California Democrats pass Newsom's proposal that could penalize oil company profits

A proposal by Gov. Gavin Newsom aimed at preventing gas price spikes in California passed Monday in the Assembly, closing out the bill's whirlwind run through the Legislature and all but ensuring it becomes law.

The legislation, Senate Bill X 1-2, will require oil market participants in the state to submit vast amounts of data to a new division within the California Energy Commission that will decide whether to cap and penalize oil refiners’ profits. Newsom is expected to sign the measure Tuesday. It was first proposed as part of a special session he called in December.

Initially conceived as a windfall profits tax, and then a cap on earnings, the bill evolved into a targeted approach to analyze complex oil industry pricing and enable penalties if the new division determines that penalties would protect consumers.

“My biggest fear was that the penalty would just be passed on to consumers,” Assemblyman Al Muratsuchi (D-Torrance) said during Monday's Assembly floor debate. “That is a bipartisan concern. This measure, it doesn't require penalties, it doesn't require any maximum profit caps."

Instead, he said, it adds transparency to the oil market and requires the Energy Commission to justify any penalty.

The bill, which cleared the Senate on Thursday, passed in the Assembly in a 53-19 vote — with opposition coming from the chamber's 18 Republicans and from Assemblywoman Jasmeet Bain (D-Kern County). Votes were not recorded for eight Democrats.

“This is an industry that has been allowed to operate in the shadows,” Lauren Sanchez, Newsom’s senior climate advisor, told the Assembly Utilities and Energy Committee Monday morning. “It has lacked the accountability, the transparency and the oversight that we have long required of other critical sectors.”

The Assembly floor vote came after Newsom’s administration introduced amendments that appeased lawmakers who expressed concern over unintended consequences of tinkering with a complex market.

Republicans and oil industry representatives blasted the bill’s hasty passage, raised doubts that it would work as intended and expressed concerns for oil workers.

“The bill that you’re rushing through the process adds bodies, adds bureaucracy at the California Energy Commission, adds audits, adds penalties,” Eloy Garcia, a Western States Petroleum Association lobbyist, told the committee. “What it does not do is add supply. It does not expedite port or pipeline infrastructure.”

Assemblyman Jim Patterson (R-Fresno), noted the bill had not gone through the chamber’s Appropriations Committee despite an Energy Commission estimate that it would cost $9.4 million to hire 34 people for the new division.

Newsom first called for a windfall tax on oil companies last fall after average gas prices in California reached more than $6 per gallon. Oil companies reported record-high profits and their margins were higher in California than in the rest of the country.

He called a special session of the Legislature in December to address what he called the companies’ “price gouging.” At his request, Sen. Nancy Skinner (D-Berkeley) introduced a proposal that would have set a cents-per-gallon cap on oil companies’ profits and penalized profits above the margin.

Working with Newsom’s administration, Skinner introduced amendments to the proposal on March 20 to create the Petroleum Market Oversight Division at the Energy Commission. The legislation directs the division to collect data and analyze every link of the oil supply chain and then tailor solutions to their findings, including an optional penalty on profit margins.

“This does not guarantee a penalty,” Skinner said Monday. “It sets up a mechanism to do so if it is warranted. But, of course, if the oil companies' practices are such that it is not warranted then the penalty would never be used.”