The California Energy Commission voted on Friday to suspend its ability to impose a profit cap on gasoline refiners for the next five years.
The ability to set this cap, sometimes described as a price gouging penalty, was supported by Governor Gavin Newsom when he signed it into law in 2023. He described it as a way to stop unnecessary gas price spikes. The decision came in the wake of 2022 gas prices that were more than $2 over the national average per gallon.
But after two refineries announced impending closures earlier this year, Newsom and other legislators have looked for ways to encourage the state’s remaining refineries to stay in California.
But critics say it’ll encourage refiners to keep raising gas prices.
Jamie Court, president of the nonprofit Consumer Watchdog, described the decision as a “180” from Newsom’s previous approach.
“The point of the price gouging penalty was that they were making way too much money in 2022 … and the governor came out very strongly about the fact that there are billions and billions of dollars being lost to the coffers of the refiners,” Court said.
The penalty has never actually gone into effect since the CEC hasn’t completed the rulemaking process required to enact it. But even so, Court says he felt the existence of the penalty had been a deterrent for refiners that now no longer exists.
“When that's gone, they're going to go back to what they did in 2022, which is to make extraordinary profits,” he said.
Hollin Kretzmann, a senior attorney for the nonprofit Center for Biological Diversity, said this decision is the opposite of what he thinks should happen to prevent rising gas prices.
“If refineries are going to be closing, that means the market power is going to be further and further consolidated into a few powerful refinery hands,” Kretzmann said. “And that's exactly where you would want something like a profit cap to protect consumers from these few remaining, but very powerful, big oil companies.”
Advocates of the decision, which include refineries and refinery workers, say this pause could help dissuade other refiners from leaving.
But Court says he’s concerned that if gas prices do rise, this decision could impact how long it takes for state officials to respond.
“Because they’re putting it on hold, it's not going to be prioritized,” Court says. “And if prices start spiking and profits start spiking, it's going to take a year and a half to even get a rule in place.”
