SacBee, by Ari Plachta, February 1, 2024

California’s new gasoline industry watchdog wants to see mysterious price spikes at the pump come to an end. After months of investigation, he shared options for how energy regulators could stop them — penalties not yet included.

Gov. Gavin Newsom’s appointed director of the new Division of Petroleum Market Oversight said the California Energy Commission should impose additional transparency in the daily gasoline market and require oil refineries to store supplies in a Wednesday letter.

“In California we have unexplained price spikes,” said Tai Milder in a news briefing. “Our core goal is to protect consumers. That doesn’t mean the absolute level of prices but making sure prices are set in a fair manner.” Fuel prices have stabilized somewhat. A gallon of gasoline today costs $4.537 on average in California, 2 cents lower than last month and about the same as last year, according to the latest prices from AAA.

They are far lower than the summer of 2022 spike that sent lawmakers into a special legislative session to address oil price gouging. At that time, average fuel costs rose to a sky-high $5.52 a gallon.

The governor signed Senate Bill X1-2 last March, establishing the new watchdog division within the California Energy Commission. In September, the division highlighted a suspicious trade on the state’s real-time market for gasoline that quickly caused a 50-cent-per-gallon price spike.

At the time, Milder called the single transaction “unusual” and said it may be a result of the underlying structure of California’s gasoline market. He also criticized refiners for failing to maintain adequate inventories of refined gasoline.

In a new letter to the governor, Milder pointed to two reform options he said would reduce the risk of price spikes.

The first is to publish a daily report on trading information in the real-time spot market for gasoline, which he said would decrease volatility in that unregulated facet of the state’s gasoline economy with an outsized influence on prices.

 

“It appears that spot market volatility, illiquidity, and lack of transparency may all be contributing to and exacerbating price spikes during periods of under-supply and refinery maintenance,” Milder wrote in the letter.

He also recommended imposing minimum gasoline storage requirements for refiners. Milder said when refineries are undergoing maintenance, they often haven’t maintained adequate levels of inventory. This drives down supply during periods of high demand and contributes to price spikes.

Next up, the watchdog division will issue additional data transparency regulations this spring and determine whether to set a refining margin and penalty by the end of the year.

Advocates with the Consumer Watchdog group were quick to criticize a delay in the division’s timeline. Milder had initially set out to issue a penalty recommendation this summer, in time for peak travel season.

“Californians cannot wait an extra six months for the price gouging penalty promised them last year,” said the group’s president Jamie Court. “Governor Newsom needs to put his foot in the Energy Commission’s a– and get them moving quicker if he is going to deliver.”

But Severin Borenstein, director of the Energy Institute at UC Berkeley’s Haas School of Business, considered the delay a wise decision. Setting up the market oversight division is time consuming, and implementing a gasoline storage requirement will be extremely complicated.

“This was never going to be a quick fix,” Borenstein said. “Creating the penalty structure is going to be extremely challenging, too. The downside of getting it wrong is it could really create disruptions in the market.”