Update: Newsom’s plan to penalize Big Oil for California’s high gas prices scores first win

Manny Crisostomo/Sacramento Bee file

The fate of Gov. Gavin Newsom’s proposal to bring down California’s high gas prices by going after oil companies over their recent record profits could be decided in a matter of days.

Events in Sacramento this week were set in motion by the governor’s decision to back away from his call for state legislators to cap the profits of oil companies. Newsom’s plan would instead give the California Energy Commission more power to investigate the gasoline market and to decide — through a potentially lengthy public hearing process — whether a cap on oil profits is the best way to address gas prices in the Golden State.

The Senate Energy, Utilities and Communications Committee on Wednesday overwhelmingly approved Newsom’s updated proposal. The Senate Appropriations Committee will vote on the matter Thursday morning and the bill is expected to be heard on the Senate floor shortly thereafter.

State Assembly members would then have the final say on the legislation sometime next week. If all goes Newsom’s way, the bill could be on his desk before lawmakers adjourn for spring recess on March 30.

At Wednesday’s hearing before the energy committee, Senator Nancy Skinner, D-Berkeley, made her case for the bill’s expedited approval. Skinner, who authored the measure at the behest of the governor, said recent revisions addressed concerns about unintended consequences and “hit a very important sweet spot.”

“While you can never predict what every unintended consequence may be, certainly those that were possibly highlighted as being a potential in the last draft were addressed,” she said. “... This is a much better construction to help protect our consumers.”

Eloy Garcia, a lobbyist for the trade group Western States Petroleum Association, argued against the bill’s quick turnaround, saying lawmakers had failed to carefully consider details that were only made public six days ago.

“It is a significant change to our energy policy to our transportation fuels policy, and it deserves much, much more deliberation and consideration,” he said. “We cannot have both on the one hand a first-of-its-kind, never-been-done-before bill and expect it to be done right in 10 days. That just does not reconcile.”

Deal reached over plan to penalize excessive oil profits

State Democratic leaders endorsed the governor’s plan on Monday and announced they had all reached a deal to get it to the finish line. Newsom left nothing to chance Tuesday, spending part of the afternoon caucusing with Senate and Assembly Democrats, KCRA reported.

The governor said the agreement marked a “major milestone in our efforts to drive the oil industry out of the shadows and ensure they play by the rules.”

“Together with the Legislature, we’re going to hold Big Oil accountable for ripping off Californians at the pump,” he added in a statement.

The deal was a major shift from the governor’s original proposal.

Amid unprecedented gasoline price spikes last year, Newsom in late September placed the blame on oil companies and announced that he wanted to levy a new tax on those that were enjoying historic profits during that time.

Newsom vowed to “ensure these profits go directly back to help millions of Californians” who were getting squeezed at the pump.

Shortly thereafter, he began referring to his proposal as a “price-gouging penalty” rather than a tax — marking the first notable change.

When the special session called by Newsom to consider his proposal convened in December, the governor’s administration provided lawmakers with vague bill language, which left out important details like the profit cap measurement.

Over the subsequent three months, legislators only held one hearing on the matter. It was unclear what, if any, progress had been made to establish a threshold and fill in the critical missing information.

During that time, the bill received a lukewarm reception. State lawmakers and energy market analysts both expressed uncertainty over the governor’s plan and whether it was the right strategy to address California’s high gas prices.

Newsom’s new plan to address California’s high gas prices

The average price of a gallon of gasoline in California was $4.84 on Wednesday — about $1.40 more than the national average, according to AAA. At the peak of last year’s gasoline price spikes, Californians were paying more than $2.60 above the national average.

Under Newsom’s proposal, the California Energy Commission would create a new watchdog agency to monitor the state’s petroleum market. It would have access to new information that refiners would have to report and subpoena power to compel companies to provide other data and records. The agency could also refer potential violations to the Attorney general for prosecution, though experts have said that the chances of that are unlikely.

The California Energy Commission will have the authority to decide the best approach to addressing the state’s high gas prices. Depending on a public hearing process led by the Commission, that may or may not include a price-gouging penalty.

The state’s major oil refiners will be required to provide new information to the state, including any maintenance activity that might slow or close refineries, limiting production and leading to price spikes.

Senator Susan Rubio, D-Baldwin Park, wasn’t initially in support of the governor’s proposal but the updates eased her concerns enough to support moving it forward, she said Wednesday.

“Our residents don’t want long explanations, They don’t want to know all the details. They just want to know ‘what are you doing about it?’” she said during Wednesday’s committee meeting. “Right now, this is a time to continue to work on this issue.”

State Republican Senators, on the other hand, continued to oppose the governor’s proposal, especially the latest move to punt the matter to a regulatory body. Senator Kelly Seyarto, R-Murrieta, said it created a “firewall” between him and his constituents.

“If we want to vote to do a gas tax or penalty, we should just do that,” he said. “We should not be forming a whole new commission.”