Newsom proposes measure to crack down on price gouging by oil companies

SACRAMENTO, Calif. -- Gov. Gavin Newsom on Monday proposed a measure to crack down on price gouging by oil companies, and impose penalties on excessive profits that would be refunded to Californians.

Newsom's proposal would allow the state to determine an allowable profit margin by oil companies operating in California. Those that exceed the margins would face an equivalent penalty and those fines would be returned to residents of the state.

The proposal, which needs legislative approval, comes not long after gas prices hit record levels in California and throughout the country.

According to the Auto Club, the state saw a record price of $6.438 per gallon of regular unleaded in June of this year, though prices have since leveled to $4.77 a gallon currently.

Los Angeles is currently seeing an average of $4.85 per regular unleaded gallon, according to the Auto Club. The San Francisco area is seeing an average price of $4.84. In Fresno, the average is $4.537.

"California's price gouging penalty is simple - either Big Oil reins in the profits and prices, or they'll pay a penalty," Newsom said in a statement. "Big Oil has been lying and gouging Californians to line their own pockets long enough. I look forward to the work ahead with our partners in the Legislature to get this done."

The governor's proposal comes as the state Legislature starts a special session to tackle the issue of gasoline prices.

California lawmakers briefly returned to the state Capitol on Monday to swear in new members and elect leaders for the 2023 legislative session. But this year, Newsom also has called lawmakers into a special session for the purpose of approving a penalty for oil companies when their profits pass a certain threshold and then returning the money to drivers.

It could be a popular proposal with voters, who have been paying more than $6 per gallon of gasoline for much of the year. But the big question is how the measure will be received by California lawmakers, especially because the oil industry is one of the state's top lobbyists and campaign donors.

But Newsom appears ready for the fight. In an unusual move, he attended the swearing-in ceremonies for lawmakers on Monday.

The special session will run alongside the normal session, which also kicks off in January. By dealing with the oil legislation in a special session, lawmakers could move more quickly on it.

Adding to the uncertainty is an unusually high number of new members who will take seats in the Legislature for the first time. Roughly a quarter of the Legislature's 120 members are new. Two close races have not been resolved.

Republican leaders have already come out against Newsom's stated intent, prior to the specifics of his plan being released Monday. They argue that penalizing oil companies would only raise prices at the pump.

"The last thing that we need to do is increase the cost on Californians who are already paying far too much," Assembly Republican Leader James Gallagher said Monday morning.

Last week, the California Energy Commission held a public hearing about why the state's gas prices are so high. California prices spiked over the summer, but so did the rest of the country - mostly in response to a crude oil price surge after Russia's invasion of Ukraine.

California's prices spiked again in October, even while the price of crude oil dropped. In the first week of October, the average price of a gallon of gas in California was $2.61 higher than the national average - the biggest gap ever. Since then, oil companies reported billions of dollars in profits.

Catherine Reheis-Boyd, president of the Western States Petroleum Association, said the oil industry is volatile, pointing to billions of dollars in losses during the pandemic when demand for gasoline dropped sharply as many people worked from home and canceled travel plans.

During Thursday's hearing, she blamed the state's taxes and regulations for driving up gas prices.

"The governor and the Legislature should focus efforts on removing policy hurdles being imposed on the energy industry so we can focus on providing affordable, reliable and lower carbon energy to all Californians," Reheis-Boyd said.

The Associated Press contributed to this report.