SACRAMENTO, Calif. — California Assembly Democrats are forming a select committee to investigate why the state’s $6-per-gallon gas prices are among the nation’s highest.
Golden State residents are paying about $6.38 per gallon on average, according to AAA. That’s nearly $1.50 more than the national average of $4.97 per gallon.
“The committee aims to answer two basic questions,” Assembly Speaker Anthony Rendon, D-Lakewood, said on Monday. “First, why are we paying so much for gas? And two, how can we stop it?”
But many of the answers Rendon and assemblymembers seek are no mystery at all, experts say.
War and taxes
Think of the problem as a three-legged stool: high demand, supply constraints and taxes, fees and regulations.
“Since the end of the pandemic, people are out driving,” said Sung Won Sohn, professor of economics at Loyola Marymount University in Los Angeles. “They want to enjoy the outdoors travel that they haven’t done for a long time. So demand has been rising quite rapidly.”
That’s on top of the usual summertime rise in gas consumption. Another driver of demand has been state and federal stimulus payments to put more cash in Californians’ pockets. “Spraying money,” Sohn calls it.
Next up is supply constraints. The war in Ukraine has contributed to a general fuel shortage worldwide, as the United States and other countries have stopped importing Russian oil. To ease some of the scarcity, the U.S. is exporting refined petroleum products to Europe and South America.
“Because of the shortages, our exports have really surged,” Sohn said.
Finally, there are California’s own regulations — among the most stringent in the nation.
For example, there is the 51-cent gas excise tax, which will go up to 54 cents in July.
Then there’s the 2-cent underground storage fee, the 14-cent state sales tax, an estimated 25-cent cap-and-trade fee and an estimated 22-cent low carbon fuel standard fee.
Gas prices also fluctuate by 10 to 15 cents when California switches to its special summer blend of gasoline, according to a breakdown provided by Senate Republicans on Monday.
There’s a fourth factor as well: Inflation.
It means rising costs for labor and materials, which leads to higher prices at the pump. That, in turn, leads to higher costs for businesses, leading to higher prices across the board, Sohn said.
But what about price gouging? It’s true that oil companies are posting big profits right now.
Severin Borenstein, faculty director of the Energy Institute at UC Berkeley, said it’s pointless to berate oil companies for raking it in during gas price spikes.
“I can tell you why they make so much money,” Borenstein said. “They sell oil, and oil is expensive.”
Sohn agrees.
“Every time gas prices go up, politicians like to blame big oil companies and their high profits,” he said. “But what’s happening is not really unusual. As I say, it’s a matter of supply and demand.”
‘Mystery’ surcharge
There are also some fuel cost factors specific to California that have confound experts.
Borenstein said the Assembly committee could shed needed light on the state’s mystery gasoline surcharge.
He has long wanted answers about the surcharge, which costs drivers 30 to 40 cents per gallon, or about $4 billion per year, he said.
“Prior to 2015, there was no Mystery Gasoline Surcharge,” Borenstein wrote in a 2020 post for his Energy Institute blog. “California gasoline prices were higher than elsewhere in the US by an amount that on average reflected the well-known taxes, fees and other cost factors.”
The surcharge came into existence after a 2015 fire at a Southern California oil refinery caused a gas price increase that never fully went away.
The California Energy Commission appointed Borenstein to a Petroleum Market Advisory Committee in 2015. He said the panel dug into the factors around high fuel costs, but without a large budget, few staff and little power, they didn’t get as far as they could.
For example, they couldn’t convince oil companies to talk about the surcharge, a discussion the companies claimed would violate anti-trust regulations.
But, as a more powerful group, the Legislature could produce an investigation with more substantial results, Borenstein said.
“If you really want to do something about gas prices other than empty rhetoric, that’s what they have to dig into,” he said.
What about previous investigations?
Rendon announced the committee as he and Senate President Pro Tem Toni Atkins, D-San Diego, negotiate with Gov. Gavin Newsom over dueling inflation relief packages that would provide funds directly to California residents.
Democrats are also trying to stave off attacks from Republican lawmakers, who say leaders are moving too slowly to help drivers and should suspend the state’s gas excise tax entirely.
This isn’t the first time a state body has attempted to investigate California’s high gas prices. Newsom asked the California Energy Commission to investigate fuel costs in 2019 and later requested then-Attorney General Xavier Becerra investigate price-fixing and other issues.
The status of the Attorney General’s Office investigation remains unknown, said Katie Talbot, Rendon’s spokeswoman.
But this time, the Legislature will throw its weight behind the committee, Rendon said. “Backed by the power of the democratically-elected Legislature of this state, they will work to determine how to beat down prices and how to keep them reasonable.”
