- A new California law targets gas price gouging in the state – the first such law in the U.S.
- An independent watchdog will monitor the state’s petroleum industry.
- The agency will have authority to subpoena records from oil companies and impose hefty penalties if companies refuse to turn over requested information.
At the end of March, California Gov. Gavin Newsom signed a law passed by leaders in the state legislature that aims to end Big Oil’s rampant gas price gouging at the pump.
The new law should be a welcome relief for hard-working Californians whose wallets have been strained after refiners needlessly hiked the cost of gas throughout the state. At some times last year the average price of a gallon of gas in California was almost $7 in certain areas – more than twice the national average, and with zero justification for the astronomical price.
But how will the new law – the first of its kind in any state – help in the future?
Getting the gist of gouging
Price gouging is charging consumers far above what’s fair.
Earlier this year, California-based oil giant Chevron announced it had made nearly $36 billion in profits in 2022 – more than double what it raked in the previous year. Not coincidentally, at about the same time, state residents faced sky-high gas prices, particularly compared to elsewhere.
When asked by California lawmakers to justify the eye-popping price tag, oil companies chose not to answer. They instead responded with generalizations such as “It’s a matter of supply and demand – we have too few oil refineries in California and a lot of demand.”
But that take has been debunked. Since August 2022, the price of crude oil fell by 20 percent, from $100 to $80 per barrel. There’s no excuse for what Big Oil has been charging.
Just five oil refiners produce nearly 100 percent of the gas sold in California. They set the price per gallon at every gas station in the state. So they’re responsible for the surge in gas prices last year, and they can’t even be bothered to give a plausible explanation for the rise.
The upswing in prices helped these oil companies make billions in windfall profits in 2022 through price gouging everyday families already struggling with the rising cost of living.
How does the bill work?
The new law works by ensuring oil refiners don’t continue to increase gas prices artificially. It takes three steps that should help curb gas price gouging in the future:
- It authorizes the California Energy Commission to set a difference between the market price of crude oil and the wholesale price of gas – a so-called maximum refining margin. And it creates a dollar penalty for any California-based refinery that exceeds the margin.
- The law requires that all penalties collected from refineries be deposited into a special fund in the state treasury. It will be used to address any consequences of price gouging.
- It creates a group within the California Energy Commission called the Division of Petroleum Market Oversight. This division works independently of the commission and guides the governor on gas pricing and related issues.
Why it’s a good thing
This new law will penalize oil companies that continue to manipulate gas prices. The increased transparency may also encourage them to stop gas price gouging to avoid penalties.
The money deposited into the special fund will go back to Californians to address the harm caused by price gouging.
Newsom requested a special session to consider the law, pushing for urgent action in order to prevent this year repeating the gas price excesses of 2022.
Anything passed by the legislature and signed by the governor following a special session takes effect after 90 days, instead of the usual January 1 of the following year. Big Oil is therefore on notice that from late June onward it will be facing new, much stricter oversight.
Why we support it
EWG has a long history of standing up for the consumer.
So we, along with other public interest organizations, including Consumer Watchdog, Center for Biological Diversity, Environment California and others, applaud passage of this bill to hold oil refiners accountable and to protect consumers in California at the pump.
Passage and enactment of this landmark law shows that the system can work when our leaders focus on protecting people, their wallets and the environment.
