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California drivers furious at gas prices. Here’s a solution

Southern Californians are in a state of shock. Again. Prices for regular unleaded gasoline shot up literally overnight late last week, and they continued climbing this week: According to GasBuddy.com, the average price for 87-octane gas in the Los Angeles area was $4.155 Monday, up 20 cents from Sunday, and 60 cents over the past week.

At some stations, the disparity was even more of a jolt: At a 76 station in Sherman Oaks, the price went from $3.99 to $4.59 in minutes last Friday; at a Mobil in North Hollywood, it was $4.99. The national average was only $2.78, a benchmark tied to the relatively low price of oil, which stood at $57.85 Monday.

It’s a familiar ritual in SoCal: Prices jump for no apparent reason (at least this time no one can say they weren’t warned); oil companies and refineries offer rationalizations, based on byzantine economic factors; often people in power demand answers, possibly even scheduling some kind of inquiry or legislative hearings; and then prices float back down again, never as quickly as they rose, and consumers forget about what the heck just happened.

The latest explanation, as parroted by many among the local media, is this: There’s a shortage of gasoline inventory, and a drop in fuel imports coming from overseas. California has a cleaner standard for gas than the rest of the country. And by the way, it’s summer, etc. Allison Mac, an analyst for GasBuddy, also said the explosion and fire at the ExxonMobil refinery in Torrance back in February has had a lingering effect: “That is still down,” she told NBC4, adding that the refinery accounts for about 10 percent of SoCal’s gasoline supply.

Jamie Court, president of the Santa Monica-based group Consumer Watchdog, suspects price-fixing. “Make no mistake, this is all about pure profits for the oil companies,” he told KTLA-TV. “Crude oil costs are like under $60 a barrel right now. We have four refineries that control 78 percent of the market. All they have to do is pull a couple ships coming in, and the prices go up 60 cents in a night.”

Consumers have a right to be outraged. But many of them are strangely resigned, insisting they have no control over the gyrations of the gas market.

“We have to pay for gas. I mean, like, we’ve got to get around. There’s no getting around it.” — Jaclyn Williams, Van Nuys, to ABC7.

“What are you gonna do? I mean, you gotta … I actually bike to work a couple times a week, so I try to balance it out like that. –- Jason Bielawski, Los Angeles, to Channel 5.

“The price went up real bad. Whose fault is it? Let’s blame somebody,” he joked. “What can we do?” — Frank Zamarripa, Santa Ana, to the Orange County Register.

Drivers don’t have to just take it, and they don’t have to start riding a bike in L.A. traffic (if you do, use a scuba tank). All they have to do is start using E85, which is up to 85 percent ethanol (a cleaner-burning, cheaper fuel) and 15 percent gasoline (the dirtier, crazy-expensive fuel).

E85 nozzle2You might be driving one of the more than 17 million flex-fuel vehicles, which can take any ethanol blend up to E85. Others who don’t own an FFV are filling up on E85 anyway, owing to the attractive price point. There are more than 2,600 stations that sell E85, including many in Southern California. I dropped in at the G&M station at Beach Boulevard and Warner Avenue in Huntington Beach. The station has two Propel Fuels pumps that dispense E85 (Propel the company featured in PUMP the Movie), and the best attribute of ethanol is right there on the marquee:

$2.99. That’s the price G&M was charging Monday for E85, a full dollar less than 87 unleaded.

Despite that differential, the green Propel island was getting no love from customers. Someone had just been there, a truck, it seemed, because it had just pumped 24.7 gallons for $74.00. The other drivers lined up to pay the exorbitant price for gasoline.

They included Janet Martin, a web designer from Laguna Beach, who filled up her Toyota Camry. “I think it’s greed,” she said when asked her theory of high prices. “It seems to get more expensive when it’s tourist season or summer vacation, where people are using their cars more often.

“It’s frustrating, but we have no control. It’s the people up on top, it’s the people who have the money, it’s the people that are in charge of the corporations …”

As long as oil remains our predominant fuel choice, American consumers will continue to be vulnerable to market gyrations. Prices go up and down, sometimes based purely on market forces, other times based on events in the Middle East, other times still based on not much at all. As former Shell Oil president John Hofmeister says: “We will never get past the volatility of oil until we get to alternatives to oil.”

Californians should know this better than anyone by now, and they should be first in line to demand alternatives. Learn more about what you can do at our Take Action page.

Lawmaker discusses far-reaching California climate bill

Sen. Kevin de Leon, president pro tem of the California state Senate, is not only confident a climate-change bill will pass the Legislature and be signed into law. He fully expects the rest of the nation to follow California’s lead.

