Gov. Gavin Newsom and state Sen. Nancy Skinner announced a proposal Dec. 5 to penalize oil companies in an effort to deter gas price gouging.

The proposal would make it illegal for oil companies to charge excessive refining margins—the price difference between the cost of crude oil pre-refinement and the cost of the product once it leaves the refinery—and would expand the ability of the California Energy Commission and the California Department of Tax and Fee Administration to investigate gas costs, profits and pricing.

The legislature is expected to negotiate in January about the refining margin that would trigger penalties under the proposal. 

Any penalties collected from oil companies that are found to be artificially inflating gasoline prices would be placed in a state-managed fund and then reimbursed to state residents. 

“Big Oil has been lying and gouging Californians to line their own pockets long enough,” Newsom said in a statement. “I look forward to the work ahead with our partners in the Legislature to get this done.”

Major oil companies like British Petroleum, Valero, Shell and Chevron reported record-high profits or near-record-highs during the third quarter of 2022, between July and September. 

During that time, the state’s average price of a gallon of regular unleaded gas reached as high as $6.42. State officials have argued gas prices were excessively high, even with the price of a barrel of oil spiking during much of the spring and summer.

“No one can deny that California’s gas prices were outrageously high compared to other states,” said Skinner, D-Berkeley. “And those high prices hurt California consumers and businesses.”

The California Business Roundtable, a group of senior executives of companies based in the state, argued the proposal is just a tax on oil companies and would lead to higher gas prices rather than deter them.

The group also blamed the state’s gas taxes for high prices over the summer, rather than corporate gouging. 

“The governor is sending a message to investors and companies across the country that California now intends to start micromanaging business decisions, in addition to the myriad and growing regulations, high taxes and policies that continue to make California the worst place in the nation to do business,” CBR President Rob Lapsley said in a statement. 

As of Dec. 5, the average price of a gallon of gas in California is $4.77, according to AAA. The national average is $3.40 per gallon. 

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