SACRAMENTO — California’s leading energy analysts on Tuesday provided a hazy overview of the state’s recent gasoline price crisis while revealing that state regulators are “completely in the dark” about key data. of the oil industry that are shaping the Golden State’s increasingly volatile gasoline market.
The California Energy Commission meeting comes amid a push by Governor Gavin Newsom to levy a new ‘windfall profits tax’ on oil companies, which will be the focus of a special session of the Legislative Assembly in January. . On Tuesday, consumer advocates and oil industry representatives launched opening salvos in a fierce debate over whether oil companies are drivers of “price gouging” or are actually victims of the green policies of California that are crowding out fossil fuel industries.
At a hearing in Sacramento, the commission called state experts to testify on a question that has plagued motorists for decades: Why are California gas prices so high?
With fuel prices falling nationwide, the state’s average pump price finally fell below $5 a gallon for the first time in nearly nine months. But the question of why the Golden State stands out has taken on new urgency after California’s perennial gas problems reached staggering proportions in September, when the gap between what drivers pay here compared to the rest of the country hit $2.60 a gallon — an unprecedented difference even in a state already known for the highest fuel costs in the nation.
“We had gas prices that are not acceptable to Californians,” said Siva Gunda, vice chairman of the commission. At the beginning of October, the average cost of fuel was over $6.40 per gallon.
State analysts on Tuesday described a series of conditions, including lower than normal gasoline inventories among the state’s oil refiners, lower than normal fuel imports and mechanical problems that have fueled a shortage of supply and the resulting historic spike in gas prices.
But despite decades of California politicians calling for the oil industry to be held accountable, California’s top energy watchdog said there was a lack of critical data on the state’s oil refining industry, which is controlled by a handful of companies, including Chevron, Valero and PBF Energy.
Quentin Gee, an analyst for the Energy Commission, described the watchdog as being ‘completely in the dark’ on planned and unplanned maintenance issues because the oil industry tightly guards its operations as secrets commercial. “Fundamentally, it’s more authority” that’s needed, Gee said.
“It makes me feel like I’m looking through a palisade and only seeing part of what’s on the other side,” said CEC commissioner David Hochschild, a Newsom appointee. .
Much of California’s high gasoline costs are due to high state taxes, environmental regulations, and special fuel blends that keep creeping smog from building up in cities. In total, the fee — including federal taxes, which all states pay — is about $1.20 over the base price of California gasoline.
Last month, pain at the pump prompted Governor Gavin Newsom to accuse big oil companies of “price gouging”. He announced a special legislative session to introduce a “windfall tax” on oil companies. Newsom said the session would be a “date with fate” starting Dec. 5. Legislative hearings are not expected to begin until January, when lawmakers return to Sacramento after the holidays.
Newsom’s efforts to tax oil refiners’ profits have gained momentum in recent weeks as major oil companies reported rising profits in their latest quarter.
“California oil refiners reported true windfall profits in 2022, levels of profit they haven’t reached in the past 20 years,” said Jamie Court of Consumer Watchdog. “It’s time for the state to put a cap on windfall profits for oil refiners so the Golden State gouge ends.”
For now, the governor and state lawmakers are keen on any proposed profit tax. Newsom said revenue from a tax on oil industry profits would “go directly to the taxpayers,” which could resemble the $350 gas rebate many Californians have received.
Analysts backing the oil industry say a windfall tax would only cause oil refineries to cut back their gasoline supplies, leading to more price shocks for consumers. They say high profits are needed to support infrastructure investment in an industry that has seen profits slump during the COVID-19 pandemic.
In “2020, oil companies lost hundreds of billions of dollars,” said USC business professor Michael Mische, speaking Monday at an event hosted by Californians Against Higher Taxes. “Today they are coming back.”
On Tuesday, policymakers’ strained relationship with the oil industry was highlighted. The commission left six empty seats with the names of oil industry executives who refused to attend the hearing. On Monday, Newsom called the oil industry’s planned no-show “pathetic”. The Western States Petroleum Association, a trade group, took their place on Tuesday.
“You can’t tax yourself out of this problem,” said WSPA President Catherine-Reheis Boyd. “The result of a windfall tax alone will make the problem worse. You send the absolutely opposite investment decision. . . to anyone who wants to continue their business here.
Severin Borenstein, an energy economist at UC Berkeley, said Tuesday’s meeting did little to deepen regulators’ knowledge of the subject, but he said it “will establish a framework and a foundation that we can work on.”
Borenstein warned lawmakers that the latest gas price spike is just a symptom of a larger problem in the state’s gas market, which he calls the “mysterious gas surcharge.” Even after taking into account the state’s high environmental taxes and fees, Californians pay up to 30 cents more per gallon than the rest of the country, according to its analysis.
“We need to avoid getting distracted by spot price spikes, which are short-lived,” Borenstein said in an interview on Monday. “The much more important money is the mysterious gasoline surcharge. It’s much more important in terms of emptying consumers’ pockets.”
