Price-Gouging Conspiracy Claim for SoCal Gas

     SAN DIEGO (CN) – Major oil companies, including Chevron, ExxonMobil and Shell conspired to create false gasoline shortages in Southern California and gouge prices, an Escondido gas station claims in an antitrust class action.
     Persian Gulf’s July 7 lawsuit gives voice to longstanding allegations of a conspiratorial “gouge gap” in Southern California. The region typically has gas prices 25 cents per gallon or more above national averages.
     “For years Californians have seen tremendous spikes in gasoline prices, seemingly untethered to normal market forces of supply and demand,” the complaint states. “Various reasons have been posited for these giant spikes, including the unique nature of California’s gas market. However, a number of spikes over the years were not the result of California’s market structure (though perhaps enabled by it), but instead are the result of anticompetitive conduct on the part of the major gas refineries operating in the state.” (Parentheses in original.)
     As one example, Persian Gulf, which runs a 76 station in northern San Diego County, describes “suspicious circumstances” in May 2012, which included “rising production, falling demand, increasing inventories and increasing prices.”
     Under any reasonable economic theory, the first three factors should have made prices fall.
     The complaint notes that McCullough Research issued a report that November on the May 2012 spike and another one in October. “In both cases, the underlying data now available contradicts the industry explanations,” Portland, Ore.-based McCullough concluded, according to the compplaint.
     Oil companies cited a fire at a Washington refinery for the May 2012 price spike, as well as the springtime formula conversion and “maintenance shutdowns.”
     But McCullough wrote, in a shorter report in June that year, that “in a competitive market, maintenance would have been delayed to take advantage of the rising West Coast prices.”
     The May and October 2102 price spikes drove the price per gallon above $4 in California, “while the rest of the country experienced a decline in gas prices,” according to the antitrust complaint.
     Six West Coast senators asked the Department of Justice to investigate, citing the McCullough reports, saying that “anomalous, uncompetitive market dynamics may have forced West Coast drivers to pay $1.3 billion more at the pump during the May 2012 price spike than they should have.”
     The senators cited a Federal Trade Commission estimate that “even a one cent per gallon increase in gasoline prices cost California consumers an extra $150 million per year,” according to the complaint. The FTC is investigating.
     Sen. Dianne Feinstein, D-California, asked the FTC to “aggressively … protect” California consumers from years of “malicious and manipulative trading activity.”
     The lawsuit cites a report from the nonprofit Consumer Watchdog, which claims that since February this year, the gouge gap between Southern California and the rest of the nation “hit an unprecedented $1.30 per gallon.”
     And on June 30 this year, according to the complaint, “evidence was presented at the California Energy Commission’s Petroleum Market Advisory Committee meeting in Berkeley that demonstrated that more recent spikes in gas prices appear to again not be based on normal market forces but instead are part of a broader anticompetitive scheme by the defendants.”
     The complaint’s 22-page summary and introduction cites a welter of other reports, all tending toward the same conclusion. Major oil companies also have been accused of disseminating false information to support their price hikes, and the complaint cites a 2004 federal indictment that accused Reliant Energy Services of doing just that. Reliant agreed to a deferred prosecution agreement in March 2007.
     There are 19 oil refineries on the West Coast, but ownership is concentrated, with major refiners owning two or three refineries each, and demand in Southern California is inelastic due to its commuter culture. “This is exactly the type of environment where market power is likely to exist,” the complaint states.
     The top seven refiners, all of them defendants in this case, produce more than 92 percent of California’s gasoline, and the top four own nearly 80 percent of the state’s refining capacity, according to the complaint, which cites a 2002 U.S. Senate report, “Gas Prices: How Are They Really Set?”
     The complaint claims that regular meetings of the numerous trade associations in the oil and gas industries give Big Oil “opportunity to collude.” It claims that one defendant, ConocoPhillips alone, spent $48.3 million lobbying lawmakers from 2010-13.
     Oil companies claim that California’s strict air rules force them to switch from winter to summer blends of gas, which takes refineries offline and reduces supply.
     Critics claim that regional gas prices are higher all the time, and that no meetings or electronic conniving is necessary for the conspiracy, as oil companies can simply send people to the streets to see what others are charging.
     Congress has investigated repeatedly, as have independent firms, and though the gouge gap is a reality, conspiracy allegations have been difficult to prove.
     Persian Gulf seeks damages for violations of California antitrust law, known as the Cartwright Act, and unfair competition.
     The defendants are Alon USA Energy, BP West Coast Products, Chevron USA, ConocoPhillips, Equilon Enterprises, Shell Oil, ExxonMobil Refining & Supply, Kern Oil & Refining Co; Tesoro Refining & Marketing Co., and Valero Energy Corp.
     Defendants that are not recognizable gas station brands are refiners.
     Persian Gulf is represented in Superior Court by the San Diego office of Robbins Geller Rudman & Dowd.

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