Existing law, beginning on June 26, 2023, establishes the Independent Consumer Fuels Advisory Committee within the State Energy Resources Conservation and Development Commission (Energy Commission) to advise the Energy Commission and the Division of Petroleum Market Oversight, as provided. Existing law prescribes the composition of the 8-member committee, including 6 specified members appointed by the Governor, one member appointed by the Speaker of the Assembly, and one member appointed by the Senate Committee on Rules. Existing law requires one member appointed by the Governor to represent labor. Existing law prohibits a member of the committee from having been employed by, contracted with, or received direct compensation from, a company that produces, refines, distributes, trades in, markets, or sells any petroleum product in the preceding 12 months, except as provided. Existing law specifies that the schedule of meetings of the committee is to be prescribed by the Energy Commission.

This bill would specify that the above prohibition does not exclude a representative of a labor organization whose membership consists of, in whole or in part, individuals employed by a company that produces, refines, distributes, trades in, markets, or sells any petroleum product. The bill would require the gubernatorial appointee who represents labor to instead represent a labor organization with experience in refinery operations. The bill would require the committee to meet no less than annually.

Existing law requires the Energy Commission, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public, and minimize the impacts of maintenance-related production losses on fuel prices. Existing law authorizes the Energy Commission, by regulation, to impose requirements governing the timing of turnaround and maintenance.

This bill would expressly require those regulations to protect the health and safety of employees, local communities, and the public, and to include criteria that are required to be met before a refinery commences a turnaround or maintenance event, as provided.

This bill would require the Energy Commission, in consultation with the committee, to consider the effects of refiners inventories of fuel and feedstocks and blending components on the price of transportation fuels in California. The bill would authorize the Energy Commission, by regulation, to develop and impose requirements for refiners operating in the state to maintain minimum levels of inventories of refined transportation fuels meeting California specifications, including any feedstocks and blending components, as specified. The bill would prohibit the Energy Commission from applying a minimum inventory requirement to a refiner in a manner that would be met only by the construction of additional storage infrastructure, as determined by the Energy Commission. The bill would repeal these provisions on January 1, 2033.

This bill would impose an administrative civil penalty on a refiner or person who fails to comply with regulations adopted pursuant to the above-described authority and would authorize the Energy Commission to seek any form of injunctive or remedial relief to enforce compliance with those regulations, as provided.

Existing law requires the Energy Commission, on or before January 1, 2024, and every 3 years thereafter, to submit an assessment to the Governor and the Legislature that, among other things, identifies methods to ensure a reliable supply of affordable and safe transportation fuels in California, as provided.

This bill, beginning with the first assessment submitted after the effective date of the bill, would require that the assessment also include an evaluation of Californias future petroleum product and crude oil import needs, identification of steps that can be taken to ensure that marine infrastructure and port facilities will be adequate to accommodate the efficient movement of petroleum products to meet those needs, an evaluation of ways to maximize use of existing infrastructure and minimize cumulative pollution burdens, and an evaluation of the effects on supplies of transportation fuels of state regulations that the Energy Commission identifies may be causing supply constraints, or for which the Energy Commission believes alternative compliance pathways should be considered by state agencies to mitigate potential impacts on supply.

Existing law, beginning on June 26, 2023, establishes the Independent Consumer Fuels Advisory Committee within the State Energy Resources Conservation and Development Commission (Energy Commission) to advise the Energy Commission and the Division of Petroleum Market Oversight, as provided. Existing law prescribes the composition of the 8-member committee, including 6 specified members appointed by the Governor, one member appointed by the Speaker of the Assembly, and one member appointed by the Senate Committee on Rules. Existing law requires one member appointed by the Governor to represent labor. Existing law prohibits a member of the committee from having been employed by, contracted with, or received direct compensation from, a company that produces, refines, distributes, trades in, markets, or sells any petroleum product in the preceding 12 months, except as provided. Existing law specifies that the schedule of meetings of the committee is to be prescribed by the Energy Commission.

This bill would specify that the above prohibition does not exclude a representative of a labor organization whose membership consists of, in whole or in part, individuals employed by a company that produces, refines, distributes, trades in, markets, or sells any petroleum product. The bill would require the gubernatorial appointee who represents labor to instead represent a labor organization with experience in refinery operations. The bill would require the committee to meet no less than annually.

Existing law requires the Energy Commission, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public, and minimize the impacts of maintenance-related production losses on fuel prices. Existing law authorizes the Energy Commission, by regulation, to impose requirements governing the timing of turnaround and maintenance.

This bill would expressly require those regulations to protect the health and safety of employees, local communities, and the public, and to include criteria that are required to be met before a refinery commences a turnaround or maintenance event, as provided.

This bill would require the Energy Commission, in consultation with the committee, to consider the effects of refiners inventories of fuel and feedstocks and blending components on the price of transportation fuels in California. The bill would authorize the Energy Commission, by regulation, to develop and impose requirements for refiners operating in the state to maintain minimum levels of inventories of refined transportation fuels meeting California specifications, including any feedstocks and blending components, as specified. The bill would prohibit the Energy Commission from applying a minimum inventory requirement to a refiner in a manner that would be met only by the construction of additional storage infrastructure, as determined by the Energy Commission. The bill would repeal these provisions on January 1, 2033.

This bill would impose an administrative civil penalty on a refiner or person who fails to comply with regulations adopted pursuant to the above-described authority and would authorize the Energy Commission to seek any form of injunctive or remedial relief to enforce compliance with those regulations, as provided.

Existing law requires the Energy Commission, on or before January 1, 2024, and every 3 years thereafter, to submit an assessment to the Governor and the Legislature that, among other things, identifies methods to ensure a reliable supply of affordable and safe transportation fuels in California, as provided.

This bill, beginning with the first assessment submitted after the effective date of the bill, would require that the assessment also include an evaluation of Californias future petroleum product and crude oil import needs, identification of steps that can be taken to ensure that marine infrastructure and port facilities will be adequate to accommodate the efficient movement of petroleum products to meet those needs, an evaluation of ways to maximize use of existing infrastructure and minimize cumulative pollution burdens, and an evaluation of the effects on supplies of transportation fuels of state regulations that the Energy Commission identifies may be causing supply constraints, or for which the Energy Commission believes alternative compliance pathways should be considered by state agencies to mitigate potential impacts on supply.

Existing law, beginning on June 26, 2023, establishes the Independent Consumer Fuels Advisory Committee within the State Energy Resources Conservation and Development Commission (Energy Commission) to advise the Energy Commission and the Division of Petroleum Market Oversight, as provided. Existing law prescribes the composition of the 8-member committee, including 6 specified members appointed by the Governor, one member appointed by the Speaker of the Assembly, and one member appointed by the Senate Rules Committee. Committee on Rules. Existing law requires one member appointed by the Governor to represent labor. Existing law prohibits a member of the committee from having been employed by, contracted with, or received direct compensation from, a company that produces, refines, distributes, trades in, markets, or sells any petroleum product in the preceding 12 months, except as provided. Existing law specifies that the schedule of meetings of the committee is to be prescribed by the Energy Commission.

This bill would specify that the above prohibition does not exclude a representative of a labor organization whose membership consists of, in whole or in part, individuals employed by a company that produces, refines, distributes, trades in, markets, or sells any petroleum product. The bill would require the gubernatorial appointee who represents labor to instead represent a labor organization with experience in refinery operations. The bill would require the committee to meet no less than annually.

Existing law requires the Energy Commission, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public, and minimize the impacts of maintenance-related production losses on fuel prices. Existing law authorizes the Energy Commission, by regulation, to impose requirements governing the timing of turnaround and maintenance.

This bill would expressly require those regulations to include a provision establishing that protect the health and safety of employees employees, local communities, and the public are the primary consideration and that any harm to employees and local communities from changes to the timing of turnaround or maintenance is to be minimized, public, and to include criteria that are required to be met before a refinery commences a turnaround or maintenance event, as provided.

This bill would require the Energy Commission, in consultation with the committee, to consider the effects of refiners inventories of fuel and feedstocks and blending components on the price of transportation fuels in California. The bill would authorize the Energy Commission, by regulation, to develop and impose requirements for refiners operating in the state to maintain minimum levels of inventories of refined transportation fuels meeting California specifications, including any feedstocks and blending components, as specified. The bill would prohibit the Energy Commission from applying a minimum inventory requirement to a refiner in a manner that would be met only by the construction of additional storage infrastructure, as determined by the Energy Commission. The bill would repeal these provisions on January 1, 2033.

This bill would impose an administrative civil penalty on a refiner or person who fails to comply with regulations adopted pursuant to the above-described authority and would authorize the Energy Commission to seek any form of injunctive or remedial relief to enforce compliance with those regulations, as provided.

Existing law requires the Energy Commission, on or before January 1, 2024, and every 3 years thereafter, to submit an assessment to the Governor and the Legislature that, among other things, identifies methods to ensure a reliable supply of affordable and safe transportation fuels in California, as provided.

This bill, beginning with the first assessment submitted after the effective date of the bill, would require that the assessment also include both an evaluation of Californias future petroleum product and crude oil import needs and identified needs, identification of steps that can be taken to ensure that marine infrastructure and port facilities will be adequate to accommodate the efficient movement of petroleum products to meet those needs and to evaluate needs, an evaluation of ways to maximize use of existing infrastructure and minimize cumulative pollution burdens, and an evaluation of the effects on supplies of transportation fuels of state regulations that the Energy Commission identifies may be causing supply constraints, or for which the Energy Commission believes alternative compliance pathways should be considered by state agencies to mitigate potential impacts on supply.

