Sacramento, CA –  In comments filed with the California Energy Commission (CEC) Friday, Consumer Watchdog made the case for a maximum gross refining margin that penalizes refiners for profits of over 70 cents per gallon.   

The nonprofit group pointed to state data showing 2022 and 2023 as unprecedented years for refining margins and that refining margins for the rest of the last decade averaged 64 cents per gallon. By contrast, refiners reported an average annual margin of $1.01 in 2023. 

Consumer Watchdog called out California’s big five oil refiners, which make 98% of California’s gasoline, for creating artificial supply shortages that allowed them to make excessive profits.

“Research verified by the California Energy Commission (CEC) and Division of Market Oversight (DMO) shows that with every price spike during the last decade there has been a corresponding margin/profit spike,” Consumer Watchdog President Jamie Court said. “The price spikes and corresponding profit spikes were typically precipitated by or coincided with a perceived shortage in supply due to a refinery shutdown/slowdown, limited inventory, and/or increased exports, or a spot market trade indicating a coming shortage. The only way to discourage higher prices and the corresponding higher margins is with the deterrent of a maximum gross refining margin set high enough for a reasonable profit and low enough to discourage the price gouging Californians have been experiencing.”    

Read the comments.   

“If refiners cannot make unlimited amounts off short supply, they will have an incentive to have ample supply and make more money by making more gasoline,” Court wrote.  “This statement is validated by the economic research of the Division of Market Oversight chief economist Gigi Moreno and Matthew Zaragosa-Watkins of Vanderbilt University and UC Davis, as presented to this Commission. Refining capacity does exist to meet demand in California despite the protestations of the industry, both at existing refineries and to supplement supply in the form of imports of finished product and blend stocks. According to McCullough Research, the Pacific Rim has about 54,785,000 barrels/day of gasoline capacity, which dwarfs the approximately 4.6% of that capacity that is in Alaska, Washington, and California. Traditionally, when supplies are low, California has imported gasoline for California markets and continues to have the ability to import from other Pacific Rim countries. Ocean shipping from Singapore, for example, is three weeks away. As rational actors, refiners will make use of their ability to import if necessary.”

Consumer Watchdog’s Court cautioned the Commission about giving into refiners’ threats that they will keep prices higher throughout the rest of the year to make up for periods of lost profit taking if a maximum margin is implemented. He pointed to anti-trust law as a bar on such conduct. 

“Companies often defend against accusations of illegal parallel actions by demonstrating legitimate business reasons for their behavior,” Court wrote.  “Sustaining higher prices and profits all year long in the absence of such legitimate reasons – supply disruptions – would create great legal peril for the companies who maintain the higher prices/margins without such reasons. The market is so consolidated and there are so many feasible mechanisms for collusion due to the widespread information sharing in the industry anti-trust regulators would have a basis to act.

“It would be disingenuous policymaking to fail to implement a maximum price gouging penalty because the Commission fears refiners will collude to keep prices higher than warranted. It’s the equivalent of giving into terrorists when we have laws that penalize terrorism.”

Court reminded the Commission about the impetus behind the law establishing the new rules.

“The biggest impact of the max margin will be on low-income individuals who cannot afford an extra $20 per fill up. 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. Low income individuals and families are the principled beneficiaries of a maximum margin because of its potential to reduce price spikes that are a huge shock to their fragile budgets and to stabilize prices.”