California’s high gas prices will be investigated for possible price fixing

SACRAMENTO —  Citing gasoline prices that can be 30 cents a gallon higher than those in other states, Gov. Gavin Newsom on Monday asked the state attorney general to investigate whether California’s leading oil and gas suppliers are involved in price-fixing or other unfair practices.

The request, which Atty. Gen. Xavier Becerra’s office said it would accept, comes amid growing frustration with high prices charged in communities across the state. The investigation has the potential to trigger the most consequential review of California’s gas prices in years, eclipsing the ineffectual efforts demanded by elected officials over the past two decades.

“There is no identifiable evidence to justify these premium prices,” Newsom wrote in a letter to Becerra.

Newsom’s request came on the heels of a long-awaited report released by the California Energy Commission on the cost of retail gasoline in California. The 10-page document, prepared after the governor asked the agency in April to examine the issue, concluded the state’s drivers spent $1.5 billion more than those in other states for gasoline in 2018 — even though there was no determinable difference in the gasoline being sold by different retailers.

“The name-brand stations, therefore, are charging higher prices for what appears to be the same product,” wrote commission officials. “The CEC received no response from the name-brand retailers in response to a request for information to support their product claims.”

In May, state officials concluded that “market manipulation” may explain the prices paid by California drivers. They promised additional details this month, though Monday’s report leaves a number of questions unanswered. Those unknowns included why so many residents choose higher-priced fuel instead of cheaper alternatives available in some locations.

“Consumers may be purchasing higher-priced gasoline brands for convenience, credit card acceptance, or other reasons,” researchers wrote. “However, if competitors decide collectively to fix prices, this may be unlawful.”

Severin Borenstein, a professor at UC Berkeley’s Haas School of Business who has been studying what he calls the “mystery surcharge” on gas sold in California, applauded Newsom’s decision. “It’s really time to find out the reason,” he said Monday. “Consumers have spent many billions of dollars over the years.”

Borenstein’s research found that even after accounting for the state’s high gasoline taxes and unique environmental rules that impose stricter refining standards, Californians still paid roughly 40 cents per gallon more by the end of 2018 than did drivers in other states — double what it had been in most years since 2015.

State energy commission officials said in their report that refinery challenges, refining standards and occasional shutdowns or incidents at individual locations do not explain the cost differential. And the report concluded the most noticeable uptick had been in prices paid at retail gas stations since 2012 operated by companies that include Chevron and Shell.

“These price increases occurred without significant changes in the overall market share of these brands at the retail level,” the report said.

Researchers found Chevron’s retail gasoline sales in California resulted in almost $1.6 billion in revenue in 2018, more than double what those sales generated in 2010. Shell’s total retail sales hit $818 million in 2018, up from $421 million in 2010.

A Chevron spokesman referred questions to an oil industry group. A request for comment from Shell wasn’t immediately returned.

While energy commission officials wrote they “found no evidence of unlawful activities” by major oil companies, they also acknowledged they lacked the expertise to conduct a more thorough investigation — a shortcoming apparently resolved by Newsom’s request for Becerra to get involved.

“The mystery surcharge adds up, especially for cost-conscious, working families,” the governor wrote in his letter to Becerra. “If oil companies are engaging in false advertising or price fixing, then legal action should be taken to protect the public.”

California gas prices continue to outpace the rest of the country. The state’s average per-gallon price as of Monday was $4.14, according to AAA. The national average was almost $2.65 per gallon.

Borenstein, who previously served as chairman of the energy commission’s petroleum market advisory committee, said the governor’s call for an in-depth investigation could easily ratchet up the pressure on a topic that has too frequently faded into the background, even as it cost Californians large sums of money.

“It will take people and investigative resources,” he said of the impending probe by the attorney general and the California Department of Justice. “Even if they don’t find any illegal acts, if they find the cause, the investigators can advise the Legislature on solutions.”