Grandstanding over gas prices

Assembly Speaker Fabian Núñez and Attorney General Bill Lockyer have proposed legislation that would allow the state to impose temporary price caps on gasoline if costs at the pump rise more than 10 percent during not-yet-

defined periods of “abnormal market

disruption.”

As critics quickly pointed out, this is both bad law and bad

economics.

Núñez told the press his AB 457 would protect California from Enron-style artificial manipulation of prices. This sounds good during a year when the state’s average gasoline prices leaped from $2.21 in January to $3.27 last week.

But as the director of the University of California Energy Institute, Severin Borenstein, warned last week, price limits could do more harm than good, creating shortages and long lines at gas stations. In free markets, customers cut back on purchasing high-priced goods while producers try to sell more, which eventually results in prices coming down because of lower demand and a glut of unsold supply.

Interfering with this cause-and-effect process is risky. It stands to reason that if an oil company with limited refinery capacity could legally charge more for gas in Nevada and Arizona than in California, as much gas as could possibly be sold elsewhere would be shipped away from California.

The end result would likely be not enough gas available here, frightening motorists into lining up to refill their half-empty tanks before the gas stations run out.

A close look at AB 457 reveals that it wouldn’t accomplish very much, even if it somehow got passed by both legislative houses and was not vetoed by Gov. Schwarzenegger. The bill would expand on existing law barring retailers from raising prices on essential goods more than 10 percent for 30 days after an official state emergency is declared.

AB 457 would freeze prices for oil refiners and wholesalers as well as at gas stations for 60 days, with another 60-day extension possible. But companies would be allowed to hike prices if they proved they were simply passing along higher costs.

The biggest change in AB 457 would be that it would allow these price caps to be imposed during periods of abnormal market disruption as well as under states of emergency. The problem is that defining an abnormal market disruption is still very much a work in progress and would be difficult to do in a way that stood up to the court challenges that are sure to come.

While it may make for juicy election-season headlines, AB 457 should be allowed to fade away into bad-legislation purgatory. It is time to stop cynically pushing the buttons on Californians who are legitimately angry over record-breaking gasoline prices.

General OpinionOpinion

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