Since early fall, Gov. Gavin Newsom has been loud and adamant about punishing “greedy Big Oil” for its “windfall” profits. But talk is cheap. He still hasn’t produced a detailed plan.
And the Legislature, which must approve any plan, hasn’t shown much enthusiasm.
Newsom dramatically called a special session of the Legislature in early December to slap oil companies with a windfall profits tax. The “T” word ultimately was switched to “penalty” to make it seem more like a fee.
A tax would require a two-thirds majority legislative vote, and that would be practically impossible to obtain. Regardless of their supermajority and liberal bent, even Democratic legislators in blue California are leery of anything dubbed a tax increase.
A fee — called a “civil penalty” in this case — requires merely a simple majority vote.
One bill, SB 2, has been introduced by Sen. Nancy Skinner (D-Berkeley). It currently contains only language denouncing the oil industry and expressing the Legislature’s intent to empower the state Energy Commission with more regulatory authority over refineries and the ability to fine them for excessive profits.
Under the bill, the state would establish an annual profit cap — a “maximum gross gasoline refining margin.” Refineries that exceeded it would be socked with a “civil penalty.” The money would go into a “price gouging penalty fund” and “refunded” to California residents, including presumably people who don’t own a vehicle.
That’s really about all we know.
The purpose of a special session — usually run concurrently with a regular session — is to cut corners and expedite action on legislation. But there hasn’t even been a committee hearing on SB 2. The Senate Energy, Utilities and Communications Committee, however, intends to hold its first hearing in a week or two.
Hopefully by then, Newsom will have crafted a specific plan — he promised one months ago — and Skinner will have added some details into her bill. But don’t count on it.
Neither the governor nor the Legislature has been rushing into this, despite Newsom’s oratory.
“While Californians were being ripped off at the pump last year, Big Oil’s bottom line ballooned to levels never seen before in history — making record profits off the backs of hard-working families,” Newsom said in a recent statement after oil companies reported making more money than ever in 2022.
“They’re ripping you off. That’s why, with the Legislature, we’re going to pass a price gouging penalty to hold Big Oil accountable.”
If they can figure out how to do it.
The inaction is not because the Legislature is beholden to the oil industry for political favors, although some lawmakers are, undoubtedly. It’s because neither the governor nor any legislator has figured out exactly how to punish the industry.
How do you determine what’s an excessive profit?
How much do you penalize the profiteers?
This can be called a “penalty,” but how do you craft the thing so the courts don’t see it as a tax?
What’s to prevent gas stations from raising prices at the pump anyway? They wouldn’t be penalized.
Is it really a good idea to tell a business how much profit it can make? A utility, OK. The government grants it a monopoly. But oil companies compete against each other. If we penalize them, when do we start taxing drug companies’ windfall profits?
Newsom’s aides have been meeting with Democratic legislators in an effort to agree on a plan. The staffers have been soliciting ideas from legislators without much success. Lawmakers have listened but aren’t inspired, I’m told.
This whole thing, after all, wasn’t their idea in the first place. It was dumped on them by Newsom.
“The governor has been doing a good job reaching out to the Senate. His staff is very engaged,” says Sen. Anthony Portantino (D-Burbank), chairman of the Appropriations Committee that eventually will consider the bill.
“But I don’t think the governor has landed yet. This hasn’t been one of those things where the governor walks into the room and says, ‘Take it or leave it.’”
Assembly Appropriations Committee Chairman Chris Holden (D-Pasadena) says: “As far as any chatter around the issue, it’s not there. It hasn’t risen to anyone’s consciousness at this point.”
He’s referring to lawmakers. There’s lots of chatter in the oil industry. It’s waging an all-out opposition campaign, hiring political consultants and running TV ads.
Meanwhile, Newsom faces a new potential hurdle besides the Legislature and inevitable lawsuits in his attempt to punish oil profiteers. It’s an anti-tax initiative that qualified last week for the 2024 ballot.
If it passes, the measure will require voter approval of any state tax increase enacted after Jan. 1, 2022. That could include the refinery profits penalty, depending on court interpretation.
“The windfall profits tax is a tax. We along with everyone else in California know it’s a tax,” says Brooke Armour, executive vice president of the California Business Roundtable, a co-sponsor of the initiative.
“We think a penalty on profits is not going to stand up in court either,” says roundtable President Rob Lapsley.
Another measure qualified for the 2024 ballot last week that affects Newsom’s anti-oil war. The oil industry-backed referendum would repeal a 2022 state law that bans new wells within 3,200 feet of homes, schools, parks and other public facilities.
“Big Oil knows that California is moving beyond fossil fuels, so on their way out these corporations are doing everything they can to squeeze out profits as they pollute our communities,” Newsom declared in a prepared statement.
“We’re not standing for it … and it starts with passing our price gouging penalty to prevent extreme gas price spikes.”
The governor keeps promising that. But he hasn’t figured out how to deliver.