California may punish oil companies for high gas prices

Gasoline prices are displayed at a gas station in Sacramento, Calif., Friday, Sept. 30, 2022. (AP Photo/Rich Pedroncelli)

SACRAMENTO, Calif. -

California lawmakers on Thursday will vote on whether to allow penalties on oil companies for price gouging at the pump, a first-in-the-country proposal aimed at stopping the kind of spikes last summer that caused some drivers pay up to US$8 per gallon as the industry reaped super-sized profits.

Gov. Gavin Newsom, a Democrat seen as a possible presidential candidate beyond 2024, has used all of his political muscle to get the bill this far by making in-person pleas with state lawmakers in private ahead of Thursday's first vote in the state Senate.

The oil industry has pushed back, paying for a wave of digital ads that have labeled any potential penalty as a tax - an idea more likely to be scorned by voters. But they have failed to stop the bill, which after months of stagnating in the Democratic-controlled Legislature is now racing through the process with the Senate vote followed by a final vote in the state Assembly likely next week.

The bill highlights the challenges of balancing the competing pressures of protecting consumers at the pump while at the same time pushing policies to end the state's reliance on fossil fuels. California's climate strategy - which includes banning the sale of most new gas-powered cars by 2035 - would reduce demand for gasoline by 94% by 2045.

California's gasoline prices are already higher than most other states because of taxes, fees and environmental regulations. California's gas tax is the second-highest in the country at 54 cents per gallon. And the state requires oil companies make a special blend of gasoline to sell in California that is better for the environment but is more expensive to produce.

Still, at one point during the price spike last year the average price of a gallon of gasoline in California was more than $2.60 higher than the national average - a difference regulators say is too large to be explained by taxes, fees and regulations.

In response, Newsom asked lawmakers to limit how much money oil companies could make from selling gasoline in the state, with hefty fines imposed on anyone who went over that threshold. The idea was to incentivize companies to keep the price of oil within a certain range and prevent price spikes like last year.

But that idea went nowhere in the state Legislature as lawmakers feared that whatever limit they chose would cause chaos in the market, causing refiners to make less gasoline that would in turn increase prices at the pump.

“We can't just have committees formed every time there's a gas spike and think we have enough knowledge to figure out how to resolve the situation over the long term,” said Assemblymember Jacqui Irwin, a Democrat from Thousand Oaks who was one of the lead negotiators for the bill in the state Assembly.

Instead, after months of secret negotiations, Newsom and legislative leaders agreed to let the California Energy Commission decide whether to impose a penalty, and what the penalty should be. That means it's possible the state would never impose a penalty on oil companies. Some lawmakers believe the prospect of a penalty could be enough to deter huge price increases in the future.

The bill represents an agreement between Newsom and the Democratic lawmakers who control a majority of seats in the state Legislature. Republicans, who don't have enough members to block bills from passing, blasted the proposal on Thursday.

“This is socialism,” said state Sen. Brian Dahle, a Republican from Bieber. “This is pushing the government to pick winners and losers.”

Much of the oil industry's complaints about the bill have focused less on the potential penalty and more on a new, independent state agency lawmakers would create create to investigate the market. Oil companies would be required to disclose massive amounts of data to this agency, giving regulators a better sense of what could be driving price spikes. And, crucially, the agency would have subpoena power to compel oil company executives to testify.

Kevin Slagle, spokesperson for the Western States Petroleum Association, said oil companies would have to report data on 15,000 transactions per day, what he called “a ridiculous level of reporting” that would drive up costs. He said the real problem with California's gas prices are state laws and regulations that hinder the supply of fuel. He criticized Newsom and lawmakers for rushing the bill through the Legislature with little input from the oil industry.

“Why does the governor want to jam this through? Clearly it's because the details of this are not good for California consumers,” Slagle said. “They don't address the problem, but it provides him a political win.”

Dana Williamson, Newsom's chief of staff, said she has repeatedly had meetings with representatives from the oil industry to discuss the bill, including meetings with specific companies and two meetings with the Western States Petroleum Association.

“It's a ridiculous over exaggeration that they have been cut out,” Williamson said.