Gov. Newsom’s “Special Session” on Gasoline Prices
Dear John,
By now most of the mega-majority Democrats in our state legislature understand basic facts about energy in California: We still derive 50 percent of our total energy from petroleum, and another 30 percent of our energy from natural gas. This makes them understandably reluctant to kill California’s oil and gas industry, and gives them pause before they outlaw everything — from automobiles and locomotives to electricity generating plants — that consumes oil and gas.
What they may not realize is that despite mandating what amounts to hundreds of billions in higher energy prices on California’s households and businesses, California’s reliance on fossil fuel for 80 percent of its energy is only two percent better than the global average of 82 percent.
None of this, however, is stopping Governor Newsom, who has dragged a handful of legislators back to the Capitol for a special session on alleged price gouging by California’s oil refineries. In a press release on September 3, the governor claimed that “Gas price spikes on consumers are profit spikes for oil companies, and they’re overwhelmingly caused by refiners not backfilling supplies when they go down for maintenance.”
To prevent these alleged misdeeds, the governor proposes to require California’s refineries to stockpile reserves of gasoline to meet demand whenever refineries are not operating. In addition to mandatory storage, the law would require refineries to report how much refined gasoline they have stored at all times.
It’s hard to know what additional motivation may be behind the governor’s urgency. A report presented on September 18 by the legislature’s Utilities and Energy Committee discusses the need for more stored gasoline to buffer supply disruptions in future years when (as they predict) Californians go electric and demand for gasoline drops. And it’s fair to wonder if another underlying motivation is to build up the state’s reserves of gasoline to counter possible supply disruptions since the state now imports 75 percent of its crude oil. Perhaps the answer to that would be to produce more, here, instead of shutting it all down.
But the least credible motivation for these hearings, and this proposed legislation, is alleged price gouging, because the data doesn’t support the allegation.
Using data compiled by the St. Louis Federal Reserve Bank based on figures from the Bureau of Labor Statistics and the U.S. Energy Information Agency, it is possible to plot historical price trends for barrels of crude oil versus the cost per gallon of gasoline. When comparing the price for barrels of West Texas Crude to the price for a gallon of gasoline in San Francisco, over time the respective plots rise and fall in almost perfect lockstep. The price of crude oil is the primary driver of gasoline price fluctuations, not temporary refinery shutdowns for maintenance.
Further evidence is found when viewing, over time, the price for a gallon of gasoline in San Francisco compared to the price per gallon in Dallas. Here again, the plots move in lockstep, despite Texas refineries following an operations and maintenance schedule that has nothing in common with the schedules that apply at California refineries.
It’s impossible to not notice the difference in price, of course, between a gallon of gasoline in Dallas compared to a gallon in California. Some of that is justifiable. We refine our gasoline to higher standards in California because we have high elevation mountains surrounding our largest coastal cities, trapping emissions from millions of vehicles. But much of the high price for gasoline in California is caused by higher taxes.
In July 2024, when the average price per gallon in California was $4.49, state taxes, fees, and programs added $1.23 to the price, along with another $0.18 of federal excise tax. The cost of crude oil added $2.04 and “industry costs and profits” added $1.04. Included in that last number are not only refinery operating costs, but also distribution and marketing costs.
California’s state government collects corporate income tax on oil company profits, which adds to the $1.23 they collect in direct taxes and fees on a gallon of gas. So one may ask, since our governor is so concerned about California’s consumers getting gouged at the pump, why the amount the state collects on every gallon of gasoline is grossly in excess of not only industry profits (before taxes), but profits plus total operating costs.
Who, then, is gouging whom?
Joining Newsom in a war on “big oil” is Attorney General Rob Bonta, who in September 2023 sued Exxon Mobil, Shell, Chevron, ConocoPhillips, and BP for allegedly causing climate change-related damages and deceiving the public. Now Bonta has filed another lawsuit, this time against ExxonMobil for “deceiving the public on recyclability of plastic products.” This new lawsuit invites many questions.
Why did Bonta, and every other concerned public official and legislator, fail to provide any oversight over the recycling industry which they regulated into existence? Why now? And has Bonta, in his zeal to harass the petrochemical industry at large, failed to recognize that almost everything in the civilized world is made out of plastic? It’s not just shopping bags. It’s everything.
And so California continues its state-sanctioned war on energy, jobs, materials, and affordability. “Price gouging” confronts Californians everywhere. It is a completely unnecessary consequence of a state government that is out of control. It has little or nothing to do with “oil company profits.”
— The above article by Edward Ring, Director of Water and Energy Policy at California Policy Center, was featured in Ring's weekly newsletter, "What's Current?" You can subscribe to What's Current here.
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Radio Free California #355: Prop-O-Rama!
On this week’s podcast, CPC president Will Swaim and CPC's Vice President of Government Affairs Lance Christensen discuss the ten propositions on California’s November ballot. Listen now.
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