Newsom signs law allowing California to penalize oil companies for ‘price gouging’

California will soon be able to penalize oil companies that engage in “price gouging” behaviors, after Gov. Gavin Newsom (D) signed a first-of-its-kind bill into law on Tuesday evening.

“We proved that we could actually beat Big Oil,” the governor said at a press conference before signing the legislation. “There’s a new sheriff in town in California, where we brought Big Oil to their knees.”

In about three months, the SBX1-2 bill will allow the State Energy Resources Conservation and Development Commission to establish a maximum gross gasoline refining margin — and then set a penalty for any California-based refineries that surpass that margin.

The legislation, sponsored by state Sen. Nancy Skinner (D), passed in the State Assembly on Monday after receiving the approval of the State Senate in an “extraordinary session” to expedite the legislation last week.

While the bill enables the Commission to create a penalty, it also mandates that the agency consider a refiner’s request for an exemption. The legislation also requires that all fines collected be funneled into a “Price Gouging Penalty Fund” in the State Treasury.

“Toda we’re saying no to price gouging, we’re saying no to market manipulation — we’re saying yes to consumer protections and accountability and oversight,” California Attorney-General Rob Bonta said at the press conference.

“We are looking, we are monitoring, we are standing up for everyday Californians,” Bonta added.

With the goal of maximizing transparency, the legislation will also create an independent Division of Petroleum Market Oversight within the Commission. That division will help guide the governor on issues linked to fuel pricing and decarbonization, according to the bill.

“Finally, we have the ability now to get into that black box,” Newsom said on Tuesday. “We’re in a position to look our constituents in the eye and say we now have a better understanding of why you’re being taken advantage of.”

California law already requires refineries to file an activity report to the Commission within 30 days of the end of each calendar month — subjecting them to a civil penalty if they fail to do so.

SBX1-2 passed in both chambers of the state legislature in “extraordinary sessions” requested by Newsom, who launched a fast-tracked process that rankled the bill’s opponents.

Per California’s Constitution, the governor can request such a special session through proclamation. Any bill approved and signed after an extraordinary session takes effect after 90 days, unlike the Jan. 1 start date that applies to bills passed in regular sessions.

Industry stakeholders and politicians who oppose SBX1-2 have criticized the bill’s rushed advancement, while calling out the exclusion of certain Californians from the conversation.

At a State Senate committee session last week, Zachary Leary, senior director for California policy at the Western States Petroleum Association, characterized the legislation as an “unprecedented and untested experiment in the California fuel market.”

Going forward, Newsom acknowledged that “we’ve got a more to do,” recognizing the need to set up the oversight division, hire new employees and refrain from over-promising.

“We will maintain our vigilance — we are mindful of what we’re moving towards and we’re mindful of our responsibility,” the governor said.

“We want to dominate the future and we want to do it justly,” he added.