latest news California lawmakers approve Newsom’s oil bill
California lawmakers on Monday approved Governor Gavin Newsom’s legislation to increase transparency in the oil industry, ending a special session he called last year to sanction excessive profits.
After months of deliberation, the final bill does not cap oil refinery profits or penalize the industry as Newsom intended when he accused the companies of intentionally raising gasoline prices to increase their income. Instead, the bill, SBX1-2, gives the California Energy Commission the power to set a cap and impose penalties through a regulatory process if it decides oil companies are making a profit. excessive and that a sanction will not result in higher prices for consumers.
The legislation emphasizes transparency, including requiring industry to provide more information about maintenance and pricing decisions to enable state officials to better understand the market and deter companies to abuse consumers.
“Even when we don’t have a spike, we pay higher prices than in other states, even when we factor in our taxes and environmental policies,” said Assemblywoman Jacqui Irwin (D -Thousand Oaks), who noted that Californians were paying as much as $2.60 more per gallon than residents of other states at some point last year. “This is unacceptable.”
The Democratic majority handed their bill to Newsom, but support was not overwhelming within his own party. The proposal passed 52 to 19 votes in the House, with several Democrats declining to vote and with a stronger vote of 30 to 8 last week in the Senate.
Democratic lawmakers hailed the bill as an improvement over the previous version. Several were careful to point out that the legislation prohibits regulators from imposing a cap on profits that could drive up gas prices, highlighting concerns about the potential unintended consequences of capping industry profits.
Republicans have criticized Newsom and Democrats, arguing the legislation will hurt Californians.
“This bill is a senseless attack on home energy production that will only hurt hard-working Californians on the ground by creating a hostile business climate,” said Assemblyman Vince Fong (R- Bakersfield).
Will be does the legislation lead to lower gas prices?
Proponents argue that requiring refiners to disclose more information about pricing decisions and creating an independent oversight agency will deter price hikes and prevent the kinds of spikes California has seen over the past of summer and fall.
Proponents also argue that giving the California Energy Commission the ability to set a profit penalty could motivate companies to keep prices low. The bill prohibits commissioners from setting a penalty if they find it will adversely affect Californians and raise gas prices.
The oil industry and opponents of the bill disagree.
Western States Petroleum Assn. argues that prices are higher in California due to state policies to limit gasoline production.
California relies on about five major oil refiners to produce gasoline, which means the state is isolated from alternative backup sources, and maintenance issues can reduce supply and cause price spikes .
The legislation will require oil companies to provide the state with more information about planned maintenance, which could make it easier to avoid shutting down multiple refineries at the same time, which would significantly reduce supply. If unscheduled maintenance occurs, regulators will have more tools to investigate.
But the oil association argues that giving the energy commission the ability to cap profits could have negative consequences for the industry.
Limiting profits and imposing additional requirements on refiners could drive companies out of the state, reduce supply and increase fuel costs, the oil group said. The industry had urged the state to take more time to understand the bill’s potential effects on supply.
What did Newsom originally ask the Legislative Assembly to do?
Amid his high-profile battle with oil companies, Newsom on Sept. 30 called on lawmakers to pass a “windfall tax” on the industry “that would accrue directly to California taxpayers.”
At the time, average gasoline prices in California exceeded $6 a gallon, with companies “raking in” nearly $100 billion in the previous three months, Newsom said.
A week later, the governor expanded on his comments at a press conference and announced he would summon lawmakers to a special legislative session on Dec. 5 to pass a windfall tax. He said he was reacting to record petrol prices, which he called “outrageous and unconscionable”.
The governor’s office worked for the next two months to prepare an outline of a plan that it shared with lawmakers the day they returned to the state Capitol to begin the legislative session and kick off the special session. By then, he had stopped calling the proposal a “windfall tax” and instead started calling it a “price gouging penalty.”
The plan he proposed on Dec. 5 would have required lawmakers to set and enact a “maximum gasoline refining gross margin” — or profit cap — on refineries based on a monthly calculation of the average profit per barrel.
The proposal would also have allowed the California Energy Commission to impose an administrative civil penalty for violations of the profit cap.
Why has the proposal changed?
Newsom’s plan changed after he hit a roadblock at the Legislature. It became clear during legislative hearings that state officials needed more information from industry to understand the problem before setting a cap and penalty.
Lawmakers shared concerns about the potential unintended consequences of Newsom’s push to cap revenue. Some experts said Newsom’s idea of limiting refinery profits would not solve the problem of “mysterious surcharges” believed to be incurred at the retail level of the supply chain.
“I know lawmakers don’t want the answer, ‘We need more investigations,’ but the fact of the matter is shooting first and then finding out if it’s the right solution will probably be as harmful as it is helpful” , said Severin Borenstein, director of the Energy Institute at UC Berkeley’s Haas School of Business, told lawmakers at the time.
Borenstein and other experts agreed on oil refiners’ need for transparency on pricing, maintenance, supply contracts and inventory. Newsom’s aides argued that changing the plan to focus on transparency made it stronger.
What does the final bill say about a profit penalty?
Instead of a cap approved by lawmakers, SBX1-2 allows the Energy Board to set a maximum gasoline refining gross margin and a penalty for exceeding that margin, if it deems it necessary. Before setting a cap and penalty, the commission must find that the benefits of doing so outweigh the potential costs to consumers.
The bill allows the commission to ask the court to prohibit a refiner from exceeding the maximum. Companies can apply for an exemption from the profit cap, which the commission will have to review.
How the improve the bill transparency?
The bill creates the Petroleum Market Surveillance Division within the Energy Commission. The division will have the power to subpoena oil industry records and refer violations to the California attorney general for prosecution.
The bill also establishes the Independent Consumer Fuels Advisory Committee, made up of industry experts appointed by the governor and legislative leaders, to advise the Energy Commission and the new oversight division.
Under the bill, oil refineries would be required to report additional information to the state, including:
- The net refining margin of gasoline per barrel sold in a given month.
- Notification of all maintenance plans and reduction in inventory levels expected as a result of the work. The bill authorizes the energy commission to regulate the maintenance schedule to minimize price shocks.
- Notification at least one year in advance if a California refinery intends to close or sell.
- Daily reports on spot market transactions from refiners, as well as non-refiners.
The bill provides for increased civil penalties if information is not provided – up to $20,000 per day or $500,000 per submission.
Which supports The law project?
Environmental groups and consumer advocates, such as Consumer Watchdog and the Center for Biological Diversity, continued to back the policy despite the changes. Many argue that the legislation goes further to hold the industry accountable for pricing than the existing law, even without a mandatory profit cap.
Proponents argue that greater transparency from the industry is needed to prevent price gouging.
who opposes he?
Oil interests and business groups continue to oppose the plan, arguing that it will not solve price problems and will make matters worse. They say this will have unintended consequences, including the possibility of reducing gasoline supplies and increasing costs for consumers and businesses.
The California Chamber of Commerce, Western States Petroleum Assn. and the State Building and Construction Trades Council are among the most prominent groups opposing the plan.
The oil association argues that simply passing the legislation, giving the energy commission the power to impose a penalty, could send shock waves through the market.
Newsom is expected to sign the bill as soon as Tuesday and it will take effect in 90 days.