Calif. Gov. Newsom’s refinery rule faces unprecedented reluctance from the green state’s lawmakers

California Democratic Gov. Gavin Newsom had hoped to ramrod through the state Legislature a proposal that would severely impact the state’s petroleum refineries. The Democratic governor claimed the measure would prevent oil companies from profiting from the state’s high energy costs, but he’s having a harder time getting the state’s lawmakers on board with the plan as with past rules.

California has the second highest gas prices in the United States, and some of the most expensive electricity rates in the world. Newsom denies that his anti-fossil fuel policies have anything to do with it. According to Newsom, oil companies are just greedy.

California has seen the number of refineries operating in the state decline from 43 in 1982 to just 14 this year. Ronald Stein, an engineer and policy advisor for The Heartland Institute, told Just the News that California is dependent on those refineries for its gasoline and diesel supplies, as there are no pipelines to bring in petroleum products from other refineries in the U.S. As a result, if one of California’s refineries goes down, it greatly disrupts the supply chain, increasing costs to consumers and heightening the risk of service disruptions.

Gas supplies and storage

Last month, Newsom proposed a rule that would require petroleum refiners in his state maintain a minimum fuel reserve to prevent shortages that cause gasoline price spikes.

Kevin Slagle, director of strategic communications for the Western States Petroleum Association (WSPA) told Just the News that the proposal will have the opposite effect of its intent. Refineries, he explained, are “big, complicated chemistry sets.”

“You can’t just simply dial a refinery up and dial it down. They're very efficiently programmed to produce fuels at a certain pace. And so the idea that they're just going to fill the tanks for a while and then do maintenance, that's not how the industry works,” Slagle said.

Some proponents of Newsom’s proposal say that the refineries can just add more storage tanks on site, but Slagle said permitting fossil fuel infrastructure in California is an impossible task. Even if these hypothetical storage tanks could be built, you can’t store fuels indefinitely, Slagle said. They have to move the product through the market.

“The only way your refiners can easily comply with this mandate is to just withhold and maintain on their facilities the amount of storage that's required by law, and the rest goes to market. So they're going to have to artificially keep fuels from the market. And when you keep fuels from the market, that's when we see the costs go up,” Slagle said.

According to the WSPA, the state already faces a de-facto production ban, which forces more than 75% of the state’s crude oil to be shipped in from overseas. The cumulative effect of Newsom’s refinery proposal, as well as many other regulations in the state, will further limit petroleum supplies, the WSPA warns.

“There are bad regulations, and then there are regulations so detrimental that industry experts, the California Energy Commission, and anyone with a basic understanding of economics can clearly see the harm they will cause consumers,” WSPA president and CEO Catherine Reheis-Boyd said in a statement.

Newsom has signed into law several rules hostile to the state’s oil and gas industry, on the belief that these companies are bad actors. Last month, Chevron announced it was packing up and heading to Texas, which welcomes the oil industry. The company was one in a long string of companies heading off to friendlier locations.

As California’s legislative session came to an end Saturday, California Assembly Speaker Robert Rivas, a Democrat, had refused to take up Newsom’s refinery proposal, SB 950, for a floor vote. The governor responded to the defiant lawmakers by calling a special legislative session, pushing the Legislature into overtime.

“It should be common sense for gas refineries to plan ahead and backfill supplies when they go down for maintenance to avoid price spikes. But these price spikes are actually profit spikes for Big Oil, and they’re using the same old scare tactics to maintain the status quo,” Newsom said in a statement.

The Assembly formally opened the special session Sunday night, but the Los Angeles Times reports that the Senate turned their backs on Newsom’s proposal and refused to hold hearings to consider the bill.

Slagle, with the WSPA, said that the lawmakers’ reluctance is likely due to significant pieces of energy policy dropped on them in the last couple weeks of the session.

“This is the third year in a row where Governor Newsom has brought something in at the literal last second. And you know, the politicians have gone along with that up to this point. I think that this year, you're beginning to see the cumulative effects of all of these policies creating costs for the constituents,” Slagle explained.

Test barrel

While Newsom claims that oil companies’ greed and not his state’s policies are driving up energy costs, Vice Chair Siva Gunda of the California Energy Commission testified in May before the California Senate Standing Committee on Energy, Utilities and Communications, that greed has nothing to do with the problem.

Gunda said there isn’t any clear evidence of price gouging in the marketplace, the Center Square reported, and he argued that increasing supply was key to bringing down costs.

“By increasing supply in the market, we will reduce the spot market volatility and hence protect the consumers,” Gunda said.

State Sen. Kelly Seyarto, a Republican, pointed out at the hearing that there’s little incentive for companies to build new refineries. “Who's going to invest here? Who's going to build a refinery here when we're trying to shut them all down and taking steps to decrease supply faster than we take steps to decrease demand?” Seyarto said.

Stein, with the Heartland Institute, said that Newsom ignores the fact that California residents are willingly purchasing these products that the governor is so eager to get rid of.

“If you want to get rid of the oil industry, stop using their products. Close the airports. Close the hospitals. Instead, he [Newsom] is overtaxing and just driving up the cost to the consumer. We're in the real test barrel here in California,” Stein said.

Slagle said that Newsom’s refinery proposal isn’t dead yet, and the WSPA fully expects that there will be a vote on the issue either in the next few weeks or the next legislative session. However, Slagle said, as constituents get wise to how government mandates and new policies drive up their cost of living, it’s not as easy to get new ones passed.

“We don't think Governor Newsom is going to drop it, even if it faces opposition. He's got a lot of political investment in this approach towards our industry,” Slagle said.