Three years ago, California built a first-in-the-nation system aimed at protecting drivers when oil markets turn calamitous. The Legislature passed it. Gov. Gavin Newsom signed it. He proclaimed \u201cCalifornia took on Big Oil and won.\u201d<\/p>\n
Its author, then-Sen. Nancy Skinner called it a \u201clandmark law\u201d that \u201cwill allow us to hold oil companies accountable if they pad their profits at the expense of hard-working families.\u201d <\/p>\n
But the law \u2014 which gave regulators the power to cap refinery profits and penalize oil companies for price gouging \u2014 has never been used. Instead, last year, the California Energy Commission voted to delay the rules for five years. Skinner \u2013 who wrote the law as a Senator \u2013 was absent when her own commission voted to delay it. <\/p>\n
Now, with gas topping $5.30 a gallon<\/a> statewide, that decision is under a new spotlight. The Iran war has sent global oil prices soaring \u2014 but the war is only part of the story. California has a structural problem: fewer refineries, a captive market and no easy outside supply options. When prices rise nationally, they can rise even more here.<\/p>\n Proponents say this is precisely the moment the 2023 law was designed for. The commissioners last year left the door open to rescind the delay \u2014 and move forward with the rule before the five years \u2014 if they change their minds.<\/p>\n \u201cThese are the moments we need them, because when the price of a commodity goes through the roof \u2014 be it crude oil or refined gasoline \u2014 that\u2019s when companies make outrageous profits,\u201d said Jamie Court, president of Consumer Watchdog. <\/p>\n But those who backed the delay argue it was a necessary concession \u2014 that penalizing refiners risked driving them out of the state entirely. It\u2019s a tension that cuts to the heart of California\u2019s energy predicament: how to protect consumers today from an industry the state can\u2019t yet afford to lose, while still making good on its promise to leave that industry behind.<\/p>\n California\u2019s unused gas-price tools<\/p>\n When the California Energy Commission met last August Newsom was already retreating from his confrontation with the oil industry. The question before commissioners was whether to move ahead with aggressive rules targeting refinery profits \u2014 or step back, as the governor was doing<\/a>.<\/p>\n It was a sharp reversal. Newsom had declared special legislative sessions<\/a> in 2022 and 2024, pushing through sweeping new powers to curb gasoline price spikes \u2014 including requirements that refiners store more fuel and replace lost supply during maintenance, and the profit-cap rules now sitting dormant. A new energy commission oversight division created by the law found an unexplained gasoline premium of about 41 cents per gallon between 2015 and 2024, costing drivers an estimated $59 billion<\/a>.<\/p>\n \u201cThose are critically important laws,\u201d said Kassie Siegel, director of the Climate Law Institute at the Center for Biological Diversity. \u201cWhat that information shows is that Californians are at the mercy of a very few refiners with immense power.\u201d<\/p>\n California\u2019s oil industry strongly opposed the measures, and some economists remain skeptical of them. UC Berkeley energy economist Severin Borenstein warned that capping refinery profits during shortages could backfire.<\/p>\n \u201cThe last thing we need is to start trying to regulate refinery margins,\u201d he said. \u201cAs much as people don\u2019t like high gasoline prices, they really, really hate gas lines.\u201d<\/p>\n By last August, refinery closures were looming and warnings of $8-a-gallon gasoline circulated in Sacramento. Newsom and Democratic leaders were negotiating with the oil industry to boost production in Kern County \u2014 talks that produced a law that has since driven an uptick in drilling permits.<\/p>\n After Valero said it would close its Benicia refinery, Newsom directed Siva Gunda<\/a>, vice chair of the California Energy Commission, to \u201credouble the state\u2019s efforts to work closely with refiners on short- and long-term planning\u201d and ensure a \u201creliable supply of transportation fuels.\u201d Gunda responded with a series of recommendations<\/a> that aligned largely with industry\u2019s desires \u2014 among them a pause in the state\u2019s profit-cap rule.<\/p>\n Against that backdrop, energy commissioners voted on Aug. 29<\/a> to delay the rules for five years. Ahead of the vote, Gunda said the delay would help boost \u201cinvestor confidence\u201d in the state\u2019s oil refiners, \u201cthereby ensuring a reliable in-state refining capacity.\u201d <\/p>\n Oil industry representatives say the decision made sense \u2013 the profit-cap measures, they argued, miss the real problem.<\/p>\n \u201cThe real problem is California is an energy island \u2014 we\u2019re losing 17% of our refining capacity,\u201d said Zachary Leary, a lobbyist for the Western States Petroleum Association.<\/p>\n But Court, of Consumer Watchdog, said the governor \u201cpanicked,\u201d leaving the state without the \u201chammer\u201d it now needs.<\/p>\n \u201cWhen you have this type of level of gas run up, you\u2019re going to need those tools,\u201d Court said.<\/p>\n The difficult middle of the energy transition<\/p>\n California has committed to phasing out fossil fuels by 2045 \u2014 but it still depends heavily on gasoline, and it is losing the refineries that produce it.