California Creates New Oil “Watchdog”

In December 2022, California’s State Legislature introduced SBx 1-2.  The bill was designed to combat soaring gasoline prices, which hit California particularly hard last year.  California Governor Gavin Newsom signed SBx 1-2 into law in March 2023, and the law went into effect on June 26, 2023.  The law imposes new reporting requirements on energy companies operating in the state.  Firms engaging in spot oil transactions must now submit daily price reports to the California Energy Commission (“CEC”).  Refineries must submit monthly reports detailing “the gross gasoline refining margin of gasoline sold in that month.”  They must also pre-report any scheduled or unscheduled maintenance work that could spike gas prices.

Additionally, SBx 1-2 created the Division of Petroleum Market Oversight (the “Division”) within CEC—the first agency of its kind in the United States.  The Division, “independent” from the CEC’s authority, will act as a “watchdog” over the industry and seek to identify “unethical or illegal behavior.”

On August 1, 2023, Governor Newsom unveiled his pick to head up the Division: Tai Milder, a prosecutor with antitrust enforcement experience at both the state and federal levels.  Milder is currently concluding his second stint at the U.S. Department of Justice’s Antitrust Division in San Francisco.  Before that, he worked in the Antitrust Law Section of the California Department of Justice, where he played a central role in investigations and litigation against the oil industry.  Mr. Milder also has several years of experience working at a prominent law firm known for plaintiff-side class action work.

Because the Division was only recently established, the precise contours of its authority are fuzzy.  Nothing in the text of SBx 1-2 suggests it has independent authority to launch enforcement actions.  Still, the Division has sweeping investigatory powers, which may result in increased enforcement.  According to the statute, the Division shall monitor “transportation fuels markets for the protection of consumers by identifying market design flaws, market power abuses, and any other manner by which market participants act to harm competition or act contrary to the best interests of consumers in the state.”  It may subpoena witnesses and documents and “refer potential violations of law” to the California Department of Justice “confidentially at any time.”  Further, the Division is tasked with issuing guidance and recommendations to the governor, the CEC, California’s Attorney General, and the California Department of Tax and Fee Administration.  In the antitrust arena, California agencies and prosecutors typically have referred criminal conduct to the U.S. DOJ Antitrust Division, but such deferral to federal prosecutors is not required.

Energy firms engaged in transactions or conduct that may subject them to California’s jurisdiction should be aware of the new Division of Petroleum Market Oversight’s creation, as well as Mr. Milder’s appointment.  Both events signal a more aggressive enforcement posture towards energy companies doing business in the Golden State.  As Governor Newsom stated in his announcement, “California is serious about holding Big Oil accountable.  Tai Milder has an impressive record of going after companies that rip off consumers, and that’s exactly what he’ll be doing—serving as a watchdog over the oil and gas industry and protecting Californians.”