California Gov. Newsom’s latest war on oil is off to a rough start

Democratic California Gov. Gavin Newsom’s plan to limit oil companies’ profits was met with criticism by Democrats, Republicans and experts alike at a state hearing earlier this week.

During the hearing — hosted Wednesday by the state’s Senate Committee on Energy, Utilities and Communications — experts balked at a proposal to punish oil exploration and refining companies with a financial penalty if found to increase gasoline prices “excessively.” The hearing was held to consider SBX1-2, legislation backed by Newsom and proposed by Democratic state Sen. Nancy Skinner in December.

“Enacting SBX1-2 is not in the best interests of the consumer, will not reduce retail pump prices and is not in the best long-term economic interests of California,” said Michael Mische, a professor at the University of Southern California Marshall School of Business. “There are better alternatives.”

He added that the bill “will only make matters worse for the California consumer” and “serve as a disincentive for investing in supply and new technologies for the refiners.”

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California Gov. Gavin Newsom speaks during a press conference in San Francisco, California.  (Justin Sullivan/Getty Images)

“Enacting it will reduce supply, force out producers and reduce employment in a high-paying sector,” Mische continued, adding that gas and energy prices would increase as a result of the bill.

In December, Newsom announced aggressive actions to punish oil companies for “lying and gouging Californians to line their own pockets.” The comments came after he called on the state’s legislature to develop legislation cracking down on excessive energy price increases, backed Skinner’s legislation and called on the Senate Committee on Energy, Utilities and Communications to hold Wednesday’s hearing.

In addition to Mische, Western States Petroleum Association (WSPA) President and CEO Catherine Reheis-Boyd also criticized Skinner’s proposed bill during the hearing.

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“Our industry is strongly opposed to Senate Bill X1-2 because it misguidedly focuses on profits, rather than the root cause of price spikes – a lack of supply,” Reheis-Boyd said. “The way to address prices and provide relief at the pump is to increase a reliable and safe supply.”

“As the California Energy Commission and several state Attorneys General have repeatedly acknowledged, California continues to face serious supply constraints as it relates to crude oil, gasoline, diesel, and jet fuel,” she added. “These supply constraints, coupled with demand driven by the world’s fourth largest economy and 35 million internal combustion engine vehicles are the primary drivers of fuel costs in the state.”

A worker walks past pump jacks operating at the Kern River Oil Field in Bakersfield, California.  (AP Photo/Jae C. Hong, File)

And Democrats, including leadership, on the committee also expressed concerns with the proposal at the hearing.

“In our pursuit to address gasoline prices, we must ensure our actions that we take first [do] no harm to consumers,” state Sen. Steve Bradford said, according to Politico.

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“There is clearly a belief out there among many people that oil companies were profiting off the backs of Californians,” added state Sen. Dave Min. “At the same time, we don’t really have a smoking gun as far as I can see, that shows intentional collusion.”

Over the course of the last year, California has consistently recorded the highest average gas prices of any state, even surging past $6 per gallon in both June and October, according to data from the Energy Information Administration. While pump prices have fallen considerable in the state over the last two months, at an average of $4.76 a gallon they are still the highest in the nation barring Hawaii.

Wind turbines in Palm Springs, California. The state has released plans to slash greenhouse gas emissions by 85%, cut oil usage by 94% and deploy more solar and wind capacity over the next two decades.  (REUTERS/David Swanson)

Meanwhile, the state has continued to place restrictions on the oil and gas industry as part of its climate agenda and push to rapidly boost renewable energy supplies.

Petroleum refining capacity, which is required for production of products like gasoline and jet fuel, has fallen by more than 17% in the West Coast region that includes California since it peaked in 2010, according to federal data. Overall, domestic consumption of all fuel types has increased about 5% during that same time period.

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“California consistently is the most expensive state in the nation for gasoline prices due to extensive regulations,” Patrick De Haan, the head of petroleum analysis at GasBuddy, previously told FOX Business in an interview. “Unfortunately, it’s the reason why prices are so high. Because politicians in California have chased away investment, they’ve chased away oil refineries.”

“You compare it to a state like Texas where the oil industry is welcomed and regulatory burdens are much lower and, obviously, gas prices are lower,” he said. “You can’t convince me in a solid argument that oil companies are only ‘gouging’ or profitable in California.”