Anyone who has spent time working in or around California’s State Capitol over the past 40 years knows the name Dan Walters. He has been a leading opinion writer for numerous publications and continues to provide his sage insights into what’s happening under the dome.
In a recent opinion piece for CalMatters, Walters doesn’t mince words: “It’s time to blow the whistle on the farcical efforts of California’s politicians — especially Gov. Gavin Newsom — to reduce the state’s high gasoline prices.”
Walters rightly notes that Newsom has never offered any persuasive evidence of oil company price gouging, nor has such behavior been validated by those who have seriously examined the factors that cause California gas prices to be the highest of any state.
Still, in the waning hours of the 2023-2024 Legislative Session (in an election year, no less), Newsom demanded that the Legislature, which adjourned for the year in early September, reconvene in a special session on gas prices to continue his crusade against the oil industry, charging it with price gouging.
According to Walters, “Severin Borenstein, a UC Berkeley economist regarded as the state’s leading expert on the issue, parsed the differential in a 2023 paper, pointing out that California’s direct and indirect taxes on fuel amount to nearly $1 per gallon — 70 cents higher than the national average of such taxes — and the state’s unique fuel blend to battle smog adds another dime.”
Borenstein’s calculations leave what he calls the “mystery gasoline surcharge” of about 43 cents a gallon that cannot be directly attributed to crude oil prices, California’s taxes or other obvious factors. However, at least some of it reflects the relatively high costs of doing any kind of business in California — rents, electricity and other utilities, wages and regulatory overhead, for example.
Specifically, Newsom’s latest foray is a demand that the Legislature order refineries to put more refined fuel into storage, as a buffer against price spikes caused by refinery outages or other factors.
While such an idea sounds plausible it assumes refiners have storage capacity to comply with such a law or could easily expand storage. But storage is not without its costs, which could drive retail prices even higher.
A point Dan Walters does not make is that the price spikes at the pump are mostly the fault of California’s government. In Newsom’s first term of office, his administration systematically moved to shut down the oil industry illegally, by backchannelling orders to bureaucrats to shut down the oil industry by not issuing permits.
Newsom’s administration also illegally banned fracking with an Executive Order and put a pause on cyclic steaming for several years. All of these factors significantly reduced in-state production and outsourced the refinery inputs (crude oil from the Middle East and South America), which increased prices at the pump. Foreign crude oil is approximately $5-6 dollars per barrel more expensive than California crude oil.
The state Energy Commission declared in a recent analysis that Newsom’s proposal in the special session has the potential to “artificially create shortages in downstream markets” and “increase average prices.”
The commission noted that “there may be a case for additional storage as a matter of maintaining supply resiliency for the next two decades, but such investments do pose a stranded assets risk. More analysis is needed to determine whether the benefits of enhanced supply resiliency are worth the investment in the near term.”
As has become his modus operandi, Newsom wants the Legislature to act immediately without “more analysis,” which Walters notes is the antithesis of prudent lawmaking. This sort of “shoot first, aim later” approach to policy making is irresponsible and endangers the California economy. Such was the case with the ill-fated SB 1137 “setback” law in 2022 that received one policy hearing in the three short days it was in existence. The Legislature caved to Newsom’s pressure on SB 1137, even though, as Walters notes, such behavior is the antithesis of prudent lawmaking.