What Now for Newsom’s Oil Profits Tax?

For several months, Gov. Gavin Newsom has waged a war of words on California’s petroleum industry, accusing it of price-gouging and asking the Legislature to impose a tax on its soaring profits.

“Big oil is ripping people off at the pump, and they’re making more in profits off of Californians than in any other state — that’s why we need a price gouging penalty to hold them accountable and get these profits into your pockets,” Newsom said on Oct. 27 as he summarized what he said were huge increases in third quarter profits.

“These record profits came as Californians saw price hikes at the pump despite the cost of crude oil going down and no change in state taxes or fees,” Newsom continued. “Instead, the cost of gasoline skyrocketed purely because refineries wanted to put more in their own pockets.”

On Tuesday, the state Energy Commission, an arm of Newsom’s administration, staged a hearing that delved into the ups and downs of California’s gasoline prices, particularly their differences with those in other states.

The state’s refiners refused to participate in the hearing. Paul Davis of PBF Energy told the commission in a letter that “The politicization of this issue by Governor Newsom, heightened by the misleading information he released and commented on relating to our (2022 third-quarter) earnings, precludes us from participating in this hearing.”

Davis specifically objected to Newsom’s characterization of refiners’ gross operating margins as profits, saying it is “intentionally misleading to consumers and inflates purported ‘profits’ by purposefully excluding California’s highest-in-the-nation operating and regulatory costs that significantly lower actual profits.”

Despite the industry boycott, presentations by the commission’s staff largely bolstered industry assertions that global and in-state factors largely beyond their control, rather than arbitrary price-gouging, caused the sharp spike in pump prices.

They include declining refinery capacity due to high operating costs, periodic maintenance outages in the few remaining refineries, an uptick in gasoline imports whose prices are affected by the global oil market and transport costs, and a gradual decrease in California’s gasoline demand.

So where does that leave the excess profits tax that Newsom is demanding, but so far has not laid out in detail?

Gas prices spiked at more than $6 a gallon earlier in the year, but lately have been declining. This week, regular gas was selling in Sacramento for under $4.50 a gallon and by the time the Legislature would take up Newsom’s profits tax, several months hence, prices could be below $4.

A new tax would require two-thirds legislative votes and while Democrats have more than those numbers in both legislative houses, the oil industry has been active in the campaign arena and will contend that any tax will eventually be passed on to consumers in higher pump prices. The highly unionized industry can also count on support from union leaders.

All of that aside, there are some odd aspects to Newsom crusade against the industry, beginning with the fact that his personal wealth was founded on oil money.

The seed money for Newsom’s PlumpJack chain of wineries, hotels and restaurants came from the trust of Gordon Getty, an heir of oil industry pioneer J. Paul Getty. The Getty trust was managed by Newsom’s late father, William Newsom, who had been a long-time advisor to the elder Getty.

It also seems strange that Newsom should be railing against high gasoline prices when his declared goal is to banish gas-powered cars from the roads and shut down the industry that fuels them. High prices encourage Californians to drive less and shift to the battery-powered cars Newsom wants them to buy.

About the Author

Dan Walters has been a journalist for nearly 60 years, spending all but a few of those years working for California newspapers. He began his professional career in 1960, at age 16, at the Humboldt Times. For more columns by Walters, go to calmatters.org/commentary.

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