Existing law, beginning on June 26, 2023, establishes the Independent Consumer Fuels Advisory Committee within the State Energy Resources Conservation and Development Commission (Energy Commission) to advise the Energy Commission and the Division of Petroleum Market Oversight, as provided. Existing law prescribes the composition of the 8-member committee, including 6 specified members appointed by the Governor, one member appointed by the Speaker of the Assembly, and one member appointed by the Senate Rules Committee. Existing law prohibits a member of the committee from having been employed by, contracted with, or received direct compensation from, a company that produces, refines, distributes, trades in, markets, or sells any petroleum product in the preceding 12 months, except as provided. Existing law specifies that the schedule of meetings of the committee is to be prescribed by the Energy Commission.

Existing law requires the Energy Commission, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public, and minimize the impacts of maintenance-related production losses on fuel prices. Existing law authorizes the commission, Energy Commission, by regulation, to impose requirements governing the timing of turnaround and maintenance.

This bill would expressly authorize require those regulations to include a provision establishing that the health and safety of employees and the public are the primary consideration and that any harm to employees and local communities from changes to the timing of turnaround or maintenance is to be minimized, and criteria that are required to be met before a refinery commences a turnaround or maintenance event, as provided.

This bill would require the Energy Commission, in consultation with the Expert Advisory Committee, committee, to consider the effects of refiners inventories of fuel and feedstocks and blending components on the price of transportation fuels in California. The bill would authorize the Energy Commission, by regulation, to develop and impose requirements for refiners operating in the state to maintain minimum levels of inventories of refined transportation fuels meeting California specifications, including any feedstocks and blending components, as specified. The bill would prohibit the Energy Commission from applying a minimum inventory requirement to a refiner in a manner that would be met only by the construction of additional storage infrastructure, as determined by the Energy Commission. The bill would repeal these provisions on January 1, 2033.

This bill would impose an administrative civil penalty on a refiner or person who fails to comply with regulations adopted pursuant to the above-described authority and would authorize the Energy Commission to seek any form of injunctive or remedial relief to enforce compliance with those regulations, as provided.

Existing law requires the Energy Commission, on or before January 1, 2024, and every 3 years thereafter, to submit an assessment to the Governor and the Legislature that, among other things, identifies methods to ensure a reliable supply of affordable and safe transportation fuels in California, as provided.

This bill, beginning with the first assessment submitted after the effective date of the bill, would require that the assessment also include both an evaluation of Californias future petroleum product and crude oil import needs and identified steps that can be taken to ensure that marine infrastructure and port facilities will be adequate to accommodate the efficient movement of petroleum products, products to meet those needs and to evaluate ways to maximize use of existing infrastructure and minimize cumulative pollution burdens, and an evaluation of the effects on supplies of transportation fuels of state regulations that the Energy Commission identifies may be causing supply constraints, or for which the Energy Commission believes alternative compliance pathways should be considered by state agencies to mitigate potential impacts on supply.

Existing law, beginning on June 26, 2023, establishes the Independent Consumer Fuels Advisory Committee within the State Energy Resources Conservation and Development Commission (Energy Commission) to advise the Energy Commission and the Division of Petroleum Market Oversight, as provided. Existing law prescribes the composition of the 8-member committee, including 6 specified members appointed by the Governor, one member appointed by the Speaker of the Assembly, and one member appointed by the Senate Rules Committee.

This bill would repeal the Independent Consumer Fuels Advisory Committee and would instead establish a 6-member Expert Advisory Committee to advise the Energy Commission and division, as provided. The bill would require 4 of the members of the committee to be appointed by the Governor, one member to be appointed by the Speaker of the Assembly, and one member to be appointed by the Senate Rules Committee. The bill would, among other things, require all members of the committee to either hold an academic appointment in, or demonstrate expertise of, economics or business operations of the transportation fuels market, and would prohibit all members of the committee from having been employed by, contracted with, or received direct compensation from, a company that produces, refines, distributes, trades in, markets, or sells any petroleum product in the preceding 12 months.

Existing law requires the Energy Commission, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public, and minimize the impacts of maintenance-related production losses on fuel prices. Existing law authorizes the commission, by regulation, to impose requirements governing the timing of turnaround and maintenance.

This bill would expressly authorize those regulations to include criteria that are required to be met before a refinery commences a turnaround or maintenance event, as provided.

This bill would require the Energy Commission, in consultation with the Expert Advisory Committee, to consider the effects of refiners inventories of fuel and feedstocks and blending components on the price of transportation fuels in California. The bill would authorize the Energy Commission, by regulation, to develop and impose requirements for refiners operating in the state to maintain minimum levels of inventories of refined transportation fuels meeting California specifications, including any feedstocks and blending components, as specified.

This bill would impose an administrative civil penalty on a refiner or person who fails to comply with regulations adopted pursuant to the above-described authority and would authorize the Energy Commission to seek any form of injunctive or remedial relief to enforce compliance with those regulations, as provided.

Existing law requires the Energy Commission, on or before January 1, 2024, and every 3 years thereafter, to submit an assessment to the Governor and the Legislature that, among other things, identifies methods to ensure a reliable supply of affordable and safe transportation fuels in California, as provided.

This bill, beginning with the first assessment submitted after the effective date of the bill, would require that the assessment also include both an evaluation of Californias future petroleum product import needs and identified steps that can be taken to ensure that marine infrastructure and port facilities will be adequate to accommodate the efficient movement of petroleum products, and an evaluation of the effects on supplies of transportation fuels of state regulations that the Energy Commission identifies may be causing supply constraints, or for which the Energy Commission believes alternative compliance pathways should be considered by state agencies to mitigate potential impacts on supply.

Existing law, beginning on June 26, 2023, establishes the Independent Consumer Fuels Advisory Committee within the State Energy Resources Conservation and Development Commission (Energy Commission) to advise the Energy Commission and the Division of Petroleum Market Oversight, as provided. Existing law prescribes the composition of the 8-member committee, including 6 specified members appointed by the Governor, one member appointed by the Speaker of the Assembly, and one member appointed by the Senate Rules Committee.

This bill would repeal the Independent Consumer Fuels Advisory Committee and would instead establish a 6-member Expert Advisory Committee to advise the Energy Commission and division, as provided. The bill would require 4 of the members of the committee to be appointed by the Governor, one member to be appointed by the Speaker of the Assembly, and one member to be appointed by the Senate Rules Committee. The bill would, among other things, require all members of the committee to either hold an academic appointment in, or demonstrate expertise of, economics or business operations of the transportation fuels market, and would prohibit all members of the committee from having been employed by, contracted with, or received direct compensation from, a company that produces, refines, distributes, trades in, markets, or sells any petroleum product in the preceding 12 months.

Existing law requires the Energy Commission, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public, and minimize the impacts of maintenance-related production losses on fuel prices. Existing law authorizes the commission, by regulation, to impose requirements governing the timing of turnaround and maintenance.

This bill would expressly authorize those regulations to include criteria that are required to be met before a refinery commences a turnaround or maintenance event, as provided.

This bill would require the Energy Commission, in consultation with the Expert Advisory Committee, to consider the effects of refiners inventories of fuel and feedstocks and blending components on the price of transportation fuels in California. The bill would authorize the Energy Commission, by regulation, to develop and impose requirements for refiners operating in the state to maintain minimum levels of inventories of refined transportation fuels meeting California specifications, including any feedstocks and blending components, as specified.

This bill would impose an administrative civil penalty on a refiner or person who fails to comply with regulations adopted pursuant to the above-described authority and would authorize the Energy Commission to seek any form of injunctive or remedial relief to enforce compliance with those regulations, as provided.

Existing law requires the Energy Commission, on or before January 1, 2024, and every 3 years thereafter, to submit an assessment to the Governor and the Legislature that, among other things, identifies methods to ensure a reliable supply of affordable and safe transportation fuels in California, as provided.

This bill, beginning with the first assessment submitted after the effective date of the bill, would require that the assessment also include both an evaluation of Californias future petroleum product import needs and identified steps that can be taken to ensure that marine infrastructure and port facilities will be adequate to accommodate the efficient movement of petroleum products, and an evaluation of the effects on supplies of transportation fuels of state regulations that the Energy Commission identifies may be causing supply constraints, or for which the Energy Commission believes alternative compliance pathways should be considered by state agencies to mitigate potential impacts on supply.

 THIRD READING  

Bill No: ABX2 1

Author: Hart (D), Aguiar-Curry (D) and Skinner (D), et al.

