THE SENATE COMMITTEE ON ENERGY,
UTILITIES AND COMMUNICATIONS
WILL COME TO ORDER. GOOD
MORNING. I WANT TO WELCOME YOU
ALL HERE TODAY FOR THE
COMMUNITIES COMMITTEES. I SHOULD
SAY OVERSIGHT HEARING ON SB X12
RELATED TO TRANSPORTATION FUELS.
AND THE BILL ADOPTED DURING LAST
YEAR'S SPECIAL SESSION CALLED BY
GOVERNOR NEWSOM TO ADDRESS
GASOLINE PRICE SPIKES. AS
CALIFORNIANS KNOW ALL TOO WELL,
GASOLINE IS NECESSARY FOR MUCH
OF WHAT WE DO ON OUR DAILY BASIS
. AND THE REALITY IS IT WON'T
CHANGE ANY TIME SOON, NO MATTER
HOW MUCH WE DO AND HOW HARD WE
TRY. HIGH GASOLINE PRICES CAN BE
CRIPPLING FOR RESIDENTS,
PARTICULARLY FOR CALIFORNIANS,
ON LIMITED OR FIXED INCOMES AND
THOSE WHO MUST COMMUTE LONG
DISTANCES, WHETHER IT'S TO WORK,
SCHOOL, OR JUST TAKING CARE OF
FAMILY. SUSTAINED SKYROCKETING
GASOLINE PRICES HAS SEEPED INTO
EVERY ASPECT OF OUR ECONOMY,
DRIVING UP PRICES FOR CONSUMER
GOODS AND SERVICES. THE REALITY
IS, PRICE VOLATILITY IN
CALIFORNIA AND TRANSPORTATION
FUELS MARKET IS NOT NEW. IT HAS
EXISTED FOR A LONG TIME. THE
CRUDE OIL THAT IS USED TO MAKE
GASOLINE IS SOLD IN A GLOBAL
MARKET THAT DICTATES THE PRICE
PER BARREL, A PRICE THAT CAN BE
AFFECTED BY INTERNATIONAL
EVENTS, SUCH AS WHAT WE'RE
EXPERIENCING IN RUSSIA OR
INVASION OF THE UKRAINE, OR THE
CURRENT MASS DESTRUCTION IN THE
MIDDLE EAST. AS WE, AS WELL AS
INSTABILITY AND OTHER OIL
PRODUCING REGIONS ON THE GLOBE.
WHILE CRUDE OIL IS SOLD AND
PRICED IN A GLOBAL MARKET,
REFINED GASOLINE FOR
CALIFORNIA'S UNIQUE AIR QUALITY
PROTECTIVE BLEND IS NEARLY
EXCLUSIVE. EXCLUSIVELY SUPPLIED
BY IN-STATE REFINERIES. REFINE
DAIRIES THAT WERE A COUPLE DOZEN
AT THE TIME THAT JERRY BROWN
AUTHORED THE LEGISLATION, ARE IN
THE LATE 70S, EARLY 80S AND NOW
THERE ARE ONLY NINE REFINERIES
THAT SUPPLY THE STATE. THIS IS A
BLEND THAT IS MORE EXPENSIVE TO
PRODUCE IN ORDER TO REDUCE SMOG
FORMING EMISSIONS, ESPECIALLY IN
THE SUMMER. MANY EXPERTS AT OUR
INFORMATIONAL HEARING LAST YEAR
NOTED CALIFORNIA IS AN ISLAND
WHEN IT COMES TO GASOLINE AND
ISOLATED MARKET, VULNERABLE TO
OUTAGES ON THE SYSTEMS AND OTHER
DISRUPTIONS THAT CLEARLY AFFECTS
SUPPLY AND PRICING. WE HAVE NO
PIPELINES TO DELIVER GASOLINE TO
THE STATE. LIKE MANY OF OUR
NEIGHBORING STATES HAVE. STATE
AND LOCAL POLICIES LIMIT
IN-STATE EXTRACTION, REFINING
AND STORAGE CAPACITIES, AND
RETAIL OUTLETS, WHICH ALL AFFECT
PRICE FOR OVER 40 YEARS, THE
STATE HAS ATTEMPTED AND VARYING
A VARIETY OF FORMS TO GET BETTER
HANDLE ON THE COMPLEX GASOLINE
MARKET. IT. THERE'S BEEN A LOT
OF FINGER POINTING AMONGST
STAKEHOLDERS. SOME STANDARDS,
THE REFINERIES RAISING PRICES,
OTHERS SAY IT'S THE RETAIL
RETAILERS OR DOWNSTREAM FROM THE
REFINERIES, AND OTHERS ARE
BLAMING STATE TAXES AND
ENVIRONMENTAL POLICIES THAT WE,
THE LEGISLATURE, PASS ON A DAILY
BASIS. TODAY IS AN IMPORTANT
OPPORTUNITY FOR SENATORS AND THE
PUBLIC TO HEAR FROM THE NEWSOM
ADMINISTRATION ABOUT THE
IMPLEMENTATION OF SB ONE TWO
OVER THE PAST YEAR AND ALL OF
THE ELEMENTS WE WANT TO HEAR
ABOUT WHETHER THE ADDED
VISIBILITY INTO THE MARKET
PROVIDED BY X1X2 IS ALLOWING FOR
GREATER UNDERSTANDING ABOUT THE
CAUSES THAT CAN LEAD TO HIGHER
PRICES AT THE PUMP. WE'RE
PARTICULARLY INTERESTED TO LEARN
ABOUT THE MAIN PROVISIONS OF SB
ONE TWO, INCLUDING THE AUTHORITY
OF THE CDC TO ESTABLISH A
MAXIMUM GROSS REFINING MARGIN
AND PENALTY, THE ESTABLISHMENT
ESTABLISHMENT OF A NEW DIVISION
OF PETROLEUM MARKET OVERSIGHT,
THE ESTABLISHMENT OF AN
INDEPENDENT CONSUMER FUELS
ADVISORY COMMITTEE, AND THE
EXPANDING REPORTING REQUIREMENTS
BY INDUSTRY PARTICIPANTS, AND
THE INCREASED MONITORING AND
UNDERSTANDING OF THE MARKET. THE
CDC'S ABILITY TO IMPOSE REFINERY
MAINTENANCE AND TURNAROUND
REQUIREMENTS, ANNUAL REPORT ON
GASOLINE PRICES. THE
TRANSPORTATION FUELS ASSESSMENT,
AND THE TRANSPORTATION FUELS
TRANSITION PLAN. WE WANT TO HAVE
THE CONFIDENCE THAT THE
SOLUTIONS THAT WE BRING THAT
WILL BRING RELIEF TO
CALIFORNIANS AT THE PUMP ARE
REAL AND NOT JUST ASPIRATIONAL
AS I NOTED LAST YEAR, WE REMAIN
COMMITTED TO ENSURING THAT OUR
PURSUIT TO ADDRESS GASOLINE
PRICES AND ANY ACTION WE TAKE
DOES NOT CAUSE MORE HARM TO
CONSUMERS. FAR. OFTEN WE SHOOT
FIRST AND ASK QUESTIONS LATER.
THAT'S WHY IT IS IMPERATIVE THAT
THIS ADMINISTRATION
ADMINISTERING AGENCIES, PROVIDE
THE DATA NECESSARY AND REASONING
TO SUPPORT THE ACTIONS THAT WE
TAKE. NOW LET'S HEAR FROM OUR
FIRST PRESENTERS ON BEHALF OF
THE NEWSOM'S STATION. I WANT TO
WELCOME OUR ENERGY CALIFORNIA
ENERGY COMMISSION VICE CHAIR,
CIVIL GUNDA, OUR NEW CALIFORNIA
ENERGY DIVISION OF PETROLEUM
MARKET OVERSIGHT, TY MULDER AND
THE CALIFORNIA DEPARTMENT OF TAX
AND FREE FEE ADMINISTRATION
DIRECTOR NICOLAS MADURO'S.
PLEASE WELCOME. WHEN YOU'RE
READY, YOU MAY BEGIN
.
GOOD MORNING. CHAIR AND MEMBERS
OF THE COMMITTEE. AND THANK YOU
FOR HAVING US TODAY. HERE TO
PROVIDE YOU WITH AN UPDATE ON
THE IMPLEMENTATION OF SB ONE TWO
AND SOME OF OUR INITIAL
OBSERVATIONS AND RECOMMENDATIONS
AND OPTIONS AS WE MOVE FORWARD
AS A STATE. I WOULD LIKE TO JUST
NAME MYSELF FOR THE RECORD, I'M
SIVA GUNDA. I'M CURRENTLY
SERVING AS THE VICE CHAIR OF THE
CALIFORNIA ENERGY COMMISSION,
AND I'M HERE WITH MY COLLEAGUES,
NICK MEDEIROS FROM CDTFA AND, TY
MILDER FROM DPMO. AND IF YOU
WOULD LIKE TO INTRODUCE
YOURSELVES. SO THEN GOING TO THE
FIRST SLIDE HERE, THANK YOU,
CHAIR BRADFORD, FOR, REALLY
SETTING THE CONTEXT OF MUCH OF
THE PROBLEM STATEMENT THAT WE'RE
CURRENTLY WORKING ON. SO JUST AS
A QUICK REMINDER AS WE GO INTO
THE CONTENTS OF THIS
PRESENTATION ON WHERE WE WERE
LAST YEAR AND, AND WHAT WE'RE
DOING TO ADDRESS SOME OF THE
ISSUES THAT WERE LAID OUT BY YOU
IN YOUR OPENING COMMENTS. SO AS
YOU MENTIONED, WE HAVE SEEN WE
ARE SEEING PRICE SPIKES. WE HAVE
SEEN THREE PRICE SPIKES OVER THE
LAST FIVE YEARS. AND LAST YEAR
WHEN WE WERE HERE, THE SENATE
ASKED US THE QUESTION ON CAN WE
SHED LIGHT ON WHAT WAS HAPPENING
? AND WE RESPONDED BY SAYING WE
DON'T REALLY HAVE THE
VISIBILITY, THE CURRENT DATA TO
BE ABLE TO PROVIDE YOU WITH,
WITH MUCH INFORMATION OUTSIDE
BROAD, BROAD STROKES. AND WE
REALLY THANK YOU, THE
LEGISLATURE, FOR GIVING US THE
TOOLS TO IMPROVE OUR
TRANSPARENCY. AND HOPEFULLY
TODAY WE'LL BE ABLE TO ESTABLISH
THE CASE FOR THE PROBLEM
STATEMENT A LITTLE BIT BETTER.
AND WE ALSO NOTED LAST YEAR,
GIVEN HOW THE MARKET IS
STRUCTURED TODAY, GIVEN HOW HARD
IT IS FOR NEW ENTRANTS TO COME
INTO THE MARKET, IT IS NOT A
PERFECTLY COMPETITIVE MARKET,
AND THERE AREN'T A LOT OF
INCENTIVES FOR THE MARKET TO,
TO, READILY ADDRESS THE PRICE
SPIKES. AND WE ALSO NOTED, CHAIR
BRADFORD, YOU KIND OF TALKED
ABOUT THE DIFFICULTY IN BRINGING
THE SUPPLY, JUST THE GENERAL
SUPPLY CONDITIONS IN CALIFORNIA.
AND AS WE MOVE INTO THE MORE AND
MORE ZEV ADOPTION, THE EV
ADOPTION, WHICH IS AT 25% TODAY
OF NEW SALES, WE'RE GOING TO
CONTINUE TO SEE THE DEMAND GO
DOWN AND THE MARKET IS GOING TO
CONTINUE TO EVOLVE AND WILL HAVE
, THE REFINERY PRODUCTION GO
DOWN, BUT ALSO THE
COMPETITIVENESS OF THE MARKET
WILL CONTINUE TO DECLINE. SO
HERE'S KIND OF THE THREE PRICE
SPIKES WE JUST MENTIONED. I WILL
TRY TO GO THROUGH SOME OF THESE
DATA SLIDES QUICKLY. BUT PAUSE,
YOU KNOW WHERE WE HAVE TO DIG IN
A LITTLE BIT. BUT THIS IS
ESSENTIALLY A SLIDE THAT WE
SHOWED YOU, LAST YEAR THAT
REALLY ESTABLISHES HOW THE
OVERALL CALIFORNIA RETAIL PRICE
COMPARED TO THE US AVERAGE. AND
THE DIFFERENCE BETWEEN THAT IN
BLUE AND AS YOU SEE THERE AT
EVERY SPIKE, TYPICALLY THAT THAT
BLUE DIFFERENTIAL GOES UP MUCH
HIGHER. AND WE WERE AT RECORD
259, DIFFERENCE LAST YEAR. AND
HOPEFULLY THROUGH THE
PRESENTATION WILL BE ABLE TO
EXPLAIN TO YOU WHY IT IS, AND
SORRY, IN 2022, IT WAS 259. AND
IN 2023 WE WERE ALMOST AT 225.
SO WHAT ARE WE DOING ABOUT THAT,
THIS IS KIND OF ONE OF THE FIRST
PRESENTATIONS OF THE DATA THAT
WE HAVE BEEN ABLE TO GATHER
BASED ON THE SB ONE TWO AND 1322
AND MANY OTHER DATA, COLLECTING
AUTHORIZATION THAT CDC HAS. AND
I WOULD LIKE TO JUST ESTABLISH A
FEW POINTS THAT CHAIR BRADFORD
MADE AT THE TOP, WHICH IS KIND
OF JUST STACKING THE PRICES THAT
YOU SEE AT THE PUMP, THE BOTTOM
FOUR COLORS, WHICH ARE BROADLY
THE ENVIRONMENTAL FEES, TAXES,
STATE AND FEDERAL TAXES, AS YOU
THINK ABOUT THAT, WHILE THAT
CONTRIBUTES TO THE PRICE AT THE
PUMP, IT DOES NOT OSCILLATE.
IT'S PRETTY STEADY. SO IF YOU
LOOK SINCE 2019, IT'S A PRETTY
FLAT SUBTRACTION IN THE LAST
FOUR, WHEN YOU THINK ABOUT HOW
THEY CONTRIBUTE TO THE PRICE
SPIKES. AND THEN ALSO CHAIR
BRADFORD MENTIONED THE
VOLATILITY IN THE CRUDE OIL
MARKET THAT YOU COULD SEE. AND
RIGHTFULLY POINTED. THE CRUDE
OIL MARKET IS INDEXED TO GLOBAL
PRICES. AND THIS IS SOMETHING
NOT ONLY CALIFORNIA, BUT THE
REST OF THE US SEES AND ITS
GLOBAL INDEX TO THE PRODUCTION
AND SOME OF THE GEOPOLITICS THAT
THAT HAPPENS. THE FOCUS THEN
ABOUT WHAT CAN VÀ CAN DO REALLY
FALLS INTO THE TOP TWO AT THIS
POINT, WHICH IS THAT IF FINALLY
MARGIN AND THE RETAIL MARGIN AND
IT'S IMPORTANT TO NOTE THAT
REFINERY MARGIN, WHICH
OSCILLATES, ESPECIALLY DURING
SUPPLY TIGHTNESS, WHICH WILL TRY
TO EXPAND ON IN THE NEXT FEW
SLIDES, BUT I ALSO WANT TO POINT
WHAT HAPPENS TO THE RETAIL
MARGINS ONCE YOU SEE AN OVERALL,
OVERALL SPIKE IN IN, LET'S SAY,
THE REFINERY MARGINS HERE IN
BLUE, YOU KNOW, WHICH IS KIND OF
STACKING ALL THE FEES, CRUDE OIL
AND THE REFINERY SPIKES. AS SOON
AS YOU SEE THAT SPIKE, THE
RETAIL SPIKE FOLLOWS. IT'S
USUALLY ABOUT A WEEK LATER. AND
BUT THE WHOLESALE PRICES OF
REFINED FUEL THEN SET THE BAR
FOR RETAIL PRICES. BUT AS THE
REFINERY MARGINS DROP BECAUSE OF
THE WHOLESALE PRICES DROPPING,
THE RETAIL MARKET DOES NOT
IMMEDIATELY REACT TO THAT. AND
SO THAT'S WHAT WE CALL ABOUT UP
LIKE A ROCKET AND NÓ DOWN LIKE A
FEATHER. IT GOES UP BUT GOES
DOWN VERY SLOWLY. AND THAT ALSO
AFFECTS THE OVERALL PRICES AT
THE PUMP. SO NOW WITH THAT
CONTEXT, I'M GOING TO GO INTO
THE AUTHORITIES THAT YOU'VE
GIVEN US, AS THE LEGISLATURE AND
WHAT WE HAVE BEEN UP TO. SO SO
BROADLY, THE REQUIREMENTS OF SB
ONE TWO FALL INTO SIX CATEGORIES
OF WORKSTREAMS FOR US. AND THE
NUMBER ONE IS REALLY AROUND DATA
COLLECTION AND MONITORING, THE
AMOUNT OF DATA POINTS THAT WE'RE
GATHERING HAS EXPONENTIALLY
INCREASED. AND WE'LL TALK ABOUT
THAT A LITTLE BIT HERE. WE ALSO
HAVE SOME REFINERY MAINTENANCE
MONITORING. WE NOW GET
INFORMATION ABOUT 120 DAYS
BEFORE A PLANNED MAINTENANCE
EVENT SO WE CAN, YOU KNOW, TRACK
IT AND LOOK AT POTENTIAL SPIKES
FROM THAT. WE ALSO HAVE THE
MARKET OVERSIGHT ANALYSIS. AND
DIRECTOR MUELLER IS GOING TO
TALK ABOUT THAT. AND, YOU KNOW,
SPECIFICALLY CALLING OUT THE
REFINING MARGIN ESTABLISHMENT
AND THE PENALTY DISCRIMINATION,
WHICH IS AN ACTIVE WORK STREAM
AT THE CDC RIGHT NOW. AND THE
LEGISLATURE ALSO RECOGNIZING
THAT THIS PROBLEM IS NOT GOING
TO GO AWAY, AS CHAIR BRADFORD
MENTIONED, LAID TWO SPECIFIC
POLICY DOCUMENTS. ONE IS AROUND
THE FUELS ASSESSMENT TO PROVIDE
OPTIONS AND RECOMMENDATION
ACTIONS FOR LONG, LONG TERM
TRANSITION AND A JOINT PRODUCT
WITH CALIFORNIA AIR RESOURCES
BOARD ON AN ACTUAL TRANSITION
PLAN. SO THE TIMELINE I'LL TRY
TO GET TO GO THROUGH HERE. BUT
YOU KNOW, WE'VE HAD, YOU KNOW,
THE BILL WENT INTO LAW IN JUNE
2023, IMMEDIATELY FOLLOWED WITH
THE APPOINTMENT OF DIRECTOR
MILDER AND THE ESTABLISHMENT OF
DPMO. AND WE TOOK A MONTH THERE
TO REALLY SUPPORT, YOU KNOW, THE
ADMINISTRATIVE ESTABLISHMENT OF
THE DPMO, WHICH DIRECTOR MILLER
IS GOING TO COMMENT ON. AND
THERE'S A FEW DOTS WITHOUT
ACTIVE CALL OUTS OF WHAT WE'VE
BEEN DOING, BUT REALLY, IT'S
BEEN A LOT OF WORK DURING THOSE
DOTS ON DATA COLLECTION, IN
NOVEMBER. AND ANOTHER IMPORTANT
MARK IS CÁC OPENED A RULEMAKING
TO BEGIN THE DISCUSSIONS AROUND
THE GROSS PENALTY MARGIN. AND IN
2020 4TH JANUARY, AS MANY OF YOU
PROBABLY HAVE SEEN, DPMO SPENT A
SPOT MARKET REFORM LETTER TO YOU
AND THE GOVERNOR, WHICH WE USE
THAT AS AN IMPORTANT INPUT FOR
CÁC IN OUR IN OUR PRODUCTS. AND
IN FEBRUARY, WE DID SOME, YOU
KNOW, BASED ON SOME OF THE
INSIGHTS FROM THE DPMO LETTER
AND INSIGHTS FROM THE STAFF
ANALYSIS, WE REVISED OUR SPOT
MARKET DATA COLLECTION
REGULATIONS RECOGNIZING THE
IMPORTANCE OF SPOT MARKET ON ON
THE RETAIL PRICES. AND IN MARCH,
WE FURTHER RELEASED WHAT IS
CALLED AN RFI. WE REQUEST FOR A
PROPOSALS AND INFORMATION,
BASICALLY ASKING STAKEHOLDERS
HOW THEY WOULD SET A PENALTY AND
SOME OF THE FRAMEWORKS. WE'VE
INVITED ALL STAKEHOLDER GROUPS
TO PROVIDE INFORMATION FOR CEC
TO CONSIDER, IN APRIL, WE HAD AN
IMPORTANT IN A PENALTY WORKSHOP
TO FURTHER REFINE OUR THINKING
ON THE PENALTY AND IN MAY, WE
ARE, YOU KNOW, KICKING OFF THE
TRANSITION PLAN, WHICH WE JUST
DID LAST FRIDAY. SO I'M GOING TO
HAVE LIKE 3 OR 4 SLIDES ON HIGH
LEVEL UPDATES ON THESE KEY
BUCKETS. AND THEN I'LL PASS IT
TO, DIRECTOR MILDER AND DIRECTOR
BURRUS. SO ON THE DATA
COLLECTION, YOU KNOW, JUST TO
KIND OF GIVE IT A 30,000 FOOT
LEVEL, THE AMOUNT OF VISIBILITY
NOW WE HAVE INTO THE INTO THE
MARKET AND THE AND THE OVERALL
OPERATIONS OF THE INDUSTRY IS
NIGHT AND DAY AS COMPARED TO
LAST YEAR. WE HAVE ABOUT 9600
DATA SUBMISSIONS. WE'VE
AUTOMATED MUCH OF THIS WORK, I
WOULDN'T SAY THAT IT WENT AS
SMOOTHLY WITHOUT A HITCH. WE HAD
TO INNOVATE QUICKLY ON HOW TO
MAKE THIS EASY FOR THE INDUSTRY
TO WORK WITH US. WE HAD A NUMBER
OF CONVERSATIONS WITH THE
INDUSTRY ON THE DATA STREAMS,
AND NOW WE HAVE AN ONLINE
SUBMISSION PORTAL, THAT BRINGS
ALL THE INFORMATION. I ALSO JUST
WANT TO REPORT TO DATE, SINCE
THE LAW HAS PASSED, WE THINK WE
PUT IN ABOUT 15,000 HOURS OF
STAFF TIME, COLLECTIVELY IN
EXCLUDING THE TIME WITH THE
CONSULTANTS. MUCH OF THAT WENT
INTO DATA GATHERING, PROCESSING
AND PUTTING IT OUT. SO NEXT ONE
JUST ON THE REFINERY MAINTENANCE
MONITORING IS VERY SIMILAR. IT
STARTED WITH A DATA COLLECTION,
YOU KNOW, WITH THE REFINERIES
AND UNDERSTANDING HOW
MAINTENANCE ARE DONE AND
TURNAROUNDS ARE DONE, WE
CONSULTED WITH THE DEPARTMENT OF
INDUSTRY RELATIONS. WE NOW HAVE
AN ACTUAL, ONGOING RELATIONSHIP
WHERE WE ARE GOING TO BECOME
CGRTS IS GOING TO BECOME A PART
OF REGULAR MEETINGS AND THAT
D¯ÚI DER ACTUALLY PUTS TOGETHER
SO WE CAN GATHER THAT
INFORMATION IN REAL TIME. AND
FINALLY, WE ARE DEVELOPING A
PROCESS FOR CÁC TO APPROVAL OF
MAINTENANCE. BUT THIS IS STILL,
IN IN CONSIDERATION OF GETTING
STAKEHOLDER INPUT AND HOW TO
MOVE FORWARD. AND THEN FINALLY,
ON THE REFINING MARGIN,
ESTABLISHMENT AND PENALTY
DETERMINATION, YOU KNOW, WE HAVE
BASED ON THE DATA WHICH WE'RE
GOING TO SHOW HERE IN A FEW
SLIDES, ARE REALLY NOW
UNDERSTAND THE STRUCTURAL ISSUES
THAT THAT REALLY CREATES. THE
HIGH LEVEL PRICE SPIKES AND THEN
HOW THOSE, STRUCTURAL
INEFFICIENCIES AND CONDITIONS
ARE EITHER DELIBERATELY OR ARE,
ARE NOT, REALLY EXPLOITED TO
HAVE THESE HIGH PRICES AND HOW A
PENALTY COULD POTENTIALLY BLUNT
THOSE PRICE SPIKES. AND WE'RE
GOING TO DISCUSS THAT WITH YOU
IN A SECOND HERE. AND FINALLY,
AS THE LEGISLATION CALLS FOR
ANYTHING WE DO HAS TO THINK
ABOUT A CONSUMER BENEFITS AND
UNINTENDED CONSEQUENCES. AND SO
WE ARE TAKING THE TIME, YOU
KNOW, THE REASON WHY IT HAS
TAKEN NINE MONTHS FOR US TO
COLLECT THE DATA AND GET TO
WHERE WE GOT IS A VERY
DELIBERATE PROCESS WITH THE
INDUSTRY AND WITH THE
STAKEHOLDERS TO ENSURE WE GET A
LEVEL OF VISIBILITY THAT ALLOWS
US TO BECOME COMFORTABLE WITH
WHATEVER WE MOVE FORWARD WITH.
AND FINALLY, AS A LEAD IN TO THE
DIRECTOR, MILDER HERE, THE
MARKET OVERSIGHT ANALYSIS, YOU
KNOW, OBVIOUSLY THE CDC HAD A
ROLE AND CONTINUES TO HAVE A
ROLE IN ADMINISTRATIVELY
SUPPORTING THE DIVISION. BUT I
WILL PASS IT TO DIRECTOR MILDER
TO GIVE AN OVERVIEW OF THAT.
THANK YOU SO MUCH, VICE CHAIR
GUNDA. GOOD MORNING EVERYONE.
THANK YOU. TO THE CHAIR, TO
MEMBERS OF THE COMMITTEE TO
COMMITTEE STAFF. MY NAME IS TY
MILDER. I'M THE DIRECTOR OF THE
NEW DIVISION OF PETROLEUM MARKET
OVERSIGHT. WE ARE THE CONSUMER
PROTECTION ENTITY WITHIN CEC.
WE'RE AN INDEPENDENT DIVISION.
BUT I'M HAPPY TO SAY THAT WE
HAVE A COLLABORATIVE AND
POSITIVE WORKING RELATIONSHIP
WITH CEC. MY OWN BACKGROUND IS
IN LAW ENFORCEMENT, AND THAT IS
THE PERSPECTIVE THAT I BRING TO
THIS NEW ROLE. WE WILL FOLLOW
THE FACTS WHEREVER THEY LEAD. WE
ARE INDEPENDENT IN OUR DECISION
MAKING AND WE PROMOTE
TRANSPARENCY AND SEEK
ACCOUNTABILITY. BUT THIS IS A
BIG TASK. AS YOU'VE HEARD, WE'VE
HAD PRICE SPIKES IN THREE OF THE
LAST FIVE YEARS. THE TWO YEARS
WITHOUT PRICE SPIKES WERE DURING
THE PANDEMIC WHEN GASOLINE
DEMAND FELL OFF OF A CLIFF. BUT
TO TELL YOU HOW WE'RE BUILDING
THE DIVISION, OUR FOCUS IS ON
INVESTIGATIONS AND ECONOMIC
ANALYSIS. WE PLAN TO HAVE FOUR
INVESTIGATIVE COUNSEL AND THREE
PROFESSIONAL ECONOMISTS. AND OF
OUR TEN POSITIONS, WE'VE ALREADY
FILLED SEVEN WITH FIVE OF THOSE
ONBOARDED. OUR MANDATE TO
PROTECT CONSUMERS IS IN THE
STATUTE ITSELF, AS THE STATUTE
PROVIDES. WE LOOK FOR MARKET
DESIGN FLAWS, MARKET POWER
ABUSES AND ANY OTHER
ANTI-COMPETITIVE CONDUCT. OUR
MISSION IS BROAD BECAUSE THE
CHALLENGE WE INTERPRET THIS, IF
WE SEE A PROBLEM IN THE MARKET,
WE'RE GOING TO CALL IT OUT. IF
IT'S A VIOLATION OF THE LAW,
WE'LL REFER IT FOR PROSECUTION.
IF IT'S NOT A LEGAL VIOLATION,
BUT STILL A PROBLEM, WE'RE GOING
TO SURFACE THE ISSUE WITH
POLICYMAKERS AND WITH THE PUBLIC
. WE'RE GOING TO TALK ABOUT SOME
OF DPMO EARLY OBSERVATIONS FROM
OUR OVERSIGHT AND INVESTIGATION
FUNCTIONS. BEFORE I GO INTO THE
DATA, I WANT TO MENTION THAT
THIS IS A DATA DRIVEN APPROACH
WHERE WE FOLLOW THE FACTS. WE
ARE AIDED BY THE TRANSPARENCY
TOOLS IN SB 1-2, WHICH PROVIDE
NEW INSIGHT AND NEW DATA. WE'RE
RELYING ON EXPERTS IN THE FIELD
AND PROFESSIONAL ECONOMISTS. SO
WE'RE GOING TO TALK ABOUT THREE
DATA RELATED SLIDES TODAY. BUT
EACH OF THEM FOCUSES ON THE
REFINING SECTOR. AS THE CHAIR
MENTIONED, THERE'S DIFFERENT
LAYERS TO THE GASOLINE MARKET.
WE'RE FOCUSING ON THESE LARGE
INDUSTRIAL SCALE OPERATIONS
WHICH PROCESS CRUDE OIL INTO
REFINED TRANSPORTATION FUELS. IN
CALIFORNIA, FOUR COMPANIES
CONTROL MORE THAN 90% OF OUR
REFINING CAPACITY. THAT'S WHAT
ECONOMISTS CALL A HIGHLY
CONCENTRATED INDUSTRY. SO OUR
FOCUS TODAY IS ON THE MARGIN
THAT THE REFINERS EARN WHEN THEY
SELL AT WHAT IS EFFECTIVELY LIKE
A WHOLESALE LEVEL OF THE MARKET.
SO OUR FIRST CHART, WHICH IS UP
ON THE SCREEN, IS TALKING ABOUT
THE PRICE SPIKES WE SAW IN 2022
AND 2023. WHEN WE ALL SEE THESE
PRICE SPIKES, WHEN WE SEE THE
PRICES GOING UP AT THE PUMP, I
THINK WE AND CONSUMERS ASK A
SIMPLE QUESTION WHERE IS THAT
MONEY GOING? WHAT IS CAUSING
THOSE PRICE SPIKES? NOW WE ALL
KNOW AND THIS WAS IN, I BELIEVE,
SLIDE FOUR, THAT VICE CHAIR
GUNDA SHOWED THAT TAXES AND FEES
ARE STABLE FROM MONTH TO MONTH.
SO WE'RE GOING TO DIG INTO THE
DATA AND FIGURE OUT WHAT CHANGES
DURING THE PRICE SPIKES. SO I
ASKED OUR ECONOMICS TEAM TO LOOK
AT THE TWO MOST RECENT PRICE
SPIKES. SEPTEMBER OF 2023 AND
2022. THAT'S WHAT'S DISPLAYED ON
THIS CHART. LOOKING AT THAT DATA
, ONE TREND IS IMMEDIATELY CLEAR
PRICE SPIKES ARE PROFIT SPIKES
FOR THE OIL INDUSTRY IN 2022.
THE REFINING MARGIN IN SEPTEMBER
WENT UP OVER 250. IT WAS SIMILAR
FOR 2023. THE PRICE SPIKE WAS A
MARGIN SPIKE FOR THE REFINING
SECTOR OF OVER 200. THIS
REFINERY MARGIN IS WHERE THE
REFINERY PROFITS ARE. IT'S THE
DIFFERENCE BETWEEN THE COST OF
CRUDE OIL AND THE SALES PRICE
AGAIN, AT WHAT IS EFFECTIVELY
THE WHOLESALE LEVEL, ANY RETAIL
PROFIT IS ON TOP OF THIS PROFIT.
SOME OF OUR CALIFORNIA
REFINERIES SELL LARGELY AT THE
WHOLESALE LEVEL, BUT SOME OF OUR
BIGGEST REFINERIES DO SELL AT
RETAIL. SO THIS CHART LIKELY
UNDERSTATES THEIR PROFITABILITY.
IN THE NEXT SLIDE, WE'RE GOING
TO SHOW HOW WE DID THESE
CALCULATIONS. SO THIS IS THE
SECOND CHART FROM THE ECONOMICS
TEAM. I'M NOT GOING TO GO INTO
ALL THE DETAILS, BUT WHAT IT
SHOWS IS THAT WE ARE COMPARING
THE PROFIT MARGINS IN THE LAST
TWO YEARS TO BEFORE 2015, WHEN
WE HAD THE FIRST BIG PRICE SPIKE
IN CALIFORNIA. SO EVEN AFTER
ADJUSTING FOR INFLATION, THE
REFINERY MARGINS IN 2022 AND
2023 WERE APPROXIMATELY DOUBLE
FOR THE WHOLE YEAR. WHAT IT WAS
A DECADE AGO. SO INDULGING YOUR
PATIENCE, ONE ADDITIONAL SLIDE
ABOUT WITH WITH DATA. HERE WE'RE
GOING TO TALK ABOUT. SO WHAT
HAPPENS WHEN THE REFINING MARGIN
GOES UP. WHAT'S HAPPENING AT THE
RETAIL MARGIN. AND AGAIN I
PROMISE THIS WILL BE THE LAST
DATA CHART. SO THE TOP OF THE
CHART IS THE PRICE OF GASOLINE
IN DOLLARS PER GALLON AT RETAIL.
AND WE ALL CAN REMEMBER THIS.
IT'S VERY VISIBLE WHEN YOU DRIVE
DOWN THE STREET. IF YOU LOOK AT
THESE ORANGE ARROWS, YOU SEE
PRICES GOING UP FROM SOMEWHERE
IN THE NEIGHBORHOOD OF $4 A
GALLON TO $5 A GALLON, AND EVEN
ABOVE $6 A GALLON IN 2022. AND
THEN IN 2023, THE PRICE SPIKE
WAS LESS SEVERE. BUT YOU ALSO
SEE PRICES GOING UP OVER $5. SO
WE ASKED WHAT'S GOING ON WITH
REFINING MARGINS. WHEN YOU SEE
THE PRICES AT THE PUMP SPIKE
LIKE THAT. SO THAT ANALYSIS IS
AT THE BOTTOM OF THE CHART. THAT
IS THE CHANGE IN THE REFINING
PROFIT AS THOSE PRICE SPIKES
HAPPEN. SO WHEN THE PRICES GO UP
OVER $5 AT THE PUMP, WE ARE
SEEING REFINERY MARGINS GO UP AS
WELL OVER 200% ABOVE THE
BENCHMARK I REFERENCED EARLIER.