“Leadership does matter. That’s why we will not wait,” de Leon said last week during an energy discussion in Sacramento.

The lawmaker went on:

“We have never waited for Washington, D.C. To be honest with you, while Washington, D.C., dithers on this issue, between members who are negative, climate-change deniers altogether when the empirical data is there … We’re not waiting for that. We’re not gonna wait for Washington, D.C. We never have; we never will. We are the state of California, and we are the leaders nationally. And they’re gonna have to follow, and they will eventually follow what is done here.”

Senate Bill 350 passed the Senate on June 3 and now goes to the Assembly. If it’s approved there and signed by Gov. Jerry Brown, the state will have achieved an ambitious plan that could have a huge impact on transportation and power generation in the state, and could affect the state’s economy long into the future.

The bill sets three goals to be achieved by 2030: cut petroleum use by 50 percent; increase the amount of renewables in electricity generation by 50 percent; and boost efficiency of buildings by 50 percent.

To discuss the measure, the group Diesel Technology Forum sponsored a gathering called “50/50/50 by 2030: Transportation and the California Energy Challenge. Carl Cannon, the Washington bureau chief of the website Real Clear Politics, moderated the event and interviewed de Leon.

De Leon said that if SB350 passes, it will save consumers money from “better fuel efficiencies” as well as reduce smog. “Air pollution knows no boundaries of political ideologies,” he said. The Democrat called the network of freeways in his Los Angeles district a “serpent that chokes the air out of a young child’s lungs.”

The bill was among several related to climate change passed by the Democrat-controlled Legislature. “These measures together represent the most far-reaching measures dealing with climate change, not in the history of California or the history of the country, but I would go a step further and say in the history but the world.”

De Leon said he’s looking forward to a “vigorous debate on the merits of the measure itself. … I think it’s going to be fun.” Democrats easily outnumber Republicans in both houses of the Legislature (26 out of 40 in the Senate; 52 out of 80 in the Assembly), but de Leon said that some Republicans had said to him privately that they “concurred that something must be done about this issue. Politically, that’s another issue altogether. But privately, I’ve heard on numerous occasions that ‘I agree with you, but it’s extremely difficult for us to do anything about this.’ ”

Watch the interview here:

http://bcove.me/zqumtflh

And watch a panel discussion, with energy expert Amy Myers Jaffe and others:

http://bcove.me/pv6gdyym

Adam Smith is dead! Will moving his body help secure absent competition in fuel markets?

Former Gov. Richard Lamm of Colorado and I once led a group of CEOs on a trip to London. It was focused on what Colorado could learn from the British healthcare system. During the trip we visited St. Elizabeth Hospital. There in the lobby was a stuffed, mummified body of Sir Jeremy Bentham, so I took a picture with him. He was not very talkative.

But the resulting photograph brings back memories, perhaps apropos to the oil industry. Seeing Bentham looking so well and remembering how much he meant to my life — both the pain and joy — I propose we bring back Adam Smith, and place him in the lobbies of the big oil companies. Why? Easy: they seem to have forgotten about the value of free markets, competition and capitalism. A little dose of recall and guilt every morning when they go to work and when they leave their offices every evening wouldn’t hurt. Over time, maybe there would be substance behind their luncheon or dinner speeches concerning free markets and capitalism. Maybe they would remember Smith’s warning that, “People of the same trade [in this case, the oil industry] seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Right on, Adam! You are not my favorite economist or ethicist, but your quotation appears to fit the behavior of the oil industry. Sen. Dianne Feinstein, during California’s increase in gas prices a couple of years ago, suggested that oil companies and investors might have tried to set prices and blur their actions by casting blame on the refinery fires for gas price spikes. Her view was that market variations alone did not explain the high prices consumers were paying at the pump. Her comments implied some sort of collusion or manipulation.

E85 and E10 PricesThe general behavior of the big five oil companies concerning competition from E85 lends credence to Feinstein’s suspicions. Listen, my reader, and you shall hear some examples of big oil’s apparent, sometimes seemingly coordinated, efforts to restrict the growth of E85 sales here (sorry, Longfellow), even though E85, at the time, posed no real immediate competitive threat to overall gasoline sales. Of the just over 150,000 retail fuel or gas stations in the nation, only 2.5 percent offer E85 and less than one half of one percent of the major brands provide E85 under their branded canopy. How nice of them! Read a franchise agreement from Exxon or Texaco, and see if you can find a provision for an E85 pump…maybe there are words suggesting a location in the back of the station, near the men’s or ladies’ room or in front of the station, clearly off center and not under the canopy.

