Bill requiring minimum gasoline storage levels in California passes Assembly

A bill that would require refineries in California to maintain minimum amounts of gasoline inventories to prevent price spikes at the pump is halfway through the legislative process.

After gathering in a special session called by Gov. Gavin Newsom, the Assembly on Tuesday passed Assembly Bill X2-1 in a 44-17 vote.

The mandate to require minimum amounts of gasoline inventory will be determined, the bill’s supporters said, by a commission of experts that would include input from key stakeholders such as the oil industry.

The bill now heads to the Senate, which is expected to pass it when the chamber holds its own special session on Monday.

If signed into law, the legislation would be first of its kind in the U.S.

“I’m grateful to the Assembly for joining with me in our efforts to prevent gas price spikes and save Californians money at the pump,” Newsom said in a statement. “Just last year, price spikes cost Californians more than $2 billion – forcing many families to make tough decisions like choosing between fueling up or putting food on the table.”

The legislation passed Tuesday included a provision ensuring that existing gasoline storage tanks will be used, rather than building additional storage capacity. AB X2-1 also has a sunset clause, effective Jan. 1, 2033.

But industry representatives described the bill as “false progress,” saying there are still questions about how the inventory mandate will actually work, whether the legislation could end up leading to higher costs for consumers and jeopardize the jobs of refinery workers.

“Until lawmakers roll up their sleeves and engage in the hard work of finding real solutions, Californians will continue to pay the price for rushed, incomplete policies,” said Catherine Reheis-Boyd, CEO of the Western State Petroleum Association, an oil industry trade group.

Debate on the bill comes after gas prices in California zoomed in the summer and early fall of 2022 and 2023. In San Diego, the average price for a gallon of regular gas hit a record high of $6.435 on Oct. 5, 2022, according to AAA.

And while gas prices in San Diego and across Southern California have not changed much in August and September of this year, average prices in Northern California rose sharply last month, exceeding $5 a gallon on Sept. 12.

Newsom has taken an increasingly confrontational stand on oil companies. In the run-up to the special session, he said refiners are “playing games to earn even more profits” and urged lawmakers to pass legislation in Sacramento.

Supporters of AB X2-1 say setting minimum levels of inventory will help prevent price spikes when refineries face unplanned maintenance by ensuring sufficient levels of fuel are available in the market.

“We know high price spikes happen … the pattern keeps repeating itself,” Tai Milder, director of the recently created Division of Petroleum Market Oversight, said while testifying last week in favor of the bill that he says will “provide predictability and stability.”

However, three weeks ago, the governors of Arizona and Nevada wrote a letter to Newsom expressing concerns that increasing “regulatory burdens on refiners” through the passing of AB X2-1 could lead to higher prices in their respective states.

“With both of our states reliant on California pipelines for significant amounts of our fuel, these looming cost increases and supply shortages are of tremendous concern to Arizona and Nevada,” Gov. Katie Hobbs of Arizona and Gov. Joe Lombardo of Nevada said in the letter.

A number of consumer and environmental groups have come out in support of AB X2-1 and welcomed Tuesday’s vote.

“This is a critical consumer victory that takes away a tactic oil refiners have used for decades to keep gas prices and refiner profits artificially high,” said Jamie Court, president of Consumer Watchdog. “AB X2-1 will set a national example in how to fight back against outrageous price gouging at the pump.”

California drivers pay more for gas than any other motorists in the country. The average price for a gallon of regular Tuesday stood at $4.683, according to AAA. The national average came to $3.204.