SACRAMENTO, Calif., May 6, 2024
/PRNewswire/ -- In comments filed with the California Energy
Commission (CEC) Friday, Consumer Watchdog made the case for a
maximum gross refining margin that penalizes refiners for profits
of over 70 cents per
gallon.
The nonprofit group pointed to state data showing 2022 and 2023
as unprecedented years for refining margins and that refining
margins for the rest of the last decade averaged 64 cents per gallon. By contrast, refiners
reported an average annual margin of $1.01 in 2023.
Consumer Watchdog called out California's big five oil refiners, which make
98% of California's gasoline, for
creating artificial supply shortages that allowed them to make
excessive profits.
"Research verified by the California Energy Commission (CEC) and
Division of Market Oversight (DMO) shows that with every price
spike during the last decade there has been a corresponding
margin/profit spike," Consumer Watchdog President Jamie Court said. "The price spikes and
corresponding profit spikes were typically precipitated by or
coincided with a perceived shortage in supply due to a refinery
shutdown/slowdown, limited inventory, and/or increased exports, or
a spot market trade indicating a coming shortage. The only way to
discourage higher prices and the corresponding higher margins is
with the deterrent of a maximum gross refining margin set high
enough for a reasonable profit and low enough to discourage the
price gouging Californians have been
experiencing."
Read the comments.
"If refiners cannot make unlimited amounts off short supply,
they will have an incentive to have ample supply and make more
money by making more gasoline," Court wrote. "This
statement is validated by the economic research of the Division of
Market Oversight chief economist Gigi
Moreno and Matthew
Zaragosa-Watkins of Vanderbilt
University and UC Davis, as presented to this Commission.
Refining capacity does exist to meet demand in California despite the protestations of the
industry, both at existing refineries and to supplement supply in
the form of imports of finished product and blend
stocks. According to McCullough Research, the Pacific Rim has about 54,785,000 barrels/day
of gasoline capacity, which dwarfs the approximately 4.6% of that
capacity is in Alaska,
Washington, and California. Traditionally, when supplies are
low, California has imported
gasoline for California markets
and continues to have the ability to import from other Pacific Rim countries. Ocean shipping from
Singapore, for example, is three
weeks away. As rational actors, refiners will make use of their
ability to import if necessary."
Consumer Watchdog's Court cautioned the Commission about giving
into refiners' threats that they will keep prices higher throughout
the rest of the year to make up for periods of lost profit taking
if a maximum margin is implemented. He pointed to anti-trust law as
a bar on such conduct.
"Companies often defend against accusations of illegal parallel
actions by demonstrating legitimate business reasons for their
behavior," Court wrote. "Sustaining higher prices and
profits all year long in the absence of such legitimate reasons –
supply disruptions – would create great legal peril for the
companies who maintain the higher prices/margins without such
reasons. The market is so consolidated and there are so many
feasible mechanisms for collusion due to the widespread information
sharing in the industry anti-trust regulators would have a basis to
act.
"It would be disingenuous policymaking to fail to implement a
maximum price gouging penalty because the Commission fears refiners
will collude to keep prices higher than warranted. It's the
equivalent of giving into terrorists when we have laws that
penalize terrorism."
Court reminded the Commission about the impetus behind the law
establishing the new rules.
"The biggest impact of the max margin will be on low-income
individuals who cannot afford an extra $20 per fill up. When gas prices spike,
low-income workers feel it the most. At $4 per gallon, 9% of an annual minimum wage
salary is spent on gas. At $5 per
gallon, 11% of an annual minimum wage salary is spent on gas. At
$6 per gallon, 13% of an annual
minimum wage salary is spent on gas. Low income individuals and
families are the principled beneficiaries of a maximum margin
because of its potential to reduce price spikes that are a huge
shock to their fragile budgets and to stabilize prices."
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SOURCE Consumer Watchdog