Gov. Gavin Newsom said Wednesday he wants state regulators to decide whether to impose the nation’s first penalty on oil companies for price gouging, pivoting after months of negotiations with legislative leaders failed to reach an agreement on a bill aimed at reining in the state’s notoriously high gas prices.

Gas prices in California are always more expensive than 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 make.

But last summer, the average price for a gallon of gas 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 fees. Meanwhile, oil companies recorded supersized profits.

Newsom responded by asking state lawmakers to pass a law that would impose hefty fines on oil companies if their profits surpassed a certain threshold — with all of the money generated from the fines going back to drivers. 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 got traction in the Democratic-controlled Legislature, where the oil industry is one of the top contributors to lawmakers’ campaign accounts.

Change in Course

Wednesday, the governor announced he was changing course and instead will ask lawmakers to empower the California Energy Commission to decide whether such a penalty is necessary and, if it is, how much it would be. The commission would be aided by a new, independent agency made up of experts, economists and lawyers that would have subpoena power to monitor the gasoline market and make recommendations.

If the commission imposed any fines, it would be up to the Legislature to decide what to do with the money.

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

The modified proposal means it’s possible California wouldn’t penalize oil companies at all. But it would give Newsom more control over what happens because he appoints all five members of the California Energy Commission, who must also be confirmed by the Democratic-controlled state Senate.

That did not win over the oil industry, which has been battling Newsom over this proposal and a host of other environmental proposals aimed at transitioning the nation’s most populous state away from fossil fuels.

“It sounds like the governor wants to create a new state agency and empower unelected bureaucrats to impose more taxes and increase costs,” said Kevin Slagle, spokesperson for the Western States Petroleum Association, a nonprofit trade association that represents the industry. “At the end of the day, this proposal does not solve Californians’ gasoline supply problem and will likely lead to the very same unintended consequences legislators have reiterated to the Governor: less investment, less supply, and higher costs for Californians.”

State legislative leaders have not yet agreed to Newsom’s proposal. But the governor’s office expects lawmakers to hold public hearings on it soon, ideally before the summer months when gas prices usually increase. The Newsom administration did not view the new proposal as a concession, saying the governor made the changes after consulting with experts.

“We feel like this is stronger from where we started,” said Dana Williamson, Newsom’s chief of staff. “It is the only one of its kind in the country. And it’s really going to set up a watchdog entity that is going to watch the industry every single day. And then the (Energy Commission) will be able to then act upon the findings.”

Senate President Pro Tempore Toni Atkins, a Democrat, said lawmakers are “continuing to work toward resolution on the Governor’s oil price proposal.” Republicans, who don’t control enough seats to influence votes in the Legislature, decried the proposal as a tax that would inevitably be passed on to drivers.

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