A Ripoff By Refiners Or Something More Complicated? California’s Energy Commission Looks At High Gas Prices



Are oil companies cheating California drivers at the gas pump or have this year’s repeated price spikes been the result of a combination of market forces, tight refinery capacity, state policies and other factors?

The California Energy Commission hosted an all-day session in Sacramento on Tuesday that featured presentations from a range of petroleum, environmental, government officials and consumer advocates who debated the reasons behind record-high prices in the Golden State.

The hearing came a little more than seven weeks after Gov. Gavin Newsom accused oil companies of gouging motorists and announced he will convene a special session of the Legislature starting Monday to discuss instituting a tax on excess profits posted by oil companies.

“Gas prices are too high,” Newsom said Oct. 7 on Twitter. “Time to enact a windfall profits tax directly on oil companies that are ripping you off at the pump.”

Refineries across California process more than 1.6 million barrels of crude oil per day, a presentation from the energy commission staff said, but the market is geographically isolated from the rest of the U.S.

Pipelines connect California refining centers to distribution terminals in Nevada and Arizona, but these pipelines only operate in one direction, sending gasoline and other transportation fuels to these neighboring states, thus making the state a “fuel island” that is vulnerable to price spikes.

The California market usually has the highest retail gasoline price in the country, owing in large part to a greater tax burden via state excise and sales taxes at the pump, higher costs to produce the state’s unique blend of less polluting gasoline and environmental programs the state has adopted over the years.

The difference between what California motorists on average pay for a gallon of gas and what drivers in other states pay has widened.

An energy commission PowerPoint showed that in 2014, the difference came to 40.8 cents per gallon. It grew to $1.10 in 2019 and so far this year, the difference is $1.54. On Oct. 4, a single-day record was hit when the differential zoomed to $2.60 per gallon.

“We have never in history seen a gap this big between state and national gas prices,” energy commission chair David Hochschild said.

The most recent run-up in prices came after five West Coast refineries – four in California and one outside the Seattle area – shut down for planned and unplanned maintenance in September and October. Maintenance typically takes five to seven weeks to complete and the shutdown reduced already low gasoline inventories.

“This is the problem, in my view – five oil refiners make 97 percent of our gasoline and when they want to squeeze us, they can,” said Jamie Court, president of Los Angeles-based Consumer Watchdog, citing a quadrupling of California refiner profits this year.

“If we don’t create a windfall profits cap or a price-gouging rebate, we’re going to be an ATM for these oil refiners in perpetuity,” Court said.

The major oil refiners were invited to speak at Tuesday’s meeting but they didn’t show up to the hearing, which irritated CEC commissioners.

“Absence is not a good strategy for the industry, just in terms of their own self-interest,” commissioner Andrew McAllister said. “Lack of participation is not going to allow them to put their views and opinions on the table.”

Instead, the refiners deferred to the Western States Petroleum Association trade group to speak on their behalf.

“You cannot tax your way out of this problem,” said the group’s CEO, Catherine Reheis-Boyd. “The only result of a windfall profits tax will make the problem worse. You are sending the absolute opposite investment indication to anyone who wants to continue business here.”

David Hackett, chairman of Stillwater Associates, a transportation energy consulting company in Irvine, said already tight supplies have been worsened by two California refineries converting their operations from making gasoline to producing renewable fuels. Combined, the conversions account for 15 percent of in-state capacity, and refineries produced about 88,000 fewer barrels of gasoline per day this summer than in the summer of 2021

“The energy commission needs to take a serious look at the impacts of local and state regulations on the viability of the oil industry,” Hackett said, as well as understanding how oil is priced along the supply chain.

Tuesday’s hearing also looked at what UC Berkeley professor Severin Borenstein has called a “mystery surcharge that California motorists have been paying for the past seven years.”

In February 2015, an explosion at an Exxon Mobil refinery in Torrance knocked out about 10 percent of the state’s gasoline supply, driving up prices. After normal operations resumed, prices went down modestly but Borenstein’s research says prices have never returned to their pre-explosion levels.

That mystery surcharge currently hovers at about 80 cents per gallon and Borenstein said most of it is not due to refinery issues or spot prices but through downstream issues dealing with marketing, distribution and retailing sectors that are harder to figure out.

“I think the real answer is to (establish) a serious commission that has the resources and authority to dig into what are going to be some complex and subtle business competition issues,” Borenstein said.

The commission also looked at getting some clarity on refinery issues.

Refiners in the state do not coordinate the timing of their maintenance work because of antitrust concerns and don’t release their schedules to the CEC ahead of time, which limits the commission’s ability to foresee the impact shutdowns have on gasoline output.

“We learn about (maintenance) through the trade press and that sort of thing, but getting that information early would really help,” CEC executive director Drew Bohan said.

In the San Diego area, the average price for a gallon of regular hit an all-time high of $6.435 on Oct. 5, according to AAA of Southern California.

But since then, prices have come back down, dropping another 4.8 cents Tuesday to settle at $5.038 a gallon. The last time the average price in San Diego was below $5 was March 3.

[email protected](619) 293-1251Twitter: @robnikolewski

Latest Energy Videos

Latest Energy Releases

Energy In The News

Latest Energy Report

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More Energy articles