Look hard at the language and the decisions of nationally branded retail stations. Franchisees are generally limited as to price, fuels, location of pumps and marketing strategies. Maybe these restrictions are legal and from a monetary and profit point of view, understandable. But from a consumer perspective, they limit choice and often frustrate competition.

Some have charged oil companies with price fixing or collaboration in setting prices (a nicer way to say fixing). “No, not in America,” you say? Adam Smith would turn over in his grave! According to a report by AJW company in 2014, “Since RIN prices began to rise in 2013, the nationwide average discount for E85 vs. E10 at independent stations has been 14 percent or greater for all but one month. During the same period, the nationwide average discount for E85 at major branded stations reached 14percent only once. This discount is only a price comparison and does not factor in relative energy content of the fuels. As long as there is limited availability and unattractive pricing at major branded stations, low E85 demand likely will persist among consumers using those stations.”

Generally, I am not a fan of special-interest group research or funded research. I prefer to rely on, at least, relatively independent think tanks, universities and scholars. Yet, recently gifts of money for research blurs the line between the interest of funders and the integrity of the word independent. Caveat emptor!

A 2014 case study by the Renewable Fuels Association (RFA), an advocacy group funded, in part, by self-interested donors, tracked the per gallon fuel costs of all nine retail stations selling E85 in St. Louis during the summer of 2014. Each station had the brand names of one of the five largest oil companies.

The data indicated that there is some support for the notion that gasoline producers/suppliers and their franchised retailers in at least St. Louis purposely employed pricing strategies to discourage E85 consumption. They, apparently, wanted to negatively influence the consumer perceptions about the fuel.

Oil companies appeared to control key price behavior at the nine stations and, to some extent, worked together to set prices, either formally or informally. RFA argues that it’s hard to believe that the price similarities at stations in St. Louis happened by chance. For example, the average E10 retail prices were $3.45 dollars per gallon while the average E85 retail price was $3.47 dollars per gallon. Wholesale prices of E85 were an average of $2.58 per gallon, while E10 averaged $2.93 per gallon. “Based on prices for locally available ethanol, hydrocarbon blend stock, RFS RIN credits and a typical markup, E85 could have been offered at retail for $2.44-2.55 dollars per gallon.” There probably are many reasons why average E85 prices were more expensive than E10 and almost one dollar larger than their wholesale price….like someone from outer space tampered with the pumps or consumer demand for E85 overwhelmed supply and the stations responding to market pressures raised the E85 price to mute interest from buyers. Neither, of course, was true!

Oil companies and their retailers appeared to set the price of ethanol to steer E85 and fuel-agnostic buyers to gasoline. They also wanted to keep the loyalty of gasoline buyers. The similarity of prices could have occurred by chance. Sometimes, I wear a blue shirt in the morning and so does my colleague. We never discussed what we would wear. But our color schemes are coordinated. What the study doesn’t answer is why other St. Louis stations, independent from national brands, did not see an opportunity to come in below the prices of majors and sell E85. Personally, I would have liked the analysis better if other cities were included as cases for comparison and if the time period went beyond the summer. But it was an interesting provocative report and you can’t have everything.

Anecdotes and studies based on the relatively recent California methanol fuel experience and Colorado’s effort to build E85 sales seem to support the RFA study. They suggest that the fear of competition from alternative fuels among oil companies and or retailors led to, at best, begrudging support for both methanol and ethanol. They often located pumps (if they agreed to have them at all) in unfavorable positions in their or their franchisee’s retail stations. Marketing strategies were marginal at best, and non-existent at worst. Stories from some astute observers suggest that relatively high methanol and E85 prices were put in place to detour customers to gasoline. Among other factors leading to problems with each state’s initiatives, there was a lack of sustained interest by major oil companies in building and sustaining sales of both alternative fuels with competitive pricing.

Maybe things will change. The present downturn in oil and gasoline prices has led some oil company leaders to think more charitably about alternative fuels —natural gas, ethanol, methanol, biofuels — particularly in light of the development of more flex-fuel cars coming from Detroit, and from consumers who convert their older cars to be flex-fuel vehicles. They have begun to view alternative fuels more favorably as part of their future business and strategic plans. If they go further, they will have to face questions, which include: whether they integrate gasoline and alternative fuels under one organization and canopy or separate both, perhaps, as different brands. Real competition, probably, will require Congress to consider some variations on a theme of open fuels legislation. Success in building competition at the pump would make Adam Smith happy, were he alive, and be good for the environment, the economy and consumers.

Toyota, California go for hydrogen

California, the home of Elon Musk and his Tesla venture, is about to embark on another technological initiative as well — a car driven entirely by hydrogen.

