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