California passed a law to curb spikes in gas prices. Why isn’t it using those powers now?

Audio By Carbonatix

Three years ago, California built a first-in-the-nation system aimed at protecting drivers when oil markets turn calamitous. The Legislature passed it. Gov. Gavin Newsom signed it. He proclaimed “California took on Big Oil and won.”

Its author, then-Sen. Nancy Skinner called it a “landmark law” that “will allow us to hold oil companies accountable if they pad their profits at the expense of hard-working families.”

But the law — which gave regulators the power to cap refinery profits and penalize oil companies for price gouging — has never been used. Instead, last year, the California Energy Commission voted to delay the rules for five years. Skinner – who wrote the law as a Senator – was absent when her own commission voted to delay it.

Now, with gas topping $5.30 a gallon statewide, that decision is under a new spotlight. The Iran war has sent global oil prices soaring — but the war is only part of the story. California has a structural problem: fewer refineries, a captive market and no easy outside supply options. When prices rise nationally, they can rise even more here.

Proponents say this is precisely the moment the 2023 law was designed for. The commissioners last year left the door open to rescind the delay — and move forward with the rule before the five years — if they change their minds.

“These are the moments we need them, because when the price of a commodity goes through the roof — be it crude oil or refined gasoline — that’s when companies make outrageous profits,” said Jamie Court, president of Consumer Watchdog.

But those who backed the delay argue it was a necessary concession — that penalizing refiners risked driving them out of the state entirely. It’s a tension that cuts to the heart of California’s energy predicament: how to protect consumers today from an industry the state can’t yet afford to lose, while still making good on its promise to leave that industry behind.

When the California Energy Commission met last August Newsom was already retreating from his confrontation with the oil industry. The question before commissioners was whether to move ahead with aggressive rules targeting refinery profits — or step back, as the governor was doing.

It was a sharp reversal. Newsom had declared special legislative sessions in 2022 and 2024, pushing through sweeping new powers to curb gasoline price spikes — including requirements that refiners store more fuel and replace lost supply during maintenance, and the profit-cap rules now sitting dormant. A new energy commission oversight division created by the law found an unexplained gasoline premium of about 41 cents per gallon between 2015 and 2024, costing drivers an estimated $59 billion.

“Those are critically important laws,” said Kassie Siegel, director of the Climate Law Institute at the Center for Biological Diversity. “What that information shows is that Californians are at the mercy of a very few refiners with immense power.”

California’s oil industry strongly opposed the measures, and some economists remain skeptical of them. UC Berkeley energy economist Severin Borenstein warned that capping refinery profits during shortages could backfire.

“The last thing we need is to start trying to regulate refinery margins,” he said. “As much as people don’t like high gasoline prices, they really, really hate gas lines.”

By last August, refinery closures were looming and warnings of $8-a-gallon gasoline circulated in Sacramento. Newsom and Democratic leaders were negotiating with the oil industry to boost production in Kern County — talks that produced a law that has since driven an uptick in drilling permits.

After Valero said it would close its Benicia refinery, Newsom directed Siva Gunda, vice chair of the California Energy Commission, to “redouble the state’s efforts to work closely with refiners on short- and long-term planning” and ensure a “reliable supply of transportation fuels.” Gunda responded with a series of recommendations that aligned largely with industry’s desires — among them a pause in the state’s profit-cap rule.

Against that backdrop, energy commissioners voted on Aug. 29 to delay the rules for five years. Ahead of the vote, Gunda said the delay would help boost “investor confidence” in the state’s oil refiners, “thereby ensuring a reliable in-state refining capacity.”

Oil industry representatives say the decision made sense – the profit-cap measures, they argued, miss the real problem.

“The real problem is California is an energy island — we’re losing 17% of our refining capacity,” said Zachary Leary, a lobbyist for the Western States Petroleum Association.

But Court, of Consumer Watchdog, said the governor “panicked,” leaving the state without the “hammer” it now needs.

“When you have this type of level of gas run up, you’re going to need those tools,” Court said.

California has committed to phasing out fossil fuels by 2045 — but it still depends heavily on gasoline, and it is losing the refineries that produce it.

