California Gov. Gavin Newsom on October 14 signed into law Assembly Bill X2-1, significantly increasing the authority of the California Energy Commission (CEC) to create requirements for the state’s oil refiners to preserve minimum inventories of state-compliant refined transportation fuels.
Authored by assemblymembers Gregg Hart and Cecilia Aguiar-Curry in conjunction with Sen. Nancy Skinner, the law take effect in January 2025 and expands the powers of the recently created Division of Petroleum Market Oversite (DPMO) within the CEC.
DPMO was created last year as an independent division of the CEC with the passage of the California Gas Price Gouging and Transparency Law (Senate Bill X1-2) and is tasked with carrying out the activities of Senate Bill X1-2 focused on gas market oversight and investigation. Senate Bill X1-2 already gave the CEC the authority to regulate the timing of refinery shutdowns and maintenance periods to “minimize the impact of maintenance-related production losses on fuel prices.”
With the passage of Assembly Bill X2-1, which is aimed at trying to avoid state supply shortages and price spikes, the new law also gives the CEC the ability to require state oil refiners to plan for resupply during scheduled maintenance. According to the CEC, there is “a significant risk that [gas] prices could spike in the coming months,” and this risk increases if gas supplies are tough to come by during refinery shutdowns or maintenance periods.
Assembly Bill X2-1 gives the CEC the authority to create regulations that (1) establish minimum inventory levels, (2) maximize refiners use of existing fuel storage infrastructure, (3) waive the requirements for “small” refineries, (4) adjust the inventory requirement, and (5) identify market conditions that allow a refinery’s inventory to fall below the specified minimum.
It’s worth noting that under the terms of X2-1, the CEC is only allowed to adopt minimum inventory levels if it finds the likely benefit to consumers of preventing gas price volatility outweighs the potential costs and outlines four factors the CEC is to consider when making this determination. The first of those factors the CEC is to consider is whether it is likely the minimum levels of inventories of refined transportation fuels will lead to greater supply in the California transportation fuels market than would exist without the minimum levels of inventories.
X2-1 also requires oil refiners to show to the CEC that they have put into place sufficient plans for resupplying the losses they incur during shutdowns and maintenance periods to avoid adversely affecting California’s increasingly strained gas market. X2-1 does stop short, however, of allowing the CEC to create inventory regulations that would require the refineries to create additional or new fuel storage infrastructure.
Finally, X2-1 authorizes the CEC to impose punishments on non-compliant refiners to these regulations. A refiner found to be in violation of the CEC’s minimum inventory level requirements will thereafter have only three days to come in compliance before being subject to fines of up to $1M per day until they get their inventory levels up to the minimum required thresholds.
