Newsom’s ABX2-1 Will Artificially Create a Fuel Shortage Crisis by Limiting Distribution of Fuel

Why is gas more than $5 gallon in California and not across the country if “Big Oil” is so greedy?

California Governor Gavin Newsom called for a special legislative session after accusing California’s oil refineries of price gouging. The governor claimed that “Gas price spikes on consumers are profit spikes for oil companies, and they’re overwhelmingly caused by refiners not backfilling supplies when they go down for maintenance.”

“Why would the people serving the people of California do something that would benefit the people of California?” a Capitol friend asked after the Petroleum & Gasoline Supply Committee passed Gov. Gavin Newsom’s ABX2 to impose new mandates for oil storage requirements on oil refineries in California.

The hearing was held right after Thursday’s press conference by California Fuels and Convenience Alliance, small businesses, and small family-owned businesses opposing Governor Newsom’s attempt to control fuel pricing.

“Last week, under the demand of Governor Newsom, the California State Assembly began their special session on fuel and energy costs, discussing ABX2-1 (formerly known as SB 950),” the CFCA said. “This bill under review will give the California Energy Commission (CEC) more authority to impose new mandates for oil storage requirements on oil refineries in California.”

“California is on the verge of an energy crisis with the push for electrification by 2035,” said John Kabatek, California State Director, National Federation of Independent Business. “The regulation requirements in ABX2-1 will artificially create a fuel shortage crisis due to limiting the distribution of fuel.”

“This will unavoidably increase the demand, causing prices to increase.”

Indeed.

As the Globe recently reported:

Gov. Gavin Newsom’s California Energy Commission regulators announced earlier this month proposed government controls of the petroleum industry, ostensibly in order to combat future energy price surges. This followed Chevron Oil company’s announcement that it will be moving its headquarters to Houston Texas from San Ramon California.

As the California Legislature was wrapping up its 2023-2024 session at the end of August, Gov. Newsom threatened to call a special session if lawmakers didn’t pass his Venezuela-Like price controls proposal of the oil and gas industry.

According to Newsom, who is sounding more like Hugo Chavez:

“The state has found that, when refiners limit gasoline supplies, prices spike at the pump and create massive profits for Big Oil. Today, Governor Gavin Newsom announced a new, first-in-the-nation proposal to further prevent price spikes and save Californians money.

Newsom’s proposal would authorize the California Energy Commission (CEC) to require that petroleum refiners maintain a minimum fuel reserve to avoid supply shortages that create higher prices for consumers. If this proposal had been in effect in 2023, Californians would’ve saved upwards of $650 million in gas costs due to refiners’ price spikes.”

No mention in Newsom’s proposal of California’s highest-in-the-nation gas taxes…

As Ed Ring reported for the Globe this week:

…much of the high price for gasoline in California is caused by higher taxes. In July 2024, when the average price per gallon in California was $4.49, state taxes, fees, and programs added $1.23 to the price, along with another $0.18 of federal excise tax. The cost of crude oil added $2.04 and “industry costs and profits” added $1.04. Included in that last number are not only refinery operating costs, but also distribution and marketing costs.

California’s state government collects corporate income tax on oil company profits, which adds to the $1.23 they collect in direct taxes and fees on a gallon of gas. So one may ask, since our governor is so concerned about California’s consumers getting gouged at the pump, why the amount the state collects on every gallon of gasoline is grossly in excess of not only industry profits (before taxes), but profits plus total operating costs. Who, then, is gouging who?

As the Globe has asked repeatedly, “If the ‘Big Oil’ companies are so greedy, why are they only greedy in California and not greedy in every state?”

NFIB’s Kabatek brought the receipts:

• ABX2-1 prioritizes fuel supply over worker and community safety by delaying necessary maintenance.

• This bill requires CEC approval before crucial refinery turnarounds, potentially endangering workers and nearby residents by making safety a secondary concern.

• Concerns go beyond the small business owners at the end of the oil industry supply chain.

• The family-owned fuel and convenience stores that CFCA represent will be impacted first, specifically the unbranded smaller locations.

• Every business owner that relies on product and services being delivered through a consistent supply chain will feel the added weight of increased costs.

• Lastly, the bill fails to address California’s unique summer and winter gasoline blend requirements, potentially resulting in unusable reserves during periods of high demand.

How are the refineries expected to hold back a supply of our unique blend for our state, supply 90 percent of Nevada’s oil, and nearly 50 percent of Arizona’s, all while keeping the price of fuel at an affordable dollar per gallon? Kabatek asked.

As the Globe reported last week, “Arizona gets nearly half of its gas from California. The vast majority of Nevada’s gas – 88% – comes from California.”

“The governors of Arizona and California co-signed a letter last week to California Gov. Gavin Newsom urging him to back off of his legislation to add new regulations on the state’s refiners. They say forced supply shortages will result in higher gas costs in the three Western states.”

“Arizona and Nevada will suffer with us,” said Alessandra Magnasco, Governmental Affairs and Regulatory Director, California Fuels and Convenience Alliance.

“ABX2 does nothing but disrupt the supply chain for businesses relying on deliveries of goods and services,” said Johnnise Foster-Downs, Vice President of Public Policy, California Asian Pacific Chamber of Commerce. She said the Legislature be promoting ways to assist minority-owned businesses, and not be left to deal with the fallout.

Julian Canete, CEO, California Hispanic Chambers of Commerce said they represent 850,000 hispanic-owned businesses.

Newsom’s Venezuela-like state proposal would:

1. Obligate California’s petroleum refiners to demonstrate resupply plans and arrangements to the CEC that are adequate to address the loss in production from refinery maintenance.
2. Authorize the CEC to require petroleum refiners to maintain enough fuel inventory to stabilize fuel supply.
3. Impose penalties on refiners who fail to follow these requirements.

The Globe reported in August the California Energy Commission proposal of Government control of the petroleum industry:

“The State of California would purchase and own refineries in the State to manage the supply and price of gasoline,” wrote the study’s authors, with the scope of the initiative ranging from “one refinery to all refineries in the state.”

“Small business thrives when the supply chain is stable,” Kabatek said. That is true, which makes many question if Gov. Newsom is actually trying to destroy California’s small businesses.

“Let’s be sensical and realistic with a pathway to lowering fuel and energy prices,” Kabatek said, wrapping up the press conference. There is no need to fast-track market disrupting regulation that we will all be paying for down the road.”