The Signal

Oil: Newsom Faces Bipartisan Skepticism

- COMMENTARY Dan Walters’ commentary is distribute­d by Calmatters, a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters.

Members of a state Senate committee spent more than four hours last week delving into the complexiti­es of the supply chain that pumps more than 13 billion gallons of gasoline into California­ns’ cars each year.

Immediatel­y after the “informatio­nal hearing” ended, Gov. Gavin Newsom declared that it made the case for the tax-like “penalties” he wants to impose on refiners for exceeding still-to-be-determined profit margins, once again accusing them of price gouging.

“Today’s hearing provided even more evidence that we need to crack down on Big Oil’s price gouging at the pump,” Newsom said. “Experts detailed how gas price hikes led to record profits and why we need greater transparen­cy. Big Oil’s lobbyists again used scare tactics and refused to provide answers or solutions to last year’s price spikes. We’re taking action to hold them accountabl­e with a price gouging penalty and long-overdue transparen­cy measures.”

Newsom’s statement bore little resemblanc­e to what actually transpired during the hearing. Experts, including the state’s foremost authority on energy pricing, told legislator­s that the sharp, albeit temporary, spike in pump prices last year had little to do with refinery actions, but rather inexplicab­le hikes by retailers.

And even Democratic legislator­s were openly skeptical of Newsom’s claims.

“There is clearly a belief out there among many people that oil companies were profiting off the backs of California­ns,” said Sen. Dave Min, an Irvine Democrat who will seek a congressio­nal seat next year. “At the same time, we don’t really have a smoking gun as far as I can see, that shows intentiona­l collusion.”

The Senate energy committee’s chairman, Steve Bradford, was equally unconvince­d. Bradford, a San Pedro Democrat, asked, “What are we trying to solve for?…we have passed legislatio­n here in California that has encouraged leaving oil in the ground… Have we created a scenario that has helped create this problem?”

And so it went. Democrats and Republican­s alike, while expressing sympathy for motorists who saw transporta­tion expenses jump sharply, offered almost no support, even conceptual­ly, for imposing penalties that the petroleum industry says would merely increase prices even more.

“As outraged as we are (about high prices)… what the hell are the unintended consequenc­es?” Sen. Bill Dodd, a Napa Democrat, mused.

California’s gas prices have historical­ly been higher than those in other states, thanks mainly to its high taxes, both direct and indirect, and its distinct formulatio­ns to fight smog, which make it almost impossible to import fuel from elsewhere.

The state has adopted a policy of phasing out California’s oil industry along with gasoline-powered vehicles. As consumptio­n declines, the state’s refining capacity has diminished.

The question before the committee last week was why the differenti­al between California and other states suddenly widened to several dollars a gallon.

Severin Borenstein of UC Berkeley’s Energy Institute, acknowledg­ed as the state’s leading independen­t analysis of gasoline price trends, cited those factors and others while telling the committee that last year’s price hikes occurred as gasoline was being moved from wholesaler­s to the retail level.

He, like several other witnesses, told the committee that the state needs more informatio­n about how pump prices are set before determinin­g whether the state should intervene in some manner.

“The fact is, shooting first and then finding out if it is the right solution is likely to be just as detrimenta­l as helpful,” Borenstein said.

Newsom obviously doesn’t want to wait for a more measured approach. He’s invested a lot of political capital into his anti-oil industry crusade and wants some action to trumpet. But last week’s hearing indicated that getting something “hairy and audacious,” to use one of Newsom’s favorite phrases, will be tough slogging.

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