California bill to cap oil profits approved by state Senate committee

Daily Caller News Foundation

  • A California bill sponsored by Governor Gavin Newsom that would cap the profits of oil companies in the state passed through the California Senate Committee on Energy, Utilities and Communications Wednesday.
  • The proposed legislation would also empower the state government to investigate allegations of price gouging and the “unexplained” heightened costs that Californians face at the pump, according to a press release from Newsom’s office.
  • “Empowering unelected bureaucrats and giving them the authority to tax, investigate and penalize refiners will likely lead to … less investment in production, decreased supply, and higher costs for Californians,” Western States Petroleum Association spokesperson Kevin Slagle told Bloomberg.

A bill is advancing through the California state legislature that would impose a limit on the profits of oil companies in the state, passing through the state’s Senate Committee on Energy, Utilities and Communications Wednesday.

The bill — a deal between Democratic Governor Gavin Newsom and state legislators — would create a government watchdog that would establish limits on profit margins for oil refiners and implement penalties for surpassing those limits, according to a Monday announcement by the governor’s office. Newsom had previously sought to impose a windfall tax — a tax imposed when market conditions help a company generate profits that are significantly above the norm — which would have required a super majority of the state legislature to be implemented, as opposed to the current proposal which would only require a simple majority of the Democrat-controlled governing body to pass, Bloomberg reported.

The proposed legislation would also mandate stricter reporting on financial data and give the state the ability to more clearly investigate the “unexplained” higher gas prices in the state of California compared to the rest of the nation, the governor’s office said in a press release. Gas prices surged in California, to $6.42 per gallon, roughly $2.61 higher than the national average, despite a drop in crude prices, according to the governor’s office.

Gas prices in California are partially propped up by high taxes on gas  and its lack of interstate pipelines, which means downtime at any of the 10 refineries across the state — down from nearly 50 in recent decades — causes spikes in gas prices, the LA Times reported in December 2022. California is also heavily reliant on foreign imports of crude oil, and was one of Russia’s best U.S. customers for oil, leading to spikes following a U.S. ban on russian crude imports.

However, these effects do not necessarily account for all of the difference between California and the rest of the country, according to the Times. U.C. Berkeley economist Severin Borenstein noted that prices remained elevated in the state even after supply lines were restored following an explosion at a refinery in 2015, dubbing the phenomenon the “mystery gas surcharge.”

At time of writing, Californians face an average gas price of $4.82 per gallon, nearly $1.40 higher than the national average, according to the American Automobile Association.

“Together with the Legislature, we’re going to hold Big Oil accountable for ripping off Californians at the pump,” said Newsom Monday. “This represents some of the strongest and most effective transparency and oversight measures in the country, and the penalty would root out price gouging. We’re getting the job done for California families.”

Newsom’s proposal was initially met with concern by both Democratic and Republican members of the state Senate, who last month questioned whether such a rule might potentially have “unintended consequences” that further harm California residents or lead to higher costs, according to Politico. The bill passed through the Senate Committee on Energy, Utilities and Communications with a 13-2 vote, the two no votes from a pair of Republicans, and was referred to the state’s appropriations committee, according to the state government’s website.

The Western States Petroleum Association, an oil trade group whose members include major players such as Chevron, Shell and ExxonMobil, have criticized the proposal, questioning whether the state government understands all the ramifications of the decision, according to Bloomberg.

“Empowering unelected bureaucrats and giving them the authority to tax, investigate and penalize refiners will likely lead to the same unintended consequences as his initial proposal — less investment in production, decreased supply, and higher costs for Californians,” association spokesperson Kevin Slagle told Bloomberg. “At a minimum, this needs thorough time for legislative analysis and discussion.”

Oil companies posted record profits in 2022 following Russia’s invasion of Ukraine, prompting President Joe Biden to call for a heightened tax on stock buybacks.

The office of Newsom and of Democratic Sen. Nancy Skinner, who wrote the bill, did not immediately respond to a Daily Caller News Foundation request for comment.

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