Two Western Governors last Tuesday wrote to California Gov. Gavin Newsom warning that his new plan to mitigate rising gasoline prices will backfire and harm their citizens. “It is evident that increased regulatory burdens on refiners and forced supply shortages will result in higher costs for consumers in all of our states,” they write.
Hobbs, a fellow Democrat, and Lombardo, a Republican, urging Newsom on Monday not to rush to pass a proposal that would give California authority to require refiners to store more gas. The plan aims to prevent price spikes. The governors said the proposal risked raising prices and creating shortages at gas stations in their states, which receive large portions of fuel from California refineries.
California refineries supply nearly 90% of Nevada’s gasoline and half of Arizona’s market. Regulations that raise costs on California refineries raise prices at the pump in Arizona and Nevada. This is why gasoline prices in Nevada ($4 a gallon) and Arizona ($3.42) are higher than the national average ($3.23) despite their low state gas taxes.
According to the Wall Street Journal, California’s burdensome climate regulations and permitting headaches have caused seven refineries to cease production over the last decade, shrinking supply.
Newsom is pushing for legislation in a special session to start next month that would require refiners to maintain larger fuel stockpiles to mitigate supply shortages and price increases. That legislation would force refiners to produce extra gasoline merely to stoe it, which could further drive up the price of gasoline. Gasoline only has a shelf life of 3-6 months.
Today, the Division of Petroleum Market Oversight (DPMO) sent a letter to Governor Gavin Newsom and state legislative leadership providing an update on the gasoline market and consumer advisory amid rising retail gas prices, particularly in Northern California.
The letter details how refinery maintenance, low inventories, and spot market volatility are driving up California gas prices, even as crude oil prices and national gas prices are declining. These are the same market conditions, along with increasing regulatory costs, that drove retail gas price spikes in 2022 and 2023.
State officials can better understand supply, demand, and price trends in the petroleum market because of data and transparency tools provided under Senate Bill X1-2, the California Gas Price Gouging and Transparency Law, which took effect last year.
DPMO is an independent division within the California Energy Commission (CEC) that was created as part of the new law. It is responsible for carrying out the activities in the law focused on market oversight and investigation.
The latest price spike is in Northern California, where retail gas prices increased from $4.76 on August 20 to $5.02 on September 12. This is $1.92 higher than the national average.
Multiple refineries throughout California have experienced maintenance issues in the past few weeks. In addition, refineries have allowed inventories to decline by about 12 percent since late June, leaving less supply available to stabilize prices and protect consumers. This is a result of California energy policy that encourage over 20 refineries to shutter, leaving les than 10 to supply three states gasoline, jet fuel, and diesel markets.
California Assembly Republicans last week unveiled their own plan for the upcoming special session. The Assembly Republican Caucus announced seven bills that they contend would actually bring gas prices down.
That includes bills to exempt gas from California’s cap-and-trade program — which they say adds 30 cents to the cost of a gallon of gas; a bill to suspend the state’s gas tax for one year; a bill to require the California Energy Commission to regularly update a public dashboard to compare California’s gas prices to national averages and more.
Assembly Republican Leader James Gallagher, R-Yuba City, said in a statement that Newsom has failed to bring down the cost of gas, and the special session is an attempt to distract from that.
“While Democrats fall in line behind a scheme that Newsom’s own administration says could increase gas prices, Assembly Republicans have a common-sense plan to give drivers relief,” he said.
So far, upstream production is not planned to be a subject covered by the special session next month.