Newsom signs bill to crack down on gas price gouging

The state energy commission is being given the authority to cap profits and penalize companies that eclipse the set margin.
California Gov. Gavin Newsom on Thursday, March 16, 2023. (AP Photo/Rich Pedroncelli)

California Gov. Gavin Newsom (D) signed first-of-its-kind legislation Tuesday to empower the California Energy Commission to cap oil and gas company profits in an effort to lower gas prices in the state.

Under the law, the commission can set a maximum gross gasoline refining margin, essentially capping profits. The commission is also authorized to penalize, via a public rulemaking process, companies deemed to have gone above the margin.

The law also requires the state’s petroleum industry participants, including refiners, to submit a raft of data to a new independent agency created within the commission tasked with monitoring the industry on a daily basis. The oversight agency has subpoena power to ensure compliance with the production of data and records that could reveal misconduct or price manipulation.

Speaking at a bill signing ceremony in the Capitol rotunda, Newsom said that the law now allows Californians to look and see why they pay $2.61 per gallon higher than the national average.

“Finally, we’re in a position to look our constituents in the eye and say we now have a better understanding of why you’re being taken advantage of,” Newsom said.

He tempered expectations that anything would happen quickly and noted that the regulators would be deliberate and mindful of unintended consequences.

The law comes more than three months after Newsom convened a special session to respond to the record-high gas prices in California last year. California gas prices, on average, remained far higher than the national average through the fall after peaking at $6.44 in mid-June. It is currently $4.82 a gallon there for regular, while the national average is $3.44 a gallon.

The legislation moved quickly once an agreement between Newsom and Democratic lawmakers was struck and announced last week. The Senate voted first, on Thursday, passing it 30-8 with one Democrat voting with all GOP members opposing the measure. The House then cleared it Monday by a 52-19 margin, with all but one Democrat backing the bill and all Republicans voting against it.

During the House debate, Democrats argued that the bill was needed to allow the state to monitor the petroleum industry and crack down on excessive profits coming at constituents’ expense. They noted that most of the state’s refining is controlled by five companies: Chevron, Marathon Petroleum Corp., PBF Energy, Valero Energy Corp. and Phillips 66.

Assemblyman Alex Lee (D) lauded the new data reporting requirements, which he said would act as a check on what the companies can charge.

“We can truthfully and wholeheartedly now know the practices of the refinement of five companies that control the entire oil refining business, basically, in California and understand that when they say that prices are going up and down, what is … the truth of that,” Lee said.

Lee, who introduced legislation last year to impose a windfall profits tax on oil companies, also said that oil companies see the state moving to greener energy sources and increased electric vehicles usage — California enacted a rule banning new gas-powered car sales beginning in 2035 — and are looking to ramp up profits before then.

“Fossil fuel obsolescence is on the horizon,” Lee said. ”They know that and they will make sure that they will squeeze every last penny until that feature or until that feature

Republicans argued that high gas prices in California are the result of the state’s gas tax and regulations. They have sought but failed to pass legislation suspending the 51-cent-per-gallon gas excise tax. According to the American Petroleum Institute, California had the highest gas tax in 2022, which totaled 86.5 cents per gallon when adding the 51-cent excise tax, 17.05 cents per gallon in other state fees and taxes, and the 18.4 cent-per-gallon federal gas tax.

Assemblyman Vince Fong (R) said the bill creates more bureaucracy and would likely increase gas prices by squeezing the state’s supply with overregulation.

“The result of this short-sighted legislation will be energy market disruptions, higher costs and energy shortages,” Fong said.

He said the attorney general already has the “authority to prosecute offenders to protect consumers,” and the fact that he has not done so indicated price gouging has not happened with regard to gas prices.

“Members, has there been any exercise of these statutes? There hasn’t been? Why?” Fong said. “Because there’s no evidence. No matter how many times you say it, the evidence comes up empty.”