BAKERSFIELD, Calif. (KERO) — The windfall tax on oil companies proposed by California Governor Gavin Newsom would require them to pay back excessive profits. The first hearing on the proposal is happening on Wednesday, and those who oppose it, like Hathaway LLC President and CEO Chad Hathaway, say it's not tackling the right issue.
"It's bad policy," said Hathaway. "We have been dwindled down to an industry with very little refineries. With half the refineries we had 20 years ago."
Hathaway is speaking about state policies that have limited oil production due to environmental regulations, which Hathaway says have made refining gas more costly.
"Their cost to operate has gone up 5 to 10-fold in the last 10, 15 years because of cap and trade, because of all the air pollution control. We all want to reduce pollution, but to use it to subsidize something else in an excessive rate hasn't made a lot of sense from the very beginning," said Hathaway.
Hathaway points to the high cost of operating a refinery in California as one reason for the state's gas prices being higher than the national average, and it's those gas prices that are at the center of this special session of the state legislature.
Governor Newsom is citing record-high profits from oil companies, like BP making an $8.2 billion dollar profit, among others, as the reason for the proposed legislation.
Documentation shows that the price gouging policy would make it unlawful to charge excessive refiner margins. If oil companies violate the policy, then the California Energy Commission could charge them a penalty, and that money would be returned to Californians through the Price Gouging Penalty Fund.
But Hathaway argues that that's not how the economy works.
"I ask you to think about Apple, Microsoft, Google, all these other companies. We are not attacking them for making massive profits," said Hathaway, adding that the gas industry fluctuates with boom and bust cycles, where companies try to make up during the booms what they lost during the busts.
"You don't attack people for being a capitalist. I will never apologize for being a capitalist. I will never apologize for making money. That is why I am in business," said Hathaway. "I took the risk, you didn't. Here it is, guess what, I get to do it. I don't go to work every day and clock in and clock out. When oil tanks, I lose my rear end, and when oil makes a lot, I make my rear end back."
But Hathaway, as well as others who oppose the bill, such as Kevin Slagle, spokesperson for the Western States Petroleum Association, say it does not address the right issue, which they believe is supply.
"So whether it is permitting bans that are happening across California, it is very difficult to produce more oil in Kern County, for example, than it was just years ago," said Slagle. "When you make it tougher for oil infrastructure to be built in the state to transport oil across the state, that constrains supply."
Slagle added that the policy will have the opposite of its intended effect.
"If you are a company and you are told you are going to be fined if you produce more than a certain amount, in these market conditions companies have a fiduciary responsibility not to exceed those caps. They have to answer stockholders. They can't break government regulations willingly that way," said Slagle. "What we could see if that the refiners just wouldn't do that, so then we further constrain a market that would likely be at a critical time when it comes to cost, a lot like what we saw last fall."
Fall of 2022 is when oil companies were recording record high profits, Slagel's observations are why the proposal also allows state agencies like the California Department of Tax and Fee Administration to have more power to review gas cost, profits, and pricing.
According to a consumer watchdog poll, 60 percent of California voters support the proposed bill, but because most of those who oppose the bill talk about supply being. big issue, Delano's Democratic representative Dr. Jasmeet Baines has proposed another bill that would require half of all oil refined in California to come from within the state by 2035, which would require increasing domestic production.
In a statement on the matter, Baines wrote:
“Pushing the oil industry out of state may please some political activists, but it ignores the realities of the global market. California’s policies are directly responsible for financing human rights violations in the Middle East and the deforestation of the Amazon rainforest. My bill maintains all of California’s strict environmental and labor protections, while also ensuring we Buy American. Protecting California’s premier oil industry is one of the most environmentally friendly things we can do.”
Slagle echoed the need to cut reliance on foreign oil, but added that Wednesday's hearing will show that finding a solution to this situation is a lot more complex.
"Different things that all feed into what we pay at the pump. There is no one simple answer. There is no one bad guy, so I think it's good that there is different policies up to discuss," said Slagle. "Maybe we can get some real answers for consumers rather than the political stuff we have seen in the last few years."
