Newsom Hones His Windfall Profits Strategy As Special Session Opens
Assembly budget-chair Nancy Skinner introduced the bill this week. Here’s what you need to know:
It’s Not A Tax. It’s A Penalty. The legislation would impose a cap on the gross margins that oil refineries can generate. If companies exceed an allowable margin, then the California Energy Commission could impose a civil penalty.
The tax / penalty distinction changes the legislative math. The imposition of new taxes requires a two-thirds majority in both the Assembly and the Senate. Though Democrats maintain a supermajority in both chambers, the margins are tight and would require the cooperation of moderate Democrats who represent districts where the oil industry looms large for the local economy. However, authorizing an administrative agency to impose a civil penalty only requires a simple majority. Thus, the penalty route provides a much easier path to victory.
An ounce of prevention: The legislation also envisions additional oversight for the oil industry to provide state regulators with a more granular view into the costs, operations, and supply. The goal of this oversight is to recognize warning signs early to minimize the odds of both inventory irregularities and price gouging.
It’s been 36 hours since the legislation dropped. Here’s the buzz so far:
Setting The Scene …
Political commentators have pitched the Special Session as a proxy fight in a larger battle between Newsom and big oil. And it’s hard not to think of it that way, especially with Newsom loudly calling big oil liars who are “fleecing” and “gouging” Californians.
At least from the perspective of the oil industry, the declaration of war came last session when the Governor successfully spearheaded a historic slate of climate bills which included preventing drilling within 3,200 feet from schools, hospitals, and housing. Big oil responded by launching a ballot initiative effort—which could cost upwards of $12 million dollars to even qualify for the ballot—to undo the setback bill, the marquee piece of that legislative package. And this Fall, big oil spent over $8 million through a political action committee funded exclusively by Chevon, Valero, Phillips 66, and Marathon Petroleum to influence state legislative races.
No legislator knows the wrath of big oil more than newly elected Senator Catherine Blakespear from SD-38 outside of San Diego. The oil industry backed PAC spent nearly $1.8 million to defeat her, the largest (and losing) political bet the industry made this cycle.
In a statement to Golden State Grid this morning, Sen. Blakespear said that the details will get ironed out in the weeks to come, but “Gov. Newsom has provided the Legislature with a solid starting place as we begin discussions in this special session. Oil companies hiking the price of gas to $6.42 per gallon, which is $2.61 more than the national average, is a demonstration of price gouging and corporate greed … We need to protect constituents from being fleeced at the pump.”
What the voters are saying …
64% of California voters support a “windfall profits cap,” according to a recent poll from FM3 Research.
What the newspapers are saying …
For the Sacramento Bee, Maggie Angst and Lindsey Holden write that the shift from tax to penalty “could help win over more moderate Democrats and provide more wiggle room for the votes needed to pass the measure.” Newsom agreed, if obscurely, saying the bill “went down a different path, a much better path.”
For CalMatters, Alexei Koseff and Sameea Kamal spoke to Senator Angelique Ashby, newly elected in SD-8, whose campaign benefited from an over $1.5 million dollar injection from oil companies. But Ashby has since denounced the support, suggested she’s in favor of a windfall profits penalty, and told CalMatters “it was wise of the governor to open an extraordinary session and get a conversation started.”
For the Associated Press, Adam Beam explains that the legislation is not aimed at limiting profits earned fair and square, but rather it’s aimed at windfall profits that result from price gouging and taking advantage of consumers. As Senator Ben Allen told the AP, “I don’t think anybody objects to (oil companies) having a business model that makes a profit, but the extent to which they’re taking advantage of people really does appear to be unfair.”
For the Los Angeles Times, Taryn Luna reported on the new legislation through the lens of the increasingly stark battlelines drawn between the Newsom administration and big oil. As Jim DeBoo, Newsom’s former chief of staff, told the L.A. Times, the legislation is a no-brainer for the Governor in light of the industry’s inability to block Newsom’s recent climate priorities: “If you watch what the oil companies have done and the types of windfall profits they’ve made, this is not a hard decision point from a political perspective… It’s kind of like, you’re with the oil companies or with the people ...”
Marisa Lagos and Laura Klivans, writing for KQED, quote Mike Young from the influential California Environmental Voters group agreeing with DeBoo’s sentiment that political power in Sacramento has shifted away from the oil industry: “‘[Oil] money has become toxic, as it should be … and even their candidates are trying to be very careful about what they say or what they do and how connected they are to it.’”
