State Officials Call for New Tools to Improve Gasoline Supply Reliability and Prevent Price Spikes

For Immediate Release: August 28, 2024

SACRAMENTO - During a workshop last week, officials from the California Energy Commission(CEC) and the Division of Petroleum Oversight(DPMO) presented data showing the urgent need for Governor Gavin Newsom's new proposal to protect Californians from price spikes. This proposal would require refiners to backfill supplies when they go down for maintenance and to build a buffer within their existing storage inventory.

The proposal comes after gasoline prices spiked last year in part because in-state refineries went offline for both scheduled and unplanned maintenance without a plan for backfilling supply. Analysis from DPMO shows elevated prices impacted consumers for 105 days, costing Californians more than $2 billion.

Absent the enactment of these proposals by the Legislature, the state will likely continue to experience a perpetual cycle of gasoline price spikes, year after year. While drivers are paying less at the pump compared to the same time last year and the year before, there is still a significant risk that prices could spike in the coming months, especially if supplies are allowed to run low during refinery maintenance.

CEC Vice Chair Siva Gundaand DPMO Director Tai Mildersaid the proposal provides concrete solutions to require more responsible planning that can mitigate gasoline price spikes now and in the future.

"A stable market and fair profits are not mutually exclusive," Gunda said. "This is about making sure we are acting in a way that protects consumers."

Milder encouraged petroleum refiners to be part of an industry-led solution - one that ensures a reliable and affordable supply of fuel while still allowing for a fair return.

"Californians have been hit with price spikes in three of the last five years. The data shows that refinery maintenance and resupply decisions are driving these price spikes. It is time to say enough is enough. I urge the Legislature to take action to address this urgent problem," he said.

The CEC and DMPO are able to better understand supply, demand, and price trends in the petroleum market because of data and transparency tools provided under Senate Bill X1-2, the California Gas Price Gouging and Transparency Law, which took effect 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 proposal on August 15 that would authorize the CEC to require that petroleum refiners maintain a minimum fuel reserve to avoid supply shortages that create higher prices for consumers.

The proposal also requires refiners to plan ahead for resupply before going offline for planned maintenance. The proposal could save Californians hundreds of millions (or more) in fuel costs by helping prevent price spikes in the future.

The comments from Gunda and Milder were made during and after an August 22 workshop on gasolinesupply reliability where three presentations were made, including one from the California Department of Industrial Relations staff about what they do to ensure safety during refinery turnarounds.

Every day, Californians spend about $200 million on gas, said Jeremy Smith, deputy director of CEC's Energy Assessments Division, who talked about the supply and demand dynamics that affect the state's petroleum market.

Resupply can be accomplished by building inventory up before a planned maintenance event and by importing additional product. Maintaining higher inventory levels can also help mitigate the impact of sudden unplanned maintenance, which is common and occurs on short notice, he said.

Varsha Sarveshwar, senior policy advisor for DPMO, explained how resupply and minimum inventory requirements could mitigate or eliminate price spikes and shared examples of where they have worked successfully around the world.

Sarveshwar said resupply and minimum inventory requirements help provide market liquidity, strengthen energy security, and avert price spikes. These price spikes are extremely costly to Californians, damage consumer confidence and predictability for businesses, and contribute to inflation.

A resupply requirement ensures supply during planned maintenance and can encourage refiners to plan maintenance during less disruptive times of the year. A minimum inventory requirement establishes a buffer to rely upon during unplanned maintenance and other short-term disruptions, helping to protect consumers, build system resilience and reassure the market during production disruptions, she said.

The CEC is closely tracking gas pricesas part of SB X1-2 implementation, looking at the influence of several factors, including gasoline supply and refinery maintenance. The CEC's Energy Assessments Divisionis taking the lead in implementing the data collection, reporting, and assessment activities under the law.

DPMO is an independent division within the CEC that was created as part of SB X1-2. It is responsible for carrying out the activities in the law focused on market oversight and investigation.

The CEC's June 6and August 22 workshops were part of the ongoing activities to implement the law, which enhances the state's ability to understand and respond to gasoline price spikes and excessive prices faced by California consumers. Following price spikes at the pump in the fall of 2022, Governor Newsom signed SB X1-2. The law was signed in March 2023 and took effect 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, encouraging energy efficiency, certifying thermal power plants, investing in energy innovation, developing renewable energy, transforming transportation, and preparing for energy emergencies.

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