THIS SLIDE. LIKE THE TWO BEFORE
IT, TELL THE SAME STORY. WHEN WE
FOLLOW THE FACTS AND ANALYZE THE
DATA, WE ARE SEEING A CLEAR
PATTERN THAT PRICE SPIKES ARE
PROFIT SPIKES FOR THE OIL
INDUSTRY. THAT TAKES US TO OUR
LAST SLIDE, WHICH IS DPMO EARLY
OBSERVATIONS FOR WHY THIS IS
HAPPENING AND OUR POLICY
RECOMMENDATIONS HERE. WE WANTED
TO HIGHLIGHT SOME OF DPMO WORK
THAT WE'VE ALREADY MADE PUBLIC
IN KEEPING WITH OUR INDEPENDENT
OVERSIGHT FUNCTION. IN SEPTEMBER
2023, WE PROVIDED AN INTERIM
UPDATE ON THE MARKET TO GOVERNOR
NEWSOM AND TO THE LEGISLATURE.
I'M NOT GOING TO GO INTO ALL THE
DETAILS HERE, HERE. BUT IN
SUMMARY, WHAT WE SAW WAS A
SINGLE TRADE ON THE GASOLINE
COMMODITIES MARKET, WHICH IS
CALLED THE SPOT MARKET. THAT
SINGLE TRADE COULD SPIKE THE
MARKET UP BY ALMOST $0.50. AND
THE WAY THE MARKET IS STRUCTURED
THAT ONE TRADE AND ON THE SPOT
MARKET, WHICH IS NOT WHERE MOST
OF THE GASOLINE IS SOLD, PUSH
PRICES UP AT THE WHOLESALE AND
THE RETAIL LEVEL. SO WE WANTED
THE PUBLIC AND POLICYMAKERS TO
KNOW WHAT WAS HAPPENING. AND IN
THAT REPORT, WE IDENTIFIED FOUR
THINGS. FIRST, THAT SPOT MARKET
VOLATILITY WAS HAVING AN
OUTSIZED IMPACT ON PRICES.
SECOND, THERE WAS A LACK OF SPOT
MARKET LIQUIDITY. THIRD,
INADEQUATE INVENTORIES OF
GASOLINE AND BLEND STOCKS WERE
SETTING THE CONDITIONS FOR THE
PRICE SPIKE. AND FOURTH, WE
OBSERVED THAT REFINERIES WERE
CREATING CONDITIONS OF
UNDERSUPPLY DURING MAINTENANCE.
SO THE GOVERNOR THEN DIRECTED
DPMO TO PROVIDE POLICY OPTIONS
FOR REFORMING THE CALIFORNIA
GASOLINE MARKET. WE MADE THOSE
PUBLIC RECOMMENDATIONS IN
JANUARY. FIRST, WE SHOULD
DEMOCRATIZE THE DATA. WE SHOULD
HAVE A PUBLIC SPOT MARKET REPORT
THAT FOLKS CAN SEE TO INCREASE
TRANSPARENCY AND UNDERSTAND WHY
PRICES ARE MOVING. SECOND, THERE
SHOULD BE MINIMUM INVENTORY AND
RESUPPLY REQUIREMENTS FOR OUR
REFINERIES. I WANT TO UNDERSCORE
THIS LAST POINT. THANKS TO THE
NEW LAW, THE REFINERIES HAVE TO
REPORT HOW MUCH SUBSTITUTE
SUPPLY THEY ARE GETTING FROM OUT
OF STATE WHEN THEY'RE PLANNING
TO DO THEIR REPAIRS. THAT DATA
SHED NEW LIGHT ON THE FACT THAT
REFINERS WERE USING WERE
CAUSING, EXCUSE ME, CONDITIONS
OF UNDERSUPPLY BY NOT SECURING
ADEQUATE REPLACEMENT SUPPLY IN
2023 DURING MAINTENANCE, WE SAW
A SIMILAR PATTERN THIS PAST
SPRING. AGAIN, THESE
RECOMMENDATIONS ARE DIRECTED AT
THE REFINING LEVEL OF THE
MARKET. WE ARE ALSO SEEING
PERSISTENTLY HIGH PRICES AT THE
RETAIL LEVEL AND HIGH MARGINS AS
WELL, WHICH IS NOT AN ISSUE OF
TAXES AND FEES. AS PROFESSOR
BORNSTEIN FROM UC BERKELEY HAS
IDENTIFIED AND DUBBED IT THE
MYSTERY GASOLINE SURCHARGE. DPMO
ANALYSIS AT THE RETAIL LEVEL IS
ONGOING AND HAS BEEN ALREADY THE
FOCUS OF SOME IMPORTANT WORK BY
OUR COLLEAGUES AT CDTFA. SO I'LL
HAND THINGS OVER TO DIRECTOR
MEDEIROS. THANKS SO MUCH FOR
THAT. DIRECTOR ALDER, THANK YOU,
CHAIR BRADFORD AND MEMBERS OF
THE COMMITTEE FOR HAVING ME
TODAY. I'D ALSO LIKE TO START
OUT BY THANKING THE TEAM AT
CDTFA AND ITS CEC FOR ALL THEIR
WORK ON THIS FIRST GAS PRICING
REPORT, WHICH WE'VE ISSUED. I'D
ALSO LIKE TO THANK MANY IN THE
INDUSTRY FOR THEIR COOPERATION
IN PUTTING THIS TOGETHER, GIVEN
THAT THE REPORT IS VERY LONG,
I'M JUST GOING TO HIGHLIGHT A
FEW HIGH LEVEL, FACTS AND A BIT
DIFFERENT THAN MY COLLEAGUES
HERE. OUR GOAL HERE IS JUST TO
PROVIDE POLICYMAKERS WITH FACTS
AND DATA SO THAT EVERYBODY HAS
AS MUCH INFORMATION AS POSSIBLE.
AS YOU DECIDE HOW THE STATE
SHOULD PROCEED TO ADDRESS THESE
SPIKES IN GAS PRICES, WHICH
YOU'VE HEARD ABOUT, CDTFA, AS
YOU KNOW, ADMINISTERS THE
STATE'S TAXES ON GASOLINE, WHICH
BETWEEN THE EXCISE AND SALES TAX
PRODUCE JUST SHY OF $9 BILLION A
YEAR FOR THE STATE OF CALIFORNIA
, THE FIRST EXCISE TAX IN
GASOLINE DATES BACK TO 1923,
WHEN THE RATE WAS SET AT TWO
$0.02 PER GALLON. THAT WAS
INCREASED TO $0.03 PER GALLON IN
1927. NOW, COINCIDENTALLY,
INFLATION ADJUSTED, THAT'D BE
$0.54 PER GALLON TODAY, WHICH IS
PRETTY CLOSE TO THE 57.9 CENTS
PER GALLON THAT THE STATE DOES
HAVE CURRENTLY AS A GASOLINE
EXCISE TAX, THE RATE WOULD BE
MUCH LOWER. BUT FOR IN 2010, THE
LEGISLATURE PASSED THE GAS TAX
SWAP, WHICH LOWERED THE SALES
TAX ON GASOLINE DOWN TO 2.25% AS
THE STATEWIDE RATE, RATHER THAN
7.25. AND IT UPPED THE GASOLINE
EXCISE TAX TO MAKE UP THAT
DIFFERENCE. IT WAS MEANT TO BE
REVENUE NEUTRAL, ALSO, I'D LIKE
TO POINT OUT THAT LAO'S
ESTIMATED, THAT IS CALIFORNIA'S
SHIFT AWAY FROM GASOLINE. WE'LL
SEE OVER THE NEXT DECADE OR SO
ABOUT A 65% DROP IN EXCISE TAX
REVENUE, SO THIS TRANSITION
DISCUSSION THAT CÁC IS HAVING ON
THE FUELS FRONT ALSO, SETS THE
STAGE FOR A TRANSITION
DISCUSSION FOR HOW CALIFORNIA
WILL GET THE REVENUE TO FUND ITS
TRANSPORTATION INFRASTRUCTURE IN
THE COMING YEARS, NOW, SPEAKING
OF GASOLINE CONSUMPTION IN THE
STATE, THE TEAMS ALSO LOOKED AT
INFORMATION FROM THE US ENERGY
INFORMATION ADMINISTRATION, OR
EIA, ON GAS PURCHASES AND
EXPENDITURES AS WE ALL KNOW,
CALIFORNIA GAS PRICES ARE AMONG
THE HIGHEST IN THE COUNTRY.
THAT'S WHY WE'RE ALL HERE TODAY,
AT THE SAME TIME, THE STATE HAS
BY FAR THE MOST ELECTRIC HYBRID
PLUG IN HYBRID VEHICLES OF ANY
STATE IN THE COUNTRY. ALMOST 37%
OF ALL, ELECTRIC VEHICLES IN THE
COUNTRY ARE REGISTERED HERE IN
CALIFORNIA. AND WE ONLY HAVE 12%
OF THE US POPULATION. THE
COMBINATION OF THAT FUEL
EFFICIENCY, TOGETHER WITH SOME
OF OUR POPULATION DENSITY, MEANS
THAT CALIFORNIA, DESPITE HAVING
VERY HIGH GAS PRICES, ACTUALLY
RANKS 21ST IN THE COUNTRY IN PER
CAPITA SPENDING ON GASOLINE IN
2021, THE AVERAGE CALIFORNIAN
SPENT ABOUT $120 MORE PER YEAR
THAN THE AVERAGE AMERICAN AND
ABOUT $85 A YEAR MORE THAN THE
AVERAGE TEXAN, WHICH IS ABOUT
SEVEN BUCKS A MONTH. SO IT IS.
IT IS CERTAINLY SOMETHING. AND
AS CHAIR BRADFORD MENTIONED AT
THE OUTSET, THE HIGH GAS PRICES
DO DISPROPORTIONATELY HIT, SOME
OF OUR MOST VULNERABLE CITIZENS
WHO OFTEN TYPICALLY DRIVE OLDER
VEHICLES WHICH HAVE, POOR GAS
MILEAGE AND ALSO MAY HAVE TO
COMMUTE LONGER TO GET TO AND
FROM WORK, IF I COULD MOVE ON TO
THE NEXT SLIDE HERE. OH, NO. OH,
WAIT. GO. OH, YEAH. THAT'S IT,
SO AS HAS BEEN MENTIONED, OUR
RESEARCH HAS PRIMARILY FOCUSED
ON THE RETAIL SIDE, GIVEN THE
WORK THAT CEC, YOU GOT ONE MORE.
GIVEN THAT CEC AND DPMO HAVE
BEEN DOING, ON THE REFINERY AND
WHOLESALE LEVELS, THE TEAM'S
BEEN WORKING WITH MILLIONS OF
DATA POINTS. THEY'VE LOOKED AT
THE GASOLINE PRICES FOR EVERY
GAS STATION IN THE STATE OF
CALIFORNIA FOR EVERY DAY FOR THE
PAST DECADE, AS WELL AS
WHOLESALE PRICES. AND WE'VE
LOOKED AT LEGAL CONTRACTS TO TRY
TO GET A SENSE OF WHAT'S
HAPPENING HERE IN THE MARKET,
YOU CAN SEE IN THIS SLIDE HERE,
WHICH IS VERY SMALL. I'M HOPING
YOU CAN, SEE BETTER. BUT THIS
YOU CAN SEE SOME SHIFTS THAT ARE
TAKING PLACE IN THE CALIFORNIA
RETAIL MARKET, PARTICULARLY WITH
THE GROWTH THERE AT THE TOP OF
THE HYPER MÁS. THESE ARE THE
LARGE RETAILERS THAT ALSO SELL,
SELL GASOLINE. SO THIS IS LIKE
THE COSTCO'S YOU'VE SEEN ALMOST
A DOUBLING IN MARKET SHARE OF
THE OF THE COSTCO'S. YOU'VE SEEN
A SLIGHT GROWTH IN THE UNBRANDED
GASOLINE SALES. AND THEN YOU'VE
SEEN A LOT OF THE BRANDS HERE
LOSING A LITTLE BIT OF MARKET
SHARE, BUT NOT TOO MUCH OVER THE
PAST, 12 OR 15 YEARS THERE. THE
IF WE COULD LOOK AT THE NEXT
SLIDE, WHICH SHOWS THE MORE
DETAILED RETAIL MARGINS, WHAT,
OH, YEAH. SO IT DOES SHOW THIS
IS THE RETAIL RANGE OF,
PROFITABILITY. LET ME HERE.
SORRY ABOUT THAT, AND WHAT YOU
CAN SEE IS THAT THEY TYPICALLY
MOVE ALL TOGETHER AND THE, THEIR
PLACES IN THE PRICE RANGE ARE,
ARE PRETTY STEADY OVER YEARS, SO
YOU'LL SEE BRANDS APPEAR TO BE
PRICED IN RELATIONSHIP TO ONE
ANOTHER, WHICH IS I THINK YOU'LL
SEE IN MORE DETAIL IN THIS NEXT
SLIDE, WHICH HAS, IF YOU LOOK
HERE, YOU CAN SEE, THE RETAIL
PRICES, RETAIL MARGIN, WHICH IS
THE DIFFERENCE BETWEEN WHAT THE
GAS STATIONS PAY FOR THE
GASOLINE AND WHAT THEY SELL IT
FOR. AS WELL AS THE RETAIL
MARGIN AS A PERCENTAGE OF PRICE
ACROSS. WE'VE HIGHLIGHTED A FEW
BRANDS HERE AND THEN UNBRANDED
AS WELL AS THE HYPERMARKETS, IF
YOU LOOK FROM 2013 TO 2023, YOU
WILL SEE THAT THE GROWTH IN
RETAIL MARGINS HAS FAR OUTPACED
THE RATE OF INFLATION. A FEW
OTHER INTERESTING POINTS HERE,
RETAILERS FOR SOME BRANDS HAVE
BEEN AVERAGING AROUND $1, RETAIL
MARGIN PER GALLON, THESE PRICES,
WHICH, IN BACK IN THE DAY WOULD
HAVE BEEN SEEN AS AN EXTREME
ANOMALY THAT WOULD LAST JUST FOR
A FEW DAYS. ARE NOW ANNUAL
AVERAGES FOR SOME OF THESE
BRANDS, YOU CAN ALSO SEE THE
PRICE DISPARITY BETWEEN THE
HIGHEST PRICED GASOLINE AND THE
LOWEST PRICED GASOLINE HAS
ALMOST TRIPLED OVER THE LAST TEN
YEARS. ONE OTHER THING THAT ALSO
APPEARS TO BE OCCURRING IS A
SHIFT IN PRICING STRATEGIES. IF
YOU LOOK HERE AT ARCO, FOR
EXAMPLE, IT WAS ONCE A LOW COST
PROVIDER, ACTUALLY CHEAPER THAN
UNBRANDED GASOLINE ON AVERAGE,
IN RECENT YEARS IT'S PRICES AND
MARGINS APPEAR TO BE INCREASING
AS IT MOVES UP CLOSER TO OTHER
BRANDED GASOLINE. SO THERE IS
SOME SHIFTING TAKING PLACE IN
THE MARKET. BUT I DO THINK
WHAT'S REALLY IMPORTANT TO NOTE
HERE, AND I THINK REALLY
IMPORTANT FOR CALIFORNIANS TO
UNDERSTAND, IS THAT ALL OF THE
GASOLINE SOLD IN CALIFORNIA IS
BASICALLY THE SAME. IT'S STORED
IN THE SAME TANKS. IT'S SWAPPED
BETWEEN REFINERS. IT ALL MEETS
THE CARB SPEC, IF YOU LOOK
ONLINE, YOU'LL SEE A LOT OF
CONSUMERS COMPLAINING ABOUT
WHAT? THIS GASOLINE IS TOO
WATERY AND I DON'T WANT TO BUY I
DON'T WANT TO BUY GASOLINE WITH
THAT BRAND, THERE'S CLEARLY A
LOT OF MISUNDERSTANDING OUT
THERE, AND THE CONFUSION IS
COSTING CALIFORNIANS A LOT OF
MONEY. THE ONLY DIFFERENCE
BETWEEN THE BRANDS AND UNBRANDED
AND HYPER MART IS THE CLEANING
ADDITIVE THAT IS MIXED IN
GENERALLY AT THE RACK WHEN THE
TRUCK IS LOADED WITH FUEL. NOW,
ALL CALIFORNIA GAS MUST HAVE A
CLEANING ADDITIVE APPROVED BY
THE CALIFORNIA AIR RESOURCES
BOARD. SOME BRANDS ALSO HAVE
THEIR OWN PROPRIETARY BLENDS. WE
FOUND IN OUR STUDY THAT THIS MAY
ADD LESS THAN A CENT TO THE
WHOLESALE PRICE OF GASOLINE. AND
YET, IF YOU LOOK AT THIS TABLE,
YOU'LL SEE IT CAN EQUAL AN EXTRA
$0.60 OR SO PER GALLON. SO THAT
HALF A CENT, AT THE RETAIL SHOWS
UP AS $0.60 MORE FOR CALIFORNIA
CONSUMERS. NOW, THE ATTORNEY
GENERAL'S FILED A LAWSUIT
ALLEGING, AMONG OTHER THINGS,
THAT THE PROMOTION OF THIS GAS
IS CLEANER, BURNING IS DECEPTIVE
AS CLEANER BURNING IS DECEPTIVE.
BUT I DO THINK IT WOULD BE
USEFUL TO HAVE MORE, MORE
SUNLIGHT AROUND HOW TO HOW THE
BASELINE CARB ADDITIVE STANDARD
COMPARES TO BRANDED ADDITIVES.
AND THAT'S SOMETHING WE'LL
CONTINUE TO LOOK AT. THE NEXT
SLIDE, JUST SORT OF TO WRAP UP
HERE, THIS WAS JUST OUR INITIAL
REPORT. IT TOOK A WHILE TO GET
THE DATA, DUE TO GOVERNMENT
CONTRACTING, WHICH IS NEVER
EASY, AND, WORKING WITH INDUSTRY
TO MAKE SURE THAT THEY COULD
PROVIDE US WHAT WE WERE LOOKING
FOR, WE WERE LEFT WITH SOME
QUESTIONS TO WORK ON AND AMONG
THEM, JUST TO HIGHLIGHT THE
VOLUME OF IMPORTED GASOLINE AND
THE IMPACT OF THOSE IMPORTS ON
PRICE. AND THAT'S SOMETHING THAT
YOU'VE HEARD MENTIONED BY THE
CEC AND DPMO. THE INTERPLAY
BETWEEN VOLATILITY AND HIGH
RETAIL PRICES, VICE CHAIR GUNDA
MENTIONED THE UP LIKE A ROCKET,
DOWN LIKE A FEATHER. IF YOU LOOK
AT OUR DECADE OF DATA THAT IS
VERY CLEAR. IT TAKES A RETAILER
AN AVERAGE OF FIVE DAYS FOR THEM
TO WHEN THERE'S A PRICE SPIKE UP
AT THE WHOLESALE LEVEL, IT TAKES
ABOUT FIVE DAYS FOR THE RETAIL
PRICE TO MATCH. WHEN THE PRICE
DROPS, IT TAKES 34 DAYS FOR THE,
RETAILERS MARGIN TO SORT OF COME
BACK INTO BASELINE. SO IT'S
REALLY IMPORTANT AS POLICY
MAKERS, I THINK THAT YOU LOOK
FOR WAYS TO, MINIMIZE PRICE
VOLATILITY BECAUSE WHEN THERE'S
THE PRICES GO UP, THEY STAY UP,
I MENTIONED THE SHIFT IN PRICING
STRATEGIES THAT YOU'RE SEEING
WITH ARCO AND SOME OTHERS, THE
IMPACT OF LOCAL COMPETITION IS
SOMETHING THAT REQUIRES MORE
STUDY, OUR ANALYSIS OF 2022 DATA
SHOWS THAT STATIONS WITH NO
COMPETITORS WITHIN A HALF MILE
PRICED THEIR GAS ABOUT 2.6 CENTS
HIGHER THAN THOSE WITHIN NEARBY
BRANDED STATION AND ALMOST $0.05
HIGHER THAN THOSE WITH A NEARBY
UNBRANDED STATION AND EACH
ADDITIONAL STATION WITHIN THAT
HALF MILE RADIUS, CORRELATES
WITH A FURTHER 0.7 CENT
REDUCTION IN PRICES, AND THEN,
JUST A COUPLE MORE BRIEF THINGS
WE HAVE DISCOVERED THAT, A LOT
OF MARKET PARTICIPANTS, A LOT OF
THEM ARE USING NEW PRICING
SOFTWARE THAT AUTOMATICALLY SETS
THEIR PRICES TO MAXIMIZE
PROFITS. CAN WHAT IS PERHAPS
MOST CONCERNING IS THAT A LOT OF
THEM ARE USING THE EXACT SAME
SOFTWARE TO AUTOMATICALLY SET
THEIR PRICES TO MAXIMIZE
PROFITS. SO THAT'S SOMETHING
THAT WE'LL BE LOOKING INTO MORE.
AND WE'LL ALSO BE LOOKING INTO
RETAIL OUTLET CONCENTRATION. IT
APPEARS THAT, CERTAIN REFINERS
ARE GETTING BACK INTO THE RETAIL
BUSINESS THROUGH JOINT VENTURES.
WE HAVE SOME PRIVATE EQUITY
FIRMS, PRIVATE EQUITY FIRMS THAT
ARE BUYING UP HUNDREDS OF
STATIONS AROUND THE STATE OF
CALIFORNIA. SO YOU'RE SEEING AN
INCREASE IN CONCENTRATION AT THE
RETAIL LEVEL. AND THEN HOW ALL
OF THOSE FACTORS INTERPLAY WITH
ONE UNIQUE ASPECT OF THE
CALIFORNIA MARKET, WHICH IS THE
DEALER TANK WAGON, WHERE
RETAILERS ARE ENTERING INTO VERY
LONG TERM, 10 OR 15 YEAR
CONTRACTS, TO PURCHASE AT A
DELIVERED PRICE, THAT'S
SOMETHING THAT I KNOW THAT DPMO
IS ALSO LOOKING AT TO SEE HOW
THAT RELIANCE ON, WHICH IS AN
ANOMALY HERE IN THE STATE OF
CALIFORNIA COMPARED TO THE REST
OF THE COUNTRY, IS IMPACTING
PRICE. AND WITH THAT, LET ME
TURN IT BACK OVER TO VICE CHAIR
GUNDA, THANK YOU, DIRECTOR
MEDEIROS. SO I'M GOING TO HAVE A
FEW SLIDES TO BRING THIS TO A
CLOSE. AND SUMMARIZE THE POINTS
THAT HAVE BEEN, MADE BY BOTH
DIRECTOR MILLER AND DIRECTOR
MEDEIROS. SO I JUST WANT TO
BRING US BACK TO ONE OF THE
OPENING SLIDES WHERE WE TALKED
ABOUT THESE VARIOUS COMPONENTS
MAKING UP THOSE PRICE SPIKES. SO
WE JUST LAID THEM OUT HERE AS A
AS A BOTTOM THREE AND TOP TWO.
SO AS WE MENTIONED, TAXES AND
FEES DON'T REALLY MOVE.
ENVIRONMENTAL PROGRAMS DON'T
MOVE. THAT'S A STATIC, ADDER
THAT WE HAVE. AND AS WE
MENTIONED, CRUDE OIL PRICES AT
THE VERY BOTTOM, WHICH IS THE
42, CANNOT IS GLOBALLY INDEXED
AND NOT SOMETHING WITHIN THAT'S
UNIQUE TO CALIFORNIA CONDITIONS.
BUT ON THE TOP, THE REFINERY
MARGINS AND THE RETAIL MARGINS
ARE UNIQUE TO CALIFORNIA
CONDITIONS, MARKET CONDITIONS.
AND ONE OF THE KEY VARIABLE, AS,
DIRECTOR MILLER MENTIONED, IS
THE SPOT MARKET PRICES. SO TO
SUMMARIZE, AS THE MARKET
PERCEIVES SCARCITY OR REAL
SCARCITY OR PERCEIVED SCARCITY,
THE WHOLESALE PRICES THEN ARE
ANCHORED TO THE SPOT MARKET
RATES THAT HAPPEN. SO YOU'RE
SAYING THE MARKET IS SEEING THE
CONDITIONS AND SAYING THAT THE
MARKET IS NOT LIQUID, THERE IS
NOT ENOUGH SLACK, AND THERE ARE
A FEW TRADES THAT HAPPEN AT SPOT
MARKET PRICES THAT ARE REALLY
HIGH. AS SOON AS THOSE SPOT
MARKET PRICES HAPPEN, THE
OVERALL REFINERY MARGINS JUMP
WITH THEM. AND ALSO THE RETAIL
MARGINS JUMP WITH THEM. SO THOSE
ARE THE TWO ELEMENTS. ALL TAGGED
TO THE SPOT MARKET PRICES. AND
HENCE WE SPENT A LOT OF TIME
UNDERSTANDING THE DETAILS OF
THAT. AND FIGURING OUT IF THERE
IS A CLEAR CORRELATION BETWEEN
THE SMART MARKET PRICES AND THE
SUPPLY CONDITIONS. SO HERE'S A
SLIDE TO JUST VISUALLY SHOW THAT
TO YOU WHEN YOU THERE ARE FOUR
LINES HERE. THE GREEN LINE,
WHICH IS THE REFINERY MARGIN,
THE SPOT MARKET PRICES IN BLUE
AND ACTUAL RETAIL PRICES IN
BLACK. AS YOU LOOK AT THOSE
THREE THINGS, WHEN THE SPIKES
HAPPEN, WHEN THE SPIKES HAPPEN,
ALL THREE MOVE. AND THE THING
THAT MOVES IS THE SPOT MARKET
PRICES. IF THE SPOT MARKET
PRICES MOVES FIRST, AND THEN THE
REFINERY MARGINS AND THE RETAIL
MARGINS. AND AS DIRECTOR MADERAS
MENTIONED, THE SECONDARY EFFECT
ON THE RETAIL PRICES IS LASTS
VERY LONG, EVEN THOUGH THE
SPIKES HAPPEN FIVE DAYS IN, THEY
CAN LAST FOR 34 DAYS AFTER THE
SPIKES GO DOWN. SO THIS IS IF
THERE'S ONE CHART, WE CAN KIND
OF LEAVE YOU WITH, THIS IS ONE
OF THE MOST IMPORTANT CHARTS OF
THE ENTIRE WORK THAT WE'VE
CONDUCTED. SO WHAT WHAT YOU'RE
SEEING HERE IS WHAT IS CALLED A
MASS BALANCE. SO WE'RE LOOKING
AT WHAT ARE ALL THE ALL THE
LEVERS WE HAVE FOR THE SUPPLY
AND HOW MUCH DEMAND DO WE HAVE
AND CAN WE UNDERSTAND. AND HOW
MANY DAYS OF SUPPLY DO WE NEED
FOR THE MARKET TO HAVE
VISIBILITY ON TO KEEP THE SPOT
MARKET PRICES LOW? SO WHAT YOU
ARE SEEING ON THE X AXIS IS
ABOUT THE NUMBER OF DAYS OF
SUPPLY. THE MARKET IS SEEING.
AND WHAT YOU SEE ON THE Y AXIS
IS THE SPOT MARKET PRICES. SO
WHAT YOU SEE THERE AND THE
TAKEAWAY HERE IS WHEN THE SUPPLY
CONDITIONS IN IN THE MARKET,
WHEN THE MARKET, YOU KNOW,
DIFFERENT PLAYERS, THE TRADERS,
THE REFINERIES, EVERYBODY IS
LOOKING AT THIS DATA DIFFERENTLY
, DIFFERENT PEOPLE COMPUTE THIS
ANALYSIS DIFFERENTLY INTERNALLY.
BUT ALL OF THEM ARE WATCHING THE
SAME TREND. SO AS THE SUPPLY IN
THE MARKET GOES BELOW 16 DAYS
WORTH. RIGHT. SO THIS IS THIS IS
BASICALLY HOW MUCH REFINING
CAPACITY DO YOU HAVE, EXCLUDING
HOW MUCH, UNPLANNED OR PLANNED
MAINTENANCE ISSUES I'M HAVING,
HOW MUCH INVENTORIES AM I
CARRYING AS A STATE. HOW MANY
SHIPS ARE COMING INTO THE STATE
WITH REFINED FUEL. SO I'M TAKING
ALL THAT SUPPLY, AND I'M LOOKING
AT HOW MUCH DEMAND DO I HAVE TO
SERVE IF I CAN TAKE THE TOTALITY
PICTURE AND SAY I HAVE
VISIBILITY FOR ABOUT 16 DAYS
WORTH OF FUEL, YOU SEE THE SPOT
MARKET PRICES ARE REALLY LOW. AS
SOON AS IT DROPS BELOW 1616
DAYS, IT BEGINS TO GO LIKE A
HOCKEY STICK. AND BY THE TIME IT
COMES TO 1312 DAYS, YOU BEGIN TO
SEE TRADES IN THE MARKET THAT
ARE SO HIGH THAT IMMEDIATELY
AFFECTS THE REFINERY MARGINS AND
THE RETAIL MARGINS. AND HENCE
THIS IS A REALLY, REALLY
IMPORTANT THING. AND GOING BACK
TO DIRECTOR MILDER'S DPMO
RECOMMENDATION, THIS IS ONE
THING THAT WE CAN ACT ON
IMMEDIATELY. SO THE TWO THINGS
THAT THE CDC IS PLANNING TO DO
THIS YEAR AND WORKING ON
IMMEDIATELY TO HELP CONTINUE TO
FURTHER OUR WORK ON SP ONE TWO
IS JUST INCREASE THE
TRANSPARENCY ON THE SPOT MARKET
RATES, AS DIRECTOR MILDER
MENTIONED, THE CURRENT
PUBLICATION OF THIS DATA IS VERY
OPAQUE TO US. WE DON'T GET TO
SEE THE UNDER UNDERLYING
ASSUMPTIONS WITH THE INDUSTRY
DATA THAT COMES OUT AND THE
PUBLICATIONS. SO WE DON'T REALLY
UNDERSTAND WHY AND HOW OR IF THE
TOTALITY OF THE SPOT MARKET
PRICES ARE ACTUALLY REFLECTED IN
THESE PUBLICATIONS. SO GIVEN THE
AUTHORITY THAT YOU GAVE US, WE
ARE ALREADY GATHERING THIS
INFORMATION. AND BY US PUTTING
IT OUT THERE, WE AT LEAST CHECK
OTHER OTHER PUBLICATIONS FOR
ACCURACY AND CATCH IF THERE ARE
MISTAKES AND HAVE A NEW
BENCHMARK BECAUSE IT HAS SUCH A
PROFOUND IMPACT ON THE RETAIL
PRICES TO. WE ARE WORKING VERY
CLOSELY WITH THE INDUSTRY AND I
WANT TO, JUST ADD TO WHAT
DIRECTOR MADUREZ MENTIONED, THE
INDUSTRY HAS BEEN WORKING WITH
US CLOSELY AND PROVIDING
INFORMATION, AND WE ARE WORKING
WITH THEM THIS YEAR ON THINKING
ABOUT TARGETS. WHAT CAN WE DO
GIVEN THAT WE HAVE THIS DIRECT
CORRELATION WITH SUPPLY AND SPOT
MARKET PRICES? IS THERE ANYTHING
WE CAN DO TO HAVE SOME TARGETS
ON KEEPING THE SUPPLY AT A
CERTAIN LEVEL IN THE MARKET? AND
THAT'S WHAT WE'RE EXPLORING
RIGHT NOW. AND MOVING FORWARD
LATER THIS YEAR, THE, THE STAFF
AT THE ENERGY COMMISSION WILL,
WILL BRING FORTH, A FRAMEWORK
FOR THE PENALTY FOR ADOPTION.
BUT WE'LL BE OBSERVING THIS OVER
THE REST OF THE SUMMER. AND SO
CLOSING OFF WITH THE LAST COUPLE
SLIDES HERE, THAT'S THE NEAR
TERM. WHAT ARE WE GOING TO DO
LONG TERM, GIVEN THAT THIS
PROBLEM IS NOT GOING TO GO AWAY?
SO THE CDC PUBLISHED THE
TRANSPORTATION FUELS ASSESSMENT.
WE PUT IT OUT AS A DRAFT. WE'RE
WAITING TO GET STAKEHOLDER
FEEDBACK. AND THERE ARE BROADLY
IN A FIVE CATEGORIES OF OPTIONS.
WE LAY OUT ONE OAN. GIVEN THESE
EXTREME VOLATILITY IN THE SUPPLY
CONDITIONS AND THEN THE SPOT
MARKET PRICES, CAN WE JUST THINK
ABOUT USING EXISTING STORAGE
MAXIMIZING USAGE OF THAT. SOME
OF THE REFINERIES ARE BEING TO
CONVERT. IS THERE OPPORTUNITY TO
USE SOME OF THE STORAGE TANKS TO
HAVE IN STATE STORAGE, SIMILARLY
, YOU KNOW, IS THERE OPTIONS TO
ADD MORE. SO THAT'S A THAT'S A
STORAGE OPTION TO FUEL BLENDS AS
AS MOST OF YOU HAVE TRACKED
LAST, LAST COUPLE OF YEARS, WE
HAD TO TAKE AN EXTRAORDINARY
ACTION IN IN MOVING TO WINTER
BLEND EARLIER. AND THAT
INCREASES THE VOLATILITY, THAT
INCREASES THE LIQUIDITY IN THE
MARKET OF FUEL. IS THERE
SOMETHING WE CAN THINK ABOUT
REGIONAL BLENDS, ALONG WITH WEST
COAST PARTNERS, WEST COAST
STATES OR OUR REGIONAL STATES
HERE TO THINK ABOUT A BLEND THAT
ALLOWS FOR ALL OF US TO IMPROVE
THE OVERALL LIQUIDITY IN THE
MARKET, AND SOME ARE, HIGHLY
COMPLEX REGULATORY THINGS. ALL
OF THESE, BY THE WAY, CAME
THROUGH STAKEHOLDER PROCESS AND
COMMENTS IS DO WE WANT TO
EXPLORE A PUBLIC UTILITY MODEL?
DO WE ACTUALLY HAVE A REGULATED
MARKET? YOU KNOW, MOST OF THE
INDUSTRY TALKS ABOUT, YOU KNOW,
THEIR CURRENT ROI, IS THERE A
WAY TO HAVE THAT ROI, BUT BUT
ALLOW FOR REGULATORY FRAMEWORKS
THAT CREATE A STABILIZATION OF
THE PRICE AT THE PUMP AND
IMPORTS AND THIS IS REALLY
IMPORTANT TO LAY OUT HERE WHEN
WE TALK ABOUT IMPORTS AS A
RESUPPLY, OUR STATE MANAGED
IMPORTS, WE'RE TALKING ABOUT
INCREMENTAL TO THE STATE
REFINING CAPACITY. SO WE HAVE
THE STATE REFINING CAPACITY.
