Gov. Gavin Newsom presented Monday an outline of his plan for California to cap oil refinery profits. He is asking legislators to approve the proposal in order to reduce future gasoline price spikes.

The governor shared his first look at the plan after convening a special legislative session. This was more than two years after he announced that he would ask for the Legislature to punish excessive profits by oil companies.

Newsom stated at the state Capitol, “For me this means never seeing those spikes again.” “You guys are being taken advantage of and screwed.”

According to the industry, recent high prices can be attributed to the state’s policies of reducing dependence on oil and phasing out the use of it. Newsom has politicized this issue, and penalizing them will only make the problem worse in a state where heavy taxes are already imposed on the industry.

The Western States Petroleum Assn. According to Newsom, Newsom’s proposal is a continuation of “bans mandates and public policy affecting our industry” that were implemented by the governor during his tenure.

Kevin Slagle, spokesperson for WSPA, stated that “after so many months of discussing this, we would think the governor would have more details on the windfall profits tax.” It is difficult to see the details of the thresholds and the penalty, as well as the transparency. We wonder if this is a genuine public policy discussion or if it is just more politics from the governor.

Newsom’s plan calls for the Legislature to adopt a yet to be determined “maximum crude gasoline refining margin” (or profit cap) based on a monthly calculation calculating the average profit per barrel an oil refiner makes from wholesale gasoline.

California Energy Commission would be able to impose an administrative civil penalty for violating the profit cap. The amount would depend on how much profit margins earned at a refiner exceed the limit. Any penalties would be deposited into a “Price Gouging Penalty Fund”, which lawmakers could refund residents through the state budget.

Governor’s proposal calls for regulatory review and oversight. This will give the Energy Commission greater authority to examine supply and price issues.

Newsom stated that he hopes the policy will deter price gouging by companies so that oil refiners don’t face penalties.

Newsom stated, “I hope it never comes into effect because these men will change how they’ve done business,”

Monday’s Newsom session was opened by lawmakers as they returned to Newsom’s Capitol to start the regular session of 2023-24 and to swear in the legislators who were elected in November.

Even though the sessions are concurrent, legislation that is passed during the special session may take effect up to 90 days after adjournment. Regular session bills are generally not made law until the beginning of the next calendar year. Special session allows legislative leaders to create unique lists of legislators for committees, which could make it easier to approve controversial bills.

Leaders expect Newsom’s proposal will be considered early next year, despite little activity at Capitol during holiday season.

The governor’s proposal didn’t include a figure for a limit on profit margins. This will likely be determined in future negotiations between Newsom, the Senate, and the Assembly. The limit on profit margins will be adjusted annually by lawmakers to reflect market prices changes. However, it could be changed at the discretionary of the Energy Commission.

Newsom’s tentative plan suggests that the commission could allow a refiner to be exempt from the cap if it shows “reasonable cause”.

Newsom’s “price gouging penalty” was a source of tension for lawmakers.

A committee independent of oil companies Phillips 66 was funded to spend more than $8M on elections this year. Its purpose was to elect moderate Democrats and Republicans who can support the oil industry.

Already, the industry and its business allies are fighting back. Californians Against Higher Taxes is a coalition made up of local and state chambers of commerce, and business associations. It called the penalty “Gavin’s New Gas Tax” and sent text messages to voters stating that “Californians cannot afford to pay more at their pumps.”

Three months ago, the governor’s office successfully lobbyed legislators to pass a number of policies to reduce climate change that were opposed by the industry.

One of these laws set a distance of 3,200 feet between a new oil well and homes and schools and healthcare facilities. In August, the industry defeated previous versions of the setbacks legislation. The industry started gathering signatures to repeal the law in 2024 after he signed it.