California Energy Regulators Delay Profit Cap on Oil Companies Amid Rising Gas Prices

California’s rising gas prices are under renewed scrutiny after the California Energy Commission has decided to delay the implementation of a profit penalty on oil companies until 2030. This decision is perceived as beneficial for the state’s fossil fuel sector amidst concerns over rapidly escalating fuel costs.

Gas prices in California have consistently outstripped national averages, currently averaging $4.59 per gallon for regular unleaded. This figure is significantly higher than the national average of $3.20. Recent data indicates that average gas prices in California have increased by 8 cents from just a week ago and have gone up 12 cents compared to last month. Areas in Southern California have reported surges exceeding 10 cents before the Labor Day weekend due to refinery maintenance, further impacting wholesale prices.

The commission’s decision to postpone the profit cap comes in the wake of announcements that two major oil refineries in California, responsible for about 18% of the state’s refining capacity, plan to close in the near future. This closure poses additional challenges to an already strained supply chain, raising concerns about future gas prices.

Governor Gavin Newsom, who once claimed the state had “finally beat big oil,” now faces criticism for the delayed penalty. This postponement is part of California’s broader initiative to regulate the oil industry and combat climate change. Although the commission retains the option to enact a profit penalty, there has been no conclusive determination on what would be considered excessive profits.

Critics of the commission’s vote have expressed strong disapproval. Commentators from consumer advocacy groups have labeled the move a “giveaway” to the oil industry, forewarning potential price spikes ahead. The Western States Petroleum Association has urged for a 20-year delay on the profit penalty, arguing that California’s high prices are more related to regulatory costs and supply management than directly due to refinery profits.

Despite the recent increases, California’s average gas price remains about 4 cents lower than it was at the same time last year. The average price in the Los Angeles-Long Beach area is slightly higher at $4.61, marking a 14-cent increase from the previous month.

Looking ahead, some experts suggest that renewed oil drilling in California might serve to stabilize prices; however, they acknowledge that it may not fully resolve the underlying issues impacting the supply and demand interplay within the market. Lawmakers are considering various options, including adjustments to California’s unique fuel blend to help alleviate gas prices for consumers. There seems to be a consensus that the state should reconsider recent regulations that grant the Energy Commission authority to oversee refiners’ profit margins.

As we move closer to fall and winter months, analysts predict fluctuations in gas prices, with potential decreases in the coming weeks. However, demand in Southern California during the Labor Day weekend is expected to remain high despite the escalation in fuel prices. Observers note that nationwide, gas prices for the Labor Day holiday are anticipated to average around $3.15, the lowest recorded since 2020.