Oil ‘Windfall’ Tax Gains Momentum

Times Staff Writer

As the statewide average price for regular gasoline passed $3 a gallon Monday, politicians and grass-roots activists pumped up their calls for new taxes on companies that produce or refine oil in California.

Gov. Arnold Schwarzenegger ordered the California Energy Commission to investigate possible gouging by gasoline refiners, wholesalers and retailers.

“We must not rule out the possibility of market manipulation, price gouging or unfair business practices employed by oil companies,” Schwarzenegger said.

Also Monday, the chairman of the Assembly Revenue and Taxation Committee won a first vote on his latest proposal to slap a 2% surtax on so-called windfall profits from petroleum producing, refining and sales activities.

The bill garnered the minimum four votes needed to move to its next committee.


“It’s time we made these companies pay,” said Assemblyman Johan Klehs (D-San Leandro), the bill’s author. “They can avoid paying the tax by reducing their prices for gasoline.”

Klehs’ proposal, an outgrowth of a bill defeated on the Assembly floor in January, would earmark proceeds to provide tax credits to middle- and lowincome seniors to buy prescription drugs. He estimates that the tax could amount to as much as $190 million annually.

The new bill has won the endorsement of Assembly Speaker Fabian Nunez (D-Los Angeles). Nunez said Monday that he was considering sponsoring his own windfall profit tax on oil company earnings in California.

“We believe oil companies are ripping us off and artificially inflating the price of gas at the pump,” Nunez said. “The 120 legislators in Sacramento ought to be as outraged as the 14 million motorists in California,” he said, referring to members of the Assembly and the Senate.

Prices at the pump set a new record in California on Monday, after rising more than 17 cents in the last week, to an average of $3.068 for a gallon of regular, according to the latest figures from the U.S. Department of Energy.

Citing surging prices across the country, House Speaker J. Dennis J. Hastert (R-Ill.) and Senate Majority Leader Bill Frist (R-Tenn.) wrote Monday to President Bush, requesting that he order the Federal Trade Commission and the attorney general to investigate oil company profits and executive pay, as well as the factors behind tight gasoline supplies.

Rep. Joe L. Barton (R-Texas) called for a similar probe by the House Oversight and Investigations Subcommittee.

Oil industry representatives expressed confidence that any new federal or state investigation would reveal no evidence of market manipulation.

“There have been 30 investigations in the last 20 years. In not one case has there been any evidence of wrongdoing,” said Joe Sparano, president of the Western States Petroleum Assn.

He said gasoline prices were especially high in California because of a precarious balance between supply and demand. The state is served by only 14 refineries, compared with 32 in 1980.

At the same time, U.S. crude oil production has plummeted to 5 million barrels a day last year from 10 million in the 1980s, increasing the country’s dependence on supplies imported from often politically unstable foreign countries, Sparano said. California currently produces about 773,000 barrels a day of crude oil.

Energy company profits, though huge in absolute terms, are in line with those of other major industries, he said. Earnings from oil and gas companies averaged 5.8 cents on the dollar, compared with 5.5 cents for all industries in the five years that ended with the third quarter of 2005, he said.

Measures more commonly used by Wall Street analysts, however, show that oil industry profits are well above those of comparable capital-intensive businesses.

In addition, industry experts expect oil companies to post another round of record earnings this week, with some of those profits stemming from their refineries’ selling gasoline at prices well above their costs, said Tom Kloza, chief oil analyst at the Oil Price Information Service, an industry trade publisher.

Levying a windfall tax on oil production or refining in California is “likely to bring higher prices and no increase at all in energy supply,” Sparano warned.

Meanwhile, backers of a proposed Clean Alternative Energy Act initiative contend that collecting as much as $380 million a year from an extraction tax on all oil pumped from California fields and offshore platforms would fund research needed to break what President Bush has described as the country’s addiction to oil.

The campaign is expected to submit petitions with 1.2 million signatures, about twice the number required by law, by the end of the month, said Julie Buckner, a spokeswoman for the campaign. It is being bankrolled by Hollywood movie producer Steve Bing and Silicon Valley venture capitalist Vinod Khosla.

High oil prices and profits, Buckner said, “are causing people to stop and think.”

Times staff writer Elizabeth Douglass contributed to this report.