Oil representatives were vocal about their opposition to a new law that state lawmakers say will bring more transparency to the industry but industry people claim will impose new costs and burdens and result in higher prices at the pump.

Kara Greene, a spokesperson for the Western States Petroleum Association, a Sacramento trade organization, called the legislation that was signed by the governor last week as “unprecedented” and an untested experiment in the California fuel market.

The new law would create a watchdog agency to investigate alleged price gouging by the oil industry. It could impose financial penalties when profits rise beyond an as-yet-undetermined level. The new agency is expected to focus mainly on refiners, but repercussions could affect many in the industry.

“Anyone related to oil and gas was paying attention,” Greene said.

Todd Stevens, the chief executive of Black Knight Energy LLC, a Valencia-based oil and gas producer, said that even though his company is not directly affected by the law he viewed its passage as being just a lot of political grandstanding.

“How many times have we heard in our lifetime someone has said, ‘We are going to investigate gasoline prices,’ and nothing ever comes of it, right?” Stevens said. “It’s all politics.”

Gov. Gavin Newsom, who was behind the new law, has taken on the oil industry before.

He has proposed to ban all new oil drilling near homes, schools and businesses open to the public. But enforcement of that law, which went into effect in January, is on hold after opponents gathered enough signatures to take it to November 2024 ballot.

In late September, Newsom said he would call a special session of the legislature to consider a windfall profits tax on oil companies.
After getting some pushback, including from members of his own party, he pivoted and suggested a penalty instead on oil companies that were engaged in what he called “price gouging.”

When the penalty idea wasn’t going well because economists and industry experts said the state should investigate the various reasons for increased prices at the pump, Newson pivoted a third time, Greene said.

“He created a new bureaucracy and wants to spend $9 million of Californians’ money,” she added.

New bureaucracy

The California Energy Commission, the five-member body that will oversee the new law, estimates that the provisions of the law will require 34 new positions and additional contracts at an annual cost of $9.4 million, according to a legislative analysis of the bill.

Among the law’s provisions are the creation of the Division of Petroleum Market Oversight and the Independent Consumer Fuels Advisory Committee. 

The division will be led by an executive director named by Newsom and be staffed with economists, experts in the fuels market, and legal investigators. It will provide support to the energy commission.

The committee will also provide support to the commission and the division. It will be made up of eight members – six appointed by the governor, one named by the speaker of the Assembly, and one appointed by the Senate Committee on Rules.

The law also mandates extensive data reporting to the California Energy Commission from various specified entities along California’s oil and gasoline supply chain. It also authorizes the energy commission to establish a maximum gross gasoline refining margin and impose a penalty on gasoline sold by refiners in the state that is priced above the maximum margin, according to the legislative analysis.

Senator Nancy Skinner (D-Berkeley), the author of the bill, named SBX1-2, said that the law allows the state to hold oil companies accountable if they pad their profits at the expense of hardworking families.

“With SBX 1-2, California has sent a clear message to the oil industry: Open your books and prove you’re not price gouging, otherwise Big Oil will pay the price — not consumers,” Skinner said in a statement.

The law will go into effect on June 26.

Politicized process

Refinery operators did not respond to requests for comment.

To Stevens of Black Knight, who is the former chief executive of California Resources Corp., the second largest oil and gas producer in the state, supporters of the law stating that they are taking on Big Oil is a bit of a misnomer, as most gas station owners are small-business owners.

“Not many are owned by the Chevrons and Exxons of the world,” Stevens said.

It is not simple to be a refiner, distributor or seller of gasoline in the state, he continued.

“It is highly regulated, highly taxed, and the more that you add of regulation and bureaucracy and cause people to respond to those things, it will cost more to be in business and those costs get pushed on to the consumer ultimately,” Stevens said.

Greene, of Western States, agrees.

“We think this was a hyper-politicized process and none of this will increase the supply of gasoline or reduce prices at the pump,” she said. “Ultimately, it will lead to less investment, less gas supply and higher prices for Californians.”

Said Western States Chief Executive Catherine Reheis-Boyd in a statement after the passage on March 27 of SBX1-2: “With this politicized process behind us, it’s time for serious discussion about what it will take to ensure an affordable, reliable and safe fuel supply for the years ahead.”

The association is hopeful it can shift the conversation to fuel supply in the state and the policy obstacles that prevent reliable fuels in California, Greene said.

Among those obstacles: California is a fuel island without any interstate pipelines, high taxes on gasoline, and customers paying for carbon policies at the pump, she said.

“We also have a special fuel blend that’s made only here in California, and that drives the price up as well,” Greene added.

In the summer months, ethanol is added into the gasoline mix to reduce emissions. In the winter, the gas includes lower amounts of ethanol.

“So it is cleaner burning, and that comes with a price tag,” Greene said.

As for what the association can do now that the bill has become law – beyond shifting the conversation – Greene said that it’s in a wait-and-see period as it observes what comes after the bureaucracy is up and running. “I wouldn’t know at this time,” she said.