Equilibrium & Sustainability

Newsom proposes penalizing oil companies amid high fuel prices

FILE – California Gov. Gavin Newsom delivers his annual State of the State address in Sacramento, Calif., Tuesday, March 8, 2022. On Tuesday, March 22, 2022, Newsom signed a law that will make abortions cheaper for people on private insurance plans. The new law bans private insurers from charging things like co-pays and deductibles for abortion services starting Jan. 1, 2023. (AP Photo/Rich Pedroncelli, File)

California Gov. Gavin Newsom (D) on Monday evening unveiled a proposal that would penalize oil companies for “excessive profits” in the Golden State.

Newsom introduced the “price gouging penalty” alongside state Sen. Nancy Skinner (D) in a move they said would “deter excessive price increases and keep money in Californians’ pockets.”

“California’s price gouging penalty is simple – either Big Oil reins in the profits and prices, or they’ll pay a penalty,” Newsom said in a statement.

The proposal comes as California’s legislature kicks off a special session, initiated by the governor, to address the issue of price gouging.

California, which also has among the highest gas taxes in the country, saw prices hit a record high of $6.44 per gallon in mid-June, according to AAA. Prices at the pump on Tuesday were about $4.72 per gallon — significantly higher than the national average of $3.38.

“No one can deny that California’s gas prices were outrageously high compared to other states. And those high prices hurt California consumers and businesses,” Skinner said in a statement.

If approved by state lawmakers, the proposal would make it illegal for companies to charge excessive prices, and excessive refiner margins would be punishable by a civil penalty from the California Energy Commission.

The definition of excessive — including the maximum margin and penalty amounts — would be determined through the legislative process, according to the proposal. Any penalties collected would go to a “Price Gouging Penalty Fund” that would be redistributed to Californians.

The proposal also aims to improve transparency and oversight of the oil industry by the state and expand the abilities of the California Energy Commission and the California Department of Tax and Fee Administration to obtain data on costs, profits and pricing.

Such a shift, according to Newsom’s office, would help California better address the causes of pricing irregularities and reduce the likelihood of future supply and sticker shocks.

To back up the proposal, the governor’s office referred to a list of occasions in which oil companies reported record high profits during the third quarter of 2022.

Among those cited was a surge in profits for Phillips 66 to $5.4 billion — a 1,243 percent increase over last year’s $402 million. Meanwhile, BP posted is second-highest profits on record — $8.2 billion — with $2.5 billion going toward share buybacks for Wall Street investors.

Gains at Marathon Petroleum rose to $4.5 billion, compared to $694 million during the same period last year, while $2.82 billion in profits at Valero in the third quarter marked a 500 percent surge over last year.

PBF Energy’s $1.06 billion in profits were 1,700 percent higher than those of the year before, Newsom’s office noted, while Chevron reported $11.2 billion in gains — the company’s second-highest quarterly profit ever.

Shell reported a $9.45 billion in profits, which sent $4 billion to shareholders for stock buybacks, while Exxon Mobil announced its highest-ever gains of $19.7 billion.

“From August to October of 2022, Californians experienced some of the highest gasoline prices ever recorded in the state,” the language of the proposal reads.

These peaks occurred “even though the price of crude oil declined, state taxes and fees remained unchanged, and gasoline prices did not increase outside the western United States,” according to the proposal.

The document attributes much of the surge to refiners, whom the authors said increased their profits while adding to the price Californians paid at the pump. 

An overlap in timing of planned maintenance at refining facilities during the third and fourth quarters of 2022 led to a larger decrease in crude oil processing than would have occurred had these operations not coincided, according to the proposal.

At the same time, the document argues, the companies “allowed gasoline inventory levels to reach decade-low levels, placing an upward pressure on gasoline prices.”

In response to Newsom’s proposal, Exxon Mobil spokesman Todd Spitler said that “we believe supporting reliable and affordable energy throughout the energy transition, in any market environment, is what governments should strive to do.”

“Punitive policies discourage long-term investment in energy supply, and that will only create supply shortages in the future,” Spitler added.

The Hill has also reached out to the other companies for comment.

As the state legislature moves to consider the proposed penalties, Newsom’s office characterized this approach as a tactic to “discourage oil refiners from fleecing Californians.”

“Big Oil has been lying and gouging Californians to line their own pockets long enough,” Newsom said. “I look forward to the work ahead with our partners in the legislature to get this done.”

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