THEY ARE MEETING THE DEMAND. BUT
IN CASES OF THOSE MOMENTS WHERE
YOU HAVE A DELTA, COULD WE BRING
IN MORE IMPORTS AND PROACTIVELY
TO HELP RESUPPLY AND FINALLY
DEMAND STRATEGIES WE NEVER WANT
TO LEAVE? I MEAN, THOSE ARE
OPPORTUNITIES, YOU KNOW, HIGHER
TRANSIT, REDUCED VEHICLE MILES
TRAVELED, IN SOME OF THE
ENVIRONMENTAL JUSTICE GROUPS
HAVE MENTIONED FREE RIDES DURING
SUMMER FOR VULNERABLE
COMMUNITIES TO BE ABLE TO
PROTECT THEM FROM THESE PRICE
SPIKES. ALL THOSE ARE OUR POLICY
OPTIONS WE LAID OUT. AND THE
NEXT STEP IS GOING TO BE
DISCUSSING EACH ONE OF THOSE
OPTIONS IN THE TRANSITION PLAN
WITH THE CALIFORNIA AIR
RESOURCES BOARD. WE'RE GOING TO
WORK THROUGH WITH THE
STAKEHOLDERS TO THINK ABOUT
WHICH ONES OF THESE SHOULD BE
CONSIDERED AND LAY OUT A
DETAILED PLAN, FOR THOSE OPTIONS
. SO THE NEXT STEPS WILL
CONTINUE TO WORK ON OUR DATA
COLLECTING. WE'RE GOING TO
CONTINUE TO WORK ON THE MARKET
ANALYSIS. AND AS I MENTIONED THE
PENALTY FRAMEWORK WILL BE PUT
FORTH LATER THIS YEAR BY THE
CALIFORNIA ENERGY COMMISSION
STAFF. AND THE COMMISSION IS
GOING TO VOTE ON IT LATER THIS
YEAR. AND THEN WE'RE GOING TO
WORK ON OUR POLICY DOCUMENTS,
BOTH THE ASSESSMENT AND THE
TRANSITION PLAN. WE KNOW WE
THREW A LOT OF DATA THERE AND
LOOK FORWARD TO ANSWERING YOUR
QUESTIONS. THANK YOU. THANK YOU.
AND WE'RE GOING TO OPEN IT UP
NOW FOR QUESTIONS FROM COMMITTEE
MEMBERS. SENATOR NEWMAN,
APPRECIATE IT. MR. CHAIR. THANK
YOU, GENTLEMEN, FOR BEING HERE.
QUESTIONS FOR I THINK MANY OF
THEM AT LEAST START WITH VICE
CHAIR GUNDA, I UNDERSTAND
THROUGH YOUR TESTIMONY, YOU
KNOW, AS PART OF THE
EXPLANATION, YOU MET WITH
CALIFORNIA'S REFINERIES. AND IF
YOU COULD, YOU KNOW, DID THEY
SHARE HOW THEY MIGHT REACT IF WE
WERE TO IMPOSE A MARGIN CAP AND
PENALTY STRUCTURE? YEAH, THANK
YOU FOR THAT QUESTION, SENATOR,
SO WE HAVE BEEN ACTIVELY
COMMUNICATING WITH THE INDUSTRY,
AND I WANT TO RESPECT SOME OF
THE CONVERSATIONS GIVEN IN THE
PIETA STATUTE WE HAVE. BUT
OVERALL, I WOULD IMAGINE THAT I
THINK THE WHAT THE INDUSTRY HAVE
SHARED WITH US IS IF THERE IS A
PENALTY, YOU KNOW, THEY WOULD,
TRY NOT TO EXCEED IT, AND, AND,
AND, YOU KNOW, THAT'S SOMETHING
THAT WE HAVE TO WATCH AND IN NOT
EXCEEDING IT, THEY OFFER,
POTENTIAL OTHER MARKET THINGS
THAT COULD HAPPEN, SUCH AS
INCREASE, OVERALL INCREASE IN
THE PRICES. AND SO PART OF THAT
RESPONSE MIGHT ALSO BE, AS I
UNDERSTAND IT, TO DECREASE
SUPPLY. AND SO, YOU KNOW, WHAT'S
WHAT'S THE THINKING THERE. IF
YOU KNOW, THERE'S A CHANCE THAT,
THE PENALTY MIGHT INCREASE,
MIGHT, MIGHT ACTUALLY HAVE THE
ADVERSE EFFECT THAT'S INTENDED.
YEAH ABSOLUTELY. SENATOR, I
THINK THOSE ARE REALLY FAIR
QUESTIONS. AND I THINK WE ARE,
LOOKING AT THE INDUSTRY, YOU
KNOW, AT LEAST AT THE ENERGY
COMMISSION'S JOB IN DEVELOPING
THE PENALTY AS A GOOD FAITH
PARTNER TO PROVIDE US SOME
INFORMATION. AND THOSE POINTS
HAVE BEEN MADE BY THE INDUSTRY.
BUT WE'RE ALSO LOOKING TO OTHER
EXPERTS, SUCH AS THE ECONOMISTS
AND SOME OF THE CONSULTANTS. WE
HAVE, AND THEY HAVE, COUNTER
OPINIONS. AND WE ARE TRYING TO
DIG FURTHER INTO IT. SO I WOULD
JUST SAY THE, THE CURRENT LAYOUT
WOULD BE THREE PRONG ONE. IF
THERE IS A PENALTY. THE ECONOMIC
THEORY SAYS THAT THE REFINERS
WOULD MAXIMIZE THE PRODUCTION.
RIGHT. GIVEN THAT THERE IS A
PENALTY YOU WANT TO MAXIMIZE TO
THE EXTENT THAT THERE IS MORE
ROOM TO MAKE IT. THEN SECOND,
BECAUSE, YOU KNOW, THERE'S A
SECOND THEORY, WHICH IS IF THE
PENALTY WERE TO BE AS A LEGAL,
HURDLE TO NOT CROSS, THEN THEY
MIGHT, RATHER THAN GETTING THE
PRICE, GETTING THE PROFITS HERE,
THEY MIGHT EXTEND THEIR PROFITS
OVER TIME BY HAVING, BY
CAPTURING THE AREA UNDER THE
CURVE DIFFERENTLY. THAT'S TWO.
THREE, THE IDEA THAT SOME MIGHT
ACTUALLY CROSS THE LINE. AND IN
THAT CASE, AS THE LEGISLATION
INTENDED, SOME OF THOSE PROFITS
WILL BE BROUGHT BACK TO THE, YOU
KNOW, TO CALIFORNIANS. AND
FINALLY, ON THE THREAT OF
POTENTIALLY NOT REFINING AS
MUCH. AND I THINK THIS IS WHERE
WE'RE TRYING TO DIG IN FURTHER,
BASED ON THE TESTIMONY AND
EVIDENCE THAT WE HAVE SEEN IN
OTHER MARKETS, THAT DOES NOT
SEEM LIKE WHAT ECONOMIC,
RATIONAL ECONOMIC ACTORS WILL
DO, BUT SOMETHING WILL CONTINUE
TO OBSERVE. ISN'T THERE A FIFTH
POSSIBILITY THAT COULD SHIFT
DISTRIBUTION SUPPLY TO OTHER
MARKETS INSTEAD OF SELLING IN
CALIFORNIA? YEAH I THINK, SO I
THINK THAT'S A FAIR POINT,
ABSOLUTELY FAIR POINT. I THINK
WHAT I WOULD OFFER IS THERE ARE
MARKET PLAYERS TODAY THAT BRING
IN OVER 10 TO 15% OF REFINED
FUEL INTO CALIFORNIA, SO AS
REFINERS REDUCE THEIR
PRODUCTION, OTHER MARKET PLAYERS
WILL PICK IT UP. SO SO BUT THE
PROBLEM IS, IF THE FUEL IS
COMING FROM, LET'S SAY MALAYSIA
OR ASIA OR EUROPE, YOU WILL PAY
A PREMIUM, BUT BUT I THINK THE
OVERALL SUPPLY CONDITIONS WILL
BE MET THROUGH OTHER MARKET
PLAYERS. AND OBVIOUSLY THERE'S
SOME OTHER EXTERNALITIES THERE
THAT WE'RE CONCERNED ABOUT
ENVIRONMENTALLY. SO YOU EACH OF
YOU, I THINK IN YOUR REMARKS, IN
THE BROADER ASSESSMENT, SORT OF
FOCUSED ON THE FACT THAT
CALIFORNIA IS A FUEL ISLAND, AND
SO CAN YOU TALK A LITTLE BIT
ABOUT AND I KNOW YOU MENTIONED
SORT OF THE OPPORTUNITIES THAT
MIGHT BE CREATED BY A REGIONAL
BLEND, BUT BUT HOW ARE WE
THINKING ABOUT THAT WITH RESPECT
TO THIS SPECIFIC POLICY
FRAMEWORK? AND LET ME LET ME BE
CLEAR. YOU KNOW, WHAT'S THE
THINKING IN TERMS OF SOLVING FOR
THAT PROBLEM? THE FACT THAT
CALIFORNIA IS A FUEL ISLAND,
PARTICULARLY TO THE EXTENT THAT
IF THERE'S NINE REFINERIES AND
FOUR CONSTITUTE 90% OF THE
MARKET, THAT MORE THAN ANYTHING
ACCOUNTS FOR THE OPPORTUNITIES
TO, YOU KNOW, SECURE MAXIMUM
MARGIN, RIGHT. YEAH. THANK YOU,
SENATOR. SO I'LL START AND SEE
IF MY COLLEAGUES WOULD ADD. SO I
THINK YOU RIGHTFULLY POINT,
ULTIMATELY THIS IS ABOUT
ENSURING THAT THERE IS ENOUGH
SUPPLY IN CALIFORNIA. SO IDEALLY
WE WOULD LIKE THAT THAT REFINING
CAPACITY COMING FROM IN-STATE
REFINERIES. AND AS OF TODAY, IF
WE LOOK AT THE OVERALL
UTILIZATION OF THE REFINING
CAPACITY IN CALIFORNIA, IT'S
ABOUT 83. SO WE HAVE ENOUGH
REFINING CAPACITY TO BRING IN
THE FUEL TO MAKE THE FUEL WE
NEED TODAY. SO THEN WHY ARE WE
LEANING ON IMPORTS IN TODAY'S
CONDITIONS? IT'S BECAUSE OF
THOSE PLANNED UNPLANNED
MAINTENANCE EVENTS THAT HAPPEN
WHERE YOU CREATE THOSE SUPPLY
SHORTFALLS. AND ALSO TO DIRECTOR
MILDER'S POINT, CURRENTLY THERE
IS NO ACTIVE PLANNING BEYOND THE
EACH EACH INDUSTRY PLAYER
LOOKING AT HOW TO SERVE THEIR
OWN CUSTOMERS. THERE IS NO REAL
PLANNING COLLECTIVELY TO ENSURE
THAT THE INVENTORIES ARE AT A
CERTAIN LEVEL. SO WHEN YOU
ACTIVELY PLAN FOR HAVING CERTAIN
LEVELS OF INVENTORIES, AS WE GO
INTO A SUMMER OR OTHER TIGHT
CONDITIONS, YOU WOULD FIRST OF
ALL CREATE THAT LIQUIDITY,
RIGHT? SO THAT'S ONE. BUT SECOND
TO YOUR POINT, GIVEN THAT WE CAN
JUST PIPELINE OR RAIL IN FUEL,
IT IT REQUIRES, ACTIVE AND
DELIBERATE PLANNING TO ENSURE
THAT IF YOU HAVE LINE OF SIGHT
TO THOSE SUPPLY, POTENTIAL
DISRUPTIONS, HOW DO WE RESUPPLY
FOR CALIFORNIA. RIGHT. SO THAT
IS WHAT THE INTENT OF THE TWO
RECOMMENDATIONS WE PUT OUT IS
WORKING WITH THIS INDUSTRY TO,
TO THINK THROUGH, GIVEN THAT WE
CANNOT JUST BRING A PIPELINE AND
WE RELY LARGELY ON ON MARINE
VESSELS BRINGING IN REFINED FUEL
, HOW CAN WE ACTIVELY PLAN TO
MAKE SURE THAT LIQUIDITY EXISTS?
AND I GUESS, YOU KNOW, TO THE
EXTENT THAT THERE WAS SOME
DISCUSSION ABOUT WORKING WITH
THE INDUSTRY TO VOLUNTARILY,
VOLUNTARILY ENSURE SUPPLY, YOU
KNOW, IS THE STATE, YOU KNOW, SO
PART OF IT IS EBBS AND FLOWS,
RIGHT? I MEAN, YOU KNOW, SO YOU
HAVE OPPORTUNITIES FOR
EXTRACTING MAXIMUM PROFIT. YOU
CLEARLY HAVE OTHER TIMES IN THE
PAST WHERE, ESPECIALLY DURING
THE GREAT RECESSION, WHERE THE
INDUSTRY WAS ACTUALLY OPERATING
AT A MARGIN LOSS. SO, YOU KNOW,
IS THE STATE INTERESTED IN SORT
OF OFFSETTING THE NEGATIVE
SCENARIO? IN ADDITION TO, YOU
KNOW, PROVIDING OR WORKING IN
SOME VOLUNTARY WITH THE INDUSTRY
ON A, ON A, ON A CEILING? SO WE
ARE LOOKING AT THE TOTALITY OF
DATA AS YOU MENTIONED, SENATOR,
WE ARE GATHERING INFORMATION AND
AS YOU RIGHTFULLY POINTED, THERE
ARE CERTAIN TIMES OF THE YEAR.
CURRENTLY, THE INDUSTRY REPORTS
NEGATIVE MARGINS, AND THOSE
NEGATIVE MARGINS HAVE NOT BEEN
INDEPENDENTLY VERIFIED BY BY THE
CDC. WE'RE CONTINUING TO WORK ON
THAT TODAY. AND ONE OF THE
REASONS WHY WE THINK THERE MIGHT
BE SOME MISCHARACTERIZATION OF
THE DATA. YOU KNOW, I'M NOT
ACCUSING DELIBERATE, BUT THERE'S
SOME MISCHARACTERIZATION AS, FOR
EXAMPLE, IF THERE IS A CAPITAL
INVESTMENT OF $1 BILLION, YOU
KNOW, YOU WOULD IDEALLY AMORTIZE
THAT OVER A CERTAIN NUMBER OF
YEARS. BUT PUTTING IT IN A
SINGLE MONTH WOULD CREATE A HUGE
DISTORTION. SO THOSE ARE THE
KIND OF THINGS WE ARE WORKING
WITH THEM. SO I JUST WANT TO
NOTE THAT THERE ARE NEGATIVE,
AND WE'RE WORKING WITH THEM TO
MAKE SURE THAT DATA IS ACCURATE.
BUT TO THE SECOND POINT, WHICH
IS DO WE WANT TO CREATE A FLOOR?
I THINK WE GO TO THE OVERALL OIL
PROFITABILITY OF THE MARKET,
LOOKING AT TAKING INTO ACCOUNT
THE CYCLICAL NATURE. SO WHAT WE
ARE HOPING TO DO IN OUR NEXT
RULEMAKING IS TO I TO RATHER
THAN JUST LOOK AT THE GROSS
MARGINS, NET MARGINS. AND ONCE
WE ESTABLISH THE NET MARGINS,
WE'LL BE ABLE TO SEE THE OVERALL
PROFITABILITY. SO CREATING A
FLOOR WHEN THERE IS STILL
PROFITABILITY, IS AN IMPORTANT
ELEMENT WE WANT TO TAKE INTO
ACCOUNT. RIGHT? SO IF THERE ARE
OVERALL PROFITABLE, YOU KNOW,
THEN THEN WE FEEL LIKE IT'S
SOMETHING, A CEILING WOULD,
WOULD KIND OF HELP WITH REDUCING
THAT. BUT NOT NECESSARILY A
FLOOR. AND WITH RESPECT TO THAT
CEILING, I GUESS TO NET MARGINS
GENERALLY, MY UNDERSTANDING IS
AND CORRECT ME IF I'M WRONG,
THAT THAT YOUR ASSESSMENT SO FAR
DID NOT INDICATE ANY CLEAR
EVIDENCE OF PRICE GOUGING IN
THIS MARKETPLACE IS THAT
CORRECT? YEAH. I THINK, YOU
KNOW, WE DO NOT HAVE THE
VISIBILITY TO, I THINK WHEN WE
SAY PRICE GOUGING AND I THINK
IT'S IMPORTANT TO NOTE, AS
DIRECTOR MILDER NOTED, IS, YOU
KNOW, I'M SORRY TO USE THIS
EXAMPLE, BUT, YOU KNOW, IT'S
LIKE IN A NEIGHBORHOOD STORE
SELLING EGGS, RIGHT? YOU KNOW, I
HAVE, YOU KNOW, A FEW STORES
SELLING EGGS AND IN A COUPLE OF
STORES ARE OUT OF EGGS AND IN
A11 STORE COULD BRING IN MORE
EGGS AND TO KEEP THE PRICES LOW,
OR LET THE CUSTOMERS PAY AS MUCH
FOR THOSE LAST FEW EGGS. AND
THAT'S WHAT'S HAPPENING RIGHT
NOW. SO I THINK I WANT TO JUST
POINT OUT THAT, YOU KNOW, NONE
OF THE INDUSTRY IN OUR GOOD
FAITH DISCUSSIONS DISPUTE THAT
DURING THESE TIMES, THEIR
PROFITS GO UP A LOT. SO WHO'S TO
DECIDE HOW HIGH CAN YOU GO
DURING THOSE TIMES? AND THAT'S
WHAT WE'RE TRYING TO THINK
THROUGH, IS GIVEN THAT THIS IS
SUCH AN IMPORTANT PUBLIC, PUBLIC
BENEFIT. GOOD. HOW DO WE ENSURE
THAT THERE IS A, THERE'S A CUT
OFF AND I'VE GOT LIKE TWO MORE
THINGS. SO TO THE EXTENT THAT
CALIFORNIA IS PART OF A LARGER
MARKET AND WE'RE SORT OF
ENDEAVORING TO KIND OF EVEN OUT
THE SORT OF EBBS AND TROUGHS IN
THAT MARKET, YOU KNOW, THERE IS
THE CHANCE THAT CAPITAL FLOWS TO
OTHER MARKETS. SO HAS THERE IS
THERE BEEN CONSIDERATION OF WHAT
WOULD HAPPEN IF THE NUMBER OF
REFINERIES WENT DOWN AS PART OF
ANY FRAMEWORK THAT'S IMPOSED?
YEAH, ABSOLUTELY. AND I THINK
THIS IS I JUST WANT TO REITERATE
ALL THE POINTS THAT YOU'RE THAT
YOU'RE JUST RAISING ARE
EXTREMELY FAIR. AND SOME OF THE
THINGS THAT WE ARE TAKING INTO
ACCOUNT AS WE THINK THROUGH THE
PENALTY, ONE OF THE THINGS THAT
THE INDUSTRY NOTED IS THEY MIGHT
MOVE, THEY MIGHT PUT THEIR
CAPITAL SOMEWHERE ELSE. AND I
THINK SOME OF THE OPTIONS GO TO
THAT WHICH IS IN SO THAT THE
FEAR IS I THINK THERE'S A COUPLE
OF DIFFERENT FEARS. RIGHT. SO
ONE, YOU'RE GOING TO REDUCE OUR
OVERALL PROFITABILITY. SO ONE OF
THE OPTIONS THAT IS LAID OUT IS
A UTILITY MODEL. SO UNDER A
UTILITY MODEL YOU COULD ENSURE
THOSE REVENUES AND ALLOW THEM TO
BE PROFITABLE. AND OPERATING IN
CALIFORNIA WHILE WE'RE
PROTECTING CALIFORNIANS. SO I
THINK THAT'S ONE OPTION. THE
SECOND IS IF THOSE GO DOWN, SOME
EXTREME OPTIONS MIGHT BE ON THE
TABLE AS A STATE. FOR EXAMPLE,
WHAT, AUSTRALIA IS DOING AFTER
COVID, A NUMBER OF REFINERIES
WENT OUT OF BUSINESS IN
AUSTRALIA AND AUSTRALIAN
GOVERNMENT STEPPED IN TO
SUBSIDIZE AND HOLD SOME OF THEIR
REFINERIES. SO THOSE ARE THE
THINGS THAT MIGHT BE ON THE
TABLE. MY LAST POINT. THANK YOU,
MR. CHAIR, FOR INDULGING ME. SO,
YOU KNOW, TWO MAIN POINTS, I
THINK THAT YOU REFERENCED ONE.
CALIFORNIA IS AN ENERGY ISLAND,
TWO FOR OUR MARKET IS
CHARACTERIZED BY A HIGH LEVEL OF
CONCENTRATION. WE'RE IN FOUR
COMPANIES BASICALLY CONTROL 90%
OF THAT MARKET. AND IT'S
INTERESTING, VICE CHAIR GUNTER,
AS YOU STATED IN YOUR OPENING
COMMENTS, YOU KNOW, THE
PROBLEM'S NOT GOING AWAY. BUT I
THINK IT'S FAIR TO ASK, ARE WE
SOLVING THE RIGHT PROBLEM? RIGHT
ARE WE SOLVING THE RIGHT
PROBLEM? AND SO IF THE SOURCE OF
VOLATILITY IS MARKET
CONCENTRATION AND THE ISOLATION
OF CALIFORNIA'S MARKET WOULDN'T
INCREASE, COMPETITION BE PART OF
ANY SOLUTION? AND WHY HAS THAT
NOT BEEN CONSIDERED? OR IT'S
CERTAINLY ARTICULATED AS PART OF
THE PLAN. YEAH. I THINK, A GOOD
QUESTION, SENATOR, I THINK THE,
THE BIGGEST THING IS THE, THE
BARRIERS TO ENTRY, CAN WE
IMAGINE A NEW REFINER, A NEW
PLAYER COMING INTO CALIFORNIA
AND INVESTING THREE, 4 OR 5
BILLION TO SET UP A NEW REFINERY
UNDER, THE CONDITIONS IN
CALIFORNIA WITH, WITH OUR
CLIMATE GOALS AND ENVIRONMENTAL
GOALS. AND GIVEN THAT THIS IS A
DECLINING MARKET, THIS MARKET IS
GOING TO CONTINUE TO DECLINE. SO
I DON'T THINK IT'S ABOUT MORE
COMPETITION NECESSARILY. IT'S
ABOUT ENSURING THAT THE EXISTING
SUPPLY IS FULLY MET. BUT I
APPRECIATE THAT. BUT I THINK ONE
ANSWER MIGHT BE TO ENHANCE, SORT
OF IMPORTS OR PRODUCT FLOW INTO
CALIFORNIA FROM OTHER
JURISDICTIONS. PART OF THAT, TO
DO THAT, I THINK YOU'D HAVE TO
HAVE A FUEL BLEND THAT MATCHES
SOME OTHER REGIONS. I HAVEN'T
HEARD THAT AS PART OF THE, YOU
KNOW, CONVERSATIONS APART. GOOD.
JUST WANT TO ADD ONE. SO I THINK
THAT'S ONE OF THE POLICY OPTIONS
LAID OUT IN THE ASSESSMENT. BUT
YOU KNOW ANYTHING YOU WANT TO
ADD I THERE IS THERE ARE
REFINERS IN WASHINGTON STATE AND
IN ASIA THAT ARE ABLE TO PRODUCE
, CARB SPEC FUEL. AND IT IS
IMPORTED. AND ONE OF THE THINGS
THAT I THINK IS INTERESTING AND
REQUIRES FURTHER STUDY IS
LOOKING AT THE INCENTIVES AS, AS
VICE CHAIR MENTIONED, THE
REFINERS HAVE AN INCENTIVE TO
IMPORT TO MEET THEIR CONTRACTUAL
OBLIGATIONS, BUT NOT NECESSARILY
TO, MAXIMIZE OR KEEP SOME
BASELINE LEVEL OF LIQUIDITY IN
THE MARKET. AND SO I THINK WE
NEED TO THINK LONG AND HARD
ABOUT HOW WE PROVIDE INCENTIVES
IN THE MARKET FOR, FOR REFINERS
OR OTHERS TO IMPORT, FUEL,
BECAUSE WE ARE SEEING REFINERIES
IN THE STATE TRANSITION TO
RENEWABLE DIESEL. AND SO WE'RE
SEEING INCREASED IMPORTS FROM
WASHINGTON STATE. BUT YOU KNOW,
EVEN ASIA IS ECONOMICAL IF THE
PRICE IS RIGHT AND THESE HIGH
PRICES, IT WOULD APPEAR TO MAKE
MORE SENSE. AND IT'S BEEN A
LEARNING CURVE TO SEE WHY WE'RE
NOT SEEING THE IMPORTS. I
APPRECIATE THAT. THANK THANK
YOU. MR. THANK YOU ALL OF YOU.
THANK YOU, MR. CHAIRMAN. THANK
YOU, SENATOR RUBIO. THANK YOU,
MR. CHAIR. OKAY. YEAH. THANK
YOU, MR. CHAIR. I THINK I HAD A
LOT OF VERY SIMILAR QUESTIONS AS
TO, SENATOR NEWMAN. ONE OF THE
THINGS THAT I, YOU KNOW, I HEARD
YOU SAY RIGHT NOW IS THAT, YOU
KNOW, CLEARLY WE ONLY HAVE FOUR
THAT ARE THE MAJORITY OF THE
MARKET. AND I THINK I WAS
THINKING ALONG THE LINES OF, THE
COMPETITION. RIGHT. THE IF THE
MARKET SHRINKS CLEARLY IN, THE
PRICES GO UP. I MEAN, I DO IT
MAKES ME SAD AS I'M HEARING YOU
SAY, THAT WE DO HAVE THE ABILITY
TO IMPORT FROM WASHINGTON AND
OTHER STATES, BUT, YOU KNOW,
THAT'S THE POINT. LIKE THEN
THOSE ARE JOBS THAT WE DON'T
HAVE HERE IN CALIFORNIA. BUT ONE
OF THE THINGS THAT I WAS
THINKING, YOU SAID THAT IF IT
TAKES, IF THE MARKET OR WHATEVER
THE RESERVE FALLS BELOW 16 DAYS,
THEN THE PRICE GOES UP. I MEAN,
I KNOW THIS SOUNDS LIKE A CRAZY
IDEA, AND BEING CALIFORNIANS AND
TRYING TO BE ENVIRONMENTALLY
FRIENDLY AND CONSCIOUS, I MEAN,
WOULDN'T WE WANT AT SOME POINT
MAYBE BUY OUR OWN REFINERY SO
THAT MAYBE WE FIGURE OUT HOW TO
STORE OUR OWN, STOCKS? SO WHEN
THESE SITUATIONS HAPPEN NOW, WE
DON'T HAVE CONTROL OVER THEN WE
CONTROL THE MARKET VERSUS THE
OUTSIDERS CONTROLLING THE
MARKET. CAN YOU SPEAK TO THAT?
YEAH ABSOLUTELY. AND I WANT TO
JUST GO TO THAT, OVERALL,
OPTIONS WE'VE LAID OUT IN THE
POLICY REPORT THAT YOU WILL SEE
IN THE ASSESSMENTS AND
ULTIMATELY, SENATOR RUBIO, TO
YOUR POINT, IT'S AROUND ENSURING
THAT WE HAVE THE RIGHT LEVEL OF,
SUPPLY THAT'S AVAILABLE AS A
DEMAND DECLINES. RIGHT. SO
CURRENTLY, THE UNCERTAINTY
AROUND DEMAND DECLINE IS PRETTY
HIGH, YOU KNOW, THAT WE SEE A
HUGE PENETRATION OF EVS, BUT WE
ARE NOT SURE IF THEY ARE GOING
TO, FULLY, YOU KNOW, KIND OF
CAPTURE THE VMT, THE VEHICLE
MILES TRAVELED TODAY WITH THE
ICE VEHICLES. SO SO OVERALL, I
THINK AS THE DEMAND GOES DOWN,
WE HAVE TO ENSURE THAT THERE IS
ENOUGH REFINERY SUPPLY RIGHT, AS
YOU POINTED OUT. SO IN THE
ASSESSMENT AND ALL THE DATA
GATHERING, WE HAVE A CERTAIN
LINE OF SIGHT TO WHAT MIGHT
HAPPEN WITH THE REFINING SECTOR
IN TERMS OF RETIREMENTS. AND TO
YOUR POINT, AT SOME POINT, WE
HAVE TO PUT THAT ON THE TABLE,
WHICH IS IN MAKING SURE WE HAVE
ENOUGH LIQUIDITY TO MANAGE THIS
TRANSITION, WE CAN MAKE IT UP
WITH IMPORTS, OR WE COULD
PRESERVE SOME OF THE REFINING,
BASE IN CALIFORNIA THROUGH SOME
SORT OF STATE INTERVENTION.
THÀNH WHETHER IT'S A COST OF
IT'S A COST OF SERVICE UTILITY
MODEL OR SOME OTHER. THANK YOU.
WELL, MAY I ADD TO THAT? WELL,
BECAUSE WE I'M THINKING OF THE
FOUR RIGHT THAT CONTROL MOST OF
THE MARKET. AND I'M THINKING
WE'RE JUST, YOU KNOW, ONE STEP
AWAY FROM EVEN A BIGGER
DISASTER. IF ONE OF THOSE
REFINERIES LEAVES AND I MEAN,
THERE'S RUMORS AND YOU HEAR IT
ALL THE TIME BECAUSE IT FEELS
LIKE, WE HAVE VERY SMALL,
REFINERS NOW, AND IT FEELS THIS
IS HOW I'M, YOU KNOW, FEELING
RIGHT NOW AS I'M HEARING THE
INFORMATION. IT'S LIKE WE'RE NOT
PARTNERING WITH THEM AS MUCH AS
WE SHOULD. I FEEL BECAUSE YOU
JUST MADE A COMMENT RIGHT HERE,
WHICH KIND OF BOTHERED ME A
LITTLE BIT. YOU SAID WE HAVE NOT
INDEPENDENTLY VERIFIED THIS, BUT
THEN YOU WENT ON TO MAKE A
STATEMENT ABOUT THEM POSSIBLY
MANIPULATING THEIR PRICES. SO I
RATHER YOU NOT MAKE STATEMENTS
IF YOU HAVE AN INDEPENDENTLY
VERIFIED, BECAUSE THIS IS WHERE
CONFUSION COMES FROM. AND THIS
IS WHERE I THINK WE START
VILIFYING SOMETHING WE DON'T
KNOW FOR A FACT, AND I HEARD YOU
SAY ALL THE TIME THAT YOU SPENT
ALREADY, I THINK YOU MENTIONED
ALL THE HOURS ALREADY PUT INTO
THIS, AND I RATHER THAT THIS BE
PART OF THE DISCUSSION VERSUS
PUTTING IT OUT WITHOUT HAVING
ANY, YOU KNOW, VERIFICATION. BUT
I REALLY DO THINK THAT WE HAVE
TO FIGURE OUT A WAY TO, FOR AT
LEAST FOR NOW. RIGHT? I KNOW
WE'RE TRANSITIONING, BUT FOR
NOW, FIGURE OUT HOW TO WORK
REALLY CLOSELY WITH THOSE
REFINERIES TO ENSURE THAT WE
DON'T PUT SO MUCH ON THEM THAT
THEY LEAVE. BECAUSE I THINK AT
THE END OF THE DAY, WE'RE HERE
FOR CONSUMERS. EVERYTHING WE'RE
SAYING TODAY IS ABOUT CONSUMERS,
AND I DON'T SEE A SCENARIO WHERE
ONE OF THEM LEAVES THAT'S GOING
TO HELP OUR CONSUMERS. AND I
THINK IT WAS STATED, AND I THINK
SOME OF US COME FROM VERY
DISADVANTAGED COMMUNITIES. THESE
ARE THE CONSUMERS THAT ARE GOING
TO REALLY BEAR THE BRUNT OF THE
COST HIKES. YOU KNOW, THEY CAN'T
AFFORD THESE TESLAS, THEY CANNOT
AFFORD THESE EV CARS. I COULD
SPEAK FOR MY OWN DISTRICT.
THEY'RE REALLY STRUGGLING. YOU
HARDLY SEE ANY EV CARS IN MY
COMMUNITY BECAUSE BECAUSE OF THE
PRICE. AND SO I JUST AGAIN, I
FEEL LIKE WE HAVE TO DO BETTER
IN TERMS OF WORKING WITH THEM. I
FEAR THAT IF WE LOSE ONE MORE,
IT'S GOING TO BE DISASTROUS. BUT
AGAIN, I WAS THINKING OF THE
SUPPLY. IF WE DON'T FIGURE OUT
ALSO HOW TO KEEP OUR OWN SUPPLY,
MAXIMIZE OUR SUPPLY. SO WHEN IT
GOES BELOW 16, LIKE WE FIGURE
OUT A WAY TO CONTROL IT, WE AS
CALIFORNIANS, WE AS A STATE. BUT
I'LL JUST LEAVE IT AT THAT.
THANK YOU. THANK YOU, SENATOR
EGGMAN, THANK YOU. I THINK I
THINK WE'RE ALL LEFT WITH THE
SAME KINDS OF QUESTIONS, BUT I.
BUT I WILL POKE A HOLE AT THAT
IDEA THAT POOR PEOPLE CAN'T
AFFORD ELECTRIC CARS BECAUSE I
DRIVE A LITTLE EV KIÉ. AND I CAN
GUARANTEE YOU IT IS NOT A FANCY
CAR, SO WE CAN DISPEL THAT A
LITTLE BIT. THEY'RE NOT ALL,
TESLA'S, SO KIND OF SIMILAR TO
WHAT SENATOR RUBIO WAS SAYING.
CALIFORNIA IS AN ISLAND, RIGHT?
THEN HOW DO WE FORTIFY
OURSELVES? RIGHT. AND I THINK
THAT'S WHAT WE'RE TRYING TO GET
AT. AND I THINK WHAT I'M HEARING
FROM MY COLLEAGUES IS WE WANT TO
MAKE SURE THAT YOU'RE LOOKING AT
THE WHOLE BIG, GIANT PICTURE AND
NOT COMING WITH SOME
PREDETERMINED IDEAS ABOUT HOW
WE'RE GOING TO FIX IT WITH WITH
COST AND CAPS AND, THAT THIS IS
AN INCREDIBLY VOLATILE MARKET
AND, AND IT AFFECTS THE POOREST
OF US REPRESENTING THE CENTRAL
VALLEY AND THE NEED THAT PEOPLE
HAVE FOR GAS AND TO DRIVE LONG
DISTANCES. OF COURSE, PEOPLE ARE
PICKING UP THE TAB FOR OUR
POLICIES. RIGHT. AND SO I THINK
FOR ME, THAT REALLY HAS TO GET
AT IT. AND I ACKNOWLEDGE WE HAVE
THE HIGHEST DEGREES OF ASTHMA
TOO, RIGHT? I MEAN, THOSE THINGS
EXIST AT THE SAME TIME. SO AND
AGAIN, WHILE WE KNOW THAT WE
HAVE THE CLEANEST GAS, HOW DO WE
HOW DO WE SPREAD THAT OUT A
LITTLE BIT TO MAKE SURE AS THIS
AS THIS ECONOMY DECLINES AT SOME
POINT. RIGHT. WE ALL ACKNOWLEDGE
AT SOME POINT IT'S GOING TO GO
AWAY, BUT IT'S GOING TO BE A
WHILE. IT'S NOT GOING TO HAPPEN
IN MY LIFETIME. AND SO HOW DO WE
PROTECT LIKE THOSE WHO ARE
PICKING UP THE BIGGEST TAB IN
THAT AMOUNT OF TIME? AND ARE WE
LOOKING AT ALL OPTIONS? ARE WE
LOOKING AT MORE REFINERIES? ARE
WE LOOKING AT BECAUSE MY
EXPERTISE IS MORE IN HEALTH AND
WE'VE DONE THE SAME KINDS OF
THINGS. I MEAN, OUR HEALTH CARE
COSTS ARE HIGHER THAN ANYBODY
ELSE'S, RIGHT? SO WE'RE LIKE,
WELL, LET'S FIX IT. SO WE PUT
TOGETHER A COMMISSION. IT SAYS,
OKAY, CAN WE HAVE, YOU KNOW,
WE'RE GOING TO LOOK AT LIKE A 3%
CAP. YOU CAN'T MAKE MORE THAN
THAT. AND WE'RE TRYING TO DO
THAT SAME THING HERE. BUT WE'RE
NOT JUST DEALING INTERNALLY WITH
CALIFORNIA. WE'RE DEALING WITH
THE WHOLE WORLD. AND THEN AS MY
COLLEAGUE FROM BAKERSFIELD WHO'S
NOT HERE RIGHT NOW, WOULD OFTEN
SAY, THEN WE'RE BRINGING IN, YOU
KNOW, GAS FROM PLACES WHERE WE
ABHORRED THE POLITICS AND THE
POLICIES. SO ARE WE REALLY
LOOKING AT HOW DO WE CONTROL
COST IN CALIFORNIA IN THIS
GLOBAL MARKET, WITH ALL THOSE
DIFFICULTIES AT THE SAME TIME,
WITHOUT JUST TRYING TO SQUEEZE,
A PUBLIC MARKET? AND WHEN YOU
SAY WE CAN DO THAT LIKE A
UTILITY MODEL, I DON'T KNOW
ANYBODY IS HAPPY WITH THEIR PG
AND E BILL RIGHT NOW. SO I DON'T
KNOW. THAT'S THE GOLD STANDARD.
