Newsom proposes 'price gouging penalty' on oil industry

A proposal backed by Gov. Gavin Newsom to impose a "price gouging penalty" against the oil industry was unveiled by lawmakers on Monday, revealing details of the governor’s plan to send refunds to state residents. Lawmakers, however, are not likely to take substantive action on the proposal until January.

The proposal, backed by Newsom and introduced by Sen. Nancy Skinner, D-Berkeley, would establish a maximum gross gasoline refining margin per gallon, which is still to be determined. Refiners who exceed the maximum gross gasoline refining margin could face an “administrative civil penalty,” which would be deposited into a Price Gouging Penalty Fund and returned via refunds to state residents. It's unclear at this time how or when the refunds would be administered or their dollar amount.

In its current form, the bill does allow the California Energy Commission to grant a refiner’s request to be exempted from the maximum gross gasoline refining margin if the refiner shows a “reasonable cause.” The refiner could then be subject to “alternative maximum margins” set by the commission or other conditions. In general, the bill caps oil industry profits.

The proposal comes weeks after Newsom first announced that he would call a special session to discuss a “windfall profits tax” targeting the oil industry in the fall. After California saw gas prices spike $2.61 higher than the national average during the first week of October, Newsom accused the oil industry of engaging in “price gouging” and has repeatedly accused the industry of “ripping off” Californians.

“California’s price gouging penalty is simple – either Big Oil reins in the profits and prices, or they’ll pay a penalty,” Newsom said in a statement. “Big Oil has been lying and gouging Californians to line their own pockets long enough. I look forward to the work ahead with our partners in the Legislature to get this done.”

Newsom told reporters on Monday that he hopes his proposal will address and prevent future gas price spikes in the Golden State. During the last gas price spike in October, prices swelled to $6.42 per gallon on average.

The bill was introduced the same day lawmakers flocked to Sacramento for the start of the 2023-2024 legislative session. Legislators convened a special session called by Newsom, but don’t expect substantial discussion on the governor’s proposal until January.

“The Dec. 5 session was focused on the swearing in of new members and organizational matters, and included taking steps to establish and organize the special session,” the Office of Senate President Pro Tempore Toni Atkins told The Center Square in an email. “We anticipate working with the Governor and his team on the special session/windfall penalty and rebate issue once we convene in January. We don’t anticipate anything substantive happening until January.”

Newsom’s fight with the oil industry has escalated in recent weeks as the governor has criticized refiner’s profits this year. The five major oil refiners who produce the majority of the state’s gasoline skipped out on a California Energy Commission meeting last week, drawing further criticism from the governor.

According to a report from Consumer Watchdog, the five large refiners in California took in per gallon profits ranging from 79 cents to $1.01 per gallon during the second quarter of the year. The five refiners made “three to ten times more in profits per gallon off their West Coast operations” in the second quarter compared to the same time period in 2021, the report states.

The Western States Petroleum Association did not immediately respond to The Center Square’s request for comment on Monday, but during last week’s California Energy Commission hearing, WSPA President and CEO Catherine Reheis-Boyd pushed back on a price gouging penalty.

“You cannot tax your way out of this problem,” Reheis-Boyd said last week.

Lawmakers will return to Sacramento on January 4 to resume the legislative session.