When does the pain at the pump mean predatory gas pricing?

The answer goes deeper than gas station markups.|

My Press Democrat colleague, Colin Atagi, has been exploring the what — more than $8 a gallon along Highway 1! — and the why of soaring gas prices in our North Bay communities. As the pain at the pump persists, I’ve been wondering about the role price gouging could be playing, in addition to such well-established factors as the Ukraine conflict and inflation, and what protections might exist for consumers.

Maybe you are, too.

To start, on a technical note, price gouging refers to sellers taking advantage of a crisis by charging much higher prices than usual for essential goods and services.

So, for legal protections to kick in, there must be a local, state or federal emergency declaration in place. Once a state of emergency is declared, state law prohibits price markups of more than 10%, and local jurisdictions may have additional standards.

Though the market disruption has triggered price gouging protections in some places like Connecticut, for now, that’s not the case in California. (You can keep tabs on emergency declarations by checking the governor’s website at gov.ca.gov, or contacting your local city or county emergency management agency or sheriff’s office.)

Experts so far mostly say the evidence doesn’t point to price gouging at the gas pump, but officials and advocates are on the lookout with a particular eye toward gas suppliers rather than individual stations.

“Price gouging laws are generally meant to target retail,” says Jamie Court, president of Consumer Watchdog, a California advocacy nonprofit.

There’s no real remedy for what Court calls “predatory pricing” set by the major companies providing gas to stations “other than earning the wrath of public opinion and maybe getting more regulation out of the legislature,” he tells me.

Court has followed the issue since he was appointed to the attorney general’s task force on gas price spikes in 2000.

“I learned all about how it happens and why it happens, and it all happens within largely legal means,” he tells me. “But it doesn’t mean that when our gas prices are going up 20, 30, 40 cents a night that the oil refiners aren’t making a killing off every one of those price spikes.”

This year’s particularly acute price hike has recently spurred action.

Last week, advocacy group Public Watchdogs asked the California attorney general to look into whether the state’s oil and gas refiners’ prices acceptably reflect spiking costs due to market forces, or whether they’re taking advantage of the moment to increase profits and shareholder returns.

Indeed, U.S. Rep. John Garamendi, who represents much of the Sacramento Valley, led 32 other congressional members in calling for an investigation into potential “illegal profiteering, anti-competitive business practices and price gouging within the oil and gas industry.”

To get to the bottom of the open question, California State Sen. Ben Allen of the Los Angeles area recently introduced legislation, SB 1322, that would require oil refiners to report the price they pay for crude each month, as well as the profit margin.

While public and, admittedly, media attention on gas pricing tends to fluctuate in tandem with the price at the pump, in California, there has long been an ongoing need for scrutiny into the mismatch between gas prices in the state and the rest of the country.

“The irony is that temporary price spikes can be part of the normal, healthy operation of the gasoline market, reflecting a short-term supply shortage, generally due to a refinery disruption,” wrote Severin Borenstein, director of the University of California Energy Institute, in a 2020 blog post. “It’s an extended price premium that signals something is amiss, and that costs consumers the big bucks.”

Such is the case with what Borenstein calls California’s “mystery gas surcharge.”

This “mystery” charge refers specifically to the added unexplained cost of gas to Californians compared to other Americans after accounting for the state’s additional taxes and environmental fees and cleaner gas formulation requirements.

Industry representatives have noted widely varying local taxes also need to be taken into account.

Nonetheless, this additional charge seems to have appeared in the wake of a gas price spike after an explosion caused an outage at Exxon’s Torrance refinery in 2015. The spike never receded.

Since then, Court of Consumer Watchdog contends, refiners have managed to increase profits through a practice of charging more to branded retail outlets than unbranded gas stations — a price gap that far exceeds the differential out of state.

In 2019, five years after Consumer Watchdog brought the issue to officials’ attention, Gov. Gavin Newsom directed the California Energy Commission to look into the price differential.

The resulting report concluded that name-brand sellers are “charging higher prices for what appears to be the same product.”

2019 CEC Gas Price Report.pdf

“The primary cause of the residual price increase is simply that California’s retail gasoline outlets are charging higher prices than those in other states,” the study stated.

It calculated California gas consumers paid an extra $1.5 billion in 2018 and $11.6 billion over the course of five years (or roughly 30 cents more per gallon or $4.50 per fill-up at the time).

“In a competitive marketplace of similar products, when one retailer increases prices, consumers tend to buy more from lower-priced retailers,” the report continued. “However, when these gasoline brands significantly increased their prices, they did not lose market share. This is evidence of market power.”

It’s relevant to note that five oil refiners — Chevron, Phillips 66, Marathon, Valero and PBF Energy — control 96% of the gas in California.

The commission stopped short of alleging price fixing (when competitors agree to set prices at a certain level) or false advertising, though it did add that the “California Department of Justice is well equipped to conduct an appropriate investigation.”

While Newsom directed then-Attorney General Xavier Becerra to investigate, it is unclear what has happened since.

“To protect its integrity, we are unable to comment on, even to confirm or deny, a potential or ongoing investigation,” the Attorney General’s Office told me in a statement.

In 2020, the office did file one lawsuit against Vitol and SK Energy Americas for allegedly manipulating gas prices after the 2015 Exxon refinery explosion. (There was a hearing in the case on Tuesday.)

As all this plays out, consumers have few options but to shop around (try gas price comparison apps), pay cash for cheaper prices and opt for unbranded stations — the latter of which, at scale, could put pressure on gasoline suppliers to lower brand-name retail prices, experts say.

Gov. Newsom also recently said during his State of the State address he is working on a possible rebate to offset rising gas costs.

Despite there being no current state of emergency, the Attorney General’s Office says it’s “closely monitoring the market” and “laws prohibiting deceptive pricing, price fixing or other antitrust violations remain in effect.”

To report relevant information, go to www.oag.ca.gov/report or call 800-952-5225.

“In Your Corner” is a new column that puts watchdog reporting to work for the community. If you have a concern, a tip, or a hunch, you can reach “In Your Corner” Columnist Marisa Endicott at 707-521-5470 or marisa.endicott@pressdemocrat.com. On Twitter @InYourCornerTPD and Facebook @InYourCornerTPD.

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