Amended: 10/8/24 in Senate

Vote: 21

SENATE FUEL S. & P.S. COMMITTEE: 9-2, 10/7/24

AYES: Bradford, Ashby, Becker, Blakespear, Gonzalez, Laird, Limón, Skinner, Stern

NOES: Dahle, Seyarto

SENATE APPROPRIATIONS COMMITTEE: 4-2, 10/8/24

AYES: Skinner, Ashby, Becker, Wahab

NOES: Jones, Seyarto

NO VOTE RECORDED: Bradford

ASSEMBLY FLOOR: 44-18, 10/1/24 - See last page for vote

SUBJECT: Energy: transportation fuels: inventories: turnaround and maintenance

SOURCE: Governor Gavin Newsom, State of California

Attorney General Rob Bonta, State of California

DIGEST:

This bill makes changes to, and expands on, SBX1-2 (Skinner, Chapter 1, Statutes of the 2023-2024 First Extraordinary Session) related to transportation fuels. Specifically, this bill authorizes the California Energy Commission (CEC) to develop requirements on refiners to maintain resupply plans to cover production loss during maintenance events and to maintain minimum levels of supply inventories. This bill also includes other related provisions regarding changes to the advisory committee, authority of the CEC division to undertake investigations, the assessment of penalties on refiners for noncompliance, and other provisions.

ANALYSIS:

Existing law:

1. Requires the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public, and minimize the impacts of maintenance-related production losses on fuel prices. Authorizes the CEC, by regulation, to impose requirements governing the timing of turnaround and maintenance. (Public Resources Code §25354.2)
2. Requires the CEC, on or before January 1, 2024, and every three years thereafter, to submit an SBX1-2 Transportation Fuels Assessment (Assessment) to the Governor and the Legislature that identifies methods to ensure a reliable supply of affordable and safe transportation fuels in California. (Public Resources Code §25371)
3. Establishes, pursuant to SBX1-2, beginning on June 26, 2023, the Independent Consumer Fuels Advisory Committee (ICFAC) within the CEC to advise the CEC and the Division of Petroleum Market Oversight (DPMO). Prescribes the composition of the eight-member ICFAC to include six specified members appointed by the Governor (including a member representing labor), one member appointed by the Speaker of the Assembly, and one member appointed by the Senate Rules Committee. (Public Resources Code §25373)
4. Establishes the Department of Industrial Relations (DIR) within the Labor and Workforce Development Agency and designates DIR to be responsible for administering the state plan for the development and enforcement of occupational safety and health standards consistent with the provisions of state law governing occupational safety and health, including, but not limited to, Chapter 6 (commencing with Section 140) and Chapter 6.5 (commencing with Section 148) of Division 1, and Division 5 (commencing with Section 6300), of the Labor Code. (Labor Code §50 et seq.)
5. Establishes the California Refinery and Chemical Plant Worker Safety Act of 1990 which states the intent of the Legislature that the Occupational Safety and Health Standards Board and the Division of Occupational Health and Safety (Cal/OSHA) within the DIR promote worker safety through implementation of training and process safety management practices in petroleum refineries in order to prevent or minimize the consequences of catastrophic releases of acutely hazardous, flammable, or explosive chemicals. (Labor Code §7850 et seq.)
6. Requires every petroleum refinery employer to provide to the Cal/OSHA a full schedule of planned turnarounds for all affected units for the following calendar year, and defines the schedule submitted to be treated as a “trade secret.” Defines “turnaround” to mean a planned, periodic shutdown, total or partial, of a refinery process unit or plant to perform maintenance, overhaul, and repair operations and to inspect, test, and replace process materials and equipment. (Labor Code §§7872, 7873)

This bill:

1. Expressly requires the refinery turnaround regulations authorized by SBX1-2 to: (a) protect the health and safety of employees, local communities, and the public; and (b) include criteria that are required to be met before a refinery commences a turnaround or maintenance event, including, demonstrating to the satisfaction of the executive director of the CEC that a refiner has made resupply plans or other arrangements sufficient to ensure that the loss of production during the turnaround or maintenance event does not adversely affect the California transportation fuels market.
2. Expressly states the authority of the CEC to consider ways to manage refinery turnarounds does not modify any specified requirements or standards regarding occupational safety and health, process safety management standards, other health and safety standards, including the authority of employees to perform an emergency shutdown of the refinery and necessary work for safety. Prohibits a regulation adopted by the CEC related to refinery turnarounds to excuse an employer’s compliance with the skilled and trained workforce and wage requirements specified in Section 25536.7 of the Health and Safety Code.
3. Requires the CEC, in consultation with the ICFAC, to consider the effects of refiners’ inventories of fuel and feedstocks and blending components on the price of transportation fuels in California. Authorizes the CEC, by regulation, to develop and impose requirements for refiners operating in the state to maintain minimum levels of inventories of refined transportation fuels meeting California specifications, including any feedstocks and blending components. 
   1. Requires the regulations adopted by the CEC to protect the health and safety of employees, local communities, and the public and to provide for a multitude of specified considerations, adjustments, and requirements, including: a process for establishing minimum inventory levels for each refiner or refining region, defined as the two in-state regions of concentrated refineries (San Francisco Bay Area and the Los Angeles Area); a process for maximizing the use of existing storage infrastructure; a process for waiving minimum inventory requirements for a small refinery (those with average aggregate daily crude oil is 75,000 barrels or less), and others.
   2. Prohibits the CEC from adopting a regulation unless it finds that the likely benefits to consumers from avoiding price volatility outweigh the potential costs to consumers. Requires the CEC to consider specific factors in making that determination.
   3. Prohibits a regulation for minimum levels of inventory to modify any requirements or standards regarding occupational safety and health, process safety management standards, other health and safety standards, including the authority of employees to perform an emergency shutdown of the refinery and necessary work for safety.
   4. Provides that the CEC may consider the use of a compliance mechanism for each refiner that is tradeable between or within each refining region in order to meet the minimum inventory requirements.
   5. Prohibits the CEC from applying a minimum inventory requirement to a refiner in a manner that would be met only by the construction of additional storage infrastructure.
   6. Requires the CEC to submit a report to the Legislature one year after the adoption of the regulation, and each year thereafter, that includes an evaluation of the effectiveness of the regulation, including whether the regulation continues to meet the cost-effectiveness test.
   7. Repeals these provisions on January 1, 2033.
4. Imposes an administrative civil penalty on a refiner or person who fails to comply with regulations adopted pursuant to the minimum inventory requirements authority of not less than $100,000 and not more than $1 million per day for each day that the noncompliance occurs. Repeals these provisions on January 1, 2033 for the regulations authorized by this bill as noted above in paragraph 3), but remains operative for those regulations authorized by SBX1-2 (noted above in paragraph 1)).
5. Expands the information required to be disclosed to the Speaker of the Assembly, the Senate Rules Committee, and the relevant policy committees to also include data provided under contract entered into the emergency regulations pursuant to Public Resources Code Section 25367 and the information shared with the ICFAC pursuant to Public Resource Code Section 25373.
6. Provides that any regulation, guideline, other standard adopted, or decision rendered, by the CEC under Chapter 4.5 Petroleum Supply and Pricing, also known as the Petroleum Industry Information Reporting Act of 1980 (PIIRA), is not a project for purposes of the California Environmental Quality Act (CEQA).
7. Requires the CEC’s SBX1-2 Assessment, beginning with the first Assessment submitted after the effective date of this bill, also include specified evaluations concerning crude oil imports, marine infrastructure and port facilities, opportunities to minimize cumulative pollution burdens, and effects of state regulations that may be affecting transportation fuel supplies.
8. Provides that the director of the DPMO is a “head of a department” and may undertake investigations in the manner prescribed in Article 2 (commencing with Section11180) of Chapter 2 of Part 1 of Division 3 of Title 2 of the Government Code. Authorizes the DPMO to confidentially refer violations to the Attorney General.
9. Specifies that the prohibition for participating on the ICFAC does not exclude a representative of a labor organization whose membership consists of individuals employed by a company that involved in any petroleum product.
10. Requires the Governor’s appointment of the labor representative on the ICFAC to represent a labor organization with experience in refinery operations.
11. Requires the ICFAC to meet no less than annually, instead of exclusively as prescribed by the CEC.

