SACRAMENTO, Calif. — Gov. Gavin Newsom on Monday unveiled an outline of his plan to place a cap on oil refinery profits in California, a proposal he's asking lawmakers to approve in hopes of reducing future spikes on gasoline prices.
After convening a special legislative session, the governor publicly shared a first look at his plan more than two months after he said he would call on the Legislature to penalize the oil industry's excessive profits, accusing companies of "price gouging" by intentionally elevating the cost of gasoline for California drivers.
"California's price gouging penalty is simple – either Big Oil reins in the profits and prices, or they'll pay a penalty," Newsom said in a statement Monday afternoon. "Big Oil has been lying and gouging Californians to line their own pockets long enough. I look forward to the work ahead with our partners in the Legislature to get this done."
The industry contends high prices are a result of the state's policies to phase out the use of oil and reduce dependence on fossil fuels. The companies argue Newsom has politicized the issue and a penalty will only exacerbate the problem in a state that already levies heavy taxes on the industry.
According to a draft of Newsom's plan, the governor is asking the Legislature to enact a yet-to-be-determined "maximum gross gasoline refining margin" — or profit cap — based on a monthly calculation of the average profit per barrel that an oil refiner earns for wholesale gasoline.
The proposal would allow the California Energy Commission to impose an administrative civil penalty for violations of the profits cap, which would vary based on the percentage by which profit margins earned by the refiner exceed the limit. Any penalties would go into a new "Price Gouging Penalty Fund," which lawmakers could return to residents as a refund through the state budget.
The governor's proposal also calls for new regulatory review and oversight, giving the Energy Commission expanded authority to investigate supply and price issues.
Lawmakers opened Newsom's session Monday as they returned to the state Capitol to begin the 2023-2024 regular session and swear in legislators who were elected in November.
Though the two sessions run concurrently, any legislation passed within the parameters of the special session can take effect 90 days after adjournment. Bills approved in regular session generally do not become law until the start of next calendar year. In the special session, legislative leaders also have an opportunity to craft unique rosters of lawmakers for committees that could make it easier to approve controversial new bills.
With little activity at the Capitol during the holiday season, leaders expect consideration of Newsom's proposal to begin in earnest early next year.
The governor's proposal did not include a figure for a cap on profit margins, which will likely be defined in subsequent negotiations among Newsom's office, the Senate and the Assembly. After lawmakers set a cap, the limit on profit margins would adjust annually to reflect changes in the market price and could also change at the discretion of energy commission.
Under Newsom's tentative plan, the commission could grant a refiner an exemption to the profit margin cap if the company shows "reasonable cause."
Consideration of what Newsom calls a "price-gauging penalty" created an immediate tension point for new lawmakers.
An independent expenditure committee funded by Valero, Marathon, Chevron and Phillips 66 spent more than $8 million on legislative races in this year's elections with the intent of electing Republicans and moderate Democrats, who could end up supportive of the oil industry.
The industry and its allies in the business community are already fighting back. Californians Against Higher Taxes, a coalition of state and local chambers of commerce and business associations, branded the penalty as "Gavin's New Gas Tax" in text messages sent to voters that also said "Californians can't afford to pay more at the pump."
The battle over a penalty comes three months after the governor's office successfully lobbied lawmakers to pass a series of policies to curb climate change that the industry opposed.
One of those laws established a setback distance of 3,200 feet between new oil wells and homes, schools, healthcare facilities and any building open to the public. The industry beat back prior versions of the setbacks bill before Newsom engaged in the battle in August.
