California sets aside penalties for high refinery profits

By Erwin Seba

HOUSTON, Aug 29 (Reuters) - California's Energy Commission voted on Friday to temporarily set aside penalties for excessive refining profits that were adopted after gasoline pump prices climbed over $8 a gallon in 2022.

The five-year delay in implementing the penalties comes as Phillips 66's PSX.N Los Angeles refinery is preparing to begin shutting production as early as next week ahead of a permanent closure.

"The fact is, supply is declining faster than demand, and we need to bring them into alignment: that means slowing supply loss while aggressively pursuing the transition to zero emission vehicles," the Commission's staff said in an emailed statement.

California's Democratic Governor Gavin Newsom had proposed the penalties, but has since switched direction amid worries of price spikes in 2026 after the closure of the Phillips 66 refinery and a San Francisco-area plant operated by Valero Energy Corp VLO.N next year.

Both companies said declining gasoline demand promoted by state's policies in favor of non-fossil-fuel-powered vehicles made the once-lucrative California market untenable in the long-term.

California has adopted a goal to ban the sale of fossil-fuel-powered vehicles by 2035.

The delay was supported by Western States Petroleum Association (WSPA), which had called for the penalties to be delayed for 20 years, saying prices were determined by global oil markets and not the state's policies.

The state's Consumer Watchdog group faulted the change in direction by California officials.

"By taking the penalty off the table, you are opening the market to the price spikes we suffered in 2022," said Consumer Watchdog President Jamie Court in a letter prior to the vote.

In addition to putting penalties on hold, the commission also voted to adopt policies to stabilize California's refinery capacity, increase motor fuel imports and promote development of the state's oil reserves.

California is isolated by the Rocky Mountains from the U.S. refining centers along the U.S. Gulf Coast and in the Midwest. The state relies on what plants in that state and Washington can make as well as imports from Asian refineries.