California considers penalties for oil companies over price gouging

California could become the first state to fine big oil companies for making too much money, a reaction to the industry’s supersized profits following a summer of record-high gas prices in the nation’s most populous state.

Gov. Gavin Newsom and his Democratic allies in the state Legislature introduced the proposal Monday as lawmakers returned to the state Capitol in Sacramento for the start of a special legislative session focused solely on the oil industry.

"They’re screwing you," Newsom told reporters outside the chambers."They’re taking advantage of you, because they think they can get away with it, and what we’re trying to say is enough."

The special session follows months of the governor calling out oil companies for their record profits and accusing them of price gouging. He first called for a windfall tax in September, as the state’s gas prices peaked at $2.61 above the national average.

He has now changed the language, calling it a "price gouging penalty" on oil companies.

A new tax would require approval from two-thirds of lawmakers, while a penalty could pass with a simple majority.

"They can call it whatever they want, but a fee imposed on industry is a tax, a tax that we know will not lower costs, and will likely mean higher consumer costs," said Kevin Slagle, vice president of strategic communications for the Western States Petroleum Association (WSPA). 

WSPA and industry leaders call the session a "political game" and blame California’s policies, taxes and environmental regulations for the costs.

Newsom took issue with that claim.

"You were paying $2.61 cents more per gallon, but we didn’t change one fee, one tax and the price of crude was lower the prior year, that’s called excess profit and greed," said Newsom.

The governor unveiled a framework for his plan, in a proposal introduced by East Bay state senator Nancy Skinner, that calls for lawmakers to set a profit cap on gas.

The California Energy Commission could impose penalties on oil companies that exceed the cap. Any penalty collected would go into a fund, which lawmakers could give back to residents as a state budget refund. The plan also calls for more oversight from the commission.

Newsom told reporters he hopes the penalty would act as a deterrent for oil companies.

"Allow us to focus with intention on transparency, and accountability and make sure we’re preventing this from ever happening in the future," said Newsom. 

SEE ALSO: California's high gas prices to be focus of special legislative session

Last week, the California Energy Commission held a public hearing about gas prices. The state’s five major oil companies were invited, but did not attend.

A representative from WSPA attended. Before the special session began, Assembly Republicans laid out their legislative agenda, which included a bill proposing a suspension of the state’s 54 cent gas tax. They also said they are against Newsom’s penalty plan.

"It’s not lost on anybody that this proposal is going to get based onto us, it will get based on to the California consumer and that’s unacceptable," said Assemblymember James Gallagher.

Newsom said his office and lawmakers will work on ironing out the details of the proposal over the next month. No meaningful action is expected to take place until after the legislature returns to session in January. 

This was the first special session Governor Newsom has called since taking office in 2019. His office says it will allow bills that are passed to take effect sooner than they would during a regular session.