Category: Uncategorized

Why Are Gas Prices So High in California? Part I

Gas is cheap these days. Since 2014, the average price of a gallon of gas in the US has been cut in half to $1.70 and is headed still lower.

Except in California. A gallon of gas is $2.42 on average here. That’s more than 70 cents above the US average.

People in California are so used to paying more that this is seen as good news. Gas prices topped $4 in Los Angeles in the summer of 2015.  So Californians are celebrating, not realizing that they are still paying more than the rest of the country.

Expensive is now normal in California. In 2015, a gallon of gas sold at the pump cost 70 cents above the U.S. average, according to the California Energy Commission. And for the month of January 2016, gas prices were 80.1 cents above the national average. That’s huge.

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A difference of 70 cents may not sound like much, but multiply that by the 14.9 billion gallons of gasoline consumed in 2015 by drivers in the nation’s most populous state.

The number gets a lot bigger.

California drivers paid a whopping $10.4 billion more for gasoline in 2015 than the US average. Wow.

Why is this so? The reason frequently given is the state’s higher taxes and strict environmental regulations drive gas prices higher.

  1. California requires the world’s cleanest burning gasoline, which is more expensive to refine. Cost: 10-15 cents more per gallon.
  2. Anti global warming regulations add a pollution tax on refineries. Cost: 10-15 cents more per gallon.
  3. Gas taxes are higher in California. Cost in 2016: 10-15 cents.

So taking the low and high of these estimates (which like most of the information used in this post come testimony before a state panel) we get either 10+10+10 or 30 cents or at the high end, 15+15+15 or 45 cents. That accounts for less than half to two-thirds of the 70 cent-per-gallon difference between the average U.S. gas price and California’s.

Where does the other 25-40 cents go?

This, it turns out, is a vexing question, one that a state panel, the Petroleum Market Advisory Committee, has been trying for two years to answer.

Simply put, there isn’t enough gas supply to meet demand, especially in Southern California where most of the state’s population lives. That drives the average price of a gallon of gas higher.

In a properly functioning market economy, scarcity of gasoline, a widely available commodity, should serve as a signal to competitors. There’s money to be made selling gas in California! Competitors arrive with gas to sell. The supply increases until prices gradually fall back to normal.

But that’s not happening. Gas isn’t pouring into California, so prices remain stubbornly high.

The reason why is a bit surprising: A lot of it has to do with geography.

In old 16th and 17th European maps California was depicted as an island. In terms of gasoline, California is an island.

Almost all of California’s gasoline supply is produced inside the state by 13 refineries. And this put the state’s drivers at a major competitive disadvantage.

When everything is working smoothly, these refineries can supply enough gas to meet demand. In fact, California exports gasoline to Nevada and Arizona.

However, things don’t always work smoothly. Refineries break down or catch fire and the sudden shortage can cause prices to shoot up.

Gas prices have remained persistently high in Southern California since an explosion shut down Exxon Mobil’s Torrance refinery in 2015. The Torrance refinery produced somewhere around 10 percent of the state’s gasoline supply.

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An explosion at an Exxon Mobil refinery in Torrance in February 2015 has resulted in higher prices in Southern California. (Courtesy LA Times).

Outside California, when refineries hut down for routine maintenance or unplanned outages, drivers often don’t even realize it. Other refineries quickly make up the difference.

Take Florida. While California produces all its own gasoline, Florida is the opposite extreme. Florida has zero refineries. It is totally dependent on imported gas. So what does gas cost there? $1.75, a few pennies the national average.

Like most of the country, Florida gets its gasoline via pipeline from the Gulf region. The U.S. Gulf region is a giant gas exporting machine. Texas and Louisiana together account for half of the gasoline refining capacity for all of the United States.

Pipelines can move gas from Texas as far away as New York, but they don’t reach California. (Exactly why this is so is unclear, since a Gulf pipeline could reach Los Angeles through Arizona and New Mexico.)

Pipelines do link California to Nevada and Arizona, but the gas flows only in one direction: out of the state. Gas flows from the Bay Area to Northern Nevada and from Southern California to Las Vegas and Arizona.

If you look at the chart below, you’ll see that the arrows all point east. Also note there are no pipelines linking Northern and Southern California. This is another big problem.

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Well, can’t ships bring gas to California to alleviate shortages?  Why not ship gas from the Gulf to California in times of shortage?

California’s geography works against it. Outside California, there are only a few refineries  in the world that produce gas known as CARB that meets the state’s strict standards. They are all far away.

The closest refinery that produces CARB gas is in the Gulf. It takes 10 days for a tanker from the Gulf to pass through the Panama Canal and reach California.

Due to a quirk of US law, it’s actually more expensive to ship gas to California from the Gulf than from refineries in Asia, even though the voyage from Asia is twice as long. It costs $10 per barrel to ship gas from the Gulf Coast to Los Angeles vs 6 a barrel from Asia.