Background

1. California gasoline fuels market is isolated. California’s gasoline fuels market is geographically isolated from other locations in the U.S. that produce refined fuel products. As of March 2024, California has nine refineries that refine crude oil into gasoline fuel that meets state requirements; the majority are located in and around the South Bay region in the Los Angeles Basin, a few in the East Bay region of the Bay Area, and the smallest by volume produced is located in Bakersfield. The state’s refineries process over 1.6 million barrels of crude oil per day. In 2021, 88 percent of gasoline production was used in-state and 12 percent was exported. These refiners produce transportation fuels that meet the specially formulated gasoline to meet California’s air quality standards mandated by the California Air Resources Board (CARB), known as California Reformulated Gasoline Blendstock for Oxygenate Blending (CARBOB) gasoline. The number of refineries has been decreasing over recent decades from over 30 to currently nine refineries that produce CARBOB gasoline, as some have shuttered and others have transitioned to producing alternative fuels. The CEC has noted that as demand for gasoline declines due to the state’s adoption of zero-emission vehicles, more refineries may close or convert to renewable fuels, as a result, supply conditions may increase baseline prices and add to price spike risk.
2. Unexpected disruptions and refinery facility outages can result in reduced supply and price increases. California has no ability to deliver gasoline into the state via pipelines, as the existing pipelines only deliver gasoline and other refined fuels out of the state. As a result of California’s isolated gasoline fuels market, unexpected and unplanned disruptions on the system, including unplanned and planned refinery outages, can impact the supply, which often affects price. This was the situation after the unexpected outage at the then-Exxon Mobil Torrance Refinery in February 2015 due to an explosion at the facility that resulted in an extended outage. Gasoline prices were immediately affected, as prices increased within a week of the outage.
3. Extraordinary session and passage of legislation. In late 2022, in response to spikes in the retail price of gasoline, Governor Newsom called the Legislature into an extraordinary session to consider ways to address gasoline price spikes. The Legislature, in turn, approved SBX1-2 (Skinner), which among its many provisions, including authorizing a maximum gross gasoline refining margin cap and penalty, also required petroleum refiners to notify the CEC of any planned, unplanned or turnaround scheduled maintenance. SBX1-2 also directed the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public and authorized the CEC to regulate the timing of turnaround and maintenance.
4. DPMO sends letters regarding gasoline price increases. In September 2023, DPMO Director Tai Milder sent letters to the Governor and Legislature providing an interim update. The letter noted that the average price for gasoline was $5.78 per gallon, 25 cents higher than the previous week, and 52 cents higher than the previous month. DPMO cited three reasons for the higher gasoline prices: (1) an increase in global crude oil prices; (2) refinery maintenance events causing decreases in supply that “refiners did not adequately prepare for by increasing inventories and imports; and (3) an unusual spot market transaction on September 15, 2023 that has had an outsized impact on gas prices, causing prices to jump $0.50 per gallon. Director Milder suggested the situation highlighted “several market flaws that make California gasoline prices vulnerable to price spikes.” These include: spot market volatility and its outsized impacts on prices, lack of spot market liquidity, inadequate inventories, of gasoline and blend stocks, and refinery undersupply during maintenance.
5. Governor Newsom responds to DPMO letter. On September 27, 2023, Governor Newsom directed DPMO to identify “initial proposals” of potential spot market reforms. In addition, Governor Newsom, as he had the previous year, directed the CARB to allow for an early transition to winter-blend gasoline in order to quickly increase fuel supply in the market. In January 31, 2024, DPMO sent a letter to the Governor outlining two policy options that can improve how California’s spot market functions and help protect consumers. Specifically, DPMO recommended near-term options: (1) publishing a California spot market report and (2) establishing minimum inventory and resupply obligations on refiners. The CEC moved forward with adopting new spot market reporting requirements, utilizing the authority in SBX1-2, including utilizing emergency regulations. On March 26, 2024, the California Fuels and Convenience Alliance (CFCA) filed a lawsuit against the CEC for failing to observe the requirements of CEQA and the California Administrative Procedures Act (APA) and other provisions of California law. The lawsuit remains active. With regards to establishing minimum inventory and resupply obligations, the CEC held a public workshop in August to discuss the issue and SB 950 (Skinner, 2024), sponsored by the Governor, was introduced in the final days of the 2024 legislative session. The bill was not taken up and on the final day of the legislative session, the Governor called for another special session on gasoline price spikes, narrowly tailored to the contents of the bill.

Comments

1. Fuel supply inventory reserves. This bill explicitly authorizes the CEC to require refineries to maintain minimum fuel supplies during refinery turnarounds and maintenance outages. SBX1-2 authorized the CEC to develop regulations on the timing of refinery turnarounds and maintenance developed through consultations with the Labor and Workforce Development Agency and labor and industry stakeholders. This bill would require criteria that are required to be met before a refinery begins a turnaround or maintenance event, and explicitly states a criteria can be a requirement that the refinery has demonstrated resupply plans or other arrangements sufficient to ensure the loss of production during the event does not adversely affect the state’s transportation fuels market.
2. CEC discussing resupply and supply reserves. The CEC has hosted public workshops to discuss options for resupply or supply reserves during refinery turnarounds and maintenance events. Both CEC staff and DPMO have suggested that some level of resupply or supply inventory reserves may help reduce price spikes during refinery turnarounds, with DPMO noting that recent price spikes have been at times of refinery outages. At the August CEC workshop, the CEC staff suggested a 15-day supply may be a helpful timeframe for days of storage that could stave off price spikes. In 2000, then-Attorney General Lockyer, convening with a taskforce of experts, had similar recommendation in a May 2000 preliminary staff report, Report on Gasoline Pricing in California, which also sought to address gasoline price spikes. That report suggested a state reserve or some on-hand inventory (perhaps including stored at facilities owned by electric utilities) may be helpful. However, the efforts to establish a state reserve of fuel supply never gained enough traction and in a 2003 report in response to legislation requiring an assessment of this option, the CEC recommended against such an approach due to several unintended consequences, including raising the costs to consumers of eliminating lower-than-average prices. However, the concept of additional gasoline inventories has continued to be raised in policy discussions over the years, particularly when gasoline prices increase.
3. CEC SBX1-2 Transportation Fuels Assessment. More recently, the CEC Assessment required by SBX1-2, and finalized in August, provides several preliminary options to ensure a reliable supply of affordable and safe transportation fuels in California, including a preliminary scope of requiring supply inventories. In considering storage options, including stock minimums and state run reserves, the Assessment noted these options are likely to require large investments or other spending for infrastructure construction or leasing. With regards to stock minimums for refiners and terminals, the Assessment suggests that contingency reserves of gasoline fuel at refiners could mitigate short-term price spikes by providing a quickly available supply reserve.
4. Concerns about impacts to fuels market. The Assessment also acknowledges challenges with requiring contingency reserves during refinery turnarounds and maintenance events, including many raised by the industry opposition to this bill. These include the potential to artificially create shortages in downstream markets, increase average prices for refiners to maintain storage, and the need to develop a process or program to orchestrate the use of the volumes held in reserve. Additionally, the Assessment notes that downstream impacts could impact spot market prices in uncertain ways, and a market equilibrium may likely emerge at a higher price level. This bill attempts to mitigate some of these concerns (while also acknowledging these risks) by prohibiting the CEC from adopting a regulation to require refiners to maintain minimum levels of inventories of refined transportation fuels, including feedstocks, unless the CEC finds that the likely benefits to consumers from avoiding price volatility outweigh the potential costs, among other considerations and requirements. Nonetheless, the concerns about potentially increasing overall costs for gasoline, even as temporary price spikes and volatility may be reduced, are important considerations for the Legislature in determining whether to explicitly authorize CEC regulations to require inventory contingency reserves.
5. Available existing storage? In testimony at recent Assembly hearings and public workshops, the CEC has stated their analysis finds there is available storage capacity within the existing storage infrastructure of refinery operations in the aggregate to provide for the resupply or minimum inventory requirements to help reduce the likelihood of future price spikes. However, the CEC and DPMO have noted the need for continued analysis on an individual refinery level to assess how a regulation to require minimum inventories and resupply plans during refinery turnarounds and maintenance events would occur. DPMO explicitly testified to the need for this legislation to ensure the participation of refineries in this endeavor. The opponents of this bill, including the Western States Petroleum Association, raise concerns that the CEC and DPMO analysis does not fully consider the many variables associated with existing storage capacity, including the number of other owners and operators, beyond refineries, that participate in the petroleum market and own storage and the full costs associated with such an approach. They provide an analysis by the Brattle Group that further notes the complicated nature of the petroleum system and the challenges of requiring minimum inventories due to the complexity of the gasoline supply system and the cycling of the fuel, including the important role of marine terminals. The opponents raise concerns that an aggregate amount of capacity may not be indicative of actual available capacity at refineries or fully consider the complicated system of cycling fuel and feedstocks to supply the market. In this regard, the bill attempts to address these concerns by requiring the CEC to make specific determinations and include specific considerations prior to adopting regulations, including regarding available existing storage capacity at refineries and the effects on overall gasoline prices. However, the opposition remains concerned that such an analysis is not completed prior to authorize the CEC to establish minimum inventory regulations.
6. Worker safety. SBX1-2 requires petroleum refiners to notify the CEC, under specified timelines, of any planned, unplanned or turnaround scheduled maintenance. SBX1-2 also directed the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public and authorized the CEC to regulate the timing of turnaround and maintenance. This bill attempts to further address worker safety; however, numerous public comments, including from those representing workers at refineries, have raised concerns that the language is not strong enough to ensure the safety of workers and local communities. However, recent amendments have made clear that CEC in adopting either the SBX1-2 regulations on refinery turnarounds and/or those authorized by this bill for minimum supply inventories during turnarounds can compromise or undermine existing specified process safety management standards, CalOSHA standards, and other health and safety requirements.
7. Advisory committee. It’s been over a year since SBX1-2 has been chaptered into law, soon after, the Assembly and the Senate each made their respective appointment to the ICFAC. However, the Governor has not made the appointments of the six remaining members. As such, the ICFAC has not been convened or provided input into the development of the any of the assessments or regulations stemming from SBX1-2. This bill ensures individuals representing unions who represent members employed by a company that produces or refines petroleum would not be prohibited from participation on the advisory committee. Given that the advisory committee has yet to meet, even as the CEC and DPMO have proceeded to develop reports and regulations authorized by SBX1-2, this bill requires the ICFAC to meet at least annually.
8. CEQA language. As noted above, in March, the CFCA filed a lawsuit against the CEC for failing to observe the requirements of CEQA and the APA and other provisions of California law in proposing to adopt spot market reporting requirements. Presumably, the CEQA language proposed in this bill is an attempt to protect the CEC against CEQA-related litigation for regulations related to PIIRA statutes, including those authorized in SBX1-2, this bill, as well as, the proposed spot market reporting requirements currently subject of CEQA-related litigation.

