A new class of state lawmakers will be sworn in Monday, thrust into the middle of Gov. Gavin Newsom’s political battle with oil companies to test the clout of an industry that spends big bucks to sway the legislature and potentially affect gas prices for Californians .
Newsom has accused the oil industry of deliberately “price-boosting” consumers at the pump in retaliation for the state’s policy of ending dependency on fossil fuels in a bid to curb climate change. The oil industry is arguing the consequences of this policy, and the state’s reliance on a small number of oil refineries is driving up the cost of gasoline.
In response to this year’s gas price spikes, the governor promised to introduce new fines for excessive oil company profits in a special session of the Legislature.
The commitment to the legislature is particularly high. The Legislature opens special session Monday, the same day lawmakers will be sworn into office after oil companies and their union allies spent millions of dollars helping Republicans and moderate Democrats win state house elections.
“The fact that the governor has brought this into the spotlight in a special session means that these votes will not be forgotten,” said Jamie Court, president of Consumer Watchdog, which supports Newsom’s efforts. “This will be a career-defining vote for every lawmaker in the building.”
The sting of high gas prices was felt around the world. A week before the November election, President Biden threatened major US oil majors with a similar federal tax if they failed to increase production. Several European countries, including the UK and Spain, have introduced unexpected profit taxes, while other international governments have shown an interest in some form of profit penalties.
Although Newsom first called for “a windfall tax on oil companies that would flow directly back to California taxpayers” on Sept. 30, the governor’s office has yet to release details of its plan — and is turning its back on assigning a “tax.” call.” At this point, it’s unclear whether Newsom’s proposal will become a leading national example of successfully enforcing a penalty and lowering gas prices, or more of a political maneuver to bolster its progressive image in a high-profile battle with the industry.
Filling up the tank is particularly costly for Californians, who through mid-November were paying an average of more than $1.50 a gallon above national rates. Price spikes led to record highs of $6.43 a gallon for regular unleaded gasoline on June 14 and a gap of $2.60 more than the US average on October 4, according to data from American Automobile Assn. and the state.
The question of who should be to blame for these gas prices is at the heart of the battle between Newsom and the billionaire oil industry.
After Newsom ran an ad in Florida over the summer urging residents of that state to move to California because of its more progressive policies on education and reproductive rights, Western States Petroleum Assn. responded with its own advertisements in Florida, blaming Newsom for the nation’s highest gas prices in California.
“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 legislative races in this year’s election, records of state campaign funding show. An independent spending committee funded by Valero, Marathon, Chevron, and Phillips 66 achieved several major 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 will allow bills to go into effect 90 days after adjournment faster than legislation passed in a regular session.
In a proclamation accompanying the special session, Newsom called for legislation to prevent oil company price-gouging by imposing a financial penalty for excessive profit margins, with that money returned to Californians. He also called for bills to increase transparency and regulatory oversight over the industry to assess prices and supply shortages.
Jim DeBoo, Newsom’s outgoing chief of staff, pointed to the industry’s inability to block a string of tough climate laws that Newsom wanted the legislature to approve in August as a harbinger of the battle to come.
“If you look at what the oil companies have done and the windfall profits they’ve made, it’s not a hard decision point from a policy perspective,” DeBoo said in a pre-election interview. “It’s like you’re with the oil companies or with the people who drive.”
But Newsom’s call for lawmakers to re-engage with the oil industry comes after he promised to stand behind them in the final fight, then told a conference in New York he needed to “block my own Democratic legislature.” to adopt the package of climate bills.
“If I hadn’t done that, all these special interests would have prevailed again to be denied and delayed,” the governor said in comments, for which he later apologized to lawmakers.
Both Senate Speaker Toni Atkins (D-San Diego) and House Speaker Anthony Rendon (D-Lakewood) declined interview requests. Rendon wants to see the governor’s proposal before commenting, a spokesman said.
The governor’s assistants have already moved away from calling his plan a “windfall profit tax.” The administration is now talking about “price gouging” that would be imposed on profits above a threshold that has yet to be determined.
The language shift could have real impact. Passing a new tax requires a two-thirds majority in the legislature, while imposing a new penalty requires a simple majority. Although Democrats have supermajorities in both houses, they are caucus members often spilling over economic issues and struggling to garner enough votes to pass new taxes.
The conversion of the financial levy to a penalty also makes it more difficult to get the message of the opposition campaign across. Oil companies have already coined the term “Gavin’s new gas tax.”
In a recent state hearing on gas price spikes, state regulators said Californians typically pay the highest retail gasoline prices due to higher taxes, production and environmental costs, market foreclosure, higher costs of crude oil and more expensive retail gasoline brands.
The California Energy Commission pointed out that “maintenance issues” at the state’s five refineries are often linked to price spikes. At a limited number of refineries in California, issues that take equipment offline are throwing the balance between supply and demand. Staffers said the state is isolated from alternative sources such as international producers, and price spikes caused by refinery outages are lasting longer than other places due to delays in refills.
Companies that operate oil refineries in California declined to attend the hearing, preventing regulators and experts from asking detailed questions about decisions that have spiked prices this year. news tweeted a picture of their empty chairs while simultaneously blowing up the refineries for making “$63 billion in profits in just 90 days” this fall.
Paul Davis, senior vice president at 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 its competitors for fear of violating federal rules on collusion, he said.
Davis flatly dismissed Newsom’s claim that the industry is intentionally driving up costs, saying his company sat down with the governor’s staff over a year ago and said California would face supply problems with so few refineries operated in the state. He pointed to maintenance issues at refineries as the main cause of the price spikes, in addition to higher operating costs in the state.
Refiners are not required to report planned maintenance to the state, which means multiple refiners can unexpectedly reduce production at the same time, reducing supply.
“It was the planned and unplanned maintenance at refineries beginning in the spring and the lack of imports from around the world to make up for it,” Davis said.
Davis said his refinery can invest in its facility in hopes of reducing unplanned equipment problems, but without a clear picture of the company’s future in California, it’s difficult to justify those high costs.
“I can’t say right 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 that if refiners were faced with a sales cap, they would either “export” the production to other countries or “fail to make it,” which he said would drive up prices in the state.
The court disputed the idea that refineries 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 an incentive be enough to keep making gasoline in California.”
Jared Walczak, vice president for government projects at the Tax Foundation, said the US government introduced a windfall profits tax under Jimmy Carter in 1980 that ultimately “reduced domestic oil production, increased dependence on foreign oil, and drove up costs “. He said it’s difficult to cite examples of a successful windfall tax or win penalty.
“That 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 elements that could have an impact.”
https://www.latimes.com/california/story/2022-12-04/california-to-consider-profit-penalties-for-oil-companies High gas prices prompt California lawmakers to consider penalties on oil profits