Jeremy B. White | Politico

Gov. Gavin Newsom signed legislation that could force the oil industry to cap profits and reveal gas price data in its largest U.S. market – demonstrating his clout in a state dominated by Democrats and the weakening of a once powerful lobby.

The legislation Newsom approved Tuesday extends a winning streak for the governor against oil companies, long one of most formidable lobbying powers in California’s state capital.

The governor overcame strenuous industry opposition in muscling a bill through the Legislature that forces companies to turn over earnings data and exposes them to penalties. It came just months after he pushed through a climate package that fortified emission targets and restricted drilling.

“We proved we can actually beat big oil,” Newsom said at a signing ceremony at the Capitol.

That victory came despite the industry deploying “30-plus lobbyists” to stymie the bill, he said.

The industry acknowledges the setbacks.

“I think what we’ve seen is the governor has put this industry in the crosshairs for a number of years now,” said Kevin Slage, a spokesperson for the Western States Petroleum Association, the main lobbyist for the industry in Sacramento. “With a supermajority and the ability of governors to pull levers with legislators, it’s a tough policy environment for us for sure.”

Newsom has aggressively pursued an ambitious legislative climate agenda since last summer, winning praise from environmentalists who once lamented his hands-off approach and adding to executive orders phasing out gas-powered car sales and fracking. And he has regularly denounced oil companies for standing in his way. Last summer, he excoriated the companies for running ads that framed his push last summer as a matter of righteousness and “which side we’re on.”

“Big oil lost,” Newsom told an audience in New York after pushing the package through the Legislature, “and they’re not used to losing.”

He rode the momentum from those victories into a quest to curtail oil industry profits, announcing his plan before the bill-signing period ended. The proposal has evolved substantially, morphing from a windfall profits tax to a framework for the California Energy Commission to investigate earnings. But Newsom’s rhetoric remained the same: oil companies are ripping you off.

Newsom was uncharacteristically engaged with legislators throughout the process, visiting caucuses and speaking with members individually and in smaller groups. After legislators balked at Newsom’s initial idea, expressing fears it would backfire and raise prices, the administration agreed to language requiring the Energy Commission to ensure the benefits to consumers would outweigh harms.

That both assuaged legislators’ fears of unintended consequences and helped lawmakers feel they were being brought in rather than dragged along. A senior legislative staffer called Newsom’s tactic a “sea change” in his approach to the Legislature and a “very significant factor in how this got landed.”

“This is not something the governor is shoving down our throats,” Assemblymember Jacqui Irwin (D-Thousand Oaks) said on the Assembly floor.

Crafting that language took months. The revamped proposal then rocketed through the Legislature in less than two weeks as Newsom and Democrats sought to preempt a counteroffensive. Oil industry opponents protested that Newsom was rushing through an unvetted proposal that would harm consumers by distorting a complex industry. It didn’t matter.

“Fossil fuel obsolescence is on the horizon,” Assemblymember Alex Lee (D-Milpitas) told members.

That hasn’t always been the case. California’s proud environmentalist bent belies the political and economic might of in-state oil extractors and refiners. Industry groups spend millions of dollars to elect allies to the Legislature — often moderate Democrats — where the corridors teem with lobbyists who are tasked with thwarting legislation that hurts companies’ bottom line. The Western States Petroleum Association spent nearly $20 million on lobbying and campaigns in 2021 and 2022.

They have enlisted powerful political allies. That has meant hiring connected players like the former leader of moderate Democrats and California’s former oil and gas regulator. More crucially, the oil industry forged an alliance with a union umbrella group whose members work at refineries — a critical source of influence in a Capitol where organized labor holds significant sway.

Bills to slash emissions or require new oil wells be far from homes and schools could not overcome that opposition. Newsom’s intervention was decisive. Lawmakers revived the measures at the governor’s urging and pushed them to his desk.

“That is perhaps the most powerful political coalition in the state Capitol,” said Assemblymember Al Muratsuchi (D-Torrance), who has become a vocal critic of oil industry influence. “We’re only able to overcome that with the governor taking the lead and championing climate measures.”

Shifting voter views are also driving political dynamics. A decade ago, a plurality of California voters said strict environmental laws were too costly. By 2021, nearly two-thirds said they were worth the cost. Voters are more likely to call climate change a serious issue as annual wildfires have become more destructive. Both Newsom and the Legislature have taken advantage.

“The governor was more aggressive, and I think that inspired the Legislature to be more aggressive. While there’s allies in both parties to the oil industry, I think a lot of folks were hungry to get stuff done,” said former Assemblymember Cristina Garcia, who helped negotiate last year’s climate package. “The governor deserves some credit but I think here’s some other factors as well with the stars lining up politically so it doesn’t feel like you’re taking such a political hit.”

The money map is changing as well. The climate-focused Energy Foundation spent millions in Sacramento last year, putting it on the same plane as oil companies. The California Democratic Party now refuses oil money. The industry can still shower candidates with cash, but their resources increasingly run up against voter distaste with fossil fuel influence.

The shifting calculus for some lawmakers, Garcia said, has been from “’You’re going to come spend a bunch of money against me, and I could lose my seat” to “you’ll come spend a bunch of money against me and I won’t lose my seat, because the electorate rewards us for being bold.”

Several Democrats who benefited from millions of dollars in oil industry campaign spending voted for Newsom’s oil profits penalty. At the same time, a bloc of Assembly Democrats who were industry beneficiaries withheld their votes.

“A lot of those members rely on campaign support from big oil,” Muratsuchi said.

