UPDATE: Law signed today aims to keep gas prices from spiking by forcing refineries to maintain supply

As the sun dips below the horizon in Richmond, the Chevron refinery’s tall columns cast long shadows against the dusky sky. At a Chevron station on West Cutting Boulevard, David Stanford mutters as he fills his tank. 

“It makes zero sense. We are half a mile from the refinery, and gas prices are still $5 a gallon,” he said. “It’s not sustainable for normal people. Hard working people cannot afford the gas right now. It’s ridiculous.”

It’s a thought echoed by drivers across the state.

The California Legislature is attempting to do something about it. Gov. Gavin Newsom signed a bill Monday that will require refineries to keep some level of fuel in their tanks so that supply never gets low in comparison to demand.

Introduced by Assembly members Gregg Hart and Cecilia ​​Aguiar-Curry, the bill authorizes the California Energy Commission to impose requirements for refiners to maintain minimum inventories of gasoline to meet California’s needs. It also authorizes the CEC to set criteria that refineries would be required to meet before starting maintenance.

The legislation, which Newsom has promoted, was passed by the Senate last week and by the Assembly on Monday.

Newsom has accused California refineries of reducing gasoline supply by planning maintenance when demand is high. That drop in production without plans for backfilling supply has resulted in price increases that last year had Californians paying more than $1 billion at the pumps, he said. 

“Price spikes at the pump are profit spikes for Big Oil. Refiners should be required to plan ahead and backfill supplies to keep prices stable, instead of playing games to earn even more profits,” the governor said in a statement. “By making refiners act responsibly and maintain a gas reserve, Californians would save money at the pump every year.”

Chevron, however, warned of unintended consequences that could exacerbate the very problem the bill seeks to solve.

 “The bill still shifts maintenance safety standards to bureaucrats who lack refining experience,” said Ross Allen, a Chevron spokesperson. “This undermines the decades of expertise our teams maintain for ensuring safety in refining operations.”

He said it could lead to more frequent supply shortages and even a permanent rise in gas prices. 

In its ongoing feud with California over taxes and stringent regulations, Chevron contends the state, not the industry, is responsible for high gas prices. 

“The political posturing that has characterized these proceedings must stop, including baseless and frankly ridiculous claims that the industry is engaging in price gouging,” Andy Walz, a Chevron executive, said in  a letter to legislative leaders days before the Senate vote. By mandating inventory reserves, California also would cause supply challenges in Arizona and Nevada, which rely on gasoline refined in California, he added. 

For decades, California motorists have felt the sting, paying higher gas prices than the national average since 2004. For every gallon of gas sold in California, about $1.42 goes to  taxes and fees that fund such things as environmental programs and underground storage tank removal. But Californians also use a cleaner blend of gasoline than the rest of the country and most of the world, which reduces greenhouse gas emissions but also affects price. 

Then there is what Severin Borenstein, a professor at UC Berkeley’s Haas School of Business, calls the “mystery gasoline surcharge,” about 30 to 70 cents of extra cost with no transparent purpose. The surcharge has cost drivers over $60 billion since 2015, he said. The state Senate and Assembly have launched investigations to determine where that money is going. 

Borenstein also pointed out that complex contracts between refineries and gas stations work against the consumer. He noted that in California, gasoline is sold mainly through stations that are either refinery-owned or bound by long-term agreements with refineries. That, he said, reduces competition and keeps prices elevated.

For Chevron, the new law is just one more example of the state overstepping its boundaries into the marketplace. Brian Hubinger, a Chevron spokesperson, said routine maintenance is essential at refineries, adding, “These maintenance activities take years to plan and potentially months to execute. We take them very seriously to ensure safety, environmental standards, and requirements are met. Oftentimes, the scheduling is a regulatory requirement.” 

In an August  letter to the CEC, Chevron said the bill posed a safety risk to refineries  that “could result in refinery incidents.” 

Incidents at the Richmond refinery have had serious consequences for the community. A 2012 fire there blanketed the city with smoke, prompting 15,000 people to seek medical care. Six years later,  Chevron agreed to a $5 million settlement with the city, a sum many found too low. For years, state regulators cited Chevron for extensive flaring, spills and other pollution violations that never resulted in fines. But earlier this year, Chevron agreed to settle those claims with the Bay Area Air Quality Management District, paying $20 million to resolve 678 violations against the Richmond refinery.

Motorists using Chevron stations can’t miss the company’s perspective, which is now affixed to the pumps and on posters. Greeting drivers at stations in Richmond, El Cerrito and other Bay Area cities are signs that read: “California lawmakers are driving up gas prices,” and a QR code to scan for more information from the Chevron Advocacy Network, an organization of Chevron employees, retirees, marketers and  retailers. The network did not respond to a request for comment. 

William Alvarez, a local business owner, paid no mind to the signs as he filled up his tank recently. He also had little faith in what the Legislature has put forth as a fix. 

“I think these businesses are raising prices just because they can,” he said. “It’s not all about the laws that politicians are enacting. They make us think it’s due to regulations, but I believe companies are taking advantage to increase their profits.”

(Top photo of the Chevron refinery, by Bryan Wen)

This story was updated to note that the bill was passed into law.

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