WE WANT TO HOLD OUT. I THINK,
SENATOR AND ALSO TO SENATOR
RUBIO, I THINK, I THINK FIRST I
WANT TO JUST COMMIT TO TAKING A
VERY HOLISTIC VIEW. I THINK THE
FUELS ASSESSMENT THAT THAT WE
PUT OUT, WHICH WILL BE UPDATED
EVERY THREE YEARS, IS TRYING TO
BE THAT OBJECTIVE, YOU KNOW,
30,000 FOOT LEVEL HOLISTIC VIEW
ON ENSURING THAT WE HAVE SAFE,
RELIABLE BUT ALSO AFFORDABLE
FUEL. SO I THINK IN SETTING UP
THOSE OPTIONS, WHEN WE THINK
ABOUT HOW DO WE THEN KEEP THE
SLACK OF LIQUIDITY AS THE
OVERALL DEMAND REDUCES? IS A
PRETTY DIFFICULT ONE. SO YOU
EITHER HAVE TO ENSURE THAT THE
REFINERIES ARE STAYING THERE.
THE TOTAL REFINING CAPACITY IS
STAYING THERE BEYOND A CERTAIN
LEVEL OF MARGIN. RIGHT. AND
WHERE THEY'RE ADDING FOR THE
LIQUIDITY. AND THAT'S WHERE THE
UTILITY MODEL COMES IN. THE
UTILITY MODEL, YOU KNOW, AS YOU
KNOW, ON THE ELECTRICITY SIDE,
WE HAVE, YOU KNOW, SOMETHING
CALLED THE RMR. YOU KNOW, WITHIN
THE REGULATORY STRUCTURE, WHICH
IS RELIABILITY MUST RUN. SO WE
ALLOW FOR A CERTAIN LEVEL OF
CUSHION AND WE COMPENSATE FOR
THAT. SO THAT ALLOWS FOR THE
LIQUIDITY TO STAY IN THE MARKET.
BUT THE SECOND THING AS SENATOR
RUBIO MENTIONED, IT'S ABOUT IF
THE REFINERIES DO GO OUT AND IF
WE ARE ABLE TO DEVELOP A
PREDICTIVE MODEL ON HOW THAT
COULD HAPPEN, HOW DO YOU THEN
MAKE SURE WE HAVE ENOUGH IMPORTS
PLANNED, THAT ALLOWS FOR THAT.
BUT BUT THERE'S A FAIR QUESTION.
WHAT ABOUT THE JOBS IN
CALIFORNIA? DO WE WANT TO KEEP
THEM, KEEP THE JOBS IN
CALIFORNIA? AND OR DO WE ALLOW
THE RETIREMENT AND FILL BACK ON
THE IMPORTS? THESE ARE THE LIVE
DISCUSSIONS AT THE ENERGY
COMMISSION. AND I ALSO, I REALLY
THANK YOU FOR RAISING THE
ENVIRONMENTAL JUSTICE AND HEALTH
ISSUES. THE FENCELINE
COMMUNITIES HAVE A HAVE A VERY
STRONG DESIRE TO HAVE THESE
REFINERIES SHUT DOWN OR BECOME
CLEANER, YOU KNOW, FROM A HEALTH
PERSPECTIVE. SO THE ENERGY
COMMISSION IS TAKING ALL THOSE
DATA POINTS TOGETHER AND DEVELOP
A HOLISTIC AND OBJECTIVE
FRAMEWORK ON ON OPTIONS TO BE
CONSIDERED. AND I ALSO WANT TO
JUST IF I MAY JUST KIND OF REACT
TO, YOU KNOW, SENATOR RUBIO'S,
QUESTION ON I THINK THE AND I
JUST WANT TO RESPECTFULLY OFFER
THAT THE WORD I USED WAS,
MISCHARACTERIZED COSTS. IT WAS
NOT MANIPULATION BECAUSE WE WERE
JUST KIND OF WE OBSERVED THAT
TODAY THAT SOME OF THE COSTS
WERE JUST MISCHARACTERIZED. AND
WE'RE WORKING WITH THEM TO
CORRECT THEM, SO NOT NOT
INDICATING ANY, FOUL PLAY RIGHT
NOW WHERE WE ARE TRYING TO WORK
VERY CAREFULLY WITH THEM. AND IF
I COULD ASK JUST IT'S MY
CURIOSITY, SOVEREIGN NATIONS,
TRIBAL AND CASINOS WITH, WITH
GAS STATIONS. THAT'S CALIFORNIA
BLEND. RIGHT. AND IT IS IT IS
LESS EXPENSIVE BECAUSE OF THE
LACK OF, CALIFORNIA AND FEDERAL
TAXES, OR IT'S LESS EXPENSIVE
BECAUSE THEY BUY IN BULK AND CAN
AFFORD TO GET FOLKS THERE. AND
SO REDUCE THE RATES. SOMETIMES
IT'S $1 $2 LESS. I DON'T I DON'T
KNOW ABOUT THE BLEND QUESTION.
THERE ARE SOME FEDERAL TREATIES
AND THE SUPREME COURT, ALLOWED
SOME WASHINGTON STATE
ENTERPRISES. TO IMPORT FUEL INTO
CALIFORNIA. AND WE HAVE
VIRTUALLY NO, WE DON'T HAVE ANY
VISIBILITY INTO THAT. I DON'T
KNOW ABOUT THE BLEND, BUT THAT'S
THE TAX PIECE. AND THAT'S WHY WE
BELIEVE IT'S LESS EXPENSIVE. WE
WILL WE WILL COME BACK WITH
INFORMATION TO YOU ON THAT,
SENATOR. THANK YOU. GREAT.
SENATOR HICKMAN, I'M SENATOR.
I'M I'M SORRY. SKINNER THANK
YOU. CHAIR THANK YOU.
PRESENTERS, I FOUND THIS, VERY,
YOUR THE SLIDES, THE
INFORMATION, THE BREAKDOWN, THE
WORK YOU'VE DONE TO GET THE DATA
TO HELP US UNDERSTAND THIS.
VERY, VERY HELPFUL, AND I
APPRECIATE THE COMMENTS OF MY
COLLEAGUES, BUT I GUESS IN
LISTENING TO IT, AND I DON'T
THINK, WE HAVE TO BE. I GUESS
I'M COMING BACK TO THE POINT OF,
ANY REFERENCE TO. I MEAN, I DID
NOT HEAR, VICE CHAIR. GOUDA.
YOUR ANY REFERENCE TO,
MANIPULATION OF THE MARKET MORE
THE FACT THAT WHEN THERE IS LOW
SUPPLIES AND WHEN THERE ARE
MAINTENANCE THAT, YOU KNOW, IT
CAN OBVIOUSLY AS THE DATA HAS
SHOWN, THE PROFIT MARGINS GO WAY
UP. NOW INDEPENDENT OF WHATEVER
WE THINK ABOUT OIL COMPANIES.
MOST CORPORATE ENTITIES WANT
THEIR PROFITS TO GO WAY UP. I
MEAN, THAT THAT'S JUST A NORM.
AND WHILE I DON'T LIKE THAT AND
NO CONSUMER LIKES IT, THAT IS
WHAT CORPORATIONS DO. SO I DON'T
THINK THERE'S ANY, YOU KNOW, WE
DON'T HAVE TO, HIDE FROM THAT,
AND I THINK YOUR DATA SHOWS
CLEARLY THEY'RE GETTING A HUGE
BENEFIT WHEN THEIR SUPPLY IS LOW
AND WHEN THE PRICES GO WAY UP.
AND THE ISSUE ABOUT THEIR, WELL,
THEY MIGHT NOT MAKE GOOD RETURNS
AT A DIFFERENT TIME, AGAIN, ONCE
YOU HAVE MORE DATA, I'D LOVE TO
SEE THAT AVERAGING, BECAUSE I
WOULD BET OVER TIME THEY STILL
THEY'RE NOT LOSING ANY MONEY. SO
JUST AGAIN, THIS IS A, YOU'LL
HAVE TO GET THE DATA TO PROVE
THAT. BUT THAT'S WHAT IT WOULD
APPEAR NOW TO SOME OF, SENATOR
NEWMAN'S POINTS, I COULD
IMAGINE, FOR EXAMPLE, THAT AND
I'M GOING TO BLOW THIS, BUT
DIFFERENT OF THE THINGS THAT WE
MIGHT TRY TO IMPOSE COULD BE
MANIPULATED AND, AND JUST RESULT
IN, WHATEVER. STILL. OKAY, SO
MAYBE, MAYBE, LIKE A PENALTY
WHERE THEY WOULD AVOID THE
PENALTY SO WE COULD AVOID THE
SPIKE IN PRICE, BUT THEN THEY
JUST INCREASE THE AVERAGE PRICE
OVER THE WHOLE YEAR. SO SO THE
PROFITS TO THE ENTITIES WOULD
STILL BE AT LEAST AS HIGH. AND
WE WOULDN'T WE, THE CALIFORNIA
CONSUMER WOULDN'T EXPERIENCE
THIS, YOU KNOW, BIG SPIKE LIKE
RIGHT NOW WHEN WE WANT TO GO ON
OUR MEMORIAL DAY VACATION OR,
BUT WE'D BE PAYING MORE OVER THE
WHOLE YEAR. AND I APPRECIATE ALL
OF YOUR COMMENTS ABOUT YOUR
YOU'RE THINKING ABOUT THAT.
YOU'RE THINKING ABOUT WHAT IS IT
THAT WE CAN DO TO HAVE THE LEAST
NEGATIVE CONSEQUENCE ON THE
CONSUMER IN TERMS OF PRICES? AND
I WOULD GUESS WHAT I WOULD, I
DON'T KNOW THAT ARE FOUR
COMPANIES THAT CONTROL THIS
MARKET HAVE, HAVE MADE IT QUITE
DIFFICULT FOR US TO ACT IN A WAY
TO PROTECT THE CONSUMERS, SO I
APPRECIATE THE, THE CONUNDRUM
YOU'RE FACING, BUT I WONDERED
IF, IF JUST REQUIRING AN
INCREASE IN SUPPLY BECAUSE I WAS
VERY STRUCK BY THE VARIOUS
SLIDES, FOR EXAMPLE, IN THE, THE
ONE THAT SHOWS SHOWED THE PUMP
AND IT SHOWED WHAT THE, WHAT
CAUSED THE PRICE SPIKES. THAT
AND THERE WAS ANOTHER SLIDE THAT
DOES THIS ALSO WHERE, YOU KNOW,
THE TAXES AND FEES ARE
ENVIRONMENTAL CHARGES. THE
VARIOUS THINGS THAT CALIFORNIA
DOES ARE PREDICTABLE AND STEADY.
THEY DON'T CAUSE SPIKES. THEY'RE
PREDICTABLE AND STEADY. WHAT
CAUSES THOSE SPIKES IS WHEN
THERE IS THAT WHEN WE GET DOWN
TO A LOW SUPPLY OF THE REFINED
PRODUCT. SO I WONDER AND I
REALLY APPRECIATE THAT, THAT
THAT ONE BENEFIT OF OUR BILL TO
DATE HAS BEEN TO GIVE US REALLY
THAT INFORMATION. SO KHÓ CAN YOU
TALK ABOUT IF WE WERE TO ACT
PURELY TO REQUIRE AN INCREASE IN
INVENTORY STORED OR WHATEVER, OR
BEFORE? SO I'M TWO THINGS
REQUIRE THE, YOU KNOW, A STEADY
SUPPLY, THE INCREASE IN SUPPLY,
EVEN WHEN THERE'S GOING TO BE A
PLANNED OUTAGE AND REQUIRING
COORDINATION OF THE MAINTENANCE
AND THE OUTAGES. WHAT DO YOU
THINK THE IMPACT WOULD THAT BE?
AND WHAT'S YOUR SPECULATION? AND
MAYBE YOU DON'T WANT TO
SPECULATE ON THIS, HOW THEY
COULD RELATE THAT. YEAH. THANK
YOU, SENATOR SKINNER, FOR BOTH
THOSE, COMMENTS AND THE
QUESTION, SO I THINK TO YOUR
POINT, I THINK THAT 30,000 FOOT
LEVEL IS ANYTHING WE CAN DO TO
INCREASE THE OVERALL SLACK AND
LIQUIDITY IN THE MARKET WILL
BLUNT THE SPOT MARKET PRICES AND
WILL IMMEDIATELY HAVE THE IMPACT
ON REDUCING THE REFINERY MARGINS
AND THE RETAIL MARGINS. SO HOW
WE DO THAT IS, IS A IS A
QUESTION THAT WE ARE TRYING TO
APPROACH WITH THE INDUSTRY VERY
COLLABORATIVELY AND
UNDERSTANDING, THE DIFFERENT,
LEVERS WE COULD PULL AND THE
UNINTENDED CONSEQUENCES. BUT
OVERALL, THE NOTION AND, AND A
FRAMEWORK THAT SETS SOME LEVEL
OF TARGETS TO MAINTAIN LIQUIDITY
IN THE MARKET, WILL BE ONLY
BENEFICIAL, AND THE NEGATIVE
IMPACTS OF THAT AND THE RISKS OF
THAT HAVE TO BE, WELL THOUGHT
OUT WITH THE INDUSTRY AND
UNDERSTANDING WHAT THAT CAN DO
TO IN MAKING THAT HAPPEN. AND
TWO, I ALSO WANT TO NOTE THAT
NOT ALL INDUSTRY PLAYERS ARE THE
SAME, SOME ARE REALLY SMALL, AS
YOU NOTED. SOME ARE LARGE AND
SOME HAVE ONLY RETAIL BUSINESS,
SORRY, ONLY REFINING BUSINESS.
SOME HAVE BOTH RETAIL AND
REFINERY CONTRACTS. SO DEPENDING
ON THE WAY A BUSINESS IS
CURRENTLY STRUCTURED AND IT
MIGHT VARY AND THE SIZE OF IT,
BUT OVERALL THE NOTION AROUND
INCREASING THE SUPPLIES, WOULD
ONLY BENEFIT. AND I THINK TO
YOUR POINT, AGAIN, YOU KNOW, AT
THE END IN THE IN THE END OF THE
DAY, YOU KNOW, WE ARE LOOKING AT
IT THE SAME WAY, WHICH IS
PROFITS OR PROFITS, AND YOU'RE A
COMPETITIVE BUSINESS, YOU KNOW,
YOU WANT TO HAVE IN A PROFITS,
YOU'RE A PROFIT MAKING NOTION.
BUT GIVEN THESE EXTRAORDINARY
PRICE SPIKES THAT THEN IMPACT IN
A CERTAIN PARTS OF THE STATE,
EVEN MUCH WORSE, AND THOSE WHO
HAVE TIGHT BUDGETS THAT HAVE TO
SUDDENLY PAY A SIGNIFICANT
AMOUNT TO DRIVE TO THEIR WORK IS
HARD. SO IF WE WANT TO BLUNT
THOSE PRICE SPIKES, YOU KNOW
THAT REQUIRES THE INDUSTRY
GIVING UP THOSE PROFITS DURING
THE TIME. AND WHETHER YOU DO IT
THROUGH, ACTIONS THAT INCREASE
THE SUPPLY AND THAT REDUCES YOUR
OVERALL PROFIT MARGIN, BUT NOT
GO INTO A LOSS THAT REDUCES A
PROFIT MARGIN OR IT'S A PENALTY
FRAMEWORK. I THINK THAT'S THE
CONUNDRUM WE ARE WORKING THROUGH
. AND ALSO I WANT TO REITERATE
THAT NOT ALL BUSINESSES ARE THE
SAME, THAT ARE WORKING IN
CALIFORNIA. AND SO I APPRECIATE
THE IT'S TRUE THAT THE PRICE
SPIKES. SO YOU KNOW, MOST OF US
DON'T HAVE REAL VARIABLE INCOME.
SO, YOU KNOW, OUR INCOME PER
MONTH IS THE SAME. SO WHEN THOSE
PRICE SPIKES, IT HURTS. THE
PENALTY. I DON'T KNOW IF IT'LL
BE ENOUGH TO, CAN THE PENALTY
ACCOUNT FOR HOW MUCH PROFIT
THEY'RE MAKING? I MEAN, YOU
KNOW, CAN WE DO SUCH HIGH
PENALTIES THAT BECAUSE THEIR
MOTIVATION IS PROFIT, IT JUST
IS. AND, BUT THEN IF WE LEVY
THAT PENALTY, THEY PASS IT ON TO
THE CONSUMER. SO SO, I'M NOT
SPEAKING AGAINST IT. I'M JUST. I
GUESS I'M REALLY HIGHLIGHTING
HOW MUCH WE ARE, HOW HARD THIS
IS TO, GIVEN THE BOTH THE LACK
OF COMPETITION AND THE, YEAH,
IT'S THE LACK OF COMPETITION
THAT REALLY PUTS US IN A
DIFFICULT THAT ISLAND NATION,
NATURE. AND WHETHER THOSE
REGIONAL BLENDS YOU, YOU RAISE
THEM. IT WASN'T JUST SENATOR
NEWMAN THAT RAISED THEM. BUT
WHETHER, EXPANDING ON THE TYPE
OF BLENDS THAT WE WOULD ALLOW
FOR COULD HELP THAT COMPETITION,
WHICH, OF COURSE, IS GOING TO
ALSO IMPACT, YOU KNOW, THE
INDUSTRIES THAT ARE RIGHT HERE,
THEY'RE GOING TO HAVE TO COMPETE
WITH THAT, THAT THAT SEEMS TO ME
LIKE IT WOULD HELP. BUT YES, I
APPRECIATE HOW MUCH YOU'RE
THINKING ABOUT IT. I LOOK
FORWARD TO WHAT OTHER
SUGGESTIONS AND, YOU KNOW, I
CERTAINLY, WOULD BE SUPPORTIVE
OF. SO I GUESS THE QUESTION I
HAVE IS RIGHT NOW, DO YOU HAVE
THE AUTHORITY? DOES EITHER THE
DIVISION OR THE ENERGY
COMMISSION HAVE THE AUTHORITY TO
REQUIRE AN INCREASE IN OR
REQUIRE A CERTAIN INVENTORY OF
CERTAIN SUPPLY STOCKS, OR
REQUIRING THE COORDINATION OF
MAINTENANCE, YEAH, SENATOR, ON
THAT QUESTION POINTEDLY, THE
CURRENT, TOOLS THAT WE HAVE
THROUGH SB ONE TO ARE VERY VAST
AS IT PERTAINS TO DATA GATHERING
AND PUTTING IT OUT THERE, BUT AS
IT, AS IT DIRECTS TO, YOU KNOW,
INVENTORIES OR RESUPPLY, YOU
KNOW, THOSE, THAT THAT
PARTICULAR LEGISLATIVE LANGUAGE
DOESN'T REALLY, GIVE US THE
FULL, FULL RANGE OF TOOLS. BUT I
THINK WE ARE WORKING WITH THE
INDUSTRY ON FIGURING OUT, WHAT
ARE THE OPPORTUNITIES FOR THEM
TO, TO THINK ABOUT IN INCREASING
THE LIQUIDITY AT THIS POINT?
OKAY. WELL, I WOULD HOPE THAT
WE, THE LEGISLATURE, ARE OPEN TO
IF YOU, IF ON FURTHER ANALYSIS,
IF THERE NEEDS TO BE,
APPROPRIATE TOOLS TO ADD TO YOUR
TOOLBOX IN ORDER TO HELP OUR
CONSUMERS, AND OF COURSE, WE
OBVIOUSLY HAVE TO EVALUATE
WHETHER WHAT, WHATEVER WE DO HAS
AN UNINTENDED CONSEQUENCE. BUT,
YOU KNOW, I CERTAINLY THINK THE
LEGISLATURE SHOULD BE OPEN TO
THAT BECAUSE WE EMBARKED ON THIS
TO HELP OUR CONSUMERS. THAT WAS
OUR, QUEST. SO, APPRECIATE YOUR
FURTHER ANALYSIS AND APPRECIATE
RECOMMENDATIONS. GREAT. I HAVE
DARAZO STERN AND WILK. SO AND
OKAY. AND SENATOR SATO. THANK
YOU, MR. CHAIR. I THINK THIS
ANYBODY COULD ANSWER THIS, BUT
PROBABLY MR. MAJORAS, SINCE
YOU'RE THE DATA PERSON, RIGHT?
YOU'RE THE INFORMATION GATHERER.
I'LL DO MY BEST. OKAY ANYWAY,
LIKE I SAID, ANYBODY I, I, I
SAW, I READ THROUGHOUT AND I
HEARD YOU TALKING ABOUT BEING
DATA DRIVEN. I HEARD YOU TALKING
ABOUT FURTHER STUDY COLLECTION
OF INFORMATION, ONE PART OF DATA
GATHERING THAT I'M PARTICULARLY
CONCERNED ABOUT, NOT JUST HERE
TODAY ON THIS SUBJECT, BUT JUST
OVERALL WITH OUR, CLIMATE
POLICIES, OUR PRICING POLICIES
IS THE IMPACT THAT IT WOULD HAVE
ON LOW PAID COMMUNITIES, LOW
INCOME COMMUNITIES, COMMUNITIES
OF COLOR, AND WE DON'T DO ENOUGH
TO UNDERSTAND WHAT THAT IMPACT
WOULD BE. IF THERE'S A DISPARATE
IMPACT, WE SHOULD KNOW MORE, AND
WE SHOULDN'T JUST SORT OF TREAT
EVERYTHING AS IF EVERYONE WAS ON
THE SAME LEVEL, WHEN WE CAME UP
WITH SUBSIDIES FOR ZERO EMISSION
VEHICLES, THAT ON THE FACE
LOOKED GREAT, BUT IN FACT IT WAS
NOT AT ALL BENEFITING LOW INCOME
COMMUNITIES, AND IT WAS ONLY
BENEFITING OUR WEALTHIER
COMMUNITIES, WHITE, WEALTHIER
COMMUNITIES. SO, I, I SAU IN A
JANUARY CALTRANS REPORT, THEY
RELEASED A FINANCIAL IMPACT
REPORT ON ROAD USE CHARGES. AND
WHAT THEY FOUND WAS 42% OF
CALIFORNIA SENIORS, LONG
DISTANCE COMMUTERS, WHICH MEANS
THREE HOURS OR MORE OF DRIVING.
THINK ABOUT THAT. THREE HOURS OR
MORE OF DRIVING FOUND THAT 42%
OF CALIFORNIA'S LONG DISTANCE
COMMUTERS ARE LATINOS, MAKING
BELOW AVERAGE WAGES AND
PARTICULARLY CONSTRUCTION
WORKERS. SO THAT'S A THAT'S A
PIECE OF INFORMATION THAT IS
VERY IMPORTANT FOR US AS AS AN
EXAMPLE, I INTRODUCED SCR 136
THIS YEAR, AND IT MEANS THAT OUR
SENATE POLICY COMMITTEES WILL
CONSIDER HOW ENERGY AND CLIMATE
LEGISLATION THAT WE PASS IMPACTS
WORKING CALIFORNIANS, BECAUSE I
THINK OTHERWISE, WE'RE JUST
AGAIN, WE'RE JUST SORT OF
TREATING THE IMPACT AS IF IT WAS
EQUAL ACROSS THE BOARD. AND IT
ISN'T. AND IT HAS PROVEN NOT TO
BE THAT, WE, WE LOOK AT ENERGY,
ENERGY EFFICIENT HEALING,
HEATING AND COOLING SYSTEMS, BUT
WE DON'T REALLY PUT INTO TAKE
INTO ACCOUNT THAT RENTERS HAVE A
GREATER DIFFICULTY, OF UPGRADING
TO THOSE KINDS OF SYSTEMS. SO
I'M YOU KNOW, I WELCOME AND I
THINK IT'S REALLY IMPORTANT TO,
DETERMINE FOR THE, FOR ALL OF US
TO DETERMINE IF WE CAN PUT A CAP
ON OIL COMPANY PROFITS PER
GALLON. BUT I ALSO WANT TO MAKE
SURE THAT WE INCLUDE, OTHERS.
AND I THINK YOU MENTIONED, WHICH
IS WHY I TURNED TO MR. MEDEIROS,
IS THE STATE TAXES AND THE FEES
PER GALLON, BUT I WOULD LIKE TO
SEE IT DONE MUCH MORE
SPECIFICALLY TO COMMUNITIES IN,
IN CALIFORNIA. I THINK BOTH THE
PUBLIC SECTOR, OUR DECISIONS,
OUR LEGISLATIVE DECISIONS, OUR
POLICY DECISIONS, AS WELL AS THE
PRIVATE SECTOR, HAVE TO BE
INCLUDED, AND, IN TERMS OF THE
DECISIONS WE MAKE, INCLUDE THAT
IN OUR DATA COLLECTION INCLUDE
THAT IN ANALYZING WHETHER IT'S
GOING TO HAVE A DISPARATE,
IMPACT. SO I WOULD REQUEST THAT
OF YOU, I DON'T KNOW THAT YOU'VE
TRIED OR INCLUDED OR THOUGHT
ABOUT IT, BUT I DON'T WANT TO. I
DON'T WANT US TO LEAVE OUT NOT
ONLY THE IMPACT, BUT THE ROLE
THAT WE AS GOVERNMENT AND OUR
DECISIONS ARE, ESPECIALLY WITH
REGARDS TO THE TAX BASE. WELL IF
I MAY JUST VERY BRIEFLY, I THINK
YOU MAKE AN EXCELLENT POINT. AND
IN THE REPORT WE DO POINT OUT
THERE'S SOME DATA IN THERE ABOUT
SORT OF THE AGE OF VEHICLES
BECAUSE IT'S OFTEN THOSE PEOPLE
WHO HAVE THE LONGEST COMMUTES
WHO THEN ARE DRIVING THE OLDEST
CARS, WHICH GET THE WORST GAS
MILEAGE. SO IT'S IT BECOMES SORT
OF MULTIPLIER EFFECT, THE TEAM
HAS BUILT AN INCREDIBLE MODEL
THAT ALLOWS US TO USE GIS
INFORMATION TO LOOK AT EVERY,
GAS PRICE THAT EVERY GAS STATION
IN THE STATE. I DON'T KNOW THAT
WE'VE DONE ENOUGH, FRANKLY, YET.
AND I WILL TAKE THIS BACK AND
HAVE THEM DO AN OVERLAY SO WE
CAN ALSO GET THE ECONOMIC DATA
BY NEIGHBORHOOD TO SEE IT. THE
RETAIL LEVEL, AT LEAST, HOW THIS
HOW THESE VARIOUS FACTORS MAY BE
INTERACTING BECAUSE I THINK YOU
MAKE AN EXCELLENT POINT, SENATOR
STERN. THANK YOU, MR. CHAIR, I
WANT TO APPRECIATE, OUR
REGULATORS HERE FOR YOUR
TESTIMONY, BUT ALSO THE
OBJECTIVITY AND HOLISTIC NATURE
OF HOW YOU'RE YOU'RE UNDERTAKING
THIS, THIS DIFFICULT TASK,
ESPECIALLY IN THE FACE OF, WHAT
I WOULD CHARACTERIZE AS BAD
FAITH ACTIONS BY INDUSTRY
LEADING INTO THIS, NOT JUST IN
LOBBYING AGAINST THE LEGISLATION
WITH MILLIONS OF DOLLARS TO TRY
TO STOP US FROM EVEN GIVING YOU
THIS AUTHORITY IN THE FIRST
PLACE, BUT IN SUING YOU AFTER
ASKING FOR THE DATA THAT WE
ASKED YOU TO GO GET, I'M GLAD
WE'RE PAST THAT PHASE. NOW THAT
YOU'VE REFLECTED THE MORE
COLLABORATIVE DYNAMIC, AT LEAST
WHEN IT COMES TO THE DATA
GATHERING EXERCISE. I WISH, THIS
HEARING ITSELF WERE SET UP IN A
WAY THAT TOOK THAT SAME KIND OF
OBJECTIVE AND COMPREHENSIVE AND
HOLISTIC APPROACH, THE FACT THAT
THERE ARE NO COMMUNITY VOICES IN
THIS ROOM SETTING, THIS HEARING,
THERE ARE NO DRIVERS VOICES,
THERE ARE NO CONSUMER ADVOCATES.
THERE'S JUST INDUSTRY
PERSPECTIVES. WE ARE SITTING
HERE WITH THE MOST WELL-HEELED
LOBBYING CORPS IN THE ENTIRE
STATE OF CALIFORNIA IN THIS
ROOM, LOOK FORWARD TO HEARING TO
THEIR TOP BRASS IN A SECOND AND
ASKING SOME QUESTIONS. BUT I
WOULD HOPE THAT IN THE FUTURE,
GOING FORWARD, IF WE'RE GOING TO
BE DOING OVERSIGHT HERE, THAT WE
GET A DIVERSITY OF VIEWS, AND
ESPECIALLY THE DRIVERS ARE BEING
PUT IN FRONT AND CENTER HERE.
THE POOREST PEOPLE IN THIS STATE
ARE SUFFERING UNDER NOT OUR
POLICIES BUT THEIR PROFITS.
THAT'S WHAT WE'VE JUST LEARNED.
IF THE IF IT DIDN'T DROP LIKE A
FEATHER AS YOU AS YOU NOTE THE
PRICES BUT INSTEAD RESETTLED
ITSELF JUST LIKE UTILITY RATES
DO AFTER SUPPLY SPIKES, WE SAW
IT IN THE NATURAL GAS MARKET, A
REGULATED INDUSTRY THAT WE PAY
ATTENTION TO THEIR MARGINS AND
THEIR OPERATIONAL COSTS. AND IT
IS A REGULATED MARKET. IT DOES
SPIKE SOMETIMES. I WAS VERY
FRUSTRATED WITH THAT. PEOPLE
LOST THOUSANDS OF DOLLARS. AND
THEN IT CAME DOWN AND WE COULD
ACTUALLY FIGURE OUT WHAT
HAPPENED. BUT WHEN WE HAVE
BLINDFOLDED OURSELVES TO THE
BEHAVIOR IN THIS PETROLEUM
MARKET, THAT IS STILL THE WILD
WEST AND BECOMING WILDER, WE'RE
WE'RE FIGHTING BLIND HERE, MY
QUESTIONS REVOLVE AROUND THIS
SORT OF MARKET BEHAVIOR FOR
THAT, I KNOW YOU HAVE TO. YOU'RE
NOT DONE WITH THE INVESTIGATION
YET. BUT WHEN WE'RE LOOKING AT
THAT SORT OF THE REFINING
MARGINS COME DOWN, BUT THE
RETAIL STAYS UP. HOW MUCH ARE
DRIVERS ACTUALLY EATING THAT
COST? I MEAN, WHAT SCALE ON THE
WHOLE, HAVE WE SEEN, DRIVERS?
YOU KNOW, IN, IN THAT SORT OF
MONTH OF EXTRA TIME THAT THE,
THE INFLATED PRICE STAYS THERE
ARBITRARILY? HOW MUCH ON
AVERAGE, HOW MUCH IN TOTAL DO
YOU GUYS HAVE A SENSE OF WHAT
WHAT THAT PROFIT MARGIN IS THE
IMPACT. IT'S ACTUALLY HAVING ON
DRIVER EXPENSES ON PEOPLE'S
HOUSEHOLD EXPENSES. YES, I THINK
FIRST OF ALL, A GREAT QUESTION.
AND I THINK AMPLIFYING SOMETHING
THAT DIRECTOR MADURO SAID AND
MANY OF THE QUESTIONS HERE THAT
HAVE BEEN CONSUMER FOCUSED, I
THINK THAT'S WHERE WE NEED TO
START IS REALLY LOOKING AT WHERE
THIS HURTS MEMBERS OF OUR
COMMUNITY. SO I THINK THE POINT
THAT THE FOLKS WHO CAN LEAST
AFFORD IT HAVE THE OLDEST CARS
DRIVE THE FURTHEST, GET THE
LOWEST MILES PER GALLON, BUY THE
MOST GALLONS OF GAS. SO BEING
FRANK, WE HAVE NOT DONE THAT
ANALYSIS AND WE WILL TO SEE WHAT
THAT IMPACT OF THE DOWN LIKE A
FEATHER FOR 30 DAYS HAS ON
CONSUMERS. I THINK THE ONE THING
WE DO KNOW IS THE IMPACT IT HAS
ON THE PROFITABILITY OF
COMPANIES LIKE CHEVRON, WHO HAD
RECORD PROFITS IN 2022, OVER $30
BILLION. AND I THINK KEEPING
THIS FOCUS AND HAVING VOICES
FROM PEOPLE WHO ARE REALLY
HARMED IN THIS PROCESS IS
CRITICALLY IMPORTANT. AND SO
FROM MY PERSPECTIVE, THAT'S
WHERE WE START. IT'S IN THE
STATUTE. AND SO WE'RE FOLLOWING
OUR, OUR MANDATE. AND WE WILL
LOOK FOR THAT DATA POINT AND
REVERT. SENATOR THANK YOU. THANK
YOU. JUST OH YEAH. PLEASE. YEAH.
AND THANK YOU, SENATOR STERN. I
THINK, YEAH. WE HAVEN'T DONE
THAT PARTICULAR MATH YOU
MENTIONED, BUT, YOU KNOW, JUST
KIND OF THINKING AT A HIGH
LEVEL, YOU KNOW, IF YOU'RE
TALKING ABOUT, YOU KNOW, 30
MILLION GALLONS WE'RE SELLING IN
IN A SPECIFIC DAY, ASCENT
MOVEMENT WOULD GIVE YOU
3,000,030 DAYS OF THAT WOULD BE
100 MILLION. RIGHT. SO IT'S
BASICALLY WAS IT. YEAH. SO, SO I
THINK, YOU KNOW, IT'S KIND OF
THINKING ON THE AVERAGES, YOU
COULD THINK ABOUT, YOU KNOW, THE
SORRY THAT YOU'RE CORRECTING ME
THE MATH. SORRY, SO IT WOULD BE,
YOU KNOW, 300,000 AND THEN I'M
SORRY, I KIND OF MISSED A DATA
POINT. SO YOU'RE TALKING ABOUT
EACH EVERY CENT TRANSLATING TO
MILLIONS OF DOLLARS OVER THOSE
30 DAYS. AND SO IF YOU'RE
TALKING ABOUT AN ELEVATED PRICE
OF 5 TO $0.10, YOU'RE TALKING
ABOUT TENS OF MILLIONS OF
DOLLARS OR POTENTIALLY HUNDREDS.
