California Governor Gavin Newsom Tuesday signed Senate Bill No. 2, the first state-level gas price gouging penalty law in the US, into law. Newsom’s office referred to the new law as the “strongest state-level oversight and accountability measures on Big Oil in the nation.”

The new law authorizes the California Energy Commission (CEC) to set a “maximum gross gasoline refining margin.” The law also establishes penalties for refiners for exceeding this margin, and the CEC can petition to enjoin refiners from violating the margin. Additionally, the law establishes the Division of Petroleum Market Oversight in the CEC, which will be led by a director appointed by the governor and confirmed by the state senate. The fact sheet notes that the new division will improve transparency in the oil industry and “force companies to play by the rules.” Finally, the law expands on existing reporting requirements for refiners to the CEC.

The law is a response to high California gas prices in 2022. In the bill, the California state legislature asserts that oil producers suppressed supply during this period to drive up gas prices and rake in record profits. The legislature declares that refiners caused this steep price increase and allowed inventory to reach “decade-low” levels to drive up prices and increase profits. The legislature also alleges that during this period of high gas prices, some refiners earned “more than tenfold their profits for the same period of time in 2021.”

In response to signing the bill into law, Newsom stated, “With this legislation, we’re ending the oil industry’s days of operating in the shadows. California took on Big Oil and won. We’re not only protecting families, we’re also loosening the vice grip Big Oil has had on our politics for the last 100 years.”