A Shell station in San Luis Obispo County was charging more than $7 per gallon in late September. 

‘Unacceptable’: California oil companies facing new tax fail to show up for gas price hearing

A Shell station in San Luis Obispo County was charging more than $7 a gallon at the end of September.

A Shell station in San Luis Obispo County was charging more than $7 a gallon at the end of September.


Are oil companies exploiting Californians for record profits? How can state regulators prevent refineries from shutting down for maintenance at the same time? What are the best approaches to prevent future gas price spikes in the Golden State?

As state regulators and lawmakers try to better understand what is driving California’s high gas prices and assess whether Governor Gavin Newsom’s proposal to tax oil company profits could be the answer, one thing is clear. : they need more information and data from the producing and distributing companies. gasoline.

The California Energy Commission pursued those issues at a meeting Tuesday where it heard from industry analysts. The members of the Commission, however, received no help from the companies that produce more than 90% of the state’s gasoline.

Chevron, Marathon, PBF Energy, Phillips 66 and Valero – all declined to participate in the hearing. In letters to the commission, most said speaking publicly about their operations, maintenance and inventory levels would require them to divulge trade secrets. PBF Energy, however, added that “Governor Newsom’s politicization of this issue, reinforced by the misleading information he has published and commented on regarding our (Q3 2022) earnings, precludes us from participating in this hearing.”

According to PBF Energy’s third quarter financial report, the company’s profit rose from $59.1 million last year to $1.06 billion this year, an increase of nearly 1,700%.

Newsom called the oil companies’ reasoning “pathetic” and pledged to “hold these companies accountable”.

“Every Californian deserves to know why we were being ripped off at the pumps even as gas prices were falling across the country and crude oil prices were falling,” Newsom said in a statement. “The oil industry had a chance today to explain why they made record profits at our expense, but they chose to block us.”

At Tuesday’s meeting, the commissioners echoed the governor’s sentiment and criticized the oil companies’ absence.

“To say I’m disappointed that some of our biggest oil producers in the state aren’t here is probably an understatement,” said Sen. Monique Limón (D-Santa Barbara). “Having people around the table who care about this problem and want to be part of the solution is critical to how we move forward.”

The Commission has not made any formal policy recommendations. But the issues discussed at the day-long hearing should help inform decisions by lawmakers who will consider Newsom’s October proposal to tax oil companies when they reap excess profits and fund refunds to taxpayers.

A special session to debate the merits of a windfall tax, which Newsom pushed for this fall, will begin on Monday.

Investigations of high gas prices in the state date back decades, but an unprecedented gap between the average gas price in the Golden State and the rest of the country earlier this year has renewed calls for some answers. At the height of the gasoline price spikes this year, Californians were paying $2.60 a gallon more than the national average — a markup never seen before.

Since then, the average price of gasoline in California has steadily fallen, with prices falling below $5 a gallon on Tuesday for the first time since the spring.

Despite recent price declines, Newsom and supporters of a windfall tax argue that it would help discourage oil companies from pursuing unwarranted price spikes in years to come. Windfall taxes aim to prevent exploitation by imposing a surcharge on businesses when profits exceed a legally established limit.

The oil industry strongly disagrees.

Catherine Reheis-Boyd, CEO of the Western States Petroleum Association, said a new tax would only raise gasoline prices in California.

“The result of a windfall tax alone will make the problems worse,” she said. “You are sending the absolutely opposite investment indication to anyone who wants to do business here.”

A half-dozen economists who have already spoken to this news agency have said that a windfall tax would do little to lower California gasoline prices, but could succeed in recouping the profits.

A long history of high gas prices in California

California drivers have long paid more for gas than those in other states.

Much of this is due to California’s high excise tax, stringent environmental regulations that require special fuel blends to limit pollution, and the state’s isolated fuel market. No pipeline brings gasoline to California, so the state is almost entirely dependent on in-state refineries to meet its gasoline needs.

Newsom and tax proponents argue, however, that these factors do not justify recent extreme price spikes, particularly because companies were making historic profits even as the price of crude oil fell.

Most of the state’s top five oil refiners have seen their revenues more than double in the past year.

“The fact that (California) are paying record prices, and especially low-income families are paying record prices, is unconscionable,” Commissioner Patty Monahan said.

State lawmakers to weigh new windfall tax on oil companies

The special legislative session begins in less than a week, but Newsom and his administration gave few details about the plan. Many questions remain unanswered, including how the tax will affect gasoline prices, what profit constitutes a windfall, and who will qualify for the rebates.

Legislators typically gather in early December to swear in new members, then pause for the holidays before truly diving into January’s new legislative session. So lawmakers don’t expect to take serious action on the windfall tax until early 2023.

It’s unclear how much support Newsom’s proposal currently has among lawmakers. Democratic state leaders have only said they look forward to seeing the governor’s detailed plan.

Last year, California lawmakers took a first step toward greater transparency in the economics of its major oil companies. A new law requires crude oil refiners to disclose each month the cost of the crude oil they buy, how much they pay to convert it into gasoline and how much they sell for it.

But Drew Bohan, executive director of the state Energy Commission, said more insight was needed.

Bohan did not comment on the governor’s proposed windfall tax on Tuesday, but instead argued for new state regulations that would require oil companies to provide information on planned and unplanned maintenance — a factor. which would have contributed to the gasoline price spikes seen earlier this year.

“Getting this information early would really help inform the decisions we need to make,” Bohan said.

Meanwhile, Severin Borenstein, an energy economist at UC Berkeley, urged state officials to investigate contracts between California oil refineries and gas retailers.

Borenstein, who has spent years studying gas prices in California, said a windfall tax wouldn’t solve a bigger problem in the state’s gas market, which he calls the “surtax.” mystery about gas”.

According to Borenstein, Californians currently pay 80 cents a gallon more than the rest of the county, even after taking into account the state’s high environmental taxes and fees — a price premium that has gone unexplained by the oil industry. and gas.

“Just understanding how refineries work doesn’t solve most of the problem,” he said. “There are complex contracts between refiners and outlets that we know next to nothing about and which could be easily used by refiners to maintain prices.”

This story was originally published November 29, 2022 1:58 p.m.

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Maggie Angst covers California politics and Governor Gavin Newsom for The Sacramento Bee. Prior to joining the Bee’s Capitol Bureau, she worked for the Mercury News and the East Bay Times where she covered San Jose City Hall and later wrote corporate articles on the breaking news team. .

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