California gas prices take a dip, amid calls to investigate the spike

Californians are still reeling from the unprecedented spike in gas prices last week – for no apparent reason. Lawmakers call for a federal investigation of whether foul play sent prices soaring.

Sticker-shocked Californians are getting out their (tiny) kazoos to celebrate today – that’s because gas prices all over the state edged down slightly overnight.

From Oakland to Long Beach, the prices at corner gas stations averaged a half-cent drop to $4.666, according to AAA, which tracks gas-price statistics.

This means that “the worst may be behind us,” says AAA spokesman Michael Green, via e-mail. He is quick to add: The average in California remains extraordinarily high and is about 86 cents more than the national average of $3.813 a gallon. Gas prices in at least 12 states are a full dollar less.

The recent price spike in California was the largest, single-state weekly increase since hurricane Ike hit Galveston, Texas, in September 2008, says Mr. Green, adding, “and the highest weekly increase for California on record.”

The rise in prices last week in California was also unprecedented, he says, noting that, generally, dramatic price spikes take place only when there is a natural disaster or significant international event.

Typically, such price extremes have prompted a flurry of demands from lawmakers to look behind the headlines. This season is no exception. Just this week, Sens. Dianne Feinstein (D) and Barbara Boxer (D) of California and Rep. Janice Hahn (D) of California called for the Federal Trade Commission to investigate possible price manipulation and deceptive practices.

"Californians are, unfortunately, no strangers to manipulated energy prices," wrote Congresswoman Hahn in a letter to the FTC. "Californians deserve to know whether the record-breaking gas prices they are being made to suffer at the pump are due to market forces or greed."

In fact, the California Energy Commission often sees requests like this when price spikes happen, says spokesman Rob Schlichting. While the 2001 scandal over manipulation of the energy market by Enron was a dramatic confirmation that such deceptive strategies have occurred, “most of these investigations come up empty,” he says.

Moreover,  “if suppliers were manipulating prices, it begs the questions: Why now? Why not always?” adds  Peter Zaleski, an economist at Villanova University in Radnor, Pa.

The FTC has yet to publicly comment on the request.

While the claim that gas price hikes are produced by manipulation or deceptive practices is appealing to politicians and the gas-buying public, there are other factors that could account for high gas prices, say analysts close to the industry.

Gas is one of the few traded commodities that have continually done well over the past few years, says Michael Gonzales, a marketing consultant for the oil and gas industry in Fort Worth, Texas. “Because it's traded highly, the prices follow. But more than that, because gas has a high demand [the] world around, companies have discovered they can charge a premium and people will still pay.”

In such a context, Californians have an added burden: The reason gas prices in California are so high is because taxes are so high, says Jeremy Anwyl, vice chairman of the automotive website, Edmunds.com., in Santa Monica, Calif.

“Consumers absorb higher gas prices,” he adds via e-mail, “so there is initial distress when gas prices jump, but we learn to live with it.”

For for many Californians, the strain of sky-high gas prices is wearing. Berkeley businessman Trygve Mikkelsen, whose offices are in Stockton, some 70 miles from his home, says with weary resignation, “It costs me $100 to fill up my truck,” in a business that relies on face-to-face relations with clients.

Beyond the additional costs for his own travel – not to mention his team of four sales representatives – there's also higher delivery expenses, such as the clients who ordered one of the storage systems he sells back in May, are taking deliveries now, and “don’t want to pay the actual increase in costs.” To recoup his losses due to higher freight prices, he would have to charge as much as 30 percent more. “But I can’t do that,” he says, adding, “the most I do is an increase of about 8 percent."

"So yes, the higher gas prices are hurting all around,” he adds.