State regulators may decide on a fine for oil profits

English

California Gov. Gavin Newsom said Wednesday he wants state regulators to decide whether to impose the nation’s first fine on oil companies for price gouging after months of talks with legislative leaders who failed to reach an agreement on a bill aimed to curb notorious high gas prices.

Gasoline prices in California are always higher than in the rest of the country because the state has higher taxes and fees than other states and requires a special blend of gasoline that is better for the environment but more expensive to produce.

But last summer, the average price per gallon of gas in California was more than $2.60 higher than the national average — a difference that state regulators say cannot be explained by taxes and fees alone. In the meantime, the oil companies recorded windfall profits.

In response, Newsom, a Democrat, asked state legislators to pass a law that would impose huge fines on oil companies if their profits exceeded a certain threshold, with all the money received from the fines returned to drivers. The bill was so important to Newsom that he took the rare step of calling lawmakers into special session to pass it, a maneuver that allows them to focus on just one issue rather than being distracted by hundreds of other bills in a regular session.

But the proposal was never approved by the Democratic-controlled legislature, where the oil industry is one of the main sources of campaign funding for lawmakers.

On Wednesday, the governor announced he was changing course and would instead ask lawmakers to authorize the California Energy Commission to decide whether such a fine is necessary and, if so, how much. The commission will be assisted by a new independent agency of experts, economists and lawyers, which will have the power to subpoena to monitor the gasoline market and make recommendations.

If the commission imposes any fines, the money will not be returned to the drivers.

“What we are asking for is very simple: transparency and accountability to bring the oil industry out of the shadows,” Newsom said. “It’s time to choose whether to support us California families or the big oil companies in our fight to make them play by the rules.”

The modified proposal means that California will not penalize oil companies at all. But that would give Newsom more control over what happens because he nominates all five members of the California Energy Commission, who must also be confirmed by the Democratic-controlled state Senate.

That didn’t help the oil industry, which fought Newsom over this proposal and a host of other environmental proposals aimed at moving away from fossil fuels in the country’s most populous state.

READ MORE: Chevron fails to comply with California’s new gas pricing law

“It looks like the governor wants to create a new government agency and empower unelected bureaucrats to levy more taxes and increase spending,” said Kevin Slagle, spokesman for the Western States Petroleum Association, a non-profit trade association that represents the industry. “In the end, this proposal does not solve the problem of supplying Californians with gasoline and is likely to have the same unintended consequences that lawmakers have repeatedly told the governor about: less investment, less supply, and higher costs for Californians.”

State legislature leaders have yet to agree to Newsom’s proposal. But the governor’s office expects lawmakers to hold public hearings on the matter soon, ideally before the summer months when gas prices typically rise. Newsom’s administration did not view the new proposal as a concession, saying the governor made the changes after consulting experts.

“We feel like it’s stronger from where we started,” said Dana Williamson, Newsom’s chief of staff. “It is the only one of its kind in the country. And it will indeed create an oversight body that will monitor the industry every single day. And then (the Energy Commission) will be able to act in accordance with the conclusions.”

Top legislative leaders Pro Tempore Senate Chairman Tony Atkins and Assembly Speaker Anthony Rendon did not comment on the new proposal Wednesday night. Republicans, who do not control enough seats to influence votes in the Legislative Assembly, denounced the proposal as a tax that will inevitably be passed on to drivers.

“If Democrats give unelected bureaucrats the power to impose this new tax, they will be held accountable for shortages, rationing, gas lines and price spikes,” Assembly Republican leader James Gallagher said.

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