Newsom Calls for Investigation Into ‘Mystery Surcharge’ on Gas

October 24, 2019 Updated: October 24, 2019

Gov. Gavin Newsom has called for an investigation into a “mystery surcharge” California residents have been paying on gasoline for years.

Newsom issued a directive to Attorney General Xavier Becerra on Oct. 21 to find out if price-fixing or other underhanded practices have contributed to the extra cost Californians are paying at the pump.

The governor’s letter (pdf) to Becerra comes on the heels of a 10-page report released by the California Energy Commission (CEC) that Newsom requested in April when gas prices topped $4 a gallon. The CEC analysis suggests certain retail outlets may have overcharged Californians for gas by as much as 30 cents per gallon.

“In 2018, Californians paid an average of 30 cents more per gallon of gasoline at higher-priced retail outlets such as 76, Chevron, and Shell, than the average American paid for gasoline in other states,” according to the CEC report. “This is equivalent to an extra $4.50 to fill up a 15-gallon gasoline tank.”

“There is no identifiable evidence to justify these premium prices. The CEC makes it clear that it was not able to obtain any evidence that gasoline sold by less expensive unbranded retail outlets is an any way inferior to the product sold by name-brand outlets ” Newsom wrote to Becerra. “The mystery surcharge adds up, especially for cost-conscious, working families. If oil companies are engaging in false advertising or price fixing, then legal action should be taken to protect the public.”

Although the commission could not account for the 30-cent per gallon discrepancy, it concluded “the primary cause of the residual price increase is simply that California’s retail gasoline outlets are charging higher prices than those in other states.”

Californians paid out an extra $1.5 billion at the pump in 2018, and approximately $11.6 billion more than motorists in other states over the last five years, the CEC estimates.

“While all retailers in California have increased their retail margins above the national average, higher-priced brands such as 76, Chevron, and Shell have increased those margins far beyond their competitors,” the commission stated in its report.

Name-brand gas stations “are charging higher prices for what appears to be the same product,” the energy commission concluded.

“In a competitive marketplace, when one retailer increases prices, consumers generally buy more product from lower-priced retailers. However, when several gasoline brands increased their prices significantly in California, they did not lose market share. This is evidence of market power,” the CEC said.

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

The commission suggested some high-end retail gasoline outlets, who claim their gas is better than cheaper brands, might be guilty of false advertising.

“In the gasoline market, retailers often make claims about the superior quality of their gasoline, either stating that it meets higher fuel specifications or that their proprietary additive packages provide superior consumer benefits,” the CEC stated. “If these advertised claims are false, they may be illegal.”

Major oil companies have long maintained that California’s regulations, environmental fees and taxes are the causes of high gas prices in the state.

When contacted The Epoch Times on Wednesday, the Western States Petroleum Association (WSPA) issued a statement via email saying the organization is currently reviewing the CEC findings.

“We are looking at the report just released by the California Energy Commission,” said WSPA President Catherine Reheis-Boyd. “While we all review that report, it’s important to note that CEC’s own numbers show our state’s regulatory environment plays a big role in the ever-increasing affordability challenges Californians face. In fact, the first $1.08 per gallon at the pump is a result of taxes and California’s regulatory programs, such as the low carbon fuel standard. Everyone has to have a seat at the table to ensure policies provide adequate, affordable, reliable energy to the communities we all serve.”

Aside from more costly state-mandated “boutique blends” of gasoline intended to reduce smog and cut greenhouse gas emissions, which adds 12 to 14 cents per gallon to the cost of gasoline sold in the state, the state’s cap-and-trade program has also led to inflated prices.

Two years ago, California legislators hiked gas taxes by 12 cents a gallon under Senate Bill 1. The intent of the bill, signed into law by former Gov. Jerry Brown, was to raise about $5 billion a year to pay for road repairs, maintenance and mass transit. Fifty-five percent of California voters consented to the tax increase in 2018 when they rejected Republican-led ballot measure Proposition 6 to repeal SB-1.

The energy commission, admitting it lacks the expertise to determine whether or not price-fixing or false advertising occurred, “found no evidence of unlawful activities,” by big oil companies. Instead, it called for a more thorough investigation by the state’s Department of Justice.
Calls and emails to Chevron and Shell were not returned as of 4 p.m. Wednesday, while Texas-based Phillips 66, which owns 76 gas stations, said the company “won’t be providing a comment.”

Average gas prices in San Francisco hit $4.26 per gallon on Monday, compared to $4.14 statewide $2.65 nationally, according to AAA.

By Wednesday, the average price of gas in California was $4.117 per gallon for regular, mid-grade $4.289, premium $4.398 and diesel was $4.039, according to the AAA website. By comparison, the national average cost of gas jumped up by more than a dime in one week to $2.628 for regular, $2.978 for mid-grade, $3.238 premium and $2.996 for diesel.