Newsom calls for tax on oil profits as fuel spikes

Oct. 4—The state's oil industry is back in Sacramento's crosshairs after a disproportionate jump in California gasoline prices last month led Gov. Gavin Newsom to suggest oil producers and refiners should pay a higher rate on profits above a set level.

Newsom joined other officials in blasting what they called an unprecedented departure from the national trend that added a record 84 cents to the price of a gallon of gas in 10 days. The chairman of the California Energy Commission, demanding quick answers Friday from five refiners, all but accused them of intentionally neglecting to build up their inventories in anticipation of planned outages.

State Attorney General Rob Bonta said in a news release Friday he warned refineries earlier this year against taking advantage of market disruptions, and that as his office monitors the market for illegal manipulation, "We will not hesitate to take action if we find evidence that the law is being violated."

The industry sees the price jump as a foreseeable outcome of California's reduced capacity for refining the state's special blend of gasoline within a so-called energy island with limited import options. Its view is that, under such conditions, refinery outages planned or not stretch an already tight supply.

The Western States Petroleum Association said in a statement Newsom and the state Legislature failed to see their policy decisions have a big impact at the pump. The trade group said Newsom could lower regulatory program costs or suspend gas taxes, "but he's deliberately chosen to make another policy decision to further increase costs on consumers through yet another tax on fuel."

CEO Rock Zierman of the California Independent Petroleum Association trade group added that foreign oil producers supplying ever more crude to the state would pay no taxes under Newsom's plan.

Newsom did not specify in his comments Friday what profit level should trigger higher taxation or how steeply excessive profits should be taxed. He said revenue from the tax should be given back to consumers as a rebate similar to the checks of up to $1,050 the state is preparing to send families to help offset rising fuel costs.

His statements Friday were among the harshest yet aimed at an industry he has targeted with tighter regulations, legislative initiatives, far-reaching policy pronouncements and administrative bans on certain oilfield techniques. Newsom posted a video on Twitter saying consumers are being cheated, the recent jump in gas prices amounts to "oil company extortion" and that "greedy oil companies" are fleecing California.

California gasoline prices averaged $6.412 Tuesday, an increase of 9 percent in a week and almost 22 percent higher than a month ago, according to the AAA. By contrast, Brent crude, the global benchmark against which most of California's oil is priced, has declined more than 8 percent in the past month.

Any new oil tax would have to be approved by the state Legislature. The president pro tempore of the state Senate, Toni G. Atkins, D-San Diego, joined Assembly Speaker Anthony Rendon, D-Lakewood, in saying in a news release they will take a hard look at any plan to go after windfall profits that "oil companies are raking in by bilking consumers."

On Friday, Newsom also directed an early switch to winter-blend fuel as a way of boosting California's gas supply. Tapping the winter blend a month early opens access to gasoline refineries have been stockpiling in preparation for the transition normally scheduled for Nov. 1. He noted a similar move in 2012 brought gas prices down 25 cents per gallon within two weeks.

Orange County refinery consultant Dave Hackett said by email Tuesday California's gasoline problem comes down to a supply crisis best solved by making more fuel. He added that switching early to winter blend will boost inventories by 10 percent and that he expects spot prices for gas to drop at least $1 per gallon within about a week.

Chairman David Hochschild at the energy commission had given the five refiners his letter addressed until Monday to answer a list of questions about the "sudden and unprecedented" jump in gas prices. Their replies were not available Tuesday amid protests by some refiners that they needed more time to respond.

Hochschild pointed to minor planned and unplanned refinery outages that the experts at the commission and outside consultants have asserted "do not adequately explain" recent price increases. Historically, his letter says, refiners planned ahead and maximized their inventories before outages to avoid price shocks.

"But this year, refineries have allowed gasoline inventories to drop over the past several weeks to below the bottom of the seasonal five-year high-low band," he wrote. Among his questions Friday was why they allowed inventories to fall so low when outages were planned.

Assemblyman Vince Fong, R-Bakersfield, called the problem a "fundamental supply-and-demand issue" involving lack of refining capacity exacerbated by state taxes and fees.

Newsom's tax proposal, Fong said Tuesday, lacks detail when a better idea would be for the governor to relax restrictions he has placed on in-state refining.

"It's completely asinine," he said of the governor's tax plan. "It makes no economic sense."

Two other state lawmakers from Kern also voiced opposition Tuesday to the new oil tax proposal.

State Sen. Shannon Grove, R-Bakersfield, faulted Newsom for increased gasoline production costs with his "green utopia" regulations.

"Only this governor would believe that taxing a business would make the cost of their product go down," Grove said in an emailed statement.

Assemblyman Rudy Salas, D-Bakersfield, predicted Newsom's proposal would backfire and end up raising gasoline prices.

"California families are struggling to put food on the table and these new policies are not doing anything to fix that," Salas said in an emailed statement.