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California regulators may decide to penalize oil profits

California regulators may decide to penalize oil profits

California Governor Gavin Newsom said Wednesday he wanted state regulators to decide whether to impose the nation’s first fine on oil companies for undermining prices, revolving after months of negotiations with legislative leaders that failed to produce a deal a law aimed at bringing under control the state’s notoriously high gas prices.

Gasoline prices in California are always more expensive than in the rest of the country because the state has higher taxes and fees than other states and requires a special blend of gasoline that is better for the environment but more expensive to produce.

But last summer, the average price of a gallon of gasoline in California was more than $2.60 higher than the national average – a difference state regulators said could not be explained simply by taxes and levies. Meanwhile, oil companies recorded above-average profits.

Newsom, a Democrat, responded by asking state legislators to pass a law that would impose hefty fines on oil companies if their profits exceeded a certain threshold – with all the money generated from the fines going back to motorists. The bill was so important to Newsom that he took the rare step of calling lawmakers into a special session to pass it, a maneuver that allows them to focus on just one issue instead of being distracted by hundreds of other bills in a regular session.

But the proposal never received much publicity in the Democratic-controlled legislature, where the oil industry is one of the main contributors to lawmakers’ campaign accounts.

On Wednesday, the governor announced he was changing course and would instead ask lawmakers to authorize the California Energy Commission to decide whether such a penalty was necessary and, if so, how much it would cost. The Commission would be assisted by a new independent agency of experts, economists and lawyers with subpoena powers to monitor the petrol market and make recommendations.

If the commission imposed any fines, the money would not be returned to the drivers.

“What we’re asking for is simple: transparency and accountability to bring the oil industry out of the shadows,” Newsom said. “Now is the time to choose whether to side with California families or Big Oil in our fight to keep them playing by the rules.”

The modified proposal means California may not penalize oil companies at all. But it would give Newsom more control over what happens as he appoints all five members of the California Energy Commission, who also need to be approved by the Democrat-controlled state Senate.

That failed to convince the oil industry, which has been battling with Newsom over the proposal and many other environmental proposals aimed at moving away from fossil fuels in the country’s most populous state.

“It appears the governor wants to create a new state agency and empower unelected bureaucrats to levy higher taxes and drive up costs,” said Kevin Slagle, spokesman for the Western States Petroleum Association, a nonprofit representing the industry. “Ultimately, this proposal does not solve the problem of supplying Californians with gasoline and will likely lead to the same unintended consequences that lawmakers have been telling the governor: less investment, less supplies, and higher costs for Californians.”

State legislative leaders have yet to agree to Newsom’s proposal. But the governor’s office expects lawmakers to hold public hearings on the issue soon, preferably before the summer months when gas prices tend to rise. The Newsom administration did not see the new proposal as a concession, saying the governor made the changes after consulting with experts.

“We feel it’s stronger than where we started,” said Dana Williamson, Newsom’s chief of staff. “This is the only facility of its kind in the country. And it will really set up a watchdog that will watch the industry every day. And then (the Energy Committee) will be able to act on the findings.

Top legislative leaders, Senate Pro Tempore President Toni Atkins and Assembly Speaker Anthony Rendon, did not comment on the new proposal Wednesday night. Republicans, who do not control enough seats to sway votes in parliament, denounced the proposal as a tax that would inevitably be passed on to motorists.

“If Democrats give unelected bureaucrats the power to levy this new tax, they will be responsible for the shortages, rationing, gas lines and price spikes that come with it,” said Republican Assembly leader James Gallagher.


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