For years California leaders accused oil companies of price gouging. A six-month CBS News California investigation found a different, more complex reality shaped by state policy, refinery closures and global supply risks that uniquely affect California’s isolated fuel market.
What the investigation found
– Why California gas costs more: Higher taxes, labor and business costs, environmental programs and the state’s unique gasoline blend raise baseline prices.
– Political shift: After failing to prove illegal price gouging — and following two major refinery shutdowns — state leaders are acknowledging the need to keep refiners operating in-state.
– Why refineries are leaving: Rising costs, tighter regulations, long-term policy uncertainty and shrinking returns are pushing refiners to close or sell.
– Why global conflict matters: California’s growing reliance on overseas refining increases price volatility; outsourcing refining can lengthen resupply times and heighten the risk of price spikes.
$6 per gallon
California drivers pay the highest gas prices in the nation. As the Middle East conflict lifts global oil prices, California’s average rose above $6 a gallon. When gas last topped $6, Gov. Gavin Newsom again accused oil companies of gouging and the legislature held a taxpayer-funded special session aimed at capping profits and increasing oversight.
More than two years later, state officials say they found no evidence of illegal price gouging. Instead, two refineries shut down, removing nearly 20% of the state’s refining capacity. That loss has increased reliance on overseas refineries, mainly in Asia, that can make California’s special blend but do not face the same environmental rules. Shipping fuel across the Pacific adds pollution, takes weeks, and creates supply delays that can translate into local price spikes during outages or global shortages. China has already restricted some exports amid regional shortages, underscoring that risk.
Why gas already costs more in California
Even before recent closures and global tensions, California’s gas was the nation’s most expensive for several reasons.
– Nationwide costs (about 45% of a gallon): crude oil prices and the federal gas tax (18 cents) are shared across states.
– California-specific costs (about 55% of a gallon): higher distribution and refining costs (roughly 28% of a gallon), a special low-emission fuel blend (adds ~10–15 cents), a 61-cent state excise tax, a roughly 2-cent underground storage fee, cap-and-trade (~23 cents), and the Low Carbon Fuel Standard (~14 cents). State and local sales and special district taxes add more.
At $6 per gallon, these California-specific charges can add roughly $20 to an average tank fill.
Economists note an additional unexplained “mystery surcharge” that first appeared after a major 2015 refinery outage and has persisted. While taxes and regulations set a higher baseline, price spikes are often driven by supply disruptions in California’s relatively isolated market.
Price gouging investigations and policy responses
The 2023 special session produced two new laws: one expanded oversight requiring oil companies to disclose more financial and operating details; another would cap refinery profit margins during spikes (that cap has since been paused). After two years of investigation, officials say they identified dynamics behind spikes but did not find proof of illegal gouging. Natural Resources Secretary Wade Crowfoot said the state identified factors creating price spikes but stopped short of pointing fingers at companies.
Refiners counter that profit caps ignore the volatility of refining: the “good months” often offset the “bad months,” and capping profits during peaks without supporting lows could make refining economically unviable in California.
Why refineries are leaving
Following the price-gouging scrutiny, two large refineries — Valero in the Bay Area and the Phillips 66 Wilmington plant in the Los Angeles area — have shut down, eliminating hundreds of jobs and almost one-fifth of California’s gasoline output. Without major pipeline imports from other states, California operates as an “energy island”; losing in-state production tightens supply and raises vulnerability to price spikes during outages or demand surges.
Industry leaders cite California’s high operating costs — labor, energy and regulatory compliance — plus the expense of producing the state’s strict gasoline blend, which required billions in investment and can only be produced by a limited number of facilities. Long-term policy uncertainty about the pace of the transition away from fossil fuels compounds the problem; companies say the economics no longer justify continued investment without changes to the policy or regulatory environment.
Growing reliance on foreign fuel
As domestic refining capacity declines, California increasingly turns to foreign refiners capable of producing the special blend. Those imports may not meet California’s environmental standards and adding transoceanic shipping increases emissions. Tankers take weeks to arrive, and any unplanned disruption — from refinery outages to geopolitical conflicts — can quickly tighten supply and move prices upward. Asia’s own demand pressures and export restrictions, notably from China, make overseas reliance riskier in the near term.
A shift in the political conversation
After years of blaming oil companies, political messaging is shifting toward balancing climate goals and ensuring a stable, affordable near-term fuel supply. Some lawmakers and officials now acknowledge that policy choices contribute to higher costs and may influence companies to refine overseas rather than invest in California operations. The state has temporarily suspended the profit-cap measure, but industry leaders warn that other proposed regulatory changes could further encourage outsourcing refining capacity.
The debate now centers on how to manage California’s energy transition without worsening short-term affordability and supply reliability. For many drivers, the impact is immediate: higher fill-ups strain household budgets and commuters who rely on long drives feel the burden. With future governors and agency leaders able to reshape energy and environmental policy, state choices in the coming years will influence both gasoline costs and the pace of the transition to cleaner fuels.
In:
– CBS California Investigates