Newsom’s gas crusade turns into an attempt to save refineries

from Dan WaltersCalMatters

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Earlier this week, I took my 24-year-old SUV into a Sacramento gas station for its weekly — more or less — fill-up. It was 14.5 gallons at $4.05 plus the ever mysterious 9/10 of a cent a gallon.

I could have gone to the nearby Chevron station, but they were asking $4.59 a gallon and it would have cost me about $8 more.

While gasoline prices in California are among the highest in the nationthanks in large part to high state taxes and regulatory costs, they vary greatly from station to station, even among those under the same ownership.

That variation compounds California drivers’ and politicians’ obsession with gas prices.

California’s nearly 30 million cars and light trucks drive 340 billion miles each year and burn more than 13 billion gallons of gas, costing $60.7 billion in 2024. That’s certainly a big number, but it’s not a huge factor compared to other costs of living in California, especially housing.

One suspects that gas prices get so much attention because filling up the tank is a frequent ritual that requires drivers to stand there while the pump dial spins through gallons and dollars.

Governor Gavin Newsom spent much of 2023 and 2024 on a crusade against high gas pricesaccusing refineries of killing motorists. He called a special legislative session and signed legislation to create more oversight.

“They keep lying and they keep manipulating,” Newsom said exactly one year ago. “They’re making unprecedented profits because they can.”

Last month, the newly created Oil Market Supervision Department published its first annual report.

There were no smoking guns. Mostly, the report simply confirmed what was already known — that prices are much higher than those in other states, that most of the price difference is due to taxes and regulatory costs, and that there is a “mysterious surcharge” that cannot be attributed to any quantifiable factor — a phenomenon first identified eight years ago by UC-Berkeley professor Severin Borenstein.

The surcharge has averaged 41 cents per gallon in recent years, and the report states that “the cumulative impact of this surcharge is significant, costing California consumers more than $59 billion in gasoline surcharges between 2015 and 2024.”

This suggests that it represents additional profit for the refiners, but is not conclusive. He also acknowledged that “some refineries, however, may only be marginally profitable outside of price spikes. This is partly because California and West Coast refinery operating costs, while broadly stable since 2014, are higher than in the rest of the US, partly due to higher labor and energy costs.”

In other words, the surcharge may simply reflect that doing business in California is more expensive than in other states.

“This is confirmation that Californians have been pumped at the pump for decades because too few refineries make too much of our gasoline.” said Jamie Courtpresident of Consumer Watchdog, which supported Newsom’s crusade.

Having only a few refineries contributes to the price picture, as does the state’s unique gasoline formula to combat smog and the lack of pipelines to import fuel from other states.

Indeed, since Newsom’s legislation passed, two refineries have announced plans to close, leading to speculation that gas prices could rise to record highs due to shrinking supplies.

One might expect Newsom to pounce on the report as vindication of his accusations of price gouging. But the report did not draw that conclusion, and the governor has since changed his position and is trying to prevent refinery shutdowns.

Newsom also drew criticism from the court, which complained that “The Newsom administration removed valuable tools to combat this price gouging when it froze the price gouging penalty rules it asked the Legislature to create in 2023.”

That was then. This is now.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.