Not Quite a “Windfall Tax”
SBX1-2 passes out of the California Senate…but won’t get Californians their a reimbursement.
As Californians endured staggering prices on the gas pump in the course of the summer and fall of 2022—in excess of $2 higher per gallon than the national average—Governor Newsom accused oil corporations of “rank price gouging” and vowed to place a reimbursement in Californians’ pockets. He announced a special session of the California Legislature to handle the problem, but then it was radio silence for months, leaving many to ponder whether the cash would ever be “returned to taxpayers,” because the Governor had called for.
Now, a proposal is moving, and fast. But it surely isn’t a windfall tax by any stretch of the imagination.
SBX1-2 (Skinner) was introduced at first of the special session in December 2022, but sat untouched until Monday, when it took significant amendments. Since then, the bill has been on a whirlwind tour of the State Senate, passing out of the Energy, Utilities, and Communications Committee yesterday and speeding through Appropriations and a Senate floor vote (30-8) this morning. Now it’s on to the Assembly in time to be considered before Spring Recess.
But what does the bill, which has been called a “first-of-its-kind” law, actually do? It will direct the California Energy Commission (CEC) to calculate the quantity of refiner profit over and above state program costs per gallon of gasoline, after which allow the CEC to levy a penalty against refiners if future profits exceed a CEC-set maximum margin. However the CEC could only establish a penalty if it concludes the likely advantages to consumers will outweigh potential costs to them, by considering things like supply and demand, increased gas prices, and the necessity for case-by-case exemptions from the penalty. Penalties would go right into a state fund that the Legislature could appropriate “to handle any consequences of price gouging on Californians.” The bill would also empower the CEC to collect information from corporations participating in California’s transportation fuels market and, in some cases, to become involved in refinery maintenance and turnaround plans that might affect fuel prices.
The oil company lobby has balked on the bill’s provisions, raising the specter of antitrust concerns. But the first criticism raised within the Legislature this week—on either side of the aisle—was how briskly the bill is moving. While highlighting the urgency of the laws, even the bill’s writer recognized that drafting cleanup can be needed. Republican lawmakers griped that the bill would increase costs to the State without producing results for consumers and urged consideration of SBX1-1 (Jones), a Republican-introduced measure to suspend California’s gas tax. Legislators declined to maneuver that bill out of the Rules Committee for a full floor vote this morning.
So where does this leave us? SBX1-2 can be an enormous step forward for transparency around price-setting within the transportation fuels market, allowing the CEC, a trusted regulator, access to key information it’s never had before. It will also require the CEC to work with the Air Resources Board, in consultation with fuel producers and refiners, to arrange a Transportation Fuels Transition Plan to be sure that fuel supply is “reasonably priced, reliable, equitable, and adequate to satisfy  demand” as California transitions away from petroleum fuels over time. And its penalty-setting provisions could deter future unreasonable price hikes. These are good things.
One thing the bill won’t do, though, is reply to the value spikes that happened over the summer, or any near-term price spikes. California’s Attorney General has used its existing powers to police price increases up to now, including a successful suit against Valero in 2017; in 2022, the AG’s office sent a warning letter to refineries across California, but it surely hasn’t filed an motion related to those high prices. SBX1-2 could give the State tools to raised understand what drives future high prices and clap back against unreasonable spikes, but Californians won’t see spent dollars back of their pocketbooks anytime soon.