In late February Toyota began producing and selling the Mirai (the name means “future”), a hydrogen-powered vehicle that will be available in Tokyo this year and go on sale in the U.S. in December. Always conscious of its history and ready to make amends, Toyota made the announcement five years to the day after it testified before Congress about a sudden accelerator problem that caused the company a great deal of embarrassment and led to a recall. “Every Feb. 24, we at Toyota take the opportunity to reflect on the recall crisis, doing everything we can to ensure its lessons do not fade from memory,” company CEO Akio Toyoda said. “For us, that date marks a new start.”

To say that Toyota is being cautious in entering the hydrogen car market would be an understatement. The Mirai won’t even be mass-produced but is being hand-crafted by Japanese workers who are turning out three cars per day. The model will sell for $57,000 in Tokyo and is not designed to take off like a rocket. The company only plans to sell 2,000 individual models in Japan this year. “The Mirai program, especially once all the research and development costs are factored in, is clearly unprofitable at this point, and even selling a few thousand units at $57,500 each is not going to turn the tide,” the Motley Fool’s Alexander MacLennan wrote. “But the Mirai is not about short-term profits; it’s about long-term market advantage through brand acceptance and technological development resulting in better vehicles.” Even Japanese Prime Minister Shinzo Abe got into the act, saying we are headed into a “hydrogen era.”

Right now Toyota’s main rival as an alternative to gasoline will be Elon Musk’s all-electric Tesla Model 3. Musk is not taking the challenge lightly. He has called the hydrogen car “an extremely silly idea” and mocked its fuel cells as “fool cells.”

But Musk might have reason to worry. The Mirai will offer drivers a range of 300 miles and take only three minutes to fill its tank. Tesla’s Model 3, due out in 2017, will offer only a 265-mile range and consume 40 minutes to offer an 80 percent recharge of its batteries. (Ideally, EVs should be recharged overnight.) Of course, the big test will be the availability of refueling stations, and here electric vehicles have a big head start. Tesla already has 393 Supercharging stations nationwide and is building them out as fast as possible.

There are only a dozen hydrogen stations now, all of them in California, as a result of Gov. Arnold Schwarzenegger’s “hydrogen highway” initiative of 2004. But California has seized the gauntlet again and is promising to spend another $20 million in building out the Hydrogen Highway with 28 new stations in the next few years. The Mirai will be initially aimed exclusively at California and its requirements for zero-pollution vehicles, then try to expand to the East Coast as well. Hyundai’s hydrogen-powered Tucson is already being sold in California.

Where Toyota and Tesla have found agreement is in opening up their patents to rivals to try to promote the technology. Musk famously made his EV patents available last year, and now Toyota is doing the same with its hydrogen research. The obvious aim is to get other manufacturers involved in order to increase the demand for fuel outlets. “We think this is a different way to look at the market and collaborate and hopefully with this get a lot more people coming into the game,” Nihar Patel, Toyota’s vice president of North American business strategy, told Forbes.

Still, the switch to hydrogen vehicles has some challenges ahead. Musk’s main criticism — echoed by many others — is that hydrogen fuel is too difficult to handle and transport. Hydrogen is, after all, the smallest molecule and leaks through everything. One of its biggest critics is Joseph Romm, who worked in the Clinton administration promoting the technology and finally became so disillusioned that he wrote a book critical of the technology called The Hype About Hydrogen. Romm is now a senior fellow at the left-leaning Center for American Progress and heads the Climate Progress blog. Another problem with hydrogen, of course, is that it is not available as a free resource but must be manufactured from other resources, principally natural gas. This, of course, requires costs and energy.

Still, hydrogen vehicles have the advantage of producing no air pollution (its exhaust is water vapor) and will be able to reduce the release of carbon into the atmosphere, since the CO2 is easily captured in the reforming process. Overall, hydrogen is likely to be a big plus for the environment.

It also offers car buyers what may be the most important factor in reducing our foreign oil dependence — free choice. It hardly matters if electric vehicles prove to be more popular than hydrogen vehicles or vice versa. The important thing is that they will both be available as alternatives to gasoline-powered cars. They could also open up the door to other alternative fuels: compressed natural gas, E85, and the dark horse of them all, methanol manufactured from natural gas. All these alternatives cannot help but make a dent in our current dependence on foreign oil.

Natural gas vehicles take the halfway route

In the early 1990s, California tried to force the introduction of electric cars by requiring that auto companies produce a zero-emissions vehicle in order to remain in the state. The result was Chevrolet’s EV1, which everyone agreed was the best electrical vehicle that could be built at the time. Owners loved them, but somehow the effort didn’t take off.