Phillips 66 last year shut its Los Angeles refinery, citing concerns about the sustainability of the California market. Valero is closing its Benicia refinery next month, pointing to a challenging regulatory environment.

“If you start losing refineries — as we are going to — and you don’t have an alternative source of supply, we’re going to start getting price spikes when there’s any sort of disruption at one of our refineries,” Borenstein said. “Or just during high demand periods.”

The challenge of reducing fossil fuel use while maintaining adequate supply has created what Gunda — Newsom’s point person in negotiations with the oil industry — calls the “mid-transition.

“This is not going to be a smooth transition,” Gunda said last month in testimony to a state Senate committee. “Every time you lose a refinery, it’s going to be a double-digit percent of refined fuel lost in California. So that abrupt transition will mean an abrupt increase in imports.”

The recent jump in gasoline prices reflects a global oil shock tied to the war with Iran — not a policy change unique to California, experts said. But the surge highlights how exposed the state remains to global energy markets as it loses refining capacity and imports more crude and gasoline.

Since the conflict began, the international benchmark for crude oil has climbed more than $25 a barrel — a shift that typically translates to about 60 cents per gallon at the pump, in line with the increase in California retail prices, argues Borenstein, of UC Berkeley.

“All of the change we’ve seen in the last couple of weeks is in line with the change in crude oil prices, and therefore is not California specific,” he said.

Newsom has made a similar argument, blaming the spike on global oil markets and the war with Iran rather than California policies. But analysts note that the state’s shrinking refinery base means global shocks land harder here than elsewhere.

A key concern is the Strait of Hormuz. Before the conflict, the narrow waterway carried more than 20 million barrels of oil a day — roughly one-fifth of global supply. Traffic is now at a standstill, and crude prices topped $100 a barrel again — even after more than 30 countries announced releases from emergency reserves.

Ryan Cummings, chief of staff at the Stanford Institute for Economic Policymaking, said a prolonged closure could push crude prices above $130 or $140 per barrel — driving California prices closer to $7, with a worst-case scenario approaching $10 at some stations.

Most analysts consider that outcome unlikely but no longer unthinkable.

“Right now, this doesn’t appear likely, but it is a worst-case scenario that is growing by the day,” Cummings said.

Siegel, of the Center for Biological Diversity, said California should move forward immediately to implement the profit-cap rules and require companies to hold larger fuel inventories.

“Our leaders shouldn’t rest until the rules are in place to prevent price gouging on top of volatility, and should not rest until people get their money back,” she said.

Economists say California’s biggest challenge may be infrastructure. Valero plans to close its Benicia refinery, which produces about 10% of the state’s gasoline, next month. In an analysis posted last year, Stanford economist Neale Mahoney and Cummings said California could offset lost refinery production with gasoline imports – if permitting allows refineries like Benicia to convert to fuel import terminals. Newsom said in January his administration is working with the company to continue importing gasoline into Northern California after its refinery operations close.

“If I was in the Legislature right now, all of my energies and effort would be built on, one, making sure that Benicia gets turned into an import terminal — and two, making sure whoever owns or operates that is not an incumbent,” Cummings said.

Court, of Consumer Watchdog, pointed to a proposed Phillips 66 pipeline that could bring refined gasoline from Midwest refineries into the state – something California has never had, relying instead on in-state refining and marine imports. Dubbed the Western Gateway Pipeline, the project would build a new pipeline and reverse an existing one to move gasoline and diesel from central U.S. refineries to Arizona and California.

One state lawmaker has proposed expanding access to E85, a cheaper ethanol blend. Both ideas remain proposals without clear timelines.

Meanwhile, some oil companies and even some Democrats are warning California’s climate policies could raise production costs enough that refineries reconsider operating in California — adding another pressure point to an already strained supply picture.

The profit-cap rules that could penalize oil companies remain on hold until 2029. By then, California may have lost more refineries — and may still be grappling with the problem Newsom once promised to solve: gasoline price shocks in the country’s most unaffordable market.

___

This story was originally published by CalMatters and distributed through a partnership with The Associated Press.