One Gavin Newsom veto of a seemingly obscure, last-second effort to help boost oil company profits even beyond their prior high levels stands out as possibly the best thing he did for consumers in all of 2023.
That was his nixing a last-minute gut-and-amend bill that would have made it harder for the state to act on its new law that aims to stop the oil companies from artificially and deliberately staging events that raise the pump price of gasoline — and thereby pump up their already massive profits.
The bill was SB 842 by Democratic state Sen. Steven Bradford of southwestern Los Angeles County, an area that’s home to several large oil refineries.
Bradford in late summer used an often-abused legislative tactic to gut the contents of a bill that had already stalled and substitute a completely different text of his own.
His measure could have hamstrung a new state Energy Commission power that allows it to prevent unneeded, unscheduled refinery “maintenance” shutdowns often used to excuse sudden and very large gasoline price increases.
Those increases last year saw oil company profits leap high above normal levels in winter, when gas prices jumped more than $2 in just two February days. Newsom charged that price hike “fleeced” California drivers and families.
Companies like Valero, Chevron and Conoco-Phillips later reported record profits for the first quarter of 2023, but most did not break out California results from the rest of their balance sheets.
One result was that state legislators passed and Newsom quickly signed a unique bill called SBX1-2 that forces oil companies to report maintenance shutdowns in advance.
It will also allow the Energy Commission to limit gasoline profits once it determines where mere profit ends and price gouging begins. Refiners also must provide monthly financial reports.
Bradford’s bill sought to slow down this new process by forcing the Energy Commission to consult with labor and industry stakeholders and aim to avoid any adverse effects to safety and “other market impacts.”
Newsom said this “would be imprudent” before that commission “has fully contemplated” the safety aspects of SBX1-2. And he called Bradford’s effort a potential “barrier to the commission’s ability to protect consumers.”
But don’t pity the oil companies. Where the profit margin
on gasoline stood at about 6.7% per gallon in pre-COVID 2019, it was close to 12% nationally last fall, and even higher here, although most companies did not report California profits separately. Not a bad rate of return.
One company that does give some California figures is Texas-based Valero, whose Wilmington refinery serves Southern California while another in Benicia serves the north state.
Valero reported last fall that its profits in California were about 70% higher than in any other American region.
SBX1-2 allows the Energy Commission’s new Division of Petroleum Market Oversight to impose penalties for price gouging, and the Consumer Watchdog advocacy group called for it to use those powers to bring down Valero’s California profits.
“It is time for the …commission to…set a price gouging penalty on big refiners ripping us off at the pump,” said the group’s consumer advocate, Liza Tucker. “It is time to prevent refiners from using us as one big ATM.”
While oil companies have gouged before, often using supposed refinery breakdowns and maintenance shutdowns as excuses, the average gross refining margin reported by oil companies under SBX1-2 for August was $1.29 per gallon, twice their January margins.
Profits topped $1 per gallon in February and never receded.
When an already profitable industry’s profits almost double over a few months, with no discernible changes in market conditions, that’s pretty obvious price gouging.
The new Energy Commission oversight division now needs to act, first by determining what is a fair price and a fair profit for gasoline in California and then by enforcing that standard via price gouging penalties.
If this does not happen, it will be an open invitation to the refiners to raise prices even higher than today’s $5-plus levels.
Email Thomas Elias at [email protected].