California Legislature Greenlights Plan to Cap Oil Refinery Profits

(Justin Sullivan/Getty Images)
March 27, 2023

The California Assembly on Monday approved a plan to create an agency that could cap oil refineries' profits in a bid to slash gas prices as the state grapples with skyrocketing energy costs.

The bill, a pet project of Gov. Gavin Newsom (D.) and Attorney General Rob Bonta, would establish a politically appointed commission that could penalize the state’s oil refineries it believes earn too much money. Panelists would have the power to set a "price gouging penalty" for companies with profits officials deem to be too high, and oversee refineries’ maintenance schedules to prevent them from going offline at the same time.

The legislation comes as Californians grapple with the fallout of the state’s green energy policies. The Newsom administration’s push to shutter refineries and transition the grid to renewable sources last summer caused per-gallon gas prices to skyrocket to $6.30 on average.

Newsom first proposed the state commission ahead of the November elections, and last week released a modified plan to put a separate bureaucracy in charge. The legislature fast-tracked the proposal over the past week, and the state senate passed the bill Friday. It now goes to Newsom, who is expected to sign it.

Under the proposal, the new agency could subpoena oil refineries for production and financial records and refer any offending companies for state prosecution by the attorney general. Before approving a tax, the agency is supposed to run an analysis to predict if it will increase prices.

The legislature’s small Republican contingent warned Democrats are setting a dangerous precedent by allowing bureaucrats to interfere with a private industry.

"Since when do we as a republic say we’re going to penalize any industry? That’s a very scary question and a very scary future," Assemblyman Devon Mathis (R.) said in the final committee hearing Monday morning.

During the final legislative floor vote on Monday, Democrats blocked a Republican lawmaker’s pitch to give Californians a yearlong gas tax holiday. Democrats shrugged off criticisms that the policy could spook the market and drive prices higher, touting the plan as an effort to boost transparency into the oil industry.