By Dustin Gardiner, THE SAN FRANCISCO CHRONICLE
After decades of failed attempts to combat California’s highest-in-the-nation gas prices, legislators passed a measure Monday that could allow California to cap the windfall profits of oil companies.
The bill, which sailed through the state Assembly on a 52-19 vote, would give state energy regulators the authority to place a cap on oil refiners’ profits in California — and to set the amount. They would also have the authority to fine companies that exceed the cap and require them to disclose information about their operations and prices.
Gov. Gavin Newsom, who proposed the plan and lobbied hard for its passage, was expected to sign the bill within days.
The bill’s passage is a major victory for the Democratic governor, who began calling for legislation to penalize oil companies for their record profits amid skyrocketing prices at the pump last fall. He convened a special legislative session in December for lawmakers to consider his proposal on “price gouging.”
Newsom’s plan initially received a lukewarm response in Sacramento, and some legislators privately fumed that he announced such a major proposal without vetting the details first.
But Newsom dramatically softened his plan to help secure support from legislators, especially moderate Democrats. Last week, he announced a deal with Democratic leaders in the Legislature.
Several Democratic legislators who voted for the bill said it might not ultimately be necessary for state regulators to cap oil profits, provided the measure causes oil companies to change their “price gouging” practices.
“Once there is sunshine on the behavior of Big Oil, things will change and Californians will not have to pay more at the pump than any other American,” Assembly Member Rebecca Bauer-Kahan, D-Ordina, said before the vote.
Newsom had earlier suggested that legislators would set the amount of the profit cap. His final plan punts the decision to the state Energy Commission, a five-member panel appointed by the governor.
The governor also had originally called the penalty a “tax” on the windfall profits of oil companies. Last fall, he pivoted to calling his proposal a “price gouging penalty,” a move with significant implications: Creating a tax requires approval from two-thirds of lawmakers, while a penalty requires only a majority.
Critics of Newsom’s plan, including the Western States Petroleum Association and Republican legislators, say it could have the unintended consequence of driving prices up if it causes oil companies to produce less gas in California.
“We’ve been sending market signals in California for a long time. We’ve driven a great number of refineries out of California,” Eloy Garcia, a lobbyist for the petroleum association, told legislators during a hearing earlier in the day.
Assembly Minority Leader James Gallagher, R-Yuba City (Sutter County), said the Democratic supermajority refused to examine the largest drivers of the state’s high prices: taxes and environmental regulations. He also shamed legislators for allowing Newsom to shape the proposal through closed-door negotiations.
“You are about to vote on a bill that has been in print less than a week, Gallagher said. “What kind of process is that?”
California’s average statewide price for a gallon of gas was $4.82 on Monday, about $1.38 more than the national average, according to AAA. Prices have fallen in recent months after spiking to a statewide average of about $6.42 in early fall, at least $2.61 more per gallon than drivers nationwide were paying at the time.
State taxes and fees account for only 69 cents of the roughly $1.38 difference in the average price, according to Consumer Watchdog, an advocacy group that pushed for the bill.
Newsom’s plan, Senate Bill X1-2, would also give the Energy Commission more oversight authority to require oil refiners to share information about their transactions and business practices, including subpoena power. Sen. Nancy Skinner, D-Berkeley, carried the bill that encompassed Newsom’s proposal.
Legislators and Newsom have pushed industry executives in recent months — to no avail — to release more information about the causes of gas price spikes in California last year, which came as the companies brought in record profits.
That frustration was apparent on Monday, as Assembly Member Phil Ting, D-San Francisco, grilled the industry’s lobbyist and criticized its five largest refiners: Chevron, Marathon Petroleum, PBF Energy, Valero Energy and Phillips 66.
“You have five companies controlling 90% of the market, the definition of an oligopoly,” Ting said. “Now, you need a regulatory body to come in because they can set the price whatever they want.”
The bill’s passage was cheered by environmentalists and consumer advocates, who said it was a landmark step after numerous past failed attempts to confront California’s high gas prices.
“Californians now will have a watchdog with real teeth on their side to protect them from the gouging at the gas pump that they endured during 2022,” Jamie Court, president of Consumer Watchdog, said in a statement.