SACRAMENTO, Calif. (CN) — California lawmakers queried state workers and oil business representatives Tuesday about the Golden State’s gasoline industry, drilling for answers on why the state’s gas prices are high and looking for potential solutions.
The hearing of the state Senate Energy, Utilities and Communications Committee provided data and testimony that stems from the 2023 passage of bill focused on gas prices, profits, distribution and retail elements. No action was taken and future hearings are expected.
While data took center stage during the hearing, high gas prices stole the show.
“Price spikes are profit spikes for the oil industry,” said Tai Milder, a director with the Division of Petroleum Market Oversight within the California Energy Commission.
Milder and other state administrators honed in on the reasons for gas prices and spikes.
According to Siva Gunda, vice chair of the California Energy Commission, California has nine refineries, four of which control over 90% of the market in the state. Planned and unplanned maintenance by those refineries can impact supply, which affects the price of gas.
There are other factors at play as well. California has no gas pipelines like other states, as it has the Pacific Ocean to its west and several mountain ranges to the east. Any crude oil it doesn’t produce must come through a port, which takes longer, increases the cost and does more damage to the climate than producing it here, said Cathy Reheis-Boyd, president and CEO of the Western States Petroleum Association.
Reheis-Boyd added the data doesn't show evidence of price gouging.
Gas prices were a major reason Governor Gavin Newsom called for a special session of the Legislature in December 2022. He wanted lawmakers to focus on legislation that would deter price gouging through penalties on high profit margins and have more oversight of the gas industry.
The profit margin cap was removed from the legislation, though it expanded and updated existing industry reporting requirements. However, the state energy commission is authorized to implement such a cap. Newsom signed the bill in March 2023, which led to Tuesday’s oversight hearing.
Gunda said his office has regular contact with the gasoline industry, which indicated it would strive to avoid exceeding any cap, if one were set.
“One of the things the industry noted is they might move,” Gunda added.
That potential problem isn’t easily solved by replacing them. Gunda said California has high barriers to entering the industry. It would cost some $3 billion to $5 billion for a new refinery. The state also has strong climate and environmental goals that affect the industry.
And, with the push toward cleaner energy, gasoline is a declining market.
Reheis-Boyd said refiners would not violate the law if a cap existed. That would lead to less refining, not more, because they’d be incentivized to avoid nearing the cap.
“It would be the exact opposite effect of what the (California Energy Commission) wants,” she added.
John Wenger, legislative advocate with the California Fuels and Convenience Alliance, said he was concerned about the law’s reporting obligations. Some reports have over 20 to 30 fields that must be completed. Other reports must be filed before the relevant data is available.
Some businesses already have left the state, Wenger said. He fears supply issues will become more exacerbated as summer grows closer.
Gunda said more supply will blunt the impact of price spikes. He hopes to achieve that level of supply in collaboration with the industry.
State Senator Nancy Skinner — committee member and Berkeley Democrat, as well as the author of the bill that led to Tuesday’s hearing — said a lack of competition has put the state in its current position. She questioned if allowing more gasoline blends could help.
Reheis-Boyd said state policies shrink supply. Failing to produce enough crude locally, which leads to more imports by sea, will only lead to more traffic at already congested ports.
She also pointed to no new drilling permit approvals in over a year.
“This is not unsolvable,” she said. “This is completely solvable.”
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