Will special session prevent California gas price spikes? Gavin Newsom, lawmakers think so
Days after calling a special legislative session on gasoline supply, Gov. Gavin Newsom and Assembly lawmakers unveiled a bill the legislature could consider later this month, though it’s still unclear whether both chambers will meet in a special session.
“We’re moving forward. We’re going to get this done,” Newsom said Wednesday. “We’re going to make progress to address a vexing issue that impacts every single Californian.”
Newsom and legislative Democrats accuse oil companies of price-gouging consumers by inflating the cost of gasoline.
Passing the legislation would give Newsom and many legislative Democrats a victory before the November election – when more than 80% of lawmakers will be on the ballot. A fight with big oil could also cause a headache for moderate Democrats, particularly those representing seats in the Central Valley, the state’s oil job center.
On average, Californians pay the highest fuel prices in the nation, partly because of stricter environmental regulations on refined product. There’s also a so-called “mystery gasoline surcharge” – an extra cost borne by California drivers, typically more than $1 per gallon, that isn’t explained by the extra costs of state regulations.
Newsom believes this mystery surcharge is direct profit for oil companies. He’s been on a mission to crack down on them since 2022, when gas prices spiked nationally and in California. The peak average price in the state was $6.44 per gallon that June, compared to the national average of $4.92.
Why a special session now?
The original legislation was made public last week, days before the legislature was set to adjourn for the year. Top lawmakers disagreed on when to pass the bills – during the regular session or in a special session – and couldn’t agree before the clock ran out at midnight Saturday.
Experts say Newsom and lawmakers have a strong reason for wanting to pass the legislation now: in the past two years, gas prices have spiked in California in September and October, when refineries typically schedule “turnaround” or planned maintenance — so another spike could be coming soon.
Gas prices spiked nationally in June 2022 due to Russia’s war in Ukraine. After a few months, prices began to slide down for the rest of the country.
But not in California. In October 2022, California’s average gas price was $5.90, more than $2 higher than the national average. In 2023 another spike peaked in October, when the Golden State’s average price per gallon was $5.54, compared to the national average of $3.61.
“There’s real concern that we could see another price spike this fall during the refinery turnaround,” said UC Berkeley energy economist Severin Borenstein. “They would like to avoid seeing another price spike like we’ve seen the last two autumns.”
Newsom wants to pass the legislation in special session before the November election, rather than in December when lawmakers return to Sacramento.
“There are close races in California down-ballot, and the main issue with voters is dissatisfaction with the wasteful spending in Sacramento,” said Luis Alvarado, a Los Angeles-based political strategist.
“There are more homeless even after money was put there, the price of gasoline is higher than any part of the country, and there is a sense that the governor has not been as actively engaged in the issues of California because his focus has been in Washington and other places,” Alvarado said.
He said Newsom may be using the special session trying to burnish California’s – and his own – national image now that Vice President Kamala Harris is leading the Democratic ticket.
Newsom brushed off questions of political motivations for the special session, saying Wednesday that he and lawmakers have a “political imperative” to hold oil companies accountable.
“Five companies have 90 percent of market share in the refinery space,” the governor said. “I mean, how dumb do we want to continue to be?”
Would the bill prevent price spikes?
The new legislation, AB X2-1, would direct the California Energy Commission to regulate the reserve supply of oil refineries in the state.
The idea is to require oil companies to stockpile gasoline in case maintenance – whether planned or unplanned – affects production and supply. Price spikes in recent years have been blamed on simultaneous, unplanned maintenance at multiple refineries in California.
“It is certainly possible that an inventory requirement could help mitigate some of the spikes, but it’s also really complicated to implement,” Borenstein said.
He said lawmakers and regulators will need to decide the appropriate levels of inventory, when to release it, and how to resupply it.
Newsom’s office argues the policy could have saved California drivers “hundreds of millions – if not billions – of dollars at the pump.”
However, Borenstein warned the legislation “would do very little” to address the mystery gas surcharge. State agencies are investigating where the surcharge comes from and where the money goes.
Newsom believes the surcharge is pure profit for oil companies, many of which reported record profits in 2022 amid sky-high prices.
Borenstein said it could take up to a year to see any impact from the legislation, even if it is approved later this month.
It would take time for the energy commission to craft and approve new regulations. And Chevron warned in a letter to the administration last week it could take up to a decade to build storage tanks.
The Berkeley economist also said lawmakers should consider more funding for the Energy Commission’s new oil market watchdog division – which has an annual budget of around $2 million – to take on the task.
“The legislature keeps telling the Energy Commission to do things and does not give them additional personnel and budget to do it. This is a major burden on the Energy Commission,” he said.
What about suspending the gas tax?
Republican lawmakers have for years pummeled Newsom and Democrats in the legislature on the state’s tax on gasoline – currently the highest in the nation at 60 cents per gallon.
Assemblyman Tom Lackey, R-Palmdale, introduced special session legislation late Wednesday to suspend the state gas tax for one year.
Newsom has already written the bill off, noting the state would lose billions in funding for roads. The gas tax generated $7.3 billion in 2022.
The governor also argued a gas tax holiday would not guarantee a price drop at the pump.
“It goes into the pocket of those same gas and oil interests,” Newsom said. “There’s no mandate, no requirement that the cost at the pump decline commensurate with the reduction of the gas tax.”
The controversy with a special session
Whether the legislation gets passed this fall is uncertain because legislative leaders have been in a weeklong disagreement over its timing.
Originally a bill was unveiled last Wednesday, days before the legislature was set to adjourn for the year.
Democrats in the Assembly, including Speaker Robert Rivas, said they wanted more time to vet the proposal and welcomed the prospect of approving it in a special session.
Senate President pro Tempore Mike McGuire’s caucus wanted to pass the bills before adjourning August 31.
McGuire said early Sunday morning that his chamber would not be returning to Sacramento for a special session because they were ready to pass Newsom’s proposal on Saturday.
McGuire, a Healdsburg Democrat, and Newsom met for over an hour Tuesday evening. In a statement Wednesday, McGuire’s office said it was a “productive” meeting and that he would “have more to share soon.”
The pro Tem still has not committed to call his chamber back for a special session. Assembly Speaker Robert Rivas has.
Correction: This story has been updated to reflect that the Division of Petroleum Market Oversight – not the California Energy Commission – has an annual budget of $2 million.
This story was originally published September 5, 2024 at 10:57 AM.
