UC Berkeley business professor finds $20B surplus charge in California gas prices

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There is a $20-billion excess surcharge in California’s gasoline prices, according to Severin Borenstein, a UC Berkeley professor of business administration and public policy and a faculty director of the Energy Institute at the Haas School of Business.

While serving as chair of the California Energy Commission’s Petroleum Market Advisory Committee, Borenstein noticed that gasoline prices were still high months after an initial spike, which was due to the February 2015 gasoline refinery fire in Torrance, California. According to Borenstein, a temporary price increase is normal after a disturbance at a gasoline refinery, but the spike should only last a few months.

“When it turned out many months later that prices were still high … I was becoming more and more concerned,” Borenstein said. “Now it’s been four years, and we still haven’t seen prices go back to normal levels, so something is clearly wrong.”

He added that in 2015, gasoline prices in California were about 40 cents higher than what he expected. Even in 2016, 2017 and 2018, gasoline prices were still between 25 cents and 30 cents higher than what would be expected.

Borenstein suggested that “something has changed in the California market,” and he has been advocating for the state to investigate the additional costs. Borenstein’s team met from 2014 to 2017 in an attempt to investigate this surcharge. With only five volunteers and scarce resources, however, the team chose to write a report outlining the issue, recommending that the state allocate the necessary resources for resolving this anomaly.

“This mystery gasoline surcharge has cost Californians about $20 billion,” Borenstein said. “That’s a lot — it seems like spending a few million dollars to investigate would be worth the while.”

In January, 19 legislatures signed a letter addressed to the California attorney general’s office in support of conducting an investigation, according to Borenstein. Because the office does not announce any of its investigations, however, the public does not know whether or not an investigation will be conducted.

Although Borenstein does not know what is causing this gasoline surcharge, he suggested that it could be the result of a less competitive gasoline market in the past few years, as mergers have made the market more concentrated. Borenstein added, however, that this would still not account for the sharp increase in prices.

He suggested that the extra gasoline money is most likely being absorbed by gasoline retailers, distributors, refiners or someone else in the supply chain. Borenstein added that this money could be paying for higher profits or may be used to cover “some real cost.”

“I think that we don’t know the answer,” he said. “It’s just a whole lot of money, and it’s for that reason that we need to figure it out.”

Contact Emily Hom at [email protected] and follow her on Twitter at @hom_emily.