California refiner profit cap details emerge

The California senate amended a bill yesterday with details for implementing a proposed profit cap on in-state refiners, an effort by governor Gavin Newsom's office to combat what it views as price gouging by oil companies.

The bill, if passed, would authorize the State Energy Resources Conservation and Development Commission to establish a maximum gross gasoline refining margin in California and issue penalties to companies that exceed it.

Existing law requires California refiners to submit information regarding their gasoline production to the commission 30 calendar days after month-end, including a gross gasoline refining margin. The 20 March proposal would require refiners to also report the net gasoline refining margin per barrel, or the gross margin minus the refiners' operational costs, such as labor, electricity and natural gas.

The governor's office seeks to address what it sees as a "mystery gasoline surcharge" in California, noting that gasoline prices in the state averaged $2.61/USG more than the national average at their peak last year, according to a 16 March statement.

The commission would have the power to implement a maximum allowable gross gasoline margin with a tiered penalty that increases as the refiner's individual margins exceeds the maximum.

Expanded refiner, pipeline and port reporting

The latest proposal also expands the scope of reporting requirements to pipeline operators and port operators through which refined product travels, who would have to annually report their facility's capacity.

Any refiner or non-refiner placing spot market transactions would be required to submit a daily report detailing their transactions, according to proposed amendments.

The bill also seeks to address what Newsom's office views as artificially created price spikes caused by multiple refiners conducting maintenance concurrently. Refiners would have to report planned maintenance to the commission at least 120 days before the work or turnaround began. For unplanned maintenance that shuts a facility for more than 24 hours, a subsequent report would be required within 48 hours of the initial outage.

Refiners would have to report their maintenance schedules by refined product type annually for the coming twelve months as well as providing 12 months' notice of any intention to shut down, sell or reconfigure a facility.

Another proposal of the bill is to evaluate developing a public reserve for transportation fuels, essentially a state-level version of the US strategic petroleum reserve (SPR) which President Joe Biden's administration drew on last year but has yet to replenish.

Industry groups oppose the draft bill. The margin cap will discourage investment, limit supply and ultimately cost Californians more to fill their tanks, according to the regional industry group Western States Petroleum Association (WSPA).

The American Fuel and Petrochemical Manufacturers (AFPM) association agree with WSPA that a margin cap could intensify price volatility in California.

"California is the most expensive place to operate a refinery in the United States, and because of its taxes and anti-liquid-fuel policies, it's also the most expensive place to buy gasoline and diesel," a AFPM said, offering an explanation for the "mystery gasoline surcharge" Newsom's office said it is attempting to legislate against.

By Nathan Risser