Newsom Proposes Raising Californians’ Electricity Consumption Tax to Investigate ‘Big Oil’

California Gov. Gavin Newsom speaks in the rotunda of the California State Capitol in Sacramento, Calif., on March 28, 2023. Courtesy of the Office of Governor Gavin Newsom

California Gov. Gavin Newsom’s recently passed law to “hold big oil accountable” faces more pushback in the state Legislature as lawmakers decide how to pay for its implementation.

The governor told Californians in a video posted in January that they “won’t pay a cent” for his new law to punish oil companies for last year’s record-high gas prices. However, in his revised budget submitted on May 12, the governor is proposing increasing the state’s electrical energy surcharge—a tax paid by the state’s electricity consumers based on the amount of consumption in California—by $6 million per year to fund the new program.

California state Sen. Brian Dahle, a Republican, on May 17 questioned a representative from the state’s finance department on the proposed tax increase, which would fund more than a dozen new positions at the California Energy Commission responsible for figuring out if oil refineries are charging too much.

“Why are we paying electricity rates to go after oil producers, or to fund the positions, when it should come out of the general fund?” Dahle asked during a Senate hearing. “At the end of the day, why are [electricity] ratepayers on the hook?

“Low-income, disadvantaged folks are paying those bills.”

The representative didn’t answer the question.

California state Sen. Brian Dahle, a Republican, questions a representative from the state’s finance department on a proposed electricity consumption tax increase in Sacramento, Calif., on May 17, 2023. Screenshot via Twitter/Senator Brian Dahle

In the May state budget revision, Newsom is asking for $5.9 million from the electrical energy surcharge for 14 new positions at the commission to establish the oversight division, and $1 million for the state’s air resources board to create a plan to eliminate fossil fuels from transportation. Another $286,000 from the Occupational Safety and Health Fund would pay for one new position to analyze and manage oil refinery turnaround and maintenance schedules.

A spokesman for Newsom said the new law shouldn’t be blamed for the proposed surcharge increase, since the proposal has been considered several times amid the commission’s ongoing deficit.

“The change to the California Energy Commission (CEC) funding proposal would have been the same whether or not the gasoline price gouging law was enacted as this is the third time this proposal has been presented given the CEC’s ongoing structural budget deficit,” spokesman Daniel Villaseñor told The Epoch Times in an email. “It is incorrect to say that ratepayers will pay more because of the gasoline price gouging law.”

Administered by the California Department of Tax and Fee Administration, the electricity surcharge was first imposed in 1975 and has been funding programs approved by the energy commission.

In 2023, California’s electricity customers are paying $0.0003 per kilowatt-hour. For an average customer, that amounts to about $1 per month.

Penalty Might Lead to Higher Prices at Pump: Industry Expert

The law establishes a new oversight division inside the CEC to analyze trends in the petroleum supply chain and pricing.

“For decades, oil companies have gotten away with ripping off California families while making record profits and hiding their books from public view,” Newsom said in March after the legislation passed the Senate. “With this proposal, California leaders are ending the era of oil’s outsized influence and holding them accountable.”

According to the law, the commission will be allowed to set a maximum profit margin for oil refining and penalties on oil companies for exceeding it.

Oil companies will also be required to report daily operations, detailed shipping information, contracts, agreements, forecasts, and other sometimes-confidential market data that will include how much they pay for each gallon of crude. These reports will be required weekly, in some cases. Companies face fines of up to $500,000 for reporting delays.

Industry experts said in March that the oil profit penalty, if imposed, will likely lead to higher prices at the pump.

“Price caps, taxes, and tax-like penalties do not increase supply or reduce prices, but instead can have the opposite effect—less investment, less gasoline supply, and ultimately higher costs for Californians,” Western States Petroleum Association President Catherine Reheis-Boyd said in a statement in response to the law’s passage.

California’s Growing Deficit

When lawmakers rushed to pass Newsom’s Senate Bill 2 to punish oil companies in March, the bill’s language was vague on how the state would pay for its implementation when it takes effect at the end of June.

The governor’s revised budget also projects a major deficit of $31.5 billion—$9 billion more than previous estimates—for fiscal year 2023–24, which begins on July 1.

California Gov. Gavin Newsom announces the May budget revision in Sacramento, Calif., on May 12, 2023. Newsom said the state's budget deficit has grown to nearly $32 billion, about $10 billion more than predicted in January when the governor offered his first budget proposal. Hector Amezcua/The Sacramento Bee via AP

“This is a $31.5 billion challenge, which is well within the margin of expectation and well within our capacity to address,” Newsom said on May 12 when he announced the revision, which includes a series of funding reductions and delays.

California’s personal income tax base also shrank by $29.1 billion after more than 332,000 taxpayers moved out of the state from 2020 to 2021, according to a recent report by the IRS.