Governor Gavin Newsom said late this week (10/7) that he would call a special session of the Legislature to consider a windfall profit tax on oil companies in response to the “outrageous and unconscionable” price of gas in California.
Newsom told reporters the session would start December 5, far enough away for his Administration and Legislators to prepare for what would likely be a tough fight to impose a new tax even with a Democratic super-majority in the Legislature. It would also take place after the November election, sparing candidates from having to take a difficult vote in the heat of campaign season.
Gas prices have climbed sharply in the last few weeks in California while staying steady or declining elsewhere, resulting in costs per gallon that average about $2.50 higher than in the rest of the country.
Newsom: “Nothing justifies these outrageous and unconscionable prices.”
A new tax would require a two-thirds vote from the Legislature. Republicans have already come out in opposition, calling instead for the state to cut the gas tax — an idea Newsom quickly rejected because there’s no guarantee the savings would be passed on to consumers.
Newsom: “This is just price gouging. They can’t get away with it, they’re fleecing you, they’re taking advantage of you, every single one every single day. Hundreds of millions of dollars a week they’re putting in their pockets.”
In addition to Newsom’s comments, the CEC has asked refineries to explain the spike, which the oil industry has blamed on maintenance at refineries. Members of Congress from California have requested the Federal Trade Commission launch an investigation into possible market manipulation.
Newsom Picks a Fight with Oil
In calling for the tax while assailing the “greed” of oil companies, Newsom repeatedly excoriated the fossil fuel industry as he pushed through a climate change package and an oil industry group bought ads in Florida attacking Newsom’s energy record. Newsom then touted those wins before national audiences.
Newsom will immediately test a huge new class of Legislative Democrats, as numerous incumbents are departing this year, and their replacements will be asked soon after taking office to vote on a tax increase.
It will also coincide with an Assembly leadership battle that is fracturing Democrats. Returning Democratic Assembly members will need to choose whether to keep Speaker Anthony Rendon atop the caucus or replace him with Assemblymember Robert Rivas, the latest episode in a standoff that has opened deep rifts.
CEC Sounds Off on High Gasoline Prices
In addition to Newsom, CEC Chair David Hochschild released the following statement after sending a letter to oil executives last Friday asking for answers on the sudden, unprecedented spike in gas prices over the past month. This price spike is occurring despite decreasing crude oil prices, minimal unplanned outages for maintenance and no new state taxes or fees on gas at the pump.
Hochschild: “As I expressed in my letter to the oil industry last week, the recent sudden increases in prices at the pump are unacceptable and place an undue high burden on California families and businesses. Over the course of 10 days, oil companies increased gas prices by a record 86 cents per gallon. At the end of August, crude oil prices were roughly $100 per barrel, and the average gas price in California was $5.06. Now, even though the price of oil has decreased to $90 per barrel, today the average gas price at the pump has surged to $6.43.
The oil industry’s lobbying group argued that gas prices increased because of drilling permitting issues, which is misleading. The reality is 40% of the oil industry’s approved permits in California are still valid but have not yet been used, and the price increase is occurring at the refining stage of gas production, not the oil extraction stage. And it does not explain the sudden gap between national and California prices.
All options are on the table to ensure Californians aren’t paying higher gas costs at the whims of the oil industry. Additionally, the CEC will use every tool at its disposal to get answers, and refusal to respond will factor into any fixes necessary.”
Political Reaction to the Call for the Special Session
Senate President pro Tem Toni Atkins and Assembly Speaker Anthony Rendon in a joint statement: “As stated last week, a solution that takes excessive profits out of the hands of oil corporations and puts money back into the hands of consumers deserves strong consideration by the Legislature. We look forward to examining the governor’s detailed proposal when we receive it.”
U.S. Rep. Norma Torres on Twitter: “Earlier this week, I wrote to the governor asking him to take this step — and I appreciate his quick action on this issue! I (look) forward to continuing to work together to address gas prices in our state.”
Assembly Republican Leader James Gallagher and Assemblyman Vince Fong, who is vice-chairs the Assembly Budget Committee, wrote to Newsom urging him not to call a special session for the purpose of raising taxes: “Californians are hit hard by soaring gas prices. The only reason to call a special legislative session would be to suspend the gas tax, reduce the fees and regulations that make California gas so much more expensive, and allow permits to increase production to lower gas prices.”
In a Tweet, Fong also added that Newsom is ignoring the real-world consequences of his energy policies, “and the hypocrisy is deafening.”
Republican National Committee statement: “the epitome of what’s wrong with California Democrats… Newsom and his supermajority are trying to distract voters from the fact that their policies made gas prices so high, but creating a new tax that will inevitably be handed down to taxpayers in the midst historic inflation is a failing strategy.”
As we stated in our coverage of the gasoline prices last week (see last week’s report) – it is worth repeating – there’s a month left until the election and no sign of gas price increases slowing down, October will be an interesting month for the oil and gas industry.