For immediate release: August 28, 2024
SACRAMENTO – During a workshop last week, representatives of the California Energy Commission (CEC) and the Department of Petroleum Supervision (DPMO) presented data demonstrating the urgent need for Governor Gavin Newsom’s new proposal to protect Californians from price spikes. This proposal would require refineries to replenish their inventories when they are down for maintenance and build a buffer within their existing inventories.
The proposal comes after gasoline prices soared last year, in part because refineries in the state went offline for planned and unplanned maintenance without a plan in place to replenish supply. Analysis by the DPMO shows the increased prices impacted consumers for 105 days and cost Californians more than $2 billion.
If these proposals are not adopted by lawmakers, the state will likely see a perpetual cycle of gasoline price spikes year after year. While motorists will pay less at the pump than they did during the same period last year and the year before, there is still a significant risk that prices will skyrocket in the coming months, especially if supplies run low during refinery maintenance.
Deputy Chairman of the CEC Shiva Gunda and DPMO Director Tai Milder said the proposal contains concrete solutions for more responsible planning that could mitigate gasoline price spikes now and in the future.
“A stable market and fair profits are not mutually exclusive,” Gunda said. “It’s about making sure we act in a way that protects consumers.”
Milder called on oil refineries to participate in an industry-led solution – one that ensures a reliable and affordable fuel supply while providing a reasonable return on investment.
“Californians have been hit by price spikes in three of the last five years. Data shows that these price spikes are due to refinery maintenance and replenishment decisions. It’s time to say enough is enough. I urge lawmakers to take action to address this urgent problem,” he said.
CEC and DMPO are able to better understand supply, demand and price developments in the oil market by using data and transparency tools available under Senate Bill X1-2the California law to combat price gouging and transparency in the gas sector, which came into force a year ago.
As part of the state’s larger effort to hold the oil industry accountable for unfair practices that lead to troubling price increases, Governor Newsom introduced a new Suggestion on August 15, passed a law that would empower the CEC to require oil refineries to maintain a minimum fuel reserve to avoid supply shortages that lead to higher prices for consumers.
The proposal also requires refineries to plan for resupply in advance before they go offline for scheduled maintenance. The proposal could save Californians hundreds of millions (or more) in fuel costs by helping to prevent price spikes in the future.
The comments by Gunda and Milder were made during and after a Workshop on 22 August on petrol Supply Reliability, where three presentations were given, including one by California Department of Industrial Relations officials on what they are doing to ensure safety during refinery outages.
Californians spend about $200 million a day on gasoline, said Jeremy Smith, deputy director of CEC’s Energy Assessments Division, who spoke about the supply and demand dynamics that affect the state’s petroleum market.
Resupply can be done by building up inventory ahead of a planned maintenance event and by importing additional products. Maintaining higher inventory levels can also help mitigate the impact of sudden unplanned maintenance, which is common and occurs at short notice, he said.
Varsha Sarveshwar, Senior Policy Advisor at DPMO, explained how replenishment and minimum stock requirements could mitigate or avoid price spikes and gave examples of where these have worked successfully around the world.
Sarveshwar said replenishment and minimum inventory requirements help ensure market liquidity, bolster energy security and avoid price spikes. These price spikes are extremely costly for Californians, damage consumer confidence and predictability for businesses, and contribute to inflation.
A replenishment requirement ensures supply during planned maintenance and can encourage refineries to schedule maintenance during less disruptive times of the year. A minimum inventory requirement creates a buffer to rely on during unplanned maintenance and other short-term disruptions. This helps protect consumers, strengthen system stability and calm the market during production disruptions, she said.
The CEC is closely Tracking gas prices as part of the SB X1-2 implementation, examining the impact of several factors, including gasoline supply and refinery maintenance. The CEC Energy Assessment Department takes the lead in implementing data collection, reporting and evaluation activities under the Act.
DPMO is an independent department within the CEC established as part of SB X1-2. It is responsible for carrying out the activities under the Act that focus on market supervision and investigation.
The CEC 6 June and the August 22 workshops were part of ongoing activities to implement the law, which improves the state’s ability to understand and respond to gasoline price spikes and excessive pricing facing California consumers. Following price spikes at the pump in fall 2022, Governor Newsom signed SB X1-2. The law was signed in March 2023 and took effect in June 2023.
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About the California Energy Commission
The California Energy Commission is the state’s primary energy policy and planning agency. It has seven core responsibilities: advancing state energy policy, promoting energy efficiency, certifying thermal power plants, investing in energy innovation, developing renewable energy, transforming transportation, and preparing for energy emergencies..
