A new class of state lawmakers will be sworn in Monday and pushed amid Gov. Gavin Newsom’s political tussle with oil companies, testing the sway of a big-spending industry to sway the legislature and potentially affecting gas prices for Californians.
Newsom accused the oil industry of intentionally “inflating prices” for consumers at the pump in retaliation for state policies to phase out dependence on fossil fuels in an effort to curb climate change. The oil industry argues the consequences of these policies, and the state’s reliance on a small number of oil refineries drives up gasoline prices.
In response to soaring gas prices this year, the governor pledged to support bills to impose new monetary penalties on oil company excessive profits during a special legislative session.
The stakes are particularly high for legislators. The Legislative Assembly opens the special session Monday, the same day lawmakers are sworn in after oil companies and their union allies spent millions of dollars to help elect moderate Republicans and Democrats to the state house.
“Having the governor bring this to light in a special session means these aren’t votes that will be forgotten,” said Jamie Court, president of Consumer Watchdog, which supports Newsom’s efforts. “It will be a career-defining vote for every legislator in the building.”
The sting of high gas prices has been felt all over the world. A week before the November election, President Biden threatened to impose a similar federal tax on major US oil companies unless they increased production. Several European countries, including the UK and Spain, have implemented windfall taxes while other international governments have expressed interest in some form of profit penalty.
Although Newsom first called for “a windfall tax on oil companies that would accrue directly to California taxpayers” on September 30, the governor’s office has yet to release details of its plan – and walks away to call it a “tax.” At this point, it’s unclear whether Newsom’s proposal will become a national example of how to successfully implement a penalty and lower gas prices, or more of a political maneuver to bolster his progressive image in a highly publicized battle with the industry.
Filling the tank is especially expensive for Californians, who on average paid more than $1.50 a gallon above national prices through mid-November. The price spikes led to record highs of $6.43 a gallon for regular unleaded fuel on June 14 and a difference of $2.60 above the U.S. average on October 4, according to data from the American Automobile Assn. and the state.
The question of who should take responsibility for these gas prices is at the heart of the fight between Newsom and the multi-billion dollar oil industry.
After Newsom ran an ad over the summer in Florida urging residents of that state to move to California because of its more progressive education and reproductive rights policies, the Western States Petroleum Assn. responded with its own ads in Florida accusing Newsom of having California’s highest gas prices in the country.
“California can’t afford Gavin Newsom’s ambition,” the ad said. “Can Florida?”
In California, the oil industry also spent more than $8 million on state elections in this year’s election, according to state campaign finance records. An independent spending committee funded by Valero, Marathon, Chevron and Phillips 66 won several big victories in the Assembly, but had more mixed results in the Senate.
The special session is the first Newsom has called since taking office in 2019 and allows bills to come into force more quickly, 90 days after adjournment, than legislation passed in a regular session.
In a proclamation calling the special session, Newsom called for legislation to deter price gouging by oil companies by imposing a financial penalty on excessive profit margins, with that money returned to Californians. He also called for bills to increase transparency and regulatory oversight of the industry to assess prices and supply shortages.
Jim DeBoo, Newsom’s outgoing chief of staff, pointed to industry’s failure to block a series of tough climate bills that Newsom implored the Legislature to approve in August as a precursor to the upcoming battle.
“If you look at what the oil companies have done and the kinds of windfall profits they’ve made, it’s not a tough decision point from a political standpoint,” DeBoo said in an interview ahead of the elections. “It’s a bit like being with the oil companies or with the people who drive.”
But Newsom’s call for lawmakers to take on the oil industry again comes after he promised to back them in the last fight, then told a New York conference he had to ” scramble my own Democratic Legislature” to pass the climate bill package.
“If I hadn’t done that, all those vested interests would have prevailed again to deny and delay,” the governor said in comments he later apologized to lawmakers.
Senate Speaker Toni Atkins (D-San Diego) and Assembly Speaker Anthony Rendon (D-Lakewood) declined interview requests. Rendon wants to see the governor’s proposal before commenting, a spokesperson said.
The governor’s aides have already stopped calling his plan “a windfall tax.” The administration is now referring to it as a “price gouging penalty,” which would be imposed on profits above a yet-to-be-determined threshold.
The linguistic change could have a real impact. Passing a new tax requires a two-thirds vote in the Legislative Assembly, while imposing a new penalty requires a simple majority vote. Although Democrats have a supermajority in both chambers, caucus members often overthrown on economic issues and struggles to muster enough votes to pass new taxes.
Transforming the financial levy into a penalty also makes it more difficult to take into account the message of the opposition campaign. The oil companies have already invented the “New Gavin Gas Tax”.
At a recent state hearing into the gasoline price spikes, state regulators said Californians typically pay the highest retail gasoline prices in the nation due to higher taxes. production and environmental costs, market isolation, higher crude oil costs and more expensive retail. gasoline brands.
The California Energy Commission pointed out that “maintenance issues” at the state’s five refineries were often tied to price spikes. With a limited number of refineries in California, issues that take equipment offline offset the balance between supply and demand. Staff said the state is isolated from alternative sources, such as international producers, and that price spikes caused by refinery outages last longer than in other places due to delays in the supply of filling.
Companies that operate oil refineries in California declined to participate in the hearing, preventing regulators and experts from asking detailed questions about decisions that led to price spikes this year. newsom tweeted a photo of their empty chairs while blaming refiners for making “$63 billion in profits in just 90 days” this fall.
Paul Davis, senior vice president of PBF Energy, said his company didn’t show up because the governor “politicized it.” PBF, which operates a refinery in Torrance, also cannot have pricing discussions with competitors for fear of violating federal collusion rules, he said.
Davis flatly rejected Newsom’s allegation that the industry was intentionally raising costs and said his company spoke to the governor’s staff more than a year ago and explained that California would suffer problems. of supply with so few refineries operating in the state. He pointed to maintenance issues at refineries as the main cause of the price spikes, in addition to the higher operating cost in the state.
Refineries are not required to report planned maintenance to the state, which means multiple refineries can end up unexpectedly cutting production at the same time and reducing supply.
“It was the planned and unplanned refinery maintenance starting in the spring, and the lack of imports from around the world to balance it out,” Davis said.
Davis said his refinery could invest in its facilities in hopes of reducing unforeseen equipment problems, but without a clear picture of the company’s future in California, it’s hard to justify such high costs.
“I can’t say now that we should invest $200 million in the Torrance refinery in 2025 because I can’t tell them I’ll be in business there in 2030,” Davis said.
Davis said if faced with a revenue cap, refineries would “export production” to other countries “or not,” which he said would drive up prices in the state.
The Court challenged the idea that refiners would sell gasoline elsewhere.
“I think if oil refiners want to make a reasonable profit in California, they can,” Court said. “If they want to make a windfall profit in California, they can’t, but making a reasonable profit in California should be enough incentive to keep making gasoline in California.”
Jared Walczak, vice president of state projects at the Tax Foundation, said the US government instituted a windfall tax in 1980 under Jimmy Carter, which ultimately “reduced domestic oil production, increased dependence to foreign oil and drives up costs”. He said it’s hard to find examples of a successful windfall tax or profit penalty.
“It never stopped California,” said State Senator Monique Limón (D-Santa Barbara), who attended the hearing last week. “As we have more of these conversations, I would say everything should be on the table as things that could have an impact.”
