As average gasoline prices surged to nearly $4.20 per gallon, California Gov. Gavin Newsom on Tuesday called on the state's attorney general to investigate why drivers in the Golden State are being forced to shell out $1.50 more than the average U.S. driver.
Prices at the pump in California have soared since the start of September, in some regions reaching as high as $5.79 earlier this month for a gallon of regular gasoline. While U.S. gas prices typically rise every fall and spring as refineries go offline for scheduled maintenance and to switch to seasonal blends of fuel, prices in California have seen a 15 percent jump since last month.
By contrast, the average price nationwide has inched upward by about 4 percent, according to the U.S. Energy Information Administration and GasBuddy.com, which tracks gasoline and diesel prices.
Newsom this week alleged that something nefarious is behind the price spike. Directing attention to an analysis by the California Energy Commission he authorized in April as gas prices saw a similar spike, the governor wrote in a letter to the state's attorney general that "there is no identifiable evidence to justify these premium prices."
"I request your office open an investigation into whether false advertising or price-fixing are occurring and contributing to the mystery surcharge imposed on Californians," Newsom, a Democrat, wrote to Attorney General Xavier Becerra. Name-brand companies like Shell, 76, and Chevron, the governor alleged, are unduly charging a premium for fuels that they falsely claim are better than their competitors.
The commission's report did conclude it had "found an unexplained residual price increase over the last five years." Even though crude oil prices, which typically drive gasoline and diesel prices, have held mostly steady at a modest $60 per barrel, drivers in California coughed up an extra $1.5 billion compared to the U.S. average in 2018. Over the last five years, they've paid an $11.6 billion premium, the report said.
"The primary cause of the residual price increase is simply that California's retail gasoline outlets are charging higher prices than those in other states," the commission found.
The Western States Petroleum Association said that it's reviewing the report, but the trade group pointed to the state's high gas taxes and its environmental regulation as a chief cause of the higher prices.
"It's important to note that CEC's own numbers show our state's regulatory environment plays a big role in the ever-increasing affordability challenges Californians face," association president Catherine Reheis-Boyd said in a statement. "In fact, the first $1.08 per gallon at the pump is a result of taxes and California's regulatory programs, such as the low carbon fuel standard."
Some industry analysts are also skeptical that foul play is what's fueling the state's sky-high prices, suggesting instead that politics – not foul play – are what's driving the governor's calls for a state inquiry.
"You had to see that coming from 20 miles away. The scale of the impact, if a politician didn't do something – the optics are what matters, he didn't have a choice but to investigate," said Patrick DeHaan, head of petroleum analysis at GasBuddy.
Already, California drivers pay a premium for fuel: The state levies the highest gas tax in the nation by as much as 40 cents a gallon. But perhaps more crucially, the state's air-quality board requires cleaner-burning – and more expensive – blends of gasoline and diesel than anywhere else in the U.S.
As a result, only a relative handful of refineries produce the unique blends of gasoline and diesel that are mandated by the state, meaning that when refineries go offline or there's a surge in demand, there's a smaller pool to make up the shortfall, a supply that's shrunk even further as California refineries have relocated or closed altogether as the state has instituted stricter clean-air regulations.
"California is always going to be among the most expensive gas prices in the country, and that's because of the taxes, the blend," AAA spokeswoman Jeanette Casselano said. "The two times we've seen these major spikes on the West Coast, you can correlate it back to the refinery issues."
Rather than the price-fixing Newsom suggests, Casselano said, "what we're seeing is it goes back to the refinery concerns."
That includes this fall: On top of scheduled maintenance and seasonal fuel switch-overs, four refineries abruptly went offline earlier this month, suddenly crimping the state's supply of gasoline and diesel. Prices quickly spiked.
"One or two, not a problem. But in California, with its own blend, you're going from a buyer's market to a seller's market very quickly," DeHaan, of GasBuddy, said. "There's just not enough gasoline, then, to supply California, and gas prices soar until there's a perceived dent to demand."
The California Energy Commission disputes this explanation. Such price spikes tend to be short-lived, it says. California's premium, by contrast, has been much longer-lived and goes beyond the gas tax and blending requirements alone.
"The analysis shows that while refinery outages have an impact on prices, which are reflected in higher refiner margins, these spikes are short term in duration," the report says, "and do not account for the sustained price elevation seen over the past five years."
