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    Report Critical of Refiners

    Consumer rights group accuses West Coast oil companies of manipulating supplies to keep prices high.

    SANTA MONICA, Calif. -- A new report by the Foundation for Taxpayer and Consumer Rights (FTCR) said California drivers are overpaying by billions annually for their gasoline and recommended refiners drop from three blends of fuel to one.

    The report, "The Solutions Needed To Keep Pump Prices Under $2," claims West Coast gasoline refiners have manipulated supplies to keep gasoline prices artificially high and recommends going to one grade of gasoline to protect against such manipulation in the future.

    "If the state fails to act on these findings, price spikes will become a way of life in California," said Tim Hamilton, author of the report. "A review of industry data, depositions and internal memos of oil company executives produced in litigation, trade journal reports, and other publicly available information found the causes of the high pump prices that have plagued consumers in the West are the result of intentional actions of the oil companies."

    Hamilton estimates California consumers overpaid approximately $2.3 billion extra in 2001 at the pump. "This excess revenue for oil companies generally flows out of state, adversely impacting the state economy to the tune of nearly $7 billion each year," he said. "An identical review of pump prices [excluding state taxes] for conventional gasoline sold in western regions not utilizing cleaner burning fuels debunks the notion that the higher differentials in California are due to California's unique cleaning-burning blend."

    The report also alleges:
    * The majority of higher gasoline prices on the West Coast compared to the rest of the nation are attributable to inflated refiner profit margin.
    * The three-octane grade gasoline offering of regular, midgrade, and premium results in under-utilization of the existing tanks, many of which sit partially filled with slower selling high-octane gasolines. "All of the small percentage of vehicles actually requiring higher octane fuel could easily receive the octane-boost by pouring a small bottle of additive in the vehicle tank every other fill-up," the report said.
    * The extra costs of blending midgrade and premium is typically estimated in the range of just over a penny per octane point. When refiners sell gasoline by the barge to each other on the West Coast spot market the differential between 87 octane and 92 octane premium hovers around 5 cents per gallon. Using California as an example, the average pump price of midgrade in 2001 was 10.4 cents over regular and the premium averaged 20.4 cents higher. The industry motivation for selling the higher-octane gasoline is the higher margins of profit in premium versus regular, the report claims.

    FTCR's report recommends:
    * Replacing the three-octane gasoline format (regular, midgrade, premium) with a single grade gasoline requirement (87 or 88 octane) to increase storage capacities by increasing utilization of existing storage at refineries, pipelines, truck loading terminals, and service stations;
    * Utilizing freed existing bulk storage formerly holding midgrade and premium as a publicly operated strategic reserve for gasoline components and ethanol; and
    * Utilizing the purchase power of state and local government to enter into contracts with outside refineries for regular supply to the strategic reserve as a means of increasing inventories and removing competitive insulation of the local refiners.

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