New California gas price law another defeat for oil industry
It was just a few weeks ago that California Gov. Gavin Newsom called the oil industry the second most powerful force on earth, trailing only Mother Nature in its ability to bend the elements — both physical and political — to its will.
Yet on Tuesday, Newsom signed a new law that gives state regulators the power to penalize oil companies for making too much money, the first of its kind in the country.
San Diego’s Scott Johnson said the legislation is overdue and desperately needed for Californians who have their finances stretched thin.
“Everybodys gotta drive, that's the whole thing. We're stuck in that situation, we're not going to walk, right? You kind of got to sometimes, especially if you commute a lot,” Johnson said.
It's the type of legislation the oil industry might have crushed in the past. But on Monday, the bill cleared the state Assembly with only one Democrat voting against it.
“We proved we could finally beat big oil,” Newsom said Tuesday after signing the bill.
USD economics professor Alan Gin said it will provide more transparency.
“It just gives the California Energy Commission power to look into oil companies operations to see if they are price gouging when gas prices surge,” he said.
The decision comes right before California's April first deadline to switch to summer-blend gas, which is usually more expensive.
With gas prices slowly creeping back up, that's worrying people like Johnson.
“They always go up in the summer. Maybe it's the vacationing or whatever, or more people are driving in the summertime – so it's kind of a price gouge a little bit. You know, taking advantage of it, that's what they do,” he said.
Gin isn't sure how big of an impact the bill will have on gas prices unless the oil companies are proven to be price gouging.
“I think it's probably going to have minimal effects. There are other effects at work here that impact gas prices in California,” the USD professor said.
The bill is the latest in a string of defeats for the oil industry in California, a state many don't think of as a fossil fuel powerhouse. But for decades, California was one of the leading oil producers in the United States with a bustling industry that was a key part of the state's economy. The state is now the nation's seventh-largest oil producer, according to federal data.
The oil industry doesn’t mind a David vs. Goliath comparison “as long as you think we’re David and not Goliath,” Kevin Slagle, spokesperson for the Western States Petroleum Association, said about the industry’s influence at the state Capitol. “Just look at the results the last couple of years on legislation.”
Oil production has been steadily declining since the late 1980s from a combination of exhausting supplies and the state's changing policy priorities. A state law requires California to be carbon neutral by 2045, meaning the state would remove as many carbon emissions from the atmosphere as it emits. The state's plan to do so would reduce demand for liquid petroleum by 94% by 2045.
State regulators have banned the sale of most new gas-powered cars in California by 2035. And last year, the state Legislature approved a bill limiting where new oil wells can be drilled, providing buffer zones around homes, schools and other sensitive sites.
“We're never going to get it right, in terms of this transition (away from oil), unless we minimize and mitigate the power and influence of big oil in this country,” said Newsom, now in his second term in office and widely seen as a potential presidential candidate beyond 2024. “They're the biggest impediment to a just transition.”
While its influence in California might have diminished, the industry is still asserting itself. The Western States Petroleum Association spent $11.7 million lobbying lawmakers in the 2021-2022 legislative session, far more than any other single group. Chevron followed behind it, spending $8.6 million, according to state campaign finance filings. The next closest single spender was the California Teachers Association, at $7.1 million.
Likewise, the industry spent millions on campaign contributions in the 2022 election, supporting both Democrats and Republicans. More than a quarter of all 120 seats in the Legislature are newly elected members.
Those donations did not always translate to favorable votes. New Assemblymember Esmerelda Soria, a Democrat who represents parts of the Central Valley, was the top beneficiary of money from a Western States Petroleum Association-affiliated committee. Soria voted Monday to support the legislation despite industry opposition.
The only Democrat to vote against the potential oil profits penalty was Assemblymember Jasmeet Bains, whose district includes Kern County, home of the state's oil industry. Her vote appeared to irk the Newsom administration.
Bains, a family medicine and addiction doctor who was first elected in November, tweeted a picture of the vote, saying: “Stand alone if you must, but always stand for truth.”
Dana Williamson, Newsom’s chief of staff, replied: “Alone and confused you shall likely remain.”
Bains said she voted against the bill because during the height of the gasoline price spike last summer, the Newsom administration and legislative leaders refused to suspend the state’s gas tax. They argued oil companies would not pass along the savings to drivers.
“What’s to stop them from passing on the cost of this new tax with high prices at the pump?” Bains said. “That inconsistency is even more frustrating.”
There was also pushback from Republicans on the law. The California GOP in a statement referred to the bill as reckless.
“Not only will this law raise gas prices on consumers, but it will lead to fuel shortages and kill California jobs in the process. Today, California has the highest gas prices in the nation,” California Republican Party Chairwoman Jessica Millan Patterson said.
Though the industry couldn't stop the legislation, its presence could be felt in the final version, said Chris Micheli, a veteran California lobbyist who represents business clients but was not involved in the oil profits legislation. Newsom initially called for the Legislature to pass a new tax on oil company profits. Then he asked lawmakers to instead impose a penalty if oil company profits surpassed a certain threshold.
Finally, Newsom and lawmakers agreed to let the California Energy Commission decide, punting the decision to a five-person panel appointed by Newsom with the consent of the state Senate. The bill also creates a new state agency with the power to monitor the petroleum markets, including requiring oil companies to disclose lots of data about their pricing.
“The fact it took them three different substantive proposals to find something that would actually pass the Legislature, I think, goes to show the continued power and influence of the oil industry in this state,” Micheli said.
Next year, the oil industry will be looking to exert its influence in another arena — public opinion. The industry is challenging a new state law that bans drilling new oil wells nearby homes, schools and other sensitive areas. Voters will decide in 2024 whether to uphold the law.
“The partisan numbers of the two houses of the Legislature have dramatically changed,” Micheli said, referring to Democrats now having total control over state government. “The broader business community is going to have to go to the voters on some issues of public policy.”
Newsom acknowledged Monday the importance of oil for the global economy, telling reporters: “I'm driving home tonight” and “I'm flying this weekend.”
“Oil has built the American economy, built the industrial economy, I get it," Newsom said. “But we are transitioning. And all I'm asking for is don't rip us off anymore.”
The bill will go into effect in June, but lawmakers have said most of the price gouging law won't take effect until 2024 and the legislation would not allow regulators to respond to a price spike this year.
But there is some good news for gas prices this upcoming summer.
“I don't think things will be as bad as last year. I think we’ll see some improvement on the gas front this year compared to last,” USD’s Gin said.