Newsom Faces Dem Rebellion Over Crackdown on Oil Company Profits

Members of a state Senate committee spent more than four hours last week delving into the complexities of the supply chain that pumps more than 13 billion gallons of gasoline into Californians’ cars each year.

Immediately after the “informational hearing” ended, Gov. Gavin Newsom declared that it made the case for the tax-like “penalties” he wants to impose on refiners for exceeding still-to-be-determined profit margins, once again accusing them of price gouging.

“Today’s hearing provided even more evidence that we need to crack down on Big Oil’s price gouging at the pump,” Newsom said. “Experts detailed how gas price hikes led to record profits and why we need greater transparency. Big Oil’s lobbyists again used scare tactics and refused to provide answers or solutions to last year’s price spikes. We’re taking action to hold them accountable with a price gouging penalty and long-overdue transparency measures.”

Newsom’s statement bore little resemblance to what actually transpired during the hearing. Experts, including the state’s foremost authority on energy pricing, told legislators that the sharp, albeit temporary, spike in pump prices last year had little to do with refinery actions, but rather inexplicable hikes by retailers.

And even Democratic legislators were openly skeptical of Newsom’s claims.

“There is clearly a belief out there among many people that oil companies were profiting off the backs of Californians,” said Sen. Dave Min, an Irvine Democrat who will seek a congressional seat next year. “At the same time, we don’t really have a smoking gun as far as I can see, that shows intentional collusion.”

The Senate energy committee’s chairman, Steve Bradford, was equally unconvinced. Bradford, a San Pedro Democrat, asked, “What are we trying to solve for?…We have passed legislation here in California that has encouraged leaving oil in the ground…Have we created a scenario that has helped create this problem?”

And so it went. Democrats and Republicans alike, while expressing sympathy for motorists who saw transportation expenses jump sharply, offered almost no support, even conceptually, for imposing penalties that the petroleum industry says would merely increase prices even more.

“As outraged as we are (about high prices)…what the hell are the unintended consequences?” Sen. Bill Dodd, a Napa Democrat, mused.

California’s gas prices have historically been higher than those in other states, thanks mainly to its high taxes, both direct and indirect, and its distinct formulations to fight smog, which make it almost impossible to import fuel from elsewhere.

California Refining Capacity Falling

The state has adopted a policy of phasing out California’s oil industry along with gasoline-powered vehicles. As consumption declines, the state’s refining capacity has diminished.

The question before the committee last week was why the differential between California and other states suddenly widened to several dollars a gallon.

Severin Borenstein of UC Berkeley’s Energy Institute, acknowledged as the state’s leading independent analysis of gasoline price trends, cited those factors and others while telling the committee that last year’s price hikes occurred as gasoline was being moved from wholesalers to the retail level.

He, like several other witnesses, told the committee that the state needs more information about how pump prices are set before determining whether the state should intervene in some manner.

“The fact is, shooting first and then finding out if it is the right solution is likely to be just as detrimental as helpful,” Borenstein said.

Newsom obviously doesn’t want to wait for a more measured approach. He’s invested a lot of political capital into his anti-oil industry crusade and wants some action to trumpet. But last week’s hearing indicated that getting something “hairy and audacious,” to use one of Newsom’s favorite phrases, will be tough slogging.

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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