California regulators fearing a dramatic drop in gasoline supply placed a five-year pause on Gov. Gavin Newsom’s penalty on oil industry profits on Aug. 29.

The decision is a blow to Newsom’s legislation aimed at penalizing the oil industry for allegedly driving up the state’s gas prices in 2022.

California Energy Commission Vice Chair Siva Gunda said the state must shield motorists from price spikes at the pump even as it tries to transition to clean-energy fuel sources for transportation.

The commission says the pause on its penalty program was needed to further study the industry.

“We believe this additional time will increase industry confidence enough to secure investments in refinery maintenance and is therefore a prudent way to ensure employee safety and maintain a safe, reliable, affordable supply of fuel during this critical point in the transition to a carbon-free transportation system,” a spokesperson told The Epoch Times in an email Sept. 2.

California drivers continue to pay the nation’s highest prices at the pump; the cost exceeds the national average by more than a dollar per gallon, according to the federal Energy Information Administration.

Fuel demand in the state has slowly dwindled since 2019 as more Californians switch to electric vehicles, but the decrease in demand is not fast enough to keep up with even sharper drops in the state’s fuel supply as refineries continue to leave.

The state would need to increase overseas crude imports, possibly creating serious delays in fuel supply for consumers, which is what prompted staff to propose the regulatory pause, according to Drew Bohan, the energy commission’s executive director.

The agency also hasn’t been able to prove Newsom’s claim that the oil industry was gouging.

“The data at this point is just not sufficient to indicate that there’s ongoing market manipulation, or a structural failure, that would justify immediate regulatory intervention,” Bohan said.

The decision sparked criticism from Consumer Watchdog, a California-based nonprofit that supported Newsom’s price-gouging law in 2023.

“Gov. Newsom and the Energy Commission have abdicated their responsibility to protect consumers from price gouging,” the group’s president, Jamie Court, said in a statement. “By taking away the hammer of a penalty, the administration will leave consumers vulnerable to the same price spikes and profit spikes that struck in 2022. Gov. Newsom will be as much to blame as the oil refiners for the next price spikes because he left this job unfinished.”

Gov. Gavin Newsom speaks in the rotunda of the Capitol in Sacramento on March 28, 2023. (Courtesy of the Office of Governor Gavin Newsom)

The group also said that Newsom’s administration is “tying the hands” of the next governor by imposing the five-year freeze.

Western States Petroleum Association, a trade group advocating for the oil industry, said the commission’s five-year pause was a step in the right direction but fell short of the group’s recommendations.

“While today’s action by the CEC stopped short of a full statutory repeal or a 20-year pause, it represents a needed step to provide some certainty for California’s fuels market,” association President Catherine Reheis-Boyd said in a statement provided to The Epoch Times.

According to Reheis-Boyd, the decision showed that the energy commission understood how the policy would have affected future investment in the state’s refineries.

Vehicles pass a gas station in Rosemead, Calif., on Sept. 23, 2024. (Frederic J. Brown/AFP)

Newsom and Democratic state legislators suspended regular operating rules to rush through the regulations in less than a week in 2023. Those regulations put in place extensive oversight and new reporting regulations for oil companies and gave the energy commission the authority to issue fines and penalties for excessive profits.

Upon signing the law, Newsom said they proved they could “beat big oil.”

The commission has not approved penalties since the regulations passed.

The commission’s move followed months of handwringing by California lawmakers after a second major oil refinery—Texas-based Valero Energy Corp.—announced in April that it was departing the state.

Houston-based oil giant Phillips 66 announced in October 2024 that it plans to close one of the company’s two Southern California refineries at the end of 2025.

A tank at the Valero Wilmington Oil Refinery adjacent to the ports of Long Beach and Los Angeles in the Wilmington neighborhood of Los Angeles on April 10, 2025. (Patrick T. Fallon / AFP)

The closures mean a loss of 17 percent of California’s refining capacity—a huge loss for a state that is mostly cut off from the rest of the nation’s fuel supplies and must import oil from overseas.

The refinery closures will leave more than 20 million gas-fueled vehicles in California with only seven refineries to produce specialized blends required by state regulations.

Beyond the penalty pause, Newsom’s administration is proposing to temporarily streamline approvals of new wells in existing oil fields in an effort to maintain a stable fuel supply.