This story appeared on Calmatters

From the left: State Senate Majority Leader Mike McGuire, a Healdsburg Democrat, Sen. Susan Talamantes Eggman, a Stockton Democrat join legislators in a hearing to discuss petroleum windfall profits penalties and whether Californians will get relief at the gas pump, at the state Capitol in Sacramento on Feb. 22, 2023. Photo by Rahul Lal, CalMatters

Sacramento and Palo Alto offered up a tale of two California energy policies Wednesday as legislators considered the best way to stick it to Big Oil and Gov. Gavin Newsom talked up Tesla’s expansion plans.

The two events reflected two contrasting — arguably, contradictory — policy imperatives that the state faces: 

That was highlighted at the state Capitol, where lawmakers convened the first hearing of a special legislative session to consider the governor’s proposal to tax the profits of California oil companies. 

The idea got an uneven reception.

Nearly all the senators on the Energy, Utilities and Communications committee expressed outrage at the gas price spike that state’s drivers endured last fall and welcomed the opportunity to gather more information about California’s oil and gas markets. 

But many committee members, including Democrats, seemed skeptical that imposing a financial penalty on oil refiner profits would have the desired effect.

  • Steven Bradford, the committee chairperson and San Pedro Democrat: “What are we trying to solve for?…We have passed legislation here in California that has encouraged leaving oil in the ground…Have we created a scenario that has helped create this problem?”
  • Napa Democratic Sen. Bill Dodd: “As outraged as we are (about high prices)…what the hell are the unintended consequences?”

Experts invited to give testimony were, on the whole, no more encouraging. They argued that focusing on the gas retail sector rather than on refineries could be the better course of action and that the Legislature should be clear about what problem it is trying to solve: price spikes, persistently higher prices or “excess” profits.

  • UC Berkeley economist Severin Borenstein: “Policies intended to affect refineries are not going to get at most of the reason that Californians are paying higher prices for gasoline…Shooting first and then finding out if it’s the right solution is going is likely to be just as detrimental as helpful.”

Even before the hearing began, some environmental advocates began grumbling that Newsom’s proposal was unlikely to get a fair hearing. More than 100 advocacy groups sent a letter supporting what they call a “price gouging penalty.”

  • The letter: “The oil industry is spending their record profits to undermine our democracy with disinformation, delay action on climate change, and overturn vital protections for communities living next to toxic oil drilling sites.”

Some of the skepticism from committee members came from the fact that, as Newsom noted last week, the proposal is novel. Though governments across Europe have imposed “windfall taxes” on oil drillers, this levy is directed specifically at refiners.

  • Nicolas Maduros, director of the California Department of Tax and Fee Administration: “We’re facing a unique situation in California and it’s a relatively unique proposal.”

But California Energy Commissioner Siva Gunda, also speaking on behalf of the administration,  argued that no matter the ultimate shape of the proposal (the specific numbers are still missing from a bill introduced Dec. 5), legislators would be wise to dedicate more resources to understanding the gasoline market, not despite California’s planned transition away from gas-powered cars, but because of it.

  • Gunda: “The price spike events themselves need to be understood…because the transition away from gasoline-based transportation is going to further disrupt the market that we have been dependent on for 150 years.”

Earlier Wednesday, Newsom appeared with Musk — the proud owner of Tesla and the perhaps regretful owner of Twitter — to announce that the billionaire’s electric car company will be opening up a new engineering headquarters in Silicon Valley. In tech circles, the investment represents a symbolic changing of the guard: the new site used to be occupied by the once-dominant computer maker Hewlett-Packard.

For Tesla, the announcement was a two-part reconciliation:

All apparently water under the bridge now. In fact, Newsom, who is constantly fending off claims from the right that the state’s Democratic policies are anathema to industry, Tesla’s return was cause for some gleeful crowing.

  • Newsom: “Let’s see this as the beginning of something even more extraordinary on the journey to dominate in this space and to change the way we produce and consume energy in this state and this nation and the world we’re trying to build.”
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More water flowing to SoCal

Low water levels at Shasta Lake on April 25, 2022. Photo by Miguel Gutierrez Jr., CalMatters
Low water levels at Shasta Lake on April 25, 2022. The reservoir as of Feb. 21 , 2023 was at more than 86% of historic average levels. Photo by Miguel Gutierrez Jr., CalMatters

California farmers and Southern California water suppliers have been complaining about it for years: The state, they say, allows too much fresh water to flow out to the Pacific Ocean, prioritizing the needs of fish over humans.

Those complaints have grown louder in recent weeks. Though torrential rains inundated rivers and creeks across the state last month, critics say regulators were slow to approve the requests of water districts to store the liquid surplus — not that it would have made up for years of drought and over-pumping. 

Now the state Water Resources Control Board is changing the rules, explains CalMatters water reporter Alastair Bland

Responding to an executive order by Newsom, the water regulators agreed late Tuesday to allow farmers and households across Central Valley and southern California to suck significantly more Northern California water, slashing by more than 50% the amount left to flow through the Sacramento-San Joaquin Delta.

Regulators insist the new diversions won’t harm endangered fish species such as the Chinook salmon and the Delta smelt. But conservation advocates aren’t buying it.

  • The Bay Institute’s Gary Bobker: “If we can’t provide good conditions for fish in a year like this, then we are totally bankrupt as resource managers.”

Another factor that makes it more difficult to manage the state’s water: The snowpack the Sierra accumulated last month has already seen “an extremely steep drop-off” thanks to the return of dry, warmer weather.

That should at least put a silver lining on the unusual snow storms barreling toward the state that have prompted only the second blizzard warning for Los Angeles on record.

California’s water crisis, explained: Despite last month’s deluge, the state is gripped by a deep drought. CalMatters has a detailed look at how California might increase its water supply. And now, you can read it in Spanish.  

Too many state prisons?

Inmates wait in the hallway for treatment at the infirmary of the Deuel Vocational Institute near Tracy in 2012. Photo by Rich Pedroncelli, AP Photo

California used to have a major problem: Too many people in prison, not enough space to properly house them.

But one court mandate and a decade of sentencing reforms and early releases later, the state may have the opposite problem, writes CalMatters’ justice reporter Nigel Duara

It’s possible California has too many prisons.

The inmate population, which peaked at 165,000 in 2006, now sits at 95,000. Gov. Newsom has already closed two and is planning to shutter at least two more. But a new report by the nonpartisan Legislative Analyst’s Office suggests that the state could wind down five additional prisons before the end of the decade.

  • Caitlin O’Neil, an LAO analyst who wrote the report: “If we don’t make those decisions, the alternative is paying hundreds of millions for prison beds we don’t need to be paying for.”

That analysis has been celebrated by anti-prison advocates and tentatively welcomed by some Democrats in the Legislature. But it’s likely to be a nonstarter with Republicans and some moderate Democrats driven by rising public concerns about violent crime.

Expect prisons, crime and punishment to be a major talking point from the governor’s office starting sometime in late March. That’s reportedly when an episode of Apple TV’s “The Problem with Jon Stewart” is set to air, including an interview with Newsom taped at San Quentin State Prison on Wednesday.

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CalMatters Commentary

CalMatters columnist Dan Walters: The political debate over California’s highest-in-the-nation homelessness has boiled down to money with Gov. Gavin Newsom and local officials at odds.

CalMatters columnist Jim Newton: The proliferation of warehouses across the Inland Empire is affecting everyone, yet residents are struggling to be heard by their elected representatives.

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