Gov. Gavin Newsom said Friday he will call a special session of the state Legislature in December to pass a new tax on oil companies as punishment for what he calls “rank price gouging.”
Newsom told reporters on Friday that the special session will begin Dec. 5 after all the votes have been counted from the November elections and newly elected lawmakers are sworn in.
Gas prices soared across the nation this year because of high inflation, Russia’s invasion of Ukraine and ongoing disruptions in the global supply chain. But while gas prices have recovered somewhat nationwide, they have continued to spike in California, hitting an average of $6.39 per gallon on Friday — $2.58 higher than the national average.
“This is just rank price gouging,” Newsom told reporters on Friday. “It’s time to get serious. I’m sick of this.”
Kevin Slagle, vice president for the Western States Petroleum Association, said “a better use of the special session would be to take a hard look at decades of California energy policy and what they mean to consumers and our economy.”
“If this was anything other than a political stunt, the Governor wouldn’t wait two months and would call the special session now, before the election,” Slagle said. “This industry is ready right now to work on real solutions to energy costs and reliability if that is what the Governor is truly interested in.”
Several states chose to suspend their gas taxes during the price surge, including Maryland, New York and Georgia. Newsom and his fellow Democrats that control the state Legislature refused to do that, opting instead to send $9.5 billion in rebates to taxpayers — which began showing up in bank accounts this week.
It’s unclear how the tax Newsom is proposing would work. Newsom said he is still working out the details with legislative leaders, but on Friday said he wants the money to be “returned to taxpayers,” possibly by using money from the tax to pay for more rebates.
“We’re going to get the money back that (oil companies) have been gouging and taking back from hard working Californians,” Newsom said. “There are many different ways of doing this.”
The state Legislature briefly considered a proposal earlier this year that would have imposed a “windfall profits tax” on oil companies’ gross receipts when the price of a gallon of gasoline was “abnormally high compared to the price of a barrel of oil.”
That proposal would have required state regulators to determine the tax rate, making sure it recovered any oil companies’ profit margins that exceeded 30 cents per gallon. The money from the tax would then have been returned to taxpayers via rebates.
Newsom did not comment on that proposal when it was introduced in March, and lawmakers quickly shelved it. It could, however, act as a blueprint for the new proposal being negotiated between Newsom and legislative leaders.
The Legislature’s top two leaders — Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon — said in a joint statement that lawmakers “will continue to examine all other options to help consumers.”
“A solution that takes excessive profits out of the hands of oil corporations and puts money back into the hands of consumers deserves strong consideration by the Legislature,” they said. “We look forward to examining the Governor’s detailed proposal when we receive it.”
California Republicans — who do not control enough seats to influence policy decisions in the Legislature — have called the tax “foolhardy.”
“Who here thinks that another tax is going to bring down your gas prices? Is going to bring down any costs in this state? It’s not going to happen,” Assembly Republican Leader James Gallagher told reporters on Wednesday.
The California Legislature usually meets between January and August, where they consider bills on a variety of topics. The governor has the power to call a special legislative session at any time by issuing a proclamation. When convened in a special session, lawmakers can only consider the issues mentioned in that proclamation.
The last time a California governor called a special legislative session was in 2015 when then-Gov. Jerry Brown asked lawmakers to pass a bill to pay for repairs to state roads and highways. Lawmakers ultimately took no action.
The California Energy Commission wrote a Sept. 30 letter to five oil refiners demanding an explanation for why gas prices jumped dramatically and why inventory fell during refinery maintenance that was planned in advance.
Gas prices jumped 84 cents over a 10-day period, an unprecedented spike, the commission wrote. It noted the price increase came as oil prices fell.
The oil industry had “not provided an adequate and transparent explanation for this price spike, which is causing real economic hardship to millions of Californians,” the commission wrote.
The companies who received the letter were Chevron, Marathon Petroleum, PBF Energy, Phillips 66 and Valero.
As of Friday, only PBF Energy had responded. Paul Davis, the company’s senior vice president, said antitrust law barred it from responding to the questions in detail. But he broadly said state policies designed to limit oil production in California are squeezing the industry.
“It is important that there be a full understanding of what the implications will be in the short-, medium- and long-term on the availability of gasoline supplies for consumers and businesses,” Davis wrote.
PBF does not operate any gas stations in California.