Newsom unveils details of plan to cap oil company profits

© George Rose, Getty Images

Oil pipelines, pumping rigs and electrical transmission lines dot the landscape along California’s “Petroleum Highway” near McKittrick (Kern County).

After months of closed-door negotiations, Gov. Gavin Newsom on Wednesday announced long-awaited details of his proposal to fight California’s high gas prices by capping the profits of oil companies and fining those who exceed those limits.

The crux of the governor’s updated plan: Let state energy regulators make the rules.

“What we’re asking for is simple: transparency and accountability to drive the oil industry out of the shadows,” Newsom said in a statement. “Now it’s time to choose whether to stand with California families or with Big Oil in our fight to make them play by the rules.”

In the fall, Newsom began calling for legislation to penalize oil companies for their record profits amid skyrocketing prices at the pump. He convened a special legislative session in December for lawmakers to consider his “price gouging” proposal.

But the effort has gotten off to a tepid start. Few details of Newsom’s plan were released until Wednesday, including the suggested mechanism for the profit cap, to the frustration of some legislators and advocates.

Under his updated proposal, the California Energy Commission would have rulemaking authority to create a cap on oil refiners’ profits — and to set the amount. They would also have the authority to fine companies that exceed the cap and set penalty amounts.

Newsom had earlier suggested that the Legislature would set the amount of the profit cap. His plan to punt the decision to energy regulators comes after several Democrats expressed skepticism.

It wasn’t clear this week whether legislative leaders would endorse his proposal; Newsom’s office said negotiations are ongoing. His plan must pass the state Assembly and Senate to become law.

Newsom has said he’s pursuing a profit cap because average consumers are suffering while the industry refuses to explain why it’s charging so much more per gallon in California than other states.

California’s average statewide price for a gallon of gas was $4.90 on Wednesday, about $1.43 more than the national average, according to AAA. Prices have fallen in recent months after spiking to a statewide average of about $6.42 in early fall, at least $2.61 more per gallon than drivers nationwide were paying at the time.

Newsom’s plan would also give the Energy Commission more oversight authority to require oil refiners to share information about their transactions and business practices.

The governor’s office said that authority, including subpoena power, would enable regulators to investigate companies over their windfall profits. His plan would create an independent watchdog division under the commission, which would have the authority to investigate oil companies and refer violations to the state attorney general.

The Democratic governor met with environmentalists, consumer advocates, labor leaders and others in Sacramento on Thursday to discuss his proposal. Some activists have backed the changes.

“I feel like the governor is still coming with the most ambitious plan in the nation to deal with this crisis,” said Jamie Court, president of Consumer Watchdog, an advocacy group. “My concern is it’s going to get weakened in the Legislature. I’m hoping that legislative leaders will agree to this without further eroding any of the provisions.”

Newsom's plan is also supported by state Attorney General Rob Bonta, a fellow Democrat who has has blasted oil companies for raking in record profits while Californians paid sky-high prices at the pump last year. “Enough is enough. I stand with the governor to defend hard-working California families and to provide greater transparency and oversight in the marketplace,” Bonta said in a statement Thursday.

Critics of Newsom’s plan, including the Western States Petroleum Association and Republican legislators, say it could have the unintended consequence of driving prices up if it causes oil companies to produce less gas in California.

“If Democrats give unelected bureaucrats the authority to impose this new tax, they will be responsible for the shortages, rationing, gas lines and price spikes that come with it,” Assembly Minority Leader James Gallagher, R-Yuba City (Sutter County), said in a statement.

Reach Dustin Gardiner: dustin.gardiner@sfchronicle.com; Twitter: @dustingardiner