SACRAMENTO, Calif. — As lawmakers debate who is to blame for California’s high gas prices, Attorney General Rob Bonta is seeking millions of new dollars to investigate and possibly sue oil companies over the matter.
But according to experts, it appears unlikely that such investigations would lead to a court finding significant violations of the law.
“The antitrust laws are very narrow,” said Severin Borenstein, director of University of California, Berkeley’s Energy Institute. “What’s illegal is independent companies getting together to set prices or merging in order to become more powerful in the market. What’s not illegal is for a big company in a market to raise its prices to make more money.”
Since 2000, the Department of Justice has investigated eight mergers or acquisitions by oil companies. None have resulted in findings of antitrust violations.
Now, the DOJ is requesting nearly $8 million for 20 new positions to step up antitrust prosecutions, in part, within California’s oil and gas market. The funding, according to a recent budget change request, would help the DOJ create specialized teams focused on the state’s gasoline, technology and agricultural sectors.
California attorney general litigates the oil industry
Speaking at a recent meeting of the Senate Energy, Utilities and Communications Committee, Supervising Deputy Attorney General Michael Jorgenson said that regulating the oil industry and California’s high gasoline prices have been — and will continue to be — a major focus of the DOJ’s antitrust division.
California’s unique fuel market makes the state more vulnerable to disruptions that often lead to price spikes at the pump. The Golden State has stringent environmental rules that mandate the production of cleaner-burning fuel blends, and all of the gas sold in California is refined in-state by a handful of companies. Those factors have helped to create a market that lacks much competition.
Even so, establishing grounds for an antitrust case in the oil and gas industry is not easy.
“It’s a complicated market to figure out and determine market power, which is critical to antitrust issues,” said Ken Alex, director of UC Berkeley’s Project Climate.
In 2017, the state sued Valero Energy Corporation, one of the state’s major oil refiners, over the company’s attempted acquisition of the state’s last independent petroleum distribution terminal in Martinez. Then-Attorney General Xavier Becerra said the proposed acquisition “could have suffocated open competition and led to higher gas prices.” Several months after the filing of the lawsuit, Valero announced it was abandoning its plans and the case was dismissed without any ruling on the antitrust allegations.
In 2020, Becerra sued two global oil trading companies for allegedly colluding to manipulate the state’s gasoline price index after a 2015 explosion at the Exxon Mobil refinery in Torrance. That event disrupted California oil production and led to a significant gasoline price spike. That lawsuit is expected to go to trial this September.
Such cases require at least one-third of the antitrust division’s staff, as well as millions of dollars in fees for economic experts and outside counsel due to the complexity of the gasoline market, according to Jorgenson.
Since 2019, the DOJ has received numerous calls from both state and federal legislators and the California Energy Commission to investigate potential price fixing and false advertising within the oil industry. There have also been calls from experts like Borenstein for state officials to investigate a “mystery surcharge” that was added to California gas prices after the Torrance refinery explosion. It has cost Californians billions of dollars.
According to the department, the DOJ’s antitrust division only has the resources to address the ongoing case against the two trading firms. That case focuses on alleged collusion that occurred from February 2015 through late 2016, not current market conditions.
While Borenstein agrees the state should be prosecuting cases like that, he said it’s important to keep it in context.
“It’s millions of dollars,” he said about the unlawful profits the companies are alleged to have reaped through their scheme. “Meanwhile, the mystery surcharge, since 2015, has now cost Californians $48 billion.”
As Kathleen Foote, former DOJ antitrust chief, noted at a meeting of the California Assembly Select Committee on Gasoline last summer that the active case against the trading firms “does not cover the map in terms of the possible causes” of California’s high gas prices and the mystery surcharge.
Other possible areas for investigation, she said, include practices that may not be illegal but factor into the price spikes that hurt consumers. These include how refiners are setting prices for retailers and possible barriers for off-brand gas stations seeking to enter the market. Off-brand stations typically sell gasoline at lower rates than branded stations. That gap is significantly wider in California than elsewhere in the country, according to data from GasBuddy.
California’s unique oil market creates complexity
Gov. Gavin Newsom’s proposed price-gouging penalty has squarely placed the blame for last year’s unprecedented gasoline price spikes on oil companies that enjoyed historic profits during that time. Meanwhile, industry analysts have told the Sacramento Bee that they doubt the measure will have any effect on the wide gap between gas prices in California and the national average.
California regulators and industry analysts say that the state needs to gather more information and data — not just from the state’s major refiners but from retailers and other industry powers — to get a full scope of the factors at play across the state’s complex fuel landscape.
Bonta’s office could play a critical role in this type of information-gathering endeavor.
Although the attorney general’s office is typically seen as a law enforcement agency, Bonta has independent authority to file subpoenas to gather information about business practices such as those taking place in the state’s fuel market.
While the information uncovered may not lead to prosecution, his office could use its findings to work with legislators to enact policy changes aimed at increasing competition across the sector, according to Alex, who previously led the attorney general’s environment section and served as a senior policy adviser to Gov. Jerry Brown.
“I think it would be of significant value for the attorney general to use his extensive authority to help identify possible ways to manipulate California gas prices and work with the legislature to evaluate additional policies that could be effective to constrain some of those efforts,” Alex said.
That kind of oversight is critical to getting to the bottom of why California gas prices have swelled so much over recent years, according to Borenstein.
“Given that we’re the fifth-largest economy in the world, it’s sort of shocking to me that California doesn’t have an office that specializes in competition policy,” he said. “That’s really where California should be investing.”
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