As the state enters its last two weeks in the legislative session, Gov. Gavin Newsom called on California lawmakers on Thursday to pass new requirements on oil refiners. It’s the governor's latest political battle with big oil companies.
Newsoms proposal would require petroleum companies to maintain fuel reserves in an effort to potentially avoid supply shortages that can lead to spikes in gas prices.
“Price spikes at the pump are profit spikes for Big Oil,” Newsom said in a news release. “Refiners should be required to plan ahead and backfill supplies to keep prices stable, instead of playing games to earn even more profits. By making refiners act responsibly and maintain a gas reserve, Californians would save money at the pump every year.”
Refiners would face penalties for failure to comply, added the plan’s summary, which would be deposited into a fund and “distributed to consumers.”
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The push from Newsom comes two years after he called for a special legislative session to sonder tax on excess oil company profits. At the time efforts to cap the industry’s profits fell short. But the new mandate would come a year after Democratic lawmakers passed a law that imposes transparency requirements from the oil industry.
The law also gave the California Energy Commission the ability to impose penalties and set profit caps through the regulatory process. When the law was enacted, it also developed the Division of Petroleum Market Oversight.
"The data is clear: oil refiners have been racking up profits by planning maintenance that reduces supply during our busy driving seasons,” said Tai Milder, director of the Division of Petroleum Market Oversight for the CEC. “The Governor’s proposal gives us new tools to require refiners to plan responsibly and prevent price gouging during maintenance."
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At the start of the year, the division wrote a letter recommending the state impose inventory and resupply requirements. It comes after the division gathered information and claimed that oil companies did not have enough refined gasoline in the event of a shortfall.
“Unfortunately, California has been experiencing more frequent and extreme price spikes that seem to be driven by price swings in the spot market,” the division’s letter read. “The market has seen gasoline price spikes in 2012, 2015, 2019, 2022, and 2023. It appears that price spikes have become more common over time, with gasoline price spikes occurring in three of the last five years, with the exceptions being during the COVID pandemic. These spikes have been generally driven by periodic episodes of undersupply of gasoline (in the form of reduced refinery production, lower inventories of stored gasoline, or both) that are exacerbated — and sometimes exploited — by the dynamics of trading and reporting on the spot market.”
Despite the state’s data collection and findings, the Wester State Petroleum Association said it disagrees with Newsom’s proposal.
“To impose new operational mandates on energy producers based on such falsehoods is regulatory malpractice, and ignores the logistical challenges and costs associated with such a plan,” the association said in a letter. “When this administration is ready to have a serious discussion about the facts and the policies this state has imposed that affect consumer costs, we will be there.”
University of California, Berkeley Hass School of Business professor Severin Borenstein said there is still a lot of policy to be discussed before any mandate can be put in place.
“It’s not just requiring a certain amount, it’s also deciding when those reserves will be released during a price spike,” he said. “Somebody needs to make that decision.”
Today, on average, a gallon of gasoline in California costs $4.61, just 10 cents lower than the last month and more than 50 cents lower than last year, according to the latest figures from AAA.
