January 11, 2023

The long-standing gulf between California and U.S. gas prices widened to an absurd $2.60 per gallon last fall, forcing us to burn about two-thirds more money than our fellow Americans for the privilege of getting to work and polluting the air while we’re at it. Now, with the statewide average back to sea level around $2 below its $6.42 peak — about $1.15 over the national price — the great California gas price spike of 2022 is gone and, in some circles, forgotten.

The Legislature, which is considering extraordinary steps to rein in the state’s gas prices, must remember. Though the crisis has abated, policymakers shouldn’t leave the state vulnerable to another carnival of price gouging.

California oil refiners have been forcing us to pay a demonstrable surcharge on gas for years, and they took us for even more just when prices were at their most painful. It was an inconvenience for some, a hardship for others and an unearned windfall for them.

Given its indispensability to transportation and danger to the environment, gas ranks high on the list of goods that should be subject to extraordinary taxation and regulation. And California rightly regulates and taxes it more than most. Ironically, the oil companies appear to be leveraging this fact to overcharge us, blaming taxes and regulations whenever they’re called on to explain exorbitant prices.

California’s relatively high gasoline and sales taxes, environmental fees and requirement that refineries produce cleaner-burning fuel do indeed increase prices. UC Berkeley economist Severin Borenstein, who has studied the issue extensively, estimates that state taxes and rules account for about 80 cents per gallon of the average difference between California and U.S. gas prices.

But that is only a little more than half of the typical discrepancy — and sometimes much less. Borenstein has put the California premium not attributable to taxes and regulation at an annual average of about 30 to 50 cents a gallon since 2015, though it reached 65 cents last year. At the peak of last year’s price spike, the share that couldn’t be blamed on California taxes and regulations approached $1.40. All told, the discrepancy amounts to about $50 billion over eight years.

The unavoidable suspicion is that in contrast to the legitimate infrastructure and environmental purposes served by taxing and regulating gasoline, the rest of the premium is merely filling oil industry pockets. Five refiners make most of the gasoline in the state and control much of the retail market through branded gas stations, giving them unusual influence over prices. Moreover, as the advocacy group Consumer Watchdog has noted, California refiners such as Valero and Phillips 66 reported extraordinary profit margins in the second and third quarters of last year, more than double historical averages.

The latest shakedown of California motorists more than justifies the push by consumer advocates, Gov. Gavin Newsom and lawmakers to impose a tax or penalty on excessive refiner profits, introduced in preliminary form last month by state Sen. Nancy Skinner, D-Berkeley. While the measure has to be carefully crafted to punish gouging without suppressing supply, its necessity is clear.

The refiners were noticeably generous in helping to elect some of the Legislature’s newest members, among them Sacramento area Democrats Angelique Ashby and Stephanie Nguyen. How they respond to this challenge will reveal much about what and whom they represent.