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

By Rob Nikolewski, THE SAN DIEGO UNION TRIBUNE

https://www.sandiegouniontribune.com/business/energy-green/story/2022-11-29/a-ripoff-by-refiners-or-something-more-complicated-californias-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
Video thumbnail
Who is Behind SB 540?
02:29
Video thumbnail
ABC 7: Controversial CA Energy Bill Moves Forward
08:15
Video thumbnail
KCBS-LA (CBS) - Los Angeles, CA: Late-Night Vote Can Spike Gas Prices
02:26
Video thumbnail
KCAL-LA - Los Angeles, CA: How Will Phillips 66 Closing The Refinery Impact Consumers At The Pump?
03:04
Video thumbnail
KCBS-LA (CBS) - Los Angeles, CA: Phillips 66 To Close Refinery
03:01
Video thumbnail
KGO-SF (ABC) - San Francisco, CA: Controversy Over SF's Bottle Bank Pilot
04:40
Video thumbnail
KTLA-LA (CW) - Los Angeles, CA: Newsom Signs Gas Law Aimed At Preventing Spike In Gas Prices
03:14
Video thumbnail
KNBC-LA (NBC) - Los Angeles, CA: New CA Law Aims To Protect Gas Price Spikes
02:14
Video thumbnail
KTTV-LA (FOX) - Los Angeles, CA: New Laws On Oil And Gas In California
03:04
Video thumbnail
Consumer Alert: Newsom Takes on Gasoline Price Spikes
00:31
Video thumbnail
KCBS-LA (CBS) - Los Angeles, CA: Chevron Moving Headquarters to TX
03:03
Video thumbnail
KGTV-SD (ABC) - San Diego, CA: Californians Overcharged For Gas in 2015
01:55
Video thumbnail
KTXL-SAC (FOX) - Sacramento, CA: Oil Windfall Profits Law Under Microscope
06:06
Video thumbnail
KGTV-SD (ABC) - San Diego, CA: Watchdog Blames Oil Industry For High Prices
02:26
Video thumbnail
KGTV-SD (ABC) - San Diego, CA: Who's To Blame For Recent Spikes In Gas Prices?
02:16
Video thumbnail
Support Oil Driller Accountability, AB 3155
00:54
Video thumbnail
Consumer Alert: The Buck Stops This Summer
01:29
Video thumbnail
New Consumer Alert Exposes Deceptive Oil Industry Attack On Governor Newsom
01:39
Video thumbnail
KOVR-SAC (CBS) - Sacramento, CA: Signs Fueling Debate Over Gas Tax
02:24
Video thumbnail
Consumer Alert: More Deceptive Big Oil Ads Targeting California
01:31
Video thumbnail
KGO-SF (ABC) - San Francisco, CA: CRV Fee on Alcohol Starts On January 1st
02:31
Video thumbnail
Consumer Alert: Deceptive Oil Ads
01:38
Video thumbnail
Consumer Alert: Big Oil’s BS Mailer
01:52
Video thumbnail
KABC-LA, CA: Lawmakers Should Prevent Refineries from Selling Expensive Summer Blend of Gas Overseas
02:58
Video thumbnail
KPIX-SF (CBS) - San Francisco, CA: California Gas Prices Are Soaring Again
00:32
Video thumbnail
KCAL-LA - Los Angeles, CA: Gas Prices Skyrocketing
02:52
Video thumbnail
KTLA-LA (CW) - Los Angeles, CA: So Cal Gas Prices Nearing $6 a Gallon
03:20
Video thumbnail
Spectrum News 1 (San Fernando Valley) - Los Angeles, CA: Controversy Over Gas Storage Facility
03:50
Video thumbnail
KFMB-SD (CBS) - San Diego, CA: Gas Tax Increase Takes Effect July 1st
03:23
Video thumbnail
CBS 8 - Los Angeles, CA: What You Need to Know About Gas Prices
02:02
Video thumbnail
KGO-SF (ABC) - San Francisco, CA: BottleBank Update, Is It Really Effective?
02:39
Video thumbnail
Senator Portantino, Shame on You
01:18
Video thumbnail
Senator Portantino: Protect Our Communities From Oil Drillers
00:51
Video thumbnail
KERO-BFL (ABC) - Bakersfield, CA; Oil Drilling Near Homes Can Cause Health and Safety Concerns
03:06
Video thumbnail
KNBC - LA, CA; Consumer Watchdog's Liza Tucker On New Concerns With Santa Susana Field Lab Clean Up
04:09
Video thumbnail
(ABC) - LA, CA; SoCal Edison's New Income Based Proposed Charges Might Not Be As Stable As They Seem
02:40
Video thumbnail
(CBS)-Fresno, CA; Victory For Californians As Bill Passes That Will Regulate Profits Of Oil Refiners
02:17
Video thumbnail
CNBC - Jamie Court Speaks About The Bill That Would Penalize Oil Refineries For Price Gouging
06:39
Video thumbnail
KXTV(ABC) - Sacramento, CA; Governor Newsom Announced A New Deal With Lawmakers To Take On Big Oil
02:56
Video thumbnail
KNBC-LA (NBC) - Los Angeles, CA; Holding Utility Companies Accountable For Power Outages
02:01
Video thumbnail
Consumer Watchdog at CA Senate Energy Cmte 2 22 23
50:54
Video thumbnail
KFMB CW - San Diego, CA; Oil Companies Need to be Held Accountable for High Gas Prices
02:42
Video thumbnail
KTTV (FOX) - Los Angeles, CA; Recap Of Jamie Court's Testimony At The Senate Hearing For Gas Prices
05:07
Video thumbnail
KGTV(ABC) - SD, CA; Jamie Court Will Testify at the Price Gouging Hearing for Rising Gas Prices
01:17
Video thumbnail
KTTV-LA (FOX) - Los Angeles, CA; SoCal Gas Bill Sticker Shock
04:24
Video thumbnail
Spectrum News 1 - Los Angeles, CA; Who Is SoCal Gas Buying Their Gas From?
09:18
Video thumbnail
Why SoCal Gas is at Fault For Doubling Your Natural Gas Bill
01:43
Video thumbnail
KNBC - Los Angeles, CA; Spike In Natural Gas Prices
02:32
Video thumbnail
KCBS - Los Angeles, CA; New Year, New Pain At The Pump
03:02
Latest Energy Report

Subscribe to our newsletter

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