Gavin Newsom can’t prove price gouging at the pump but wants new refinery law

It’s time to blow the whistle on the farcical efforts of California’s politicians — especially Gov. Gavin Newsom — to reduce the state’s high gasoline prices.

Newsom’s demand that the Legislature, which adjourned for the year in early September, reconvene in a special session on gas prices continues his crusade against the oil industry, charging it with price gouging.

However Newsom has never offered any persuasive evidence of such behavior, nor has it been confirmed by those who have seriously examined the factors that cause California gas prices to be the highest, or nearly the highest, of any state.

Severin Borenstein, a UC Berkeley economist regarded as the state’s leading expert on the issue, parsed the differential in a 2023 paper, pointing out that California’s direct and indirect taxes on fuel amount to nearly $1 per gallon — 70 cents higher than the national average of such taxes — and the state’s unique fuel blend to battle smog adds another dime.

Borenstein’s calculations leave what he calls the “mystery gasoline surcharge” of about 43 cents a gallon that cannot be directly attributed to crude oil prices, California’s taxes or other obvious factors. However, at least some of it reflects the relatively high costs of doing any kind of business in California — rents, electricity and other utilities, wages and regulatory overhead, for example.

Newsom’s latest foray is a demand that the Legislature order refineries to put more fuel into storage, as a buffer against price spikes caused by refinery outages or other factors.

Superficially that sounds plausible, but it assumes that refiners have storage capacity to comply with such a law or could easily expand storage. But storage is not without its costs, which could drive retail prices even higher.

The state Energy Commission declared in a recent analysis that Newsom’s proposal has the potential to “artificially create shortages in downstream markets” and “increase average prices.”

The commission says “there may be a case for additional storage as a matter of maintaining supply resiliency for the next two decades, but such investments do pose a stranded assets risk. More analysis is needed to determine whether the benefits of enhanced supply resiliency are worth the investment in the near term.”

Newsom wants the Legislature to act immediately without “more analysis,” which is the antithesis of prudent lawmaking. Republican legislators are being semi-complicit by agreeing with Newsom that there is a gasoline price crisis. But they imprudently propose to lower or eliminate gas taxes, which are vital to the restoration of California’s much-neglected highway system.

“This conclusion alone is deeply troubling and warrants bipartisan, regional communication on this legislation before proceeding,” wrote Katie Hobbs, an Arizona Democrat, and Republican Joe Lombardo of Nevada.

There is no gas price crisis that demands immediate action. A far more serious issue is whether California can manage its conversion of transportation and other economic sectors from carbon fuels to electricity without major economic disruptions. The state wants its dwindling number of refineries to stop producing gasoline and diesel fuel over the next two decades.

Moreover, there are genuine crises that Newsom and legislators have been unwilling or unable to resolve, such as California children’s abysmally low scores on tests of reading and mathematics skills, an ever-rising number of homeless people, the nation’s highest level of poverty and the state’s uncertain water supply.

Dan Walters is a CalMatters columnist.