Newsom Signs Price-Gouging Penalty Bill for Oil Companies

Newsom Signs Price-Gouging Penalty Bill for Oil Companies
California Gov. Gavin Newsom speaks during a United Nations climate action event in New York on Sept. 21, 2022. (Monica Schipper/Getty Images for Bloomberg Philanthropies)
Jill McLaughlin
3/28/2023
Updated:
3/29/2023
0:00

California Gov. Gavin Newsom signed a bill March 28 that plans to target oil companies with a windfall-profits penalty law, after it was rushed through both chambers of the Legislature in a week.

The law will create new regulations and extensive oversight for oil companies and allows an appointed commission to issue fines and penalties for earning profits beyond state-imposed limits.

“We proved that we could actually beat big oil,” Newsom said at a Tuesday press conference just prior to signing.

The bill passed the state Senate March 23 and the Assembly on March 27—where Democrats hold a supermajority—and will take effect in 90 days.

California Governor Gavin Newsom signs a price-gouging penalty bill for oil companies on March 28, 2023. (Screenshot via YouTube/California Governor Gavin Newsom)
California Governor Gavin Newsom signs a price-gouging penalty bill for oil companies on March 28, 2023. (Screenshot via YouTube/California Governor Gavin Newsom)

“For decades, oil companies have gotten away with ripping off California families while making record profits and hiding their books from public view,” Newsom said March 23 after it passed the Senate. “With this proposal, California leaders are ending the era of oil’s outsized influence and holding them accountable.”

The U.S. Oil and Gas Association said the impact on the industry is not yet known.

“It is too early to tell what the impact will be, but we should learn from the recent past that when you combine an oppressive regulatory environment with desperate cash grabs—companies have a reason to leave,” the association’s president Tim Stewart told The Epoch Times. “Just ask HP, Oracle, Tesla and the 153 other companies that have moved their headquarters out of California.”

Refiners must make the same decision, Stewart said.

“Do we invest billions in upgrades to face an increasingly hostile regulatory and tax environment or do we shut down operations altogether?” he said.

According to the law, the state’s Energy Commission will be allowed to set a maximum gasoline refining margin and penalties on oil companies for exceeding it.

Oil companies will also be required to report daily operations, detailed shipping information, contracts, agreements, forecasts, and other sometimes-confidential market data that will include how much they pay for each gallon of crude. These reports will be required weekly, in some cases. Companies face fines of up to $500,000 for reporting delays.

Using the new information, an advisory group will work with California Air Resources Board and the Energy Commission to create a Transportation Fuels Transition Plan by the end of 2024, detailing the state’s plan to eliminate petroleum fuels.

The state will also be able to take control of refinery maintenance schedules and manage certain operations. This shouldn’t affect safety, Stewart said, but giving the state control over operations could impact the industry.

An oil pumpjack (L) operates as another (R) stands idle in the Inglewood Oil Field in Los Angeles, Calif., on Jan. 28, 2022. (Mario Tama/Getty Images)
An oil pumpjack (L) operates as another (R) stands idle in the Inglewood Oil Field in Los Angeles, Calif., on Jan. 28, 2022. (Mario Tama/Getty Images)

“Safety is our industry’s top priority, and we will never compromise safety and operations,” Stewart said. “However, if you want to see what results from taking daily or seasonal operational decisions away from the operators who understand the market best and instead put operational decisions in the hands of the State. Just look at the collapse of the Venezuelan production and refining industry.”

Assembly Republicans called it a “job-killing” law.

“This bill will have a disastrous impact on my community, constituents, and our economy,” said Assemblyman Tom Lackey (R-Palmdale) before the vote. “Make no mistake, this is a job-killing gas tax.”

Assemblyman Vince Fong (R-Bakersfield) argued there was no evidence the oil industry had engaged in price gouging leading to last year’s high prices.

“There’s been a lot of chatter about an alleged price gouging,” Fong said. “The attorney general currently has this authority to prosecute offenders to protect consumers. It has not been invoked. Why? Because there’s no evidence, no matter how many times you said it, the evidence comes up empty.”

Fong represents a region of California that produces most of the state’s oil supply.

Missing from the final bill was Newsom’s promise to return oil company profits to consumers. Lawmakers removed language requiring the state to return money to residents. Instead, lawmakers were given broad authority on how to spend the funds, as long as it addressed price gouging.

Industry experts say the new law will likely lead to higher prices at the pump.

“Price caps, taxes, and tax-like penalties do not increase supply or reduce prices, but instead can have the opposite effect—less investment, less gasoline supply, and ultimately higher costs for Californians,” Western States Petroleum Association President Catherine Reheis-Boyd said in a statement. “With this politicized process behind us, it’s time for serious discussion about what it will take to ensure an affordable, reliable and safe fuel supply for the years ahead.”

Jill McLaughlin is an award-winning journalist covering politics, environment, and statewide issues. She has been a reporter and editor for newspapers in Oregon, Nevada, and New Mexico. Jill was born in Yosemite National Park and enjoys the majestic outdoors, traveling, golfing, and hiking.
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