California Gov. Gavin Newsom (D) is at it again, requesting on Monday that California Attorney General Xavier Becerra investigate possible price-fixing by California’s major oil and gas companies.
The request comes after the release of a new report from the California Energy Commission (CEC) which found one partial reason for the Golden State’s highest-in-the-nation gas prices—currently running at $4.13 per gallon according to AAA—to be the higher prices charged by brand retailers like Shell, Chevron, and 76.
Newsom had requested this report back in April to figure out why Californian motorists were paying a “mystery surcharge”—a term that refers to the price difference between state and national gas prices that can’t be readily explained by California’s higher taxes, or unique energy regulations.
“There is no identifiable evidence to justify these premium prices,” wrote Newsom in his letter to Becerra, according to the The Los Angeles Times. “The mystery surcharge adds up, especially for cost-conscious, working families. If oil companies are engaging in false advertising or price-fixing, then legal action should be taken to protect the public.”
That Newsom would use the release of this report to criticize gas companies for their high prices is somewhat puzzling. After all, the CEC investigation makes clear just how much the state’s high taxes and regulations are contributing to higher gas prices.
The commission’s investigation found that per gallon gas prices were roughly $.75 higher in California last year than in the rest of the country. Of this difference, some $.40 was attributable to the state’s higher taxes (which includes a $.47 per-gallon excise tax plus an addition 2.25 percent sales tax), cap-and-trade regulations (which caps statewide emissions and then auctions off emissions credits to companies), and its low-carbon fuel standard.
Newsom famously supported the state’s 2017 gas tax increase, and argued against a 2018 ballot measure that would have repealed it.
Of the remaining price difference, some $.10 was the result of higher crude prices in California. Retailer and refiner margins accounted for another $.23 of the difference.
Because refinery margins had grown and receded in step with the rest of the country since 2004 (save for a spike following the 2015 Torrance Refinery outage), while retail margins grew much more quickly in California, the CEC pinpointed the latter as the cause of the state’s mystery surcharge.
Contra Newsom’s claim that there was no justification for these higher prices, the CEC listed a number of reasons why branded retailers might be commanding a premium at the pump:
There are a number of possible reasons why consumers continued to buy higher-priced gasoline including station location, the acceptance of credit cards, and brand loyalty. There may also be perceived differences in gasoline quality based on retailers’ claims regarding gasoline specifications or additive packages. These are all legitimate reasons why consumers are continuing to purchase these higher-priced brands.
The commission’s report does note that false advertising on the part of gas retailers or even illegal price fixing might explain higher prices. The CEC nevertheless said that it found no evidence of these claims, and that the state’s Department of Justice is better suited to investigate any wrongdoing.
Whatever retailers’ reasons for charging higher-than-average gas prices, Newsom’s request for a price-fixing investigation seems like a clear attempt to deflect blame from the state’s own price-increasing policies.
As I argued in April, California politicians clearly feel like they’ve had good reasons to raise gas taxes to the second-highest in the nation, and to impose onerous environmental regulations.
The politicians who voted for or supported the state’s 2017 gas tax increase—which includes not only Newsom but 17 of the 19 state legislators who requested a similar gas price investigation in January—or its environmental regulations obviously felt that the benefits of these policies outweighed the costs they imposed on consumers.
Rather than explain why those costs are worth it, these same politicians are now demanding criminal probes into retailers for daring to raise their own prices.
And while it’s possible some form of price fixing is going on in California’s retail gas market, it also seems unlikely.
Price-fixing usually requires markets dominated by a small number of firms, all of whom can be expected to stick to a secret, illegal agreement. The less sure each participant is that everyone else will stick to the price-fixing pact, the less incentive they have to abide by the agreement themselves.
That description doesn’t seem to apply to California’s retail gas market at all.
Shell and 76, two of the brands identified by the CEC as raising their prices the most, have captured only 10 and 8.8 percent of the market, respectively. ARCO, which controls 21 percent of the market, is among the lowest priced gas retailers in the state, according to the CEC report. Meanwhile, unbranded, discount-priced gas stations make up 19 percent of the California market.
Instead of chasing after improbable price-fixing conspiracies, perhaps Newsom should consider the ways in which his own administration might give working-class motorists a break by lowering taxes or cutting energy regulations.
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