California Gov. Gavin Newsom (D) on Thursday called on his legislature to pass a first-in-the-nation measure requiring petroleum refiners to maintain a minimum fuel reserve to avoid supply shortages that can cause gas prices to surge.
“Price spikes at the pump are profit spikes for Big Oil,” Newsom said in a release. “Refiners should be required to plan ahead and backfill supplies to keep prices stable, instead of playing games to earn even more profits. By making refiners act responsibly and maintain a gas reserve, Californians would save money at the pump every year.”
Newsom wants to require California’s petroleum refiners to demonstrate to the California Energy Commission that their resupply plans and arrangements are adequate to address the loss in production during refinery maintenance. He wants to authorize the CEC to require petroleum refiners to maintain enough fuel inventory to stabilize fuel supply and to impose penalties on refiners who do not comply.
The bill could be introduced as soon as next week, Newsom’s office said.
The proposal marks the latest round in the battle California has waged with the oil industry.
Last year, Newsom signed legislation passed in a special session called to respond to record high gas prices in 2022 that empowered the California Energy Commission to cap oil industry profits and created an independent watchdog within the commission to get information from the industry, including subpoena power.
While the commission did not move to cap profits, it did use its investigative powers to author reports that informed Newsom’s decision to call for legislation.
The watchdog, formally known as the Division of Petroleum Market Oversight, found that higher gasoline prices were caused by refinery maintenance, which disrupted supply as well as suspicious market transactions, among other factors.
In a January letter to the governor, the watchdog outlined proposals to reform California’s gasoline spot market, which included a minimum inventory requirement to prevent price spikes due to lack of stable supply.
The watchdog also released an update in June that found that, in 2023, gasoline prices spiked largely due to refineries going offline without adequately planning to backfill supplies, which caused refining margins to spike as spot and retail prices jumped. They also concluded that refinery margins comprised the largest proportion of the price spikes between July and September 2023.
According to the commission, Californians would have saved roughly $650 million in gas costs if Newsom’s proposal had been in effect in 2023.
The commission also found that, in 2023, California refiners maintained fewer than 15 days of gas supply for 63 straight days, which Newsom claims drove up prices.
“The data is clear: oil refiners have been racking up profits by planning maintenance that reduces supply during our busy driving seasons,” Tai Milder, watchdog director, said in a statement. “The Governor’s proposal gives us new tools to require refiners to plan responsibly and prevent price gouging during maintenance.”
The oil industry was critical of Newsom’s plan.
“The Newsom Administration’s minimum supply announcement is nothing more than a political attack on consumers and our industry,” Catherine Reheis-Boyd, President and CEO of the Western States Petroleum Association, said in a statement.
Reheis-Boyd took issue with the notion that the industry uses maintenance to try to boost gas prices and profits.
“To impose new operational mandates on energy producers based on such falsehoods is regulatory malpractice, and ignores the logistical challenges and costs associated with such a plan,” Reheis-Boyd said. “When this administration is ready to have a serious discussion about the facts and the policies this state has imposed that affect consumer costs, we will be there.”