Why are gas prices high in California? Consumer group calls for windfall profit tax on oil companies

SAN FRANCISCO (KGO) -- In all likelihood you have been at a gas station, pumping gas and watching your dollars fly by. So what's up?

"We're seeing a price spike," says economist Mark Agerton, "And that's partly because the supply of gasoline is very inelastic right now. It can't move or respond very much in California, and that's a product of many years of investments and environmental rules."

Agerton is an assistant professor at the University of California, Davis.

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"So this is the market allocating a scarce resource to the people who are willing to pay the most. It hurts a lot, but that's the way markets work," says Agerton..

Painful, he says, but operating as expected. That is not how Consumer Watchdog's Jamie Court sees it.

"It is immoral for oil refiners to make a dollar or more per gallon when people can't afford to fill up and get to work," he says, "it is inhuman."

A new Consumer Watchdog report finds California refiners are making a windfall profit, as much as one dollar per gallon in the last reporting period and perhaps double that in the next.

"Why are they doing it? Because they can, because they have a control over this market," says Court. "They are a cartel. Do they work together? Absolutely they work together. Is it illegal? It hasn't been proven to be illegal because our laws aren't good enough to call it illegal."

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As you would expect the Western States Petroleum Association (WPSA) disagrees, saying price fluctuations are, in large part, because of supply and demand.

"We reject the Consumer Watchdog findings," says WPSA's Kevin Slagle. "If you look at the study, it's really a mixed match of numbers and public opinion, and reports and studies that really only add up to one thing, and that's the conclusion that they want."

Despite gasoline producers and economists, Consumer Watchdog has a powerful ally.

"We asked the Governor to call a special session in the Legislature to look at a windfall profits tax," says Court.

And that is exactly what the Governor has decided to do. The legislature meets this December to consider a windfall profit tax.

7 On Your Side asked Kevin Slagle why the governor doesn't believe his association's take on gas prices.

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Gas prices are on the rise again nationally and California's prices are rising faster than anyone else. Political finger-pointing could be why.

"I think the Governor doesn't believe us because he doesn't want to, I think he sees political advantage in demonizing the industry," Slagle says. "I mean look, only in California would you think that taxing is the way to lower prices. So certainly we are ready to talk. Now, let's not wait till December, and let's talk about real solutions."

Consumer Watchdog's Jamie Court says the solution is a tax on the industry's behavior, saying, "I can't explain why they're treating us like an ATM other than they don't like our environmental laws. They don't like our environmental policies, and they're trying to punish us."

"I think if you are wanting to incentivize more refineries to build, taxing away profits wouldn't be a very encouraging signal to tell refineries, hey, come build in the state," says Mark Agerton.

Take a look at more stories and videos by Michael Finney and 7 On Your Side.

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