After five months of waiting, the California Legislature finally took its first action under special session, holding an informational hearing where Governor Newsom’s refinery tax scheme proposal received heavy criticism from energy experts and legislators.
But despite the broad disapproval of his signature proposal in front of the Senate Energy, Utilities and Communications Committee, Newsom apparently thought the event was a great success, leading some to wonder: did the governor watch the same hearing as everyone else?
In case he’s confused, here are the top three things Newsom should learn from the hearing:
1) THE FACTS DON’T SUPPORT CLAIMS OF PRICE GOUGING BY OIL COMPANIES
While Newsom continues to accuse oil companies of gouging consumers in California, neither he, his government, nor the courts have substantiated the claim with facts.
In prepared testimony, Supervising Deputy Attorney General Michael Jorgenson detailed the attention that his anti-trust office has given the issue:
“The oil industry and gasoline prices have been the focus of our anti-trust section at the California Attorney General’s office for several years … During the last two decades, the section has conducted several investigations into price fixing by California refiners.”
Yet despite these efforts and investigations, the AG’s office has yet to bring a price gouging or collusion case against oil producers or refiners in California.
As University of Southern California professor Michael Mische put it:
“The fact is, we haven’t proven any cases of price gouging by oil companies or refiners … As recently as November 2022, we had a court case in the U.S. District Court in San Diego tossed out. The list goes on and on.”
Sen. Dave Min (D-Irvine) agreed: “We don’t really have a smoking gun as far as I can see, that shows intentional collusion.”
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2) EXPERTS DON’T THINK NEWSOM’S PROPOSAL WILL WORK
While Newsom’s press release claimed that experts at the hearing “agreed” his new refinery windfall tax scheme was “the only viable proposal” to address high prices at the pump, the live recording tells a very different story.
Here is a selection of the testimony provided by the expert panel at the hearing.
UC Berkeley Professor and energy economist Severin Borenstein:
“Policies intended to affect refineries are not going to get at most of the reason that Californians are paying higher prices for gasoline.”
Stanford Institute for Economic Policy Research Senior Fellow Dr. James Sweeney:
“Big price spikes would be made worse under the proposal. So, I am quite dubious that this penalty proposal could dependably solve the problem.”
Energy markets expert and consultant Dave Hackett:
“With price controls, distortions inevitably result. There is a long record of failure for similar programs.”
“[The U.S. tried a windfall profit tax] most recently in the debacle of the 1970s … This is a great idea, but it won’t work. There is compelling evidence that it won’t work.”
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3) SUPPLY AND CAPACITY RESTRAINTS ARE THE REAL ISSUES DRIVING CALIFORNIA GAS PRICES HIGHER
When asked about the causes of California’s high gas prices, experts pointed to the basic economics of supply and demand. On top of the state’s high taxes and expensive environmental mandates, Sacramento’s energy policies have limited supply and refining capacities, creating a tight market that naturally drives prices higher for consumers.
As Hackett put it:
“High prices in California in 2022 were caused by supply issues … California gasoline production in 2022 was reduced by 88,000 barrels per day versus the prior year. This is the equivalent of a midsize refinery’s output.”
Sweeney agreed:
“The reason we’re having price spikes is because … there has been relatively little investment in capacity, and we don’t have a lot of excess capacity, so when something bad happens – maintenance, or accidents – we have a price spike.”
Mische recommended that the committee “take our efforts and let’s place them in an area that can bring down the prices, most obviously in supply.”
While some remain focused on scoring political points by villainizing oil companies, the committee chair, Sen. Steven Bradford (D-Gardena), appeared to understand and appreciate the economics behind California’s gas prices:
“I think we would all agree that supply will impact pricing. And I think we’ll all agree that we have passed legislation here in California that has encouraged leaving oil in the ground, we’ve encouraged the conversion of refineries and the shutting down of refineries … Have we created a scenario that has helped create this problem through the legislative process?”
Hopefully Newsom will listen and learn.
