Gov. Gavin Newsom unveiled his plan Dec. 5 to consider placing mandatory limits on oil refinery profits in California and add industry regulations and oversight as a way to clamp down on high gas prices.
Oil industry experts say the regulations would result in higher gas prices for consumers and could push more refineries to leave the state.
Big oil is “ripping Californians off,” Newsom said last month following a state hearing and investigation into the record gas prices consumers paid this summer. The governor convened a special session this week to introduce the profit-busting regulations.
“California’s price gouging penalty is simple—either Big Oil reins in the profits and prices, or they’ll pay a penalty,” Newsom said in a press release. “Big Oil has been lying and gouging Californians to line their own pockets long enough. I look forward to the work ahead with our partners in the Legislature to get this done.”
The Assembly and Senate adjourned without discussing the legislation and will likely take it up in January.
Newsom’s proposal claims the record gas prices—which reached a record-high average of $6.44 statewide in June and $6.42 in October—were due to “opportunistic price gouging by oil companies” and refiners earned record profits during that time.
The proposed legislation states fundamental change is necessary to prevent future extreme price spikes and price gouging by oil companies.
The plan calls for mandating maximum profit margins on oil refineries, which would be adjusted each year as the cost-of-living increases. If the limits are violated, the state’s Energy Commission could impose penalties on oil refineries.
Any penalties collected would be deposited into a Price Gouging Penalty Fund and possibly returned to state residents, if approved by the Legislature.
The proposal also requires the Energy Commission to conduct regular assessments of oil supply and price of transportation fuels. The regulations would expand the commission’s authority to investigate and get pricing and management information from oil companies.
The governor also wants to establish an advisory committee of fuel market experts to provide the commission with advice and insights.
“Putting the Governor’s proposal in print allows the Legislature and the public to begin discussions on this important issue. No one can deny that California’s gas prices were outrageously high compared to other states. And those high prices hurt California consumers and businesses,” Sen. Nancy Skinner (D-Berkeley), who co-sponsored the bill with the governor, said in a statement.
Also, the companies Newsom wants to tax are international energy companies, which would be difficult to regulate, Stein said.
“[Newsom] is just trying to control [the oil industry],” he said. “And at the same time, he wants to drive the industry out of the state, and he’s done a good job of that. He wants to limit their profit as they leave.”
Stein said he expects two refineries in Northern California owned by Chevron and PBF Holdings to shut down in the near future. Both companies are suing Bay Area regulators to block a new rule that would force the refineries to reduce emissions. The new regulations are expected to cost the refineries hundreds of millions of dollars to be in compliance.
Besides gasoline, the refineries are the only two left in the state that produce aviation fuel used by airports in San Francisco, Oakland, San Jose, and Sacramento, and by military bases in California.
“When those two refiners go down, that aviation fuel will come from India, China, or another foreign manufacturer,” Stein said. “I’m not sure how Newsom is going to tax refineries in India and China, but that’s where our fuel is going to come from.”
The refineries also produce oil derivatives that are used in making asphalt, tires, all kinds of plastics, medical equipment and thousands of other products people use every day. California would have to import even more oil from foreign countries to meet its needs, creating more emissions in other countries and in ocean shipping, he said.
David Hackett, a fuels industry expert with Stillwater Associates in Irvine and member of the California Energy Commission’s Petroleum Market Advisory Committee, told The Epoch Times government control of companies in the past created higher prices for consumers and lines at gas stations.
“The governor wants to punish the oil companies. That seems to be the objective,” Hackett said. “But I can’t see how this is going to help gasoline customers because it won’t create any more supply in gasoline.”
Although Newsom and California Energy Commission officials blamed refineries and oil companies for the record gas price increases in September, many experts said the jump happened after refineries shut down for required maintenance.
After Newsom’s proposal was released this week, a Western States Petroleum Association spokesman told The Epoch Times the proposal was short on details.
“The proposal still lacks critical details and is still just a windfall profits tax dressed up as something different,” spokesman Kevin Slagle said.
Windfall profit taxes, such as the one former President Jimmy Carter instituted against crude oil in the 1980s, increase costs, according to association.
“[Newsom] is proposing what will be a tax on our industry and we know taxes are not the way to lower costs for consumers,” Slagle said. “We think there’s a better approach and that’s to look at improving public policy.”
Oil industry operators in California are accustomed to operating in a tough business environment but more taxes wouldn’t help, he added.
