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‘Unfortunate’: oil companies skip hearing about California’s high gas prices

High gas prices are shown in Los Angeles on May 24.
Jae C. Hong
High gas prices are shown in Los Angeles on May 24.

It’s no secret that California drivers pay more on-average for a gallon of gasoline than almost anywhere else in the United States. But finding out exactly why could be more complicated than state regulators bargained for.

In a hearing Tuesday dedicated to the volatile spikes in gas prices, the California Energy Commission heard from a panel of industry experts and consumer advocates about the state’s unique oil refining market and got a glimpse at some potential hidden factors in the price at the pump.

Representatives from the state’s five largest oil refiners – Chevron, Valero, Phillips 66, PBF Energy and Marathon – did not attend the meeting.

“I do think that’s unfortunate,” said commission chair David Hochschild. “I’ve never had an industry not show up with their individual company representatives.”

After the hearing, Governor Gaving Newsom in a statement accused the companies of “lining their pockets while they cause financial pain for millions of California families” with “no explanation.”

The hearing was informational and the commission did not recommend any policy actions. But the meeting was attended by some lawmakers, who may use it to inform their positions on potential legislation in the upcoming session.

What’s known – and what’s not – about gas pricing in California

For years, gasoline in California has cost more on average per gallon than the rest of the country. State taxes and environmental regulations account for some of these costs.

But energy commission staff said the state’s unique oil market makes it more susceptible to volatile price spikes. The vast majority of oil consumed by California residents – between 93% and 97% – is produced and refined in-state.

The “California market is isolated by time and distance from alternative sources of resupply to compensate for loss of output due to unplanned refinery outages,” said staff analyst Gordon Schremp.

Oil companies have blamed unplanned maintenance at refineries this year for production issues and higher prices.

Severin Borenstein, an energy researcher at UC Berkeley, said an inexplicable “mystery surcharge” drove up the cost of gas by about 30 cents per gallon following an explosion at a Southern California refinery in 2015.

He estimates the mystery surcharge has cost California drivers $40 billion in the nearly eight years since the Torrance refinery fire.

Borenstein also speculated that the high number of name brand gas stations – or those owned by refiners like Chevron and Shell – contribute to an inflated market. He said name-brand gas stations often charge around 30 cents extra per gallon.

“We just don’t have the competition and discipline from off-brand stations,” he said. “Fewer gas stations in California means drivers have less buying power.”

Western States Petroleum Association president Catherine Reheis-Boyd said despite the state’s complicated oil market, a simple way to cut costs would be for the state to cut environmental regulations.

“We need policies that reduce costs [and] increase supply to meet demand as the state proceeds on its path of an energy evolution,” she said.

Jamie Court with the advocacy group Consumer Watchdog called for more transparency for oil company pricing and profits. He pointed out that refinersearned record profits during the second and third quarters this year.

“Five oil refiners make 97% of our gasoline. They can squeeze us when they want,” he said.

Would a ‘windfall tax’ lower prices?

When the average price per gallon surged above $6 per gallon this fall and lingered there for several weeks – despite a global plunge in the price per barrel of oil – Newsom accused oil companies of “fleecing Californians” to reap record profits.

The governor has proposed a “windfall profits tax” to “put windfall profits of oil companies back in taxpayers’ pockets.”

“You cannot tax your way out of this problem. A windfall profits tax will only raise prices,” Reheis-Boyd said. “You are sending the absolute opposite investment indication to anyone who wants to do business here.”

Borenstein said a profits tax would not necessarily lower gas prices but could result in more tax revenue from oil companies.

Newsom has said he will call a special session for lawmakers to consider the proposal in early December but has not released any draft language or other details.

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