California Gov. Newsom Unveils New Plan to Curb Oil Profits, Create Gas Price Watchdog

California Gov. Gavin Newsom speaks during a press conference in Sacramento on Feb. 1, 2023. Justin Sullivan/Getty Images

California Gov. Gavin Newsom released a new proposal on March 20 aimed at limiting how much profit large oil companies can make and holding them “accountable” for alleged price gouging.

Newsom announced in a press release that he'd reached a deal with legislative leaders regarding the proposal, which is authored by state Sen. Nancy Skinner, and which will now go through committee hearings and votes in the Democrat-controlled Legislature.

Under the plan (pdf), a new, independent watchdog within the California Energy Commission (CEC) would be created to regularly monitor the state’s petroleum market and ensure market participants “play by the rules.”

The watchdog would have access to new information that refiners have to report and would have the power to subpoena other data and records that could “reveal patterns of misconduct or price manipulation,” according to Newsom. The independent group would also be allowed to refer violations of law to the attorney general for prosecution.

Additionally, the CEC would be allowed to impose a penalty on refiners accused of price gouging, set a maximum gross gasoline refining margin, and penalize those who charge more than the maximum allowable margin for the price of gasoline.

The bill would require the CEC, in cooperation with the California Department of Tax and Fee Administration, to submit a report to the Legislature before March 1 every year, including a review of the price of gasoline in California and its impact on state revenues for the previous calendar year.

A driver fills her car with gas amid record high petrol prices, in Irvine, California, on Feb. 23, 2022. John Fredricks/The Epoch Times

Oil Firms ‘Ripping Off Californians at the Pump’

The state would also be granted increased authority to analyze why California has seen “unexplained” higher gas prices since 2015 by enforcing reporting requirements on the oil industry in the hope of providing greater transparency.

A string of other measures are also included in the bill.

“Together with the Legislature, we’re going to hold Big Oil accountable for ripping off Californians at the pump. Today’s agreement represents a major milestone in our efforts to drive the oil industry out of the shadows and ensure they play by the rules,” said Newsom in a statement.“This represents some of the strongest and most effective transparency and oversight measures in the country, and the penalty would root out price gouging. We’re getting the job done for California families.”

Senate President pro-Tempore Toni G. Atkins, a Democrat, also praised the bill, saying that Californians “deserve answers and accountability for the prices we’re paying at the pump.”

“We know what the costs of maintaining our roads and meeting our climate goals are, and with this bill, the state will finally have the tools to get answers on oil profits and put a stop to price gouging,” said Atkins.

Newsom has often taken aim at the soaring price of gasoline in California, which skyrocketed to an all-time high of $6.42 per gallon last fall, costing drivers in the state $2.61 more per gallon than the national average.

As of March 21, the national average cost per gallon in the state is $4.83, still higher than the national average of $3.43, according to AAA.

Gas prices are advertised at a Chevron station as rising inflation and oil costs affect the consumers in Los Angeles, California, on June 13, 2022. Lucy Nicholson/Reuters

Oil Industry Voices Concerns

Newsom had previously floated the idea of rolling out a windfall tax on oil company profits but lawmakers from both sides have raised concerns that doing so could further drive up the cost of fuel.

While Newsom has focused predominantly on oil companies’ excess profits, some experts believe the higher gasoline prices may be in part owing to the state’s strict tax and environmental laws. Others have noted that the state’s supply of gasoline saw a drastic decline last year amid maintenance closures, while supply chain issues post-pandemic have also impacted prices.

Kevin Slagle, a spokesman for the Western States Petroleum Association, whose members include Exxon Mobil Corp. and Marathon Petroleum Corp., criticized Newsom’s bill.

“Empowering unelected bureaucrats and giving them the authority to tax, investigate, and penalize refiners will likely lead to the same unintended consequences as his initial proposal—less investment in production, decreased supply, and higher costs for Californians,” Slagle told Bloomberg. “At a minimum, this needs thorough time for legislative analysis and discussion.”

Elsewhere, Assemblyman Vince Fong, a Republican, called for increased investment in refining capacity across the state to bring down prices.

“We need to suspend the state’s gas tax immediately for one year and we need to increase the supply of gasoline. That is my message to the governor, and that is my message to every Californian,” Fong told ABC News affiliate KERO-TV. “We need to act and act quickly to reduce the price of gasoline. More rhetoric, more bureaucracy, more red tape that will increase the price of energy in California, which is the approach that the governor is pursuing, is not the right answer.”