California’s Newsom unveils proposed ‘price gouging’ penalty on oil companies

In an effort to combat “oil companies’ excess profits,” Gov. Gavin Newsom proposed a “price gouging” penalty.

Lawmakers began discussion of the proposal on Monday, the first day of a special session convened by Newsom. Given the upcoming holidays, lawmakers are not expected to debate the merits of the proposal at length until January when the regular legislative session resumes.

Newsom will introduce his draft budget in mid-January as he does each year.

In September, Newsom ordered a switch to winter blend gasoline and demanded accountability from oil companies and refiners that do business in California. He said those actions have caused the average gas price to drop to $4.77 a gallon from $6.42.

The governor had announced on Oct. 7 that he would call a special session for lawmakers to pass a tax on windfall profits, but had released no details until Monday.

“California’s price gouging penalty is simple — either Big Oil reins in the profits and prices, or they’ll pay a penalty,” Newsom said. “Big Oil has been lying and gouging Californians to line their own pockets long enough.”

California’s average statewide price for a gallon of gas was $4.72 on Friday, about $1.34 more than the national average, according to AAA. Prices have fallen in recent weeks after spiking to a statewide average of about $6.40 in early fall, at least $2.60 more per gallon than the national average at the time.

Consumer Watchdog, a national advocacy group, that has pushed for a cap on gas prices for at least a decade, released a poll last week that found 63% of likely voters surveyed in late October said they strongly support or somewhat support the idea of a profit cap for oil companies. The group has also found that large refiners have posted profits of $67.6 billion in the first nine months of 2022, up from $17.6 billion during the same period last year.

Jamie Court, president and chairman of the board of Consumer Watchdog, joined with five other leaders of watchdog groups in penning a letter dated Monday to lawmakers supporting Newsom’s proposal.

“Setting a windfall profits cap on refining gasoline at a reasonable upper limit, such as 50 cents per gallon, will save consumers billions of dollars in overcharges,” supporters wrote.

But critics of Newsom’s proposal, such as the Western States Petroleum Association and other industry leaders, blame high prices on California’s climate regulations and a host of other factors, including the state’s higher taxes, Russia’s invasion of Ukraine and post-pandemic supply problems at numerous refineries in California.

The letter from the watchdog group disputes that claim, saying only 69 cents of California’s gas prices are due to environmental regulations. The breakdown: 25 cents added for California environmental regulation and taxes, 16 cents to produce low carbon fuel, 26 cents for cap and trade and two cents for underground storage.

Newson criticized the state’s five largest oil refiners — Chevron, Marathon Petroleum, PBF Energy, Valero Energy and Phillips 66 — last week after they refused to attend a hearing about oil supply prices at the California Energy Commission, though an industry association leader testified.

“No one can deny that California’s gas prices were outrageously high compared to other states,” said Sen. Nancy Skinner, D-Berkeley. “And those high prices hurt California consumers and businesses.”

The proposal would make it unlawful to charge prices resulting in what Newsom has deemed are excessive profits, and excessive refiner margins would be punishable by a civil penalty from the California Energy Commission. The amount of the maximum margin and the amount of the penalty will be determined through the legislative process. Any penalties collected would go into a Price Gouging Penalty Fund, enabling the state to return the excess to taxpayers.

The proposal also improves transparency and oversight of the oil industry by the state, expanding the CEC and the California Department of Tax and Fee Administration’s ability to investigate and obtain information on costs, profits and pricing so that the state can better address the causes of pricing irregularities and minimize the likelihood of future supply or price shocks.