A bill, the first in the nation to punish oil companies for profiting from price hikes at the pump, rushed through the California Senate Thursday at the urging of Gov. Gavin Newsom, the first major vote in an effort for passing the law. end.
The proposal responds to sales last summer, when the average price of a gallon of gasoline in California shot up to a record $6.44. In some places, drivers paid as much as $8 a gallon, sparking widespread outrage in an election year.
Newsom, a Democrat seen as a possible presidential candidate beyond 2024, reacted by attacking the oil industry, specifically the five companies that supply 97% of the gasoline in the state. He called on the Democratic-controlled state Legislature to pass a new tax on oil company profits, arguing that it would protect consumers by preventing price increases.
That idea went nowhere in the Legislature, as lawmakers feared it would create chaos in the oil market and cause companies to make less gasoline, which would drive up prices.
Instead, lawmakers and Newsom agreed to a bill that would allow the California Energy Commission to decide whether to impose civil penalties on oil companies for price gouging. The commission, a five-member panel appointed by the governor with the consent of the Senate, would rely on information from a new state agency that would have the power to monitor the marketplace, including forcing companies to disclose financial information and having the power to subpoena oil executives to testify.
In 10 years, the bill requires the state auditor to investigate the program to find out if it is working to lower gas prices. If not, the auditor can order the program to close, but lawmakers will have six months to review that decision and reverse it if they wish.
“Our role is to protect our residents from any business practice that could harm them,” said state Sen. Nancy Skinner, D-Berkeley and author of the bill.
The bill highlights the challenges of balancing the competing pressures to protect consumers at the pump while advancing policies to end the state’s reliance on fossil fuels. Of California climate strategy — which includes prohibiting the sale of most new gasoline-powered cars by 2035, it would reduce gasoline demand by 94% by 2045.
“To sum it up, it’s our energy policy, our energy policy and our efforts to replace fossil fuels with electricity in a very, very short time,” said state Sen. Kelly Seyarto, a Murrieta Republican who opposes the bill. “Why can’t we just tell our constituents that? That’s why gas prices are so high.”
California gas prices are already higher than most other states due to taxes, fees, and environmental regulations. California’s gas tax is the second highest in the country at 54 cents per gallon. And the state requires oil companies to make a special blend of gasoline for sale in California that is better for the environment but more expensive to produce.
On Thursday, Republicans tried to force a vote on a separate bill that would suspend the state’s gas tax and some gasoline-related regulations for one year. But Democrats voted not to bring the bill up for debate.
At one point last year, the average price of a gallon of gasoline in California was more than $2.60 higher than the national average, a difference that regulators say is too large to be explained by taxes, fees and regulations.
Much of the oil industry’s complaints about the bill have focused on the new, independent state agency lawmakers would create to investigate the market. Oil companies would be required to release massive amounts of data to this agency, giving regulators a better idea of what might be driving price spikes. And, most important, the agency would have subpoena power to compel oil company executives to testify.
Kevin Slagle, a spokesman for the Western States Petroleum Assn., said oil companies would have to report data on 15,000 transactions a day, which he called “a ridiculous level of reporting” that would drive up costs. He said the real problem with gas prices in California is state laws and regulations that hinder the supply of fuel. He criticized Newsom and lawmakers for rushing the bill through the Legislature with little input from the oil industry.
“Why does the governor want to stall this? It’s clearly because the details of this are not good for California consumers,” Slagle said. “They don’t address the problem, but it does provide you with a political victory.”
Dana Williamson, Newsom’s chief of staff, said she has met repeatedly with oil industry representatives to discuss the bill, including meetings with specific companies and two meetings with the Western States Petroleum Assn.
Newsom said the bill would end “the era of the undue influence of oil and holding them accountable.”