Yesterday afternoon, Governor Lombardo sent a letter (see below) to California Governor Gavin Newsom raising his concerns about the unintended consequences of California’s SBX1-2 legislation, which could further increase gas prices in California, Nevada, and Arizona. SBX1-2, known as the California Gas Price Gouging and Transparency Law, was hastily enacted last year to address gasoline price spikes and what Californians pay at the pump.

Lombardo’s letter was released ahead of the California State Assembly Utilities & Energy Committee hearing scheduled for today. The California Energy Commission will update the committee on the implementation of SBX1-2, regulatory legislation that was passed within five days, with three of those days being a three-day holiday weekend in March of 2023.

Governor Lombardo writes:

Since 88 percent of Nevada’s fuels are delivered via pipeline and truck from refineries in California, it’s no surprise that California’s fuel policies significantly impact the costs and availability of fuel for Nevada’s residents and businesses.

As my administration has followed this issue, it seems that the new state agency the legislation created is getting closer to announcing a profits cap structure. While we have no details on what this might look like, I’m concerned that this approach could lead to refiners either constraining supplies of fuels to avoid a profit penalty or even leaving our shared fuels market entirely. Either scenario would likely lead to limited supplies and higher fuel costs for consumers in both of our states.

Should this happen, I am sure Californians and Nevadans would share a demand for answers and relief from higher fuel costs and the impacts those costs could have across the economy.

Before proceeding with a profits cap, I would request an assessment of potential impacts of this approach across the West, including not only California, but Nevada and Arizona too. To assist with this, my Office of Energy stands ready to immediately engage in proactive conversations with the California Energy Commission.

Thank you for your consideration of this request. I’m hopeful that your administration will work to mitigate unintended consequences of SBX1-2, so that we can spare hard working Californians and Nevadans from further pain at the pump.

SBX1-2 has already prompted a lawsuit filed in March by the California Fuels & Convenience Alliance (CFCA). CFCA’s lawsuit contends, however, that the Emergency Rulemaking is only going to make things worse.

In a press release, CFCA warns that the emergency rulemaking is likely to push participants out of the California transportation fuel market entirely. That will reduce supply and make consumers even more dependent on a dwindling number of in-state refineries. That, in turn, will increase prices, harming consumers and small businesses, which is the opposite of what SBX1-2 is supposed to achieve.

The California Globe reports: “Governor Newsom’s gas tax creates a new panel of unelected bureaucrats with subpoena power, to investigate oil and gas companies, impose penalties, new costs and regulations, which would inevitably lead to gas shortages, rationing and price spikes. SBX1-2 creates a new government agency to arbitrarily decide how much profit oil and gas businesses are allowed to make, disrupting California’s energy market and threatening the reliability of the state’s fuel supply, according to Assembly Republicans the Globe recently reported. The governor’s scheme is to “create a new independent watchdog within the California Energy Commission charged with monitoring California’s petroleum market on a daily basis to ensure market participants play by the rules.”

Governor Newsom’s office responded to the Governor Lombardo’s letter, referring to it as a “stunt to appease Governor Lombardo’s Big Oil donors.”

In a released statement, Alex Stack, Deputy Communications Director for Governor Newsom, stated: “This is a stunt to appease Governor Lombardo’s Big Oil donors, who contributed tens of thousands of dollars to his campaign. He’s parroting their talking points, and he knows full well that oil refiners are driving up gas prices and making massive profits — harming residents of both of our states. Price spikes are profit spikes, and California is holding Big Oil accountable.”