In Sacramento, California, recent developments suggest a potential reevaluation of a strategy intended to curb excessive profits by oil companies. Governor Gavin Newsom had initially signed a legislation in 2023 empowering the California Energy Commission to penalize these companies if their profits became too substantial, heralding it as a victory over the oil industry. However, over two years later, penalties have yet to be imposed, and criteria for what constitutes “excessive profits” remain undefined.
Siva Gunda, the vice-chair of the state energy commission, has proposed halting this initiative. Instead, he suggests exploring new policies aimed at reducing gas prices while ensuring a stable supply amidst California’s gradual shift away from fossil fuels. He shared these thoughts in a letter to Newsom, advocating for a gradual transition from petroleum-based fuels by 2045. The letter emphasizes protecting communities, workers, and consumers, while fostering conditions that allow the industry to operate efficiently during this transitional phase.
This proposed suspension would need the backing of the entire energy commission. Newsom had marketed the penalty as a tool to manage the profits of oil companies, though critics argued it might inadvertently inflate gas prices. Currently, California’s gas prices are the highest nationwide, a consequence of significant taxes and stringent environmental regulations. Reports from AAA indicate an average price of $4.61 per gallon of regular unleaded fuel, in stark contrast to the national average of $3.20.
Despite these potential changes, the energy commission intends to establish rules mandating oil refineries maintain a minimum fuel reserve to prevent the shortages that often accompany routine maintenance shutdowns. This move stems from legislation passed last year, following a special session convened by Newsom to combat gas price volatility.
Gunda’s recommendations emerged shortly after Newsom directed energy regulators in April to collaborate with refiners on ensuring consistent fuel supplies during the state’s transition to alternative energy sources. In response to these developments, Daniel Villaseñor, a spokesperson for Newsom, stated that the governor is contemplating the suggestions and remains focused on securing a reliable, safe, and economically viable fuel supply for California.
Amidst these discussions, the closure of significant refineries compounds the state’s energy challenges. In recent announcements, Phillips 66 declared the shutdown of its Los Angeles-area facility, and Valero is set to discontinue operations at its Benicia refinery. Collectively, these refineries contribute over 17% to California’s refining capacity, which amplifies concerns over how the state can maintain a stable fuel supply as it shifts towards renewable energy.
Meanwhile, a coalition of environmental and consumer advocacy groups have criticized the consideration to pause the penalty on oil companies. In a letter addressed to Newsom and other legislative leaders, they emphasized that oil refiners should not receive what they view as an unwarranted financial reprieve, urging the continuation of efforts to stabilize the state’s fuel market and curb potential price surges.