Consumer Watchdog Calls Out Oil Refiners' Greed & Disinformation, Makes Case For Price Gouging Penalty Set At 70 Cents Per Gallon In Comments To CA Energy Commission

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Dec 13, 2023, 12:56 ET

SACRAMENTO, Calif., Dec. 13, 2023 /PRNewswire/ -- Consumer Watchdog made a record of oil refiners' profiteering in California and disinformation campaign in official comments before the California Energy Commission as it determines a price gouging penalty on oil refiners.

The comments note the extraordinary growth in profits margins by California oil refiners in recent years and the fact that refiners made 30% more profit in California in 2022 than anywhere else in the world or nation.

"Creating a maximum gross refining margin and penalty is the most effective way to keep gasoline prices in California in line with US gasoline prices and to better balance supply and demand," CW president Jamie Court wrote. "Five oil refiners control 98% of the gasoline supply in California and this oligopoly has abused its market powers to keep gasoline prices artificially high to its great financial benefit."

To prove his point, Court pointed to his group's review of Securities Exchange Commission (SEC) filings showing major refiners' annualized gross refining margins in the West/California topped 50 cents per gallon only three times in the last 20 years, except for 2022 when all exceeded that mark. He noted even higher margins in 2023, including the unprecedented margin of $1.49 per gallon reported by refiners to the CEC in September when gasoline price topped $6 per gallon – compared to 66 cents in January.

With regards to the methodology of setting the appropriate maximum margin level, after which a progressive penalty would apply, Court pointed out that the enabling legislation SBx1 2 requires the market to be based on the "rack price," rather than the dealer tank wagon price, which is the higher price branded stations pay for gasoline delivered to them. As a result, the margin should be set a lower level and in accordance with the CEC research on gross refining margins based on the rack price.

"Based on the chart provided by the CEC at the workshop, showing the maximum margin monthly using the rack price only from 2015 – 2023, a beginning maximum margin in the 70 to 80 cents range would provide deterrence without denying refiners a reasonable profit," Court noted. "The CEC data shows that since 2015 on a monthly basis oil refiners made 80 cents or greater margins 19% of the time and $1.00 or more 5% of the time. Most of these occurrences have been in recent years when the gap between California and US gas prices has grown significantly. There is a direct correlation between the excessive gross refining margin and the periods when California gasoline prices exceed a $1.10 gap with US gas prices. Limiting the gross refining margin will deter gas price spikes and the periods of great disparity with US gas prices, which are the most devastating on low-income individuals."

Court also took issue with the industry's disinformation during the proceeding.

"Oil industry claims about their net margins being in sync with other industries is phony as a three-dollar bill," Court wrote. "The net margins reported to the CEC appear to be pure fiction. For example, the big refiners reported a net margin of 38 cents from gross refining margins of $1.49 in September. This would mean the cost of making a gallon of gasoline has increased from about 20 cents per gallon, the refinery operating expenses reported by three of the five refiners to the SEC over the last two years (PBF, Valero and Marathon), to $1.11 per gallon. Given the average margin over the last 20 years is under 60 cents per gallon, this would mean that oil refiners have been losing 51 cents on every gallon of gas made. The oil refiners are clearly obfuscating and padding their true expenses so that they can falsely claim a reasonable net margin."

Court called on the CEC to publish the breakdown of expenses oil refiners use to calculate their "net margin" and clarify which are reasonable and unreasonable. "For example, are the expenses for making jet and diesel lumped in with the expenses of making gasoline, thereby pumping up the expense costs?" Court asked. "What capital expenditures and amortization are included? The CEC should clarify what can and cannot be counted and publish its own net margin calculations as allowed and provided for under SBx1 2. The industry should not be allowed to obfuscate its true profits. When companies are this dishonest about their expenses and profits the need for greater oversight is clear."

Court also took issue with the industry's false claims about how much taxes and environmental fees add to a gallon of gas in California as opposed to the average state, as well as the refiners' claims that excessive regulation shut down California refineries. Court noted memos from three big California oil refiners showing the companies shut down capacity to drive up price.

"The oil refiners in California have systematically shut down refiners and refineries as a way of maximizing their profits," Court concluded. "The only recourse against big price spikes and big profit spikes is a maximum gross refining margin penalty that sets an upper limit on their greed."

SOURCE Consumer Watchdog