Newsom Signs Bill to Regulate Oil Refinery Supply

Governor Gavin Newsom signed into law ABX2-1, which authorizes the California Energy Commission (CEC) to require oil refineries to maintain minimum inventories of refined fuels, feedstocks, and blending components and to have resupply plans to cover production loss during maintenance. The bill was introduced after Newsom called for a special session of the legislature to pass legislation on his plan for gasoline prices.

The bill requires the CEC to consider the effects of refinery inventories of fuel, feedstocks, and blending components on the price of transportation fuels in California. It would also prohibit the CEC from applying a minimum inventory requirement that would require a refiner to build additional storage. Refiners that fail to follow the plan could be subject to a civil penalty of $100,000 to $1 million. The inventory provisions of the bill would sunset on January 1, 2033.

Notably, the final bill did not repeal the Independent Consumer Fuels Advisory Committee and establish a new six-member Expert Advisory Committee to advise the CEC and Division of Petroleum Market Oversight.

During the proceedings, Andy Walz, Chevron President Downstream, Midstream and Chemicals, sent a letter to lawmakers criticizing the proposal as supported by “inaccurate and flawed arguments.” Walz criticized the “baseless and frankly ridiculous claims that the industry is engaging in price gouging.” He argued that the “suggestion that refiners mishandle inventory prior to shutdowns is likewise an ill-informed generalization. We have contractual obligations to supply our customers and go to great lengths to meet them.”

Walz argued that state policies limit supply. He argued that the California gasoline marketplace “is constrained, and government manipulation will only increase prices. To boost supply and reduce consumer costs, we need to rethink the policies that limit supply.”