Neighboring governors knock California plan to lower gas prices

California Gov. Gavin Newsom this week ran into another obstacle to his plan for lowering the state’s gas prices: the governors of two neighboring states.

Arizona Gov. Katie Hobbs, a Democrat like Newsom, and Nevada Gov. Joseph Lombardo, a Republican, sent the California governor a letter Tuesday protesting proposed rules that would require refineries to stockpile extra gasoline to prevent price spikes caused by shortages.

Newsom, a frequent critic of the oil industry, made the proposal last month, in the waning days of the state’s legislative session. He said that refineries don’t have enough gasoline on hand to smooth out price increases when they go down for maintenance or have to halt production for emergency repairs.

“Price spikes at the pump are profit spikes for Big Oil,” Newsom said in a statement. “Refiners should be required to plan ahead and backfill supplies to keep prices stable, instead of playing games to earn even more profits. By making refiners act responsibly and maintain a gas reserve, Californians would save money at the pump every year.”

But California’s neighboring governors said they could be hurt by Newsom’s proposals.

“Refiners have raised the alarm that refinery inventory mandates could result in supply shortages and potential refinery shutdowns, which would have grave impacts to our shared economies and transportation infrastructure across the West,” Hobbs and Lombardo wrote.

“[I]ncreased regulatory burdens on refiners and forced supply shortages will result in higher costs for consumers in all of our states,” they added. “With both of our states reliant on California pipelines for significant amounts of our fuel, those looming cost increases and supply shortages are of tremendous concern to Arizona and Nevada.”

“For the good of our neighboring constituencies, and for the greater good of consumers across the West, we ask that you reevaluate mandating refinery inventory and delay taking action on this type of legislation until thorough policy conversations are had with industry leaders and our state energy offices,” they wrote.

California, which has long had the worst air quality in the country, is the only state allowed to impose its own air pollution regulations under the Clean Air Act. It has done so since the 1990s. Those stricter standards—along with the highest gas tax rate in the country—help drive up prices in the Golden State, industry experts say.

“California is a bit of a petrol island,” said Patrick De Haan, head of petroleum analysis for GasBuddy, a fuel-price tracking service. “It is consistently the most expensive market in the country because of all the regulation and bureaucracy. The threat is that areas like Nevada and Arizona—which are largely contingent on refineries in California—could feel the collateral damage of Newsom’s legislation.”

The refineries in California produce different blends of gasoline for customers in California and for those in neighboring states. But if they have to produce extra California-compliant gasoline to comply with Newsom’s proposal, they would have less capacity to make gasoline for customers in other states, De Haan explained.

“It would essentially require California refiners to produce more California gasoline at the expense of other states,” he said.

The American Fuel & Petrochemical Manufacturers argued that Newsom’s proposal would do little to ease gas prices.

“California refiners, terminals, blenders and other participants in the fuel supply chain already keep fuel in storage—typically about two-week’s worth of gasoline and gasoline blending components, though the volume and location of product in storage will vary depending on a number of factors,” the group explained in August.

“California has also never come close to emptying its gasoline supplies, even with in-state demand of roughly 33 million gallons/day. The lowest gasoline inventory recorded since 2011 was still over 425 million gallons (recorded in 2023), representing over 13-days’ worth of supply,” it added.

The industry group said price swings occur regardless of how much extra gasoline refineries have on hand, because it would take a massive amount of surplus to affect overall prices. The extra gasoline ensures there aren’t fuel shortages if refineries are taken offline, at least until more gasoline can be brought in from outside the region. “In fact,” the group added, “higher prices attract additional gasoline supplies needed to balance the market.”

Newsom’s proposal faces an uncertain future. The governor called a special legislative session for lawmakers to consider the idea before the November elections because they declined to pass it during their normal session. The House returned to Sacramento last week, but the Senate defied Newsom’s order. “The Senate Democratic Caucus is 100% united that we’re not going to come back for a special session,” said Sen. Mike McGuire, the Senate president pro tempore.

Gas prices spiked in the Bay Area—where Newsom is from—in recent weeks because of refinery issues, De Haan said. But prices in most of California and in the rest of the country have been falling.

“It’s the seasonal decline we see every autumn,” he said. “Demand is progressively declining the colder we get, and that will continue into the holidays. We’re also going to be on the cusp of switching to cheaper winter gas. Plus, the price of oil has been falling in the last couple of weeks to its lowest level since 2021. So it’s kind of the perfect storm of good news this time for motorists in California.”

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