Los Angeles Times

Newsom abandons cap on oil profits

Governor instead plans to have Energy Commission beef up oversight of industry.

- By Taryn Luna

SACRAMENTO — Gov. Gavin Newsom is giving up his high-profile call for the California Legislatur­e to set a cap on oil company profits and instead will ask lawmakers to increase transparen­cy and oversight of the industry.

The governor’s amended proposal, which was announced Wednesday afternoon, would give the California Energy Commission more authority to investigat­e gasoline price spikes and the option, through a public hearing process, to place a cap on profits and penalize oil companies, Newsom’s aides said.

“What we’re asking for is simple: transparen­cy and accountabi­lity to drive the oil industry out of the shadows,” Newsom said in a statement. “Now it’s time to choose whether to stand with California families or with Big Oil in our fight to make them play by the rules.”

Newsom called for swift passage of a penalty on oil companies in October when he announced his intent to convene state lawmakers into a special session to rein in the oil industry’s excessive profits. He accused oil companies of price gouging at the pump after gasoline prices topped $6 a gallon.

But determinin­g the level at which refinery profits should be penalized became a political hot potato in Sacramento. Democrats were concerned that the plan could potentiall­y backfire because of the complicate­d nature of the oil markets, lack of transparen­cy from the industry, and concern that it could carry unintended consequenc­es on gasoline prices.

Newsom’s office in December gave lawmakers an outline of his plan to cap the industry’s profits when the special session convened, but left lawmakers to determine the limits on those profits.

Over more than three months, the Legislatur­e held only one hearing on the proposal. State senators appeared apprehensi­ve about the plan, and experts encouraged the state to take more time to investigat­e and understand the problem before passing a solution.

Newsom’s new proposal would shift that responsibi­lity to the Energy Commission, but his aides acknowledg­ed that there will be no requiremen­t for regulators to cap profits or penalize the industry. All five members of the commission have been either appointed or reappointe­d by Newsom.

Assembly Republican leader James Gallagher of Yuba City criticized Newsom’s choice to place the decision in the hands of the commission.

“No matter how many sham investigat­ions he calls for, no matter what kind of ‘penalty’ he comes up with, there is one indisputab­le fact — California drivers pay more than they should because of the taxes, fees and regulation­s imposed by Gov. Newsom and his extreme liberal allies,” Gallagher said in a statement. “If Democrats give unelected bureaucrat­s the authority to impose this new tax, they will be responsibl­e for the shortages, rationing, gas lines and price spikes that come with it.”

The governor’s office said that with increased regulatory authority, the commission will be empowered to prevent the kinds of gasoline price spikes consumers saw last year.

The bill would create an independen­t watchdog authority within the commission with subpoena authority to monitor gas prices and investigat­e spikes. Oil companies would also be required to provide more data to the state to help regulators understand pricing.

Dana Williamson, Newsom’s chief of staff, said the governor’s office “has worked very closely with experts and the Legislatur­e to get this right.”

“It is the only one of its kind in the country, and it’s really going to set up a watchdog entity that is going to watch the industry every single day,” Williamson said. “The Energy Commission will be able to then act upon the findings that are seen in the division’s work.”

Jamie Court, president of Consumer Watchdog, applauded the governor’s plan for increasing state oversight of the industry.

The deal between Newsom and lawmakers includes a requiremen­t for oil refiners to report maintenanc­e to the state in hopes of preventing rapid and unexpected declines in gasoline production in California.

California is dependent on only a handful of oil refiners, which are not required to report planned maintenanc­e to the state. When multiple refineries end up reducing production at the same time because of routine work on equipment or unexpected problems, supply decreases and prices increase.

The oil industry has blamed maintenanc­e issues for California’s historic gas price spikes in the summer and fall.

Court said shifting the penalty to the Energy Commission to decide places more responsibi­lity on the governor to follow through.

“This gives the governor and his commission the power to do the right thing, and it will be reflected on them if it’s done or not,” Court said.

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