Related/Prior Legislation

SBX1-2 (Skinner, Chapter 1, Statutes of 2023-24 First Extraordinary Session) included several policies to address gasoline supply and pricing, including authorizing the CEC to establish a maximum gross gasoline refining margin and penalty on gasoline sold by refiners in the state.

SB 842 (Bradford, 2023) would have required the CEC to also consult with the DIR, in addition to the Labor and Workforce Development Agency, when considering ways to manage necessary refinery turnarounds and maintenance. The bill would have required the CEC, for any adopted regulations regarding scheduling or rescheduling of maintenance, to consult with labor and industry stakeholders and aim to avoid any adverse impacts to the safety of employees and surrounding communities, labor and equipment availability, other market impacts, and cost. The bill was vetoed.

SB 1322 (Allen, Chapter 374, Statutes of 2022) required the CEC to collect specified pricing data from each oil refinery operating in the state.

SB 448 (Leno, 2013) would have required the CEC to collect and analyze specific information regarding petroleum pricing, establish the Motor Vehicle Fuel Market Advisory Committee to provide subject matter expertise on fuel pricing, and include specified recommendations regarding its findings, including an analysis of potential market manipulation in the Integrated Energy Policy Report. The bill was vetoed.

AB 2076 (Shelley, Chapter 936, Statutes of 2000) required the CEC, by January 31, 2002, to examine the feasibility of operating a strategic fuel reserve to insulate California consumers and businesses from substantial short-term price increases arising from refinery outages and other similar interruptions.

SB 1444 (Holmdahl, Chapter 1055, Statutes of 1980) established the PIIRA which requires specified monthly and annual reporting requirements for certain members of the petroleum industry and quarterly and annual reporting of the CEC. The bill includes confidentiality protections for the data submitted so as to prevent unfair competitive disadvantage.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee:

• Should the CEC exercise authority that would be established by this bill to require refineries to maintain minimum fuel supplies and resupply plans, as specified, there would be several fiscal effects:
  • Unknown, potentially significant one-time costs (Energy Resources Programs Account [ERPA]) for the CEC to make a finding that the likely benefits of any requirements on refiners related to resupply plans or minimum levels of supply inventories would outweigh potential costs for consumers and promulgate regulations establishing such requirements and associated enforcement mechanisms.
  • Unknown, potentially significant ongoing costs (ERPA) for the CEC administer, oversee, and enforce these requirements.
  • Unknown, potentially significant ongoing costs (various funds) for the Attorney General to bring enforcement actions against any refiners in violation of these requirements.
  • Unknown, potentially significant cost pressure to the state funded trial court system (Trial Court Trust Fund, General Fund) to review and enforce orders imposing administrative civil penalties authorized by this bill. While the superior courts are not funded on a workload basis, an increase in workload could result in delayed court services and would put pressure on the General Fund to increase the amount appropriated to backfill for trial court operations. For illustrative purposes, the Budget Act of 2024 includes a $97 million reduction to the trial courts and a $37.3 million General Fund backfill for the Trial Court Trust Fund to address the continued decline in revenues.
  • To the extent that refiners fail to meet requirements established by the CEC and the civil penalties created by this bill are collected, there would be potential ongoing revenue increases of an unknown amount.
  • To the extent that the CEC seeks any form of injunctive or remedial relief to enforce compliance with its regulations authorized by this bill, unknown, potentially moderate workload cost pressures (General Fund, Trial Court Trust Fund) to the courts. Additional cost pressures could result to the extent that CEC seeks a preliminary injunction or any other type of remedial relief that is given calendar precedence over other civil matters on the court’s calendar, likely at the expense of other civil cases that have already been calendared.
• The CEC estimates that its costs in the near-term would be absorbable within existing resources. It notes, however, that additional resources may be needed once the full scope of regulatory analyses and activities are known and better quantified.
• The California Air Resources Board, Labor & Workforce Development Agency, and Department of Industrial Relations anticipate that any costs would be minor and absorbable.

SUPPORT: (Verified 10/8/24)

Governor Gavin Newsom, State of California (co-source)

Attorney General Rob Bonta, State of California (co-source)

350 Bay Area Action
Asian Pacific Environmental Network
Active San Gabriel Valley
California Environmental Justice Alliance
California Nurses Association
Campaign for a Safe and Healthy California
Center for Biological Diversity
Center for Community Action and Environmental Justice
Center on Race, Poverty & the Environment
City of West Hollywood

Communities for a Better Environment
Community Energy resource

Consumer Watchdog
Environmental Working Group
Fossil Free California

Interfaith Climate Action Network of Contra Costa County

Labor Network for Sustainability
National Nurses United
Natural Resources Defense Council
Physicians for Social Responsibility - Los Angeles
Physicians for Social Responsibility - San Francisco Bay Area Chapter
Service Employees International Union California
Monica Montgomery Steppe, San Diego County Board of Supervisors District 4

Sunflower Alliance

The Climate Center
Union of Concerned Scientists
United Domestic Workers/AFSCME Local 3930

United Food and Commercial Workers, Western States Council

Vicente Sarmiento, Orange County Board of Supervisors District 2

OPPOSITION: (Verified 10/8/24)

Bay Area Council

California Business Properties Association

California Chamber of Commerce

California Fuels & Convenience Alliance

California Independent Petroleum Association

California Manufacturers & Technology Association

Central Valley Business Federation

Chamber of Commerce: Garden Grove, Greater Bakersfield, Greater Conejo

Valley, Kern County Hispanic, Long Beach Area, Los Angeles Area, Port

Hueneme, Redondo Beach, South Bay Association, South County, Torrance,

and Wilmington

Coastal Energy Alliance

Council of Business & Industrial West Contra Costa

County of Fresno

County of Kern

East Bay EDA

East Bay Leadership Council

Harbor Association of Industry & Commerce

Industrial Association of Contra Costa County

Inland Empire Economic Partnership

International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths,

Forgers and Helpers

Kern Citizens for Energy

Kern County Economic Development Corporation

Kern County Taxpayers Association

Los Angeles County Business Federation

Orange County Business Council

PTS Advance

SAGE

San Gabriel Valley Economic Partnership
State Building & Construction Trades Council of California

Steamfitters UA Local 250

Valley Industry & Commerce Association

VC CoLAB

Ventura County Taxpayers Association

West Ventura County Business Alliance

Western States Petroleum Association

ARGUMENTS IN SUPPORT: A coalition of environmental organizations, including the Asian Pacific Environmental Network, Natural Resources Defense Council, and Communities for a Better Environment state:

The oil industry has a long history of taking advantage of Californians through toxic oil drilling near schools, polluting communities through refining, and exporting oil and gas products outside of California, all while making billions by profit spiking at the expense of hardworking Californians. This measure will continue supporting the authority of the CEC to counter industry market manipulation and price spikes by maintaining minimum gasoline inventories. Many of our organizations have engaged throughout the valuable SBX1-2 implementation process at the California Energy Commission (CEC) and strongly support a regulatory framework that protects frontline communities as well as all Californians, holds refineries accountable for unnecessary price spikes, and continues to support a transition away from fossil fuels.

ARGUMENTS IN OPPOSITION: The California Fuels and Convenience Alliance contends “the bill could lead to unintended consequences that would destabilize the fuel market, impose undue financial burdens on consumers, and exacerbate existing infrastructure and regulatory challenges.” They express concerns that requirements to maintain minimum contingency reserves could impact downstream fuel supplies, as refiners may be compelled to withhold stocks that would otherwise be distributed to meet market demand. Additionally, they argue that these requirements would increase refiners’ operational costs to develop and maintain storage capacities which would then be passed along in the supply chain.

ASSEMBLY FLOOR: 44-18, 10/1/24

AYES: Addis, Aguiar-Curry, Arambula, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Juan Carrillo, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Haney, Hart, Holden, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Pacheco, Papan, Pellerin, Petrie-Norris, Ramos, Reyes, Rodriguez, Santiago, Ting, Valencia, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NOES: Alanis, Bains, Chen, Megan Dahle, Davies, Dixon, Flora, Gallagher, Hoover, Lackey, Mathis, Jim Patterson, Joe Patterson, Sanchez, Soria, Ta, Waldron, Wallis

NO VOTE RECORDED: Alvarez, Bryan, Calderon, Wendy Carrillo, Cervantes, Essayli, Gipson, Grayson, Irwin, Stephanie Nguyen, Ortega, Quirk-Silva, Rendon, Luz Rivas, Blanca Rubio, Schiavo, Villapudua

Prepared by: Nidia Bautista / F.S. & P.S. /

10/11/24 9:31:19

**** END ****

(Without Reference to File)

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1 X2

Author:(Hart, et al.)

As Amended Ver:October 8, 2024

Majority vote

SUMMARY

Authorizes the California Energy Commission (CEC) to increase transportation fuel supply through various actions; including, by authorizing the CEC to develop requirements on refiners to maintain resupply plans to cover production loss during maintenance events, and to maintain minimum levels of inventories

Senate Amendments

1. Clarify that the CEC regulations governing both the timing of turnaround and maintenance and those adopted to maintain minimum inventories shall protect the health and safety of employees, local communities, and the public.
2. Clarify that certain requirements of existing law shall not be modified by CEC regulations, including employee stop-work authority or an employer's compliance with skilled and trained workforce and wage requirements.
3. Specify that the CEC shall establish, if they develop regulations imposing minimum inventories on refiners, a process for waiving those requirements only for a small refinery, as defined, and only if the small refinery demonstrates a disproportionate economic hardship.
4. Clarify that the CEC may consider the use of a compliance mechanism for refiners to meet minimum inventory requirements that is "tradable between or within each refining region." The previous version of this bill included consideration of a "market-based compliance mechanism."
5. Require that the labor appointee to the existing Independent Consumer Fuels Advisory Committee must have experience in refinery operations.

