Calif. Gov. Newsom proposes capping oil company profits

California Gov. Gavin Newsom (D) released draft legislation that would cap profits for oil companies as legislators returned to Sacramento Monday, though leaders suggested that they will not take action on the measure before the new year.

Newsom’s proposed legislation would cap profits of oil refiners. Lawmakers would determine the initial cap amount, which would be adjusted every July based on the Consumer Price Index, a measure of inflation.

The California Energy Commission would be allowed to change the cap. 

The bill also empowers the commission to petition the court to enjoin a refiner from exceeding the cap, known as “maximum gross gasoline refining margin.” The bill would also authorize the commission to assess a civil penalty on a refiner for exceeding the cap.

The proposal would also ramp up oversight of the refinery industry, including expanding the commission’s authority to order that refinery maintenance and turnarounds are rescheduled in certain circumstances, consistent with safety precautions and to avoid supply shocks in the market for transportation fuels. 

Refinery maintenance was blamed for record-high gas prices hit in California earlier this year. Gas prices are currently $4.77 a gallon for regular, less than the $6.00 plus per gallon that Californians were paying earlier this year. In June, gasoline prices hit a record $6.44, according to AAA. The national average is currently $3.40 a gallon.

The bill only needs a majority vote to pass, according to the legislative counsel’s office.

Kayla Kitson, a policy analyst focused on taxes with the California Budget and Policy Center, said the counsel’s conclusion is ripe for a court challenge. She pointed to a constitutional requirement that the bills increasing taxes must pass both chambers with a two-thirds majority vote.

Newson appears to have abandoned the term “windfall tax” he used earlier in the year in favor of penalty, which he used in the release announcing the special session and in the draft bill.

“They can call it a penalty, but the state constitution outlines what is and what isn’t considered a tax for the purposes of that vote,” Kitson said. “And it’s pretty broad.”

“There are a lot of Democrats that are wary about increasing taxes,” Kitson continued. “And we have a huge slate of new legislators coming in this year… These people are gonna be sworn in and then the first thing they’re going to be asked to do is raise taxes. It’s always hard to get a two-thirds vote on tax increase.”

The Western States Petroleum Association, a trade association representing petroleum companies in the region, said the bill imposes a tax.

“There’s never been a time when taxing an industry and taxing the commodity has led to lower costs for consumers,” said WSPA spokesman Kevin Slagle. “And so we’re going to continue to point to the real reasons behind what we’re seeing in California and that is bad public policy, market forces and the highest cost of doing business anywhere in the country.”

Newsom also wants more oversight authority for his administration to review gasoline pricing and to provide the state with greater regulatory oversight of the refining, distribution and retailing segments of the gasoline market in California.

The request for more regulatory authority comes after the commission held a hearing, last week, on gas prices seeking testimony from the chief executives of Chevron, Marathon Petroleum  PBF Energy Inc., Phillips 66 and Valero. Instead, they sent a representative from the petroleum association, angering commission chairman David Hochschild.

“This is unprecedented,” Hochschild said at the hearing. “We have hearings, workshops and commission meetings with every industry in the state . . . I’ve never had an industry not show up with their individual company representatives.”

Legislators, including those who first won their seats in November’s midterm elections, are meeting for the first time in a special session Newsom called to consider ways to combat high gas prices.

The special session will continue to run concurrently with the regular session, which begins Jan. 4. That’s when lawmakers will start work to draft legislation to impose a gouging penalty on oil companies and rebate those funds to Californians. 

“Enjoy the holidays, and let’s be ready to tackle the challenges ahead on January 4,” Senate President Pro Tem Toni Atkins (D) told her members. “Forty million Californians are counting on us to not just stay the course but to make it better for everyone.”