California Issues Major New Gasoline Regulations for Refiners, Traders, and Brokers Through Emergency Rulemaking

Effective May 20, 2024, refiners and all importers of transportation fuels into California must follow the newest regulations from the California Energy Commission (CEC) — the Gross Gasoline Refining Margin and Marine Import Reporting Regulations. These impose substantial reporting obligations on imports of transportations fuels destined for California. Importers subject to these obligations are all entities that import transportation fuels, including refiners, traders, and brokers, and that are importers of record under federal customs law or are otherwise owners of cargo before arrival. Refiners, firms that produce liquid hydrocarbons or fuel ethanol, and firms that sell these products to retailers and resellers are also required to submit new monthly reports on their gross gasoline refining margins and detailed information on expenses and wholesale gasoline sales.

Following a prerulemaking workshop in April, CEC submitted this latest regulation to the Office of Administrative Law (OAL) on May 9, kicking off a limited five-day public comment period. OAL ultimately approved the regulation on May 20, and it became effective immediately for a period of two years. Most significantly, the regulation requires that any importer of record or owner of “reportable cargo,” which includes finished gasolines, gasoline blending components, diesel fuels, and aviation fuels, file the new California Marine Import Report prior to arrival at a California port.

The reports are subject to strict time limits depending on when the cargo is designated for delivery to California or rerouted from a non-California port and require comprehensive data reporting every time a California-designated shipment changes hands prior to arrival. As such, importers must diligently track shipments that could conceivably end up in California to ensure that their reports are both timely and accurate in light of the numerous new data fields.

The latest regulation is a product of the March 2023 California Gas Price Gouging and Transparency Law (SBX1-2), which provides CEC with unprecedented authority to promulgate regulations that will increase state regulatory control over the transportation fuels market. These regulations will have a significant impact on a wide swath of market participants — including market participants beyond refiners and importers of gasoline. Passed in response to gasoline price spikes in autumn 2022, SBX1-2 created the CEC Division of Petroleum Market Oversight and authorized it to promulgate rules implementing SBX1-2 through emergency rulemakings that are not subject to the typical public notice and comment protections under the California Administrative Procedure Act.

This is just the latest iteration in CEC’s regulatory mosaic concerning the fuel industry. As reported in “California Advances Gasoline Spot Market Transaction Regulations Through Emergency Rulemaking,” CEC passed its first SBX1-2 regulation in February 2023, requiring all entities that consummate petroleum spot market transactions that “occur in California” to report extensive fields on the initiation and settlement of these transactions every day.

While these piecemeal regulations have imposed additional reporting obligations and administrative burdens and associated costs on the industry, those costs may yet be magnified when the CEC determines whether to impose a price caps on gasoline refining margins — a decision the agency is expected to make in the coming months.