DO YOU HAVE A KNOW ANYTHING ON
THAT? OKAY. SO MY QUESTION THEN
IS IT POSSIBLE? YOU KNOW, WE
REQUIRE THE LABELING AND SORT OF
DISCLOSURES AT THE PUMP RIGHT
NOW, AROUND THESE SORT OF TAXES
AND ENVIRONMENTAL FEES. AND THIS
IS WHAT WE LOVE TO SEE IN THE
FACTS PER GALLON BILLBOARDS
AROUND THE STATE AND IN OUR
MAILBOXES AND OUR POLITICAL
MAILERS ABOUT THE TERRIBLE TOLL
THAT TAXES AND FEES AND
ENVIRONMENTAL PROGRAMS ARE
HAVING ON GASOLINE PRICES. AND
YET WE SEE HERE ALL THAT
COMBINED IS LESS THAN WHAT THE
MARGINS ARE FOR REFINERIES AND
RETAILERS. AND YET THOSE MARGINS
ARE NOT POSTED AT THE PUMP. IS
THERE A WAY TO ACTUALLY WE BEGIN
TO HAVE SOME A MORE TRANSPARENT
LOOK AT WHAT IS ACTUALLY BEHIND
YOUR WHAT THE TRUE FACTS ARE OF
THAT GALLON AND HOW TO DISCLOSE
TO THE CONSUMERS WHAT THOSE
REFINER AND RETAIL MARGINS ARE
AT THE END OF THIS. I MEAN, I
GUESS I APPRECIATE WHAT YOU'RE
TALKING ABOUT WITH THE SPOT
MARKET PUBLICATION. I THINK
THAT'S A THAT'S A RIPE AREA TO
KIND OF KEEP PURSUING. AND THAT
MAY HAVE SORT OF MARKET BASED
IMPACTS THAT DISCLOSURE. BUT I
ALSO WANT TO SORT OF THAT
CONSUMER JUST SO THAT IT'S A
TRUST EXERCISE. AND AT LEAST
THEY CAN TRUST HOPEFULLY US AS
THE STATE TO TELL THEM THE
TRUTH, BECAUSE I DON'T KNOW HOW
WE'RE GOING TO TRUST THE
INDUSTRY THAT'S MAKING $30
BILLION IN PROFIT FOR THE TRUTH.
BUT BUT, IS THERE A WAY TO
ACTUALLY GET THAT TO MAYBE AN
ACCURACY OR A LEVEL OF
GRANULARITY THAT WOULD BE
MEANINGFULLY LABELED AT THAT
PUMP OR DISCLOSED? I IT'S AN
IT'S AN INTERESTING QUESTION. I
I THINK WE'D HAVE TO THINK MORE
ABOUT WHAT THE TOOLS MIGHT BE.
ONE THING THAT COULD HAPPEN
IMMEDIATELY. AND THIS IS I
TALKED ABOUT THIS A BIT IN MY
REMARKS, IS FOR PEOPLE TO
ACTUALLY BUY THE CHEAPEST
GASOLINE THAT'S OUT THERE,
BECAUSE I DO THINK THERE'S A
TREMENDOUS AMOUNT OF
MISUNDERSTANDING IN THE MARKET.
AND SO PEOPLE ARE PAYING
VOLUNTARILY $0.60 MORE. AND, YOU
KNOW, YOU HEAR PER GALLON AND
THEY NEED TO PAY, THINKING THAT
IT IS THAT THEY'RE BUYING SOME
PRODUCT THAT IS MUCH BETTER,
WHEN IN FACT IT IS ALL THE EXACT
SAME PRODUCT. DOES THE GRADE
MANNER, THE GRADE MATTERS, YES,
BUT NOT THE BRAND. SURE. SO LIKE
TO THE TO THE TO THE CHART YOU
PUT OUT WHERE YOU HAVE, YOU HAVE
SORT OF THE BEHAVIOR OF THE
ANNUAL AVERAGE RETAIL MARGIN BY
BRAND. EVEN THOSE THE, THE DOWN
LIKE A FEATHER PARTS OF THE OF
THE SPIKE DOWN. YOU SEE WITH THE
HYPER MARTS THE SLOPE IS MUCH
LESS RIGHT. IT DOESN'T IT
DOESN'T SPIKE AS HIGH AND IT
DOESN'T DROP AS LOW OVER A
PERIOD OF TIME. SO IF PEOPLE
EVEN JUST UNDERSTOOD THAT
THERE'S NO THERE'S NO MAGIC TO
THAT TECHRON OR WHATEVER YOU
WANT TO BRAND IT AS AND THAT
GOING TO COSTCO IS GOING TO DO,
YOU JUST AS WELL OR WHATEVER
THE. SO IF THERE'S SOME WAY TO
SORT OF ARTICULATE THAT, THAT Ã
THE DIFFERENCE BETWEEN WHAT THE
CARB IS OFFERING VERSUS WHAT THE
INDUSTRY IS DOING AND SORT OF
BEING CLEAR WITH CONSUMERS ABOUT
THE LABELING. AND HOPEFULLY THE
AG'S EFFORTS YIELD SOME. BUT I
THINK AT THE AT THE PUMP, WE'D
BE I'D BE CURIOUS TO KNOW IF
THERE'S IF THERE'S A VERY
STRAIGHTFORWARD WAY TO SORT OF
SHARE WITH CONSUMERS AND DRIVERS
THE RESULTS OF YOUR DEEP DIVES
HERE. SO IT'S NOT JUST SORT OF
STUCK IN THIS HEARING ROOM.
YEAH, I WOULD ADD THE ENERGY
COMMISSION HAS A GASOLINE
DASHBOARD AND IS UPDATED WEEKLY.
AND IT'S NOT AS PUBLIC AS EVERY
PUMP. AND MAYBE THERE'S A WAY TO
INTERFACE THAT. AND SO AS THE
PRICES WERE GOING UP IN THIS
LAST MONTH, I WENT BACK AND I
COMPARED AND THE PUBLIC CAN DO
THIS, THE GASOLINE DASHBOARD FOR
THE ENERGY COMMISSION. SO
BETWEEN LATE MARCH AND LATE
APRIL, PRICES WENT UP $0.44. SO
YOU'RE PAYING AT THE PUMP. YOU
SEE PRICES GO UP $0.44. YOU'RE
WONDERING, YOU KNOW WHAT? WHAT'S
THE DIFFERENCE OF THAT? $0.44?
$0.41 WAS THE INDUSTRY MARGIN.
ABOUT $0.02 WAS CRUDE OIL AND
ABOUT $0.01 WAS SALES TAX. AND
SO WHEN YOU SEE THOSE PRICES
MOVE, WE HAVE THE DATA. AND
THAT'S ON THE GASOLINE DASHBOARD
. BUT I DO THINK THERE'S
PROBABLY MECHANISMS TO GET THAT
INFORMATION OUT AND MAKE IT MORE
ACCESSIBLE. THANKS. THANK YOU,
BEFORE I MOVE TO SENATOR WILK, I
HAVE TO RESPOND TO A COMMENT
THAT MY COLLEAGUE MADE THE
PURPOSE OF THIS HEARING TODAY IS
TO HAVE A ONE YEAR REVIEW OF THE
IMPLEMENTATIONS OF SB ONE TWO BY
THE AGENCIES THAT ARE CHARGED
WITH CARRYING IT OUT AND
UNDERSTANDING WHAT PITFALLS AND
CHALLENGES THEY HAVE MET AND
WHERE THEY ARE TODAY, AND THE
INDUSTRY THAT HAS TO RESPOND TO
IT. THAT'S THE PURPOSE. THERE
WILL BE AN OPPORTUNITY FOR
PLENTY PUBLIC COMMENT AFTER
WORDS. BUT ALSO WE HAD A HEARING
LAST YEAR THAT INVOLVED THE
CONSUMER GROUPS BEFORE THIS BILL
WAS IMPLEMENTED AS IT WENT
FORWARD. SO TODAY IS A ONE YEAR
REVIEW OF WHERE WE ARE AND IF IN
FACT, THE POLICIES THAT WE VOTED
FOR ARE WORKING. SENATOR WILK,
THANK YOU, MR. CHAIR, HAVE AN
OPENING COMMENT WHICH YOU DON'T
HAVE TO RESPOND TO. AND THEN I
DO HAVE A QUESTION ABOUT
PROCESS, BECAUSE I THINK THAT'S
WHY WE'RE HERE TODAY. SO THE SO
ONE OF THE THINGS I APPRECIATE
ABOUT OUR CHAIRMAN IS HE'S VERY
PRAGMATIC AND BALANCED AND USES
COMMON SENSE. AND ONE OF THE
COMMENTS HE MADE IN HIS OPENING
COMMENTS IS THAT GASOLINE IS NOT
GOING AWAY. ANYTIME SOON. I KNOW
FOR ME, I HAVE A PLUG IN HYBRID.
I WOULD NEVER GO TO STRAIGHT
ELECTRIC, AND BECAUSE EVERYBODY
ON THIS COMMITTEE KNOWS IT TAKES
7 TO 10 YEARS JUST TO GET LINES
APPROVED. SO WE'RE NOT GOING TO
HIT OUR TARGETS. AND MY BIGGEST
CONCERN, I HAVE A WORKING CLASS
DISTRICT AS WELL, IS THAT WE'RE
PURSUING THIS. AND THEN THIS
REFINERY GOES AWAY. AND MY
CONSTITUENTS GET PUNISHED MORE.
AND THAT'S NOT FOR YOU. THAT'S
REALLY FOR MY COLLEAGUES, NOT
NOT FOR YOU, BUT IT'S A BIG
CONCERN OF MINE THAT WE NEED TO
INSTILL COMMON SENSE INTO THIS.
BUT MY QUESTION IS THIS. SO BILL
PASSES IS SUPPOSED TO BE AN
INDEPENDENT ADVISORY COMMITTEE.
THE ASSEMBLY'S MADE THEIR
APPOINTMENTS THE SENATE'S MADE
THEIR APPOINTMENTS. WE STILL
HAVE OUTSTANDING APPOINTMENT. S
AND YOU MENTIONED YOU ALL, I
THINK, MENTIONED DURING THE
COURSE OF THIS. WE'VE HAD
STAKEHOLDER INPUT, STAKEHOLDER
INPUT, NOT SURE HOW YOU'RE
HAVING STAKEHOLDER INPUT WHEN WE
DON'T HAVE ALL THE APPOINTMENTS.
SO I GUESS I WANT TO KNOW THE
TIMELINE ON WHEN THOSE
APPOINTMENTS ARE GOING TO GO.
AND I'D ALSO LIKE SOME
BACKGROUND ON, HOW YOU'RE HAVING
STAKEHOLDER INPUT. AND I WOULD
NEVER HAVE ASKED THIS QUESTION
IN THE PAST, BUT I'M GOING TO
ASK IT NOW. THIRD QUESTION DID
ANYBODY HAVE TO SIGN NDAS TO
HAVE CONVERSATIONS WITH YOU,
THANK YOU, SENATOR, AS JUST ON
THE APPOINTMENTS, MY
UNDERSTANDING IS THOSE WILL BE
FINALIZED AT THIS MONTH. IS MY
UNDERSTANDING. SO THAT THAT'S
SOMETHING THAT I DO NOT HAVE A
DIRECT LINE OF COMMUNICATION OR
VISIBILITY ON. BUT MY
UNDERSTANDING IS THAT, THE ON ON
SPECIFICALLY THE PROCESS, ALL
THE STAKEHOLDERS THAT THAT THE
LEGISLATION ACTUALLY IDENTIFIED
ARE THE PEOPLE WE ARE MEETING
WITH, WHETHER IT'S ENVIRONMENTAL
JUSTICE COMMUNITIES, WHETHER
IT'S THE WATCHDOG, WHETHER IT'S
THE INDUSTRY. BUT WE ARE HAVING
TO HAVE THOSE MEETINGS
SEPARATELY, AND, YOU KNOW,
OBVIOUSLY WE HAVE OUR PUBLIC,
YOU KNOW, WORKSHOPS WHERE WE
INVITE THE INDUSTRY, THE LABOR
AND ENVIRONMENTAL JUSTICE
COMMUNITIES AND WATCHDOG AND ALL
OF THOSE. SO THAT'S ONE FORUM,
PRIVATELY, WE ARE HAVING A LOT
OF CONVERSATIONS DIRECTLY, GIVEN
SOME OF THE MARKET SENSITIVITIES
WITH THE PETROLEUM INDUSTRY, WE
CAN NEVER MEET WITH THEM.
COLLECTIVELY, WE MEET THEM ONE
ON ONE UNDER THE PILOT
REGULATIONS. AND
CONFIDENTIALITY, SO MOST OF OUR
CONVERSATIONS WITH THEM, I WOULD
ESTIMATE, WE HAVE A TOUCH POINT
WITH EACH REFINER AT LEAST 2 OR
3 TIMES A MONTH, SINCE THE START
OF. SO WE HAVE A VERY STRONG,
COMMUNITY THÀNH CHANNELS WITH
THE INDUSTRY, AND, AND THE
WORKSHOPS AND OTHER OTHER
VENUES. SO WE DO WE DO A GOOD
PROCESS TODAY. THANK YOU.
SENATOR CIERTO. THANK YOU VERY
MUCH. AND, I WOULD LIKE TO START
WITH THE LAST YEAR WHEN THIS WAS
FIRST PROPOSED TO US, IT WAS
PROPOSED, WITH PROFIT MARGIN
CAPS AND PENALTIES AND THINGS
LIKE THAT IN THERE. AND THERE
WASN'T A LOT OF SUPPORT IN THE
LEGISLATURE FROM EITHER SIDE OF
THE AISLE, AND SO SOME
ADJUSTMENTS HAD TO BE MADE. AND
ONE OF THOSE ADJUSTMENTS IS
FOUND IN OUR REPORT HERE, THAT.
WE WOULD THE CEC IS PROHIBITED
FROM ESTABLISHING A MAXIMUM
MARGIN AND PENALTY UNLESS THEY
FIND THAT THE LIKELY BENEFITS TO
CONSUMERS OUTWEIGH THE POTENTIAL
COST TO CONSUMERS, AND IT
REQUIRES THEM TO CONSIDER, AT A
MINIMUM, THREE OF THESE THINGS.
AND I WOULD LIKE AN ANSWER IF
WE'VE ACHIEVED ANY OF THESE. SO
WHETHER IT IS LIKELY THAT THE
MAXIMUM MARGIN AND PENALTY WILL
LEAD TO A GREATER IMBALANCE
BETWEEN SUPPLY AND DEMAND IN
CALIFORNIA TRANSPORTATION FUELS
MARKET, THEN WOULD EXIST WITHOUT
IT. IS DID WE ARRIVE AT A
CONCLUSION FOR THAT? BECAUSE
WHAT I'VE HEARD TODAY IS NOT
CONCLUSION. YEAH. THANK YOU,
SENATOR, FOR THAT QUESTION, FOR
THE SPECIFIC, YOU KNOW, SUPPLY
IMBALANCE, AS WE WERE TRYING TO
NOTE EARLIER, THE CURRENT
OVERALL, IF YOU LOOK AT THE, YOU
KNOW, PERSPECTIVES FROM THE
DIFFERENT GROUPS, WHETHER IT'S
ECONOMISTS OR THE INDUSTRY, THE
ECONOMIC THEORY SUGGESTS THAT IF
THERE IS A PENALTY, THE OVERALL,
OUTPUT OF THE DEFINING
CAPACITIES WILL BE MAXIMIZED.
THAT IS THAT IS BASICALLY WHAT
OUR ECONOMISTS ARE SAYING TO US.
WE ALSO HAVE TWO EXPERT
CONSULTANTS THAT WE ARE USING,
ICF AND STILLWATER ASSOCIATES.
BOTH OF THEM HAVE STRONG
INDUSTRY BACKGROUND. AND ONE OF
THE THINGS BOTH OF THEM NOTED IS
BY PUTTING A PENALTY FRAMEWORK.
AGAIN, WE HAVEN'T DECIDED WHAT
LEVEL. YEAH, WOULD WOULD NOT
NECESSARILY WOULD NOT REDUCE THE
SUPPLY AND COULD HAVE A POSITIVE
IMPACT ON BLUNTING THE PRICE
SPIKES. BUT YOU KNOW, THE WORST
CASE IS IT DOES NOT INCLUDE
INCREASE THE OVERALL SUPPLY.
OKAY. SO THE ANSWER IS MAYBE
YES. I MEAN, SO THE NEGATIVITIES
HAVE NOT BEEN SUBSTANTIATED LIKE
WHAT WE'VE NOTED. ALL RIGHT, ON
THE SECOND ONE WAS WHETHER IT IS
LIKELY THAT THE MARGIN PENALTY
WILL LEAVE TO LEAD TO AVERAGE
HIGHER PRICES AT THE PUMP ON AN
ANNUAL BASIS THAN WOULD EXIST
WITHOUT THE MAXIMUM MARGIN
PENALTY. CAN YOU ANSWER THAT ONE
FOR A FOR CERTAIN, SO, SENATOR,
I WOULD, I WOULD NOTE YOUR YOUR
KIND OF TOUGH LINE OF
QUESTIONING AND I WOULD NOT, YOU
KNOW, TRY TO AVOID THE ANSWER.
WE ARE STILL IN THE PROCESS OF
EVALUATING THE, THE OPINIONS OF
THE OF THE EXPERTS. WE HAVE.
OKAY, CURRENTLY, WHAT WE
UNDERSTAND IS THERE'S A
DIVERGENCE OF OPINION ON BOTH.
BOTH THE THINGS THAT YOU JUST
TALKED ABOUT, WHETHER THERE WILL
BE SUPPLY SHORTFALL OR OVERALL
INCREASES. AND SO WE WILL COME
BACK TO YOU AS WE COMPLETE OUR
ANALYSIS ON THAT. AND I DON'T
MEAN IT TO BE TOUGH LINE OF
QUESTIONING. IT'S THAT WAS WHAT
WE PASSED. YES. LAST YEAR. YEAH.
ABSOLUTELY. OKAY, AND THE THIRD
THING WAS WHETHER A CASE BY CASE
EXEMPTIONS FROM THE MAXIMUM
MARGIN WILL BE SUFFICIENT TO
ENSURE INDIVIDUAL REFINERS HAVE
AN OPPORTUNITY TO DEMONSTRATE
THE NEED FOR GREATER MARGIN
BEFORE THEY MAKE DECISIONS ABOUT
PRODUCTION. YEAH. I THINK ALL
THREE QUESTIONS ARE COLLECTIVE.
SO I WANT TO JUST NOTE THAT ALL
THREE QUESTIONS ARE VERY MUCH
INTERLOCKED. SO WE'RE NOT THERE
YET. WE'RE NOT THERE YET OKAY.
SO AT THE CEC WORKSHOP BECAUSE,
YOU KNOW, THE GOVERNOR SENT HIS
DIRECTIVE ABOUT, CHANGING OUR
FUEL TYPES LAST SEPTEMBER, BUT
HE ALSO GAVE A DIRECTIVE THAT HE
WANTED TO MARCH FORWARD, WITH,
THE, RULES TO BE ABLE TO DO
PROFIT MARGIN CAPS, BASICALLY.
AND SO WE'VE BEEN MARCHING DOWN
THERE LIKE IT SEEMED THE GOAL
WAS TO GET THE PENALTY IN PLACE.
IS THAT THE GOAL, I THINK THE
WAY WE UNDERSTAND THE LANGUAGE
IS TO PROTECT THE CONSUMERS AT
THE PUMP, SO I THINK THE ACTIONS
THAT YOU'RE HEARING TODAY IN
TOTALITY, WHETHER IT'S
TRANSPARENCY, WHETHER IT'S
PENALTY OR, SOME TARGETS TO
INCREASE SUPPLY, ALL OF THEM
COLLECTIVELY WILL YIELD THAT END
GOAL OF PROTECTING THE CONSUMERS
AT THE PUMP. SO, YOU KNOW, LAST
MONTH AT THE CEC WORKSHOP, YOU
STATED THAT THIS IS KIND OF LIKE
BEGINNING TO PUT OUR FOOT ON THE
GAS PEDAL HERE TO REALLY MOVE
FORWARD ON MAKING SURE THE
PENALTY LANDS THIS YEAR. IT
SOUNDS LIKE YOU GUYS ARE ALREADY
SET ON A PENALTY. ARE WE ALREADY
SET ON DOING A PENALTY? SO WE
HAVEN'T DONE ALL THAT BECAUSE
THE ANSWERS TO THE OTHER
QUESTION INDICATE THAT WE
HAVEN'T DONE ALL THE WORK WE
NEEDED TO DO TO DECIDE WHETHER
THAT IS EVEN A FEASIBLE THING,
WHICH IS WHY WE HAD SUCH
CONSTERNATION LAST YEAR AS A
WHOLE TO GO DOWN THIS THIS PATH.
YEAH, THANKS. THANK YOU,
SENATOR, FOR THAT QUESTION TOO.
SO LET ME KIND OF SEE IF I COULD
SUMMARIZE THE SITUATION WE'RE IN
RIGHT NOW. ULTIMATELY, WHATEVER
TOOL WE HAVE IN THE QUIVER THAT
WE COULD, WE COULD, WE COULD
DEPLOY IS ALL NEEDS TO COME
TOWARDS INCREASING SUPPLY IN THE
MARKET. AND BY INCREASING SUPPLY
IN THE MARKET, WE WILL REDUCE
THE SPOT MARKET VOLATILITY AND
HENCE PROTECT THE CONSUMERS. SO
THAT IS WHAT WE ARE INTENDING TO
DO. AND HOW DO WE INCREASE THE
SUPPLY. SO WITH THE SPECIFICALLY
TO THE PENALTY, THE PENALTY
UNDER SOME ECONOMIC THEORY WILL
INCREASE THE SUPPLY. BUT IN THE
WORST CASE SCENARIO WILL
PROHIBIT THOSE SPIKES. SO WE
THINK IT'S AN ESSENTIAL TOOL TO
HAVE IN THE QUIVER WITH THE
EXEMPTIONS THAT YOU NOTED. AS WE
HAVE MORE DATA AND WE HAVE MORE
CLARITY EXACTLY HOW WE IMPLEMENT
ON EACH REFINER AND WHAT THOSE
PATHWAYS WOULD BE, WILL BE
DETAILED OUT, BUT AT SOME LEVEL,
AT REGULAR REGULATORY PARADIGM,
TO ENSURE THAT THERE IS
INCREASED SUPPLY. AND IF THE
SUPPLY IS NOT INCREASED, SOME
WAY OF, BLUNTING THOSE SPIKES IS
ESSENTIAL. OKAY. WELL, WHEN
YOU'RE TALKING ABOUT, TOOLS IN
THE QUIVER, TO, TO BLUNT THIS
AND SOME OF MY COLLEAGUES HAVE
POINTED THAT, YOU KNOW, THE
INDUSTRY HASN'T ACTED IN A WAY
TO PROTECT OUR CONSUMERS, I
DON'T THINK WE HAVE EITHER. I
THINK GOVERNMENT HASN'T ACTED IN
A WAY TO PROTECT OUR CONSUMERS.
OTHERWISE WE WOULDN'T BE PAYING
$1.30 A GALLON FOR TAXES AND
FEES AND, CAP AND TRADE AND ALL
OF THOSE THINGS, BECAUSE THAT'S
A HIGHER MARGIN THAN THE $0.40
THAT YOU GUYS ARE TALKING ABOUT
EARLIER. SO THE BIGGEST MARGIN
IS THE GOVERNMENT IS MAKING
$1.30 A GALLON ON GAS IN
CALIFORNIA. AND SO IT'S, YOU
KNOW, I, I STRUGGLE WHEN WE
START TRYING TO POINT FINGERS AT
EVERYBODY ELSE. WE NEED TO POINT
FINGERS AT OURSELVES. AND I
THINK THAT'S WHAT PART OF THE
ISSUE WAS LAST YEAR WHEN WE WERE
GOING THROUGH THIS, WE MADE A
COMMENT ABOUT, LET'S GET, YOU
KNOW, MORE IMPORTS FROM ASIA,
MAYBE BECAUSE WE CAN IF WE CAN
GET IT CHEAP ENOUGH, YOU KNOW,
HOW LONG IT TAKES TO GET A SHIP
FROM ASIA TO HERE, 30 TO 40 DAYS
OF PUMPING OUT WHAT CARBON? SO
HOW DOES THAT HELP? IN THE BIG
SCHEME OF THINGS? IT DOESN'T. IF
YOU WANT TO INCREASE SUPPLY,
THEN WE SHOULD BE USING WHAT WE
HAVE HERE IN CALIFORNIA,
INCREASED SUPPLY. AND THAT WILL
HELP WITH THAT PART OF IT, IT
ALL GOES BACK TO THE SUPPLY AND
DEMAND AND SUPPLY AND DEMAND
ISN'T MANIPULATED BY BY FINES.
IT'S MANIPULATED BY BY WHAT WE,
YOU KNOW, WHAT WE PRODUCE AND
THEN WHAT WE USE, BACK IN 2001,
WHEN THE GASOLINE PRICES FIRST
WENT OVER $2 A GALLON, EVERYBODY
WENT BERSERK. TWO, $2.15 A
GALLON. THEY SHUT IT DOWN AND
PEOPLE STOPPED GOING ON
VACATION. THEY STOPPED GOING ON
CRUISES. THE DEMAND PLUMMETED
AND THE SUPPLY WAS UP. AND GUESS
WHAT? TWO MONTHS LATER, IT WAS
$0.91 A GALLON. COMING HOME,
COMING HOME FROM THE WHEN I WAS
WORKING OUT IN LANCASTER, I
STOPPED IN UP IN THE DESERT'S
$0.91 A GALLON. THAT'S A SUPPLY
AND DEMAND BECAUSE WE HAD ENOUGH
SUPPLY. WE HAVE NOT DONE
ANYTHING TO CREATE MORE SUPPLY.
IN FACT, EVERYTHING WE'VE DONE
IN THE LAST THREE, THREE YEARS
IS TO CREATE LESS SUPPLY AND
DISINCENTIVIZE ANY INVESTMENT IN
DOING EXACTLY WHAT YOU'RE
TALKING ABOUT. SO SO I DON'T
KNOW THAT, YOU KNOW, WHEN YOU'RE
WHEN YOU'RE WHEN YOUR SOLUTION
IS TO, TO GET TO A PENALTY THAT
SOMEHOW THAT'S GOING TO
INCENTIVIZE ANYBODY BECAUSE ALL
THESE OTHER THINGS IMPORTING
INSTEAD OF PRODUCING HERE,
THAT'S, THAT'S A PROBLEM. THE
TAXES THAT KEEP INCREASING,
THEY'RE LOOKING AT INCREASING
CAP OR I THINK IT'S A CAP AND
TRADE AND OTHER WHAT $0.17 A
GALLON, AND WE DISCOURAGE THE
INVESTMENT. I MEAN WHO'S GOING
TO INVEST HERE? WHO'S GOING TO
BUILD A REFINERY HERE WHEN WE'RE
TRYING TO SHUT THEM ALL DOWN AND
TAKING STEPS TO DECREASE SUPPLY
AND FASTER THAN THAN WE TAKE
STEPS TO DECREASE DEMAND. THOSE
ARE WHAT'S CAUSING THE PROBLEM.
THIS ISN'T ROCKET SCIENCE. WE'RE
TRYING TO MAKE IT INTO IT. BUT
ALL OF A SUDDEN THE WORDS
GOUGING AND ALL THOSE OTHER
NEGATIVE CONNOTATION WORDS SEEM
TO HAVE DISAPPEARED. WHEN THAT
WAS THE ORIGINAL, COMMENTS THAT
WERE BEING MADE. WE'RE GOING TO
FIND THE GOUGING. WE'RE GOING TO
GET THE, YOU KNOW, AND GUESS
WHAT. TO THIS DATE, HOW MANY
TIMES HAVE WE INVESTIGATED HIGH
GAS PRICES BACK IN 2000 BEFORE
THAT? YOU KNOW, WE'VE WE'VE DONE
IT OVER THE LAST 40 YEARS. AND
HOW MANY TIMES HAVE WE FOUND
HAVE WE FOUND GOUGING AND
COLLUSION. ANYBODY I THINK IT'S
ZERO BECAUSE THEY DON'T TELL US
IT'S ZERO. SO ANYWAY, THANK YOU
FOR ANSWERING THOSE TOUGH
QUESTIONS. THEY'RE NOT REALLY
QUESTIONS. THEY'RE JUST TRYING
TO SEE WHERE WE'RE AT AS FAR AS
WHAT OUR DIRECTIVE WAS. WHEN WE
WHEN MY COLLEAGUES PASSED THIS
LEGISLATION LAST YEAR. ALL
RIGHT. WE'RE TRYING TO CLOSE
THIS OUT. BUT I SEE SENATOR
RUBIO. RUBIO HAS ONE MORE
QUESTION. THANK YOU. I JUST WANT
TO FOCUS ON SOMETHING THAT THAT
I READ. AND I THINK YOU STATED
TOO, I THINK YOU SAID THAT THE
PRICE OF GAS AND SOME OF THE
AREAS WHERE THERE'S A LACK OF
COMPETITION IS A LITTLE HIGHER.
CAN YOU REMIND ME OF THE COST
HIGHER THAN AREAS WHERE THERE'S
MORE CONCENTRATION? SO IN IN
RETAIL I'M SORRY AT RETAIL. SO
IF THERE BASICALLY IF THERE'S NO
OTHER STATION AROUND AND YOU CAN
EXPECT IF, IF, IF YOU HAVE A
NEARBY STATION THAT'S A BRANDED
STATION. SO LIKE AN EXXON OR A,
CHEVRON OR SOMETHING, YOU WOULD
EXPECT THAT THAT WOULD DROP THE
PRICE ABOUT SOMEWHERE BETWEEN 2
AND $0.03. IF YOU HAVE A NEARBY
UNBRANDED STATION, YOU WOULD
EXPECT TO SEE THE PRICE DROP ON
AVERAGE ALMOST $0.05. AND THEN
FOR EVERY ADDITIONAL STATION IN
THE AREA, YOU SEE ABOUT A 0.7
CENT DROP IN PRICE. SO THAT'S
SORT OF THE REASON I WANT TO ASK
IS, I MEAN, I THINK WHAT I'M
HEARING IS LIKE I'M THINKING OF
RURAL COMMUNITIES WHERE I
VENTURE TO SAY THAT IT'S THE
LEAST AFFLUENT COMMUNITIES AND
YOU'RE SAYING THAT IF THEY DON'T
HAVE COMPETITION AROUND, THEY
PAY HIGHER GAS PRICES. DID YOU
FIND ANY PARTICULAR REASON OTHER
THAN LACK OF COMPETITION? IS IT,
YOU KNOW, DRIVING FURTHER, I
JUST WANT TO KNOW IF THERE'S
OTHER THERE OTHER THAN INCREASED
TRANSPORTATION COSTS, TO, TO GET
THE FUEL THERE. YOU KNOW, YOU
CAN ACTUALLY ON OUR DASHBOARD,
LOOK, THERE ARE SOME STATIONS IN
SOME LOCATIONS. I MEAN, THERE'S
A FAMOUS STATION UP IN MENDOCINO
THAT HAS VERY, VERY HIGH PRICES,
BUT THE TRANSPORTATION COST IS
NOT THAT MUCH HIGHER. EVEN IN
SOME OF THOSE RURAL AREAS, I
MEAN, IT IS MORE BUT, DOESN'T
MAKE UP THAT FULL DIFFERENCE.
BUT THERE ARE COMPETITION
ISSUES. ALTHOUGH YOU KNOW, YOU
ALSO THERE'S NO IT'S VERY HARD
TO SEE A HARD AND FAST RULE IN
SOME OF THESE THINGS. I MEAN, IF
YOU DRIVE UP AND DOWN THE
CENTRAL VALLEY, YOU KNOW, SOME
LOCATIONS OFF I-5 FIVE HAVE MUCH
HIGHER GAS PRICES THAN OTHER
EXITS OFF I-5. AND IT'S
CONFUSING. THAT'S ONE OF THE
AREAS WE WANT TO LOOK AT. THE,
RETAIL OWNERSHIP GROUP, WHICH IS
ONE OF THE THINGS THAT'S BEEN
VERY OPAQUE AS OF YET TO FIGURE
OUT WHAT WHY THAT IS. WELL,
THAT'S WHERE I WAS HEADED WITH
THIS. I THINK IT'S AN AREA THAT
WE NEED TO STUDY, IF, YOU KNOW,
AGAIN, I DON'T KNOW. BUT AGAIN,
I IMAGINE THAT THAT'S WHERE THE
LEAST YOU KNOW, AFFLUENCY IS.
AND LESS, YOU KNOW, MANY LOWER
WAGES AND THEN THEY'RE PAYING
HIGHER PRICES. IF YOU COULD LOOK
INTO IT. THE OTHER THING THAT I
WANT TO JUST KIND OF HIGHLIGHT,
AND I DON'T KNOW IF YOU STATED
THAT BEFORE I WALKED IN, IS I
KNOW THAT WE'RE TALKING ABOUT,
YOU KNOW, GAS ALMOST LIKE AN
ISOLATION. BUT BUT I ALSO WANT
TO CONSIDER THE JOBS AND THE
ECONOMY. AND I JUST, YOU KNOW, I
HAVE MEMORY OF SOME OF THE
INFORMATIONAL HEARINGS WE HAD
HERE IN THE PAST. AND I BELIEVE
AREAS LIKE KERN COUNTY, IT
APPEARS TO ME, IF I REMEMBER
CORRECTLY, OVER 70% OF THE
COMMUNITIES DEPEND ON REFINERIES
TO FUNCTION. AND THAT MEANS, YOU
KNOW, THE WORKFORCE, THE LOCAL
ECONOMY, AND YOU KNOW, THAT'S
HOW, YOU KNOW, PEOPLE SURVIVE
AND MAKE THEIR MONEY. JUST YOU
KNOW, I WANT TO SEE IF THERE'S A
PARTICULAR FOCUS ON, LIKE THOSE
LOW INCOME COMMUNITIES THAT
WOULD BE IMPACTED IF, YOU KNOW,
THERE'S CHANGE. I KNOW I WANT TO
TALK ABOUT PROTECTING OUR
CONSUMERS IN TERMS OF MAKING
SURE THAT THEY'RE GETTING LOWER
COSTS. BUT YOU KNOW, ALSO THE
NEGATIVE CONSEQUENCES IN TERMS
OF LIKE JOB LOSS AND THAT KIND
OF EFFECT IN OUR COMMUNITIES.
BUT I DO WANT TO CLARIFY FOR THE
RECORD, AND I KNOW THAT MY
COLLEAGUE, EGGMAN IS NOT HERE.
