Sacramento Snapshot: Legislators take up penalties for oil companies, worry about potential impact

Editor’s note: Sacramento Snapshot is a weekly series during the legislative session detailing what Orange County’s representatives in the Assembly and Senate are working on — from committee work to bill passages and more.

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It’s time to talk about gas.

The legislature finally held its first informational hearing last week to learn more about Gov. Gavin Newsom’s proposal to hold big oil companies responsible for raking in profits while fuel prices skyrocketed.

The nearly five-hours-long hearing, convened by the Senate Energy, Utilities and Communications Committee, heard from Newsom administration officials, stakeholders and researchers — but not everyone on the legislative side of the room seemed to be in agreement on just how to tackle the governor’s request.

Siva Gunda, the vice-chair of the California Energy Commission, told legislators the governor’s proposal seeks to “set a maximum that allows ordinary price fluctuations but prevents only runaway margin spikes.”

“All of the penalty would start only after refiners had been allowed to earn a healthy profit on each gallon sold — not just an extreme margin of the sort we saw last October that hurt California families,” Gunda said. “This would never force anyone to operate at a loss.”

But Sen. Dave Min, D-Irvine, said he heard from oil companies that the proposal could have the unintended consequence of actually increasing costs because it would cause more refineries to leave California.

“This is a tough scenario because we saw oil companies make record profits during this period while gas prices were at all-time highs. There is clearly a belief out there among many people that the oil companies were profiting off the backs of Californians. At the same time, we don’t really have a smoking gun, as far as I can see, that shows intentional collusion,” Min said.

Sen. Kelly Seyarto, too, said he worried the “governor’s approach to penalizing oil companies as a means to provide relief to taxpayers at the pump would, in fact, have the opposite effect.”

“This proposal is nothing more than a thinly disguised tax being characterized as a penalty in order to evade the two-thirds majority vote needed to pass a tax measure,” said Seyarto, a Republican member of the committee whose district includes Yorba Linda.

Some other takeaways from the meeting:

• Demand for gasoline in California has continued to decline since its peak in 2017, according to California Energy Commission projections. Demand was down 10% in 2021 compared to 2019, and while 2022 data is still being collected, the trend appears to be continuing, Gunda said. A decline in demand can be attributed to an increase in electric vehicles and “to a lesser extent,” Gunda said, more remote work options during the pandemic.

• Still, even with the decline, California is the third largest consumer of oil behind the rest of the U.S. and China, Gunda said.

• It wasn’t just refiners that saw margins fluctuate; retail gasoline pricing “also exhibited some unusual behavior” last year, Nicolas Maduros, director of the California Department of Tax and Fee Administration, said. He noted that while fuel prices at gas stations can rise almost immediately when there’s an issue, they don’t go down quite as quickly when a supply issue is resolved. “So even when the price of oil dropped, … prices at the pump for California consumers remained extremely high,” Maduros said.

Chair of the committee, Sen. Steven Bradford, D-Gardena, concluded the hearing with this message: “It’s imperative that we identify the problem we’re seeking to solve and develop solutions that will truly help all of California.”

California Republicans also renewed their call to the governor last week to suspend an annual gas tax increase as well as delay the planned fuel blend transition.

“California drivers are struggling with high gas prices, and if the summer-blend mandate moves forward as planned, things will only get worse,” Assembly GOP Leader James Gallagher of Yuba City said. “We need greater flexibility to prevent gas prices from spiking — this simple step will provide that while reducing the burden on cash-strapped Californians.”

In other news:

• Sen. Catherine Blakespear, whose district includes parts of southern Orange County, will chair a new transportation subcommittee that will study the LOSSAN Rail Corridor (which runs through six counties in Southern California). This includes infrastructure and service.

• Assemblymember Tri Ta, R-Westminster, is hoping to alleviate some costs for small businesses with a bill that would defer the $800 minimum franchise tax for small businesses until they have at least $20,000 in gross revenues in a taxable year.

• New legislation from Sen. Tom Umberg, D-Santa Ana, would allow search warrants to be executed for cell phone and internet materials as evidence for alleged hate crimes in California.

• Brandon Tsay, the San Marino resident who disarmed the Monterey Park shooter, visited Sacramento last week and met with legislators.

Truly honored to meet Brandon Tsay, a hero whose quick and selfless actions stopped the Monterey Park shooter from inflicting more harm at a nearby dance studio. We owe it to Brandon and the survivors of this horrific tragedy to #EndGunViolence. pic.twitter.com/KWcC5Q90xO

— Senator Dave Min (@SenDaveMin) February 22, 2023

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• Newsom announced California is part of a 20-state “alliance” that has pledged to protect reproductive health care as other states have moved to restrict abortion access. Newsom described the new coalition as having a “moral obligation to what is right and will stand as a firewall to fight for and protect providers, patients and all who are affected by these attacks on fundamental rights.”

Source: Orange County Register