Governor Newsom signed SBX1-2, the “Gas Price Gouging Law,” into law on March 28h. The law begins with a reflection on the gasoline price history in 2022, and then the new law declares: “Fundamental change is necessary to prevent future extreme price spikes and price gouging by oil companies.” SBX1-2 will expand current reporting requirements into a comprehensive reporting regime affecting every link in the petroleum supply chain. The recipient of these reports, the State Energy Resources Conservation and Development Commission (Commission), is then empowered to set a “maximum gross gasoline refining margin,” in effect, a price ceiling for gasoline. The penalty for exceeding this price will be a percentage of the amount over this price multiplied by all gallons sold for the month. A court injunction would also be possible to allow the state to prevent higher prices from continuing to be charged and fees simply paid. Collected penalties will be kept in the “Price Gouging Penalty Fund,” newly created “to address any consequences of price gouging on Californians” upon subsequent acts by the legislature.
SBX1-2 will take effect on the 91st day after the legislature’s special session ends, June 26, 2023. Exemptions are possible upon proving to the Commission that “the maximum gross gasoline refining margin would be unconstitutional as applied to the refiner.” Alternatively, the Commission may impose a different maximum margin or other conditions “upon a showing by the refiner of good cause.”
A notice and comment period of at least 30 days will be required before a public hearing to determine the maximum margin and penalty. The maximum margin and penalty would then come into effect on the 60th day after the establishment or adjustment. Before the maximum margin and penalty can be set, the Commission must find “that the likely benefits to consumers outweigh the potential costs to consumers.” All relevant factors must be considered, including the possibility of supply shortages and higher average prices. Although two advisory subagencies will be created, the Commission will be solely responsible for setting and enforcing the margin and its penalties. The Commission currently has about 30 attorneys and a few accountants, and SBX1-2 did not increase the funding for the Commission.
The California State Auditor will be responsible for reviewing the efficacy of SBX1-2 in 2033. By operation of law, absent action from the Legislature, the margin and its penalty will be terminated within 180 days of the State Auditor’s report if the State Auditor determines that they should be terminated.
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