XPost: ca.politics, talk.politics.guns

California lawmakers on Monday approved Gov. Gavin Newsom’s legislation to increase transparency in the oil industry, in the final hours of a special session he called last year to penalize excessive profits.

After months of deliberation, the final bill does not cap oil refinery
profits or penalize the industry as Newsom had intended when he accused companies of intentionally driving up gas prices to boost revenue.
Instead, the bill, SBX1-2, gives the California Energy Commission the
power to set a cap and impose penalties through a regulatory process if it decides that oil companies are making excessive profits and that a penalty
will not result in higher prices for consumers.

The legislation focuses on transparency, including requiring the industry
to provide more information about maintenance and pricing decisions in
order to allow state officials to better understand the market and deter companies from gouging consumers.

“Even when we are not experiencing a spike, we pay higher prices than in
other states, even when we account for our taxes and environmental
policies,” said Assemblymember Jacqui Irwin (D-Thousand Oaks), who noted
that Californians paid as much as $2.60 more per gallon than residents of
other states at one point last year. “This is unacceptable.”

The Democratic majority handed Newsom his bill, but support wasn’t
overwhelming within his own party. The proposal passed 52-19 in the
Assembly, with several Democrats declining to vote, and with a stronger
30-8 vote last week in the Senate.

Democratic lawmakers hailed the bill as an improvement from the prior
version. Several were careful to point out that the legislation prohibits regulators from imposing any limit on profits that could drive up gas
prices, underscoring concerns about potential unintended consequences of capping the industry’s earnings.

Republicans criticized Newsom and Democrats, arguing that the legislation
will hurt Californians.

“This bill is a senseless attack on domestic energy production that will
only harm hardworking Californians in the field by creating a hostile
business climate,” said Assemblymember Vince Fong (R-Bakersfield).

Will the legislation result in lower gas prices?

Supporters argue that requiring refiners to disclose more information
about pricing decisions and setting up an independent watchdog agency will deter price gouging and prevent the kinds of spikes California experienced
over the summer and fall.

Proponents also argue that giving the California Energy Commission the
ability to set a profits penalty could motivate companies to keep prices
down. The bill prohibits commissioners from setting a penalty if they find
that it will have adverse consequences on Californians and increase gas
prices.

The oil industry and opponents of the bill disagree.

Western States Petroleum Assn. argues that prices are higher in California
as a result of the state’s policies to limit gasoline production.

California relies on about five main oil refiners to produce gasoline,
which means the state is isolated from alternative backup sources, and maintenance issues can reduce supply and cause price spikes.

The legislation will require oil companies to provide the state with more information around planned maintenance, which could make it easier to
avoid having several refineries go offline at the same time, drastically reducing supply. If unplanned maintenance occurs, regulators will have
more tools to investigate.

But the petroleum association argues that giving the energy commission the ability to cap profits could carry negative consequences for the industry.

Limiting profits and placing additional requirements on refiners could
drive companies out of the state, reducing supply and increasing fuel
costs, the oil group said. The industry had urged the state to take more
time to understand the bill’s potential effects on supply.

What did Newsom originally ask the Legislature to do?

In the midst of his high-profile battle with oil companies, Newsom on
Sept. 30 issued a call for lawmakers to pass a “windfall tax” on the
industry “that would go directly back to California taxpayers.”

At the time, average gas prices in California topped $6 per gallon as
companies “raked in” nearly $100 billion in the prior three months, Newsom said.

A week later, the governor expanded on his comments during a press
conference and announced that he would call lawmakers into a special legislative session on Dec. 5 to pass a windfall profits tax. He said he
was responding to record-breaking gas prices, which he called “outrageous
and unconscionable.”

The governor’s office worked for the next two months to prepare an outline
of a plan he shared with lawmakers on the day they returned to the state Capitol to begin the legislative session and kick off the special session.
By then, he’d transitioned away from calling the proposal a “windfall
profits tax” and instead had begun referring to it as a “price-gouging penalty.”

The outline he proposed Dec. 5 would have required lawmakers to set and
enact a “maximum gross gasoline refining margin” — or profit cap — on refineries based on a monthly calculation of the average profit per
barrel.

The proposal would have also allowed the California Energy Commission to
impose an administrative civil penalty for violations of the profit cap.

Why did the proposal change?

Newsom’s plan changed after he hit a roadblock in the Legislature. It
became clear during legislative hearings that state officials needed more information from the industry to understand the problem before setting a
cap and penalty.

Lawmakers shared concerns about potential unintended consequences of
Newsom’s desire to cap earnings. Some experts said Newsom’s idea to limit refinery profits wouldn’t solve the problem of “mystery surcharges”
believed to be incurred at the retail end of the supply chain.

“I know that legislators do not want the answer ‘We need more
investigation,’ but the fact is shooting first and then finding out if
it’s the right solution is going to likely be just as detrimental as
helpful,” Severin Borenstein, director of the Energy Institute at UC
Berkeley’s Haas School of Business, told lawmakers at the time.

Borenstein and other experts agreed about the need for transparency from
oil refiners on pricing, maintenance, supply contracts and inventory.
Newsom’s aides argued that changing the plan to focus on transparency made
it stronger.

What does the final bill say about a profits penalty?

Instead of a cap approved by lawmakers, SBX1-2 allows the energy
commission to establish a maximum gross gasoline refining margin and a
penalty for exceeding that margin, if they deem it necessary. Before
setting a cap and penalty, the commission must find that benefits of doing
so outweigh potential costs to consumers.

The bill allows the commission to petition the court to prohibit a refiner
from exceeding the maximum. Companies can request an exemption from the
profit cap, which the commission will be required to consider.

How does the bill improve transparency?

The bill establishes the Division of Petroleum Market Oversight within the energy commission. The division will have the power to subpoena records
from the oil industry and refer violations to the California attorney
general for prosecution.

The bill also establishes the Independent Consumer Fuels Advisory
Committee, comprising industry experts appointed by the governor and legislative leaders, to advise the energy commission and the new oversight division.

Under the bill, oil refineries would be required to report additional information to the state, including:

The net gasoline refining margin per barrel sold in a given month.
Notification of all maintenance plans and the reduction of inventory
levels expected as a result of the work. The bill authorizes the energy commission to regulate the timing of maintenance to minimize price shocks. Notification at least a year in advance if a California refinery intends
to shut down or sell.
Daily reports on spot market transactions from refiners, as well as non- refiners.
The bill allows for increased civil penalties if information is not
provided — up to $20,000 per day or $500,000 per submission.

<https://www.latimes.com/california/story/2023-03-27/california-lawmakers- approve-legislature-passes-newsom-oil-bill>

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