By Sophia Bollag and Dustin Gardiner, SAN FRANCISCO CHRONICLE

October 24, 2022

https://www.sfchronicle.com/politics/article/newsom-tax-oil-companies-17526178.php

After Gov. Gavin Newsom vowed to tax their windfall profits, oil companies have spent millions to convince voters to elect their chosen candidates to the Legislature, hoping to stack the deck in their favor.

Since Oct. 7, when Newsom announced plans to call a special session for lawmakers to consider his tax proposal, oil companies have spent more than $5.8 million to influence eight key races that will determine the composition of the Legislature. The candidates they support come from both parties, and in some cases are Democrats running against other Democrats.

Newsom called the special session to combat what he sees as “price gouging” at the gas pump. Tension between the governor and the industry has been building for months, as Californians face skyrocketing fuel prices.

The average statewide price for a gallon of gas was $5.83 on Friday, about $2 more than the national average. Prices have climbed since August, when legislators and Newsom agreed to a package of sweeping climate bills to reduce emissions from fossil fuels, though prices have dipped slightly in the last week.

Environmentalists say the industry’s flood of spending in legislative races is retaliation, and an attempt to buy support from lawmakers who will decide the fate of Newsom’s proposal.

Oil industry executives have been tight-lipped about their campaign strategy, though they say California’s regulations and environmental policies have been a factor in driving up prices — along with broader trends, such as global instability in the oil market due to the war in Ukraine.

The San Diego-area race between Democratic Encinitas Mayor Catherine Blakespear and Republican businessman Matt Gunderson has attracted the most spending from Big Oil — nearly $1.8 million so far. Most of the money has gone to attack ads against Blakespear, with the rest supporting Gunderson, according to campaign finance disclosures. The oil companies have poured the money into an independent effort separate from the official campaigns of Blakespear and Gunderson, who have raised $3.9 million and $2.4 million, respectively.

Blakespear said she suspects she’s a target for the oil companies because she’s been a vocal critic of their contributions to climate change and the 
2021 Orange County oil spill. She has called for the attorney general to investigate the companies for manipulating the market to drive gas prices up.

“We just don’t have a sufficient explanation for the spike in prices we’ve seen here,” she said.

She said she does not know enough about Newsom’s windfall tax proposal to take a position on it.

Newsom has given few details about his plan but has said the revenue would go back to consumers in the form of a rebate. His announcement came as a surprise to many legislators and environmental groups and has been met with skepticism in some progressive circles.

Newsom said the special session would begin on Dec. 5, a day that normally serves as a ceremonial event for new lawmakers to be sworn in.

About a third of lawmakers will be new because of term limits and a rash of retirements after redistricting scrambled the old legislative districts. A leadership fight brewing in the state Assembly could inject extra chaos into the process. Assembly Speaker Anthony Rendon, D-Lakewood (Los Angeles County), faces a challenge from Assembly Member Robert Rivas, D-Hollister. That contest could lead to a complicated power struggle and vote on the chamber’s floor the same day.

Sacramento City Council Member Eric Guerra said he thinks the governor’s timing is smart. Guerra, who is running to replace Assemblyman Jim Cooper, D-Elk Grove, says he keeps hearing from constituents who ask him to do something to lower gas prices.

Oil companies have spent more than $900,000 to boost his opponent, fellow Democrat Stephanie Nguyen, an Elk Grove City Council member, which is more than she has raised for her official campaign. The Legislature needs to do something urgently to lower prices, Guerra said, although he said he hasn’t thoroughly considered Newsom’s windfall tax proposal. Guerra said he favors asking the state auditor to investigate whether oil companies are price-gouging.

“It’s important that the Legislature begin to look at this issue in December,” Guerra said.

Environmental advocates worry that the donations could have a chilling effect on incoming legislators, who might be on the fence about a potential windfall tax.

“They are spending, in part, to try to send a message,” said Mike Young, political and organizing director for California Environmental Voters. “They are shamelessly just trying to buy elections up and down the state.”

But some advocates warn Big Oil’s strategy could have the opposite effect and actually turn voters off to their preferred candidates. Television ads and mailers funded by the industry contain disclaimers noting they are paid for by major refineries, such as Chevron and Phillips 66.

“They will be known as the oil candidates,” said Jamie Court, president of Consumer Watchdog. “The money could backfire because it’s so blatant and it’s clear where it’s coming from.”

Oil companies have spent $1.6 million to boost the campaign of Democratic Sacramento City Council member Angelique Ashby in her race against former Insurance Commissioner Dave Jones. The two Democrats are running to replace termed-out Sen. Richard Pan, D-Sacramento. The oil companies’ spending represents more than either Ashby or Jones has raised for their official campaigns.

On Twitter, Ashby has sought to distance herself from the oil companies spending to support her.

“I denounce support from Big Oil,” she tweeted earlier this month, noting that the oil companies are not giving to her campaign, but rather an independent effort to support her that she doesn’t control. “I look forward to working with the Governor on his proposal to stop windfall profits by oil companies and out-of-control gas prices.”

In an interview, she said she does not yet have a position on Newsom’s plan to tax oil companies, but that she’s grateful for the special session to address high gas prices.

“I understand that people need relief at the pump,” she said.

Her opponent said he does want to crack down on oil companies for their high prices but doesn’t yet have a position on Newsom’s proposal.

“I don’t think there’s been a concrete proposal, but I do agree that the oil companies are price-gouging,” Jones said. “I think that the oil companies are spending millions against me because they know I oppose them and will fight them and stand up for people and the climate.”

Jones provoked ire from attorneys general in oil-producing states in 2017, when he called for companies to divest from the industry and encouraged reporting of fossil fuel investments. He has been blasting Ashby for being supported by oil companies in campaign mailers filling Sacramento mailboxes.

The campaigns for Nguyen and Gunderson did not respond to messages seeking comment.

While it’s unclear how Newsom will propose to structure the tax, he has described it as a tax on “windfall profits.” Court said that suggests it will target the portion of oil companies’ profits that are historically unprecedented.

Since 2001, according to Consumer Watchdog’s analysis, oil refineries have typically made about 32 cents per gallon in profit from sales in the state. In recent months, their margins have soared to between 79 cents per gallon and $1.01 per gallon.

Consumer Watchdog estimates that surge in prices has generated more than $930 million in excess profits for four of the state’s largest
refiners. Chevron, the largest, hasn’t reported its per-gallon profits for the year.

Most of the oil industry’s spending in legislative races has come through a political committee with a mouthful of a name: “Coalition to Restore California’s Middle Class, Including Energy Companies who Produce Gas, Oil, Jobs and Pay Taxes.”

A spokesperson for the group did not respond to requests for comment. The Western States Petroleum Association, an industry group supporting the committee, declined to comment.

WSPA has previously criticized Newsom’s call for a special session, which a spokesperson called a “political stunt” during election season.

“A better use of the special session would be to take a hard look at decades of California energy policy and what they mean to consumers and our economy,” Kevin Slagle, a spokesperson for the industry group, said in an earlier statement.

Sophia Bollag and Dustin Gardiner are San Francisco Chronicle staff writers.

Email: [email protected], [email protected] 

Twitter: @SophiaBollag, @dustingardiner