California Regulators Expose Oil Refiner Profiteering at Assembly Hearing
SACRAMENTO, Calif. – A recent California Assembly oversight hearing brought to light startling revelations about the excessive profits reaped by oil refiners operating in the state. Data presented by the California Energy Commission (CEC) and the Division of Petroleum Market Oversight (DPMO) painted a clear picture of a system where a handful of powerful refiners leverage their market dominance to extract exorbitant profits from California consumers, contributing to the state’s notoriously high gasoline prices.
The hearing exposed a significant disparity between California’s gasoline prices and those in other states. Since 2015, Californians have paid an average of 41 cents more per gallon than drivers in other states, even after accounting for taxes, fees, and environmental program costs. This price discrepancy aligns with a substantial increase in gross gasoline industry margins in California, which have risen by 36 cents per gallon compared to the rest of the U.S. during the same period. These margins peaked at a staggering $2.36 per gallon during the fall 2022 price spike, further underscoring the extent of refiner profiteering.
Market concentration plays a crucial role in this dynamic. Four companies control approximately 90% of in-state refining capacity, and about half of refiner sales occur through vertically integrated channels, allowing these companies to dictate prices throughout the supply chain. This control is projected to increase to 98% after planned refinery closures, further consolidating market power. The data revealed a clear pattern of “haves” and “have nots” within the refining sector. Large, integrated refiners with established retail networks reaped excessive profits, while smaller, non-integrated refiners struggled, highlighting the vulnerability of independent operators in a market dominated by a few powerful players.
The hearing also shed light on the "mystery gasoline surcharge" – the unexplained premium Californians pay at the pump. This surcharge, averaging 72 cents per gallon since 2015, appears to be driven by branded refiners leveraging their market power to demand higher prices from station owners. This practice, combined with price spikes in the spot market, has significantly contributed to California’s inflated gasoline prices. Consumer Watchdog President Jamie Court characterized this system as a "mafia-style shakedown scheme" where branded refiners extract excessive profits from their captive networks.
Beyond market manipulation, the hearing uncovered evidence of refiners inflating their reported operating costs to manipulate "net margin" data submitted to the state. While the average operational cost of running a refinery, as reported to investors, hovers around 20 cents per gallon, refiners reported inflated operating expenses ranging from 60 to 80 cents per gallon to the state. These inflated figures likely include the costs associated with producing jet fuel and diesel, not just gasoline, further obscuring the true profitability of gasoline refining operations. This discrepancy raises serious questions about the transparency and accuracy of the data provided by refiners to state regulators.
The CEC expressed concerns about the stability of existing refineries, particularly the smaller, “unbranded focused” refiners, which are more vulnerable to market fluctuations and closures. Two recent refinery closures underscore these concerns, and the CEC noted that similar closures are occurring in other states due to the rise of mega-refineries in countries like Mexico, Kuwait, Nigeria, and Oman. Vice Chairman Siva Gunda also highlighted the potential closure of a crude oil pipeline supplying Northern California refineries, which could further exacerbate the challenges in the refining market. He suggested increasing crude oil extraction from Kern County as a possible solution, claiming a state analysis found this could be achieved without violating existing setback regulations between oil wells and communities. This proposal, however, is likely to spark debate regarding environmental impacts and community safety. The revelations from this hearing underscore the urgent need for greater transparency and regulatory oversight in California’s gasoline market.
