By Wes Venteicher, POLITICO
SACRAMENTO, California — The California Energy Commission is delaying a decision it planned to make this month on whether it will cap oil refiners’ profits, the agency said Thursday.
The agency now expects to issue a preliminary proposal in the spring on how to handle the potential profit cap that Gov. Gavin Newsom pitched to lawmakers two years ago as a way to prevent gasoline price spikes, spokesperson Lindsay Buckley said in an email.
The plan is to wrap together that proposal and the one Newsom championed during this fall’s special session that would impose new gas storage requirements on refiners, she said.
“In light of new tools provided by the special session, the CEC is taking a holistic approach prioritizing development of refinery resupply and minimum inventory requirements first,” Buckley said in the email. “Staff is currently assessing how resupply and minimum inventory rules could interact with a potential maximum margin and penalty with plans to present a high-level framework next year.”
Why it matters: Both proposals would impose first-in-the-nation regulations on oil refiners who have warned they could backfire, raising prices at the pump or resulting in supply shortages rather than saving Californians money.
Background: The potential profit margin penalty was included in SBX 1-2, which lawmakers approved in 2023 as part of the first special session Newsom convened to try to address gas prices that spiked above an average $6 per gallon in September 2022.
Newsom had pitched the Legislature on imposing a profit margin cap, to be enforced by a penalty, on refiners directly. The oil industry warned a cap could lead to shortages at gas stations by inducing refiners to withhold gas to avoid violating the law.
Lawmakers, fearing unintended consequences, instead passed a bill that gave the CEC authority to collect vast amounts of new data on oil markets and then to make its own decision on whether to impose a profit cap.
The CEC originally said that it expected to issue a decision this fall, and then by the end of the year.
Reaction: One of the biggest proponents for a profit cap, Jamie Court of Consumer Watchdog, is growing frustrated with the delays.
“I think it’s a failed promise and it is a cowardly way of dealing with a very serious problem,” Court said Thursday. “I think we’ve waited long enough. Why did he bother having a special session if we’re going to take this long developing a penalty?”
When the agency examined the new market data it was collecting, it determined that the September price spikes of 2022 and 2023 — which translated to profit spikes for the refineries — were associated with supply shortages. When refiners’ inventories dipped, most often due to planned and unplanned maintenance outages, prices rose.
That led to a CEC proposal to impose minimum storage requirements on refiners to try to avoid the spikes. Newsom called another special session of the Legislature this fall to pass ABX 2-1, which gives the CEC authority to impose those storage requirements. Meanwhile, the price spikes of the last two years did not recur this year.
The oil industry still thinks both are bad ideas, and has said politics, not profit margins, are driving the proposals.
“The data does not support the narrative,” Western States Petroleum Association CEO Catherine Reheis-Boyd said Thursday. “So I don’t know what they would come out with at this point in time anyway.”
What’s next: The preliminary proposals in the spring will start the process of developing final proposals, Buckley said. She said there’s no timeline for the final proposals.
