Newsom Wants Inquiry Into Gas Prices

Published on


October 22, 2019

Gov. Gavin Newsom on Monday asked the state attorney general to investigate whether California’s leading oil and gas suppliers are involved in price-fixing or other unfair practices related to high pump prices.

The request, which Attorney General Xavier Becerra‘s office said it would accept, comes amid growing frustration with high prices charged in communities across the state. The investigation has the potential to trigger the most consequential review of California’s gas prices in years.

“Simply stated, name-brand gas retail outlets in California are charging more for a gallon of gas compared to their unbranded, hypermart competitors,” Newsom wrote in the letter. “There is no identifiable evidence to justify these premium prices.”

Newsom’s request came on the heels of a report released by the California Energy Commission on the cost of retail gasoline in California. The document, prepared after the governor asked the agency in April to examine the issue, concluded that the state’s drivers spent $1.5 billion more than those in other states for gasoline in 2018 – even though there was no determinable difference in the gasoline being sold by different retailers.

“The name-brand stations, therefore, are charging higher prices for what appears to be the same product,” wrote commission officials. “The CEC received no response from the name-brand retailers in response to a request for information to support their product claims.”

In May, state officials concluded that “market manipulation” may explain the mystery surcharge imposed on California drivers. They promised additional details this month, though Monday’s report leaves a number of questions unanswered. Those unknowns included why so many residents choose higher-priced fuel instead of cheaper alternatives available in some locations.

“Consumers may be purchasing higher-priced gasoline brands for convenience, credit card acceptance or other reasons,” researchers wrote. “However, if competitors decide collectively to fix prices, this may be unlawful.”

Severin Borenstein, a professor at UC Berkeley’s Haas School of Business who has been studying what he calls the “mystery surcharge” on gas sold in California, applauded Newsom’s decision. “It’s really time to find out the reason,” he said Monday. “Consumers have spent many billions of dollars over the years.”

Borenstein’s research found that even after accounting for the state’s high gasoline taxes and unique environmental rules that impose stricter refining standards, Californians still paid roughly 40 cents per gallon more by the end of 2018 than did drivers in other states – double what it had been in most years since 2015.

The state’s average price for a gallon of regular gasoline on Monday was $4.14 and San Diego County’s average price was $4.12, according to AAA. The national average was $2.65 per gallon.

State energy commission officials said in their report that refinery challenges, refining standardsand occasional shutdowns or incidents at individual locations do not explain the cost differential. And the report concluded the most noticeable uptick had been in prices paid at retail gas stations since 2012 operated by companies that include Chevron and Shell.

“These price increases occurred without significant changes in the overall market share of these brands at the retail level,” the report said.

Researchers found Chevron’s retail gasoline sales in California resulted in almost $1.6 billion in revenue in 2018, more than double what those sales generated earned in 2010. Shell’s total retail sales hit $818 million in 2018, up from $421 million in 2010.

A Chevron spokesman referred questions to an oil industry group. A request for comment from Shell wasn’t immediately returned.

While energy commission officials wrote they “found no evidence of unlawful activities” by major oil companies, they also acknowledged they lacked the expertise to conduct a more thorough investigation – a shortcoming apparently resolved by Newsom’s request for Becerra to get involved.

“The mystery surcharge adds up, especially for cost-conscious, working families,” the governor wrote in his letter to Becerra. “If oil companies are engaging in false advertising or price fixing, then legal action should be taken to protect the public.”

Catherine Reheis-Boyd, president of the Western States Petroleum Association, said the industry trade group is reviewing the CEC report. But she said it was important to note California’s fuel taxes and standards, which are more strict than other states, account for the first $1.07 per gallon at the pump.

“Everyone has to have a seat at the table to ensure policies provide adequate, affordable, reliable energy to the communities we serve,” she said.

While California is known for its environmentally conscious fuel standards, the state was the seventh-largest producer of crude oil in the country in March. The oil industry is a powerful force in California politics, working to halt legislation in the Assembly earlier this year that would have limited new oil and gas production around homes and schools.

But Newsom has expressed a desire to take on the oil industry during his first year in office. In July, he fired the state’s top oil and gas regulator for doubling the state’s fracking permits this year.

“This is the first time a governor has requested an investigation and prosecution by the attorney general in modern history into the oil industry,” said Jamie Court, president of Consumer Watchdog, which has criticized the oil industry. “I think it’s a pretty big step.”

Myers writes for the Los Angeles Times. The Associated Press contributed to this report.

Consumer Watchdog
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