Newsom Drops Call on Lawmakers to Cap Oil Profits

Gov. Gavin Newsom is dropping his high-profile call for the California Legislature to set a cap on oil company profits and will instead ask lawmakers to increase transparency and oversight of the industry.

The governor’s amended proposal, announced Wednesday afternoon, would give the California Energy Commission more authority to investigate increases in gasoline prices and the option, through a public hearing process, to place a cap profits and penalize oil companies, Newsom aides said.

“What we ask for is simple: transparency and accountability to bring the oil industry out of the shadows,” Newsom said in a statement. “Now is the time to choose whether to support California families or Big Oil in our fight to get them to play by the rules.”

Newsom called for speedy passage of a sanction on oil companies in October when he announced his intention to call state lawmakers into a special session to rein in excess profits from the oil industry. He accused oil companies of raising prices at pumps after gasoline prices topped $6 a gallon.

But determining the level at which refinery profits should be penalized became a political hot potato in Sacramento. Democrats worried that the plan could backfire due to the complicated nature of oil markets, the industry’s lack of transparency and concerns that it could have unintended consequences on gasoline prices.

In December, Newsom’s office gave lawmakers a summary of his plan to cap industry profits when the special session convened, but left it up to lawmakers to determine the limits on those profits.

For more than three months, the Legislature held only one hearing on the proposal. State senators seemed concerned about the plan, and experts encouraged the state to take more time to research and understand the problem before passing a fix.

Newsom’s new proposal would shift that responsibility to the Energy Commission, but his aides acknowledged that there will be no requirement for regulators to cap profits or penalize the industry. The five members of the commission. have been appointed or reappointed by Newsom.

Assembly Republican Leader James Gallagher of Yuba City criticized Newsom’s decision to leave the decision up to the committee.

“No matter how many bogus investigations you request, no matter what kind of ‘penalty’ you come up with, there is one indisputable fact: California drivers pay more than they should because of the taxes, fees and regulations imposed by Governor Newsom. and their extreme liberal allies,” Gallagher said in a statement. “If the Democrats give unelected bureaucrats the authority to impose this new tax, they will be held accountable for the shortages, rationing, gas lines and price increases that come with it.”

The governor’s office said that with increased regulatory authority, the commission will be empowered to prevent the kinds of gas price increases consumers saw last year.

The bill would create an independent watchdog within the commission with subpoena authority to monitor gas prices and investigate spikes. Oil companies would also be required to provide more data to the state to help regulators understand prices.

Dana Williamson, Newsom’s chief of staff, said the governor’s office “has worked very closely with the experts and the Legislature to get this right.”

“It’s the only one of its kind in the country, and it will really establish a watchdog entity that watches the industry every day,” Williamson said. “The Energy Commission will then be able to act on the findings seen in the division’s work.”

Jamie Court, president of Consumer Watchdog, applauded the governor’s plan to increase state oversight of the industry.

The deal between Newsom and lawmakers includes a requirement for oil refiners to report to the state on maintenance in the hopes of avoiding sudden and unexpected drops in gasoline production in California.

California relies on only a handful of oil refineries, which are not required to report planned maintenance to the state. When multiple refineries end up cutting production at the same time due to routine equipment work or unexpected problems, supply decreases and prices increase.

The oil industry has blamed maintenance problems for California’s historic gas price spikes during the summer and fall.

The court said that changing the sanction to the Energy Commission to decide gives more responsibility to the governor to comply with it.

“This gives the governor and his commission the power to do the right thing, and it will reflect on them whether it is done or not,” Court said.