Now we have legislation wherein the gov't will "encourage" the building of refineries.  Doesn't that mean we are helping to pay for those refineries?  

In an oligopoly such as the petroleum refining industry, it is quite simple for signaling to occur since market participants can make some of their strategic moves transparently.  An obvious strategic response to overcapacity and low margins in the industry has been to reduce capacity. This approach has been facilitated by regulations which can serve as barriers to entry by non-incumbents.

Of course, the industry runs the risk that such common strategies could be misinterpreted as a conspiracy or an exercise of market power.  If prices spike, a regulatory or legislative response is likely as we are now seeing.  The energy crisis in California is another good case study of this industry/government dynamic.  In fact one could argue that the failure to account for this regulatory/legislative reponse is some evidence of the absence of a conspiracy; otherwise the conspiracy could coordinate their actions to avoid such additional regulation.