SAN DIEGO — Gov. Gavin Newsom signed legislation in mid-March to create new oversight of the oil and gas industry, which could lead to fines.
The law said it will create a civil penalty on refiners who have engaged in price gouging.
"Now it's time to choose whether to stand with California families or with Big Oil in our fight to make them play by the rules," the governor said in a statement.
The oil industry has criticized the move, arguing it would make confidential trade information public and result in less investment in California, which may result in increasing prices more. Yet many Democratic lawmakers praised the move as a way to protect California consumers.
Q: Is California's new oil and gas legislation a good approach to stabilize and bring gas prices under control?
Kelly Cunningham, San Diego Institute for Economic Research
NO:Already having the highest gas prices in the nation due to California's currently existing taxes, regulations and fees, the legislation will do nothing to solve prices. The result of imposing more bureaucratic labyrinth of rules on production and adding financial penalties will result in less investment, less supply, and higher costs to the state. Price controls never keep prices stable without shortages developing from consumers consuming more and producers having lower incentives to produce more.
Lynn Reaser, economist
YES:The Newsom proposal requests more information for two reasons. First, it is to be used to identify possible collusion with resulting lawsuits by the Attorney General. None probably exists. The second is more important and that is to identify excessive profits. The 17 California refineries currently produce 1.75 million barrels of product per day. The absence of new additional competitors makes some regulations appropriate to claw back some of the resulting profits.
Phil Blair, Manpower
YES: It is a wake-up call that large companies cannot take advantage of perceived shortages, in any commodity to earn exorbitant profits. Next may be Internet services price gouging due to nebulous weather issues. California also needs to realize it cannot ban refineries, depend on other states to refine the oil into gasoline that Californians then consume, and complain about the resulting costs.
Gary London, London Moeder Advisors
NO: I am more mystified by the movement of energy prices in California than almost any other commodity. The oil industry feels like an oligarchy unmoored by normal supply and demand price fluctuations, ultimately to the disadvantage of consumers. However, I would like to see emphasis on the carrot rather than the stick. Why not require a portion of those excessive profits to be designated to fund the improvement of the electric grid, or create more energy-producing water dams?
Alan Gin, University of San Diego
NO: But that doesn't mean it isn't good legislation. The measure would bring more transparency in terms of the factors affecting gas prices in California. There are a lot of factors impacting gas prices, including increases in the price of oil, limited producers of California's special blends of gasoline, and the state's geography. If the oil companies are not gouging consumers in California as they claim, they should have no fears as the added transparency will show that.
Bob Rauch, R.A. Rauch & Associates
NO:The governor's proposal will cause unintended consequences and costs. Data reporting requirements will add more work for refineries and do nothing to reduce costs. Lawsuits could tie the proposed legislation up for years and profit caps could create more likelihood of fuel supply constraints. When Californians see the results of Gov. Newsom's acts, they will realize that everything he does is mere political grandstanding. Just say no to Gavin.
Kirti Gupta, Qualcomm
NO:Oil prices have skyrocketed in California, as they have elsewhere, primarily due to supply constraints. Additional supply sources and alternative energy options will mitigate the rising oil and gas prices. Illegal behavior such as price fixing is banned by law. But setting up a watchdog monitoring if oil and gas companies are charging "too much" (who defines what's too much?) or setting artificial caps on profit margins (who defines what's the right cap?) are dangerous strategies with severe unintended consequences.
James Hamilton, UC San Diego
NO: Oil companies in California are no greedier than in the rest of the country. The reason consumers pay so much more here is because of decades of policies to restrict supply. California produced over a million barrels of oil each day in 1984, but today only produces 300,000. California had 43 refineries in 1984 but only 15 today. This is the politicians' usual game plan or creating a problem and then trying to put the blame on somebody else.
Austin Neudecker, Weave Growth
NO:I appreciate Newsom's environmental priority. Fossil fuels must be phased out by applying economic incentives. His fight against industry lobbyists is refreshing and his ability to gain supporters across the state legislature shows true leadership. However, I fear that explicitly regulating profit is the wrong approach and sets a horrible precedent. California should lead but remain cognizant of the increasing price differences compared to neighboring states. Should he establish a coalition of like-minded states?
Chris Van Gorder, Scripps Health
NO: While I was as frustrated as anyone with the increased gas prices, we already have antitrust laws and regulations to manage monopolistic behaviors. It would become problematic to start passing industry-specific price-gouging laws. Who would be next? The pharmaceutical industry that can charge hundreds of thousands of dollars a year for a single drug or treatment? If individuals rather than insurance companies and employers had to pay that, I suspect it would be considered price gouging, too. This is a very slippery slope.
Norm Miller, University of San Diego
NO: Several problems arise in opening this can of worms: First, defining "excessive" profit; Second, treating global oil companies as if they are local utilities where a board determines what is fair; Third, instilling fear in every local industry that they might be next; Fourth, if we tax excess profits will we subsidize U.S. company losses when profits become losses? This proposal takes us from a market economy into more of a Soviet-era economy, and we know how that turned out.
Jamie Moraga, Franklin Revere
NO: Establishing a new independent watchdog within the CEC will require staffing, resources, and authority, which can bring unintended consequences and costs. These costs will likely be passed down to taxpayers. Fuel prices remain high and will get higher as a result of California's own policies and regulations. These include the state's cap-and-trade program, special gasoline blends specific to California, summer and winter fuel blend transitions, and the ever-increasing gas tax (expected to increase 8 percent in July). More needs to be done to reduce costs besides additional regulations.
David Ely, San Diego State University
NO: This legislation is unlikely to deliver what most Californians want — immediate relief from high gas prices. It will take months just to establish the new Division of Petroleum Market Oversight and even longer for it to take meaningful action. But increased transparency in pricing and the call to create a transition plan that addresses the supply of petroleum and alternative transportation fuels are features that could produce benefits in the long term.
Ray Major, SANDAG
NO: This new legislation is just another salvo in California's war on oil. Ironically, this war was won when legislation was passed to ban new internal combustion vehicles by 2035. As we move rapidly towards handing electric power providers a monopoly on energy over the next decade, efforts to regulate and legislate should shift to the providers to ensure we all have affordable energy in the future.
Caroline Freund, UC San Diego School of Global Policy and Strategy
NO: While transparency can target bad actors, it does not address the cause of price spikes — California's isolated refinery market. There are no alternative sources of supply when one refinery goes down. Once demand exceeds supply, price must go up or there will be shortages and long queues for gas. The problem of high and volatile gas prices can be better handled through greater integration with regional refineries or holding reserves for release during shortages.
