Copyright 2000 Gannett Company, Inc.
USA TODAY
June 14, 2000, Wednesday, FINAL EDITION
SECTION: MONEY; Pg. 1B
LENGTH: 1671 words
HEADLINE:
Explainable -- or gouging? Lots of factors add up to high prices, but you've got
to wonder
BYLINE: Dina Temple-Raston
BODY:
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"I am going to the store less
often and only going out when I
absolutely have to. My daughter and my son
live in Chicago, where
gas is more than $ 2 a gallon. Only rich people can
afford to drive
anymore." -- Charles Streveler, retired steelworker
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Gas prices have been keeping Charles Streveler, 74, a
retired
steel mill worker in Fort Myers, Fla., housebound. With regular
gasoline topping more than $ 1.55 a gallon at his local
filling
station, Streveler says he can't afford to go out.
"When
you are on a fixed income, you have to watch everything
you are doing,"
Streveler says. "I am going to the store less
often and only going out when
I absolutely have to. My daughter
and my son live in Chicago, where gas is
more than $ 2 a gallon.
Only rich people can afford to drive anymore."
What a difference two summers can make. As 1998's vacation season
began, gasoline prices were hovering at or below $ 1 a
gallon --
record lows after adjusting for inflation. Now, the Energy
Department
says this summer's average price will be the highest in 15 years
once you factor in inflation.
The average family logs about
12,000 miles between April and September,
and they will spend $ 160 to $ 170
more for gasoline this season,
the department says.
There isn't any one thing that has caused gasoline
prices to rocket,
and chances are they'll come back to earth before
Halloween. Blame
an unfortunate confluence of events ranging from reduced
crude
oil production, stricter environmental regulations
requiring cleaner
gasoline in about a third of the country
and particularly strong
demand for gasoline.
Start with crude oil prices. For the past year, the Organization
of Petroleum Exporting Countries has curbed oil production in
a bid to
push crude prices up from $ 10 a barrel in 1998 to $ 21
to $ 28 a barrel.
OPEC managed to wipe out a worldwide glut and
deplete much of the world's
oil reserves.
On Tuesday, crude oil prices rose 3% to a three-month
high because
of concern that OPEC won't reverse its policies and ease the
shortfalls
when it meets June 21 in Vienna. OPEC producers have been blaming
rising U.S. gasoline prices -- not low oil inventories --
for
pulling up oil prices 33% in six weeks. As a result, some ministers
have said they may wait to boost production until the fourth quarter.
Crude oil for July delivery rose to $ 32.73 on the New York
Mercantile
Exchange on Tuesday -- the highest price since March 8, when oil
reached a nine-year record of $ 34.37. Prices have risen 78% in
the past
year.
With inventories already thin, the Environmental Protection
Agency's
long-expected move on June 1 to require a higher level of
reformulated
gas only worsened an already tough situation.
"Over
the past 30 years every time the EPA would implement a
regulation the industry would always manage to meet it
without
a tremendous increase in price," says Bill O'Grady, oil analyst
at A.G. Edwards in St. Louis.
"While a lot of things have played
into the latest price increases,
I can't help but wonder if we have reached
the magic moment in
which we can't clean this stuff up at a price people are
willing
to pay," he says.
Patent trouble
The switch to
reformulated gas happens every summer as required
by the Clean Air Act.
Congress passed it in 1990 in a bid to reduce
vehicle emissions and, by
extension, summer smog in some of the
country's most congested cities and
their surrounding areas. In
the winter, they return to conventional fuel.
The list of target cities encompasses most of the East Coast from
Boston to Richmond, Va., as well as Milwaukee; Chicago; Covington
and
Louisville, Ky.; St. Louis; Dallas; Houston; and Sacramento,
Los Angeles and
San Diego.
The cities were singled out for their high emissions
during the
summer months, according to Don Zinger, assistant director in
the EPA's clean air office. Other cities could be added to the
list if
they begin to rise above the agency's acceptable pollution
levels, he said.
The switch to the latest grade of reformulated gas wasn't supposed
to be so hard. To ease compliance for the states, the program
was cut
into two phases. The first ran from 1995 through 1999
and, according to the
EPA, slashed smog-forming pollutants by
about 17% compared with conventional
gasoline. The second phase
kicked off Jan. 1, when refiners
had to begin producing the new
gasoline. It is supposed to
reduce smog-forming pollutants by
27% from conventional
gasoline.
While the switch to reformulated gas has
historically caused a
blip in prices, this year's change is complicated by a
patent
dispute.
In February 1994, California-based Unocal
received the first of
five patents for the reformulated
gasoline it developed. Unocal
has said its scientists came
up with their formula independently.
Critics, and in particular six major
refiners, say Unocal was
working with the state of California and had no
right to patent
the recipe for the new gas.
