Why gas prices are so much higher in California and how the state is reacting

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• Judy Woodruff:

  Gas prices in much of the country have dropped substantially this fall. But, in California, the price per gallon has remained much higher than in other states.

  The costs are pushing some residents to the edge and raising concerns about whether price gouging is to blame.

  William Brangham has our report on what's behind the spike and the toll that it's taking on the Golden State.

• William Brangham:

  Judy, this month, consumers in California were paying roughly $2.61 per gallon more than the national average for gas. The average there is about $6.15 a gallon now. But in some parts of the state, it's been $7 or more.

  We will look at what's behind that spike in a moment.

  But, first, we spent the last week talking to people across the state about how these prices at the pump are affecting their daily lives.

• Crystal Miller, California:

  My name is Crystal Miller. I live in Los Angeles, California, and I work in social media and marketing.

  The gas prices in L.A. are super crazy high right now. It's about $6 or $7 a gallon, depending on where you live.

• Lee Gross, California:

  My name is Lee Gross. I live in Visalia, California, and I'm a semi-retired agricultural economist.

  We're just being a little more thoughtful about where we drive and what the value proposition is for the drive.

• Le-Roni J., California:

  I'm the Le-Roni Jerger (ph). I am living in Northern California, Amador County. And I work for a major health care organization.

  I'm originally from Oklahoma, a proud member of the Choctaw Nation of Oklahoma. It's kind of terrifying, quite frankly, to see gas prices where they are.

• Linda Randall, California:

  My name is Linda Randall. I'm from Penn Valley, California. I'm an ex-financial analyst.

  And, financially, I'm not a wealthy person, by any means, so I mind my pennies to try and get by.

• Lee Gross:

  Is it worth driving 20 miles and burning a gallon of gas to go buy ice cream at a place, one of our favorite places? Or can we buy the ice cream closer and save, at this phase, $14.

• Crystal Miller:

  There's so many miles here in L.A., but it's so much easier and more convenient now to just shop online vs., like, wasting gas to drive out there, wasting gas trying to find parking, and then driving all the way back home, sitting in crazy L.A. traffic.

• Le-Roni J.:

  I saw $6.79 a gallon on Friday. I didn't have to put gas in my car. So I didn't stop. But I saw it. And I was just like, what? It was — it was a real double take moment to see that here in my little town. It was — it was kind of like, what? Where am I right now?

• Linda Randall:

  One of my hobbies is singing. And I sing with the San Francisco Symphony Choir, which is a big deal. But if I want to sing with the San Francisco Symphony, that's 150 miles. It costs me between $70 and $80 to go round-trip, depending on the price.

  And so the calculus that I'm making is, that's a lot of money.

• Lee Gross:

  The higher gas price comes into play when we do things like support a local beef producer, local, 35 miles away. We have been buying directly from him. And we rethink that. We would like to support him.

  But with $5, $6, $7 gas, you put that added gas cost into the price of the product that you're picking up, and you think, let's change that.

• Crystal Miller:

  My parents actually live towards the Long Beach area, and I live more towards the airport. So I'm the one who drives out to see them every week. And so the gas affects me, which is why I pretty much only go out there like once a week.

• Le-Roni J.:

  I drive a very economical car that gets about 35 miles to — or 32 miles to the gallon on the highway, I could fill up for 35 bucks. It's almost $70 now to fill my little 11-gallon tank.

• Linda Randall:

  I have a sister in Washington state and another sister in Iowa City and a brother in Albuquerque. Now, to hop in my car and drive 1,500 miles to Albuquerque, the cost of gas to do that, that makes that trip almost impossible for me to think about doing. And that means I don't see my family as much.

• William Brangham:

  To help people deal with those costs, the state has started to give out inflation relief payments of just over $1,000 to 23 million Californians. And Governor Gavin Newsom has called for a new windfall tax on oil and gas companies in the face of their record profits. But it is still a difficult time for many.

  So, for a closer look at what's behind all of this, I'm joined by Severin Borenstein. He's professor of business and public policy at the University of California Berkeley.

  Professor Borenstein, thanks so much for being here.

  We heard some genuine impacts on people because of these high prices. People will look at what's happening in California and say, aha, it's California's fees and regulations and environmental rules that are driving up the price of gas there. How much of that is true?

  Severin Borenstein, University of California, Berkeley: Well, that's definitely a part of it.

  California has higher gas taxes than the rest of the country. It has some environmental fees from a cap-and-trade program and a low carbon fuel standard. And it uses a cleaner-burning gasoline that costs a little bit more to make.

  But when you add all that up, right now, that accounts for about 85 cents a gallon. That's a big difference. But that's only a part and less than half of the differential we're seeing right now between California and the rest of the country.

• William Brangham:

  So I understand that, back in 2015, you saw a similar spike that went up and never went back down. And you refer to this as the mystery gasoline surcharge. What is that?

• Severin Borenstein:

  So, what happened is, we had a refinery fire. The price spiked up. And the wholesale price, the spot price of gasoline spiked up first. And then the price came back down.

  And we have had these happen ever since we went to a different blend of gasoline in 1995. And, usually, the retail price then comes back down and the differential is back to that basis of taxes and environmental fees. In 2015, that didn't happen. And, on average, since 2015, California's prices have averaged an extra 30 cents a gallon higher than the rest of the country, beyond what you can explain through higher taxes and fees.

  Overall, since 2015, that amounts to over $40 billion for California drivers.

• William Brangham:

  I mean, that's a huge amount of money out of people's pockets. I mean, is that just a function of oil companies and gas companies and refiners making a profit, as companies are wont to do? Is that what's going on there?

• Severin Borenstein:

  Well, we're not exactly sure what's going on.

  I have been arguing for the last seven years that California really needs to invest some money in a serious investigation to find out, because this is a huge amount of money, beyond what you could normally explain with just the taxes and fees.

  It is clear that that differential over the last seven years is not at the refinery level, because that spot price of gasoline, the price for giant of shipments of gasoline, is actually about in line with where it should be. The differential seems to be downstream in the marketing, distribution and retailing sector. Those sectors have very complex contracts with the refiners. The refiners have a lot of influence over what they charge.

  And it's unclear who's actually collecting the money and why that is so resilient. One of the things that is worth noting is that California has a much smaller share of off-brand stations than the rest of the country. A very small share of our gasoline goes through the mom-and-pop. So we're not seeing the discipline enforced on competition that we would in other parts of the country, where those stations make up a bigger share.

• William Brangham:

  I mean, some of the critics of the oil and gas companies say that this is price gouging, that the prices are up, and they have no incentive whatsoever to bring them back down, regardless of the economy.

  Is there any evidence that that's true?

• Severin Borenstein:

  Well, I haven't seen any evidence that they're actually colluding.

  Short of that, these firms are going to try to make as much money as they can. We rely on competition to keep them from driving those prices up. And California definitely has a less competitive gasoline market than the rest of the country, partially because we use this cleaner-burning gasoline formulation that we can't trade with the rest of the country, partially because two refiners in California control about half of the entire gasoline market.

  So we really do have a potential problem here. The gasoline companies claim that the real problem is various regulatory barriers. And I think that's worth looking into. Unfortunately, the politicians get very interested in this when the price spikes, and then the price comes back down, and, even if it stays a little higher than it should, they move on to other issues.

  I think it's time that we really need to dig into this and not lose focus.

• William Brangham:

  All right, that is Severin Borenstein at U.C. Berkeley.

  Thank you so much for being here.

• Severin Borenstein:

  Thank you.