On October 1, the California State Assembly approved Democratic Gov. Gavin Newsom’s newest proposal (AB X1-2) to broadly expand the powers of the California Energy Commission to impose obligations on the oil industry, including broad subpoena powers to compel submission of price data and require refiners to maintain a minimum level of inventory. Following a special session called by Gov. Newsom at the end of August, the Assembly approved the new proposal by a vote of 44–17.
This new law is yet another attempt by Gov. Newsom and the California legislature to restructure the oil industry, purportedly to address gas price spikes in the state. This new law would delegate authority to the California Energy Commission (CEC) to require refiners to keep a minimum amount of inventory and to make plans for resupplies during maintenance periods. The Governor and legislature have claimed the goal of this authority is to require an emergency supply to avoid spikes.
This new oil proposal follows SB X1-2, another law passed by the legislature following a called special session in 2022. SB X1-2 also purportedly attempts to address price spikes by creating the new Division of Petroleum Market Oversight and delegating authority to the CEC to promulgate new reporting regulations on the transportation fuels industry. CEC has so far passed three new regulations under emergency rulemaking (summarized in client alerts here and here), tightening control over the California transportation fuels market by requiring all industry entities to comply with burdensome reporting requirements. Under SB X1-2, CEC is also expected to make a decision as to whether it will institute a maximum gross refining margin in the coming months, which would limit the profits California refiners could make.
All of these legislative and regulatory changes would significantly tighten state control over the state transportation fuels market. Requiring refiners to keep certain inventory levels would give the state significant input on refiners’ business decisions and limit their ability to effectively run their businesses as they see fit. The California Senate is expected to vote on this proposal on October 11, 2024. If the bill is passed by the Senate, there is no doubt Gov. Newsom would sign it into law.
