California sees penalties for oil companies’ large profits

SACRAMENTO, Calif. (AP) – California could become the first state to fine oil majors for making too much money, a reaction to the industry’s big profits after a summer of record high gas prices in the nation’s most populous state.

Gov. Gavin Newsom and his Democratic allies in the state legislature introduced the proposal Monday as lawmakers returned to the state capitol in Sacramento for the start of a special legislative session focused exclusively on the oil industry.

But the proposal lacked key details, including how much profit is too much for oil companies and what penalty they would have to pay for exceeding it. Newsom’s office said those details would be sorted out later after negotiations with lawmakers. Any money from the fines would be returned to the public.

Gas prices are always higher in California due to taxes, fees and environmental regulations that other states do not have. But in October, the average price of a gallon of gasoline in California was more than $2.60 higher than the national average — the largest gap ever.

Newsom said there was no good way to justify it.

Speaking to reporters, Newsom compared the oil companies’ actions to price gougers charging more for hand sanitizer during the pandemic. He said the goal of the penalty is to prevent gas prices from rising similarly in the future, calling it “a proactive effort to change behavior.”

“We’re burning up. We’re suffocating. We’re heating up because of these people,” Newsom said, referring to the oil industry and its impact on the environment. “And people are barely able to pay their bills because of these people.”

It could be a popular proposition among voters, who have paid an average of more than $6 per gallon of gasoline for most of the year. But that doesn’t mean it will be easy to get it through the state legislature, where the oil industry is one of the biggest spenders on both lobbyists and campaign contributions.

Crucially, the proposal classifies the fine as a “civil penalty” and not a tax. This means that only a simple majority is required to pass, rather than the two-thirds majority required to raise taxes.

“Whatever Governor Newsom wants to call it, this is a tax and it will have the same impact that all taxes do on consumers, which is to raise costs, not bring them down,” said Kevin Slagle, a spokesman for Western. The Norwegian Petroleum Association. “We think the governor needs to be honest about what this is and let the legislature vote on a tax and sell it to the California public as a tax and see how people feel about it.”

The California Legislature is in session most of the year, typically considering hundreds of bills. The governor can call the legislature into a special session limited to discussing issues he specifies. Newsom said he called the special session on gas prices because it would help lawmakers focus on the issue.

But legislative leaders appear to be in no rush to pass the bill. Lawmakers called a special session for a few minutes Monday, long enough to pass rules and appoint leaders. They will not meet again until January.

Many lawmakers said they had no idea what Newsom was proposing. A few senators joined reporters at Newsom’s news conference outside the Senate chambers just to hear what he had to say.

“I don’t think there’s anyone who objects to (oil companies) having a business model that makes a profit, but the extent to which they exploit people really seems unfair,” said state Sen. Ben Allen, a Democrat of Santa Monica, expressing general support for Newsom’s concept.

Republicans, who do not have enough votes to influence the legislation, condemned the proposal.

“The last thing we need to do is increase costs for Californians who are already paying far too much,” said Republican Assemblyman James Gallagher.

Adding to the uncertainty is an unusually high number of newly elected lawmakers who are taking their seats for the first time. About a quarter of the Legislature’s 120 members are new, with two close races still undecided.

Among the new state senators is Angelique Ashby, a Democrat who narrowly won election after an intense campaign. The oil industry spent hundreds of thousands of dollars on radio and television ads supporting Ashby’s campaign, a trend noted by critics who tried to use it against her.

Ashby said she has not been approached by lobbyists or others from the oil industry to ask how she would vote on a potential penalty. She noted that the oil industry used the money as “independent expenses,” meaning she had no control over those expenses during the campaign.

“My opponent’s campaign slogans and strategies are a thing of the past,” said Ashby, whose district includes Sacramento. “I am fixated on the people of Senate District 8 and I will make my decision based on what is in their best interest.”

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Sophie Austin is a staff member for the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on undercover issues. Follow Austin on Twitter: @sophieadanna

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