California regulators today voted to pause rulemaking for five years on a refiner margin cap and a penalty for non-compliance.
The vote comes as California is facing the closure of two major refineries within eight months, triggering concerns about the state's tightly supplied and often volatile products market and the impact on neighboring states.
The California Energy Commission (CEC) voted 3-0 to approve the five-year pause but stopped short of a full repeal of the legislation that included the margin cap, which is preferred by the refining industry. Two commissioners were not present at the vote.
The CEC said in a staff report that imposing a refiner margin cap at this time "may affect refiners' capital outlay plans in essential refinery maintenance and upgrades" and may also "increase the risk of unplanned outages, compromise safety protocols, and delay maintenance activities."
In addition, the agency said that pausing the refiner margin cap provides "necessary certainty for refiners and infrastructure investors to maintain system reliability" and protects consumers from risks associated with excessive pricing and inadequate supply.
The CEC measure approved on Friday also said that the agency will continue to collect information on the cost-benefit analysis of implementing a refiner margin cap and that any refiner margin cap imposed from 2030-2035 would include the possibility of exemptions.
The CEC in June first recommended a pause in the refiner margin cap in a letter to governor Gavin Newsom (D). The agency said at the time that rulemaking for the refiner margin cap should be paused "for a reasonable length of time."
A refining margin refers to the difference between the cost of crude and the value of the refined products — such as gasoline and diesel — that are produced at a refinery.
The refiner margin cap is part of a multi-year legislative effort by Newsom to mitigate price volatility in the state after gasoline prices rose to records in 2022. The CEC said on Friday that it is still considering refinery resupply and minimum inventory rules.
US refiners have long opposed the new regulations seeing them as a political attack on the industry, conflicting with other laws and the latest example of an increasingly difficult environment in the state.
US independent refiner Phillips 66 plans to shut its 139,000 b/d Los Angeles refinery by the end of this year, while cohort Valero aims to close or repurpose its 145,000 b/d Benicia, California, refinery by April. Phillips 66 said it will start some winding down of the Los Angeles facility operations in the next month.
The two refinery closures will cost the state 17pc of its refining capacity.
In light of the closures, Newsom has urged state regulators to redouble efforts to work closely with refiners to ensure adequate supplies of transportation fuels.