BUT, YOU KNOW, WHEN I TALK ABOUT
THE LACK OF, OR OUR COMMUNITIES,
THEIR INABILITY TO PURCHASE EV
CARS, THE FACT IS THAT MOST OF
OUR COMMUNITIES AND I'LL SPEAK
FOR MINE. AND I KNOW AROUND HERE
WE'VE DISCUSSED IT. IS THAT MOST
OF THEM ARE NOT RUNNING TO BUY
NEW CARS. THEY JUST CAN'T AFFORD
IT. SO NORMALLY THEY GO TO USED
CAR LOTS AND THE EV CARS AND THE
CARS THAT ARE, YOU KNOW,
ELECTRIC ARE NOT OLD ENOUGH TO
BE IN THESE LOTS. SO MOST OF OUR
COMMUNITIES ARE NOT BUYING NEW
CARS, THEY'RE BUYING USED CARS,
AND THEY'RE BUYING CARS THAT ARE
NOT ELECTRIC. SO THAT'S WHERE,
YOU KNOW, THE LACK OF ACCESS IS.
AND I WANT TO GO BACK TO WHAT MY
COLLEAGUE SAID, SENATOR DURAZZO,
RIGHT NOW THAT YOU KNOW, THAT
42% OF THOSE THAT COMMUTE ARE
LOW WAGE EARNERS, AND THEN I
WANT TO ALSO CAUTIOUS US AS A
STATE, WE'RE ALMOST DOUBLE,
IMPACTING THEM BECAUSE WE GIVE
THEM CREDIT FOR EV CARS. AND
AGAIN, IT'S NOT THE, THE, THE
LOW INCOME WAGE EARNERS THAT ARE
BUYING THEM. BUT THEN WE ALSO
SAY IF YOU BUY AN EV CAR, THEN
YOU GET TO USE LIKE THE CAR
LANE, WHAT IS IT. THE, THE FAST
LANE AND ALL THESE. AND AGAIN
IT'S THE LOW INCOME EARNER
THAT'S DRIVING LONG THREE HOURS
I THINK I JUST HEARD HER SAY
THREE HOURS. AND YET THEY DON'T
GET THE, THE PRIVILEGE OF, OF
DRIVING IN THESE LANES. SO WE
JUST KEEP IMPACTING THOSE
COMMUTERS THAT HAVE TO GO LONGER
HOURS, LESS WAGES. AND SO WE
JUST HAVE TO FIGURE OUT A WAY
THAT WE REALLY ARE BENEFITING
THOSE THAT NEED IT. AND I KEEP
FINDING THAT WE'RE JUST NOT. AND
I THINK I I'LL SAY WHAT MY
COLLEAGUE HERE SAID IS JUST NOT
EQUITABLE, THAT THE BENEFITS ARE
NOT EQUITABLE, THE IMPACT IS NOT
EQUITABLE, BUT WE HAVE TO JUST
DIG A LITTLE DEEPER. THAT'S ALL
I WOULD ASK. THANK YOU, MR.
CHAIR. THANK YOU. I'M WAS A
RESPONSE TO THAT. OKAY, SENATOR
CIERTO AND THEN WE'RE GOING TO
SORRY LEFT THIS ONE QUESTION OUT
I GOT ONE I LEFT THIS QUESTION
OUT. AND I DON'T EXPECT YOU TO
HAVE THE NUMBERS RIGHT IN FRONT
OF YOU, I WOULD LIKE TO KNOW
WHAT THIS EFFORT HAS COST US SO
FAR AND WHAT WE ANTICIPATE IT'S
GOING TO BE YEARLY, GOING
FORWARD. IF YOU COULD GET THAT
SOME AT SOME POINT TO MY OFFICE,
I WOULD APPRECIATE IT. THANK
YOU. THANK YOU. STERN YEAH.
SORRY. JUST ONE FOLLOW UP, THEN,
TO SENATOR RUBIO'S POINT, AND
I'M NOT GOING TO TRY TO CORRECT
THE RECORD, ON THE IMPACTS OF
ZEVS HERE, OTHER THAN TO SAY
THAT, THEY'RE NOW COMPETITIVE IN
THE MARKETPLACE AND PEOPLE ARE
SPENDING LESS AT THE PUMP, AND
THAT'S THE THREAT, AND THAT'S
WHY WE'RE HERE AND WHAT PEOPLE
ARE SPENDING TENS OF MILLIONS OF
DOLLARS LOBBYING US, AND WE'RE
ALL PERFORMING IN FRONT OF THEM
HERE, BUT MY QUESTION IS HOW TO
GET PEOPLE BACK THEIR MONEY.
THAT WENT TO PROFITS DURING
THESE, THESE, THESE PERIODS OF
TIME. Þ THIS WHOLE HEARING IS A
BIT INSULTING. SO WE CAN GET
INTO THAT. MR. STERN, WILL YOU
STATE TO THE ISSUE BECAUSE THIS
IS NOT A PERFORMATIVE ISSUE
HERE. WE'RE TRYING TO DRILL DOWN
TO FACTS. OKAY, I HOPE SO, SO
THE REAL FACTS PER GALLON THAT
I'M HOPING TO GET IS IN THOSE,
THOSE PERIODS OF, OF PROFIT, ARE
THERE ARE THERE ANY LEGAL TOOLS
THAT WE'VE GOT TO GET PEOPLE
BACK THE HUNDREDS OF MILLIONS OF
DOLLARS THAT HAVE GONE TO THE
OIL COMPANIES PROFITS IN
CALIFORNIA, LIKE, DO DRIVERS
HAVE ANY RECOURSE? WE HAVE
SIMILAR RECOURSE, LIKE ON THE
UTILITY SIDE, RIGHT. THAT THAT
PEOPLE GOT THEIR BILLS CREDITED
BACK THAT THERE WAS EVEN SOCAL
GAS SENT MONEY BACK TO
RATEPAYERS. IS THERE ANY SIMILAR
TOOL THAT WE HAVE IN THE OIL
SECTOR TO SAY, ACTUALLY, WE DID
OVERCHARGE YOU FOR THOSE THAT
LAST MONTH SAY BY $100 MILLION
TO THE STATE OF CALIFORNIA, HOW
HOW CAN WE, CAN WE GET THAT? IS
THAT MONEY JUST GONE? IS IT JUST
THEIRS, OR IS THERE ANY KIND OF,
TOOL THAT EXISTS OUT THERE,
LEGAL OR OTHERWISE, TO, TO GET
PEOPLE BACK THE MONEY THEY, THEY
SENT TO CHEVRON'S SHAREHOLDERS?
MY DEFER TO THE CEC, THE PENALTY
IS A CEC DECISION. DPMO WILL
GIVE INPUT ON THAT DECISION. MY
UNDERSTANDING IS THAT ANY
PENALTY WOULD NOT BE
RETROACTIVE, FOR SOME OF THE
COMMENTS, YOU KNOW, TALKING
ABOUT HOW WE VIEW THESE LARGE
INCREASES IN REFINERY PROFITS,
I'M HESITANT TO SORT OF USE TOO
STRONG OF LANGUAGE BECAUSE WE'RE
AT THE PRELIMINARY STAGES OF OUR
ANALYSIS. BUT WHAT WE'RE TRYING
TO SHOW IN A FOLLOW THE FACTS
APPROACH IS THAT WHEN THERE IS A
SUPPLY DISRUPTION, THE REFINERY
MARGINS GO UP OVER 200% IS ONE
OF THE CORE ITEMS WE ADDRESSED
TODAY. AND I THINK THERE'S
DIFFERENT WAYS YOU COULD USE TO
DESCRIBE THAT. I THINK SOME
DEFINITIONS OF PRICE GOUGING DO
TALK ABOUT TAKING ADVANTAGE OF
SUPPLY DISRUPTIONS TO RAISE
PRICES ABOVE A COMPETITIVE
LEVEL. SO I THINK ONE OF THE
THINGS THAT WE'RE TRYING TO DO
IN A DELIBERATE AND A THOUGHTFUL
MANNER IS TO LAY OUT HOW THOSE
REFINERY PROFITS SPIKE, HOW
THOSE LEAD TO RETAIL PRICE
SPIKES. AND THEN THE COMMISSION
WILL DECIDE WHETHER A PENALTY IS
APPROPRIATE MOVING FORWARD. MY
UNDERSTANDING IS THAT A PENALTY
WOULD NOT APPLY TO PROFITS THAT
HAVE ALREADY HAPPENED, BUT
THAT'S A CEC DECISION. THANK
YOU. I MY PRETTY MUCH ALL THE
QUESTIONS HAVE BEEN EXHAUSTED,
BUT I DO HAVE TO IF YOU DON'T
MIND. I'M CURIOUS, ARE WE
SETTING OURSELVES UP FOR A
LAWSUIT WHEN WE'RE TRYING TO
REGULATE A NON-REGULATED
INDUSTRY WITHOUT PUTTING SOME
SAFEGUARDS AND RAILS UP THAT
OTHER REGULATED INDUSTRY HAVE
HAVE IN PLACE, SENATOR, I THINK
THAT'S A GOOD QUESTION. WE ARE
EVERY ACTION WE ARE TAKING, WE
ARE SEEKING THE LEGAL COUNSEL AS
WE DO, IN OUR LEGAL COUNSEL,
THAT WE HAVE AT CSC, TO THIS
DATE, THE USAGE OF THE TOOLS
THAT WE HAVE BEEN GIVEN, WE FEEL
FAIRLY CONFIDENT IN MOVING
FORWARD WITH THOSE, AS IT
PERTAINS TO, THEN IN A LEGAL
LAWSUITS AND SUCH. I THINK GIVEN
OUR AUTHORITIES, WE SHOULD BE
ABLE TO DEFEND THEM. AND MY
SECOND QUESTION IS BEING THE
FACT THAT THEY'RE STILL GOING TO
BE CLOSE TO 20 MILLION CARS ON
THE ROAD COME 2035. WHAT
ASSURANCES? AND, DO WE HAVE AND
HOW DO WE HOW DOES THE CEC
INTEND TO ADDRESS THE
REQUIREMENTS OF SECTION FIVE OF
THIS BILL, WHICH SPECIFY
DETERMINATIONS REGARDING THE
BENEFITS TO CONSUMERS OF SETTING
MAXIMUM GROSS GASOLINE REFINING
MARGINS? YEAH, THANK YOU,
SENATOR. THANKS AGAIN FOR THAT
QUESTION. I THINK I JUST WANT TO
TAKE THIS OPPORTUNITY TO JUST
FRAME THE TOTALITY OF THE
CONVERSATION WE HAD TODAY. I
THINK THE APPROACH THAT CEC, IN
CONSULTATION WITH DPMO AND CDTFA
, HAS BEEN TAKING IS REALLY
TRYING TO BE AS THOUGHTFUL AS WE
CAN TO GATHER THE MOST AMOUNT OF
DATA TO CAREFULLY VET THE
BENEFITS AND COSTS OF EVERYTHING
THAT WE'RE GOING TO DEPLOY,
INCLUDING THE PENALTY. SO AT
THIS MOMENT, YOU KNOW, IT IS
FAIR TO SAY WITHOUT ANY
INTERVENTION, WHAT WE HAVE SEEN
THE LAST THREE YEARS WILL
CONTINUE TO HAPPEN. SO IF YOU
LOOK AT THE 2019 PRICE SPIKE, 22
SPIKE OR 23 SPIKE, THOSE
HAPPENED IN ABSENCE OF ANY
REGULATORY FRAMEWORK. AND WE
WILL CONTINUE TO HAVE THEM. SO
THE QUESTION IS THERE IS THIS
THE TIME AND PLACE FOR A
REGULATORY FRAMEWORK TO HELP
SHAPE THAT DISCUSSION? AND THAT
IS WHAT WE'RE TRYING TO DO. AND
WE WILL DO THAT HOLISTICALLY AND
THOUGHTFULLY AND WILL WELCOME
BOTH THE TOUGH QUESTIONS WHICH
WHICH HELP US TO DO OUR JOB
BETTER. SO WE WELCOME THOSE
QUESTIONS AND LOOK FORWARD TO
COMING BACK TO YOU. I WANT TO
THANK OUR VICE CHAIR, VICE
CHAIR, GUNDA, AND OUR DIRECTORS,
MELDER AND MADRAS. I, I KNOW
WE'VE HELD YOU FOR TWO HOURS
NOW. WOULD YOU INDULGE US IF YOU
MIND STAYING HERE IN THE HEARING
ROOM? AND IF THERE'S ADDITIONAL
QUESTIONS AFTER OUR FINAL PANEL,
WOULD YOU GUYS MIND ENGAGING US
IN THAT? THANK YOU. APPRECIATE
IT. ALL RIGHT, SO WE'RE GOING TO
ASK, FOR OUR NEXT PANELS. TO
COME UP, WE WELCOME THE NEXT TWO
PANELISTS AND WE'LL HEAR FROM
THE INDUSTRY PARTICIPANTS WHO
ARE REQUIRED TO PROVIDE THE
REPORTING AND OTHER ELEMENTS OF
THIS LEGISLATION. I WANT TO
WELCOME, WELCOME, WESTERN STATES
PETROLEUM ASSOCIATION
ASSOCIATION PRESIDENT AND CEO
KATHY RICHARDS. BOYD AND
CALIFORNIA FUELS AND CONVENIENCE
ALLIANCE LEGISLATIVE ADVOCATE
JOHN WENGER. YOU MAY BEGIN WHEN
YOU'RE READY. IS IT STILL
MORNING? YEAH, IT'S BARELY
HANGING ON THERE, BUT WE ARE,
GOOD MORNING, CHAIR BRADFORD AND
SENATORS, KATHY REYES BOYD,
PRESIDENT AND CEO OF THE WESTERN
STATES PETROLEUM ASSOCIATION. I
WANT TO START OFF BY THANKING
THE COMMITTEE FOR PROVIDING THE
MUCH NEEDED OVERSIGHT ON THE
IMPLEMENTATION OF SB ONE TWO,
FROM THE SPECIAL SESSION LAST
YEAR, LAST YEAR, THIS COMMITTEE
HELD AN INFORMATIONAL HEARING ON
SB ONE TWO WHERE YOU LISTENED TO
EXPERTS. YOU HEARD A LOT ABOUT
CALIFORNIA'S GASOLINE SUPPLY.
SENATOR DODD EXPRESSED CONCERNS
ABOUT UNINTENDED CONSEQUENCES OF
THE GOVERNOR'S PROPOSAL, AND
SENATOR MINH STATED THERE IS NO
SMOKING GUN OF PRICE GOUGING OR
COLLUSION. AND, SENATOR
BRADFORD, THANK YOU FOR YOUR
LEADERSHIP ON THE COMMITTEE.
GREATLY APPRECIATED. SO AS A
RESULT OF THIS COMMITTEE'S WORK,
THE LEGISLATURE HAD THE WISDOM
TO REJECT THE GOVERNOR'S INITIAL
PROPOSAL TO RUSH A REFINERY
MARGIN CAP AND PENALTY INTO LAW,
THIS ESSENTIALLY WOULD HAVE BEEN
A PROFITS TAX, BUT INSTEAD, THE
LEGISLATURE DIRECTED THE ENERGY
COMMISSION TO COLLECT A LOT OF
DATA TO COMPREHEND, UNDERSTAND
THE TRANSPORTATION FUEL MARKET
AND TO DO HOMEWORK, TO CONSIDER
PROS AND CONS OF A MARGIN CAP,
TO LISTEN TO EXPERTS, ADVISORS
AND THE INDUSTRY WHO KNOW HOW
THE MARKET WORKS BEST. THE
LEGISLATURE ALSO, OBVIOUSLY, AS
WE'VE HEARD, RESTRICTED THE
ENERGY COMMISSION'S AUTHORITY TO
IMPOSE A MARGIN CAP AND PENALTY
PROVIDED THAT A CAP AND PENALTY
WOULD BE ALLOWED IF AND ONLY IF
THE COMMISSION COULD PROVE THAT
IT WOULD NOT RESULT IN INCREASED
GAS PRICES, WOULDN'T NEGATIVELY
IMPACT GAS SUPPLY, AND IT WOULD
NOT HURT CALIFORNIA CITIZENS
MORE THAN IT WOULD HELP THEM. SO
AFTER IT WAS SIGNED, WE ASKED
THE ENERGY COMMISSION TO
INSTITUTE A RULEMAKING TO SIMPLY
ENSURE EVERYONE UNDERSTOOD THE
TERMS AND DEFINITIONS TO BE
REPORTED. GIVEN THE BILL, AS WE
ALL KNOW, WAS RUSHED THROUGH THE
LEGISLATIVE PROCESS INTO LAW
WITH, IN EIGHT DAYS WITH NO
AMENDMENTS, UNFORTUNATELY, THE
CDC DENIED OUR REQUEST. THEY
ALSO DENIED OUR REQUEST TO DO A
RULEMAKING FOR SB 1322 THAT
IMPOSED ADDITIONAL REPORTING
REQUIREMENTS. WE APPEALED THAT
DECISION AND WAS REJECTED AGAIN
ON OTHER RULEMAKING REQUESTS FOR
SB ONE, TWO. AND TO THAT POINT,
WE SUBMITTED 20 DETAILED COMMENT
LETTERS, PETITIONS,
SUPPLEMENTARY INFORMATION TO THE
CEC ON A HOST OF TOPICS. SO THE
LEGISLATURE WAS PRETTY CLEAR. WE
THINK WITH THE ADMINISTRATION,
YOU WANTED TO SEE THE HOMEWORK
TO CONFIRM WHETHER A CAP AND
PENALTY WOULD DO MORE HARM THAN
GOOD TO CALIFORNIA'S. THE
TRANSPORTATION FUEL ASSESSMENT,
WHICH WAS REFERRED TO EARLIER,
WAS DUE ON JANUARY 1ST OF 24.
IT'S STILL IN DRAFT FORM AND IT
IS FIVE MONTHS LATE TO THE
LEGISLATURE. THIS IS A VERY
IMPORTANT PIECE OF WORK. I
PARTICIPATED IN THE ENERGY
COMMISSION'S FIRST PANEL LAST
FRIDAY, WHERE WE LOOKED AT THE
ASSESSMENT REPORT, AT LEAST THE
PRELIMINARY DRAFT, AND I DO WANT
TO SUBMIT TO THE RECORD WHAT WE
IF WE CALL THE PLACEMAT, WHICH
IS BEFORE YOU, IT'S JUST
SOMETHING WE ALSO SUBMITTED LAST
FRIDAY. IT'S JUST A SIMPLE
GRAPHIC OF A REALLY COMPLEX
SITUATION, A COMPLEX ENERGY
SUPPLY CHAIN. AND YOU CAN SEE WE
INCLUDED MOLECULES AND ELECTRONS
BECAUSE IT IS THE INTERSECTION
OF THE TWO. THAT'S GOING TO BE
REALLY IMPORTANT AS WE PLAN IN
TOWARDS THE FUEL TRANSITION
STUDY THAT'S DUE AT THE END OF
THE YEAR, WHEN WE LOOK AT THIS
DIAGRAM, WE LAMINATED IT BECAUSE
YOU CAN TAKE A PEN AND KIND OF
DRAW SOME THINGS ON IT AND
FIGURE OUT SOME STUFF, BUT I
COULD TELL YOU THAT IT'S BECOME
A VERY IMPORTANT TOOL AS WE LOOK
FROM THE SUPPLY SIDE ON THE LEFT
SIDE, ALL THE WAY THROUGH BULK
DELIVERY, RETAIL AND MEETING
DEMAND ON THE RIGHT SIDE. AND
IT'S EVERY PIECE OF THIS PUZZLE
THAT MATTERS. AS WE'RE LOOKING
AT HOW TO MINIMIZE MARKET
VOLATILITY IN THE CALIFORNIA
LANDSCAPE, WE CALL IT THE FIVE
P'S. JUST FOR SIMPLICITY. SO
YOU'VE GOT CREW PRODUCTION
PIPES, PORTS, PERMITS AND PEOPLE
ALL VERY CRITICAL TO MEETING
CONSUMER DEMAND AND MINIMIZING
MARKET VOLATILITY. AND I
EMPHASIZE THIS BECAUSE TECHNICAL
REALITIES EMBEDDED IN THIS
PLACEMAT, IF WE'RE NOT DONE
RIGHT IT CAN IMPACT ASPIRATIONAL
GOALS. SO THESE ARE REALLY
IMPORTANT THINGS THAT THE ENERGY
COMMISSION IS NOW GOING TO
EMBARK ON. AND THEIR DISCUSSION
ON STORAGE, FUEL BLENDS, IMPORTS
, DEMAND REDUCTION SCENARIOS IN
THE FUEL ASSESSMENT PORT, HOPING
THIS COMMISSION HAS HAS FOLKS
COME BACK FROM THE EDGE AND TALK
ABOUT THESE OPTIONS BECAUSE
THEY'RE SUPER, SUPER CRITICAL
GOING FORWARD, WE'VE ALREADY
TALKED ABOUT THE FACT THE
INDEPENDENT CONSUMERS FUELS
ADVISORY COMMITTEE HAS YET TO BE
FORMED. SO THAT'S PART OF THIS
BILL IS TO GET ADVICE FROM THAT
COMMITTEE, AND AGAIN, WE GET THE
SENSE THAT THE CEC IS STILL
MARCHING TOWARDS IMPOSING A
MARGIN CAP AND PENALTY, AND I
GUESS I JUST CAN'T STRESS ENOUGH
THE HARM THIS COULD CAUSE TO
CALIFORNIA'S FUEL MARKETS AND
THE CITIZENS. SO WE'RE
SUBMITTING ALL THE DATA TO THE
CEC. WE OUR MEMBERS HAVE BEEN, I
THINK, AND I THINK COMMISSIONER
GUNDA WOULD AGREE, BEEN MORE
THAN FORTHCOMING ABOUT
SUBMITTING ALL THE INFORMATION
REQUIRED FOR SB ONE TWO, I'VE
BEEN LOOKING. EVERYONE HAS TWO
AT THE CEC POSTING THE DATA
ONLINE, AND ONE THING IS VERY
CLEAR THE DATA SIMPLY SHOWS NO
EVIDENCE OF PRICE GOUGING.
REFINERS ARE MAKING SENSE ON THE
DOLLAR CENTS ON THE GALLON OF
NET MARGIN, AND THE DATA IS
SHOWING MARGINS ARE UP. REFINERS
ARE CYCLICAL. WHAT THE DATA
TELLS US, HOWEVER, IS THE
TRANSPORTATION FUELS MARKET IS
COMPLEX. THE MARKET IS DRIVEN BY
SUPPLY AND DEMAND, AND
CALIFORNIA HAS A CHRONIC
GASOLINE SUPPLY ISSUE, THE
SUPPLY CHALLENGE IS DRIVEN, AS
WE'VE HEARD, THAT HAMPERS SUPPLY
IN THE STATE SO ISOLATED FROM
THE NATIONAL FUELS MARKET,
EXPERTS CALL US THE FUEL ISLAND
RATHER THAN TAKING STEPS TO
INCREASE STATE SUPPLY OF FUELS,
WE HAVE POLICIES THAT DRIVE FUEL
EXPLORATION, PRODUCTION AND
REFINING OUT OF CALIFORNIA.
DESPITE A STILL STRONG DEMAND
FOR LIQUID FUELS FOR TENS OF
MILLIONS OF CALIFORNIANS. SO LET
ME GIVE YOU A CASE IN POINT.
CALIF USED TO HAVE 30 REFINERIES
SUPPLYING GASOLINE TO THE LOCAL
MARKET, NOW HAVE EIGHT, NINE.
YOU HEAR DIFFERENCE BETWEEN
EIGHT NINE. CALIFORNIA USED TO
PRODUCE 50% OF THE CRUDE OIL
NEEDED TO MEET CONSUMER DEMAND.
NOW WE ONLY PRODUCE 25. THE REST
OF CALIFORNIA'S OIL AND GASOLINE
IS IMPORTED FROM FOREIGN
COUNTRIES. THE OIL PRODUCTION
DECLINE IS NOT BECAUSE WE DON'T
HAVE CRUDE OIL. WE ARE BLESSED
IN THIS STATE WITH RESERVES OF
CRUDE OIL. IT IS BECAUSE OUR
MEMBERS COMPANIES CANNOT GET
PERMITS FROM THE STATE OF
CALIFORNIA TO RECOVER AND
PROCESS OIL TO GET TO REFINERS.
IF YOU LOOK AT LOGISTIC COSTS,
WHICH WE'RE SUPPOSED TO LOOK AT
BECAUSE WE ARE CONCERNED ABOUT
COST, GETTING, GETTING REFINERS
CRUDE OIL FROM SAN JOAQUIN
VALLEY IS ABOUT $1 A BARREL.
GETTING CRUDE OIL FROM ALASKA IS
ABOUT 4 TO 5. GETTING CRUDE OIL
FROM FOREIGN SOURCES IS ABOUT 5
TO 6. SO ONE WOULD ASK, WHY IS
CRUDE OIL PRODUCTION NOT IN THE
FUELS ASSESSMENT? IT SHOULD BE.
IT IMPACTS PRICE. IT IMPACTS
COST, IT IMPACTS LOGISTICS. IT
IMPACTS A REFINERS ABILITY TO
CONTINUE TO SUPPLY THE MARKET,
ANOTHER CASE IN POINT, THE
SCOPING PLAN CALLS FOR CARB
SCOPING PLAN CALLS FOR 85%
REDUCTION IN REFINING CAPACITY
TO MEET THE STATE'S CLIMATE
GOALS IN 2045. IN ADDITION,
THERE IS A AMENDED AT BIRTH
REGULATION THAT CARGO IS LOOKING
AT THAT WILL RESULT IN
SIGNIFICANT RESTRICTIONS IN
MARINE TANKER VESSELS STARTING
IN 2025. SO AGAIN, IF WE'RE
GOING TO LOOK TO MORE IMPORTS,
THE FUELS ASSESSMENT STUDY, THE
ENERGY COMMISSION IS LOOKING AT,
WE'LL LOOK AT HOW DO YOU GET
MORE VESSEL TRAFFIC INTO PORTS
THAT ARE ALREADY CONGESTED. AND
THAT'S ONE OF THE MAIN AREAS.
THE ENERGY COMMISSION IS LOOKING
AT HIGHER PRICES. CARB IS
CURRENTLY GOING THROUGH TWO
RULEMAKINGS RIGHT NOW TO MAKE
THE LOW CARBON FUEL STANDARD AND
THE CAP AND TRADE PROGRAMS
MERITORIOUS AS THEY ARE NOT IN
ANY WAY DISCOURAGING, THEY
AREN'T MERITORIOUS PROGRAMS, BUT
MAKING THEM MORE STRINGENT. THE
LOW CARBON FUEL STANDARD COULD
COST CONSUMERS AS MUCH AS $0.40
$0.47 A GALLON. IT'S ABOUT $0.11
TODAY. THE ECONOMIC IMPACT FROM
A REVISED CAP AND TRADE
REGULATION COULD BE UP TO $0.30
PER $0.30. CONSUMERS CURRENTLY
PAY TODAY MORE THAN $0.30. SO WE
HAVE BEEN CAUTIONING THE
LEGISLATURE THAT THESE AND OTHER
POTENTIAL INCREASES ARE LIKELY
COMING IN 25 AND 26. THAT'S
COMPOUNDED WITH OUR PURSUIT OF
POLICIES THAT SHRINK IN STATE
SUPPLIES AND DISCOURAGE CAPITAL
INVESTMENTS TO INCREASE THE COST
OF COMPLIANCE WITH EXISTING
STATE PROGRAMS. SO THE EVIDENCE
COLLECTED BY THIRD PARTY EXPERTS
AND EVEN THE CDC HAS BEEN CLEAR
THAT THE UNDERLYING MARKET
REASONS FOR CALIFORNIA'S HIGH
GASOLINE PRICES AND ONGOING
MARKET VOLATILITY IS TRACED TO
OBSTACLES TO MARKET SUPPLY,
SUSTAIN, AND STRONG DEMAND FROM
CALIFORNIA CITIZENS AND A MARGIN
CAP AND PENALTY ADDRESSES NONE
OF THESE. IT INSTEAD PENALIZES
REFINERS FOR PRODUCING TOO MUCH
AND EXCEEDING A PROFIT CAP, I
WILL NOTE THAT MOST REFINERS
OUTSIDE OF CALIFORNIA CANNOT
PRODUCE FUELS THAT MEET STRICT
GASOLINE SPECIFICATIONS, AND
EVEN FOR THE FEW THAT DO AS A
FUEL LINE IN CALIFORNIA IS NOT
DIRECTLY CONNECTED TO PIPELINE
TO OTHER DOMESTIC REFINING
CENTERS DUE TO THE PACIFIC OCEAN
AND THE ROCKY MOUNTAINS. SO
GETTING THESE FUEL SUPPLIES HERE
IS DIFFICULT. IT'S EXPENSIVE,
AND IT'S TIME CONSUMING. SO
BECAUSE CALIFORNIA HAS CHOSEN TO
REDUCE OUR OWN IN-STATE SUPPLY
AND CAPACITY OF LOCALLY SOURCED
CRUDE AND REFINED FUEL, WERE
FORCED TO GET MORE AND MORE
IMPORTING FUELS OVERSEAS.
IMPORTING FUEL IS SLOW. IT'S
EXPENSIVE. IT GENERATES MORE
GREENHOUSE GAS EMISSIONS, AND IT
EXPOSES US TO THE UNCERTAINTY OF
THE GLOBAL MARKET. SO ALL OF
THIS MEANS THAT MORE PRODUCT WE
MUST IMPORT ACROSS OF OCEAN, THE
MORE EXPENSIVE OUR GASOLINE
BECOMES, AND IT DIRECTLY
CONTRIBUTES TO HIGHER AND MORE
PROLONGED PRICE SPIKES. WE
CANNOT CHANGE THESE ECONOMIC
REALITIES, NOR CAN WE CHANGE
STATE POLICIES THAT HAVE CAUSED
CONSUMERS TO BECOME DEPENDENT ON
A GLOBAL MARKET THAT WE DON'T
CONTROL. SO, IN CONCLUSION, IF
THE CEC CHOOSES TO PENALIZE
REFINERS FOR MAKING REVENUE OVER
A CERTAIN NUMBER VÀ, THAT WILL
ACTUALLY INCENTIVIZE STATE
GASOLINE SUPPLY, NOT MORE
REFINERS INVESTMENT DECISIONS
ARE MADE ON THEIR NATIONAL
PORTFOLIO AND CAPITAL FLOWS TO
WHERE CERTAINTY TO GENERATE A
RATE OF RETURN. REFINERS WOULD
NOT WOULD NOT KNOWINGLY VIOLATE
A MARGIN CAP IMPOSED BY THE
STATE OF CALIFORNIA TO. AS A
RESULT, SOME REFINERS MAY BE
FORCED TO RAMP DOWN REFINING IN
ORDER TO PREVENT REVENUES FROM
REACHING A PENALTY, TRIGGERING A
CAP. IF REFINERS DO THIS, IT
WOULD BE EXACTLY THE OPPOSITE
EFFECT FROM WHAT THE CEC WANTS.
SO I APPRECIATE THIS COMMITTEE'S
WILLINGNESS TO HEAR OUR CONCERNS
AGAINST IMPOSING A MARGIN CAP
AND PENALTY. I BELIEVE IT WOULD
ALSO BEHOOVE THE COMMITTEE TO
REQUIRE THE CDC TO COME BACK
BEFORE THEY PRESENT THEIR
EVIDENCE, BEFORE PROCEEDING
FURTHER AND CONSIDERING ANY
MARGIN, CAP OR PENALTY. AND I
ALSO WOULD ENCOURAGE THE
COMMITTEE TO HOLD A FOLLOW UP TO
THIS HEARING ON THE CDC'S FUEL
ASSESSMENT WORK. AGAIN, SUPER,
SUPER IMPORTANT WORK, EVIDENCED
ON ON THE PLACEMAT HERE THAT
REALLY IDENTIFIES THE POLICY
OPTIONS WE SHOULD BE LOOKING AT
AND CONSIDERING THAT HAVE THE
POTENTIAL FOR AFFORDABLE AND
SAFE TRANSPORTATION FUEL IN
CALIFORNIA. SO I THANK YOU FOR
YOUR TIME, AND LOOK FORWARD TO
QUESTIONS. THANK YOU, MR.
WINGER. IF YOU CAN LIMIT YOUR
COMMENTS TO ABOUT FIVE MINUTES,
WE'RE GOING TO TRY TO SEE IF WE
CAN GET TO THE QUESTIONS OF THE
AUDIENCE. THANK YOU. THANKS.
YEAH, I'LL BE AS QUICK AS I CAN,
JOHN WINGER HERE, ON BEHALF OF
THE CALIFORNIA FUELS AND
CONVENIENCE ALLIANCE, WE
REPRESENT THE MAJORITY OF THE
FUEL SUPPLY CHAIN BELOW THE
REFINERY LEVEL, INCLUDING FUEL
MARKETERS, HAULERS ALL THE WAY
DOWN TO THE GAS STATIONS AND
CONVENIENCE STORES, WHICH ARE
PRIMARILY SMALL MINORITY AND
FAMILY OWNED BUSINESSES,
APPRECIATE THE OPPORTUNITY TO
PROVIDE OUR PERSPECTIVE ON SB
1-2 IMPLEMENTATION. I THINK FROM
OUR ORGANIZATION'S PERSPECTIVE,
WE HAVE SEEN SOME PROCESS AND
COMPLIANCE CHALLENGES WITH THE
IMPLEMENTATION, WHICH WE THINK
CAN HAVE SOME UNINTENDED
CONSEQUENCES ON FUEL PRICING, ON
THE CURRENT PROCESS, WE HAVE
CONCERNS ABOUT THE PIECEMEAL
APPROACH TO IMPLEMENTATION,
STARTING WITH THE SPOT MARKET,
THEN MOVING MOVING TO TERMINAL
POSITION, HOLDER REPORTS, THEN
MARINE IMPORT REPORTS, NOW
WORKSHOPS ON THE PROFITS CAP. WE
BELIEVE THIS COULD KEEP THE CSB
FROM ACCURATELY ASSESSING THE
MARKET IMPACTS CAUSING PRICE
VOLATILITY, AND COULD DISTORT
THE WAY THE ENTIRE MARKET IS
EVALUATED. WE ALSO BELIEVE THE
CURRENT RULEMAKING PROCESS IS
EXTREMELY RUSHED. OUR MARKETERS
DO NOT RECEIVE MATERIALS FOR THE
WORKSHOPS AND PROPOSED
REGULATIONS UNTIL THE LAST
MINUTE, WHICH PREVENTS
MEANINGFUL DIALOG ON AN
EXTREMELY COMPLEX ISSUE. AS AN
EXAMPLE, THE CDC RELEASED ITS
MATERIALS FOR TWO RELATED
WORKSHOPS HAPPENING ON THE SAME
DAY, LESS THAN 24 HOURS BEFORE
THE WORKSHOPS WERE SCHEDULED TO
START, WHICH DIDN'T GIVE OUR
MARKETERS VERY MUCH TIME TO
PREPARE FOR THOSE HEARINGS. OUR
MOST SIGNIFICANT CONCERNS WITH
THE IMPLEMENTATION ARE AROUND
THE COST AND COMPLIANCE.
