Why is Gavin Newsom price gouging Californians?
The witch hunt for price gougers in the American fuel industry continues as, with the flick of California Gov. Gavin Newsom’s wrist, Senate Bill 1322 imposed a 24/7 watch operation on oil companies in the state beginning last month.
According to a statement from the governor’s office, the new law will “implement the strongest state-level oversight and accountability measures … in the nation.”
The California Energy Commission (CEC) will also be authorized to penalize the oil industry with fines of up to $2,000 a day for any failure to comply with the expanded regulations which seek to expose the alleged price-gougers.
Interestingly, nowhere to be found in the bill is a clear definition of what criteria officially constitutes “price-gouging.” The bill’s wording is filled with the usual rhetoric, blaming oil companies and shifting accountability for soaring fuel prices away from the state and its anti-domestic industry policies.
California legislators need to cut the fluff. Citizens of the Golden State deserve to know the facts and judge for themselves whether the local “Big Oil” racket truly is a ruthless gouger syndicate or not. Some key data points explored below can help in this regard.
It seems worth noting that according to estimates by IBIS World, a global market research company, local gas stations make a measly net margin of about 1.4% on fuel sales, which amounts to approximately 6¢ a gallon at today’s average price. To put this in perspective, that means when you pull your Rav4 into a local gas station running on empty and fill up, the gas station nets a whopping 87¢. Oil refineries fare slightly better with profits ranging from $2 to $5 a barrel, equivalent to 5-11¢ a gallon (at the most they make $1.60 on the Rav4’s full tank). Do these margins warrant the pants-on-fire narrative Californians are bombarded with by the governor?
Meanwhile, in Sacramento, Newsom is building on years of repeatedly implementing anti-consumer policies such as the Cap-and-Trade Program and the Low Carbon Fuel Standard, which are projected to add upwards of $2.10 a gallon to gasoline and diesel production costs by 2030. Under the Newsom administration, Californians have seen a 40% tax hike on gas to 57.9¢ a gallon — that’s $8.40 in tax when you gas up that Rav4. This is the second-highest gas tax rate in the nation, over 98% higher than the national average, and it’s more than eight times the profit of local gas stations and refineries.
The state reports these exorbitant gas taxes are used solely to “provide revenue for planning, constructing, and maintaining California’s publicly funded roadways and public mass transit systems.” Despite this, the Reason Foundation ranked the state a dismal 48th among all states for overall transit infrastructure conditions in their most recent highway report based on 2021 data. This is down two points from last year’s report based on 2019 data.
In short, the state is not doing its job anymore.
So, while Newsom punishes the local fuel industry for making a profit, Californians need to think critically about the true culprit of rising gas prices.
Is it the private sector with its less than 10¢ profit margins? Or could it be the throttling of the private sector by overregulation and taxation? Considering that the quality of state services has fallen while the price for these services has risen, who is really doing the price gouging in the Golden State?
Andrew Reder is a student of economics at Northwood University, where he also holds a position as a research scholar working in economics and energy policy with the McNair Center for the Advancement of Free Enterprise and Entrepreneurship. He is also a contributor to Young Voices.