State Leaders Announce Deal On Oil, Gas Refinery Profit Penalties

Gov. Gavin Newsom and the leaders of both houses of the state Legislature announced a deal this week on a proposal to penalize oil and gas companies for allegedly artificially inflating gasoline prices.

The proposal, Senate Bill 2, would allow the California Energy Resources Conservation and Development Commission to establish a cap on an oil company’s refining margin, the price difference between the cost of crude oil pre-refinement and the cost of gasoline once it leaves the refinery.

With Monday’s approval from state Senate President pro Tempore Toni Atkins, D-San Diego, and Assembly Speaker Anthony Rendon, D-Lakewood, the bill is expected to start moving through the committee process as soon as this week, according to Newsom’s office.

“Today’s agreement represents a major milestone in our efforts to drive the oil industry out of the shadows and ensure they play by the rules,” Newsom said Monday. “This represents some of the strongest and most effective transparency and oversight measures in the country, and the penalty would root out price gouging.”

Monday’s proposal is substantively different from the initial proposal Newsom and Sen. Nancy Skinner, D-Oakland, announced in December, which would have made excessive refining margins fully illegal and would have established a penalty for refineries that exceeded the maximum margin.

That version of the bill also would have empowered the California Energy Commission and the California Department of Tax and Fee Administration to investigate gas costs, profits and pricing.

Under both versions of the bill, the penalties assessed to refiners would have been placed into a “price gouging penalty fund” within the state Treasury and subsequently reimbursed to state residents as a refund.

Monday’s version of the bill places the onus on the Energy Commission to determine whether a cap on refining margins and subsequent penalties are necessary.

The bill would also require the California State Auditor to examine by March 1, 2033, if the refining margin cap and penalties achieved their goal in stemming gasoline price spikes and keeping the gasoline market stable.

The commission would be required to sunset the cap and penalties within 180 days if they were determined to have not been effective.

State officials had accused the oil and gas industry of inflating prices even before the average price of a gallon of regular unleaded gasoline in California topped $6 for weeks in mid-2022. Rendon convened a special committee in June 2022 to investigate high gas prices while Newsom has consistently chastised the industry as greedy for gas costs spiking at the same time that refiners reported record profits in the third quarter of 2022.

In his proclamation convening a special legislative session focused solely on the state’s high gas prices, Newsom rattled off reported third-quarter profits for the state’s major refiners, many of which reflected year-over-year increases upwards of 500 percent, and argued that the oil and gas industry was harming both state residents’ health and wallets.

Oil refiners argued at the time that a multitude of factors led to the state’s sky-high gas prices in the summer and fall, including the state’s gas taxes, reduced supply and planned maintenance that overlapped among multiple refineries.

“Let’s face it: Californians deserve answers and accountability for the prices we’re paying at the pump,” Atkins said. “We know what the costs of maintaining our roads and meeting our climate goals are, and with this bill, the state will finally have the tools to get answers on oil profits and put a stop to price gouging.”