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Shades of Enron in gas debate

“History doesn’t repeat itself, but it does often rhyme.” — Mark Twain

For 21 years, I served in elective office, starting on the Santa Rosa City Council and later in the state Assembly and Senate. During each of those years, we were forced to cut budgets and stretch services. If you’ve ever wondered why roads are crumbling and parks aren’t well maintained, this is why.

In 2009, I had the dubious distinction of presiding over the Joint Legislative Budget Committee when the state was forced to cut a third of its budget because of the global economic crisis. To help balance the budget and to fund higher education and state parks, I proposed an oil severance tax. A “severance” tax taxes materials such as minerals and oil when they are removed from the ground. Other oil-producing states, including Texas and Oklahoma, have long had oil severance taxes. So do many oil-producing countries.

California remains the only state without an oil severance tax. I proposed one four times in 10 years. Each year it was either defeated in the Legislature or vetoed by the governor.

I recently bought a tank of premium gas for a staggering $120. Fortunately, my current job doesn’t require much driving. But collectively, Californians drive 340 billion miles per year.

Around the same time I bought my historically expensive tank of gas, Gov. Gavin Newsom proposed a windfall profits tax on oil companies selling gasoline in California. Newsom will call the Legislature into a special session in December to consider the new tax on what he calls “rank price gouging.”

In addition to a proposed windfall profits tax, Newsom announced he will consider an oil severance tax.

Of course, the Western States Petroleum Association denounced Newsom’s announcement as “a political stunt.”

Chief Justice John Marshall famously declared the power to tax is the power to destroy. The power to tax is also, however, the power to regulate.

Failure to tax may create a powerful economic advantage. For example, for years purchases from online websites were not taxed in California. If you bought from Amazon rather than your local brick and mortar stores, you saved 10% or so on your purchase because you didn’t pay sales tax. After years of struggle, in 2012 the Legislature finally imposed sales taxes on online purchases, leveling the economic playing field at least a little.

As I write this, the national average price for gas is $3.92 per gallon, while Californians pay an average of $6.33. Californians pay 70% more than the national average, according to AAA.

The Russian invasion of Ukraine accounts for only a sliver of the increase in gas prices nationwide, because Russia produces only 8% of the global oil supply, according to recent figures from the National Resources Defense Council. Californians pay a higher gas tax, but again, that accounts for only a small fraction of the difference between the price we pay for gas and the nationwide average.

Gas companies claim oil refinery shutdowns and environmental regulations caused the spike in California’s gas prices, despite the fall in crude oil prices. Their argument is eerily reminiscent of the fallacious arguments made by Enron to explain the electricity crisis in the early 2000s following deregulation of California’s electricity market.

According to the Federal Energy Regulation Commission, Enron took advantage of deregulation to take power plants offline during peak periods, allegedly for maintenance, to increase the price of electricity. Enron’s market manipulations caused PG&E’s first bankruptcy and nearly drove Southern California Edison into bankruptcy, while California businesses and residents endured rolling blackouts and high electricity prices.

That leads me back to Newsom’s proposal. Attorney General Rob Bonta reminded oil companies — again echoing the Enron era — market manipulation is illegal in California. My oil severance tax proposal is ancient history now, but Newsom’s proposal is a welcome rhyme to that history.

Californians have been ripped off too long, both when our crude oil resources are pumped out of the ground, and when we pump refined gas into our tanks. Its long past time we did something about it.

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