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Newsom unveils price-gouging penalty aimed at oil companies

Newsom unveils price-gouging penalty aimed at oil companies
Newsom unveils price-gouging penalty aimed at oil companies 05:00

SACRAMENTO -- Governor Gavin Newsom on Monday unveiled a proposed penalty aimed at deterring oil companies from excessive gas price increases as the state legislature gathered for a special session. 

The proposed price gouging penalty on excess profits made by oil companies was presented by Newsom and State Senator Nancy Skinner (D-Berkeley). The language of the proposed price gouging penalty was posted online. 

"California's price gouging penalty is simple – either Big Oil reins in the profits and prices, or they'll pay a penalty," said Newsom said in a press release. "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."   

California lawmakers kicked off a special legislative session on Monday to consider the proposed penalty — the start of a likely lengthy process that will test the liberal legislature's resolve in the face of fierce industry opposition.

Lawmakers ostensibly returned to the state Capitol Monday to swear in new members and elect leaders for the 2023 legislative session, but Newsom is also looking to rally support to get the penalty approved so oil companies will be forced to return money to drivers when their profits pass a certain threshold.

It could be a popular proposal with voters, who have been paying more than $6 per gallon of gasoline for much of the year. But the big question is how the measure will be received by California lawmakers, especially because the oil industry is one of the state's top lobbyists and campaign donors.

But Newsom appears ready for the fight. In an unusual move, he attended the swearing-in ceremonies for lawmakers on Monday. He revealed the oil profits legislation Monday afternoon, though lawmakers likely won't begin deliberations on it until January.

The special session will run alongside the normal session, which also kicks off in January. By dealing with the oil legislation in a special session, lawmakers could move more quickly on it.

Adding to the uncertainty is an unusually high number of new members who will take seats in the Legislature for the first time. Roughly a quarter of the Legislature's 120 members are new. Two close races have not been resolved.

"It's kind of like the first day of school and you get this big ethics test about a job that you've never had," said Jamie Court, president of Consumer Watchdog, an advocacy group that has partnered with the Newsom administration to back the gas proposal.

Among the state Senate's new members is Angelique Ashby, a Democrat who narrowly won her seat following an intense campaign. The oil industry spent hundreds of thousands of dollars on radio and TV ads supporting Ashby's campaign, a trend noticed by critics who tried to use it against her.

Ashby said she hasn't been approached by lobbyists or others from the oil industry asking how she would vote on a potential penalty for oil companies. She noted the oil industry spent the money as "independent expenditures," meaning she had no control over that spending during the campaign.

"Campaign slogans and strategies of my opponent are a thing of the past," said Ashby, whose district includes Sacramento. "I'm fixated on the people of Senate District 8 and I will make my decision based on what is in their best interest."

Republican leaders have already come out against Newsom's proposal, arguing penalizing oil companies would only raise prices at the pump.

"The last thing that we need to do is increase the cost on Californians who are already paying far too much," Assembly Republican Leader James Gallagher said Monday morning.

Last week, the California Energy Commission held a public hearing about why the state's gas prices are so high. California prices spiked over the summer, but so did the rest of the country — mostly in response to a crude oil price surge after Russia's invasion of Ukraine.

California's prices spiked again in October, even while the price of crude oil dropped. In the first week of October, the average price of a gallon of gas in California was $2.61 higher than the national average — the biggest gap ever. Since then, oil companies reported billions of dollars in profits.

Regulators had hoped to question the state's five big oil refineries: Marathon, Valero, Phillips 66, PBF Energy and Chevron. But no company officials attended the hearing, with most saying that sharing information could violate anti-trust laws.

Catherine Reheis-Boyd, president of the Western States Petroleum Association, said the oil industry is volatile, pointing to billions of dollars in losses during the pandemic when demand for gasoline dropped sharply as many people worked from home and canceled travel plans.

During Thursday's hearing, she blamed the state's taxes and regulations for driving up gas prices.

"The governor and the Legislature should focus efforts on removing policy hurdles being imposed on the energy industry so we can focus on providing affordable, reliable and lower carbon energy to all Californians," Reheis-Boyd said.

Severin Borenstein, a University of California-Berkeley professor, said the problem isn't at the oil refinery level, but at the retail level where gasoline is sold to drivers.

California's gasoline market is dominated by name-brand gasoline, which is more expensive, and the state's gas prices have been consistently higher than the rest of the country since 2015, Borenstein said.

"We just don't have the competition and discipline from those off-brand stations," he said. 

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