California eyes penalties for oil companies’ big profits

SACRAMENTO, Calif. — California could become the first state to fine big oil companies for making too much money, a reaction to the industry’s supersized profits following 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 solely on the oil industry.

But the proposal was missing key details, including how much profit is too much for oil companies and what fine 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 because of taxes, fees and environmental regulations that other states don’t 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 biggest gap ever.

Newsom said there was no good way to justify that.

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

“We’re burning up. We’re choking up. We’re heating up because of these folks,” 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 folks.”

It could be a popular proposal with voters, who have been paying more than $6 per gallon of gasoline on average for much 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 top spenders on both lobbyists and campaign contributions.

Crucially, the proposal classifies the fine as a “civil penalty” and not a tax. That means only a simple majority would be needed for passage, instead of the two-thirds majority that is required to raise taxes.

“Whatever Gov. Newsom wants to call it, this is a tax and it’s going to have the same impact that all taxes do on consumers, and that is to raises costs, not bring them down,” said Kevin Slagle, spokesperson for the Western States Petroleum Association. “We think the governor should be honest about what this is and let the legislators vote on a tax and sell it to the California public as a tax and see how people feel about it.”