Updated March 28, 6:44 p.m.
Gov. Gavin Newsom signed a bill Tuesday evening that would allow the state to access and limit the profit margins of the oil industry.
The bill was hailed by supporters as a win against oil refiners, which the governor accused of “fleecing” Californians last year, when gas prices soared to $2.61 more per gallon on average than in other states and several oil companies reported record profits.
“All I’m asking for is don’t rip us off anymore. Don’t take advantage of people,” Newsom said of the oil industry after signing the bill into law. “We’re all consumers of your product” — though the governor said later he drives an electric car — “just be a little respectful of the people you’re allegedly serving.”
The governor signed the legislation in a ceremony in the rotunda of the state Capitol.
Newsom said it could take up to a year to fund and staff a new state division created by the legislation tasked with monitoring oil company earnings. The new Division of Petroleum Market Oversight will also be able to cap refiners’ per-gallon profit margins and penalize companies for exceeding that limit, though nothing in the bill requires a penalty.
Supporters of the bill focused on the new transparency measures, which they say on its own could work to prevent future price spikes at the pump.
Sen. Nancy Skinner (D-Berkeley), the bill’s author, said its approval sends a message to the oil industry: “Open your books and prove that you’re not price gouging. Otherwise, you — big oil — will pay the price, not consumers.”
Republicans and oil industry groups opposed the legislation, arguing it would further regulate the industry and could drive up costs.
Senate minority leader Brian Jones (R-San Diego) in a statement called it a “reckless proposal” which “allows unelected bureaucrats to intervene in the free market and jack up gas prices for those who can least afford it.”
Original story, published 11:58 a.m.:
State lawmakers completed a nearly four-month special session Monday by sending Governor Gavin Newsom a bill that would create new transparency around oil industry profit margins.
SBX1-2 would also empower the California Energy Commission to limit those profit margins and penalize refiners from exceeding them.
Newsom called for the legislation last year amid spiking gas prices in California, particularly after several oil companies reported record profits.
The governor told reporters he plans to sign the legislation Tuesday. He called it “a big day for consumers, for Mother Nature.”
“When you take on big oil, they usually roll you — exactly what they’ve been doing to consumers for years and years and years,” he said in the state Capitol after the bill passed. “We sent a big and very powerful message to them today.”
The bill passed the Assembly by a vote of 52-19, though some Democrats who initially declined to vote on the proposal changed to “yes” voted afterward. One Democrat, Dr. Jasmeet Bains of Kern County, joined Republicans in voting against it.
Democrats including Assembly member Phil Ting argued California’s isolated fuel market is an “oligopoly” held by just five large oil refiners who drove prices up in 2022 while blaming low supply and refinery maintenance.
“Unless we … are going to do something to rein in this industry, guess what’s going to happen? They’re going to charge whatever price they want to all 40 million of us, and we’re going to have to pay whatever price they want,” Ting said.
Democrats also noted the legislation will sunset after a decade unless the state auditor finds it has worked to prevent price spikes.
Oil companies opposed the legislation, arguing it would place new burdens on a shrinking and heavily regulated industry.
Republicans decried a rushed process, noting the bill was up for its final vote only one week after undergoing extensive amendments.
GOP leader James Gallagher accused Newsom of driving the legislative process, and asked lawmakers to “stand up” for themselves.
“We’ve heard exactly one idea” during the special session, Gallagher said. “His. We’ve had several bills that have been introduced,” but none got a hearing.
A new state body to oversee the oil industry
In addition to empowering the state to punish companies for excessive profits, the legislation would also bolster reporting requirements for the oil industry — including refiners’ monthly profit margins — and create a new division within the energy commission to monitor industry activity and pricing.
The bill creates a Division of Petroleum Market Oversight made up of a director appointed by the governor, economists, petroleum market experts and investigative staff. The group would also have subpoena powers and the ability to refer violations to the Attorney General.
The State Auditor will determine in 2033 whether to continue or sunset the provisions in the bill, which several lawmakers praised as an important guardrail.
Democratic lawmakers praised the bill as a marked improvement on a version introduced in December, though some questioned whether it would lead to lower gas prices for California drivers.
Nothing in the legislation requires the new division to penalize oil refiners for high fuel prices.
“I don’t think this is a perfect proposal,” said Sen. Dave Min, an Orange County Democrat during a Senate hearing. “But it is a damn good shot,” he added, noting it “addresses a lot of the major problems with this market.”
Sen. Shannon Grove, a Republican from oil-producing Kern County and one of the GOP lawmakers who abstained from voting, said she was “very disappointed in both sides” for being unable to answer questions about specific details in the legislation and how it would affect the market.
Grove questioned why the bill references “major oil producers” when the regulations are aimed at the refining market, which is downstream from producers, who extract crude oil from the ground.
Eloy Garcia with the Western States Petroleum Association, which represents the oil and gas industry in California and other states, warned lawmakers that increased burdens could lead companies to increase costs or pull out of the state altogether.
“Refiners do leave this state,” he said. “California puts policies in place that do chase out energy producers. It has happened. It will happen again.”
In addition to the oil and gas industry, business and taxpayer groups oppose the legislation. Environmental and consumer groups testified in support.
“We collect this kind of information for all the state’s utilities that provide essential services like electricity and natural gas,” said Tyson Slocum, director of the Washington DC-based consumer rights organization Public Citizen. “So, it really shouldn't be controversial to extend similar types of transparency and disclosure on the state's significant petroleum industry.”
California drivers have long paid more on average for a gallon of gas than the rest of the country, due in part to the state’s isolated fuels market, environmental regulations and a 54-cent gas tax. But energy economists say there is a roughly 40-cent “mystery surcharge” on California gas which can’t be explained by taxes and regulations.
According to UC Berkeley energy economist Severin Borenstein, that surcharge cost California drivers $8 billion in 2022.
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