A Gusher of Price Hikes

Gas Prices Rise 10X Faster Than Inflation Increases Are Worst in Midwest Some Blame EPA Rules, Summer Driving

CHICAGO (CBS) The government is about to begin a major investigation of what's driving prices up and who's pocketing the profit.

This time last year, the nationwide average price was just $1.11 a gallon. Now, it's $1.56, a 44 percent increasemore than ten times the overall inflation rate. And an oil industry report released Friday says not to expect a turnaround anytime soon, reports CBS News Correspondent Cynthia Bowers.

In the Midwest, people are paying some of the highest gasoline prices in the country.

After gas prices jumped by 20 cents a gallon almost overnight in Columbus, Ohio, even some ministers sought divine intervention. For three straight weeks now, prices in the Midwest have gone up and upup more than 40 cents in Detroit since last month.

Tempers are flaring and fingers are pointing: What is going on with gasoline prices?

"There are about 7 or 8 factors, all of which are converging at one time," says Red Cavaney of the American Petroleum Institute.

Cavaney, CBS News Correspondent Jim Axelrod reports, blames the EPA and its new requirements for cleaner gasoline. In the Midwest, that means blending with corn-based ethanol, which is more expensive. And that's just for starters. There's supply problems, refinery problems and OPEC doubled the price of crude, all in less than a year.

But Tim Hamilton, who represents service station owners in Washington state, doesn't buy it. Big oil knew the EPA changes were coming for years, he argues, and they shouldn't act surprised now. "No one can seem to explain, after a hundred years, how they price gasoline. And I believe if they ever do explain, there'll be people going to jail."

The federal government has summoned nine oil companies to an unprecedented meeting Monday to explain why gas prices are so much higher in the Midwest and to determine if any price-gouging is going on.

"Prices shouldn't be this high; we want to know why," says Robert Perciasepe of the EPA. Ironically, it is the EPA rather than the oil companies that is feeling the heat.

That's because of new guidelines that require metropolitan areas from coast to coast to burn a cleaner fuel, called reformulated gas, or RFG. The EPA argues that a gas that costs only pennies more to make shouldn't cause prices to spike in only one part of the country. "We don't see these kind of price increases in other places where RFG is in use," says Perciasepe.

Amid the finger pointing, there might be a ray of hope: Some analysts say gas prices are now peaking in the Midwest.

"You could see gas come down to more like the nation's average, which is around $1.60," says Gary Ross of PIRA Energy Group, "not the kind of ridiculously high prices of $2.20 that you are seeing in the Chicago market.

OPEC ministers next meet on June 21st; they could boost supplies then. Or the EPA could ease up on new refining requirements and, say the oil companies, make it easier and cheaper to get gas to the Midwest.

"I don't care whose fault it is, it means nothing to me," says Steve Rabin.

For 27 years, Steve Rabin's medicars have been a lifesaver to Chicago's sick and elderly. Now he's laying off people and cutting back deliveries and wonders how much longer he can survive spiraling costs.

"I just wonder which price is going to be the last one to say, you know what, it's just not worth keeping the doors open any more," he wonders.

With so much at stake, the price of gas is likely to be a volatile issue at the polls as well as the pumps, which is why there is so much pressure for the federal government to find an explanationsoon.

http://cbsnews.cbs.com/now/story/0,1597,204498-412,00.shtml

-- Martin Thompson (mthom1927@aol.com), June 10, 2000