Gov. Gavin Newsom calls for new mandate for California oil refineries, demands gasoline stockpiling – NBC Bay Area

As the state enters its final two weeks of legislative session, Gov. Gavin Newsom on Thursday called on California lawmakers to approve new requirements for oil refineries. It’s the governor’s latest political battle with Big Oil.

Newsom’s proposal would require oil companies to hold fuel reserves in an effort to potentially avoid a supply shortage that could lead to spikes in gasoline prices.

“Price increases at the pump are profit increases for Big Oil,” Newsom said in a news release. “Refineries should be required to plan ahead and replenish supplies to keep prices stable, rather than playing games to make even more profits. By forcing refineries to act responsibly and maintain a reserve of gas, Californians would save money at the pump every year.”

Refineries would face penalties for non-compliance, the plan summary added, which would be deposited in a fund and “distributed to consumers.”

Newsom’s initiative comes two years after he called a special legislative session to impose a tax on excessive oil company profits. At the time, efforts to limit the industry’s profits failed to pan out. But the new mandate would come a year after Democratic lawmakers passed a law imposing transparency requirements on the oil industry.

The law also gave the California Energy Commission the ability to impose penalties and set limits on profits through the regulatory process. When the law was enacted, the Division of Petroleum Market Oversight was also created.

“The data is clear: oil refiners have been profiteering by planning supply-reducing maintenance during our busiest seasons,” said Tai Milder, director of the CEC’s Oil Market Oversight Division. “The Governor’s proposal gives us new tools to require refiners to plan responsibly and avoid price gouging during maintenance.”

Earlier this year, the division wrote a letter recommending the state impose inventory and replenishment requirements. The letter was released after the division gathered information and claimed that oil companies did not have enough refined gasoline in case of a shortage.

“Unfortunately, California has been experiencing more frequent and extreme price spikes that appear to be driven by price swings in the spot market,” the division’s letter reads. “The market has experienced gasoline price spikes in 2012, 2015, 2019, 2022, and 2023. Price spikes appear to have become more common over time, occurring in three of the past five years, with the exception of the COVID pandemic. These spikes have generally been driven by periodic episodes of gasoline supply shortages (in the form of reduced refinery output, lower inventories of stored gasoline, or both) that are exacerbated, and sometimes exploited, by transaction and reporting dynamics in the spot market.”

Despite the state’s data collection and findings, the Western State Petroleum Association said it disagrees with Newsom’s proposal.

“Imposing new operating mandates on energy producers based on such falsehoods is regulatory malpractice and ignores the logistical challenges and costs associated with such a plan,” the association said in a letter. “When this administration is ready to have a serious discussion about the facts and policies this state has imposed that affect costs to consumers, we will be there.”

Severin Borenstein, a professor at the University of California, Berkeley’s Hass School of Business, said there are still many policy issues to be discussed before any mandate can be implemented.

“It’s not just about requiring a certain amount, but also deciding when those reserves will be released during a price surge,” he said. “Someone has to make that decision.”

Today, the average gallon of gasoline in California costs $4.61, down just 10 cents from last month and more than 50 cents from last year, according to the latest figures from AAA.