(Bloomberg) -- California Governor Gavin Newsom plans to propose legislation requiring oil companies in the most-populous US state to amass stockpiles of gasoline and other fuels to prevent supply shortages and price spikes during refinery outages.
Such reserves would shield Californians who already pay some of the highest pump prices in the nation from the sort of run-ups seen in 2022 and 2023, said Tai Milder, a Newsom appointee who leads the state’s Division of Petroleum Market Oversight. If such a measure had been in place, it would have saved consumers as much as $650 million last year alone, he said.
The governor’s plan signals an intensification of Newsom’s long-running battle against the fossil-fuel industry and comes less than two weeks after Chevron Corp. announced plans to shift corporate headquarters to Texas after 145 years in the Golden State. In recent years, retail gasoline prices in the state surged to $6 a gallon, spikes the Newsom administration blamed on a shortage of backup supplies when refiners reduced operations to perform repairs.
“Price spikes at the pump are profit spikes for Big Oil,” Newsom said in an email. “Refiners should be required to plan ahead and backfill supplies to keep prices stable, instead of playing games to earn even more profits. By making refiners act responsibly and maintain a gas reserve, Californians would save money at the pump every year.”
Chevron, which operates about 30% of California refining capacity, earlier this month said it will move headquarters to Houston after clashing repeatedly with state officials over energy policy.
“That California has had these price spikes shows there’s not enough of a buffer to protect the state,” Milder said in an interview on Thursday. “Consumers would feel more secure knowing the refineries each have a reserve they’re maintaining at all times.”
The non-profit group Consumer Watchdog welcomed the plan, calling it a “necessary and landmark reform” that would ensure statewide gasoline reserves don’t drop below the 10-day mark.
Meanwhile, the Western States Petroleum Association said the announcement is “a political attack on consumers and our industry. Proposing “wide-ranging and costly new laws” in the final weeks of a legislative session makes it “impossible” to deliver effective policy.
Refineries along the West Coast and elsewhere already accumulate stockpiles of fuel during the winter months, which means they wouldn’t need to build additional storage tanks to comply with the proposed rule, Milder said.
“We just want them to also have higher stock in the summer time,” he added.
Gasoline prices in California are typically about 30% higher than the national average because of its tough, low-carbon fuel standards and its relative isolation from other major gasoline-making regions. Four companies now control about 90% of the state’s gasoline market, which is still the second-largest in the country even as the state has the highest penetration of electric vehicles.
Newsom has long accused refiners of price gouging, a charge rejected by the oil industry. The California Energy Commission said it uncovered data that shows surging refining margins during periods of scheduled maintenance in summer and early autumn, which coincide with peak seasonal demand for gasoline.
Refining margins “jump off the charts” to as much as 200% above normal during those periods, Milder said. Higher taxes and clean-energy standards cannot be blamed for the surge because, unlike refining margins, they do not change from month-to-month, he noted.
Claims that refiners intentionally idle plants to perform maintenance during driving season as false and “purposely misleading,” the WSPA said. “To impose new operational mandates on energy producers based on such falsehoods is regulatory malpractice, and ignores the logistical challenges and costs associated with such a plan.”
Last year, Newsom accused Big Oil of exploiting consumers and lying about climate change, both of which are now the subject of investigations and lawsuits. The industry says it should not be punished for responding to consumer demand for transportation fuels.
Milder admitted the proposal is unlikely to be “super popular” with the industry but believes the state is still an attractive place to do business.
“I don’t see any reason why companies can’t earn a fair return in California, but that fair return means you’re protecting the state from these price spikes and the resiliency of a potential natural disaster,” he said.
--With assistance from Lucia Kassai and Devika Krishna Kumar.
(Updates with industry and consumer watchdog’s comment starting in seventh paragraph.)
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