CA Could Cap Oil Company Profits Amid Allegations Of Price Gouging

CALIFORNIA — For most of 2022, Californians endured a seesaw of changing gas prices, with months in which the average price for a gallon of regular gasoline inched perilously toward an alarming $7 mark.

On Monday, Gov. Gavin Newsom introduced a measure that would place a cap on profits for oil refineries' excessive profits and impose penalties, which would be refunded to state residents.

The proposed measure comes just months after the state hit a record price of $6.43 per gallon of regular gas in June, according to AAA.

Although the average price for a regular gallon of gas have plummeted to $4.77, Newsom has pledged to crack down on oil companies to limit major price spikes going forward.

Monday's average is down from $5.47 one month ago, according to AAA.

"Big Oil has been lying and gouging Californians to line their own pockets long enough, Newsom said Monday. "I look forward to the work ahead with our partners in the Legislature to get this done."

The measure was announced as California lawmakers returned to Sacramento on Monday to swear in a new class of legislators and to hold a special session geared toward addressing the issue of high gas prices.

Some Republican leaders have already lambasted the idea, arguing that the penalties could further raise prices.

"The last thing that we need to do is increase the cost on Californians who are already paying far too much," Assembly Republican Leader James Gallagher said Monday morning, according to ABC7.

Californians reportedly endured some of the highest gas prices ever record in the state, and possibly in the nation. The proposal alleges that even as the price of crude oil fell, state taxes and fees remained unchanged and gas prices did not increase across the nation.

But in the Golden State, increases were caused by refiners, which heightened the costs and profits they added to the price Californians paid at the pump, leading to prices that were substantially higher per gallon than average prices in the rest of the nation, according to the proposal.

"Fundamental change is necessary to prevent future extreme price spikes and price gouging by oil companies..." the proposal states.

If passed by the Legislature, the measure would bolster oversight of the oil industry and make "excessive refiner margins" punishable by a civil penalty.

"The amount of the maximum margin and the amount of the penalty will be determined through the legislative process. Any penalties collected by the penalty will go to a Price Gouging Penalty Fund and then given back to Californians," according to a news release from the governor's office.

The Legislature will need to approve the measure before it can take affect.

Newsom's office offered the following notes on the record profits oil companies reported:

• Phillips 66 profits jumped to $5.4 billion, a 1243% increase over last year’s $402 million;
• BP posted $8.2 billion in profits, its second-highest on record, with $2.5 billion going toward share buybacks that benefit Wall Street investors;
• Marathon Petroleum profits rose to $4.48 billion, a 545% increase over last year’s $694 million;
• Valero’s $2.82 billion in profits that were 500% higher than the year before;
• PBF Energy’s $1.06 billion that was 1700% higher than the year before;
• Shell reported a $9.45 billion haul that sent $4 billion to shareholders for stock buybacks;
• Exxon reported their highest-ever $19.7 billion in profits;
• Chevron reported $11.2 billion in profits, their second-highest quarterly profit ever.

Monday's announcement comes on the heels of a letter that was sent by the California Energy Commission to all of the major oil companies that service California last month.

"As I expressed in my letter to the oil industry last week, the recent sudden increases in prices at the pump are unacceptable and place an undue high burden on California families and businesses," CEC Chair David Hochschild wrote in early October.

Five major oil refiners — Chevron, Marathon, Phillips 66, PBF Energy and Valero — rejected invites to a separate hearing on Nov. 29, which addressed a record gas price spike of 86 cents over 10 days that resulted in record profits for the companies, the governor's office said.

"The oil industry had their chance today to explain why they made record profits at our expense but they chose to stonewall us," Newsom said that day.

Gas prices have fallen considerably in recent weeks.

For example, the average price of a gallon of self-serve regular gasoline in Los Angeles County dropped Sunday for the 24th consecutive day, decreasing 2.6 cents to $4.862, its lowest amount since Feb. 25.

The national average price also dropped for the 26th consecutive day Monday, decreasing from $3.413 to $3.403, according to AAA.

"Gas prices are dropping nationwide, with some of the largest decreases happening on the West Coast," Andrew Gross, AAA spokesperson, said on Nov. 28. "But the West also has the farthest to fall because its prices are so elevated."