Dicker: How to Fix High Gas Prices
Drivers in the U.S. are subject to the global price of crude to determine what they pay at the pump, but why should this be?
After all, we are producing more crude oil domestically than we ever have before and we've become exporters of finished gasoline for the first time in our history. We're actually making more gasoline now than we use, and our cars are more fuel-efficient, too.
So with supply up and demand down, at least here in the United States, why should American drivers and the U.S. economy be derailed by yearly spikes in gasoline prices?
There is a solution: The U.S. gasoline market and American refineries could be restructured to operate like utilities.
Utilities are only localized deliverers of electricity. The prices they charge are not dependent upon global prices for power; each area is considered individually according to localized demand. Utilities also cannot charge whatever they like; they must get approval for their rates from the Federal Energy Regulatory Commission and local utility rate commissions.
What this does is provide consumers with steady prices for power that they can rely upon, despite the massive volatility of market-based power prices. But that market variation on short-term power prices is tempered before it can reach the consumer.
It also helps utilities, allowing them to earn a reasonable return on their production and delivering their shareholders a steady, bond-like dividend.
Refiners are at the mercy of globalized commodity markets and sometimes can earn fantastic margins and rake in money from gas and distillate refining --- but other times actually lose money with every gallon of gas they make, as happened in 2008 through 2010, and is threatening to happen yet again today.
I talk more about gas prices with Jim in the video above.
At the time of publication the author had no position in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.