Newsom abandons demands for lawmakers to limit oil industry profits

SACRAMENTO —

Gov. Gavin Newsom is abandoning his high-profile call for the California Legislature to place 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 powers to investigate gasoline price spikes and the ability to limit profits and fine oil companies through a public hearing process, Newsom advisers said.

“What we are asking for is simple: transparency and accountability to bring the oil industry out of the shadows,” Newsom said in a statement. “Now it’s time to decide whether we’re going to fight for California families or for Big Oil to play by the rules.”

Newsom called for speedy passage of a fine for oil companies in October when he announced his intention to call state legislatures into a special session to curb the oil industry’s excessive profits. He accused oil majors of pump price gouging after gasoline prices surpassed $6 a gallon.

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

Newsom’s office gave lawmakers an outline of its plan to cap industry profits in December when the special session was called, but left lawmakers to set limits on those profits.

For more than three months, lawmakers held only one hearing on the proposal. State senators expressed concern about the plan, and experts encouraged the state to take more time to study and understand the issue before adopting a solution.

Newsom’s new proposal would shift that responsibility to the Energy Commission, but his staff acknowledged regulators will not be required to limit profits or penalize the industry. All five members of the commission were either appointed or reappointed by Newsom.

Republican leader of the assembly, James Gallagher of Yuba City, criticized Newsom’s decision to put the decision in the hands of the commission.

“No matter how many sham tests he demands, no matter what kind of ‘penalty’ he concocts, there is one undeniable fact – California drivers pay more than they should because of the taxes, fees and regulations imposed by Gov. Newsom and his ultra-liberal allies.” , Gallagher said in a statement. “If Democrats give unelected bureaucrats the power to levy this new tax, they will be responsible for the associated shortages, rationing, gas pipelines and price spikes.”

The governor’s office said that with a strengthened regulator, the commission will have the power to prevent the kind of gasoline price spikes consumers experienced last year.

The bill would create an independent monitoring agency within the commission with subpoena powers to monitor gas prices and investigate spikes. Oil companies would also need to provide more data to the state to help regulators understand pricing.

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

“It’s the only one of its kind in the country and it’s really putting in place a surveillance unit that will be watching the industry every day,” Williamson said. “The Energy Commission will then be in a position to act on the findings seen in the department’s work.”

Jamie Court, President of Consumer Watchdog, welcomed the governor’s plan to increase government oversight of the industry.

The agreement between Newsom and lawmakers includes a requirement for oil refiners to report maintenance work to the state in hopes of preventing a rapid and unexpected decline in California’s gasoline production.

California depends on only a handful of oil refiners that don’t have to report scheduled maintenance to the state. When several refineries reduce production at the same time due to routine equipment work or unexpected problems, supply falls and prices rise.

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

The court said shifting the penalty to the Energy Commission to decide gives the governor more responsibility for enforcement.

“This empowers the governor and his commission to do what’s right and it will backfire on them whether it’s done or not,” Court said.