Findings from California gas price watchdog after first year on job, industry responds
SACRAMENTO — As we dig into California's crippling gas prices, we finally have a better picture of what causes those outrageous price spikes at the pump.
The California Energy Commission (CEC) found that during past spikes, oil industry profits went up over 200%.
The state hired Tai Milder as the nation's first gas price watchdog, who now wrapped up his first year as the director of the CEC's Petroleum Market Oversight division. I sat down with the so-called "oil czar" to get answers on your gas prices.
Findings from California's oil czar
"I was even looking on AAA and we're at least a dollar more than the average national gas price. What is that surcharge? What is that difference that we're seeing?"
"The first thing I think it's really important for people to understand is this surcharge adjusts for taxes and fees. So once you compare California's taxes to other state's taxes and you adjust for that, there's still an unexplained markup and that is the oil industry markup," Milder said. "We are still digging into the data to determine [where that money is going] and why it's occurring, but I think California drivers are rightly frustrated that they're paying more to the oil industry."
"Does [that money] go to fix the roads? Does it go to better infrastructure? Do we know that?" I asked.
"I think that it's really important even as we look at taxes and environmental programs, to understand that those are investments in our infrastructure and public health," Milder responded. "And then you look at where the money is going for the industry portion, record profits mean higher dividends, maybe bonuses for executives. They don't go into investments for California."
"You found this information. Where do we go from here then?" I asked.
"So the initial work that we've done is to surface these issues for the Assembly and for the Senate to show that 'You've given these new tools for data transparency. We want policymakers and the public to know that when those price spikes have been happening, those are profit spikes for the oil industry,' " Milder responded.
"Drivers will be furious to hear that. You're confident that something will be done then now that we know that?" I asked.
"I'm really pleased at this moment in time, as folks are heading out for summer vacation, that California gas prices have gotten down from where they were this spring," Milder responded. "We've seen steady declines for the last 12 or 13 weeks. That's a big positive."
"You have a prosecutor background, but in this role, it's not like you're the one who can go and hold them accountable right?" I asked.
"Our role is limited to oversight of the market. We can refer cases for prosecution. So if we see that the law is being broken, we will do something about it," Milder said.
"In fairness, it's not like you can go out and fine these oil companies. It's not like you can go out and prosecute them. Is that enough, what your office is able to do then?" I asked.
"I think we've got amazing tools in the legislation and it was passed during a special session which means that the governor and the entire legislature focused their attention to create new resources, including transparency tools and other ways for us to sort of identify what the problems is," Milder responded. "I have absolute confidence that if we identify what the problems are, we'll find solutions, including with additional authorities if we need them."
Industry expert's response
Those are some eye-opening findings in Milder's first year on the job, but before you get fired up, I talked with the Western States Petroleum Association for a response.
A top spokesperson, Kevin Slagle, said that calling out profits is a political spin. He said there are so many factors at play, including supply and demand, so I took that point further asking him if there is mismanagement of the supply and what the oil industry is doing, if anything, to look after your bottom line.
"This has been looked into by numerous attorneys general over the years. Every single time, they come back with the same findings which is that it was market forces. The industry was acting responsibly," Slagle said.
"[Milder] is going to bring his recommendations and proposals, in fact, he has already brought them to lawmakers, to the governor. What do you think about those proposals, those recommendations, or do you think you are doing them?" I asked.
"As far as those proposals go, we heard some rumors about what might be in them. We need to take a look at what the details might be," Slagle said. "But certainly, we believe the men and women of our industry know our facilities best and we don;t need a prosecutor telling us how to maintain our facilities."
Major price swings at the pump
There's another part of all this that really stood out to me, and it's those dramatic price swings from one gas station to the next. Milder said that they've asked branded gas stations to show what makes their gas better than the rest but said they've refused to be transparent.
Milder also added that the price difference issue is something that is unique to California and is something they are looking into.
"Can the state come down on those people then for there being such a huge difference, and clearly no reason why if the [fuel] recipe is the same?" I asked.
"So I'm not saying they're exactly the same, but I think the cost differential is really hard to explain and the CEC in the past has asked the branded gasoline sellers to substantiate their claims that their gasoline is better, and they've declined to do so," Milder responded.
Slagle responded to that.
"I think one of the things the state's not doing a very good job of here with sort of the claims they're making is creating understanding in the public about how it works at a gas station," he said. "If you have a branded station, people are going to expect a certain level of cleanliness or lighting, or you know the food and drinks they might find in the station. Or maybe it's an easier right-hand turn than it is making a left across traffic or something. So you know, a lot of what we see in the different costs has to do with where those branded stations are, the real estate costs."
What's next?
One of Milder's proposals calls for the energy commission to publish a California Spot Market Price Report that would be available for you to see right at home. Another recommendation is to impose minimum gas storage and resupply requirements for refiners for market transparency and a bumper to protect you from price spikes when the supply is disrupted.
So here's the next step: Milder drafted proposals and sent them over to lawmakers and the governor, who are going through them. We'll follow up and see what, if anything, changes to temper California's terrible gas prices.