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California bill could penalize oil companies for price gouging

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A plane flies behind a sign advertising gas prices over $6 a gallon.

Prices at a San Bruno, California, gas station in October. Prices in the state are lower today but remain higher than in other states. Justin Sullivan/Getty Images

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California Gov. Gavin Newsom was expected to sign a bill Tuesday that would allow the state to punish oil companies found to be price gouging.

Around the time of Russia’s invasion of Ukraine, which sent shock waves through global energy markets, the per-gallon price at some gas stations in the state crossed the $8 mark.

Prices are lower today but remain far above what consumers in other states pay. As all of this has been happening, oil companies have been pulling in record profits.

The average gallon of regular unleaded in California costs $4.82 — a lot — but that’s about $1.50 less than back in June.

“We were being charged $2.60 above average, above any other state. That’s highway robbery!” said state Sen. Nancy Skinner of the East Bay region.

She introduced the bill that would gives the state the power to investigate whether oil companies are gouging customers. “So the point of the data collection that’s in this bill is to see ‘Is there a legitimate reason?’ if this happens again,” she said.

The state could fine oil companies if there’s not. Chevron, which is based in California, opposed the bill. 

“It threatens to make price volatility even worse by discouraging refinery investment and doesn’t address state supply shortages,” said Ross Allen, a spokesperson for Chevron.

But there’s more to it, said Severin Borenstein, a professor at the Haas School of Business at the University of California, Berkeley. He drives by two Chevron stations on his way to work. One charges around 70 cents a gallon more than the other. 

“It’s not due to the cost of supplying gasoline at those two stations,” he said.

Borenstein — who’s a Newsom appointee to a body overseeing the state’s electricity grid — said California has what he calls a “mystery gasoline surcharge.” Much of it seems to be added somewhere between the refinery and the gas station.

“That downstream sector has a lot of players in a web of relationships, and that’s what needs to be investigated,” Borenstein said.

These mysteriously high prices are hitting consumers in Washington state and possibly Oregon too, he added. But Kevin Slagle of the Western States Petroleum Association trade group argued that California’s proposal creates an unnecessary layer of bureaucracy.

“I don’t think there are going to be many states that are going to want to rush into what was just passed,” he said.

The law will make the industry want to invest more outside California, Slagle said — where it feels more welcome.

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