Newsom gives up call for lawmakers to cap oil industry profits

For the record:
9:19 a.m. March 16, 2023: An earlier version of this article reported that the deal between Newsom and lawmakers includes a requirement for oil refiners to report maintenance to the state in hopes of preventing rapid and unexpected declines in gasoline production in California. Newsom has not reached a deal with lawmakers on his oil regulation proposal.

Gov. Gavin Newsom is giving up his high-profile call for the California Legislature to set a cap on oil company profits and instead will ask lawmakers to increase transparency and oversight of the industry.

The governor's amended proposal, announced Wednesday afternoon, would give the California Energy Commission more authority to investigate gasoline price spikes and the option, through a public hearing process, to place a cap on profits and penalize oil companies, Newsom's aides said.

"What we’re asking for is simple: transparency and accountability to drive the oil industry out of the shadows," Newsom said in a statement. "Now it’s time to choose whether to stand with California families or with Big Oil in our fight to make them play by the rules.”

Newsom called for swift passage of a penalty on oil companies in October when he announced his intent to convene state lawmakers into a special session to rein in the oil industry's excessive profits. He accused oil companies of price gouging at the pump after gasoline prices topped $6 a gallon.

But determining the level at which refinery profits should be penalized became a political hot potato in Sacramento. Democrats were concerned that the plan could potentially backfire because of the complicated nature of the oil markets, lack of transparency from the industry, and concern that it could carry unintended consequences on gasoline prices.

Newsom's office in December gave lawmakers an outline of his plan to cap the industry's profits when the special session convened, but left lawmakers to determine the limits on those profits.

Over more than three months, the Legislature held only one hearing on the proposal. State senators appeared apprehensive about the plan, and experts encouraged the state to take more time to investigate and understand the problem before passing a solution.

Newsom's new proposal would shift that responsibility to the Energy Commission, but his aides acknowledged there will be no requirement for regulators to cap profits or penalize the industry. All five members of the commission have been either appointed or reappointed by Newsom.

Assembly Republican leader James Gallagher of Yuba City criticized Newsom's choice to place the decision in the hands of the commission.

“No matter how many sham investigations he calls for, no matter what kind of ‘penalty’ he comes up with, there is one indisputable fact — California drivers pay more than they should because of the taxes, fees and regulations imposed by Gov. Newsom and his extreme liberal allies," Gallagher said in a statement. "If Democrats give unelected bureaucrats the authority to impose this new tax, they will be responsible for the shortages, rationing, gas lines and price spikes that come with it.”

The governor's office said that with increased regulatory authority, the commission will be empowered to prevent the kinds of gasoline price spikes consumers saw last year.

The bill would create an independent watchdog authority within the commission with subpoena authority to monitor gas prices and investigate spikes. Oil companies would also be required to provide more data to the state to help regulators understand pricing.

Dana Williamson, Newsom's chief of staff, said the governor's office "has worked very closely with experts and the Legislature to get this right."

"It is the only one of its kind in the country, and it's really going to set up a watchdog entity that is going to watch the industry every single day," Williamson said. "The Energy Commission will be able to then act upon the findings that are seen in the division's work."

Jamie Court, president of Consumer Watchdog, applauded the governor's plan for increasing state oversight of the industry.

Newsom's new proposal includes a requirement for oil refiners to report maintenance to the state in hopes of preventing rapid and unexpected declines in gasoline production in California.

California is dependent on only a handful of oil refiners, which are not required to report planned maintenance to the state. When multiple refineries end up reducing production at the same time because of routine work on equipment or unexpected problems, supply decreases and prices increase.

The oil industry has blamed maintenance issues for California's historic gas price spikes in the summer and fall.

Court said shifting the penalty to the Energy Commission to decide places more responsibility on the governor to follow through.

"This gives the governor and his commission the power to do the right thing, and it will be reflected on them if it's done or not," Court said.

This story originally appeared in Los Angeles Times.