A panel of researchers and industry experts told the Senate Energy, Utilities and Communications Committee that the proposal would not fully address the reasons for last year鈥檚 price spikes or necessarily lower prices day-to-day.
California drivers have for years paid more at the pump on average than consumers in other states due to a mix of taxes and fees, environmental regulations, and an isolated market. Energy experts also point to a 鈥渕ystery surcharge鈥� that accounts to about 40 cents per gallon paid by California drivers, which appeared soon after a 2015 refinery explosion in Torrance.
UC Berkeley energy economist Severin Borenstein said the amount Californians paid in that mystery surcharge in 2022 was around $8 billion.
Newsom has accused the oil industry of 鈥渇leecing鈥� consumers by keeping prices high and reporting record profits last year. His proposal, being pushed as a 鈥減rice-gouging penalty,鈥� would impose a profit ceiling on oil refining companies and fine them when their earnings exceed that yet-to-be-determined limit. The fines would then be refunded to taxpayers.
The bill still lacks key details and did not receive a vote, but energy researchers told state lawmakers in an informational hearing that while it could help the state recover funds paid by consumers, it would only affect refiners and not retailers, which they said also play a role in fuel pricing.
鈥淚t鈥檚 pretty clear the problem is downstream鈥� from refiners, Borenstein said, placing blame on a 鈥渓ess competitive鈥� gas station market, where name-brand gas stations often charge high prices and inflate the market.
The panel of experts instead recommended lawmakers increase oversight, transparency and investigations into oil refiners and retailers.
鈥淭he mystery surcharge has had the biggest impact over the years鈥� for drivers, said Professor James Sweeney with the Stanford Institute for Economic Policy Research. 鈥淎 windfall profits tax does nothing to address that.鈥�
Some experts also acknowledged more market competition 鈥� including in-state production and pipelines to import oil 鈥� could lower costs, though lawmakers are unlikely to go in that direction as the state moves to transition away from fossil fuels in the coming decades.
Lawmakers including Sen. Dave Min (D鈥擮range County) acknowledged the proposal is 鈥渁t best only a partial solution鈥� and that lawmakers lack 鈥渁 smoking gun that proves collusion鈥� among oil refiners.
Still, most lawmakers were not sympathetic to the oil and gas industry, asking pointed questions about the record profits reported by the five major refiners doing business in the state. A representative with the Western States Petroleum Association explained away as 鈥渁 function of costs.鈥�
Min called California鈥檚 oil industry 鈥渁 broken market鈥� that is 鈥渞ife for manipulation (and) coordination.鈥�
Committee chair Sen. Steven Bradford (D-Gardena) pointedly asked representatives with the Newsom administration whether the issue was really about pricing or supply, which he acknowledged has declined as the state moves to meet its climate goals.
Other lawmakers expressed concerns the proposal could cause more harm to vulnerable Californians.
鈥淎s outraged as we all are鈥� about high gas prices, said Sen. Bill Dodd (D鈥擭apa), 鈥淚 try to look for what the hell are the possible unintended consequences鈥� that could further impact lower-income residents.
The Western States Petroleum Association and a group representing independent gas and convenience stores oppose the legislation, calling it an issue of supply and demand that would not lower prices. Consumer and environmental advocates testified in favor of the proposal.
In a statement, Newsom said the hearing 鈥減rovided even more evidence that we need to crack down on Big Oil鈥檚 price gouging at the pump.鈥�
He accused the industry of using 鈥渟care tactics and refus[ing] to provide answers or solutions to last year鈥檚 price spikes. We鈥檙e taking action to hold them accountable with a price gouging penalty and long-overdue transparency measures.鈥�
A spokesperson for Newsom has said the bill will likely have additional details added and will get its first hearing in March.
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