By Madison Hirneisen, THE CENTER SQUARE
December 1, 2022
(The Center Square) – Officials from the five largest oil refineries that produce most of California’s gasoline were noticeably absent from a California Energy Commission hearing on Tuesday where panelists discussed recent gas price spikes.
Executives from five major refineries – Valero, Phillips 66, Chevron, Marathon and PBF – declined to attend Tuesday’s meeting. They voiced concerns to state officials about sharing company information and violating antitrust laws, though one refinery in particular pointed to Gov. Gavin Newsom’s recent criticism of refiner’s record profits.
“The politicization of this issue by Governor Newsom, heightened by the misleading information he released and commented on related to our 3Q22 earnings, precludes (us) from participating in this hearing,” PBF wrote to the commission, according to KCRA.
Several commissioners expressed disappointment about refinery executives skipping out on Tuesday’s meeting.
“They elected not to attend in person today. I do think that’s unfortunate,” David Hochschild, chair of the California Energy Commission, said Tuesday. “It’s unprecedented – we’ve had hearings and workshops and commission meetings with every energy industry in the state…I’ve never had an industry not show up with their individual company representatives.”
The hearing came less than a week before lawmakers are set to convene a special session called by Gov. Gavin Newsom to consider a windfall profit tax on what he calls the "excess" profits of oil companies. Few details about the governor’s proposal have been shared thus far, but his office has said the recouped profits would be directed back to taxpayers via refunds.
California gas prices have fallen in recent weeks after spiking to near-record prices in October. At one point in October, Californians were paying roughly $2.61 per gallon higher than the national average. Newsom has slammed oil companies for weeks for raking in record profits as prices soar, accusing them in October of engaging in “rank price gouging."
Commissioners heard from several panelists during Tuesday’s hearing, where they sought to make sense of California’s gas price spike. Several factors contribute to gasoline price spikes, including geopolitical issues, changes in crude oil prices, a rise in seasonal demand, California’s shift from its winter to summer blend and localized refinery issues. Panelists also noted several refineries went down for maintenance in September and October, which impacted the amount of gas that could be produced.
However, panelists also discussed California’s so-called “mystery surcharge” that drivers have experienced since 2015. Severin Borenstien, a professor at the UC Berkeley Haas School of Business, told commissioners that after taking out California’s taxes and fees, there is about a 30 cent surcharge that he says has largely gone unexplained.
Tuesday’s hearing also made clear that little is known about the contracts between refiners and retail outlets and how they impact prices. Borenstien said the contracts are “complex” and officials “know almost nothing” about them.
Panelists also fielded questions about a potential windfall profits tax on refineries, offering divided responses. Jamie Court, president of Consumer Watchdog, shared data with commissioners showing California oil refiners more than doubled their profit margin in 2022 – profiting an average of 69 cents per gallon in the first three quarters of this year. The group’s analysis also discovered the five big oil refiners have raked in $67 billion in total profits during the first three quarters of 2022, up from $17 billion in the same time period last year.
According to Consumer Watchdog, California environmental regulation and taxes only account for 69 cents of the roughly $1.48 per gallon Californians are currently paying over the national average. Court said the excess profits indicate the need for a windfall tax, arguing that it would help prevent future price spikes.
“All we're talking about with a windfall profit tax is setting a reasonable level of profit,” Court told commissioners. “We need that price gouging penalty, otherwise it’s going to go on and on.”
Other panelists disagreed with Court’s assertion. Catherine Reheis-Boyd, president and CEO of the Western States Petroleum Association, argued a windfall profits tax would make the situation worse.
“You cannot tax your way out of this problem,” Reheis-Boyd said. “The only result of a windfall profits tax will make the problem worse. You are sending the absolute opposite investment decision or investment indication to anyone who wants to continue business here.”
Reheis-Boyd argued the state should examine its energy and land use policies, which she says has “created an environment where the state simply struggles to meet its demand for fuel, leading to cost volatility for California.” She said lawmakers and state regulators should focus on removing “policy hurdles” impacting the energy industry to reduce costs.
Following Tuesday’s hearing, the CEC is planning a Fuels Transition Study to examine how California can transition to a clean transportation fuels.
In a statement Tuesday evening, Newsom criticized the oil industry's lack of attendance at the hearing, reiterating his call for the Legislature to enact a "price gouging penalty."
“Every Californian deserves to know why we were being fleeced at the pump even as gas prices declined across the country and crude oil prices were going down," Newsom said. "The oil industry had their chance today to explain why they made record profits at our expense but they chose to stonewall us."