The infrastructure simply wasn’t in place. The car only had a 70-mile range and drivers spent much of their time worrying about their next charge. Many EV1s ended up on the lots of rental agencies where they attracted little attention. All this, of course, was interpreted by some people as the fault of the oil companies and the auto industry, which didn’t push the case hard enough. The award-winning documentary “Who Killed the Electric Car?” made this argument.

Then three years later, Toyota introduced the Prius, a gas-electric hybrid that gave drivers some breathing room. It was a spectacular success. By not trying to make the technological transition in one giant leap, the Prius introduced drivers to the advantages of electric propulsion without asking them to sacrifice anything in terms of a nerve-wracking search for a refill. In fact, when Toyota brought out the Prius it deliberately left off a home charger so that buyers would not associate it with the failed EV1. Not until several years later did the company release a plug-in hybrid. In both cases, the Prius has been the most successful of all hybrids.

Natural gas vehicles seem determined to avoid the same mistake. This year both Ford and General Motors are releasing commercial NGVs in their light-truck and sedan lines. But they are taking care to make them bi-fuel vehicles that run on both gasoline and natural gas, although they are expensive. (Both companies have been making tri-fuel — gasoline, ethanol and CNG — for many years in Brazil.) 

First out of the box will be the immensely popular Chevrolet Silverado and the GMC Sierra, both full-sized pickups that sold 480,000 and 184,000 last year, respectively, the highest sales mark since 2007. GM is offering bi-fuel versions for every cabin configuration. The 2015 model will offer a 16-gallon gasoline tank and a 17-gallon-equivalent compressed natural gas tank. When both are filled, the truck will have a remarkable range of 650 miles.

Along with that, GM will be releasing a bi-fuel Chevrolet Impala to introduce ordinary drivers to the advantages of natural gas. The Impala will feature an 18.5-gallon gasoline tank and a 7.7-GGE CNG tank. The result will be a 500-mile range.

Not to be outdone, Ford has already introduced a bi-fuel version of the immensely successful F-150 half-ton pickup truck. Released only last November, the company managed to sell 15,000 vehicles across eight models in 2013. That beat 2012 sales by 25 percent. When combined with its conventional gas tank, the CNG boost gives the F-150 an astounding 700-mile range, beating the Silverado by 100 miles. Unfortunately, the price differential for all these NGV models will be about $10,000.

But motorists could see a 2-3-year payback if the price gap between gasoline and its natural gas equivalent holds up. Right now it has settled around $1.50 gap per gallon and has remained there for almost five years. Give motorists the opportunity to save almost half the price on a gallon of gas is bound to make the new bi-fuel models more attractive.

Other developments are also moving in the direction of a transition to natural gas for high mileage vehicles. In 2012, ARPA-E, the federal government’s program for advanced energy research, awarded $2.3 million to GE Global Research, Chart Industries and the University of Missouri to design a gas refueling station for homeowners. GE already makes a $5,000 medium-sized refueling kit for commercial businesses called “CNG in a Box” that takes gas out of the utility pipes and compresses it for fleet vehicles. The target price for the scaled-down homeowner version is $500. The consortium has set a release date for later this year, at which point we’ll find out if they’ve been successful. The launching of such a cheap conversion system that would allow homeowners to tap the natural gas pipes in their house to refuel their cars would revolutionize the whole NGV effort.

Of course there’s always another possibility — converting our abundant natural gas supplies to ethanol or methanol that would fit right into our current gasoline delivery system. Switching to liquids would not require a new on-board gas tank but would simply involve adjusting existing engines so they could run on a variety of liquids — the “flex-fuel” system. Giving motorists the widest variety of choices would let them experiment with different strategies without having to make a giant leap over some technological chasm. That’s what California learned twenty years ago when it tried to rush the introduction of the electric car and the lesson still holds good today.

Madera Pacific Ethanol plant lands sweet neighbor

It’s better times for California’s ethanol producers, with investment dollars flowing into technology to make production plants more efficient and diverse in the feedstocks they accept.

“We are just about there,” said Paul Koehler, spokesman for Sacramento-based Pacific Ethanol, referring to the long-time effort to begin making ethanol from farm waste and nonfood feedstock instead of corn

Grants help develop sorghum feedstock program in California

Ethanol producers in California would benefit if local farmers would grow sorghum as an ethanol feedstock, said Lyle Schlyer, president of Calgren Renewable Fuels LLC. “So much of the feedstock that we consume comes from the Midwest and, love those guys, but it does seem like carting material halfway across the country may not be the most efficient thing,” he said.