California takes on oil companies again with law that could cap profits in state

Gov. Gavin Newsom signed legislation that could force the oil industry to cap profits and reveal gas price data in its largest U.S. market – demonstrating his clout in a state dominated by Democrats and the weakening of a once powerful lobby.

The legislation Newsom approved Tuesday extends a winning streak for the governor against oil companies, long one of most formidable lobbying powers in California’s state capital.

The governor overcame strenuous industry opposition in muscling a bill through the Legislature that forces companies to turn over earnings data and exposes them to penalties. It came just months after he pushed through a climate package that fortified emission targets and restricted drilling.

“We proved we can actually beat big oil,” Newsom said at a signing ceremony at the Capitol.

That victory came despite the industry deploying “30-plus lobbyists” to stymie the bill, he said.

The industry acknowledges the setbacks.

“I think what we’ve seen is the governor has put this industry in the crosshairs for a number of years now,” said Kevin Slage, a spokesperson for the Western States Petroleum Association, the main lobbyist for the industry in Sacramento. “With a supermajority and the ability of governors to pull levers with legislators, it’s a tough policy environment for us for sure.”

Newsom has aggressively pursued an ambitious legislative climate agenda since last summer, winning praise from environmentalists who once lamented his hands-off approach and adding to executive orders phasing out gas-powered car sales and fracking. And he has regularly denounced oil companies for standing in his way. Last summer, he excoriated the companies for running ads that framed his push last summer as a matter of righteousness and “which side we’re on.”

“Big oil lost,” Newsom told an audience in New York after pushing the package through the Legislature, “and they’re not used to losing.”

He rode the momentum from those victories into a quest to curtail oil industry profits, announcing his plan before the bill-signing period ended. The proposal has evolved substantially, morphing from a windfall profits tax to a framework for the California Energy Commission to investigate earnings. But Newsom’s rhetoric remained the same: oil companies are ripping you off.

Newsom was uncharacteristically engaged with legislators throughout the process, visiting caucuses and speaking with members individually and in smaller groups. After legislators balked at Newsom’s initial idea, expressing fears it would backfire and raise prices, the administration agreed to language requiring the Energy Commission to ensure the benefits to consumers would outweigh harms.

That both assuaged legislators’ fears of unintended consequences and helped lawmakers feel they were being brought in rather than dragged along. A senior legislative staffer called Newsom’s tactic a “sea change” in his approach to the Legislature and a “very significant factor in how this got landed.”

“This is not something the governor is shoving down our throats,” Assemblymember Jacqui Irwin (D-Thousand Oaks) said on the Assembly floor.

Crafting that language took months. The revamped proposal then rocketed through the Legislature in less than two weeks as Newsom and Democrats sought to preempt a counteroffensive. Oil industry opponents protested that Newsom was rushing through an unvetted proposal that would harm consumers by distorting a complex industry. It didn’t matter.

“Fossil fuel obsolescence is on the horizon,” Assemblymember Alex Lee (D-Milpitas) told members.

That hasn’t always been the case. California’s proud environmentalist bent belies the political and economic might of in-state oil extractors and refiners. Industry groups spend millions of dollars to elect allies to the Legislature — often moderate Democrats — where the corridors teem with lobbyists who are tasked with thwarting legislation that hurts companies’ bottom line. The Western States Petroleum Association spent nearly $20 million on lobbying and campaigns in 2021 and 2022.

They have enlisted powerful political allies. That has meant hiring connected players like the former leader of moderate Democrats and California’s former oil and gas regulator. More crucially, the oil industry forged an alliance with a union umbrella group whose members work at refineries — a critical source of influence in a Capitol where organized labor holds significant sway.

Bills to slash emissions or require new oil wells be far from homes and schools could not overcome that opposition. Newsom’s intervention was decisive. Lawmakers revived the measures at the governor’s urging and pushed them to his desk.

“That is perhaps the most powerful political coalition in the state Capitol,” said Assemblymember Al Muratsuchi (D-Torrance), who has become a vocal critic of oil industry influence. “We’re only able to overcome that with the governor taking the lead and championing climate measures.”

Shifting voter views are also driving political dynamics. A decade ago, a plurality of California voters said strict environmental laws were too costly. By 2021, nearly two-thirds said they were worth the cost. Voters are more likely to call climate change a serious issue as annual wildfires have become more destructive. Both Newsom and the Legislature have taken advantage.

“The governor was more aggressive, and I think that inspired the Legislature to be more aggressive. While there’s allies in both parties to the oil industry, I think a lot of folks were hungry to get stuff done,” said former Assemblymember Cristina Garcia, who helped negotiate last year’s climate package. “The governor deserves some credit but I think here’s some other factors as well with the stars lining up politically so it doesn’t feel like you’re taking such a political hit.”

The money map is changing as well. The climate-focused Energy Foundation spent millions in Sacramento last year, putting it on the same plane as oil companies. The California Democratic Party now refuses oil money. The industry can still shower candidates with cash, but their resources increasingly run up against voter distaste with fossil fuel influence.

The shifting calculus for some lawmakers, Garcia said, has been from “’You’re going to come spend a bunch of money against me, and I could lose my seat” to “you’ll come spend a bunch of money against me and I won’t lose my seat, because the electorate rewards us for being bold.”

Several Democrats who benefited from millions of dollars in oil industry campaign spending voted for Newsom’s oil profits penalty. At the same time, a bloc of Assembly Democrats who were industry beneficiaries withheld their votes.

“A lot of those members rely on campaign support from big oil,” Muratsuchi said.

That support will likely continue. The industry could also undercut Newsom by passing a referendum overturning the oil well setbacks law. But the governor has helped shift the political dynamics around the oil industry, said former Sen. Fran Pavley, an architect of the state’s cap-and-trade system who is now the USC Schwarzenegger Institute’s environmental policy director.

“They are very influential in many parts of the state,” Pavley said, but “I think Gavin Newsom’s done a good job in getting the political wind changing.”

Lara Korte contributed to this report from Sacramento.