COMMENTS

Gasoline prices at Californian pumps have been increasing over time and showing concerning volatility month-to-month, significantly impacting the budgets of Californians. In the last two years – 2022 and 2023 – California had two gasoline price spikes in September and October. These prices were historic for California, topping near or above $6 per gallon for regular grade retail gasoline. The price spikes were not seen in regions outside the West Coast. Higher prices of gasoline can have crippling effects for residents on fixed or limited incomes, especially those who rely on long commutes to get to work. Higher gasoline prices also take a toll on the overall economy, impacting goods that use gasoline fuels to get to market. According to analysis by the Division of Petroleum Market Oversight (DPMO), the price spike of fall 2023 cost Californians up to $2.2 billion.

California is in a period of transition in its petroleum market. Supply is tightening, as demand is declining. These trends are unlikely to subside. Rather, more volatility – not less – is likely if the state does not strategize and appropriately plan for smoothing the transition. During an oversight hearing of the Assembly Committee on Utilities and Energy in May 2024, the CEC presented findings from their work authorized under SBX1-2 (Skinner, Chapter 1, Statutes of 2023). Included in that presentation were data comparing impacts on spot market prices against days of supply for 2022 and 2023. The CEC's chart showed (in both years) that when petroleum inventories dipped below "15 days of supply," gasoline prices began to increase. The recommendation at the time to address this observed behavior was to collaborate with industry on solutions to encourage them to "voluntarily" increase supplies and supplement stocks.

It is unclear the status of those voluntary efforts. Nevertheless, this bill provides the CEC the expressed authority to impose requirements on Californian refiners to not only maintain resupply plans to cover production loss during planned maintenance events, but to also establish minimum inventory requirements of refined fuels on refiners. Such supply obligations are suggested by the author and the administration (as sponsor) as being necessary tools the CEC needs to blunt the price spikes of recent years. The administration points to two recent examples where planned maintenance led to loss of gasoline supply in the state, with resultant increases to prices at the pump. However, what these new tools will actually look like in practice, and the potential realized savings from this proposal are topics of ongoing dispute.

For more information on California's oil and gasoline market, recent price fluctuations, and supply impacts see the background documents prepared for the informational hearings by the Petroleum and Gasoline Supply Committee during the Second Extraordinary Session on September 18 and 19, 2024.

According to the Author

According to the author, "Governor Newsom called for this second extraordinary session to address one goal—reduce gasoline prices for Californians. This effort builds on the foundation laid by last year's special session legislation, SBX1-2 (Skinner), which established the Division of Petroleum Market Oversight (DPMO). Since SBX1-2's passage, the California Energy Commission (CEC) has gained critical insights into refiner storage capacity and operations. In September 2023, gasoline prices in California soared to more than $6.00 per gallon. With enhanced data and oversight, the CEC and DPMO have identified clear trends in price spikes. ABX2-1 aims to protect consumers from surging gas prices by giving the CEC the authority to assess whether implementing minimum inventory requirements and resupply plans can lower average retail fuel prices, boost supply, and reduce market volatility. This common-sense legislation will require oil companies to better plan for refinery shutdowns and supply chain disruptions, ultimately saving Californians billions at the pump."

Arguments in Support

This bill is supported by a coalition of environmental and environmental justice organizations, consumer groups, board of supervisors, labor organizations, equity groups, the Los Angeles Cleantech Incubator, and the State Attorney General (AG), as cosponsor. The Service Employees International Union California State Council (SEIU) notes the bill includes "important steps to curb the profit seeking strategies by oil companies." The AG notes this bill imposes requirements "to prevent supply disruptions from maintenance that leads to unnecessary price spikes."

Arguments in Opposition

This bill is opposed by a coalition of labor organizations, petroleum industry association groups, convenience store representatives, chambers of commerce and economic partnerships, and various city and county governments. The State Building and Construction Trades Council of California writes, "This bill will inadvertently put our members who work inside the fence line of the refineries in danger by dictating when refiners can perform mandated turnaround and maintenance work on their infrastructure."

FISCAL COMMENTS

According to the Senate Committee on Appropriations, this bill is likely to result in unknown, potentially significant costs to the CEC to implement; however the Committee does note the CEC estimates that its costs in the near-term "would be absorbable within existing resources."

The Committee goes on to note the CEC receives roughly $6 million in ongoing funding to support the implementation of SBX1-2, all through the ERPA account. The ERPA account is funded by a statutory surcharge on electricity consumption, and is in a structural deficit. As noted in the Committee analysis, absent any changes, ERPA is projected to become insolvent in 2027-2028.

VOTES:

ASM Petroleum and Gasoline Supply: 13-2-4

YES: Petrie-Norris, Aguiar-Curry, Alvarez, Bennett, Friedman, Garcia, Hart, Jackson, Lee, Papan, Pellerin, Wood, Zbur

NO: Jim Patterson, Joe Patterson

ABS, ABST OR NV: Flora, Gipson, Muratsuchi, Blanca Rubio

ASSEMBLY FLOOR: 44-18-17

YES: Addis, Aguiar-Curry, Arambula, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Juan Carrillo, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Haney, Hart, Holden, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Pacheco, Papan, Pellerin, Petrie-Norris, Ramos, Reyes, Rodriguez, Santiago, Ting, Valencia, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO: Alanis, Bains, Chen, Megan Dahle, Davies, Dixon, Flora, Gallagher, Hoover, Lackey, Mathis, Jim Patterson, Joe Patterson, Sanchez, Soria, Ta, Waldron, Wallis

ABS, ABST OR NV: Alvarez, Bryan, Calderon, Wendy Carrillo, Cervantes, Essayli, Gipson, Grayson, Irwin, Stephanie Nguyen, Ortega, Quirk-Silva, Rendon, Luz Rivas, Blanca Rubio, Schiavo, Villapudua

SENATE FLOOR: 23-9-8

YES: Allen, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Durazo, Glazer, Gonzalez, Laird, Limón, McGuire, Padilla, Portantino, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener

NO: Alvarado-Gil, Dahle, Grove, Hurtado, Jones, Nguyen, Niello, Ochoa Bogh, Wilk

ABS, ABST OR NV: Dodd, Eggman, Menjivar, Min, Newman, Roth, Rubio, Seyarto

UPDATED

VERSION: October 8, 2024

CONSULTANT: Laura Shybut / P. & G. S. / (916) 319-2083 FN: 0005200

 THIRD READING  

Bill No: ABX2 1

Author: Hart (D), Aguiar-Curry (D) and Skinner (D), et al.

Amended: 10/8/24 in Senate

Vote: 21

SENATE FUEL S. & P.S. COMMITTEE: 9-2, 10/7/24

AYES: Bradford, Ashby, Becker, Blakespear, Gonzalez, Laird, Limón, Skinner, Stern

NOES: Dahle, Seyarto

SENATE APPROPRIATIONS COMMITTEE: 4-2, 10/8/24

AYES: Skinner, Ashby, Becker, Wahab

NOES: Jones, Seyarto

NO VOTE RECORDED: Bradford

ASSEMBLY FLOOR: 44-18, 10/1/24 - See last page for vote

SUBJECT: Energy: transportation fuels: inventories: turnaround and maintenance

SOURCE: Governor Gavin Newsom, State of California

Attorney General Rob Bonta, State of California

DIGEST:

This bill makes changes to, and expands on, SBX1-2 (Skinner, Chapter 1, Statutes of the 2023-2024 First Extraordinary Session) related to transportation fuels. Specifically, this bill authorizes the California Energy Commission (CEC) to develop requirements on refiners to maintain resupply plans to cover production loss during maintenance events and to maintain minimum levels of supply inventories. This bill also includes other related provisions regarding changes to the advisory committee, authority of the CEC division to undertake investigations, the assessment of penalties on refiners for noncompliance, and other provisions.

