California Gov. Newsom strikes deal to punish fossil fuel companies after first proposal rejected

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Democratic California Gov. Gavin Newsom struck a deal with state lawmakers Monday to "hold Big Oil accountable" amid a long streak of nation-leading consumer energy prices.

Newsom and Democratic state Sen. Nancy Skinner announced they had agreed to a modified proposal cracking down on fossil fuel and petroleum refining companies that are determined to be charging excessively-high prices. The proposal, which was packaged in a bill that will now make its way through the California legislature, would create a new watchdog agency dedicated to monitoring price gouging violations.

"Together with the Legislature, we’re going to hold Big Oil accountable for ripping off Californians at the pump," Newsom said in a statement. "Today’s agreement represents a major milestone in our efforts to drive the oil industry out of the shadows and ensure they play by the rules."

"This represents some of the strongest and most effective transparency and oversight measures in the country, and the penalty would root out price gouging," he continued. "We’re getting the job done for California families."

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Gov. Gavin Newsom speaks in Oakland, California, on Aug. 12, 2022. (Justin Sullivan/Getty Images)

Under the proposed legislation, the new government watchdog would be a designated office within the California Energy Commission, the state's central energy policy agency. The office would have broad authorities to analyze refinery data, subpoena for other information and directly refer cases to the state's attorney general.

While Newsom and state Democrats applauded the legislation Monday, it represents a watered-down version of a proposal the governor backed in December to directly punish companies with financial penalties if their margins are determined to be too high. During a California Senate hearing in February, Democrats and experts alike expressed concern the original proposal could lead to even higher prices for state residents. 

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"Enacting it will reduce supply, force out producers and reduce employment in a high-paying sector," Michael Mische, a professor at the University of Southern California Marshall School of Business, said during the hearing, adding that gas and energy prices would increase as a result of the bill.

A worker walks past pump jacks operating at the Kern River Oil Field in Bakersfield, California. (AP Photo/Jae C. Hong)

Over the course of the last 12 months, California has consistently recorded the highest average gas prices of any state, even surging past $6 per gallon in both June and October, according to federal data. Although pump prices have fallen considerably to an average of $4.84 per gallon, they are still by far the highest in the nation.

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California also charges the second-highest gasoline tax — $0.54 per gallon — in the nation, only behind Pennsylvania where lawmakers have introduced legislation to lower the rate.

Though the new legislation represents a softer approach to punishing oil companies, industry groups still blasted it for creating additional bureaucracy.

"At the end of the day, this proposal does not solve California’s gasoline supply problem and will likely lead to the very same unintended consequences legislators have reiterated to the Governor:  less investment, less supply, and higher costs for Californians," the Western States Petroleum Association said in a statement.

"This is simply just another tax wrapped in unchecked and expensive bureaucracy."