By Rob Nikolewski, SAN DIEGO UNION-TRIBUNE
May 4, 2020
California motorists have long paid more at the gas pump than just about any other place in the country. On Monday, the state’s attorney general filed a lawsuit accusing two international oil companies of price gouging and hinted more litigation will be coming.
“Ultimately, we hope (to) win this case in court to prove that you cannot game the system against California consumers and hope to get away with it,” Attorney General Xavier Becerra said in a conference call.
In a 27-page complaint filed in superior court in San Francisco, attorneys with the California Department of Justice claim that Dutch energy giant Vitol, along with Korea-based SK Energy Americas and its trading arm, “participated in a scheme to drive up and manipulate the spot market price for gasoline so that they could realize windfall profits” in 2015 and 2016.
Vitol has an office in Houston, as does SK.
By the close of business Monday, neither company had responded to emails from the Union-Tribune requesting responses to the lawsuit.
After an explosion at the ExxonMobil Torrance refinery knocked out about 10 percent of the state’s gasoline supply in February 2015, the suit said the two companies bought up contracts for millions of gallons of gasoline and blending components earmarked for delivery to California.
According to the complaint, the lead traders for Vitol and SK, who were friends and former colleagues, allegedly reached agreements with each other and third parties “to share the profits and hide the nature of the scheme” to drive up the benchmark price of regular and premium grades of gas by working together through prearranged trades to avoid competition.
“By doing this, the companies were able to sell their own gasoline product at higher prices and, of course, that ended up inflating the cost of gasoline for consumers at the pump,” Becerra said.
The suit offered no precise dollar figure regarding how much more motorists may have paid, but Becerra told reporters more than 15 billion gallons of gasoline was sold in California in 2015 and if the supposed scheme resulted in a one-cent increase in the price at the pump, “that would mean there was a $150 million violation of the law.”
Kathleen Foote, senior assistant attorney general who heads the antitrust section of the California attorney general’s office, said the alleged manipulation by Vitol and SK came to end at in late 2016 but added the lawsuit will act as a starting point to look into claims that prices have been artificially inflated at gas stations across the state.
“We don’t think this is the end of our inquiry by a long shot,” Foote said. “But this is a specific enough (case) that it required action as soon as we felt that we had it, which we do now.”
The filing comes after years of speculation surrounding what UC Berkeley professor Severin Borenstein has called a “mystery gasoline surcharge.”
Following the Torrance explosion, gasoline prices surged, as one might expect, due to a fuel shortage in the state. When normal operations resumed, the price went down but Borenstein’s research indicated the price never settled back to its previous level.
Even after taking out the state’s high gasoline taxes and fees, a residual, seemingly inexplicable, amount in the price per gallon persisted and has not gone away in the years since.
The overhang, or mystery surcharge, has ranged from 20 cents to 40 cents a gallon — sometimes even higher.
“I’m hoping the investigation is continuing because the mystery gasoline surcharges is continuing,” said Borenstein, who has estimated the higher, unexplained price, has added up to $27 billion since 2015. “There is something else going on beyond this that’s holding our prices up so high … We need to keep digging on this.”
That said, Borenstein added he’s not sure if anything illegal is going on.
“It’s quite possible that there are some sort of regulatory barriers or other sorts of frictions or shortages in port space or pipeline capacity or all sorts of things that can drive prices up without anybody doing anything to manipulate them,” Borenstein said.
The California Energy Commission last fall looked at the gasoline issue and concluded that in 2018, California motorists paid an average of 30 cents more per gallon at higher-priced retail outlets such as Chevron, Shell and 76 than the average American paid in other states.
The commission’s report went on to say that although the retailers said they sell higher-quality gas than lower-priced outlets, “there is no apparent difference” in the quality of gasoline “given the high standards” of gasoline sold at California stations.
“The name-brand stations, therefore, are charging higher prices for what appears to be the same product,” the commission’s analysis said.
The report prompted Gov. Gavin Newsom to send Becerra a letter, urging an investigation into the mystery surcharge and “the possibility of price fixing or other anti-competitive practices” by oil companies and retailers.
Los Angeles-based Consumer Watchdog has called for action from the attorney general’s office since the summer of 2015.
“I think this is a new day, hopefully, for the prosecution of oil companies that have been cheating California and that should narrow the gap between what Californians pay and what the rest of America is paying,” said Jamie Court, the group’s president.
California’s gas prices are the highest in the 48 contiguous states, averaging $2.75 per gallon for regular on Monday, according to AAA. Hawaii’s price came in at $3.16 per gallon. The national average was $1.78 per gallon.
Golden State drivers also pay the highest amount in federal and state gasoline taxes — 79 cents per gallon, according to the American Petroleum Institute. Pennsylvania has the second-highest gas tax burden at 77.1 cents a gallon.