ANALYSIS:

Existing law:

1. Requires the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public, and minimize the impacts of maintenance-related production losses on fuel prices. Authorizes the CEC, by regulation, to impose requirements governing the timing of turnaround and maintenance. (Public Resources Code §25354.2)
2. Requires the CEC, on or before January 1, 2024, and every three years thereafter, to submit an SBX1-2 Transportation Fuels Assessment (Assessment) to the Governor and the Legislature that identifies methods to ensure a reliable supply of affordable and safe transportation fuels in California. (Public Resources Code §25371)
3. Establishes, pursuant to SBX1-2, beginning on June 26, 2023, the Independent Consumer Fuels Advisory Committee (ICFAC) within the CEC to advise the CEC and the Division of Petroleum Market Oversight (DPMO). Prescribes the composition of the eight-member ICFAC to include six specified members appointed by the Governor (including a member representing labor), one member appointed by the Speaker of the Assembly, and one member appointed by the Senate Rules Committee. (Public Resources Code §25373)
4. Establishes the Department of Industrial Relations (DIR) within the Labor and Workforce Development Agency and designates DIR to be responsible for administering the state plan for the development and enforcement of occupational safety and health standards consistent with the provisions of state law governing occupational safety and health, including, but not limited to, Chapter 6 (commencing with Section 140) and Chapter 6.5 (commencing with Section 148) of Division 1, and Division 5 (commencing with Section 6300), of the Labor Code. (Labor Code §50 et seq.)
5. Establishes the California Refinery and Chemical Plant Worker Safety Act of 1990 which states the intent of the Legislature that the Occupational Safety and Health Standards Board and the Division of Occupational Health and Safety (Cal/OSHA) within the DIR promote worker safety through implementation of training and process safety management practices in petroleum refineries in order to prevent or minimize the consequences of catastrophic releases of acutely hazardous, flammable, or explosive chemicals. (Labor Code §7850 et seq.)
6. Requires every petroleum refinery employer to provide to the Cal/OSHA a full schedule of planned turnarounds for all affected units for the following calendar year, and defines the schedule submitted to be treated as a “trade secret.” Defines “turnaround” to mean a planned, periodic shutdown, total or partial, of a refinery process unit or plant to perform maintenance, overhaul, and repair operations and to inspect, test, and replace process materials and equipment. (Labor Code §§7872, 7873)

This bill:

1. Expressly requires the refinery turnaround regulations authorized by SBX1-2 to: (a) protect the health and safety of employees, local communities, and the public; and (b) include criteria that are required to be met before a refinery commences a turnaround or maintenance event, including, demonstrating to the satisfaction of the executive director of the CEC that a refiner has made resupply plans or other arrangements sufficient to ensure that the loss of production during the turnaround or maintenance event does not adversely affect the California transportation fuels market.
2. Expressly states the authority of the CEC to consider ways to manage refinery turnarounds does not modify any specified requirements or standards regarding occupational safety and health, process safety management standards, other health and safety standards, including the authority of employees to perform an emergency shutdown of the refinery and necessary work for safety. Prohibits a regulation adopted by the CEC related to refinery turnarounds to excuse an employer’s compliance with the skilled and trained workforce and wage requirements specified in Section 25536.7 of the Health and Safety Code.
3. Requires the CEC, in consultation with the ICFAC, to consider the effects of refiners’ inventories of fuel and feedstocks and blending components on the price of transportation fuels in California. Authorizes the CEC, by regulation, to develop and impose requirements for refiners operating in the state to maintain minimum levels of inventories of refined transportation fuels meeting California specifications, including any feedstocks and blending components. 
   1. Requires the regulations adopted by the CEC to protect the health and safety of employees, local communities, and the public and to provide for a multitude of specified considerations, adjustments, and requirements, including: a process for establishing minimum inventory levels for each refiner or refining region, defined as the two in-state regions of concentrated refineries (San Francisco Bay Area and the Los Angeles Area); a process for maximizing the use of existing storage infrastructure; a process for waiving minimum inventory requirements for a small refinery (those with average aggregate daily crude oil is 75,000 barrels or less), and others.
   2. Prohibits the CEC from adopting a regulation unless it finds that the likely benefits to consumers from avoiding price volatility outweigh the potential costs to consumers. Requires the CEC to consider specific factors in making that determination.
   3. Prohibits a regulation for minimum levels of inventory to modify any requirements or standards regarding occupational safety and health, process safety management standards, other health and safety standards, including the authority of employees to perform an emergency shutdown of the refinery and necessary work for safety.
   4. Provides that the CEC may consider the use of a compliance mechanism for each refiner that is tradeable between or within each refining region in order to meet the minimum inventory requirements.
   5. Prohibits the CEC from applying a minimum inventory requirement to a refiner in a manner that would be met only by the construction of additional storage infrastructure.
   6. Requires the CEC to submit a report to the Legislature one year after the adoption of the regulation, and each year thereafter, that includes an evaluation of the effectiveness of the regulation, including whether the regulation continues to meet the cost-effectiveness test.
   7. Repeals these provisions on January 1, 2033.
4. Imposes an administrative civil penalty on a refiner or person who fails to comply with regulations adopted pursuant to the minimum inventory requirements authority of not less than $100,000 and not more than $1 million per day for each day that the noncompliance occurs. Repeals these provisions on January 1, 2033 for the regulations authorized by this bill as noted above in paragraph 3), but remains operative for those regulations authorized by SBX1-2 (noted above in paragraph 1)).
5. Expands the information required to be disclosed to the Speaker of the Assembly, the Senate Rules Committee, and the relevant policy committees to also include data provided under contract entered into the emergency regulations pursuant to Public Resources Code Section 25367 and the information shared with the ICFAC pursuant to Public Resource Code Section 25373.
6. Provides that any regulation, guideline, other standard adopted, or decision rendered, by the CEC under Chapter 4.5 Petroleum Supply and Pricing, also known as the Petroleum Industry Information Reporting Act of 1980 (PIIRA), is not a project for purposes of the California Environmental Quality Act (CEQA).
7. Requires the CEC’s SBX1-2 Assessment, beginning with the first Assessment submitted after the effective date of this bill, also include specified evaluations concerning crude oil imports, marine infrastructure and port facilities, opportunities to minimize cumulative pollution burdens, and effects of state regulations that may be affecting transportation fuel supplies.
8. Provides that the director of the DPMO is a “head of a department” and may undertake investigations in the manner prescribed in Article 2 (commencing with Section11180) of Chapter 2 of Part 1 of Division 3 of Title 2 of the Government Code. Authorizes the DPMO to confidentially refer violations to the Attorney General.
9. Specifies that the prohibition for participating on the ICFAC does not exclude a representative of a labor organization whose membership consists of individuals employed by a company that involved in any petroleum product.
10. Requires the Governor’s appointment of the labor representative on the ICFAC to represent a labor organization with experience in refinery operations.
11. Requires the ICFAC to meet no less than annually, instead of exclusively as prescribed by the CEC.

Background

1. California gasoline fuels market is isolated. California’s gasoline fuels market is geographically isolated from other locations in the U.S. that produce refined fuel products. As of March 2024, California has nine refineries that refine crude oil into gasoline fuel that meets state requirements; the majority are located in and around the South Bay region in the Los Angeles Basin, a few in the East Bay region of the Bay Area, and the smallest by volume produced is located in Bakersfield. The state’s refineries process over 1.6 million barrels of crude oil per day. In 2021, 88 percent of gasoline production was used in-state and 12 percent was exported. These refiners produce transportation fuels that meet the specially formulated gasoline to meet California’s air quality standards mandated by the California Air Resources Board (CARB), known as California Reformulated Gasoline Blendstock for Oxygenate Blending (CARBOB) gasoline. The number of refineries has been decreasing over recent decades from over 30 to currently nine refineries that produce CARBOB gasoline, as some have shuttered and others have transitioned to producing alternative fuels. The CEC has noted that as demand for gasoline declines due to the state’s adoption of zero-emission vehicles, more refineries may close or convert to renewable fuels, as a result, supply conditions may increase baseline prices and add to price spike risk.
2. Unexpected disruptions and refinery facility outages can result in reduced supply and price increases. California has no ability to deliver gasoline into the state via pipelines, as the existing pipelines only deliver gasoline and other refined fuels out of the state. As a result of California’s isolated gasoline fuels market, unexpected and unplanned disruptions on the system, including unplanned and planned refinery outages, can impact the supply, which often affects price. This was the situation after the unexpected outage at the then-Exxon Mobil Torrance Refinery in February 2015 due to an explosion at the facility that resulted in an extended outage. Gasoline prices were immediately affected, as prices increased within a week of the outage.
3. Extraordinary session and passage of legislation. In late 2022, in response to spikes in the retail price of gasoline, Governor Newsom called the Legislature into an extraordinary session to consider ways to address gasoline price spikes. The Legislature, in turn, approved SBX1-2 (Skinner), which among its many provisions, including authorizing a maximum gross gasoline refining margin cap and penalty, also required petroleum refiners to notify the CEC of any planned, unplanned or turnaround scheduled maintenance. SBX1-2 also directed the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public and authorized the CEC to regulate the timing of turnaround and maintenance.
4. DPMO sends letters regarding gasoline price increases. In September 2023, DPMO Director Tai Milder sent letters to the Governor and Legislature providing an interim update. The letter noted that the average price for gasoline was $5.78 per gallon, 25 cents higher than the previous week, and 52 cents higher than the previous month. DPMO cited three reasons for the higher gasoline prices: (1) an increase in global crude oil prices; (2) refinery maintenance events causing decreases in supply that “refiners did not adequately prepare for by increasing inventories and imports; and (3) an unusual spot market transaction on September 15, 2023 that has had an outsized impact on gas prices, causing prices to jump $0.50 per gallon. Director Milder suggested the situation highlighted “several market flaws that make California gasoline prices vulnerable to price spikes.” These include: spot market volatility and its outsized impacts on prices, lack of spot market liquidity, inadequate inventories, of gasoline and blend stocks, and refinery undersupply during maintenance.
5. Governor Newsom responds to DPMO letter. On September 27, 2023, Governor Newsom directed DPMO to identify “initial proposals” of potential spot market reforms. In addition, Governor Newsom, as he had the previous year, directed the CARB to allow for an early transition to winter-blend gasoline in order to quickly increase fuel supply in the market. In January 31, 2024, DPMO sent a letter to the Governor outlining two policy options that can improve how California’s spot market functions and help protect consumers. Specifically, DPMO recommended near-term options: (1) publishing a California spot market report and (2) establishing minimum inventory and resupply obligations on refiners. The CEC moved forward with adopting new spot market reporting requirements, utilizing the authority in SBX1-2, including utilizing emergency regulations. On March 26, 2024, the California Fuels and Convenience Alliance (CFCA) filed a lawsuit against the CEC for failing to observe the requirements of CEQA and the California Administrative Procedures Act (APA) and other provisions of California law. The lawsuit remains active. With regards to establishing minimum inventory and resupply obligations, the CEC held a public workshop in August to discuss the issue and SB 950 (Skinner, 2024), sponsored by the Governor, was introduced in the final days of the 2024 legislative session. The bill was not taken up and on the final day of the legislative session, the Governor called for another special session on gasoline price spikes, narrowly tailored to the contents of the bill.

