California oil profits bill makes little progress

Sacramento, California –

After gas prices in California soared above US$6.40 a gallon last summer, Gov. Gavin Newsom led an indictment against the industry, which he said was “defrauding.”

Months later, it’s not clear if the California legislature is following him.

Democrat Newsom called lawmakers to a rare special Congress in December to pass the United States’ first penalties for oil company excess profits. But the bill is still pending in the Democratic-controlled Congress three months after his death, and no details have been released about how much the fines will be or when the oil companies will have to pay.

The oil industry has spent about $34 million lobbying Congress in the last two years of its session, and has been a strong political force, especially among Democrats representing some of the states in which the industry provides jobs. continues to be a force. A majority of lawmakers is required to pass the proposal.

The bill is a big risk for Newsom, who was just reelected in November and is a potential presidential candidate heading into 2024. Newsom is embracing electric vehicles and has ordered state regulators to ban the sale of most new gasoline vehicles by 2035. Gasoline, however, is likely to remain an important commodity in California for decades to come.

Historically, gasoline prices in California have always been higher than elsewhere due to the state’s higher taxes and fees, as well as special blends required by gasoline regulators for environmental reasons. .

But state regulators can’t explain recent price spikes like last summer, when some California commuters were paying as much as $8 a gallon at their peak, while oil companies posted huge profits. said. Newsom’s solution is to punish oil companies for making too much profit and return the money to the public.

At the bill’s first hearings in the state Senate on Wednesday, many Democrats were sympathetic to drivers who were hit by price spikes. But some Democrats were skeptical.

“What are the unintended consequences that could hurt those very people even more?” asked State Senator Bill Dodd, a Democrat from Napa.

Dodd wanted to know how to stop oil refiners from simply shipping their products to other states. This is to avoid any California interests that may result in penalties. State Senator Stephen Bradford, a Democrat from Los Angeles, wondered how the Newsom administration would return money to the public.

California is one of the most profitable markets for these oil companies, according to years of data, said Nicholas Maduros, director of the California Department of Tax and Fees Administration. It makes sense to quit. He also said the Newsom administration hopes the penalty will never be needed.

“This is not a tax. It’s not about raising revenue. It’s about changing behavior,” Maduros said.

Newsom said the bill’s slow introduction was due to a “lack of transparency” from the five oil refiners that supply nearly all of California’s gasoline. Those companies — Valero, Philips 66, PBF Energy, Marathon and Chevron — declined to testify at the hearing.

The big question is how much profit will trigger the penalty. The Consumer Watchdog, a non-profit organization frequently cited by Newsom when criticizing oil companies, wants to set a threshold whenever oil company profits exceed 50 cents a gallon. increase.

One way to measure it is to look at the difference between the wholesale cost of gas and the cost of crude oil. But the calculation is incomplete because it doesn’t include the oil company’s operating costs, said Jamie Court, the group’s president.

Over the past 20 years, Cort said, the average profit for the five oil refiners was 32 cents a gallon. According to the group, in 2022 he will have all five big refiners exceeding his 50 cents. If that standard had been enacted in 2022, Consumer Watchdog says it would have resulted in $3.3 billion in fines.

Newsom said Congress has been an “incredible partner” and has been meeting with Congress leaders to discuss the proposal.

“I’m not leaving. We’re going to keep doing this,” Newsom said.

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