A price gouging law passed by California last year could send gas prices skyrocketing in the neighboring state of Nevada.
The law, which took effect in June 2023, gives the California Energy Commission (CEC) the authority to set a maximum profit ceiling for gasoline refineries in the state.
If the CEC takes its mandate to the extreme, one expert says a ripple effect could send prices at Nevada pumps as high as $10 per gallon.
Even with the law in force, the CEC has still not decided on a specific profit ceiling, although it plans to come up with a concrete plan later this year, Las Vegas Review-Journal reported.
“The potential impact could be severe enough if (Nevada) doesn’t get gasoline, or the gasoline that does flow into Nevada could theoretically be $5 or $10 a gallon,” said Patrick De Haan, chief petroleum analyst for GasBuddy.com . ‘The extent to which prices rise depends on the extent to which the market becomes tighter.’
Nevada Governor Joe Lombardo, pictured, wrote a letter to California Governor Gavin Newsom in May expressing deep doubts about imposing price caps on gasoline refineries
People living in California and Nevada already have to manage some of the highest gas prices in the country. On Saturday, the average price per gallon in California was $4.84, while in Nevada it was $4.05, according to AAA data.
Nevada is uniquely affected by these new regulations, as the state sources approximately 88 percent of its fuel from California refineries, as Governor Joe Lombardo indicated in a May letter to Governor Gavin Newsom.
The Republican, a former Clark County sheriff, expressed concerns about the “unintended consequences” of the new law, adding that prices could also rise for Californians under this new regime.
“I worry that this approach could result in refiners either limiting fuel supplies to avoid a profit penalty or even exiting our shared fuels market entirely,” he wrote to Newsom. “Either scenario would likely result in limited supply and higher fuel costs for consumers in both of our states.”
Newsom’s office responded to Lombardo’s letter by calling it a stunt to appease his “major oil donors who contributed tens of thousands of dollars to his campaign,” adding, “he knows full well that oil refineries are driving up gas prices and creating huge making profits – harming residents of both our states.”
Shell, along with other oil giants, made huge profits in the first quarter of 2024, thanks in large part to strong gasoline margins.
Gavin Newsom hit back at Lombardo, saying he was simply appeasing his “big oil donors.”
Peter Krueger, state director of the Nevada Petroleum Marketers and Convenience Store Association, believes that as things currently stand, Nevada is completely at the whim of California regulators.
He said even if the state wanted to find alternative sources of fuel, that wouldn’t be a viable option since Nevada’s largest fuel pipelines already connect to California. It would probably be even more expensive to bring in gas from another state.
Nevada’s only viable option, he said, would be to build more refineries and make itself more like California 90 percent of the gasoline consumed comes from refineries in the state.
“We’re stuck with what’s happening in California,” Krueger told the Review-Journal. “If it’s based on price alone, we’re going to have to suck it up and pay the price it’s delivered to us for.”
Arizona lawmakers are just as concerned about thisas their state also gets a large portion of its gasoline needs filled by California refineries.
Experts attribute the CEC’s upcoming decision on profit caps to the simple concept of supply and demand.
“The long-term play of this is that if you discourage refiners from refining, you’re going to end up with lower supply,” De Haan said.
De Haan added that even if the CEC imposes a profit ceiling this year, it will take several years before consumers feel the impact on gas prices.