For subscribers: A ripoff by refiners or something more complicated? California’s energy commission looks at high gas prices

Are oil firms dishonest California drivers on the fuel pump or have this 12 months’s repeated worth spikes been the results of a mixture of market forces, tight refinery capability, state insurance policies and different components?

The California Power Fee hosted an all-day session in Sacramento on Tuesday that featured displays from a spread of petroleum, environmental, authorities officers and shopper advocates who debated the explanations behind record-high costs within the Golden State.

The listening to got here slightly greater than seven weeks after Gov. Gavin Newsom accused oil firms of gouging motorists and introduced he’ll convene a particular session of the Legislature beginning Dec. 5 to debate instituting a tax on extra income posted by oil firms.

“Gasoline costs are too excessive,” Newsom stated Oct. 7 on Twitter. “Time to enact a windfall income tax immediately on oil firms which might be ripping you off on the pump.”

Refineries throughout California course of greater than 1.6 million barrels of crude oil per day, a presentation from the vitality fee employees stated, however the market is geographically remoted from the remainder of the U.S.

Pipelines join California refining facilities to distribution terminals in Nevada and Arizona, however these pipelines solely function in a single path, sending gasoline and different transportation fuels to those neighboring states, thus making the state a “gasoline island” that’s susceptible to cost spikes.

The California market normally has the best retail gasoline worth within the nation, owing largely to a better tax burden through state excise and gross sales taxes on the pump, increased prices to provide the state’s distinctive mix of much less polluting gasoline and environmental packages the state has adopted over time.

The distinction between what California motorists on common pay for a gallon of fuel and what drivers in different states pay has widened.

An vitality fee PowerPoint confirmed that in 2014, the distinction got here to 40.8 cents per gallon. It grew to $1.10 in 2019 and up to now this 12 months, the distinction is $1.54. On Oct. 4, a single-day file was hit when the differential zoomed to $2.60 per gallon.

“We have now by no means in historical past seen a spot this large between state and nationwide fuel costs,” vitality fee chair David Hochschild stated.

The latest run-up in costs got here after 5 West Coast refineries — 4 in California and one outdoors the Seattle space — shut down for deliberate and unplanned upkeep in September and October. Upkeep sometimes takes 5 to seven weeks to finish and the shutdowns diminished already low gasoline inventories.

“That is the issue, in my opinion — 5 oil refiners make 97 p.c of our gasoline and once they need to squeeze us, they’ll,” stated Jamie Courtroom, president of Los Angeles-based Shopper Watchdog, citing a quadrupling of California refiner income this 12 months.

“If we don’t create a windfall income cap or a price-gouging rebate, we’re going to be an ATM for these oil refiners in perpetuity,” Courtroom stated.

The most important oil refiners had been invited to talk at Tuesday’s assembly however they didn’t present as much as the listening to, which irritated CEC commissioners.

“Absence is just not a superb technique for the business, simply by way of their very own self-interest,” commissioner Andrew McAllister stated. “Lack of participation is just not going to permit them to place their views and opinions on the desk.”

As a substitute, the refiners deferred to the Western States Petroleum Affiliation commerce group to talk on their behalf.

“You can’t tax your manner out of this downside,” stated the group’s CEO, Catherine Reheis-Boyd. “The one results of a windfall income tax will make the issue worse. You’re sending absolutely the reverse funding indication to anybody who needs to proceed enterprise right here.”

David Hackett, chairman of Stillwater Associates, a transportation vitality consulting firm in Irvine, stated already tight provides have been worsened by two California refineries changing their operations from making gasoline to producing renewable fuels. Mixed, the conversions account for 15 p.c of in-state capability, and refineries produced about 88,000 fewer barrels of gasoline per day this summer time than in the summertime of 2021

“The vitality fee must take a critical take a look at the impacts of native and state rules on the viability of the oil business,” Hackett stated, in addition to understanding how oil is priced alongside the provision chain.

Tuesday’s listening to additionally checked out what UC Berkeley professor Severin Borenstein has referred to as a “thriller surcharge that California motorists have been paying for the previous seven years.

In February 2015, an explosion at an Exxon Mobil refinery in Torrance knocked out about 10 p.c of the state’s gasoline provide, driving up costs. After regular operations resumed, costs went down modestly however Borenstein’s analysis says costs have by no means returned to their pre-explosion ranges.

That thriller surcharge at present hovers at about 80 cents per gallon and Borenstein stated most of it isn’t attributable to refinery points or spot costs however by downstream points coping with advertising and marketing, distribution and retailing sectors which might be more durable to determine.

“I believe the true reply is to (set up) a critical fee that has the assets and authority to dig into what are going to be some complicated and delicate enterprise competitors points,” Borenstein stated.

The fee additionally checked out getting some readability on refinery points.

Refiners within the state don’t coordinate the timing of their upkeep work due to antitrust considerations and don’t launch their schedules to the CEC forward of time, which limits the fee’s skill to foresee the influence shutdowns have on gasoline output.

“We find out about (upkeep) by the commerce press and that type of factor however getting that data early would actually assist,” CEC government director Drew Bohan stated.

Within the San Diego space, the typical worth for a gallon of normal hit an all-time excessive of $6.435 on Oct. 5, in keeping with AAA of Southern California.

However since then, costs have come again down, dropping one other 4.8 cents Tuesday to settle at $5.038 a gallon. The final time the typical worth in San Diego was beneath $5 got here on March 3.