HOUSTON, Aug 29 (Reuters) - California's Energy

Commission voted on Friday to temporarily set aside penalties

for excessive refining profits that were adopted after gasoline

pump prices climbed over $8 a gallon in 2022.

The five-year delay in implementing the penalties comes as

Phillips 66's Los Angeles refinery is preparing to begin

shutting production as early as next week ahead of a permanent

closure.

California's Democratic Governor Gavin Newsom had proposed the

penalties, but has since switched direction amid worries of

price spikes in 2026 after the closure of the Phillips 66

refinery and a San Francisco-area plant operated by Valero

Energy Corp ( VLO ) next year.

Both companies said declining gasoline demand promoted by

state's policies in favor of non-fossil-fuel-powered vehicles

made the once-lucrative California market untenable in the

long-term.

California has adopted a goal to ban the sale of

fossil-fuel-powered vehicles by 2035.

The delay was supported by Western States Petroleum

Association (WSPA), which had called for the penalties to be

delayed for 20 years.

WSPA has faulted the Energy Commission for claiming the

threat of penalties had kept gasoline prices low in the state.

"No mandates, rules, or decrees from Sacramento since 2019

have lowered gas prices," said WSPA President Catherine

Reheis-Boyd late last year.

The state's Consumer Watchdog group faulted the change in

direction by California officials.

"By taking the penalty off the table, you are opening the market

to the price spikes we suffered in 2022," said Consumer

Watchdog President Jamie Court in a letter prior to the vote.

In addition to putting penalties on hold, the commission

also voted to adopt policies to stabilize California's refinery

capacity, increase motor fuel imports and promote development of

the state's oil reserves.

California is isolated by the Rocky Mountains from the U.S.

refining centers along the U.S. Gulf Coast and in the Midwest.

The state relies on what plants in that state and Washington can

make as well as imports from Asian refineries.