By Marie Angst, SACRAMENTO BEE
Last fall, Gov. Gavin Newsom vowed to hold “greedy” oil companies accountable for jacking up gas prices by establishing a windfall profits tax, with the proceeds returned to residents who were “getting ripped off.” He said that California needed to address the historic surge in gas prices with a “sense of urgency.”
Now, more than five months later, the outlook for any kind of penalty against the oil industry looks increasingly uncertain.
On Wednesday, his administration unveiled plans to hand off the matter to a state regulatory body — a move that could delay the implementation of his original proposal for months, if not indefinitely.
Late Wednesday, top advisors in the governor’s office said that Newsom was revising his proposal to grant a yet-to-be-established watchdog group within the California Energy Commission the authority to decide the best approach to addressing the state’s high gas prices. Depending on the agency’s evaluation and rulemaking process, that may or may not include a price-gouging penalty.
The revisions come a few weeks after a hearing in which state Democrats and energy market analysts expressed uncertainty about the right strategy to address California’s high gas prices.
Despite backing away from his initial proposal, the governor said in a statement that the state was “making major progress with the Legislature to hold Big Oil accountable for fleecing Californians at the pump.”
“With a growing coalition representing hundreds of organizations and local leaders backing our proposal to impose strong and effective oversight measures on oil companies, the momentum is on our side to get this done for California families,” he said in the statement. “What we’re asking for is simple: transparency and accountability to drive the oil industry out of the shadows.”
Newsom’s chief of staff Dana Williamson said the administration worked with members of the legislature and independent experts to craft the amended measure. Williamson said the new plan is “stronger from where we started,” pointing to new detailed provisions that will be added to the legislation to enable state officials to gain more insight into the inner workings of the state’s complex oil and gas market.
Assembly Republican Leader James Gallagher quickly came out in opposition to the policy and voiced concerns about placing unelected officials in charge of imposing added costs on oil companies, and potentially, consumers.
“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,” he said in a statement.
Gavin Newsom wants to penalize oil companies for price gouging
Newsom’s initial legislation said the windfall tax would be triggered when oil company profits exceeded a legally-established threshold. Shortly after, the governor shifted his characterization of the measure from a tax to a penalty — a change that reduced the level of support it would need to pass.
The language of the bill, which is being carried by California Senate Budget Chair Nancy Skinner, did not the profit threshold nor explain who would be eligible for the rebates. Those details were expected to be added at a later date before a final vote was taken.
Under Newsom’s amended proposal, the California Energy Commission would receive funding to stand up a new oversight group. It would monitor the oil and gas market and commence a rule-making process to decide how the state should move forward on a penalty or any other proposed regulations to address California’s high gas prices. It was not immediately clear how long such a rule-making process may take.
The new watchdog agency would be given subpoena power and could refer potential violations to Attorney General Rob Bonta for prosecution.
To help with its work, Newsom’s proposal will include a handful of provisions aimed at helping the agency look under the hoods of California’s largest oil companies to get a more complete picture of the factors driving up prices at the pump. Those include requirements for refiners to report any planned or unplanned maintenance events, which are known to disrupt the market and contribute to price spikes. Other provisions would require information about the sale of gasoline on the spot market and agreements with retail gasoline stations.
In a statement, California Energy Commission Vice Chair Siva Gunda said he was encouraged by the governor’s amended plan.
“The proposal provides additional resources and data transparency measures that are critical to successfully developing and enforcing penalties,” Gunda said. “The Energy Commission remains committed to doing our part to ensure industry accountability and support a managed transition to a clean energy future.”
Newsom’s proposal looks to address mystery surcharge in gas prices
Jamie Court, executive director of the nonprofit Consumer Watchdog and a major proponent of the price-gouging penalty, said his organization is going to urge the Energy Commission to establish a penalty system on an emergency basis before going through a potentially lengthy rulemaking process.
“Overall, it’s a victory for consumers,” Court said. “We’d be the first state in the nation to take this approach — holding the hammer over the oil companies and monitoring the market on a day-to-day basis to make sure there’s no market manipulation.”
Severin Borenstein, director of UC Berkeley’s Energy Institute, called the updated proposal “a step in the right direction.” That’s because a lot of the additions made to the bill mirror what Borenstein has been asking state officials to pursue for many years.
Borenstein has been studying the state’s oil and gas market for decades and identified in 2015 a “mystery surcharge” that was added to California gas prices after an explosion at the ExxonMobil refinery in Torrance. Over the past eight years, the surcharge has reportedly cost Californians billions of dollars, according to Borenstein.
Newsom’s price-gouging penalty would not address that phenomenon, but gathering the information and data proposed would help officials answer some major questions about the wide disparity between gas prices in California and the rest of the nation, Borenstein said. Giving the California Energy Commission the authority to craft the price-gouging penalty would also grant more flexibility to ditch the effort if it creates any negative consequences, he added.
“The politics around this run very strong on both sides, and a lot of the things that are said are unfounded,” he said. “So I think we need to get past that and have a well-resourced investigation. That will be huge.”