Oct. 7 recall election to a Sacramento gas station.

``Californians are being gouged, and under current law we are powerless to do anything about it,'' he told reporters.

With gas prices shooting up nearly 40 cents in the past two weeks alone and Californians paying the nation's highest gas prices this holiday weekend, state Sen. Joe Dunn, D-Garden Grove, introduced a constitutional amendment that would give the Public Utilities Commission the power to regulate gasoline as it does electricity.

If the PUC were to have such authority, Dunn suggested, it could require oil companies to maintain reserves, limit their profit margins, obtain prior approval for price increases or undergo mandatory infrastructure upgrades. He hopes for immediate legislative action but conceded that the measure probably won't be taken up until January.

The proposed amendment followed the release Thursday of a Rand Corp. study that concludes that oil companies reap their richest profits in California and have no incentive to alleviate the wild price swings Californians see at the pump.

``There's no explanation that the industry can give, other than their own profits, for why Californians pay more than anyone else,'' Dunn said. ``Because of that, we need the power to regulate gasoline like other utilities.''

The price of a gallon of regular in Los Angeles crept up slightly overnight to hit $2.137, according to the Automobile Club of Southern California. At the same time, the AAA's national parent reported that the national price hit a record $1.74 per gallon.

Most of California's seven major refiners declined comment or referred questions to their trade group, the Western States Petroleum Association. Its spokeswoman, Anita Mangels, disputed Bustamante's claims, pointing out that he said nothing about the 18 cents the state adds on to the retail price as excise tax.

``He's not the first to say it, and he's not the last, but he is wrong,'' she said.

``It's a matter of good politics and bad policy. We're sensitive to consumer and legislative frustration, but every time there's volatility in the state, there's legislation like this proposed, and it won't do anything to address supply.''

According to Rand's survey, refiners themselves have done nothing to address supply, either. They have built no new refineries in 30 years, so whenever there's an interruption in production, prices shoot up. Unexpected shutdowns at several California refineries, as well as a break in an Arizona pipeline that shocked the spot market, caused the most recent run-up.

Consumers can expect the unpredictability to continue for at least a decade, according to the 72 respondents to the study.

``Refiners are acutely aware that they're not held in high esteem by the public,'' said Demosthenes J. Peterson, a political scientist with Rand who authored the study. ``They don't see an incentive to make the substantial investment to avoid these price spikes, which they did in the past.''

At the same time, refiners told Rand that California was their most profitable market.

Peterson suggested that the high costs of making the state's special blend of gas drove off competition in the refinery industry.

The American Petroleum Institute, the oil industry's national lobby, disputed the Rand study's findings. Its members, including ChevronTexaco Corp., Exxon Mobil Corp. and Shell, were among the participants.

``I don't know if profitable is the right word,'' said Mike Lobue, API's refining issues manager. ``Generally, the margins in California are higher, but the cost of business is higher, too. If you look at the return on investment, it's actually pretty dreadful, 5.4 percent for the last 10 years, while it's 11.7 percent for other industries.''

California Energy Commission spokesman Rob Schlichting said the agency has found that refiners' costs and profits have risen nearly 30 cents per gallon over the past two months, and most of that's going to refiners' bottom lines.

``Certainly, they're getting greater margins than normal,'' Schlichting said.

``A good deal of it is profit. It probably doesn't cost any more to make gas the week of Aug. 25 than it did July 7 when the margin was lower. The market's based on laws of supply and demand, and supplies are tight right now.''

The Associated Press contributed to this report.

Brent Hopkins, [phone]

brent.hopkins(at)dailynews.com

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