California Gov. Newsom Signs AB X 2-1 to Inject State Input Into Refiner’s Inventory Decisions

On October 14, 2024, California’s Democratic governor, Gavin Newsom, signed AB X2-1 into law, expanding the powers of the recently created Division of Petroleum Market Oversight (DPMO) within the California Energy Commission (CEC) by authorizing it to require that oil refiners maintain a minimum inventory of fuel. In a purported attempt to avoid supply shortages and price spikes, this law also authorizes the CEC to require petroleum refiners to plan for resupply during scheduled maintenance.

AB X2-1 is another unprecedented tightening of state control over the California transportation fuels market. DPMO is an independent agency within the CEC that was swiftly created in late 2023 by SB X1-2, passed after an eight-day special session called by Gov. Newsom (summarized in Sidley Updates here and here). In comparison, government agencies have historically been quickly created only during wartime and grave national security threat, such as the creation of the Department of Homeland Security in 2002 and the creation of the Office of Price Administration in World War II. In addition to exempting this new agency from procedural checks such as the Administrative Procedures Act, the California Environmental Quality Act, and government contracting rules, ABX2-1 also gives DMPO new and unprecedented subpoena power by authorizing DPMO to subpoena witnesses, compel their attendance and testimony, and to take evidence material to the performance of the division’s duties or exercise of power. Since the signing of the bill, a refinery in Los Angeles has given notice of its plan to cease operations, and it is likely more will follow.

The passage of this law follows another special session called by Gov. Newsom at the end of August. The Assembly approved the bill on October 1, and the Senate approved the bill on October 11. The new law will go into effect January 2025. The CEC will commence the use of its new subpoena powers and promulgate emergency regulations to dictate the minimum inventory of fuel refiners required to maintain and other regulations it deems necessary to implement this bill.