Conservatively Speaking
State Senator Mary Lazich (R-New Berlin) represents parts of four counties: Milwaukee, Waukesha, Racine, and Walworth. Her Senate District 28 includes New Berlin, Franklin, Greendale, Hales Corners, Muskego, Waterford, Big Bend and parts of Greenfield, East Troy, and Mukwonago. Senator Lazich has been in the Legislature for more than a decade. She considers herself a tireless crusader for lower taxes, reduced spending and smaller government.
The way to fix the gas price problem is not to fix it
By Mary Lazich
Tuesday, May 29 2007, 05:00 PM
Gas prices in southeast Wisconsin remain obscenely high, right around the $3.50 per gallon mark. Exorbitant prices have federal and state officials scurrying for knee-jerk solutions.
At the federal level, Congress has targeted what many in the public perceive to be the obvious villain: the oil companies. The House of Representatives has passed the Federal Price Gouging Prevention Act that goes after what the Act calls unconscionable pricing. The Act makes it "unlawful for any person to sell, at wholesale or at retail in an area and during a period of an energy emergency, gasoline or any other petroleum distillate ... at a price that is unconscionably excessive; and indicates the seller is taking unfair advantage of the circumstances related to an energy emergency to increase prices unreasonably."
Similar legislation is currently being drafted by Democrats in the state Legislature.
Trilby Lundberg, the head of the California-based fuel market research firm, the Lundberg Survey, is a nationally-known expert on the fuel industry. She is the go-to person when the news media wants analysis on fuel issues. Lundberg says it’s not gouging when price levels can be attributed to market conditions, a current factor that Lindberg asserts is definitely affecting our sky-high gas prices.
"Record breaking prices are the result of a record breaking number of refinery shutdowns and extended delays in returning to production from scheduled maintenance," Lundberg told Reason Magazine. Lundberg emphasizes that since March there have been over 30 events in which refineries have either been closed or seen maintenance delays.
Three refineries had to be shut down because power was shorted out by a snake, a raccoon, and an opossum. One certainly can’t blame the oil companies for stray animals mucking up the works.
The resulting hit was significant. Lundberg estimates the total impact of reductions of U.S. capacity to be 42 million barrels, about 7.4 percent of total 2007 U.S. gasoline production through May 11, 2007. Supplies plummeted at a time that demand was up by two percent over last year. Economics 101 tells us that’s a formula for rising prices.
Sending prices upward is the complexity of today’s production. In the early 1980’s, half of regular gasoline was leaded. Not anymore. Mark Routt, a senior consultant with Energy Security Analysis Inc. says that since that time refiners have been required to produce ultra-low sulfur gasoline. Congress mandated during 2006 the mixture of ethanol into fuels. These ingredients are more expensive and can also cause the refining process to break down.
Anti-gouging legislation is now being considered by Congress and by our state Legislature. Lundberg calls such legislation, dangerously subjective. Her biggest concern is that anti-gouging legislation would result in a cap on gas prices. Suddenly, there would be a high risk of fuel shortages.
Routt of Energy Security Analysis Inc. considers anti-gouging legislation a joke. He said in Reason Magazine, "Why doesn't Congress set the price of green beans at the Winn Dixie and Piggly Wiggly while they're at it?"
Congress’ Office of Management and Budget also has a low opinion of such legislation, claiming it is an old, tired idea that aggravates shortages and increases hoarding of gas after natural disasters, preventing people who need fuel the most from getting it. Imagine not being able to obtain gas at any cost.
Then there is the plan being pushed by Governor Doyle and Democrats to tax oil company profits. The plan would, as analyzed, add five to seven cents to Wisconsin’s already outrageously high state gas tax. A Congressional version has also been proposed. Again, Routt chuckles at the notion of taxing oil companies.
"What do you think oil companies are doing with their profits?” asks Routt. "They're doing what they should be doing. They're investing it to produce more fuel."
Lundberg and Routt both predict prices may have peaked and will begin falling. Demand may have shrunk a bit when prices escalated. Higher prices could bring more offshore gallons that will help rebalance supply.
Problems could erupt if crude oil prices go up, and if refineries are forced to close. It is uncertain if that will occur but the experts are very clear about this: the worst thing that the U.S. could do to try to fix the gas market would be to try to fix the gas market.
