The “special” legislative session on gasoline price gouging called for last Dec. 1 by Gov. Gavin Newsom has dragged on for months, still with no sign that a decision is near on whether to levy a windfall profits tax on California’s oil refiners.
There is no question about the windfall profits part of all this: When they raised gas prices nearly to the $7 per gallon level starting last February, the refiners made great gobs of money.
California’s Big 5 gasoline makers — Chevron, Marathon, PBF, Phillips 66 and Valero — posted overall profits of $67.6 billion over the first nine months of 2022, nearly four times as much as they made in the same nine months in 2021. Their yearly gains were even higher.
Then came Newsom’s call for a special session, and what do you know? Prices dropped, all the way down to about $4 per gallon within a month or so.
Anyone who tells you this drop had nothing to do with the threat of a windfall profits tax is blowing smoke.
Gasoline prices had never before seen such a roller coaster. It’s a safe bet this would not have happened without the threat of a windfall profits limit.
Of course, oil companies have price-gouged before. Over the last 50 years, there were at least nine times when gas prices leaped 20% or more within a month, then fell back somewhat after a while.
But this was the first time in modern history prices actually returned to prior levels before inching back up.
Some refiners hope they won’t be faced with windfall profits punishment because it takes a two-thirds majority vote of both state legislative houses to pass a new tax. The oil companies know they’ll get all Republican votes against any such tax, and hope to pick up the few Democrats needed to prevent a two-thirds vote against them.
So some consumerist lawmakers are ready to call this a “fee” or a “penalty” and then let courts decide if it’s really a tax.
But the bottom line is that oil companies now live in fear, regardless of their public stance. They know they had no real excuse for the massive price increases they imposed and kept charging most of last year.
Meanwhile, more than 80 consumer or environmental groups signed a letter of support to Democratic state Sen. Nancy Skinner of Berkeley, author of the anti-price gouging bill now active in Sacramento.
The bill would impose penalties when per-gallon profits become abnormally high.
And we will soon have regular knowledge about this: A new law signed last fall requires refiners to report their average profits per gallon monthly starting this spring.
As yet, no numbers have been set for what’s a “normal” profit and what makes a “windfall.” That is part of the legislative battle playing out quietly for now.
None of this, of course, promises to do much about the cartel-like behavior of the state’s five large refiners, who account for more than 90% of California gasoline. When one refiner raises prices, they all do.
When one makes cuts, so do the others. It really doesn’t matter what brand you buy; in any single general area, you’ll pay about the same price.
No one yet has come up with a workable way to stop this, as refiners insist prices are dictated by things like regular maintenance shutdowns and international events.
(Even though it affected less than 3% of their regular supply, the refiners blamed their huge price increase last year on the American boycott of Russian oil, spurred by Russia’s invasion of Ukraine.)
Usually, those excuses don’t hold water, but the refiners don’t care; they still repeat the litany with straight faces.
The difference this time is they face a governor who’s not buying it. Knowing California taxes account for less than a dollar of the $2.60 difference between California prices and national ones last summer, Newsom said, “Oil companies have not explained the divergence between prices in California compared to the national average. We’re not going to stand by while greedy oil companies fleece California.”
But so far, lawmakers have not backed him up. It’s now high time for them to act.
Email Thomas Elias at [email protected]