Sacramento, CA – SBx1 2, the newly amended proposal for a price gouging penalty and oil refiner transparency, passed its first test in the California Senate Utilities, Energy and Communications Committee by a vote of 12 to 2 today.
“Senate Democrats have rightly answered Governor Newsom’s call to give the state the power to levy a penalty on price gouging and bring California’s gasoline prices back in line with the rest of the nation’s,” said Jamie Court, president of Consumer Watchdog. “The Democrats understand the oil refiners will only get in line when they face sticks, not just carrots, and SBx1 2 puts a big stick in the hands of regulators. The bill also allows for market surveillance through new transparency measures and a bureau dedicated to watchdogging against market manipulation. This is a smart proposal that answers a decade old problem we call The Golden State Gouge.”
Court also presented testimony today to the Assembly Utilities and Energy Committee at an informational hearing on the proposal.
His slide presentation documents the gouging of Californians in 2022 by looking at the data reported by refiners to their investors and makes the case for the price gouging penalty and the greater transparency measures embodied in SBx1 2.
“Californians paid unprecedented prices and California oil refiners made unprecedented profits in 2022,” said Jamie Court, president of Consumer Watchdog. “Only a price gouging penalty and a strong watchdog will deter this profiteering and greed.”
Court noted that top executives and insiders at California’s big five oil refiners cashed out $590 million in stock in 2022, according to a review of filings with Securities Exchange Commission by Consumer Watchdog.
“California’s skyrocketing pump prices put more than a half billion dollars into the pockets of five dozen executives and directors and one major insider in 2022,” he said. “If there’s a greater case for a price gouging penalty to deter this greed, I don’t know it.”
California gas prices were as much as $2.60 greater than US gas prices — despite taxes and environmental rules adding only about 69 cents per gallon. The added costs from taxes and environmental regulation: state taxes = 25 cents (average state tax is 29 cents/ CA taxes are 54 cents); low carbon fuel standard = 16 cents; cap and trade = 26 cents; underground storage = 2 cents.
When gas prices spike, low income workers feel it the most – At $4 per gallon, 9% of an annual minimum wage salary is spent on gas. At $5 per gallon, 11% of an annual minimum wage salary is spent on gas. At $6 per gallon, 13% of an annual minimum wage salary is spent on gas.
California’s Big 5 oil refiners posted profits of $67.6 billion in the first nine months of 2022 — nearly quadruple the $17.6 billion posted for the same period in 2021.
Oil Refiners made 30% more profit from West Coast/California than any other region in the country or world.
Of the $590 million refiner stock cash out in 2022, $231 million went to 29 executives and directors who took home more than $1 million each. At Chevron alone, executives and directors cashed out $150 million worth of stock in 2022.
Data reported by refiners to their investors shows California oil refiners more than doubled their California profit margins in 2022. The average profit margin 2001 – 2021: 32 cents per gallon. The 2022 profit margin: 66 cents per gallon
If a windfall profits cap had been in place at 50 cents per gallon in 2022, California’s five oil refiners would have had to pay a penalty of $3.1 Billion back to the public. (Penalties: Chevron $1.4 billion, Marathon $764 million, PBF $555 million, Phillips $246.7 million, Valero $212 million) During the last twenty years, refiners have only crossed the 50 cent per gallon profit line three times (Chevron each time), until 2022 when they all exceeded it.
The price gouging penalty has already had an impact. After Governor Newsom announced a special session on price gouging, Valero and PBF’s refining margins nose-dived, returning to historical norms in CA. Chevron, Marathon and Phillips moderated their profit taking.
Insurance reform Prop 103, enacted in 1988, offers an important precedent for a windfall profits cap by imposing a reasonable rate of return standard on the property casualty insurance industry. Insurers threated to leave the state after passage, but instead California now has the second most competitive auto insurance market in the nation. Cost of liability insurance decreased by 5.7% in California while increasing by 58.5% nationwide, according to the Consumer Federation of America.