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The main gate of the Phillips 66 refinery is seen Aug. 29, 2025, in the Wilmington neighborhood of Los Angeles, which is now idled. Consumer Watchdog, an advocacy organization, argues that state refiners should have been penalized for over $600 million in profits over a three-month period this year.<\/p>\n
Patrick T. Fallon<\/p>\n
AFP via Getty Images<\/p>\n
The recent claim from the advocacy group<\/a> Consumer Watchdog was eye-popping: A penalty on oil refiners would have generated more than $600 million during a three-month period this year as the price of gasoline surged during the Iran war.<\/p>\n That\u2019s if the tax was in place. Instead, California regulators delayed putting it into effect for years due to concerns that it could disrupt the state\u2019s oil market.<\/p>\n \u201cWhen they took it off the table, that\u2019s when we\u2019re seeing these profits go through the roof because they don\u2019t have to fear anything,\u201d said Consumer Watchdog President Jamie Court.<\/p>\n But does the group\u2019s number hold up? Not exactly.<\/p>\n The proposed penalty was pitched by Gov. Gavin Newsom and Democratic lawmakers as a way to rein in price gouging by major oil companies when they pushed it through the Legislature during a special session in 2023.<\/p>\n The bill called for the California Energy Commission to consider the tax and set a maximum margin that refiners could make on selling gasoline per barrel, or a gross gasoline refining margin. Companies that exceeded that margin would pay a penalty, which was supposed to go back to Californians.<\/p>\n \u201cWe proved we could actually beat Big Oil,\u201d the governor said during a celebratory press conference where he signed the measure.<\/a><\/p>\n Oil companies may never pay a cent. The bill said the commission could not create a penalty unless it found that the benefits of doing so outweighed the potential costs to Californians. The energy commission shelved the idea until at least 2030 after refinery closures and other changes were set to greatly reduce California\u2019s in-state production of gasoline.<\/p>\n Jim Stanley, a spokesperson for the Western States Petroleum Association, said in a statement that the commission made the \u201csmart decision\u201d to hold off.<\/p>\n Before delaying the plan, regulators considered the penalty, but never set a maximum margin level.<\/p>\n Loading\u2026<\/p>\n In May, oil refiners brought in a $1.29 per gallon refining margin, which was the highest in almost three years. Consumer Watchdog said the tax could have brought in hundreds of millions of dollars if the commission set a maximum threshold of $1.<\/p>\n That is only one of the assumptions the calculation made. Severin Borenstein, an economist, UC Berkeley professor and close watcher of the state\u2019s oil market, said the group\u2019s figure presumes that refiners wouldn\u2019t use accounting tricks and other changes to stay under the threshold if it were in place.<\/p>\n \u201cWe don\u2019t really know much would have fallen under this penalty,\u201d he said. \u201cBut I\u2019m sure it\u2019s far less than all of it, which is what the calculation that Consumer Watchdog put out assumes.\u201d<\/p>\n Consumer Watchdog\u2019s Court also believes the refiner margin would have been less than $1.29 per gallon in May, the most recent month of data available, if the tax was in place.<\/p>\n So, Consumer Watchdog\u2019s claim that oil refiners would have had to return at least $610 million to drivers in the state doesn\u2019t hold up. Still, Court wants the energy agency to bring the penalty idea back to counteract what he sees as profiteering by big oil companies.<\/p>\n California officials have not indicated that they will anytime soon.<\/p>\n The Governor\u2019s Office declined to answer questions about Consumer Watchdog\u2019s calculation and directed questions to the energy commission.<\/p>\n Niki Woodard, a spokesperson for the agency, did not directly comment on the group\u2019s calculation but said in a statement that the Iran war has disrupted refining capacity worldwide, which is leading to stronger profit margins for companies.<\/p>\n A decision to put the penalty in place, she added, \u201cmust be supported by evidence that it would benefit consumers without discouraging fuel from coming to California and ultimately driving prices higher. That evidentiary work is underway.\u201d<\/p>\n Related Stories from Sacramento Bee<\/p>\n
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