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California Senate approves Newsom’s oil industry crackdown proposal

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

A bill to impose new oversight authority and levy potential penalties against the oil industry for extreme profits cleared the full Senate Thursday..

The vote signals a smoother journey through the Legislature for the proposal from Governor Gavin Newsom, which was revised after facing skepticism from the same Senate committee last month.

The proposal passed the Senate by a vote of 30-8. Democratic Sen. Marie Alvarado-Gil, who represents a Republican-leaning district on the state’s eastern border, joined GOP Senators in voting against it. The bill cleared the Senate Energy, Utilities and Communications Committee Wednesday afternoon on a party-line vote, though two Republicans abstained from voting.

It will next be heard in the Assembly.

After the legislation passed, Republicans tried to force a vote on a proposal that would suspend the state’s 54-cent gasoline tax and other fuel regulations, which they argue would immediately lower gas prices. Democratic senators voted the measure down.

Advocates and the governor’s office say they hope lawmakers will deliver the bill to Newsom’s desk for his signature before the Legislature’s spring recess, which begins March 31.

The updated legislation would empower the California Energy Commission to impose a maximum profit margin for oil refiners and levy penalties if companies exceed it.

It would also bolster reporting requirements for the oil industry — including refiners’ monthly profit margins — and create a new division within the commission to monitor industry activity and pricing.

Newsom first proposed capping oil refiner profits last fall to reduce dramatic price spikes at the pump.

Democratic lawmakers praised the bill as a marked improvement on its previous version, though some questioned whether it would lead to lower gas prices for California drivers.

“I don’t think this is a perfect proposal,” said Sen. Dave Min, an Orange County Democrat. “But it is a damn good shot,” he added, noting that it “addresses a lot of the major problems with this market.”

Sen. Shannon Grove, a Republican from oil-producing Kern County and one of the GOP lawmakers who abstained from voting, said she was “very disappointed in both sides” for being unable to answer questions about specific details in the legislation and how it would affect the market.

Grove questioned why the bill references “major oil producers” when the regulations are aimed at the refining market, which is downstream from producers, who extract crude oil from the ground.

The proposed Division of Petroleum Market Oversight would be made up of a director appointed by the governor, economists, petroleum market experts and investigative staff. The group would also have subpoena powers and the ability to refer violations to the Attorney General.

The State Auditor will determine in 2033 whether to continue or sunset the provisions in the bill, which several lawmakers praised as an important guardrail.

Eloy Garcia with the Western States Petroleum Association, which represents the oil and gas industry in California and other states, warned lawmakers that increased burdens could lead companies to increase costs or pull out of the state altogether.

“Refiners do leave this state,” he said. “California puts policies in place that do chase out energy producers. It has happened. It will happen again.”

The governor’s office has continuously pointed to the record profits claimed by large oil producers last year.

“We’re going to hold Big Oil accountable for ripping off Californians at the pump,” Newsom said in a news release Monday announcing the “deal” between him and legislative Democrats. “This represents some of the strongest and most effective transparency and oversight measures in the country, and the penalty would root out price gouging.”

In addition to the oil and gas industry, business and taxpayer groups oppose the legislation. Environmental and consumer groups testified in support.

“We collect this kind of information for all the state’s utilities that provide essential services like electricity and natural gas,” said Tyson Slocum, director of the Washington DC-based consumer rights organization Public Citizen. “So, it really shouldn't be controversial to extend similar types of transparency and disclosure on the state's significant petroleum industry.”

California drivers have long paid more on average for a gallon of gas than the rest of the country, due in part to the state’s isolated fuels market, environmental regulations and a 54-cent gas tax. But energy economists say there is a roughly 40-cent “mystery surcharge” on California gas which can’t be explained by taxes and regulations.

According to UC Berkeley energy economist Severin Borenstein, that surcharge cost California drivers $8 billion in 2022.

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