Why are gas prices so high?
It’s déjà vu all over again, to quote the inimitable Yogi Berra and pay homage to the baseball World Series that began this week. For the umpteenth time, California politicians are complaining about the high prices that the state’s motorists pay for gasoline and suggesting that it’s because of nefarious behavior by big bad oil companies.
Gov. Gavin Newsom is the latest complainer, asking Attorney General Xavier Becerra, to “open an investigation into whether false advertising or price fixing are occurring and contributing to the mystery surcharge imposed on Californians.”
Newsom cited a report on fuel prices that he had requested from the California Energy Commission (CEC) last spring, saying it “suggests big oil companies are misleading and overcharging customers, leading to Californians paying as much as 30 cents per gallon more than residents of other states.”
Actually, the price differential was more than 70 cents in 2018, the Energy Commission report said. It attributes half of it to California’s gas taxes, which are among the nation’s highest, and another chunk to higher costs of crude oil.
That left a 23-cent gap “from refiner and retail margins,” which is the “mystery surcharge” to which Newsom referred.
“CEC staff concluded that the primary cause of the residual price increase is simply that California’s retail gasoline outlets are charging higher prices than those in other states” the report said, adding, “The CEC does not have any evidence that gasoline retailers fixed prices or engaged in false advertising. Moreover, the CEC lacks the expertise to determine whether such behavior occurred.”
The report suggested that “The California Department of Justice is well equipped to conduct an appropriate investigation,” and Newsom immediately handed it off to Becerra.
It’s not disputed that Californians are paying substantially more for gasoline than motorists in most other states – $1 or more per gallon compared to the least-expensive states. It’s also not disputed that most of the differential stems from political policy, including taxes and a mandate that fuel sold in California meet strict air quality standards not imposed elsewhere.
It’s a little odd that Newsom should be complaining about that since he’s ordered his transportation department to do whatever it can to reduce automotive travel to battle climate change and high fuel prices should discourage driving.
It’s also a little odd that the CEC’S report did not delve into a factor that could, at least in part, solve what Newsom calls the “mystery surcharge.” That’s the obvious fact that doing any kind of business in California is more expensive than in most other states.
Payroll costs, including wages, benefits and workers’ compensation insurance premiums, are among the nation’s highest. So are land, construction costs, commercial rents and, finally, taxes on business.
By sheer coincidence, as Newsom was calling for an investigation of gas prices, the Washington-based Tax Foundation was releasing its annual report on business tax climate and scored California as having the 48th highest burden, surpassed only by New York and New Jersey. The state’s ranking was strongly influenced by its ultra-high personal income and sales taxes.
If Becerra can find some collusion among oil companies so be it. But one hopes it will be an objective inquiry without the preconceived conclusion that Newsom’s letter suggests, and that it will include factors such as California’s high cost of doing business.
We deserve to know what causes our fuel costs to be so high. We don’t need a witch hunt.
Calmatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.