New California law targets oil companies for price gouging

A first-of-its-kind law in California targets oil companies for high fuel prices.

Gov. Gavin Newsom has signed into law a bill to implement price gouging rules for oil companies.

In November, the governor opened a special session to address concerns about high fuel prices. The main bill, SBX1-2, gives the state authority to punish oil companies for profiting from fuel price spikes.

The governor has said a spike in fuel prices last fall resulted in record refiner profits of $63 billion in 90 days.

“Big oil is ripping Californians off,” Newsom said in a previous news release. “A price gouging penalty is needed to hold them accountable for profiteering at the expense of California families.”

New regulations and oversight for oil companies

It took about four months before legislators started the process of getting the bill through the legislature. SBX1-2 advanced from its first committee on March 20 and zipped through both statehouse chambers and on to the governor in one week.

The new windfall-profits penalty law creates new regulations and oversight for oil companies.

The California Energy Commission will be authorized to decide whether to impose civil penalties on oil companies for price gouging. Specifically, the commission will be allowed to set a maximum fuel refining margin with penalties on oil companies for exceeding it.

The commission will also receive information from a new state agency that can require oil companies to disclose financial data. The agency also has subpoena power of oil executives.

“We proved that we could actually beat big oil,” Newsom said this week prior to signing the bill into law.

Refiners may leave the state

Critics say the California government has contributed to high fuel costs. They cite the legislature and the governor’s refusal to put a moratorium on the state’s fuel taxes.

California rules link taxes on gas and diesel to inflation adjustments each July.

On July 1, 2022, the state increased the 51.1-cent excise tax collected on gas purchases by 2.8 cents per gallon to 53.9 cents. The 38.9-cent diesel rate increased by 2.1 cents per gallon to 41 cents.

California’s average diesel price is about $1.04 above the national average for a gallon of on-highway diesel fuel, according to the U.S. Energy Information Administration. The state’s average gas price is about $1.41 above the national average for a gallon of regular gas.

Additionally, critics point out that fuel in the state is more expensive because the state requires oil companies to make a special blend that is described as being better for the environment. They do not see that situation improving with the new law.

Others question what is next for the state. Some say refiners must make decisions whether they want to continue to invest in their California facilities or simply shut down their operations.

The new law takes effect in late June. LL

More Land Line coverage of news from California.