Minimum Fuel Inventories Bill Signed into Law
Legislation authorizing the California Energy Commission (CEC) to require refineries to maintain minimum transportation fuel inventories was signed into law this week.
The California Chamber of Commerce opposed the bill, ABX2-1 (Hart; D-Santa Barbara), because it could create fuel shortages and increase average fuel prices for consumers and businesses.
Joining the CalChamber in opposing ABX2-1 were a coalition of labor groups, petroleum industry association groups, convenience store representatives, local chambers of commerce and economic partnerships, and some city and county governments.
Supporters of the bill besides Governor Gavin Newsom and Attorney General Rob Bonta included environmental and environmental justice organizations, consumer groups, boards of supervisors, and labor groups.
Asked at the signing ceremony on October 14 whether the bill would lower gas prices, Governor Newsom said the bill will “provide a tool that has not existed in the past” that will actively address price spikes. “I don’t want to overpromise, but we now have the tools.”
Opposition Arguments
An industry economic analysis concludes that ABX2-1 could restrict wholesale fuel supplies, causing price increases and an equivalent supply reduction in the retail market that could increase retail prices as well.
California already imports the majority of its oil from out of state. A requirement to maintain minimum gasoline inventories would give out-of-state and foreign fuel providers a competitive advantage as they would not be subject to these burdensome and unnecessary regulations.
In addition, the minimum inventory level requirements could have a negative impact on refineries’ ability to make seasonal transitions from summer to winter blends.
ABX2-1 also gives the CEC undue authority to decide when a refinery could perform necessary maintenance.
Despite amendments to ABX2-1 that require the CEC to give worker and community safety “primary consideration,” substituting the judgment of a state agency for refinery operators on critical maintenance decisions could put refinery employees and the surrounding community at an unacceptable risk.
Moreover, the civil penalties imposed by ABX2-1 — allowing up to $1 million per day —are overly punitive. A penalty structure like this would make it economically unfeasible to operate a refinery in California, leading to more detrimental downstream impacts on consumers, including an increase in prices.