After months with little apparent progress, Gov. Gavin Newsom’s proposal to hold the oil industry accountable for high gas prices and deter price gouging is now on a fast track toward passage in the California Legislature.
A deal between the governor and legislative leaders, announced earlier this week, was passed by the Senate on Thursday and now heads to the Assembly and could be voted on as soon as next week. The deal abandons Newsom’s push for the Legislature to place a cap on oil company profits and instead gives state energy regulators the power to impose one through a public process.
It’s an admittedly weaker plan that shows state lawmakers’ unwillingness to directly take on California’s multibillion-dollar oil industry, which holds tremendous political sway in a state that consumes nearly twice as much gasoline as any other and pays the nation’s highest gas prices. But it may be more effective to have regulators than state lawmakers take on the work of collecting data and setting penalties for excessive profits on such a powerful industry. The Western States Petroleum Assn. is the top lobbying spender in Sacramento, and oil companies have doled out millions in campaign cash trying to elect Republicans and Democrats friendly to their industry.
“Big Oil is the most powerful industry on Earth, and has been mobilized against the price-gouging penalty since Day One,” said Kassie Siegel, who directs the Climate Law Institute at the Center for Biological Diversity.
This approach moves decisions about penalties on excessive profits from the purely political realm into the administrative world of data-driven regulation and brings much-needed oversight. It’s a promising idea, and the Assembly should vote promptly to send it to the governor’s desk. Once empowered, state regulators should move quickly to hold this industry to account.
Newsom has pushed for penalizing oil refinery profits since last year, when gas prices spiked to more than $6.40 a gallon, about $2.60 a gallon above the nationwide average. While Californians struggled to fill their tanks at a time of rapid, economy-wide inflation, oil companies reaped their biggest profits ever. Chevron, which operates oil refineries in El Segundo and Richmond, posted a record $36.5 billion in profits in 2022, and Valero, with refineries in Benicia and Wilmington, had its best year ever with $11.5 billion in profits.
It should be clear by now that oil companies have been overcharging Californians for years, with consumers paying a 30- to 40-cent-per-gallon “mystery gas surcharge” since 2015, that amounts to an additional $40 billion or more that cannot be explained by the state’s higher taxes and more stringent environmental rules.
Stricter oversight is sorely needed, especially as demand for oil starts to shrink as California’s emissions policies increasingly force a transition to electric vehicles — a shift expected to reduce petroleum consumption in the state by more than 90% over the next two decades.
The governor’s proposal would establish an independent Division of Petroleum Market Oversight within the California Energy Commission, with subpoena power to investigate the industry’s sales and pricing and identify consumer abuses. But just as important are the bill’s transparency provisions, which should help shed light on gas prices by forcing companies to provide state regulators detailed new information on transactions, maintenance activities and refining profit margins.
Because it authorizes, but does not require, the California Energy Commission to impose a price-gouging penalty, it’s possible that regulators will gather and analyze the new data oil companies submit only to determine no action is warranted.
But that seems unlikely. California is dominated by just five major oil refiners, and the forces driving up its gasoline prices remain shrouded in mystery. The bill’s transparency measures alone could go a long way in reining in an industry that has long operated in the shadows, and with far less oversight than other energy suppliers, like electric and natural gas utilities. State regulators need more information to determine whether the market is being manipulated. Disclosure could itself be a deterrent, and dissuade the industry from fleecing consumers and punishing California for its aggressive climate policies.
It’s telling that the oil industry is balking at the requirements that would make it provide more data to state officials. Transparency shouldn’t be a problem if these companies have nothing to hide.