<\/p>\n Phillips 66 last year shut its Los Angeles refinery, citing concerns about the sustainability of the California market. Valero is closing its Benicia refinery next month, pointing to a challenging regulatory environment.<\/p>\n \u201cIf you start losing refineries \u2014 as we are going to \u2014 and you don\u2019t have an alternative source of supply, we\u2019re going to start getting price spikes when there\u2019s any sort of disruption at one of our refineries,\u201d Borenstein said. \u201cOr just during high demand periods.\u201d<\/p>\n The challenge of reducing fossil fuel use while maintaining adequate supply has created what Gunda \u2014 Newsom\u2019s point person in negotiations with the oil industry \u2014 calls the \u201cmid-transition.<\/p>\n \u201cThis is not going to be a smooth transition,\u201d Gunda said last month in testimony to a state Senate committee. \u201cEvery time you lose a refinery, it\u2019s going to be a double-digit percent of refined fuel lost in California. So that abrupt transition will mean an abrupt increase in imports.\u201d<\/p>\n A global oil shock hits California<\/p>\n The recent jump in gasoline prices reflects a global oil shock tied to the war with Iran \u2014 not a policy change unique to California, experts said. But the surge highlights how exposed the state remains to global energy markets as it loses refining capacity and imports more crude<\/a> and gasoline<\/a>.<\/p>\n Since the conflict began, the international benchmark for crude oil has climbed more than $25 a barrel \u2014 a shift that typically translates to about 60 cents per gallon at the pump, in line with the increase in California retail prices, argues Borenstein, of UC Berkeley.<\/p>\n \u201cAll of the change we\u2019ve seen in the last couple of weeks is in line with the change in crude oil prices, and therefore is not California specific,\u201d he said.<\/p>\n Newsom has made a similar argument, blaming the spike<\/a> on global oil markets and the war with Iran rather than California policies. But analysts note that the state\u2019s shrinking refinery base means global shocks land harder here than elsewhere.<\/p>\n A key concern is the Strait of Hormuz. Before the conflict, the narrow waterway carried more than 20 million barrels of oil a day<\/a> \u2014 roughly one-fifth of global supply. Traffic is now at a standstill, and crude prices topped $100 a barrel again \u2014 even after more than 30 countries announced<\/a> releases from emergency reserves.<\/p>\n Ryan Cummings, chief of staff at the Stanford Institute for Economic Policymaking, said a prolonged closure could push crude prices above $130 or $140 per barrel \u2014 driving California prices closer to $7, with a worst-case scenario approaching $10 at some stations. <\/p>\n Most analysts consider that outcome unlikely but no longer unthinkable.<\/p>\n \u201cRight now, this doesn\u2019t appear likely, but it is a worst-case scenario that is growing by the day,\u201d Cummings said.<\/p>\n Competing ideas for what comes next<\/p>\n Siegel, of the Center for Biological Diversity, said California should move forward immediately to implement the profit-cap rules and require companies to hold larger fuel inventories.<\/p>\n \u201cOur leaders shouldn\u2019t rest until the rules are in place to prevent price gouging on top of volatility, and should not rest until people get their money back,\u201d she said.<\/p>\n Economists say California\u2019s biggest challenge may be infrastructure. Valero plans to close its Benicia refinery, which produces about 10% of the state\u2019s gasoline, next month. In an analysis posted last year<\/a>, Stanford economist Neale Mahoney and Cummings said California could offset lost refinery production with gasoline imports \u2013 if permitting allows refineries like Benicia to convert to fuel import terminals. Newsom said in January his administration is working with the company<\/a> to continue importing gasoline into Northern California after its refinery operations close. <\/p>\n \u201cIf I was in the Legislature right now, all of my energies and effort would be built on, one, making sure that Benicia gets turned into an import terminal \u2014 and two, making sure whoever owns or operates that is not an incumbent,\u201d Cummings said.<\/p>\n Court, of Consumer Watchdog, pointed to a proposed Phillips 66 pipeline<\/a> that could bring refined gasoline from Midwest refineries into the state \u2013 something California has never had, relying instead on in-state refining and marine imports. Dubbed the Western Gateway Pipeline, the project would build a new pipeline and reverse an existing one to move gasoline and diesel from central U.S. refineries to Arizona and California.<\/p>\n One state lawmaker has proposed expanding access to E85<\/a>, a cheaper ethanol blend. Both ideas remain proposals without clear timelines. <\/p>\n Meanwhile, some oil companies<\/a> and even some Democrats<\/a> are warning California\u2019s climate policies could raise production costs enough that refineries reconsider operating in California \u2014 adding another pressure point to an already strained supply picture.<\/p>\n The profit-cap rules that could penalize oil companies remain on hold until 2029. By then, California may have lost more refineries \u2014 and may still be grappling with the problem Newsom once promised to solve: gasoline price shocks in the country\u2019s most unaffordable market.<\/p>\n ___<\/p>\n