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(Bloomberg) — California’s energy market regulator is backing off a plan to place a profit cap on oil refiners in the state.
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Siva Gunda, vice chair of the California Energy Commission, said during a Friday briefing that the cap would “serve as a deterrent” to refiners boosting investments in the state. Gunda said the commission wants to increase gasoline supply in California after two refineries announced plans to close in the next year, accounting for about one-fifth of the state’s crude-processing capacity.
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The recommendation marks a reversal from years of regulatory scrutiny by Governor Gavin Newsom and the California Energy Commission that contributed to plans by Phillips 66 and Valero Energy Corp. to shut their refineries. The closings prompted Newsom to adjust course in April and urge the energy regulator to collaborate with fuel makers to ensure affordable and reliable supply.
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Gunda wrote in a Friday letter to Newsom that the commission should pause implementation of a profit margin cap and focus on fuel resupply strategies instead. It comes more than two years after Newsom and state lawmakers gave the energy commission authority to determine a profit margin on refiners and impose financial penalties for violations.
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The state will be looking to increase fuel imports to make up for the loss of refining capacity, Gunda said. In the short term, California gas prices could rise 15 to 30 cents a gallon because of the loss of production, he said. Californians already pay the highest gasoline prices in the country.
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Wade Crowfoot, secretary of the California Natural Resources Agency, said residents want the state to transition away from oil and gas yet they need to prevent cost spikes. “We get it,” he said. “We need to maintain affordability.”
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