With gas at an all time high, even in the mathematical 1970’s dollar, Governor Jodi Rell and 21 other Governors sent a letter to Congress demanding an explanation. Oil companies are simply taking advantage of market conditions, which driven by how much gas we use, dictates that the demand is outstripping the supply.

Critics point to the capacity at current refineries, which output is cited as being in the high 80’s instead of full capacity. But that is the beauty of a free market system, there is nothing that says a producer has to produce the maximum output of a product.

From The Hour:

In the governors’ letter, addressed to the majority and minority leaders of both houses of the U.S. Congress, Rell and her colleagues question the standard justifications for price increases. There have not been any major weather crises or changes in geopolitical events, they note, and the idea that capacity and reliability problems with refineries are causing high gas prices is unjustifiable.

“It is difficult to understand how oil companies can be making record profits each quarter without making capital investments in refineries that would address reliability issues,” the letter reads.

The governors call gasoline “a basic necessity” that cannot be explained by a simple supply-and-demand model and request a congressional investigation into the price spike.

Michael J. Fox, the executive director of Stamford-based Gas and Automotive Service Dealers of America, agreed with the governors’ call for an investigation but warned that previous government inquiries targeting major oil companies had been misplaced.

“If the investigations continue along the lines they have for the past 15 years, which are looking for collusion, they will find the same thing, which is nothing,” Fox said. “There isn’t any law that says you have to keep a refinery open.”

Rather than look at whether oil companies are teaming up to price gouge customers, Fox explained, the government should mandate suppliers to keep inventory adjusted for the level of demand, something that could be reinforced by the threat of a windfall profits tax. He said it was inexplicable that oil companies could get away with running far below capacity when demand is peaking and they are running such huge profits, as has been the case in recent months.

“They know the summer driving season is coming,” he said of major oil companies. “Why were they running them (refineries) at 86 percent capacity?”

Peter Beutel, the president of New Canaan-based energy consulting firm Cameron Hanover, said the production drag is a result of unpredictable factors such as hurricanes that will continue to affect gas prices in the future, a motive for encouraging consumption reductions.

“If Americans would cut one out of 20 trips, demand would be down 5 percent,” he said. “The consumer has so much more power than anyone has told them.”

Except that after years of cheap gas, consumers in Connecticut don’t have a choice in transportation.  Making gas cheaper is not a solution. But maybe rethinking the fairfield county tax subsidy to upstate suburbs whose residents are feeling the gas price might be in order. Imagine is our tax dollars had been used to fund a light rail system that linked all our major cities to the burbs and each other instead of subsidizing water and sewer systems so that Shelton could build office parks cheaply? Just a thought.

source: The Hour, Rell Seeks Answers As Record-Seetting Prices Hit Pump, by Max Hadler, May 21, 2007