So far, the courts
have sided with Unocal. In 1997 a federal district
court in California
awarded the company 5.75 cents a gallon in
damages for infringement of the
company's patent. Since the decision,
other refiners have been reluctant to
produce the reformulated
gas out of concern they will have to pay royalties
to Unocal.
What's new about new gas?
Reformulated gas is a
slightly modified recipe for what is already
going into your tank. It has
the same basic components as conventional
gasoline.
An extended refining process creates a gas that evaporates less
quickly than conventional fuel -- sending less fumes into the
air -- and
contains a chemical that improves combustion in a car's
engine but doesn't
crimp its performance.
The new reformulated gas needed for the
second stage of the Clean
Air Act was always expected to be slightly more
expensive because
the refining process was more complicated. But the EPA had
expected
it would cost refiners 3 to 5 cents more a gallon to make; it
never expected the price spikes of recent weeks.
Federal
officials met with officials from eight major oil refineries
in Washington
on Monday, trying to get to the bottom of the skyrocketing
price of
reformulated gas. In particular, they focused on the
30-cent to 50-cent
increases in Milwaukee and Chicago this month.
EPA and Energy
Department officials declined to provide details
of the meeting on the
record. Privately, they said administration
officials pressed refiners for
some explanation.
Executives blamed supply. Energy officials said
that by their
calculations inventories were below normal, but adequate, and
that didn't explain the heartland prices. The price of wholesale
gasoline dropped 4 cents in Chicago on Tuesday, according
to the
American Petroleum Institute.
"We're suspicious of
gouging," says EPA spokesman Dave Cohen.
"Why are Milwaukee and Chicago
having problems that other reformulated
gas cities aren't seeing? It doesn't
make any sense."
Cohen said the EPA has sent investigators to the
Midwest to find
out for themselves.
The Federal Trade Commission
has been reviewing the evidence and
is expected to decide by the end of the
week whether to open a
formal investigation, according to people familiar
with the inquiry.
The commission is working with the state attorneys general
in
Illinois and Wisconsin and is reviewing information from EPA
investigators.
If the FTC opens a formal investigation, companies will have
to
turn over internal documents so investigators can look for evidence
of collusion.
No relief for a while
In the next few
months, there won't be much relief, industry analysts
say. And, as other
provisions of the Clean Air Act kick in, consumers
could be facing a roller
coaster ride at the pump for some time
to come.
In 2004, for
example, refiners will have to come up with a formula
for a
gasoline with much less sulfur so the improved
catalytic
converters planned for 2004 model cars will work.
That
could produce the same kind of problems that are affecting
consumers now. It
could be months, analysts say, before consumers
see prices come down.
"We're 10 weeks away from salvation," says A.G. Edwards' O'Grady.
"After Labor Day we go back to winter gas formulations, demand
will ease
and we'll have an idea about what OPEC is going to do.
So this problem is
going to go away, just not soon."
Contributing: Jayne O'Donnell
Why prices are rising
At $ 1.63 a gallon, the
average U.S. price for a gallon of unleaded
gasoline is up
14 cents in the past month and 52 cents from a
year ago, the government
says. The main reasons:
* OPEC
The Organization of Petroleum
Exporting Countries had been holding
back oil production for the past year,
driving up prices.
* New regulations
Starting June 1, 17 cities across the country were required to
use a
cleaner-burning reformulated gas, which costs refiners more
to make and
costs more at the pump.
* Demand
Traditionally, gas prices
rise in the summer as people take to
their cars for road trips and
vacations. Historically, prices
fall after Labor Day.
Cleaner
gas on sale here
The Clean Air Act requires metropolitan areas with the
worst smog
problems to take part in the reformulated gas program. These
areas
are required to sell the new blend of cleaner-burning
gasoline:
CityAvg. price
Baltimore$1.56
Boston$1.63
Chicago$2.13
Covington, Ky.n/a
Dallas-Fort Worth$1.51
Hartford$1.77
Houston$1.51
Los Angeles[+3] $1.56
Louisville$1.79
Milwaukee$2.04
New York[+1] n/a
Philadelphia$1.57
Richmond[+2] n/a
Sacramento$1.61.
San Diego$1.63
St. Louis$1.61
Washington$1.60
National average$1.63
[+1] Long Island $
1.67
[+2] Norfolk $ 1.52
[+3]Number is for Greater Los
Angeles
Source: Lundberg Survey
TEXT WITHIN GRAPHIC
BEGINS HERE
Retail price for unleaded gasoline
Feb. 199992 cents
June 2000$1.55
GRAPHIC: PHOTO, Color, Scott Olson, Reuters;
GRAPHIC, B/W, Genevieve Lynn, USA TODAY, Source: www.ela.gov; Fill 'er ouch:
Station in Chicago, one of the cities that must use more expensive reformulated
gas, advertises gas for well over $2 a gallon. Federal officials are checking
into the 30-cent to 50-cent increases there this month.
LOAD-DATE: June 14, 2000 
