If you drive a car or pickup truck in California, you care about the price of gasoline – especially when it rises to $7 a gallon, as it will in September 2022.

You may have heard that Governor Gavin Newsom has called a special session of the Legislature to discuss a bill designed to prevent such price spikes. It would allow the state to mandate minimum stockpiles of gasoline at California refineries. The special session begins this week with hearings on a bill designed to pave the way for the reserve. Here’s a primer on the issue:

What is the Newsom plan?

If lawmakers pass the minimum stockpile law, California refineries could be required to keep extra gasoline on hand to keep prices at the pump from skyrocketing when a refinery closes for planned maintenance or an unplanned problem. That’s the theory, anyway. The California Energy Commission would have to decide whether to create a reserve and how large it should be.

Where would this gasoline be stored?

It depends on how big the buffer needs to be, which the state requires. Spare capacity in existing storage tanks might be enough. The industry says additional storage tanks may need to be built, which could cost about $35 million per tank. The state’s recently formed Division of Petroleum Market Oversight reports that California refineries typically keep 15 days or more of supply on hand, which shrinks by several days when a refinery closes for maintenance.

Who would bear the cost of a gasoline reserve?

The refinery companies.

How much?

Still to be determined.

Aren’t these costs passed on to consumers?

Most likely, although they would be more evenly distributed throughout the year. How much money it will be and how it would compare to temporary price spikes can only be estimated once the state has decided how large the gasoline reserve will be and how it will be managed.

Storage tanks at Chevron’s Bay Area refinery in Richmond.

(Josh Edelson / For The Times)

Is there anything else planned?

Yes. The bill would allow the Energy Commission to “establish” minimum stockpiles not only for gasoline, but also for raw materials and blending components used to make the final gasoline product. It would also require refineries to obtain authorization to reduce required inventory levels during periods of high demand.

If they fail to comply, the commission could impose civil penalties of up to $1 million per day. The refineries would also have to prove that any production losses during maintenance work would not negatively affect the fuel market in California.

What is the California Energy Commission?

The commission was established in 1975 as a policy and planning agency in response to the energy crisis of the 1970s. For decades, it has been the state’s central source of energy statistics and analysis. The State Assembly has given the commission more investigative and regulatory powers in recent years, including state management of the public electric vehicle charging system. The Division of Petroleum Market Oversight, created in 2023, reports to the Energy Commission and is headed by a lawyer with extensive experience in antitrust law.

Does the Commission have experience in the management of oil refineries?

It appears to be a work in progress. In an email, Siva Gunda, the commission’s vice chair, wrote: “The California Energy Commission has more than four decades of experience with the petroleum industry as part of its responsibilities under the Petroleum Industry Information Reporting Act. Our long-standing expertise has been further strengthened by new tools and transparency provided by the (2023) California Gas Price Gouging and Transparency Law. Contracts with outside experts further expand our capabilities.”

The new law will establish a committee of experts with six members who “must either hold an academic position or demonstrate expertise in the economics or business operations of the fuel market.” However, anyone who has worked in the oil and gas industry in the previous 12 months would be excluded from membership of the commission.

What does the industry say?

“California politicians and regulators do not have the technical expertise to manage refinery maintenance and construction projects in detail or to set fuel stockpiles for the private sector,” Susan Grissom, chief analyst at the trade group American Fuel & Petrochemical Manufacturers, said by email. “In fact, this legislation would disqualify those with practical experience from giving such direction. This type of intervention from Sacramento is willfully negligent and is more likely to jeopardize safety and harm the regional fuel supply chain than help it.”

The Marathon Oil Refinery in Carson.

(Myung J. Chun / Los Angeles Times)

Is there a response from the governor?

Through a spokesman, Governor Newsom and his senior climate adviser Lauren Sanchez declined to comment.

How about the opinions of industry experts?

Severin Borenstein, a professor at UC Berkeley and director of the Energy Institute at Haas, said that while a storage requirement might mitigate price spikes somewhat, his research shows that the main problem is at the retail level, where pricing remains opaque. The state is investigating what Borenstein calls this “mysterious markup” but has come up with no conclusions.

The governors of Arizona and Nevada have spoken out against the plan. Why?

Most of Arizona and Nevada’s gasoline is pumped in via pipelines from California, New Mexico and Texas. Arizona Governor Katie Hobbs, a Democrat, and Nevada Governor Joe Lombardo, a Republican, sent a joint letter to Newsom that said, in part: “Despite ongoing conversations about the causes of rising fuel costs, it is evident that increased regulatory burdens on refineries and forced supply shortages will result in higher costs for consumers across our states. Since both states rely on California pipelines for much of their fuel, these looming cost increases and supply shortages are of great concern to Arizona and Nevada.”

In a letter to the Energy Commission, the Arizona Petroleum Marketers Assn. stated: “Forcing refineries to prioritize California’s reserve needs could result in reduced fuel shipments to Arizona, causing supply constraints and potentially fuel shortages in our state. This could severely impact fuel availability in Arizona and cause widespread disruption.”

Has any state ever attempted to conduct inventory controls?

No. California is setting the pace. In 2023, Australia has created a gasoline reserve. Unlike California’s plan, the reserve was created for geopolitical strategic reasons. The country imports more than 90% of its gasoline. Although the private sector is covering most of the cost of the reserve, Australia has contributed hundreds of millions in government funds.

What about the US strategic oil reserve?

This is a crude oil reserve, not gasoline. The reserve was created in response to the energy crisis of the 1970s and can store up to 700 million barrels of oil, most of it in underground salt caves. Although it is intended as a buffer in the event of war or other major emergencies, presidents sometimes release reserve oil to lower retail gasoline prices.

The United States maintained an emergency stockpile of gasoline, the Northeast Gasoline Supply Reserve, which was created in 2014 in response to Hurricane Sandy, which severely damaged two refineries and forced the closure of 40 fuel terminals. But the reserve was recently depleted and there are no plans to replenish it.

When would the California gasoline reserve be created?

Not in time for fall price spikes. If the government acts unusually quickly, the rules and regulations could potentially be in place as early as the end of next year.