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By Robert Rapier on Mar 1, 2007 with no responses

The FTCR Slander Continues

I have written previously about the Foundation for Taxpayer and Consumer Rights (FTCR). You can see a list of these essays here. Their web site states:

FTCR is a non-profit, non-partisan consumer watchdog group. We fight corrupt corporations and crooked politicians every day.

Now that sounds like a noble goal. That is, until you start to dig a little deeper, and find out that “corrupt corporations” too often means “we are paying too much for gasoline, and it must be because of corrupt corporations.” In fact, they have stated that they think gasoline should be under $2.00/gallon for everyone. They seem to feel that this is some sort of a birthright for Americans. Given my often-repeated mantra that we need to conserve, and that I think that a higher gasoline price is the most effective conservation mechanism we have, the kind of logic employed by the FTCR is anathema to me. Just think of how much “cleaner” that California air would be if you lowered the gasoline price to $2.00/gallon.

Well, they are at it again. The FTCR just released another report:

California’s Call to Arms: Gasoline Spikes 45 Cents a Gallon Higher Than U.S. Average

Yes, a “call to arms”, because they aren’t happy about gasoline prices. Some choice pieces from the report:

The Foundation for Taxpayer and Consumer Rights, saying there is no credible reason for the large and widening disparity, called for immediate action by Congress and California lawmakers to regulate gasoline supplies and curb price-gouging by oil companies and refiners.

Now, I want to emphasize that the FTCR is constantly complaining of price-gouging and calling for an investigation. Well, they got one last year by the California Energy Commission. Here were the findings:

The report, by the California Energy Commission, puts down refinery outages leading to a supply squeeze, coupled with a surge in exports, as the key factors behind record high prices in the state this year.

The lengthy report cites a stunning number of planned outage days at California refineries in the first six months of 2006 compared with same period last year – 175 vs. 58. Most of the unplanned outages, comparing the same periods, lasted twice as long this year.

Also, it found port congestion a factor, as well as high additives costs and the introduction of the new ultra-low-sulfur diesel fuel (ULSD).

It dismisses the notion held by some that pump prices dashed to $3.33/gal because refiners practiced price gouging (dubbed goug-onomics by some consumer groups).

As you might imagine, this was a slap in the face to the FTCR, as it was a direct repudiation of their constant complaints about price-gouging. Instead of retracting their charges, they responded by simply making more unsupported claims:

“Oil companies are ripping off Californians in exactly the same way electricity profiteers did by artificially shorting the market,” snapped FTCR President Jamie Court.

Continuing with their most recent report, the FTCR is demanding that more taxpayer money be spent to once again investigate, despite their most recent slap-down:

“California’s price spike in February, nearly the lowest consumption period of the year, is setting up the state to smash last year’s $3.38 a gallon record,” said Judy Dugan, research director of the nonprofit, nonpartisan FTCR. “Lawmakers will be guilty of political malpractice if they ignore this blatant profiteering at the expense of the nation’s most populous state and largest gasoline market.”

Really, what would be the purpose? The FTCR has already concluded that price-gouging is going on. When an investigation found that it isn’t, they rejected the findings. Their minds are made up, so no investigation is going to suit them unless it has their desired conclusions. Perhaps they could fund an investigation themselves, and then if the finding turns out to be that price has risen and fallen due to supply and demand, perhaps they should pay a penalty for all of their slander. Continuing on:

FTCR pointed to the oil industry’s manipulation of gasoline supplies on hand to keep prices higher in California than in the rest of the country.

Once more, careless and unsubstantiated charges, which they have shown that they will not retract when their charges are shown to be without merit. Let’s see what the Energy Information Administration recently had to say about this issue in This Week in Petroleum:

One way to assess current conditions is to look at the inventory situation. If inventories are relatively plentiful, an immediate source of supply is available should market conditions tighten, thus lessening upward price pressure. However, if inventories are relatively scarce, prices would likely need to rise more than they would otherwise to attract more supply should market conditions tighten. At first glance, Figure 4 in the Weekly Petroleum Status Report (WPSR), it appears that gasoline inventories are more than comfortable when looking at the absolute level.

However, as the chart below illustrates, when the level of demand is taken into consideration and the number of days of supply is compared to the last two years, gasoline inventories are actually lower this year, at this point in the calendar. Partly as a result of the inventory situation, the gasoline crack spread (the difference between the average spot price for gasoline and the spot price of West Texas Intermediate crude oil) will likely be a record for the month of February. This February, the spread will be about 19 cents per gallon higher than last February (28 cents per gallon this year vs. 9 cents per gallon last year). This reflects both weak refining margins last year (the 5-year average for February is about 15 cents), and record strength this year.

I have consistently said that if you want to understand what’s going on with prices, look to the inventories. Falling inventories mean that prices must rise, and vice-versa. (Another key issue is that gasoline demand is at an all-time record for this time of year). The inventory picture also explains why oil prices have fallen since last summer. Inventories have been high. This is a concept that the FTCR took a long time to understand, but once they did they started charging that refineries were keeping inventories low on purpose. Their evidence? Well, I am still waiting for that. But lack of evidence has never stopped them from making these charges in the past.

The FTCR can’t even seem to do the most basic of fact-checking:

“If oil companies won’t increase their refinery capacity and gasoline storage in the state, government must do it. Otherwise California drivers will remain the oil industry’s pick-pocketing victims.”

Refinery capacity has increased by a very large amount over the past 20 years, and continues to increase year after year. These expansions take many billions of dollars, and are made possible by the profits that the FTCR would like to see disappear.

Also, it might be a good time to repost the following graphic:

Oil Industry “Windfall”
Source: Facts on Fuel

For reference, the 4th quarter of 2005 was the quarter after Hurricane Katrina when oil companies made multi-billion dollar profits and were universally accused of price-gouging. I know it’s tough for organizations like the FTCR to understand, but a look at the graph should show you that you aren’t being gouged. Oil company profits are huge because the companies themselves are huge. Imagine that if you formed a company from all the small farmers in the U.S., and pooled their profits. The overall profit number would be huge, because the organization would be huge. But their profit margins aren’t going to be all that impressive.

People who think that big profits alone equate to gouging don’t understand the difference between a profit and a profit margin. And the FTCR has demonstrated on numerous occasions that they are ignorant of this basic distinction, as well as the most rudimentary economic principles.