SACRAMENTO, California — Consumer advocates and oil industry representatives launched opening salvos Tuesday in a bitter debate over whether oil companies are “price gouging” drivers or are themselves actually the victim of California’s green policies squeezing out fossil fuel industries.
The California Energy Commission convened the panel of energy experts, advocates and oil industry representatives to probe a gas price spike in September that at one point ballooned to an unprecedented $2.60-price gap between what Golden State drivers paid for the average gallon as opposed to the rest of the country.
Tuesday’s hearing in Sacramento was meant to dig into the historic price spike that saw prices top $6.40 a gallon before dropping Tuesday below $5 for the first time in nearly nine months. But instead of exposing a smoking gun, the commission meeting ultimately revealed that regulators are “completely in the dark,” according to one state analyst, when it comes to critical oil industry operations that shape the state’s increasingly volatile gasoline market.
“Basically it is more authority” that is needed, said Quentin Gee, an analyst for the energy commission.
The hearing comes amid a push by Gov. Gavin Newsom to levy a new “windfall profits tax” on oil companies that will be at the center of a special session in the Legislature this January.
The commission called on state experts to testify on a question that has plagued drivers for decades: Why are gas prices in California so high?
“What explicitly do we need to be able to understand why there’s a mystery surcharge, why California pays more?” said commissioner Patty Monahan. “I’m wondering if anybody can kind of walk through what they would recommend?”
Gordon Schremp, the commission’s top analyst, outlined a series of conditions that led to the historic gas price spike, including lower-than-normal gasoline inventories among the state’s oil refiners, lower-than-normal fuel imports and mechanical hiccups that fueled a supply shortage. But Schremp said his agency had no way to access company-level information to explain why the state’s handful of oil refineries let their inventories dwindle and decreased their foreign fuel imports despite the supply crunch.
Jamie Court, with Consumer Watchdog, said Tuesday’s meeting — including the panel of experts — echoed the same frustrations California’s drivers have seen for decades.
“I was on the 2000 gas pricing task force,” said Court, who called on the state Senate to issue subpoenas demanding oil company data. “The same six people in the room talking about this stuff isn’t going to get it done.”
CEC Commissioner David Hochschild, a Newsom appointee, compared the meeting to “looking through a picket fence” with commissioners “seeing only some of what’s on the other side.”
Much of California’s high gasoline costs are explained by the state’s high taxes, environmental regulations and special fuel blends that prevent rampant smog from accumulating in cities. Altogether fees — including federal taxes that all states pay — tack on roughly $1.20 to the base price of California gasoline.
Last month, the pain at the pump prompted Newsom to accuse major oil companies of “price gouging.” He announced a special legislative session to pursue a “windfall profits tax” on oil companies. Newsom said the session would be a “date with destiny” starting on Dec. 5. The legislative hearings are not expected to get underway until January when lawmakers return to Sacramento after the holidays.
Newsom’s push to tax oil refiners’ profits gained steam in recent weeks as major oil companies reported soaring profits in their most recent quarter.
“California oil refiners reported truly windfall profits in 2022, profits levels they have never reached in the last 20 years,” said Court. “It’s time for the state to set a windfall profits cap on oil refiners so that the Golden State gouge comes to an end.”
For now, the governor and state lawmakers are holding any plans for a profits tax close to their chest. Newsom has said revenue from a tax on oil industry profits would “go right back to the taxpayers,” which could look similar to the $350 gas rebates many Californians received.
Analysts backing the oil industry say a windfall profits tax would only cause oil refineries to reduce their gasoline supply, leading to more price shocks for consumers. They say high profits are necessary to back infrastructure investments in an industry that saw profits crash during the COVID-19 pandemic.
In “2020 the oil companies lost hundreds of billions of dollars,” said Michael Mische, a business professor at USC, speaking on Monday at an event organized by Californians Against Higher Taxes. “Today they’re making it back.
On Tuesday, policymakers’ testy relationship with the oil industry was on display. The commission left empty six seats with names of oil industry executives who declined to attend the hearing. On Monday, Newsom blasted the oil industry’s planned no-show as “pathetic.” Taking their place on Tuesday was the Western States Petroleum Association, a trade group.
“You cannot tax your way out of this problem,” said WSPA President Catherine-Reheis Boyd. “The only result of a windfall profit tax will make the problem worse. You are sending the absolute opposite investment decision … to anyone who wants to continue business here.”
Severin Borenstein, an energy economist at UC Berkeley, said Tuesday’s meeting is not doing much to further regulators’ knowledge on the subject, but he says it will “establish a framework and baseline that we can work from.”
Borenstein cautioned lawmakers that the latest gas price spike is only a symptom of a larger problem in the state’s gas market, which he terms the “mystery gas surcharge.” Even after accounting for the state’s high taxes and environmental fees, Californians pay upwards of 30 cents extra per gallon compared to the rest of the country, according to his analysis.
“We should avoid getting distracted by the spot price spikes, which are short-lived,” said Borenstein during an interview on Monday. “The much bigger money is the mystery gasoline surcharge. It’s many times larger in terms of draining consumer pockets.”
