California lawmakers to talk oil profit penalty — months after Newsom called special session

Five months after Gov. Gavin Newsom said California needed to address a historic surge in gas prices with a “sense of urgency,” lawmakers are finally set to begin weighing his proposal to levy new penalties on oil companies.

The Senate Energy, Utilities and Communications Committee will hold an informational hearing Wednesday titled “Petroleum Windfall Profits Penalty: Will Californians Get Relief at the Gas Pump?” It will mark the first legislative discussion of Newsom’s proposal to penalize oil companies that earn profits over a certain threshold. Money from the fines would be refunded to residents.

The hearing is also the start of what will likely be a months-long debate over where blame for the spikes in gas prices rests: with oil companies — as Newsom contends — or the state’s rigorous environmental policies, as the industry asserts.

At the height of the surge last fall, California gas prices soared beyond $6 per gallon. That was nearly $2.60 above the national average — an unprecedented rise even for a state with a high gas excise tax and strict regulations. Since then, the disparity has dropped, but some worry the state could be hit with another surge in the near future.

On Tuesday, California’s average price per gallon was $4.74, well above the national average of $3.40 per gallon, according to AAA.

Slow-moving special session

The governor called for a price gouging penalty, which he originally dubbed a “windfall profits tax,” in late September. He followed that with an October announcement that he would call a special legislative session in December to address high gas prices.

Newsom proclaimed the special session a “date with destiny” for oil companies. Even so, little has happened since legislative leaders gaveled in on Dec. 5.

Sen. Nancy Skinner, D-Berkeley, in December introduced a bill containing Newsom’s price gouging penalty. But it still provides no details on where or how a profit cap would be set and who would be eligible for rebates.

Newsom has remained mum on the specifics. Asked about Skinner’s bill and the special session, he told reporters after a Feb. 16 school tour in Sacramento that he was going to “fight like hell” to make sure oil companies “can’t game the system” and are transparent about their earnings.

“Once we figure that out — and we’re in the process of doing that — then we’re going to be able to fill in those blanks on what apparently everybody wants to see, including me, which is what those details are,” he said about the bill. “... I’m going to keep at it.”

Moderate Democrats and oil policy

Passing a price-gouging penalty will require convincing some of the state’s moderate Democrats, many of whom benefited from oil industry contributions and independent expenditure campaigns.

Ahead of the November election, an oil-backed political action committee with a lengthy name —the Coalition to Restore California’s Middle Class, Including Energy Companies Who Produce Gas, Oil, Jobs And Pay Taxes — spent millions on television ads backing moderate candidates, including Energy Committee member Sen. Angelique Ashby, D-Sacramento.

Assemblywoman Jasmeet Bains, D-Delano, made clear where she stood last week when she introduced a bill that would require refineries to boost the amount of in-state oil they buy and process. Bains represents Kern County, which produced 70% of the state’s oil in 2021.

California produced about 29% of its own crude in 2021, while the remaining 71% came from Alaska and foreign countries, according to data from the California Energy Commission.

Bains’ bill would require that 50% of all oil refined in California to come from inside the state by 2035 — a level not seen since 1997.

“Sacramento too often embraces pie-in-the-sky policies that don’t solve real problems,” Bains said in a statement. “Pushing the oil industry out of state may please some political activists, but it ignores the realities of the global market.”

Of particular concern for Bains and Republican representatives from Kern County is the notion that California’s climate policies are driving the state to seek crude from countries in the Middle East and South America, where human rights violations regularly occur and oil drilling is contributing to the deforestation of the Amazon rainforest.

Half of all crude exported from the Amazon gets imported to California, according to a recent report from Amazon Watch and Stand.earth.

Republicans urge gas tax cuts

Legislative Republicans on Tuesday called on Newsom to take a series of actions to avoid the anticipated surge in gas prices — none of which involved the governor’s proposed price-gouging penalty.

Instead, the Republican leaders urged the governor to pause a scheduled raise to the state’s gas excise tax, extend a partial diesel sales tax exemption and temporarily delay the transition to summer-blend gasoline.

Those measures, they argue, would result in increased production and lower gas prices.

“California drivers are struggling with high gas prices, and if the summer-blend mandate moves forward as planned, things will only get worse,” said Assembly Republican Leader James Gallagher of Yuba City in a statement. “We need greater flexibility to prevent gas prices from spiking — this simple step will provide that while reducing the burden on cash-strapped Californians.”

Other Republican lawmakers have proposed suspending the state’s gas excise tax altogether. But the state is already eyeing a projected $22.5 billion budget deficit, meaning there is unlikely to be much support for legislation that would block the state from collecting transportation and infrastructure funding.

This story was originally published February 22, 2023 at 5:30 AM with the headline "California lawmakers to talk oil profit penalty — months after Newsom called special session."