That support will likely continue. The industry could also undercut Newsom by passing a referendum overturning the oil well setbacks law. But the governor has helped shift the political dynamics around the oil industry, said former Sen. Fran Pavley, an architect of the state’s cap-and-trade system who is now the USC Schwarzenegger Institute’s environmental policy director.

“They are very influential in many parts of the state,” Pavley said, but “I think Gavin Newsom’s done a good job in getting the political wind changing.”

Find your latest news here at the Hemet & San Jacinto Chronicle

The post California takes on oil companies again with law that could cap profits in state appeared first on The Hemet & San Jacinto Chronicle.

President Joe Biden on Wednesday called on U.S. oil refiners to produce more gasoline and diesel, saying their profits have tripled during a time of war between Russia and Ukraine as Americans struggle with record high prices at the pump.

“The crunch that families are facing deserves immediate action,” Biden wrote in a letter to seven oil refiners. “Your companies need to work with my Administration to bring forward concrete, near-term solutions that address the crisis.”

Gas prices nationwide are averaging roughly $5 a gallon, an economic burden for many Americans and a political threat for the president’s fellow Democrats going into the midterm elections. Broader inflation began to rise last year as the U.S. economy recovered from the coronavirus pandemic, but it accelerated in recent months as energy and food prices climbed after Russia invaded Ukraine in February and disrupted global commodity markets.

The government reported on Friday that consumer prices had jumped 8.6% from a year ago, the worst increase in more than 40 years.

The letter notes that gas prices were averaging $4.25 a gallon when oil was last near the current price of $120 a barrel in March. That 75-cent difference in average gas prices in a matter of just a few months reflects both a shortage of refinery capacity and profits that “are currently at their highest levels ever recorded,” the letter states.

The American Petroleum Institute, which represents the industry, said in a statement that capacity has been diminished as the Biden administration has sought to move away from fossil fuels as part of its climate change agenda.

“While we appreciate the opportunity to open increased dialogue with the White House, the administration’s misguided policy agenda shifting away from domestic oil and natural gas has compounded inflationary pressures and added headwinds to companies’ daily efforts to meet growing energy needs while reducing emissions,” API CEO Mike Sommers said in a statement.

Sommers added, “I reinforced in a letter to President Biden and his Cabinet yesterday ten meaningful policy actions to ultimately alleviate pain at the pump and strengthen national security, including approving critical energy infrastructure, increasing access to capital, holding energy lease sales, among other urgent priorities.”

The letter is unlikely to start a chain of events that would boost supplies. Refineries have gone through unprecedented, unplanned maintenance globally in the last three months and there is an extreme shortage being felt across the globe, said Claudio Galimberti, senior vice president at Rystad Energy. China’s decision to limit its exports of oil products also contributed to the problem, he said.

“U.S. refiners cannot increase capacity beyond current levels,” Galimberti said. “If they could, they would have done it already.”

As Biden sees it, refineries are capitalizing on the uncertainties caused by “a time of war.” His message that corporate greed is contributing to higher prices has been controversial among many economists, yet the claim may have some resonance with voters.

Some liberal lawmakers have proposed cracking down on corporate profits amid the higher inflation. Sen. Bernie Sanders, a Vermont independent, in March proposed a 95% tax on profits in excess of companies’ pre-pandemic averages.

The president has harshly criticized what he views as profiteering amid a global crisis that could potentially push Europe and other parts of the world into a recession, saying after a speech Friday that ExxonMobil “made more money than God this year.” ExxonMobil responded by saying it has already informed the administration of its planned investments to increase oil production and refining capacity.

“There is no question that (Russian President) Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing,” Biden’s letter says. “But amid a war that has raised gasoline prices more than $1.70 per gallon, historically high refinery profit margins are worsening that pain.”

The letter says the administration is ready to “use all reasonable and appropriate Federal Government tools and emergency authorities to increase refinery capacity and output in the near term, and to ensure that every region of this country is appropriately supplied.” It notes that Biden has already released oil from the U.S. strategic reserve and increased ethanol blending standards, though neither action put a lasting downward pressure on prices.

There’s little the government can do to lower prices, other than release oil from the strategic reserve, and that’s already been done, said Jim Burkhard, vice president at IHS Markit. If Biden had not done that, prices would be even higher today, he added.

“No government can simply conjure up new supply,” Burkhard said. “One thing that may help would be to have a more constructive relationship with the U.S. oil industry, because it’s been somewhat antagonistic so far.”

The president sent the letter to Marathon Petroleum, Valero Energy, ExxonMobil, Phillips 66, Chevron, BP and Shell.

He also has directed Energy Secretary Jennifer Granholm to convene an emergency meeting and consult with the National Petroleum Council, a federal advisory group that is drawn from the energy sector.

Biden is asking each company to explain to Granholm any drop in refining capacity since 2020, when the pandemic began. He also wants the companies to provide “any concrete ideas that would address the immediate inventory, price, and refining capacity issues in the coming months — including transportation measures to get refined product to market.”

There may be limits on how much more capacity can be added. The U.S. Energy Information Administration on Friday released estimates that “refinery utilization will reach a monthly average level of 96% twice this summer, near the upper limits of what refiners can consistently maintain.”

The letter says that roughly 3 million barrels a day of refining capacity around the world have gone offline since the pandemic began. In the U.S., refining capacity fell by more than 800,000 barrels a day in 2020.

Find your latest news here at the Hemet & San Jacinto Chronicle

The post Biden tells oil refiners: Produce more gas, fewer profits appeared first on The Hemet & San Jacinto Chronicle.