California energy regulator recommends pause on plan to penalize excess oil profits

SACRAMENTO, Calif. (AP) — California should pause Gov. Gavin Newsom’s plan to penalize oil companies if their profits climb too high, a top energy regulator said Friday while unveiling proposals aimed at addressing high gas prices.

The Democratic governor signed a law in 2023 giving the California Energy Commission the authority to penalize oil companies for excess profits, declaring the state had “finally beat big oil.” More than two years later, the commission hasn’t imposed a single penalty or determined what counts as an excessive profit.

Now, Siva Gunda, the energy commission’s vice-chair, says the state should pause the effort in favor of pursuing other policies to lower prices and maintain a steady oil supply — all while pushing to phase out reliance on fossil fuels over the next two decades.

“Together, we will evolve California’s strategy to successfully phase out petroleum-based fuels by 2045 while protecting communities, workers, and consumers, and foster market conditions that support the industry’s ability to operate safely, reliably, and successfully to meet demand through the transition,” Gunda wrote in a letter to Newsom.

Gunda’s recommended pause of the penalty would have to be agreed upon by the full commission. Newsom has pitched the penalty as a way to rein in profits by oil companies, but critics said it would only raise prices.

California has the highest gas prices in the nation, largely due to taxes and environmental regulations. Regular unleaded gas prices were $4.61 a gallon Friday, compared to a national average of $3.20, according to AAA.

The commission still plans to set rules that would require oil refineries to keep a minimum level of fuel on hand to avoid shortages when refineries go offline for maintenance, Gunda said. That proposal came out of a law Newsom signed last year after convening a special session aimed at preventing gas price spikes.

Gunda’s recommendations come months after Newsom in April directed energy regulators to work with refiners on plans to ensure the state maintains a reliable fuel supply as it transitions away from fossil fuels.

Newsom spokesperson Daniel Villaseñor said in an email that the governor would review the recommendations and “advance solutions that maintain a safe, affordable, and reliable supply of transportation fuels for California.”

Two major oil companies announced plans over the past year to shut down refineries in the state, further driving uncertainty about how the state should maintain a stable fuel supply as California transitions toward renewable energy. Phillips 66 announced plans to shut down its Los Angeles-area refinery, and Valero said it would cease operations at its Benicia refinery. The two refineries combined account for more than 17% of the state’s refining capacity, according to the energy commission.

A group of about 50 environmental and consumer groups penned a letter to Newsom and legislative leaders Friday criticizing the proposal to pause implementing a penalty on oil company profits.

“California oil refiners do not need a bailout,” they wrote, adding that the state should “finish the job” it started to prevent prices at the pump from spiking.

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Austin is a corps 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 undercovered issues. Follow Austin on X: @sophieadanna