SPECIFICALLY, WE ARE WORRIED
ABOUT THE EXCESSIVELY BURDENSOME
REPORTING OBLIGATIONS THAT WILL
ADD EVEN MORE COST TO THE RETAIL
PRICE OF GASOLINE IN SOME
INSTANCES, THE MARKETERS AND
TRADERS ARE BEING ASKED FOR
MULTIPLE REPORTS ON THE SAME
TRANSACTIONS THROUGHOUT THE LIFE
OF THE TRANSACTION. SOME OF THIS
CAN BE 32 SEPARATE FIELDS, OR
FOR ONE KIND OF REPORT, OR AND
24 FIELDS FOR ANOTHER, ALL OF
WHICH IS INFORMATION THAT IS NOT
AUTOMATICALLY GENERATED OR
IMMEDIATELY AVAILABLE. SOME OF
THOSE REPORTS ARE DUE BY 9 A.M,
THE DAY AFTER THE TRANSACTION IS
COMPLETE. MUCH OF THAT
INFORMATION IS EITHER NOT
AVAILABLE BY THEN OR WOULD
REQUIRE ADDITIONAL STAFF TO
COMPLY, ADDING SIGNIFICANT COST
TO OUR FUEL DELIVERY. AS WE
STATED DURING THE ORIGINAL
DISCUSSION ON SB 1-2, THERE ARE
SIGNIFICANT SIGNIFICANT
OPERATING COSTS THAT ADD TO THE
PRICE OF GASOLINE IN CALIFORNIA
AT THE RETAIL LEVEL, HIGHER
ELECTRICITY COSTS SIGNIFICANTLY
HIGHER LABOR COSTS, HIGHER
TRANSPORTATION COSTS, AND HIGHER
COMPLIANCE COSTS, TO NAME A FEW.
OUR MEMBERS ARE CONCERNED THAT
THIS ADDED COMPLIANCE BURDEN AND
THE RELATED RISK OF FINES FOR
NONCOMPLIANCE WILL CONTINUE TO
ADD TO THE PRICE OF FUEL, WITH
THE CLEAR MARKET SIGNALS,
CALIFORNIA SENT, WE ARE ALREADY
SEEING COMPANIES AND MARKET
PARTICIPANTS LEAVING THE
CALIFORNIA MARKET. LOCAL GAS
STATION BANDS THAT CONTINUE TO
BE PROPOSED, AND FURTHER STATE
REGULATIONS ARE GOING TO MAKE
THE MARKET EVEN MORE CHALLENGING
AT THE RETAIL LEVEL. THE
BERKELEY HAAS BUSINESS SCHOOL
RECENTLY FOUND THAT LACK OF
COMPETITION NEGATIVELY IMPACTS
PRICES IN THE STATE. CFCA
CONDUCTED ITS OWN INDEPENDENT
STUDY THAT FURTHER SOLIDIFIED
THIS POINT AND FOUND GOVERNMENT
IMPOSED BANS HAVE REDUCED
FUELING OPTIONS IN THE STATE,
LEADING TO LESS COMPETITION AND
RISING GAS PRICES. I RECOGNIZE
THIS DISCUSSION TODAY IS NOT
ABOUT LOCAL GAS STATION BANS,
BUT WE BELIEVE ALL THE ACTIONS
BEING TAKEN BY STATE AND LOCAL
GOVERNMENTS ARE MAKING IT HARDER
TO STAY IN OPERATION, AND THAT
ALL MUST BE LOOKED AT
COLLECTIVELY AS WE DEBATE THIS
TOPIC. WHILE OUR FUEL MARKETER
MEMBERS CONTINUE TO TRY TO
COMPLY WITH THESE NEW BURDENSOME
REQUIREMENTS, WE BELIEVE SUPPLY
ISSUES WILL BECOME EVEN MORE OF
A PROBLEM AS WE APPROACH THE
PEAK TRAVEL SEASON THIS SUMMER
AND AS REFINERS SWITCHED OVER TO
SUMMER BLENDS, ANY NEW
REGULATIONS AND MANDATES WE
BELIEVE RISKS HARM TO CONSUMERS
BY REDUCING SUPPLIES AVAILABLE
TO THE STATE. WE ARE ALSO
CONCERNED WITH THE NEW REPORTING
REQUIREMENTS ON IMPORTERS THAT
COULD INCENTIVIZE THEM TO STOP
DOING BUSINESS IN CALIFORNIA, IF
THE RULE MAKING IS UNCLEAR OR IF
IT COSTS OR IF THE COST OF
COMPLIANCE ARE TOO GREAT.
IMPORTERS CAN SEND THEIR
SHIPMENTS TO ALASKA OR SOUTH
AMERICA OR SOMEWHERE ELSE,
FURTHER REDUCING THE SUPPLY IN
CALIFORNIA AND IF THE REPORTING
MANDATES CAUSE TRADERS TO SELL
THEIR FUEL ELSEWHERE, SUPPLIES
WILL BE REDUCED IN CALIFORNIA
AND PRICES WILL CONTINUE TO GO
UP, BIG BUSINESSES CAN ABSORB
THESE COSTS THROUGH THEIR MARKET
POWER IN A WAY THAT SMALL
BUSINESSES AND CONSUMERS CANNOT.
INDEPENDENT GAS STATIONS AND
OTHER INDEPENDENT SELLERS,
PARTICULARLY THOSE SERVING RURAL
COMMUNITIES AND FARMERS, ARE
RELIANT ON NON ON NINE NON
REFINERS. SO IN SUMMARY, OUR
MARKETING MEMBERS CONTINUE TO
TRY TO COMPLY WITH ALL THE
APPLICABLE STATE LAWS AND
REGULATIONS. HOWEVER, OUR ENTIRE
MEMBERSHIP HAS SIGNIFICANT
COMPLIANCE CONCERNS WITH THE
EMERGENCY RULE MAKING PROCESS,
WHICH WILL FURTHER ADD TO OUR
ALREADY SIGNIFICANT OPERATION
COSTS OF RUNNING A STATION IN
CALIFORNIA. WE ARE CONCERNED
MANY STATION OWNERS COULD LEAVE
THE MARKET FURTHER LIMITING
COMPETITION AND INCREASING
PRICES. AND FINALLY, WE ARE
CONCERNED WITH THE INEVITABLE
UNINTENDED CONSEQUENCES OF NEW
REQUIREMENTS PLACED ON
IMPORTERS, WHICH WILL
PARTICULARLY HARM THE SMALL AND
RURAL STATION OWNERS, SO
APPRECIATE THE OPPORTUNITY TO
PROVIDE OUR PERSPECTIVE. HOPE I
WENT QUICK ENOUGH AND I
APPRECIATE IT. QUESTIONS
APPRECIATE IT. I'M GOING TO OPEN
IT UP FOR QUESTIONS BY MEMBERS
OF THE COMMITTEE. SENATOR EGGMAN
. THANK YOU, LAST TIME I SAW YOU
WAS IN HEALTH COMMITTEE. MR.
WIENER, YOU GOT RANGE. I'M
SORRY. I WAS OUT OF THE ROOM FOR
A WHILE, BUT ONE THING STRUCK
ME, AND I'M. AND I'M JUST AGAIN,
AS WE'RE LOOKING AT ALL THINGS
ON THE TABLE, AND I CERTAINLY
ACKNOWLEDGE THAT, AGAIN, THAT
FOSSIL FUEL INDUSTRY IS, IS ON
HIS WAY OUT AND BUT WE KNOW THAT
WE NEED BRIDGES AS WE BUILD OUR
WAY OUT, IF YOU WILL, AND I
HEARD, I HEARD MR. BOYCE SAID
THAT CALIFORNIA PRODUCES. IT'S A
DOLLAR A GALLON A BARREL OR A
GALLON. IT OTHER OTHER STATES,
IT'S FOUR AND GLOBALLY IT'S SIX
TRANSFER COST. YEAH. FOR TO
TRANSPORT PER, PER BARREL.
RIGHT. I MEAN I'M, I AM A SOCIAL
WORKER. I'M NOT A MATHEMATICIAN.
BUT I CAN UNDERSTAND THAT US
GETTING GAS FROM OTHER PARTS OF
THE WORLD, OF COURSE, IS MUCH
MORE EXPENSIVE. SO I GUESS IN
THIS QUESTION, NOT NECESSARILY
FOR YOU, BUT AGAIN, AS WE'RE
LOOKING AT ALL OPTIONS AND I
KNOW MY, MY FRIEND, FROM THE
COAST WILL HAS HEAD MIGHT
EXPLODE AND I'M NOT LOOKING FOR
ANYONE'S HEAD TO EXPLODE. BUT
I'M JUST WONDERING, ARE WE
LOOKING AT EVERYTHING WHERE WE
COULD DO CARBON CAPTURES ON
OURS, JUST AGAIN, TO DO THIS
BRIDGE WHERE WE HAVE OUR JOBS,
WE HAVE THE CLEANEST. WE CAN
MAKE IT EVEN CLEANER. WE CAN DO
CARBON CAPTURE. THERE ARE TOOLS
THAT WE HAVE IN OUR TOOLBOX TO
BE ABLE TO ADDRESS THIS. THIS
SUPPLY ISSUE, IS THAT WHAT
YOU'RE SUGGESTING, OR IS THAT
WHAT YOU WERE SAYING? WE HAVE
THE SUPPLY. WE ARE NOT PRODUCING
IT. WE COULD IN A CLEANER WAY.
WE CHOOSE NOT TO BECAUSE OF OUR
POLICIES THAT WE UNDERSTAND ARE
ON THE WAY OUT. AND WE WANT TO
BE ABLE TO PROTECT THE
POCKETBOOKS OF CALIFORNIANS WHO
ARE FEELING THE SQUEEZE EVERY
SINGLE DAY. YEAH THANK YOU,
SENATOR, VERY MUCH. AND, YOU
KNOW, I'VE BEEN DOING THIS 34
YEARS, 40 YEARS IN THE INDUSTRY,
THE EXCITEMENT, THE OPTIMISM OF
WHERE WE ARE TODAY IS THIS IS
HOW DO WE TAKE EVERYTHING WE
KNOW AND ALL OF THE ABOVE ENERGY
STRATEGY TO GET FROM HOW WE
SUPPLY IT THROUGH MOLECULES AND
ELECTRON IN THE RIGHT PACE AND
SCALE TO MEET DEMAND AND NOT
MESS UP THE SYSTEM AS WE'RE
DOING IT, AND HAVE IT MOST COST
EFFECTIVE AND EQUITABLE AND
PROTECTIVE OF THE ENVIRONMENT.
AND IN MY HUMBLE OPINION, THOSE
ARE NOT EXCLUSIVELY THEY ARE
MUTUALLY BENEFICIAL TOGETHER. SO
I GET CONCERNED WHEN WE'VE LEFT.
IF I HAD A PEN, I'D CIRCLE THE
CRUDE OIL CIRCLE HERE. I'D
CIRCLE THE IMPORT, I'D CIRCLE
THE MARINE TERMINAL, I'D EACH
ONE OF THESE, I WOULD CIRCLE
INTO YOUR POINT ON CRUDE OIL.
HOW WE PRODUCE IT HERE IN THE
MOST ENVIRONMENTALLY SENSITIVE
WAY POSSIBLE. WE HAVE ADEQUATE
RESERVES TO PRODUCE. WE HAVE
WELL-PAYING JOBS TO PRODUCE IT,
AND YET WE CHOOSE NOT TO AND
INCREASE THE COST OF GETTING
CRUDE OIL TO REFINERIES TO MAKE
GASOLINE, DIESEL AND JET FUEL
WHEN WE ARE SUPPOSED TO BE
MINIMIZING THE COST. SO THIS IS
WHERE IT DOESN'T. I MEAN, I'M
NOT GREAT AT MATH, BUT A PLUS B
DOESN'T EQUAL C HERE FOR ME. SO
I UNDERSTAND THERE'S ISSUES WITH
EACH ONE OF THESE CIRCLES. I
MEAN, EVERY ENERGY SOURCE HAS
ISSUES. WE CAN TALK ABOUT ALL
KINDS OF ISSUES ASSOCIATED WITH
EVERYTHING ON THIS PAGE. BUT I
AM CONVINCED THAT WE HAVE THE
WELL WORTH, WELL WORTH ALL WE
HAVE THE ENERGY COMMISSION'S
EXPERTISE, WE HAVE ARBS
EXPERTISE. WE HAVE THE
INDUSTRY'S EXPERTISE. WE HAVE
THE ECONOMISTS, THE EXPERTS, THE
LEGISLATURE. THIS IS NOT
UNSOLVABLE. THIS IS COMPLETELY
SOLVABLE. AND WHEN YOU START
TACKING ON SOLAR INTO CRUDE OIL
PRODUCTION OR CARBON CAPTURE AND
SEQUESTRATION INTO EVERY PIECE
OF THIS TO REDUCE CARBON, WHILE
WE'RE GOING ON THE PATH TO MEET
OUR DEMAND DIFFERENTLY. GREAT.
THAT'S THE CONVERSATION. THAT'S
WHY I'M EXCITED. I WISH THE
FUELS ASSESSMENT PLAN DIDN'T
TAKE THIS LONG TO GET HERE, BUT
I UNDERSTAND THE ENERGY
COMMISSION HAS BEEN A BIT BUSY,
BUT THIS TO ME, THE FUEL
ASSESSMENT PLAN IS THE
FOUNDATION TO FIGURE THIS OUT,
TO REDUCE MARKET VOLATILITY, TO
INCREASE SUPPLY, TO INCREASE
INVESTMENT IN ELECTRONS AND
MOLECULES, TO GET FROM SUPPLY TO
DEMAND AFFORDABLY AND NOT
IMPACTING THE ENVIRONMENT. WE
COULD PROBABLY INCREASE OUR OUR
DESIRES TO GET TO OUR GOALS
QUICKER. IS THE PREMISE IF WE IF
WE ALL QUIT TO THE TO THE
SENATOR'S EARLIER POINT, IF WE
QUIT VILLAINIZING AND, YOU KNOW,
PUT THAT ON BOTH SIDES. BUT I
WAS HERE WHEN WE RAN. WE ROLLED
OUT THREE CLEANER BURNING
GASOLINES TOGETHER AS A STATE IN
THE INDUSTRY. WE TOOK LEAD OUT
OF GASOLINE, WE TOOK SULFUR OUT
OF DIESEL. AND NOW ALL WE DO IS
ARGUE AND WE SHOULD BE DOING
STUFF ON THIS PAGE. SO I DON'T I
STRONGLY DO NOT BELIEVE A MARGIN
CAP AND PENALTY IS THE PROCESS
THAT WE SHOULD BE LOOKING AT.
WHAT I WOULD ENCOURAGE IS THE
PROCESS THAT JUST STARTED THE
ENERGY COMMISSION ON FRIDAY,
WHICH IS LOOKING AT 19 DIFFERENT
POLICY OPTIONS ON HOW TO SOLVE
THIS PROBLEM. THAT'S WHAT WE
SHOULD BE DIGGING INTO, BECAUSE
THAT'S THE IMPORTANT STUFF.
THAT'S THE IMPORTANT WORK OF
THIS COMMITTEE. IN MY OPINION.
SO YOU FEEL HOPEFUL ABOUT THE
PROCESS? I AM HOPEFUL ABOUT THAT
PART OF THE PROCESS, NOT THE
FUELS, NOT THE MARGIN BUILDING
PROCESS, BUT THAT PART OF THE
PROCESS. I AM VERY, VERY
ENCOURAGED ABOUT. THANK YOU.
SENATOR SKINNER. THANK YOU.
THANK YOU, MR. CHAIR. I HAVE
SOME QUESTIONS AND COMMENTS, BUT
I WAS STRUCK BY THE, BY YOUR
RESEARCH, MISS BOYD, ABOUT THE,
I THINK DID YOU CHARACTERIZE IT
AS VILIFYING, I DON'T THINK ANY
OF OUR CALIFORNIA VOTERS OR
CONSUMERS HAVE RECEIVED ANY
MATERIALS FOR THE FROM THE
ENERGY COMMISSION OR THE NEW
DIVISION, EITHER WEB ADS OR
MAILERS, ATTACKING THE OIL
COMPANIES OR INDICATING THAT
WHILE CERTAINLY THE, MOTIVATION
THÀNH OF THE BILL THAT WE'RE
DISCUSSING TODAY. SB X12 WAS TO
PROTECT OUR CONSUMERS AND TO TRY
TO SEE IF WE CAN'T HAVE SOME
ABILITY TO AFFECT THESE HIGH
PRICES, THE STATE OR THE ENERGY
COMMISSIONER OF THE DIVISION IS
NOT SENDING OUT MATERIALS
BROADLY OR, MAKING SUCH ATTACKS
ON THE OIL COMPANIES. HOWEVER
MANY CALIFORNIA VOTERS ARE
RECIPIENTS OF AN ACTIVE CAMPAIGN
BY MANY OF OUR COMPANIES, OIL
COMPANIES IN CALIFORNIA
VILIFYING THE STATE AND
ASSERTING, AND THERE'S CURRENT
WEB ADS, CURRENT MAILERS
VILIFYING THE STATE FOR AND
BASICALLY INDICATING THAT IT IS
THIS, THAT IT IS THE STATE'S
TAXES AND ENVIRONMENTAL REGS
THAT ARE CAUSING THESE PRICE
SPIKES. NOW, I AM GOING TO TRUST
THE DATA THAT HAS BEEN PRESENTED
TO US TODAY THAT WAS PROVIDED BY
OUR OIL COMPANIES, THAT, IN
FACT, WHEN WE LOOK AT ALL OF
THIS DATA, WHICH FORTUNATELY
WE'VE BEEN ABLE TO ACQUIRE AS A
RESULT OF SB, X12, THOSE
FACTORS, YES, OUR TAXES AND
ENVIRONMENTAL REGS ADD TO THE
PRICE, BUT THEY ARE MORE OR LESS
A CONSTANT. AND IT IS THESE
OTHER FACTORS THAT ARE CAUSING
THESE PRICE SPIKES, SO I THINK
IT'S IMPORTANT TO PUT THAT ON
THE RECORD BECAUSE TO DESCRIBE A
VILIFICATION, I'M SURE THERE ARE
CERTAIN OF US AND HEY, I'LL,
I'LL TAKE RESPONSIBILITY FOR
BEING ONE OF THEM. I THINK THE
PERSONALLY THAT THE OIL
COMPANIES THE FOR MAJOR
COMPANIES THAT CONTROL OUR
REFINERY MARKET HERE ARE
MANIPULATING PRICES WHETHER
WHETHER THERE IS A COLLUSION, I
CANNOT SAY AND I WOULD NOT SAY
BUT CERTAINLY THE FACTORS OF FOR
EXAMPLE, NOT PREPLANNING BEFORE
MAINTENANCE TO HAVE ENOUGH
INVENTORY. YOU KNOW, THERE'S
VARIOUS THINGS THAT CONTRIBUTE.
AND OF COURSE, NOW I WILL SAY,
AS I SAID EARLIER, THAT, YOU
KNOW, OUR CORPORATIONS IN
GENERAL, NOT JUST THE OIL
COMPANIES ARE ORIENTED TOWARDS
MAXIMIZING PROFIT. AND THIS
ALLOWS THAT MAXIMIZING OF
PROFIT. SO WHILE I DON'T LIKE
IT, I DO UNDERSTAND, YOU KNOW,
WHY. SO BUT I DON'T LIKE IT FOR
MY CONSUMERS. BUT ANYWAY NOW TO
GET TO SOME QUESTIONS. ONE OF
THE ISSUES THAT COULD I RESPOND,
SENATOR. SURE, SO I APPRECIATE
YOUR COMMENTS, I WOULD SAY THEY,
RELATIVE TO FACTS PER GALLON, IT
IS NOT A EDUCATION PIECE THAT
SAYS THE STATE OF CALIFORNIA IS
RESPONSIBLE FOR PRICE SPIKES.
IT'S A TRANSPARENCY PIECE THAT
SAYS, AS WE TALK ABOUT WHAT GOES
INTO THE PRICE OF A GALLON OF
GASOLINE, LET'S JUST BE
TRANSPARENT ABOUT IT SO THAT
WHEN WE TALK ABOUT IT IN THAT
CONTEXT, PEOPLE HAVE AN
UNDERSTANDING, BECAUSE I DON'T
THINK MANY PEOPLE DO. I DON'T
THINK THEY KNOW WHAT GOES INTO
THE COST OF A OR THE PRICE AT
THE PUMP. AND SO IT IS IT IS A
TRANSPARENCY MEASURE TO SAY IT'S
OVER AT LEAST A DOLLAR.
SOMETIMES $1.30, IT IS YOU KNOW,
TAXES, FEES, UNDERGROUND
STORAGE, TANK CAP AND TRADE, LOW
CARBON. THOSE ARE JUST FACTS,
RIGHT? NOT TO SAY THAT THAT NOT
TO SAY THAT. IT'S JUST IF YOU'RE
GOING TO TALK ABOUT COST IT.
LET'S ALSO PUT ON THE TABLE WHY
WE'RE NOT USING SAN JOAQUIN
VALLEY CRUDE AND WHY WE'RE
LOOKING AT, YOU KNOW, ALASKA AND
IMPORTS. BECAUSE THAT'S $0.14 A
GALLON THAT WE'RE NOT EVEN
TALKING ABOUT. GET BACK TO THAT
IN A MINUTE OKAY. SO FIRST I
WANT TO GET TO THE MARGIN CAP.
THE ISSUE THAT THERE WAS AN
ASSERTION. AND I THINK IT WAS
THAT YOU MADE THAT ASSERTION.
BUT I CAN'T REMEMBER THAT IF WE,
IF THE, DIVISION WERE THE STATE
WERE TO PUT IN THAT MARGIN CAP,
THAT IT WOULD CAUSE THE
REFINERIES TO RAMP DOWN
PRODUCTION. BUT HOWEVER, THE CAP
THAT THE DIVISION AND THE
COMMISSION ARE CONSIDERING THAT
THEY HAD THE HEARING ON IS ON A
GALLON BASIS AND NOT ON OVERALL
PROFITS. SO ANY RESPONSE TO WHAT
THIS ASSERTION THAT IT WOULD
CAUSE THE RAMP DOWN OF
PRODUCTION IF THERE IS A IF
THERE IS A REFINERY MARGIN CAP
AND PENALTY THAT GETS TRIGGERED
FROM HITTING THAT CAP, I DON'T
KNOW HOW THE REFINERIES WILL
REACT. A LIKELY HOOD, KNOWING
THAT THEY WILL NOT WILL NOT
BREAK THE LAW. A LIKELY OUTCOME
WOULD BE REVENUES NEVER HIT THAT
CAP SO THAT THE PENALTY IS NEVER
APPLIED. THAT IS A LIKELY
RESPONSE. THAT RESPONSE WILL NOT
DELIVER ANY BENEFIT RELATIVE TO
THE ISSUE AT HAND. AND SO AGAIN,
I DON'T I DON'T SEE HOW THAT
AVENUE GETS US WHERE SB ONE TWO
IS, IS, YOU KNOW, ARTICULATED TO
REDUCE COST AND IMPACT ON THE
CONSUMER. I DO THINK THE
ELEMENTS THAT WE ARE LOOKING IN
THE FUEL ASSESSMENT PLAN DO,
IT'S ALL THE OTHER THINGS WE
JUST HEARD ABOUT THE STORAGE
DEMAND REDUCTION PLACES IN THE
SYSTEM THAT ARE BROKEN. THERE IS
NOT ENOUGH INFRASTRUCTURE
INVESTMENT GOING ON IN THE
TRADITIONAL FUEL SIDE, LET ALONE
IN THE ELECTRIC AND ALTERNATIVE
FUEL SIDE, RIGHT? SO MORE
INVESTMENT, MORE SUPPLY, REDUCE
COST. THE MARGIN CAP DOES NOT
ACCOMPLISH THAT. ALL RIGHT. SO
LET ME GET TO A COUPLE OF OTHER
POINTS THAT WERE MADE. SO ON THE
CRUDE OIL ISSUE. SO US IS NOW
THE LARGEST PRODUCER OF CRUDE
OIL IN THE WORLD. AND CALIFORNIA
RANKS DEPENDING AGAIN ON THE DAY
, THE FIFTH OR SEVENTH STATE,
YOU KNOW, WITH THE HIGHEST
AMOUNT OF CRUDE OIL PRODUCTION.
SO I AND WE HAVE NOT BANNED IT.
SO I'M CONFUSED. I DON'T KNOW.
AND I REALLY I DON'T, I'M POSING
THIS NOT SO MUCH TO HEAR WHAT AN
EX SORRY FOR USING THE WORD AN
EXCUSE FOR PERHAPS WHY YOU'RE
NOT USING, THE CRUDE OIL THAT
CALIFORNIA IS PRODUCING, BUT
CALIFORNIA IS PRODUCING A
SUBSTANTIAL AMOUNT OF CRUDE OIL.
SO WHETHER IT'S NOT THE QUALITY
OF OIL THAT OUR REFINERIES,
LIKE, I KNOW THERE'S VARIATIONS
IN THE QUALITY OF CRUDE OIL, BUT
WE ARE ONE OF THE US, IS THE
LARGEST PRODUCER NOW IN THE
WORLD. AND WE ARE ONE OF THE
LARGER PRODUCERS WITHIN THE
STATE. YES, TEXAS, SURPASSES US,
BUT STILL, WE'RE WITHIN THE FIVE
OR SEVENTH LARGEST PRODUCER IN
THE COUNTRY. YEAH. THANK YOU,
SENATOR, FOR THAT QUESTION. SO,
RELATIVE TO CRUDE OIL, WE USED
TO BE THE, YOU KNOW, PROBABLY
THE FOURTH, FOURTH LARGEST
PRODUCER IN THE US, AND NOW
WE'RE DECLINING. WHY ARE WE
DECLINING? WE ARE DECLINING. NOT
BECAUSE THE RESERVES ARE NOT
THERE. THE CALIFORNIA AIR
RESOURCES BOARD JUST. CAN I CAN
I JUST BECAUSE IT'S A IT'S AN
IMPORTANT FACTUAL DECLINING I
WANT TO HEAR ABOUT YOU ASSERTED
THAT WE AREN'T THAT YOU CAN'T
I'M GETTING CRUDE OIL. I'M
TRYING TO ANSWER THAT, SENATOR.
I'M TRYING TO ANSWER THAT. SO
THE AIR RESOURCES BOARD
ESTIMATED A 1 TO 2% DECLINE IN
PRODUCTION, KIND OF A NORMAL
DECLINE OF A RESERVE. WE ARE
RUNNING AT 15, 14 AND 15%
DECLINE RIGHT NOW. WHY WE CANNOT
GET PERMITS FROM THE STATE OF
CALIFORNIA. WE HAVEN'T HAD A NEW
DRILL PERMIT SINCE LAST YEAR.
THAT'S WHY PRODUCTION IS DOWN.
BUT WE DO HAVE PRODUCTION. SO
CAN YOU GET TO THE POINT OF
WHERE YOU SAID THAT WE'RE NOT
UTILIZING BECAUSE WE'RE NOT
WE'RE NOT ALLOWED TO HAVE A
DRILL PERMIT TO GET MORE
PRODUCTION IN TO GIVE TO
REFINERS. I'M ASKING YOU
ASSERTED THAT WE THAT OUR
REFINERS COULD NOT USE ANY
CALIFORNIA CRUDE? NO, I DIDN'T
SAY ANY. I SAID WE'RE ON A
DECLINE. WE'RE NOT ABLE TO WE'RE
ON A DECLINE. DECLINE OF THE
QUANTITY OF REFINED GAS THAT OUR
CONSUMERS ARE PURCHASING. ALSO
IF WE DON'T USE CALIFORNIA CRUDE
TO MAKE GASOLINE, DIESEL AND JET
FUEL, THE ONLY PLACE THAT CAN
COME IS MARINE IMPORTS. WE HAVE
NO PIPELINES TO DELIVER IT HERE.
WHAT IS MORE, IMPORTS INCREASE
COST. OUR REFINERS ARE GEARED TO
GET IT GEARED TO USE SAN JOAQUIN
VALLEY CRUDE APPRECIATE THAT.
AND I DO. AND I CAN APPRECIATE
HOW POTENTIALLY AS THE DECLINE
INCREASES IT AFFECTING. BUT I'M
AND WHEN I'M TALKING ABOUT RIGHT
NOW AND OF COURSE I HAVE NOT
GONE AND DONE ALL THE NUMBERS.
BUT GIVEN THE QUANTITY THAT WE
ARE STILL PRODUCING NOW, WHICH
IS STILL SIGNIFICANT, AND GIVEN
THE REDUCTION IN DEMAND OF
REFINED PRODUCT, WHICH IS GOING
TO INCREASE THAT REDUCTION IN
DEMAND GIVEN OUR MOVE, AND I
APPRECIATE THAT IMPACTS THE
INDUSTRY. NO NO, YOU KNOW, NOT
ALL ILLUSION ABOUT THAT. BUT
I'LL LEAVE THAT POINT FOR NOW.
AND I HAVE ANOTHER QUESTION.
INCREASED CRUDE OIL REDUCES
PRICE. SO THE NEXT QUESTION I
HAVE IS CALIFORNIA CRUDE OIL.
OTHER THAN QUESTIONS AROUND OUR
TAXES AND REGULATIONS, ÓRDENES,
WHICH I THINK WE'RE ALL FAMILIAR
WITH, THAT YOU KNOW, YOUR
FEELINGS, YOUR OF HOW IT
CONTRIBUTES TO THE PRICE. WHAT
ARE YOUR SOLUTIONS? WHAT DO YOU
HAVE TO OFFER TO HELP US REDUCE
THESE PRICE SPIKES? SO WE ARE
VERY INVOLVED IN THE FUELS
ASSESSMENT POLICY OPTIONS. BUT
AGAIN JUST PREVENT JUST
PRESENTED FRIDAY. WE ARE DIVING
INTO EVERY ONE OF THEM. WE GAVE
SOME INITIAL COMMENTS AT THE
ENERGY COMMISSION FRIDAY, BUT
AGAIN WE'RE STILL DOING OUR
ANALYSIS. WE HAVE HIRED TURNER
MASON TO DIVE INTO ALL OF THESE
ISSUES, MUCH LIKE THE ENERGY
COMMISSION HAS HIRED ICF AND
STILLWATER. SO WE HOPE TO BE
ABLE TO PROVIDE. I THINK THE
COMMENT LETTER IS DUE ON THE
17TH OF MAY. SO IN VERY SHORT
ORDER, WE HOPE TO BE ABLE TO
LOOK AT THE POLICY OPTIONS
PRESENTED FRIDAY AND TRY TO SEE
WHICH ONES WE FEEL CAN ACTUALLY
ASSIST IN REDUCING MARKET
VOLATILITY TO CALIFORNIA
CONSUMERS. AND I THINK THE
CATEGORIES THAT THE ENERGY
COMMISSION DESCRIBED EARLIER ARE
THE CATEGORIES THAT WE SHOULD
DIVE IN AND LOOK AT. I MEAN, YOU
KNOW, DEMAND CERTAINLY DEMAND
SCENARIOS ARE BEING LOOKED AT
EXTENSIVELY BY THE AIR RESOURCES
BOARD. THOSE SHOULD SHOULD
OBVIOUSLY CONTINUE TO BE LOOKED
AT. STORAGE IS ALSO AN ISSUE. I
DO THINK WE'VE GOT TO FOCUS ON
MARINE IMPORTS AND MARINE
TERMINALS, AS WE ARE IN A
CONSTRAINED MARINE ENVIRONMENT.
POLICY OPTIONS ARE POINTING TO
MORE VESSELS, NOT LESS. HOW HOW
ARE WE GOING TO DEAL WITH AN
UNCONSTRAINED MARINE ENVIRONMENT
WHEN OUR POLICY OPTIONS ARE
LOOKING AT MORE, NOT LESS? AND
THAT'S ON THE CRUDE SIDE AND THE
AND THE REFINED PRODUCT SIDE,
RIGHT. SO I THINK THAT IS A YOU
KNOW, I'M HOPING FOR THE
WORKSHOP WHERE WE TALK ABOUT,
YOU KNOW, THE PORT OF L.A. AND
LONG BEACH AND SAN FRANCISCO AND
HOW THE HECK WE'RE GOING TO DO
ALL OF THIS WHEN WE HAVE A
CONSTRAINED, INFRASTRUCTURE. SO,
I MEAN, THERE'S PROBABLY MANY
THINGS IN THERE. I HOPE THAT
WE'LL ABLE TO HAVE ANOTHER,
SESSION WITH THIS COMMITTEE AS
TO WHAT THOSE OPTIONS ARE, THE
PROS AND CONS, NONE OF THEM ARE
NONE OF THEM. ONLY HAVE PROS AND
NOT CONS. THEY ARE. I MEAN, THE
ENERGY COMMISSION ACTUALLY PUT A
TABLE TOGETHER OF PROS AND CONS.
EVERY ONE OF THEM HAS PROS AND
CONS. SO NOW IT'S LIKE DIGGING
IN AND SAY, OKAY, WHICH ONES
WILL MAKE A DIFFERENCE, IN WHAT
WE'RE TRYING TO DO IN SB ONE TWO
AND, WHERE CAN WE WHERE CAN WE
SUGGEST HOW TO IMPROVE THIS
PICTURE? NOW THAT NOW THE FUELS
ASSESSMENT IS JUST ON THE
GASOLINE SIDE, OBVIOUSLY THERE'S
ELECTRON SIDE OBVIOUSLY IN THE
AIR RESOURCES, BUT DOING FUELS
TRANSITION STUDY THE TWO COME
TOGETHER. SO THE FUELS
ASSESSMENT ENERGY COMMISSION
CARB COME TOGETHER IN THE FIELD
TRANSITION STUDY. BUT THE ONE
THAT ENERGY COMMISSION DOING NOW
IN MY OPINION IS CRITICAL. THANK
YOU. SENATOR STERN, THANK YOU,
MR. CHAIR. QUESTION ABOUT, I
GUESS, FOLLOWING UP ON ON YOUR
COMMENTS, MR. BOYD, SORT OF THE
OPTIONS YOU'RE LOOKING AT AND
CONSIDERING, I HEARD IN YOUR
TESTIMONY A CONCERN FOR CONSUMER
IMPACTS YOU WERE MENTIONING,
SAY, THE LOW CARBON FUEL
STANDARD WORRIES ABOUT 30 CENT A
GALLON IMPACT THERE. I'M SEEING
ON THE CDTFA CDC DATA HERE, A 96
CENT PER GALLON RETAIL MARGIN
FROM CHEVRON. SO HOPE YOU SHARE
THE SAME CONCERNS ABOUT THE
DOLLAR MARGIN THAT CHEVRON IS
GETTING VERSUS THE LCFS. AND I
HAVEN'T SEEN THAT IN THE FACTS
PER GALLON CAMPAIGN OR IN ANY OF
THE FACTS PER GALLON. THAT
MARGIN. SO WHERE IS THAT MARGIN
IN THOSE FACTS PER GALLON? THE
ONLY THING THAT THE FACTS PER
GALLON POINTS TO IS LITERALLY,
WHAT ARE THE COSTS THAT GO INTO
THE TO THE PRICE AT THE PUMP? SO
THAT'S WHAT THAT DEPICTION IS.
