The California Energy Commission is currently contemplating the implementation of a rule that would enforce profit caps on the state’s remaining nine refineries. These refineries are the sole producers of California’s unique gas formulation. Consequently, this potential regulation could lead to increased gas prices in Arizona and Nevada, which rely on California gas.
During a California Senate committee hearing, Arizona State Representative Justin Wilmeth expressed concerns about the potential impact of a refinery profit cap on consumers in California, Nevada, and Arizona. Wilmeth emphasized that such a cap could lead to increased retail prices for consumers and even result in the premature closure of refineries in California. He further stated that these decisions would have detrimental effects on both Arizona and Nevada.
California implemented SB-2 in 2023, which requires the CEC to investigate the possibility of establishing a maximum profit margin for oil refineries. The aim is to mitigate price fluctuations and achieve stability in the gasoline fuel supply market. A contributing factor to California’s gas prices being $1.73 higher than the national average is the state’s highest-in-the-nation gas taxes and fees, totaling $1.62 per gallon. Additionally, the use of California-specific gasoline, which cannot be imported from refineries that do not produce this formulation, adds to the price disparity. Presently, California is home to 14 operational oil refineries, out of which only 10 produce gasoline.
California’s limited number of refineries forces the remaining ones to operate at almost full capacity, around 99.7%. As a result, any decrease in production due to maintenance work can lead to significant supply disruptions and subsequent price increases. During times of severe gasoline shortages, the state has had to rely on imports from regions such as Asia, Europe, and Mexico. However, given California’s shift away from fossil fuels and the decline in fossil fuel production, refinery operators have little motivation to invest in expanding or modernizing their operations within the state.
Consumer Watchdog argues that this situation adversely affects California’s most economically vulnerable workers, thus making a strong case for implementing profit caps.
Kim Stone, representing Consumer Watchdog, highlighted the impact of rising gas prices on low-income individuals and families at a recent hearing. She stated that when gas prices reach $4 per gallon, 9% of an annual minimum wage salary is spent on fuel. This percentage increases to 11% when gas prices reach $5 per gallon, and further rises to 13% when gas prices reach $6 per gallon. Stone emphasized that implementing a maximum margin on gas prices could greatly benefit low-income individuals and families by reducing price spikes.
Manufacturers acknowledge that the elevated costs of refined fossil fuel products in the state pose a significant challenge. However, they emphasize that expanding refinery capacity and increasing fossil fuel supply would be more effective in supporting businesses and consumers, rather than implementing a cap on refinery profits. They argue that such a cap would only lead to higher energy prices and potentially jeopardize energy supplies.
Dean Teller, speaking on behalf of the California Manufacturers and Technology Association, expressed concerns about the potential consequences of implementing measures that would penalize California consumers and worsen the already limited supply of in-state gasoline. Teller emphasized the importance of addressing existing challenges related to the gasoline supply, such as permitting hurdles, production limitations, regulatory uncertainties, and geographical restraints. He also highlighted the potential negative impact on investment in California’s refining capabilities and the possible shutdown of active refineries. Teller stressed the need for the state to focus on finding solutions that would avoid fuel shortages and their severe consequences across various industries.
The CEC will decide by the end of 2024 whether to implement a profit cap.