Under a law known as the Jones Act, ships that sail from one U.S. port to another must be made in the USA and at least 75 percent of the crew has to be American citizens. There are very few Jones Act ships left.

It’s so hard to find a Jones Act ship that gas cannot easily move around even inside California. As noted earlier, there are no gasoline pipelines linking Northern California with Southern California.

At a hearing this month before the Petroleum Advisory Market Committee, an industry analyst noted that gas was 30 cents cheaper recently in Northern California than Southern California. But there was no way to move the gas south.

Few ships and no pipelines mean California’s gas market is isolated from the rest of the country. And this is the real reason why gas is much more expensive in California than the rest of the country.

We here in the Golden State are totally dependent on in-state refineries.

That doesn’t sit well with some people.

This concentration of power has given rise to charges that refiners are using market power to drive prices — and their profits — higher. We’ll take a look at this in our next post.

How I Chose My Solar Installer

These are boom times for the solar industry. There are no shortage of choices for  installers.

I wound up going with a company called Jamar Power Systems. I was very satisfied with the work they did for the price they charged.

Here are some lessons I learned in choosing them.

  • Don’t pay for a company’s sales and marketing. Jamar relies almost exclusively on word-of-mouth. Companies with big marketing budgets like SolarCity charged more because customers have to pay for the advertising.
  • Look closely at the cost per watt. You will get bids for slightly different size systems and cost per watt is a way to compare them. A fair price for a solar installation is $3.50 per watt for installing the panels and inverter (which coverts DC solar power into AC current that can be used in your home). This is what Jamar charged.
  • A company that only does solar may not be around in a couple of years. Jamar has been around since 1984. They do a good business in commercial and residential electrical projects and they are likely to be around when the solar wave crashes.
  • Think carefully about the upsell. Many installers recommended Sunpower panels, which are considered the best in the business, the Mercedes of solar panels. Like Mercedes, you pay more. I went with panels made by LG that carry a 25-year warranty. Sunpower panels would have cost 10 percent more, and I didn’t feel they were worth the cost.
  • Optimize per panel power generation. A disadvantage to Sunpower panels is that they are often paired with Sunny Boy inverters. While Sunny Boys are well made, they are a bit behind the times. Newer technology allows solar panels to produce more by optimizing the panel when one or more of the panels is in shade. If you have big trees in your backyard like me, this is very helpful. My inverter is made by Solar Edge and it allows me to maximize the power my panels can generate.

Was there anything I didn’t like about Jamar?

They didn’t send someone out to my house until I signed a contract. This bothered me until I met the excellent who worked for them. I suppose they do this to keep costs down.

A final word: Do your homework. Check Solarreviews.com, yelp.com, and look up the contractor’s license in your state to check for any problems. For technical help, check www.solarpaneltalk.com

 

 

MasterCard Fraud

I just closed my MasterCard account after it was used fraudulently — for the second time in less than a month.

This isn’t the first time a card of mine has been compromised but it is the first time it’s happened twice in a row. Even weirder, we have never used only used the new replacement card that MasterCard sent us one time at a 76 gas station. And finally, this compromised card was an EMV chip card, supposedly more secure.

MasterCard’s fraud detection seems to have worked well. Out of the 51 million transactions MasterCard handles every day, it flagged a $642 purchase at Nordstrom’s that some criminal made with my card on Dec. 23 in San Diego. The MasterCard agent told me that the purchase was refused at the store and I was notified before I even knew a problem existed.

It’s not clear how my information was obtained in the Dec. 23 incident but MasterCard notes in its SEC filing that data breaches “typically involve external agents hacking the merchants’ or third-party processors’ systems and installing malware to compromise the confidentiality and integrity of those systems.”

That’s happened before with my American Express card and others. But then came the dealbreaker. After MasterCard sent me a new replacement card with a new number — it flagged a $99 purchase today at a gas station in Los Angeles. (Update: The folks who have my card tried to use it again yesterday at a gas station in San Francisco). Again, the fraud detection system worked, but there’s something more troubling afoot.

How was the information on my new replacement compromised so quickly? This time there was no hacking; the number had never been used. Tracing this backwards,  the breach like occurred at the 76 gas station. Or someone penetrated the computer of MasterCard, Citibank or the third-party processing systems.

But who knows?  Maybe the postman has sticky fingers. Or maybe, since my card has a chip that can be read at a distance using RFID, could someone have obtained my information that way?  It’s theoretically possible, but not likely.

So who pays?  Not me. By law, if my credit card number was stolen, but not the card, I’m not liable for unauthorized use. Someone is paying, though, and it’s either the merchant that processed the card, the third-party that processed it or the bank that issued it, in my case Citibank.