By Dan Bacher, DAILY KOS
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, according to a news release from Consumer Watchdog.
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 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.”
Chevron and Western States Petroleum Association top 2023 California lobbying with $18.1 million
Why has Big Oil been able to get away with what it does in California for decades? It’s because of the inordinate influence of Big Oil on California politicians and regulators.
Big Oil spent more money on lobbying in California in 2023 than any other year on record besides 2017. Big Oil spent $25,445,606 on lobbying in California in 2023 and $25,445,606 in 2017, according to the research team at Sunstone Strategies in their “Crude Truth” newsletter.
The group analyzed the California lobbying filings of every registered oil company in California, in putting 2023 trends into the context of industry lobbying for the past 20 years dating back to 2004. While in an earlier report on oil spending I used the raw data on fossil fuel spending from the filings on the California Secretary of State’s website, the newsletter used a slightly different methodology.
“Topping the lobbying spending charts in 2023 was Chevron, the second biggest oil producer in the state and the leading crude oil refiner. Trailing at number two: its trade association, the Western States Petroleum Association (WSPA),” wrote Sunstone Strategies.
“The two combined spent $18.1 million in 2023 — more than 71% of the industry’s total $25.4 in expenditures for 2023. Aera Energy, California’s top oil producer and a former joint venture of Exxon Mobil and Shell, placed in a distant third for 2023 lobbying spending,” they said.
However, in the fourth quarter, “WSPA and Chevron exchanged the number one and number two spots as the top lobbying spenders. Their expenditures totaled $2.8 million, accounting for over 60% of Big Oil’s quarterly spending total. Trailing in third was ExxonMobil, spending over $243,000 in lobbying for the quarter.”
The report also revealed that the state’s five major refiners, including Valero, PBF Energy, Marathon Petroleum, and Phillips 66, spent over $2.5 million on 2023 lobbying and influence activities.
Since 2009 I have documented how WSPA and the oil companies wield their power in 8 major ways: through (1) lobbying; (2) campaign spending; (3) serving on and putting shills on regulatory panels; (4) creating Astroturf groups; (5) working in collaboration with media; (6) sponsoring awards ceremonies and dinners, including those for legislators and journalists; (7) contributing to non profit organizations; and (8) creating alliances with labor unions, mainly construction trades.
