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California oil windfall profits penalty goes into effect today

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(The Center Square) – The Petroleum Windfall Profits Penalty law goes into effect today.

Following a call from Gov. Gavin Newsom earlier this year to hold petroleum companies responsible for high gas prices and a request for a special session of the California State Senate to fast-track the bill, Newsom signed the bill into law in late March.

Implementation of the bill is expected to cost around $7 million.

The law creates the Division of Petroleum Market Oversight. It sets profit margins for oil companies and penalizes California’s refineries for exceeding that margin. The new division requires daily reports on the market, including oil being brought into California. Refineries are now required to provide maintenance schedules in advance and immediate notification of any unplanned maintenance to allow the state to prepare for shortfalls in production.

Refineries must also prepare and provide monthly profit reports.

“California is delivering on our promise to hold Big Oil accountable,” the governor said. “These new transparency laws will help us track refiners’ profits and shine a light on price manipulation so Californians aren’t vulnerable to the greedy whims of Big Oil.”

California gas prices remain among the nation’s highest, only recently eclipsed by Washington state amid a rollout of a carbon auction.

As of Monday, AAA reports the average gallon of fuel in California costs $4.84. One year ago, it was $6.32.

The United Kingdom has a tax on the extraction of oil. California is not imposing a tax but a windfall penalty on refineries. There are only 15 refineries in California as the state requires a unique clean-burning fuel that is more expensive than gas used in other states.

The high price of gas has been a challenge for the state for decades, with blame running the gamut of California’s refineries, retailers, the state’s taxes and environmental policies. Supporters of the new system hope monitoring will identify manipulation or any illegal behavior, which will be referred to the Department of Justice for prosecution.

Opponents of the measure said during debate of the bill that California Democrats could have helped consumers during record-high gas prices by suspending the state gas tax but weren’t interested in doing so. Others predicted oil companies would pass the new penalties down to the pump.

A statement released by the governor’s office said, “Compared to 2022, California’s gas prices have been substantially lower and less volatile. The Governor’s actions have helped lead to a decrease of $1.50 per gallon, year over year.”

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