IT'S WHAT ARE THE FACTS THAT GO
INTO THE PRICE AT THE PUMP. I'M
HOPING THE LOW CARBON FUEL
STANDARD AND CAP AND TRADE. WE
HAVE MANY SUGGESTIONS HOW TO
IMPROVE THAT PROGRAM SO THAT IT
DOESN'T INCREASE COSTS, BUT IT
INCREASED THE INVESTMENT FOR
LOWER CARBON FUELS AND AN
INCREASES THE ABILITY FOR CAP
AND TRADE TO WORK. THAT'S NOT
WHAT WE'RE SEEING IN THESE
RULEMAKINGS AND THESE ARE I
MEAN, WE'RE NOT SUGGESTING TO
INCREASE THE COST OF CAP AND
TRADE AND LOW CARBON FUEL
STANDARD. I APPRECIATE THAT. I'M
TRYING TO GET MORE AT THE ISSUE
LESS. SO GO OFF ON THE TANGENT
OF CAP AND TRADE LCFS MORE JUST
TO ARTICULATE THE POINT THAT
WHEN YOU'RE LAYING OUT THE FACTS
PER GALLON TO CONSUMERS OR WHEN
YOU'RE THE MEMBERS OF YOUR
ALLIANCE, MR. WENGER, ARE YOU'RE
NOT TALKING ABOUT THE RETAIL
MARGIN OR THE REFINING MARGIN IN
THOSE FACTS PER GALLON. SO HOW
CAN WE CALL THEM FACTS IF IT'S
NOT ALL THE FACTS? WELL, I THINK
IT'S A AGAIN, I THINK IT'S A
DIFFERENT PURPOSE OF WHAT'S
TRYING TO ARTICULATE WHAT GOES
INTO THE PRICE OF THE PUMP. BUT
THE ENERGY COMMISSION'S JOB
UNDER SB TWO IS TO COLLECT ALL
THE INFORMATION AND REPORT THE
DATA. I'M LOOKING AT THE DATA
RIGHT? AND IT'S NOT SUPPORTING
THE NARRATIVE, BUT THERE NEEDS
TO BE A CAP AND A PENALTY. I
APPRECIATE THE POLICY POINTS AND
THE CONCERN ABOUT UNINTENDED
CONSEQUENCES AND MAYBE OTHER
WAYS TO ADDRESS THIS. I'M JUST
TRYING TO GET CLEAR THE CURRENT,
YOUR CURRENT CAMPAIGN ON THIS
DOES NOT INCLUDE IN THE FACTS
PER GALLON THE RETAIL MARGIN, IS
THAT CORRECT? NO IT JUST STATES,
FUELS, TAXES, CAP AND TRADE LOW
CARBON AND NOT REFINING EITHER.
RIGHT? NO. OKAY. AND THEN SO MY
ONE OTHER FOLLOW UP QUESTION IS,
WHEN IT COMES TO THE CLEAN FUELS
AND CONVENIENCE ALLIANCE, AND
WE'VE BEEN TALKING ABOUT SORT OF
THE INDEPENDENCE OF THE MARKET
OR THE DYNAMICS OF THE MARKET.
YOU MENTIONED INDEPENDENT STUDY
THAT YOU ALL HAVE CONDUCTED. I'M
TRYING TO UNDERSTAND HOW
INDEPENDENT IT IS, DOES CHEVRON
FUND THE ALLIANCE IN ANY WAY?
THEY'RE A MEMBER OF THE ALLIANCE
. THEY ARE, BECAUSE I KNOW THE
ALLIANCE RETAIL, THEIR RETAIL
SIDE IS. YEAH THE I KNOW THE
ALLIANCE DOESN'T LIST THEIR
MEMBERS ONLINE, BUT SO CHEVRON
IS PART OF THE ALLIANCE AND I
KNOW THEY'VE, YOU KNOW, SORT OF
BEEN PART OF CONFERENCES IN THE
PAST OR MEMBERSHIP FEES. SO
THERE'S FUNDING COMING FROM NOT
JUST THE, THE RETAIL SIDE OF
CHEVRON, BUT CHEVRON IS THE
PARENT COMPANY AS WELL, JUST THE
RETAIL SIDE. SO THERE'S A
SEPARATE ENTITY THAT'S FUNDING
THE FUELS ALLIANCE WITHIN THE
BROADER CHEVRON FAMILY. YEAH,
THEY HAVE THEIR MARKETER ACTION
NETWORK OKAY. SO THEIR MARKETER
ACTION NETWORK IS NOT BUT DOES
IS THERE ANY INTERFACE BETWEEN
THAT MARKETER ACTION NETWORK AND
SAY THE REFINING SIDE OR THE
OTHER SORT OF BROADER CALIFORNIA
CHEVRON STRATEGY? I'M NOT
FAMILIAR WITH THE INNER DYNAMICS
OF THEIR COMPANY, WE JUST DEAL
WITH THE, THE RETAIL SIDE. AND
SO WHEN IT COMES TO THE IMPACT
ON ON RETAIL OIL, AND THE, THE
CLEAN FUELS AND CONVENIENCE
ALLIANCE, PUBLIC STUDIES, DO YOU
ALL, DISCLOSE THE RETAIL MARGIN
EITHER FOR CHEVRON OR OTHERS
WHEN YOU'RE SORT OF LOOKING AT
THE PRICE OF THE PUMP? IS ANY OF
THAT DISCLOSED TO OUR OUR STUDY
WAS MOSTLY LOOKING AT THE IMPACT
ON LOCAL GAS STATION BANS AND
HOW THAT IMPACTS COMPETITION, SO
WE WEREN'T LOOKING AT AT ALL OF
THAT, I THINK IT GETS
COMPLICATED WHEN YOU LOOK AT THE
ACTUAL GROSS MARGIN AS IT'S
COMPARED TO THE NET MARGIN. WE
HAVE PRETTY SIGNIFICANT OVERHEAD
OPERATIONS, COSTS THAT ALL GOES
INTO EMPLOYMENT, LABOR,
ELECTRICITY COSTS. UNDERSTOOD
ALL OF THAT, BUT FAIR TO SAY NO
IN TERMS OF YOU HAVEN'T YOU
HAVEN'T GOT AT THAT RETAIL
MARGINAL COST IN EITHER YOUR
STUDIES OR IN THE PUBLIC
DISCLOSURES AROUND THAT GAS
STATION, GAS STATION. WE'VE ONLY
DONE A STUDY ON COMPETITION
SIMILAR TO THE ONE THAT THE HAAS
MY, MY ONLY FOLLOW UP THERE IS.
I APPRECIATE THAT MY ONLY FOLLOW
UP, THOUGH IS YOU TALKED ABOUT
HIGH OPERATIONAL COSTS, AND MY
UNDERSTANDING IS THAT THE WAY
THAT OPERATIONAL COSTS ARE BEING
REPORTED TO I'M NOT SURE IF IT'S
CÁC DPMO OR CDTFA, BUT THE
REPORTING UNDER SB ONE TWO THAT
THE WHAT THE INDUSTRY REPORTS IS
THE OPERATIONAL COSTS ARE
DIFFERENT, THAN HOW THEY REPORT
THEIR OPERATIONAL COSTS, SAY, TO
THE SEC THAT WE'RE GETTING ONE
SET OF NUMBERS IN THE SEA TO THE
CEC AND TO THE STATE AGENCIES
THAT THE FEDERAL GOVERNMENT IS
GETTING A SEPARATE VERSION OF
THE NUMBERS OF WHAT OPERATIONAL
COSTS ARE AND THAT AM I RIGHT TO
SAY THAT THE WAY YOU ALL REPORT
YOUR OPERATIONAL COSTS IN THIS
CALIFORNIA CONTEXT ALSO INCLUDES
CAPITAL COSTS THAT YOUR THAT
YOU'RE PUTTING CAPITAL
INVESTMENTS INTO YOUR
OPERATIONAL COST DISCLOSURES OR
OTHER THINGS THAT MAKE
OPERATIONAL COSTS. THEY LOOK A
BIT HIGHER TO THE CDC WHEN
YOU'RE REPORTING VERSUS TO THE
SEC. I'M TRYING TO GET IT TO THE
DISCREPANCY FOR WHY THE FEDERAL
NUMBERS SAY YOUR OPERATIONAL
COSTS ARE, YOU KNOW, 30% LOWER
THAN THAN THEY ARE HERE IN
CALIFORNIA. SO IS THAT BECAUSE
YOU'RE PUTTING CAPITAL
INVESTMENT IN THE OPERATIONAL
NUMBER OR IT MAY NOT BE IT MAY
BE ME, MISS REYES BOYD, WHO
UNDERSTANDS THIS BETTER. BUT WHY
TWO SETS OF NUMBERS? WHY A
FEDERAL SET AND WHY? WHY A STATE
SET? I DON'T KNOW HOW TO RESPOND
TO TWO SETS OF NUMBERS, BUT
BECAUSE I'M NOT FAMILIAR WITH
THAT, I APOLOGIZE. BUT WHAT I DO
FIND CONCERNING IS WHEN YOU HAVE
MAJOR COMPANIES WRITING DOWN
ASSETS, THAT IS A CLEAR
INDICATION THAT CALIFORNIA IS A
NOT A PLACE TO INVEST, AND THAT
WORRIES ME A LOT. I ALSO SEE ON
THE OTHER SIDE A COMPANY
INVESTING IN A MAJOR MERGER IN
OIL AND GAS PRODUCTION. YOU KNOW
WHY THEY ARE MADE? BECAUSE TWO
COMPANIES CANNOT SURVIVE. WHY
BECAUSE PRODUCTION. TO SENATOR
SKINNER'S DISCUSSION IS ON A
DECLINE. SO THE ONLY WAY ANYONE
CAN SURVIVE IN THIS MARKET IS
CONSOLIDATED THÀNH. AND IF WE
LOSE ONE MORE REFINERY, I CAN'T,
YOU KNOW, I MEAN, SOME OF THE
DATA THAT'S COMING OUT, WE'RE
LOOKING AT $0.26 A GALLON. SO
WE'VE HEARD THE THINLY VEILED
THREATS HERE. THEY'RE NOT
UNVEILED THREATS. WELL THEY'RE
THEY'RE UNVEILED THREATS. THEN
WHATEVER THEY ARE THAT YOU MAY
BE VEILED OR UNVEILED. YEAH. I
DON'T I DON'T KNOW IF THERE'S A
VEIL OR IF THE VEIL IS OFF HERE,
BUT IT'S VERY CLEAR THE
CONSEQUENCES AND HOW AT LEAST
THE MOST MAJOR MARKET ACTOR,
BOTH AT THE RETAIL SIDE AND,
THOSE WHO ARE ACTUALLY FUNDING
THE THOSE ALL THOSE SMALL MOM
AND POPS OUT THERE OR A MEGA
CORPORATION AND THEN THIS ONE
THAT WANTS TO WRITE DOWN ASSETS
AND, GET INTO THE POLITICS OF
CLIMATE THROUGH THE PRICE OF THE
PUMP. MY MY BIGGEST CONCERN IS
THE LACK OF UNIFORMITY IN THE
REPORTING AND THAT WE DON'T HAVE
ACCURATE DATA COMING IN. AND SO
AS AN INDUSTRY, IS THERE AN
EFFORT TO GET MORE UNIFORMITY
ABOUT THAT REPORTING, LIKE TO
GET THE OPERATIONAL COSTS? AS I
SAID IN MY TESTIMONY, SENATOR,
WE REQUESTED A RULEMAKING TO DO
EXACTLY THAT. WE WERE DENIED
THREE TIMES. WE WANTED CLARITY
FROM EVERYONE IN A RULEMAKING ON
WHAT TO REPORT, HOW TO REPORT
IT, WHAT DETAILS, SO THAT NOBODY
HAD ANY DIFFERENT
INTERPRETATIONS. AND I'LL LEAVE
IT TO THE ENERGY COMMISSION TO
DECIDE WHETHER THAT'S ACCURATE
OR NOT, BUT NONE OF YOUR
MEMBERS. SORRY, I'LL MAKE THIS
THE LAST QUESTION, I PROMISE,
BECAUSE THE NONE OF YOUR MEMBERS
IS, ARE STACKING OPERATIONAL
COSTS, IN SORT OF CLUSTERED WAYS
THAT WOULD MAKE THEIR NEGATIVE
MARGINS APPEAR LARGER BECAUSE OF
HOW THEY'RE REPORTING THAT DATA.
THAT'S NOT HAPPENING RIGHT NOW,
WOULD YOU SAY? I WOULD SAY THAT
OUR COMPANIES ARE REPORTING
EVERYTHING AS ACCURATELY AS
POSSIBLE, SO THEY'RE NOT DOING
THAT. THEN I WOULD SAY THEY ARE
NOT DOING THAT. THANK YOU. ANY
OTHER ADDITIONAL QUESTIONS,
SENATOR NEWMAN? YEAH, I'LL BE
QUICK. AS MISS BOYD ACTUALLY
ANSWERED, MY HÌNH. BEFORE I DO,
I WANT TO THANK YOU FOR THE
PLACEMAT. I'M GOING TO TRY TO
GET A SET OF FOUR. WE HAVE PENS
WITH WITH CRAYONS, BUT IF YOU
COULD ELABORATE JUST A BIT ON ON
THE PERSPECTIVE OF IMPACT OF
CALIFORNIA LOSING ONE OR MORE
REFINERIES, I THINK YOU'VE MADE
REALLY CLEAR AND I THINK IT'S
IMPORTANT TO NOTE, THIS IS REAL,
THAT THE MARKET SIGNALS SENT AND
THE RETURN ON CAPITAL IN
CALIFORNIA MIGHT ACTUALLY
INSTIGATE CAPITAL FLOWS
ELSEWHERE TO THE DETRIMENT OF
EITHER, PROBABLY THE MAINTENANCE
MORE THAN ANYTHING OF CURRENT
REFINERIES. AND LEADING PROBABLY
TO THE CLOSURE OF ONE OR MORE.
SO HOW LIKELY IS THAT TO HAPPEN?
WHAT WOULD THE IMPACT BE? I
THINK IF WE DON'T IF WE DON'T DO
THIS RIGHT, THIS RIGHT, AND
EVERY PIECE OF IT RIGHT, THE
LIKELIHOOD OF THAT HAPPENING IS
HIGH. AND THAT IS NOT A GOOD
SITUATION FOR THE STATE OF
CALIFORNIA IN ANY WAY. AS THE
TRANSITION IS OCCURRING, IT HAS
TO BE AT THE PACE AND SCALE TO
WHERE THE BOTTOM PART OF THE
ELECTRON GENERATION MEETS THE
TOP PART OF TRADITIONAL FUELS,
AND THAT CAN'T MISS BECAUSE WHEN
IT MISSES US, WE ARE GOING TO
HAVE SUPPLY DISRUPTION AND
ENVIRONMENTAL PROGRAMS. IN MY
EXPERIENCE, ONLY SURVIVE WHEN WE
HAVE THAT NOT MISSING WHEN THE
ECONOMY AND THE ENVIRONMENT ARE
IN LINE, THAT'S WHEN WE MAKE
PROGRESS. SO I DON'T I THINK WE
HAVE TO AVOID UNINTENDED
CONSEQUENCES FROM THESE ACTIONS.
AND AGAIN, I'M GOING TO APPLAUD
THE ENERGY COMMISSION IN THE
FUEL ASSESSMENT STUDY, BECAUSE
THAT IS WHERE THE RUBBER MEETS
THE ROAD. AND WE BETTER BE
DIVING IN IN EVERY CIRCLE ON
THIS SHEET IN A REAL WAY SO THAT
WE CAN SOLVE THE PROBLEM, NOT
JUST TALK ABOUT IT. I MEAN, THIS
IS TOUGH. THIS IS NOT EASY. YOU
GOT TO GET EVEN IN ONE LITTLE
CIRCLE WITH THE PORCH. YOU GOT
TO GET PORT OF LA, PORT OF LONG
BEACH MARINE TERMINAL. YOU GOT
TO BRING ALL THESE PEOPLE
TOGETHER AND SAY, OKAY, WHAT DO
WE GOT NOW? WHAT IS THE ENERGY
COMMISSION THINK WE'RE GOING TO
NEED UNDER ALL THESE POLICY
OPTIONS? AND CAN WE EVEN DO IT?
AND IF WE DO, DO IT, WHAT'S THAT
GOING TO DO TO THE COST? THAT'S
THAT'S THE DRILL. THAT'S WHAT WE
GOT TO DO. WELL, SÐNG DID YOU
HAVE A RESPONSE? OKAY, IN THE
INTEREST OF TIME, I WANT TO MAKE
SURE PUBLIC COMMENT IS HEARD
TODAY. SO IF THERE ARE ANY
INDIVIDUALS HERE IN THE
COMMITTEE ROOM THAT WOULD LIKE
TO MAKE PUBLIC COMMENT, I'M
GOING TO AFFORD YOU TWO MINUTES
REAL QUICK. EACH AND PLEASE FORM
A LINE AND STATE YOUR NAME AND
YOUR ORGANIZATION. GOOD MORNING,
CHAIR AND MEMBERS. THANK YOU SO
MUCH. KIM. STONE OF STONE
ADVOCACY ON BEHALF OF CONSUMER
WATCHDOG, CONSUMER WATCHDOG
WOULD HAVE LOVED TO HAVE
PARTICIPATED IN A PANEL AND IN
FUTURE OVERSIGHT EVENTS. IF
THERE ARE PANELS THAT INVOLVE
CONSUMER OR ENVIRONMENTAL
GROUPS, WE'RE HAPPY TO BE HERE.
WE DID. THEY DO HAVE SOME DATA
THAT MAY BE OF INTEREST. TO THE
COMMITTEE ABOUT THE IMPACT OF
HIGHER GASOLINE PRICES ON LOW
INCOME FAMILIES, THE BIGGEST
IMPACTS OF HIGHER MARGINS WILL
BE ON LOW INCOME INDIVIDUALS WHO
CANNOT AFFORD AN EXTRA $20 PER
FILL UP WHEN GAS PRICES SPIKE.
LOW INCOME WORKERS FEEL AT THE
MOST AT $4 PER GALLON, 9% OF AN
ANNUAL MINIMUM WAGE SALARY IS
SPENT ON GAS AT $5 PER GALLON,
11% OF AN ANNUAL MINIMUM WAGE
SALARY IS SPENT ON GAS, AND IT'S
$6 PER GALLON, 13% OF AN ANNUAL
MINIMUM WAGE SALARY IS SPENT ON
GAS, LOW INCOME INDIVIDUALS AND
FAMILIES ARE THE PRINCIPAL
BENEFICIARIES OF A MAXIMUM
MARGIN BECAUSE OF ITS POTENTIAL
TO REDUCE PRICE SPIKES THAT ARE
A HUGE SHOCK TO THEIR FRAGILE,
BUDGETS AND TO STABILIZE PRICES.
AND CONSUMER WATCHDOG DID
PROVIDE LIKE TEN PAGE DOCUMENT
TO THE CEC, WHICH I CAN MAKE
AVAILABLE TO ANY COMMITTEE
MEMBERS WHO ARE INTERESTED IN IT
AND HAVE A TREMENDOUS AMOUNT OF
INFORMATION. AND WHAT THEY
NOTICED IS THAT THE PRICE SPIKES
AND CORRESPONDING PROFIT SPIKES,
MATCH. RIGHT? SO WHEN THE PRICES
GO UP, THEIR PROFITS GO UP, AND
THOSE TYPICALLY PRECEDED BY OR
COINCIDE WITH A PERCEIVED
SHORTAGE IN SUPPLY DUE TO EITHER
REFINERY SHUTDOWNS OR SLOWDOWNS,
LIMITED INVENTORY, INCREASED
EXPORTS OR A SPOT MARKET TRADE
INDICATING A COMING SHORTAGE.
CONSUMER WATCHDOG ARGUES THAT
THE ONLY WAY TO DISCOURAGE
HIGHER PRICES AND THE
CORRESPONDING HIGHER MARGINS IS
WITH A DETERRENT OF A MAXIMUM
GROSS REFINING MARGIN SET HIGH
ENOUGH FOR A REASONABLE PROFIT
AND YET LOW ENOUGH TO DISCOURAGE
THE PRICE GOUGING. CALIFORNIANS
HAVE BEEN EXPERIENCING. THEY ARE
RECOMMENDING A 70 CENT PER
GALLON CAP TO THE CEC. THANK YOU
FOR THE OPPORTUNITY TO MAKE
PUBLIC COMMENTS AND THANK YOU
FOR THE HEARING. THANK YOU. NEXT
SPEAKER. GOOD AFTERNOON,
EVERYBODY IN THE GOLDEN STATE
DIRECT FROM THE COPPER STATE. MY
NAME IS JUSTIN WILMOTH. I AM A
MEMBER OF THE ARIZONA HOUSE OF
REPRESENTATIVES, AND I'M ALSO
THE CHAIR OF THE COMMERCE
COMMITTEE. THE REASON I'M HERE
TODAY IS BECAUSE THESE DECISIONS
AFFECT MY STATE AS WELL AS
NEVADA AND SOME OTHERS ACROSS
THE US WEST. I REPRESENT 240,000
CONSTITUENTS IN NORTH PHOENIX
AND ARIZONA. NOW CURRENTLY HAS
ABOUT 7.5 MILLION RESIDENTS IN
IT. ABOUT A THIRD OF OUR
GASOLINE COMES FROM THIS STATE.
THE OTHER TWO THIRDS COME FROM
TEXAS, SO WE'RE RIGHT IN THE
MIDDLE. WE DON'T HAVE ANY
REFINERIES OF OUR OWN, SO WE ARE
RELIANT ON YOUR FUEL. AND THESE
DECISIONS THAT YOU MAKE, I'M
GRAVELY CONCERNED BY THE RECENT
DEVELOPMENTS, PROPOSALS COMING
OUT OF THIS EXECUTIVE AGENCY
AROUND THE BILL, SB ONE TWO,
NUMBER ONE, A POTENTIAL MAX
REFINING MARGIN AND PENALTY THAT
I UNDERSTAND INDUSTRY EXPERTS
HAVE OPINED THAT MAY ACTUALLY
INCREASE RETAIL PRICES FOR
CALIFORNIA, ARIZONA AND NEVADA
CONSUMERS ALIKE AND MAY ALSO
ULTIMATELY CAUSE CALIFORNIA
REFINERIES TO CLOSE PREMATURELY.
TWO POTENTIAL REFINERY INVENTORY
REQUIREMENTS THAT WOULD MAKE AN
ALREADY ILLIQUID COMMODITIES
MARKET EVEN LESS LIQUID BY
IMPOSING MANDATORY RESERVE
OBLIGATIONS UPON THE INDUSTRY.
THREE POTENTIAL LIMITATIONS OF
THE TIMING OF THE REFINERY
TURNAROUNDS AND THE MAINTENANCE
THAT COULD NEGATIVELY IMPACT
RELIABILITY AND MAY ULTIMATELY
RESULT IN A PROLONGED PERIOD OF
UNPLANNED MAINTENANCE FOR
POTENTIAL POLICY SOLUTIONS. AS
NOTED IN A RECENT TRANSPORTATION
FUELS ASSESSMENT THAT WOULD
GREATLY IMPACT THE FUEL SUPPLY
TO ARIZONA AND SEVERAL OF THE
OTHER STATES IN THE US WEST.
NOW, WE ALL NEED EACH OTHER. WE
NEED YOU FOR FUEL. YOU NEED US
FOR ELECTRICITY, RIGHT? WE ALL
HAVE TO WORK TOGETHER IN THE
WEST. WE ALL HAVE LIMITED
RESOURCES AND CALIFORNIA, YOU
USE 55% OF THE HOOVER. HOOVER
DAM ELECTRIC PRODUCTION THAT IS
ON THE BORDER OF NEVADA AND
ARIZONA. THE PALO VERDE NUCLEAR
PLANT, WHICH HAS THREE OF FIVE,
GENERATORS GOING, IS OWNED IN
PART BY LÀ WATER AND POWER,
SOCAL EDISON, SOUTHERN
CALIFORNIA PUBLIC POWER. IT
PRODUCES 3.8 MILLION KILOWATTS
ANNUALLY, AND IN 2021, IT
ACCOUNTED FOR 34% OF
CALIFORNIA'S NUCLEAR ENERGY
SUPPLY. THIS IS WHAT I WANTED TO
MAKE THAT MENTION IN THIS
COMMITTEE, BECAUSE WHAT YOU'RE
DEALING WITH IS VERY IMPORTANT,
AND I UNDERSTAND THAT. AND IT'S
IMPORTANT TO GO ABOUT THINGS THE
BEST WAY THAT WE CAN TO HAVE A
CLEAN ENERGY FUTURE. BUT AT THE
SAME TOKEN, THESE DECISIONS WILL
HARM ARIZONA AND THEY WILL HARM
NEVADA. AND WE ALL NEED TO WORK
TOGETHER. AND I HOPE THAT
SOMEHOW WE COULD GET TOGETHER ON
THIS ISSUE AND WORK TOGETHER IN
GROUPS AND FIND WAYS TO MAKE
THIS GOOD FOR ALL OF US INVOLVED
. THANK YOU ALL FOR YOUR TIME.
THANK YOU. JUSTIN WILMOTH WILL
SMITH I'M THE COMMERCE CHAIRMAN
OF THE ARIZONA HOUSE OF
REPRESENTATIVES. THANK YOU,
REPRESENTATIVE WILMOTH, FOR YOUR
TESTIMONY AND BEING HERE TODAY.
THANK YOU. APPRECIATE IT. NEXT
WITNESS. CHAIR, MEMBERS DEAN
TALLEY WITH THE CALIFORNIA
MANUFACTURERS AND TECHNOLOGY
ASSOCIATION. CHAIR. REALLY
APPRECIATE YOUR LEADERSHIP ON
THE ISSUE. AND MEMBERS HERE, WE
WISH TO EXPRESS OUR CONCERNS
REGARDING THE POTENTIAL
ENACTMENT OF AN UNPRECEDENTED
MARGIN CAP AND PENALTY ON
CALIFORNIA'S REFINERIES. SUCH
MEASURES AS THIS ARE UNLIKELY TO
RESOLVE THE ISSUE OF GASOLINE
PRICE FLUCTUATIONS, BUT RATHER
WOULD LIKELY PENALIZE
CALIFORNIA'S CONSUMERS BY
EXACERBATING THE ALREADY LIMITED
SUPPLY OF IN-STATE GASOLINE.
IMPLEMENTING A SYSTEM THAT COULD
LEAD TO FUEL SHORTAGES THAT
MIGHT TRIGGER SEVERE
CONSEQUENCES ACROSS VARIOUS
INDUSTRIES. THE LEGISLATURE ALSO
EXPRESSED WORRIES ABOUT
POTENTIAL ADVERSE OUTCOMES WHEN
IT DECIDED AGAINST THE INITIAL
PROPOSAL IN SB 1-2 TO LEGISLATE
A MARGIN CAP AND PENALTY.
INSTEAD, AMENDMENTS WERE MADE TO
SB ONE TWO, ALLOWING THE CEC TO
THE DISCRETION TO ENFORCE A
MARGIN CAP AND PENALTY ONLY IF
IT COULD DEMONSTRATE THAT SUCH
ACTIONS WOULD NEITHER RAISE GAS
PRICES NOR ADVERSELY AFFECT THE
GASOLINE SUPPLY. IT IS CRUCIAL
FOR THE STATE TO TACKLE THE
EXISTING CHALLENGES RELATED TO
GASOLINE SUPPLY, WHICH WOULD
INCLUDE PERMITTING HURDLES,
PHYSICAL LIMITATIONS AND
PRODUCTION AND MARINE IMPORTS.
REGULATORY UNCERTAINTIES THAT
DETER INVESTMENTS AND
GEOGRAPHICAL CONSTRAINTS, AND
MARTIN SHARP, A MARGIN CAP
OVERLOOKS THESE ISSUES AND MIGHT
UNJUSTLY PUNISH REFINERS FOR
EXCESSIVE PROFITABILITY AND
PRODUCTION LEVELS BY
IMPLEMENTING A MARGIN CAP AND
IMPOSING PENALTIES ON
PRODUCTION, AND THAT EXCEEDS
THIS CAP. CALIFORNIA RISKS
FURTHER CONSTRICTING ITS ENERGY
SUPPLY. THIS COULD LEAD TO
INCREASED PRICES. WE ARE
CONCERNED THAT SUCH MEASURES MAY
DETER INVESTMENT IN CALIFORNIA'S
REFINING CAPABILITY, AND COULD
EVEN LEAD TO THE SHUTDOWN OF
ACTIVE REFINERIES. WE CONTINUE
TO MONITOR ACTIONS BY THE CEC
WITH SIGNIFICANT CONCERN
REGARDING FUEL PRICING AND THE
CONSISTENT AVAILABILITY OF
ENERGY. CMTA IS COMMITTED TO
WORKING COLLABORATIVELY WITH THE
CEC AND HAS CONTINUED TO
DEMONSTRATE OUR WILLINGNESS TO
DO SO. WE URGE CAUTION AND
APPRECIATE THE OPPORTUNITY TO
PROVIDE THESE COMMENTS. THANK
YOU. CHAIR THANK YOU. ANY
ADDITIONAL PUBLIC COMMENT HERE
IN ROOM 1200? SEEING NO ONE
WISHING, I WANT TO RETURN BACK
TO SENATOR RUBIO. YOU HAD A
QUESTION? YEAH. THANK YOU, MR.
CHAIR. I JUST WANT TO SEE IF,
THE THEY CAN ANSWER THE
QUESTION. I THINK I HEARD YOU
SAY THAT YOU'VE ATTEMPTED TO GET
RULEMAKING ON HOW TO UNIFY A
UNIFORM. THE TRANSPARENCY FACTOR
, MEANING HOW DO WE REPORT
CLARITY ON HOW TO REPORT IT,
WHAT'S REPORT AND YOU'VE BEEN
DENIED THREE TIMES. CAN WE HAVE,
SOMEONE FROM THE OTHER SIDE,
ADDRESS THAT ARE THEY STILL HERE
? NO, I THINK THEY LEFT ANYHOW
BECAUSE I'M. WHAT I'M HEARING IS
THAT YOU WANTED TO UNIFORM THE
WAY YOU'RE REPORTING. YOU WANT
TO CLARITY. IS IT? RIGHT NOW YOU
DON'T HAVE. EVERYONE'S DOING
THINGS DIFFERENTLY. CAN YOU
EXPAND ON THAT? I WISH THE
ENERGY COMMISSION WERE HERE TO
RESPOND TO YOU, BECAUSE AS THE
RULEMAKING, IN OUR OPINION, AS
WE'VE DONE WITH THE AIR
RESOURCES BOARD, MULTIPLE,
MULTIPLE, MULTIPLE TIMES IS, IS
THE WAY TO MAKE SURE YOU HAVE
CLARITY AND WE DIDN'T START THIS
PROCESS WITH THAT. WE THOUGHT IT
WOULD BE A MUCH BETTER PROCESS
IF WE DID, WHICH IS WHY WE KEPT
ASKING, AND SO NOW THE DATA IS
BEING REPORTED THE WAY THE DATA
IS BEING REPORTED, CERTAINLY
PEOPLE ARE COMPLYING WITH
EVERYTHING THAT THE ENERGY
COMMISSION HAS ASKED FOR, AND
THE ENERGY COMMISSION WOULD
PROBABLY HAVE TO ANSWER THAT
QUESTION. THANK YOU, MR. CHAIR.
I'M JUST YOU KNOW, WE'RE HERE
FOR TRANSPARENCY AND REPORTING
ACCURATE DATA. AND I THINK THAT
THIS IS A MISSING PIECE HERE
BECAUSE WE WANT TO MAKE SURE
THAT IT IS CLEAR WHAT
INFORMATION IS NEEDED AND HOW
IT'S REPORTED BY BY THE INDUSTRY
. BUT I JUST WANTED TO GIVE THE
OTHER SIDE AN OPPORTUNITY. AND
I'M SORRY THAT THEY'RE NOT HERE
TO RESPOND. I WILL JUST LEAVE IT
AT THAT. I KNOW THAT WE'RE
RUNNING A LITTLE LATE, BUT THANK
YOU FOR THAT. ANY ADDITIONAL
QUESTIONS OR CONCERNS? OKAY. I
WANT TO FIRST THANK, MISS
REHOUSE BOYD FOR YOUR TESTIMONY,
MR. WENGER, FOR YOUR TESTIMONY
AS WELL. AND ALL THAT, HAVE
PARTICIPATED TODAY. I WANT TO
THANK ALL THE INDIVIDUALS WHO
PARTICIPATED IN THE PUBLIC
TESTIMONY. AND IF YOU WERE NOT
ABLE TO HAVE YOUR TESTIMONY
HEARD TODAY OR TESTIFY TODAY, WE
ASK YOU TO SUBMIT YOUR COMMENTS
OR SUGGESTIONS IN WRITING TO THE
SENATE COMMITTEE ON ENERGY,
UTILITIES AND COMMUNICATIONS OR
VISIT OUR WEBSITE. I WANT TO
THANK YOU AND I APPRECIATE YOUR
PARTICIPATION. WE APPRECIATE THE
PARTICIPATION OF THE PANELISTS
AND THE PUBLIC COMMENTS
REGARDING THE EFFORTS TO
IMPLEMENT SB, X1 TWO. AND AGAIN,
THAT WAS THE PURPOSE OF THIS
HEARING TODAY TO HAVE AN UPDATE
ON IMPLEMENTATION AND
IMPLEMENTATION ONLY AND WHAT THE
CHALLENGES ARE. WE'RE VERY
CONCERNED ABOUT THE IMPACTS OF
HIGH GASOLINE PRICES ON OUR
RESIDENTS AND OUR BUSINESSES. WE
ARE COMMITTED TO ENSURING THAT
XP, X1 TWO IS IMPLEMENTED TO BE
EFFECTIVE AT ADDRESSING THAT
CHALLENGE. HOWEVER, THERE ARE
STILL A LOT, THAT WE'RE LEARNING
ABOUT THIS PROCESS, ABOUT THE
MARKET AND THE CAUSES OF HIGHER
GASOLINE PRICES BOTH UPSTREAM
AND DOWNSTREAM. WE MUST ENSURE
THE IMPLEMENTATION. IMPLEMENTING
AGENCIES, I SHOULD SAY, ARE
CAREFUL, JUDICIOUS AND
INTENTIONAL IN ADOPTING NEW
REQUIREMENTS AS MISSTEPS CAN
EXACERBATE THE MARKET CONDITIONS
THAT CAN FURTHER INCREASE PRICES
TO CONSUMERS. WE HOPE THIS IS
THE FIRST OF MANY OVERSIGHT
HEARINGS ON THIS ISSUE. AS
LEGISLATORS, WE MUST REMAIN
APPRIZED OF THE LEGISLATION THAT
WE ARE PASSING AND
IMPLEMENTATIONS OF THESE KEY
PIECES OF LEGISLATION. I WANT TO
THANK EVERYONE AGAIN FOR YOUR
PARTICIPATION IN THIS WILL
CONCLUDE OUR AGENDA. THE SENATE
COMMITTEE ON ENERGY, UTILITIES
AND COMMUNICATIONS IS NOW
ADJOURNED