Saturday, February 4, 2023 | Back issues
Courthouse News Service Courthouse News Service

Big Oil slammed over record profits, record prices at California Energy Commission hearing

The California Energy Commission held a hearing Tuesday to look into why oil companies saw record profits amid record prices for consumers. Big Oil was a no-show.

SACRAMENTO, Calif. (CN) — The California Energy Commission chastised Big Oil on Tuesday ahead of a legislative special session on Governor Gavin Newsom’s call for a windfall tax on petroleum companies. 

The commission held a public hearing to determine why oil companies have enjoyed record profits while historic high prices for gasoline plagued residents for months and led Newsom to initiate the Middle Class Tax Refund for Californians. 

Newsom said in a statement in September that while crude oil prices were dropping, the average gas price surged to $6.29.

“Meanwhile, oil companies have raked in unprecedented profits on the backs of hard-working Californians — nearly $100 billion in the last three months alone,” he said, calling on the Legislature to meet Dec. 5 to discuss his windfall profit tax proposal. 

California Attorney General Rob Bonta said he will monitor Big Oil after having already warned refineries “against taking advantage of ongoing market disruptions.”

Newsom's action comes amid what some call an "escalation" in the governor’s war with the oil industry as he pushes the state toward alternative energy sources, and clashes with Republican adversaries who receive campaign funds from the oil and gas industry.

Big Oil was conspicuously absent from the hearing Tuesday, although commission chair David Hochschild said he had invited the five major companies.

The commission’s executive director Drew Bohan said California saw a historic record average price of $6.42 per gallon even as crude oil rates dropped in late September and early October. 

California's retail gas prices with a comparison to nationwide spikes, provided to the California Energy Commission. (CEC via Courthouse News)

Fuels specialist Gordon Schremp explained there are 11 refineries in three California locations, but production has decreased and more expensive crude oil is coming from foreign and Alaska sources than ever before. 

Since 2017, California has used less gasoline each year likely due to increasing remote work and utilization of electric vehicles, and the transportation industry is nearly self-sufficient — meaning outside oil is not routinely needed. But the isolated state market is more susceptible to price spikes during unplanned outages, Schremp said, and Big Oil has a bigger tax burden in California as well as higher production and environmental costs and more expensive crude oil. 

Data gathered by the California Energy Commission shows the weekly price spikes for gasoline in 2022 in the state. (CEC via Courthouse News)

Retail prices dropped this month to below $5 a gallon in the state Tuesday morning, though nationally prices have dropped even lower, he said.

“We expect these prices to keep going down because wholesale prices have dropped so significantly,” Schremp said. He credited Newsom’s call for an early transition to winter gasoline for driving wholesale prices’ drop by $1.30 in one week — a record one-day decrease.

Commission economist Ysbrand van der Werf said California exports more than 100,000 barrels of gas — 10% of the state’s petroleum — to Nevada and Arizona by pipeline. The exports jumped 23% during Covid-19 but are expected to drop next year.

Supervisor Quentin Gee said the electric vehicle market has grown 17.7% since 2021, although the majority of Californians have not purchased these cars. He suggested the state should gather data from the petroleum industry to craft a complete green energy transition study.

When the commission opened up to a panel of conflicting interests — petroleum industry lobbyists and consumer advocates — tensions rose. 

Elena Krieger, research director at PSE Healthy Energy, said the commission should review how low-income communities of color face disparate costs to commute to work — and disparate transportation pollution effects.  She said the state should explore aid for affected communities and helping people transition to green vehicles, which the Legislature has already begun

Catherine Reheis-Boyd of Western States Petroleum Association blamed low resource levels and high prices on restrictive land use decisions and permit denials.

“You cannot tax your way out of this problem,” she said. “You are sending the absolute opposite investment indication to anyone who wants to continue business here.”

David Hackett of Stillwater Associates said he thinks there are not enough gas stations and choices for California drivers. He said refiners from other states think the states’ regulations are “goofy" and create barriers for new market participants. 

Severin Borenstein of UC Berkeley’s Haas School of Business and Energy Institute UC Berkeley said the commission should focus on ongoing high prices in California which financially impact people most.

He said drivers are most hurt by price hikes at local gas stations, largely dominated by Big Oil brands, and the commission needs the authority and resources to dig into retail sector issues. He said a windfall tax would only bring back some profits to the public, not lower gas prices. 

A graph provided by a consumer advocate shows data on gas refiner profits may be incomplete is already beyond projections. (Jamie Court/CEC via Courthouse News)

Consumer advocate Jamie Court said petroleum companies only lose about 69 cents per gallon to taxes and environmental programs, and made windfall profits — likely more than double their expected profits — from gas prices peaking at $2.60 higher than the rest of the country. 

"When they want to squeeze us, they can,” he said. “If we don't create a windfall cap or a price-gouging rebate, we’re going to be an ATM for these refiners in perpetuity.” He said there should also be a public ledger for transactions in the spot market, with the attorney general empowered to investigate it.

While Stillwater and Western Petroleum claimed regulations, refinery issues and low imports created high prices, Court said refiners’ profits actually went up thanks to long-term contracts and manipulating spot market rates. 

“They can jack prices up on the spot market because no one’s watching,” he said. "I'm not going to cry for the refiners, I'm going to cry for the people who can't afford to drive to work because they gotta pay $6 a gallon for gas." 

The commission said it will carry out a study of the market and how to transition away from fossil fuels with care. 

“It is pretty clear we need to move away from fossil fuels. But our job here is to take care of Californians and make sure the transition to a decarbonized future is in an equitable fashion, in a predictable fashion, in a way we can manage so no one gets hurt," commission vice chair Siva Gunda said.

Data gathered by the California Energy Commission shows the cost breakdown for gasoline in the state. (CEC via Courthouse News)

Read the Top 8

Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.

Loading
Loading...