After failing to find any evidence of price gouging under a new law enacted last year, it appears California Governor Gavin Newsom has decided to pivot from price controls to new regulations for refiners.  

This week California Governor Gavin Newsom proposed a new law that would institute a minimum gas reserve requirement for refiners that the governor argues will dampen price volatility, but in reality will only add to costs for California motorists.   

Newsom Proposes Minimum Gas Reserves For Refiners While The Biden-Harris Administration Drains the Strategic Petroleum Reserve 

The proposal from Newsom is particularly ironic for a few reasons, starting with the fact that the Biden administration has spent the last several years draining the Strategic Petroleum Reserve for political gain ahead of this November’s elections. According to reporting from the Washington Free Beacon, the reserve remains near record lows:   

“The Biden-Harris administration is boasting that it has ‘secured’ back the oil it drained from the country’s emergency reserves in the wake of Russia’s invasion of Ukraine. But in reality, the reserve’s supply remains just slightly above record lows and isn’t on track to be fully replenished until the early 2030s, leaving the United States vulnerable to future energy crises.” 

While the SPR is managed by the federal government, it serves some parallel goals to Newsom’s proposal in terms of maintaining energy storage to address instances of emergency supply disruptions that would otherwise result in massive price spikes.   

If Newsom’s goal has shifted from rooting out nonexistent “price gouging” to increasing the energy market’s ability to respond to supply disruptions, it’s worth asking why exactly the Biden administration has elected to put America’s own energy security in such a precarious position, especially amid massive geopolitical uncertainty in the Middle East.  

Increased Operating Costs for Refiners Mean Higher Prices at The Pump  

It’s also worth remembering that California’s own policies have resulted in it being an energy island, which leave the state especially vulnerable to supply disruptions. Establishing a minimum fuel storage requirement would do nothing to address other self-inflicted bottlenecks in California’s energy supply chain that contribute to the state’s sky-high gas prices, which now average $4.45 per gallon.  

Minimum fuel requirements would force California refiners to incur a variety of additional costs, mainly around storage. These increased costs for refiners would likely be transferred to California consumers in the form of – you guessed it – higher gas prices. 

California’s Attacks on Refinery Maintenance Aren’t Just Illogical, They’re Dangerous 

Despite no evidence to back up Governor Newsom’s price gouging allegations, the Governor and the CEC continue to chase the white whale.  

In a statement regarding the new legislation, Tai Milder, Director of the Division of Petroleum Market Oversight for the California Energy Commission (CEC), made the outlandish claim that refiners have been “racking up profits by planning maintenance that reduces supply during our busy driving seasons,” and the proposed gas reserve requirement would mitigate that.  

First off, in May of this year, the CEC Vice Chair told California lawmakers point-blank that the agency did not have evidence to back up claims of “foul play” amongst refiners. Second, the CEC released a report earlier this month that offered a grim assessment of the different tools the agency is considering to combat non-existent price gouging, concluding that each approach is likely to drive gas prices even higher.  

With the CEC itself acknowledging that other measures like profit margin caps are practically infeasible, the agency and the Governor have now taken aim at planned refinery maintenance. This last-ditch effort is not just illogical – it’s also dangerous.  

Ongoing refinery maintenance enables refiners to produce cleaner fuels, while keeping employees and communities safe. Much of the maintenance refiners undertake is to ensure their facilities are compliant with California’s strict environmental regulatory framework and increase efficiency at the facilities. In reality, California’s dwindling refining capacity and its status as an energy island have far more to do with price surges than routine maintenance.  

BOTTOM LINE: California Governor Gavin Newsom’s proposal to establish a minimum gas storage requirement is a political stunt that will lead to higher gas prices for consumers. Since Newsom apparently thinks it’s a good idea to stock up on gas to mitigate supply disruptions, it might be wise for the Governor to ask why the Biden-Harris administration has decided to pursue the opposite approach when it comes to the SPR.  

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