Newsom’s plan to penalize Big Oil for California’s high gas prices reaches final fateful days

The Valero Benicia Refinery in Benicia, Calif., on Thursday, June 5, 2014.

The Valero Benicia Refinery in Benicia, Calif., on Thursday, June 5, 2014.

Sacramento Bee file

The fate of Gov. Gavin Newsom’s proposal to bring down California’s high gas prices by going after oil companies over their recent record profits could be decided in a matter of days.

Events in Sacramento this week were set in motion by the governor’s decision to back away from his call for state legislators to cap the profits of oil companies. Newsom’s plan would instead give the California Energy Commission more power to investigate the gasoline market and to decide — through a potentially lengthy public hearing process — whether a cap on oil profits is the best way to address gas prices in the Golden State.

State Democratic leaders on Monday endorsed the governor’s plan and announced they had all reached a deal to get it to the finish line.

Newsom said the agreement marked a “major milestone in our efforts to drive the oil industry out of the shadows and ensure they play by the rules.”

“Together with the Legislature, we’re going to hold Big Oil accountable for ripping off Californians at the pump,” he added.

Newsom left nothing to chance Tuesday, spending part of the afternoon caucusing with Senate and Assembly Democrats, KCRA reported.

His updated proposal will go before the Senate Energy, Energy, Utilities and Communications for a vote Wednesday, followed by the Senate Appropriations Committee Thursday morning. Pending approval in those committees, the bill would be heard on the Senate floor Thursday afternoon.

State Assembly members would then have the final say on the matter next week. If all goes Newsom’s way, the bill could be on his desk before lawmakers adjourn for spring recess on March 30.

“Gas prices are out of step with the rest of the country, so it is important that we can move forward with measures that will begin to put the brakes on oil company price gouging,” said Assembly Speaker Anthony Rendon, D-Lakewood. “An accountability structure is a major step to requiring producers to justify price hikes.”

The average price of a gallon of gasoline in California was $4.84 on Tuesday, about $1.40 more than the national average, according to AAA. At the peak of last year’s gasoline price spikes, Californians were paying more than $2.60 above the national average.

Changes made to Newsom’s plan to penalize oil companies

The deal reached between Newsom and lawmakers is a major shift from the governor’s original proposal.

Amid unprecedented gasoline price spikes last year, Newsom in late September placed the blame on oil companies and announced that he wanted to levy a new tax on those that were enjoying historic profits during that time.

Newsom vowed to “ensure these profits go directly back to help millions of Californians” who were getting squeezed at the pump.

Shortly thereafter, he began referring to his proposal as a “price-gouging penalty” rather than a tax — marking the first notable change.

When the special session called by Newsom to consider his proposal convened in December, the governor’s administration provided lawmakers with vague bill language, which left out important details like the profit cap measurement.

Over the subsequent three months, legislators only held one hearing on the matter. It was unclear what, if any, progress had been made to establish a threshold and fill in the critical missing information.

During that time, the bill received a lukewarm reception. State lawmakers and energy market analysts both expressed uncertainty over the governor’s plan and whether it was the right strategy to address California’s high gas prices.

Under Newsom’s proposal, the California Energy Commission would create a new watchdog agency to monitor the state’s petroleum market. It would have access to new information that refiners would have to report and subpoena power to compel companies to provide other data and records. The agency could also refer potential violations to the Attorney general for prosecution, though experts have told this new organization that the chances of that are unlikely.

The California Energy Commission will have the authority to decide the best approach to addressing the state’s high gas prices. Depending on a public hearing process led by the Commission, that may or may not include a price-gouging penalty.

The state’s major oil refiners will be required to relay new information to the state, including any maintenance activity that might limit production and lead to price spikes.

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Maggie Angst covers California politics and Gov. Gavin Newsom for The Sacramento Bee. Before joining The Bee’s Capitol Bureau, she worked for the Mercury News and East Bay Times where she covered San Jose City Hall and later wrote enterprise stories on the breaking news team.

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