Attorney General Xavier Becerra announced late last week that he has filed a lawsuit against two multinational gasoline trading firms for participating in a “scheme to drive up and manipulate the spot market price for gasoline so that they could realize windfall profits.”
Becerra says the alleged unfair competition practices may have resulted in an increase in the price of gas of about 1 cent per gallon.
This is the last act of a show commissioned by Gov. Gavin Newsom in April 2019, when he asked the California Energy Commission to investigate why California’s gas prices are so much higher than the rest of the country.
In a 10-page report, the CEC found that in 2018, California drivers “paid an average of 30 cents more per gallon of gasoline at higher-priced retail outlets such as 76, Chevron and Shell, than the average American paid for gasoline in other states.” But the brand-name mark-up is a fraction of the difference between what Californians pay and what consumers in other states are charged for gasoline. What accounts for the rest of the difference?
The CEC report said it’s due to “California’s additional program costs.” It’s more expensive to produce the state’s required formulation of gasoline, which is sold in no other state, so it’s impossible to import gasoline across state lines when a refinery problem causes tight supplies and short-term price increases.
Other “program costs” include the mandated low-carbon fuel standard and the cap-and-trade program, both intended to reduce greenhouse gas emissions.
And taxes. Gov. Jerry Brown’s signature on Senate Bill 1 in 2017 added 12 cents to the price per gallon of gasoline to pay for road repairs. The tax increases annually with inflation.
Although the CEC report states that no evidence of illegal practices was found, the CEC did not rule out the possibility of illegal activity. Newsom immediately asked Becerra to investigate further.
That was in October, and now we have the result. After a wide-ranging investigation into the oil companies to search for illegal conduct, Becerra uncovered what he alleges is price gouging by two international energy traders taking advantage of market disruptions following a 2015 refinery explosion in Torrance.
According to the lawsuit, Vitol and SK Energy Americas negotiated large contracts for gasoline and blending components in a way that amounts to price manipulation, possibly resulting in an increase of more than 1 cent in the price of gas and generating up to $150 million in profits.