Comments

1. Fuel supply inventory reserves. This bill explicitly authorizes the CEC to require refineries to maintain minimum fuel supplies during refinery turnarounds and maintenance outages. SBX1-2 authorized the CEC to develop regulations on the timing of refinery turnarounds and maintenance developed through consultations with the Labor and Workforce Development Agency and labor and industry stakeholders. This bill would require criteria that are required to be met before a refinery begins a turnaround or maintenance event, and explicitly states a criteria can be a requirement that the refinery has demonstrated resupply plans or other arrangements sufficient to ensure the loss of production during the event does not adversely affect the state’s transportation fuels market.
2. CEC discussing resupply and supply reserves. The CEC has hosted public workshops to discuss options for resupply or supply reserves during refinery turnarounds and maintenance events. Both CEC staff and DPMO have suggested that some level of resupply or supply inventory reserves may help reduce price spikes during refinery turnarounds, with DPMO noting that recent price spikes have been at times of refinery outages. At the August CEC workshop, the CEC staff suggested a 15-day supply may be a helpful timeframe for days of storage that could stave off price spikes. In 2000, then-Attorney General Lockyer, convening with a taskforce of experts, had similar recommendation in a May 2000 preliminary staff report, Report on Gasoline Pricing in California, which also sought to address gasoline price spikes. That report suggested a state reserve or some on-hand inventory (perhaps including stored at facilities owned by electric utilities) may be helpful. However, the efforts to establish a state reserve of fuel supply never gained enough traction and in a 2003 report in response to legislation requiring an assessment of this option, the CEC recommended against such an approach due to several unintended consequences, including raising the costs to consumers of eliminating lower-than-average prices. However, the concept of additional gasoline inventories has continued to be raised in policy discussions over the years, particularly when gasoline prices increase.
3. CEC SBX1-2 Transportation Fuels Assessment. More recently, the CEC Assessment required by SBX1-2, and finalized in August, provides several preliminary options to ensure a reliable supply of affordable and safe transportation fuels in California, including a preliminary scope of requiring supply inventories. In considering storage options, including stock minimums and state run reserves, the Assessment noted these options are likely to require large investments or other spending for infrastructure construction or leasing. With regards to stock minimums for refiners and terminals, the Assessment suggests that contingency reserves of gasoline fuel at refiners could mitigate short-term price spikes by providing a quickly available supply reserve.
4. Concerns about impacts to fuels market. The Assessment also acknowledges challenges with requiring contingency reserves during refinery turnarounds and maintenance events, including many raised by the industry opposition to this bill. These include the potential to artificially create shortages in downstream markets, increase average prices for refiners to maintain storage, and the need to develop a process or program to orchestrate the use of the volumes held in reserve. Additionally, the Assessment notes that downstream impacts could impact spot market prices in uncertain ways, and a market equilibrium may likely emerge at a higher price level. This bill attempts to mitigate some of these concerns (while also acknowledging these risks) by prohibiting the CEC from adopting a regulation to require refiners to maintain minimum levels of inventories of refined transportation fuels, including feedstocks, unless the CEC finds that the likely benefits to consumers from avoiding price volatility outweigh the potential costs, among other considerations and requirements. Nonetheless, the concerns about potentially increasing overall costs for gasoline, even as temporary price spikes and volatility may be reduced, are important considerations for the Legislature in determining whether to explicitly authorize CEC regulations to require inventory contingency reserves.
5. Available existing storage? In testimony at recent Assembly hearings and public workshops, the CEC has stated their analysis finds there is available storage capacity within the existing storage infrastructure of refinery operations in the aggregate to provide for the resupply or minimum inventory requirements to help reduce the likelihood of future price spikes. However, the CEC and DPMO have noted the need for continued analysis on an individual refinery level to assess how a regulation to require minimum inventories and resupply plans during refinery turnarounds and maintenance events would occur. DPMO explicitly testified to the need for this legislation to ensure the participation of refineries in this endeavor. The opponents of this bill, including the Western States Petroleum Association, raise concerns that the CEC and DPMO analysis does not fully consider the many variables associated with existing storage capacity, including the number of other owners and operators, beyond refineries, that participate in the petroleum market and own storage and the full costs associated with such an approach. They provide an analysis by the Brattle Group that further notes the complicated nature of the petroleum system and the challenges of requiring minimum inventories due to the complexity of the gasoline supply system and the cycling of the fuel, including the important role of marine terminals. The opponents raise concerns that an aggregate amount of capacity may not be indicative of actual available capacity at refineries or fully consider the complicated system of cycling fuel and feedstocks to supply the market. In this regard, the bill attempts to address these concerns by requiring the CEC to make specific determinations and include specific considerations prior to adopting regulations, including regarding available existing storage capacity at refineries and the effects on overall gasoline prices. However, the opposition remains concerned that such an analysis is not completed prior to authorize the CEC to establish minimum inventory regulations.
6. Worker safety. SBX1-2 requires petroleum refiners to notify the CEC, under specified timelines, of any planned, unplanned or turnaround scheduled maintenance. SBX1-2 also directed the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public and authorized the CEC to regulate the timing of turnaround and maintenance. This bill attempts to further address worker safety; however, numerous public comments, including from those representing workers at refineries, have raised concerns that the language is not strong enough to ensure the safety of workers and local communities. However, recent amendments have made clear that CEC in adopting either the SBX1-2 regulations on refinery turnarounds and/or those authorized by this bill for minimum supply inventories during turnarounds can compromise or undermine existing specified process safety management standards, CalOSHA standards, and other health and safety requirements.
7. Advisory committee. It’s been over a year since SBX1-2 has been chaptered into law, soon after, the Assembly and the Senate each made their respective appointment to the ICFAC. However, the Governor has not made the appointments of the six remaining members. As such, the ICFAC has not been convened or provided input into the development of the any of the assessments or regulations stemming from SBX1-2. This bill ensures individuals representing unions who represent members employed by a company that produces or refines petroleum would not be prohibited from participation on the advisory committee. Given that the advisory committee has yet to meet, even as the CEC and DPMO have proceeded to develop reports and regulations authorized by SBX1-2, this bill requires the ICFAC to meet at least annually.
8. CEQA language. As noted above, in March, the CFCA filed a lawsuit against the CEC for failing to observe the requirements of CEQA and the APA and other provisions of California law in proposing to adopt spot market reporting requirements. Presumably, the CEQA language proposed in this bill is an attempt to protect the CEC against CEQA-related litigation for regulations related to PIIRA statutes, including those authorized in SBX1-2, this bill, as well as, the proposed spot market reporting requirements currently subject of CEQA-related litigation.

Related/Prior Legislation

SBX1-2 (Skinner, Chapter 1, Statutes of 2023-24 First Extraordinary Session) included several policies to address gasoline supply and pricing, including authorizing the CEC to establish a maximum gross gasoline refining margin and penalty on gasoline sold by refiners in the state.

SB 842 (Bradford, 2023) would have required the CEC to also consult with the DIR, in addition to the Labor and Workforce Development Agency, when considering ways to manage necessary refinery turnarounds and maintenance. The bill would have required the CEC, for any adopted regulations regarding scheduling or rescheduling of maintenance, to consult with labor and industry stakeholders and aim to avoid any adverse impacts to the safety of employees and surrounding communities, labor and equipment availability, other market impacts, and cost. The bill was vetoed.

SB 1322 (Allen, Chapter 374, Statutes of 2022) required the CEC to collect specified pricing data from each oil refinery operating in the state.

SB 448 (Leno, 2013) would have required the CEC to collect and analyze specific information regarding petroleum pricing, establish the Motor Vehicle Fuel Market Advisory Committee to provide subject matter expertise on fuel pricing, and include specified recommendations regarding its findings, including an analysis of potential market manipulation in the Integrated Energy Policy Report. The bill was vetoed.

AB 2076 (Shelley, Chapter 936, Statutes of 2000) required the CEC, by January 31, 2002, to examine the feasibility of operating a strategic fuel reserve to insulate California consumers and businesses from substantial short-term price increases arising from refinery outages and other similar interruptions.

SB 1444 (Holmdahl, Chapter 1055, Statutes of 1980) established the PIIRA which requires specified monthly and annual reporting requirements for certain members of the petroleum industry and quarterly and annual reporting of the CEC. The bill includes confidentiality protections for the data submitted so as to prevent unfair competitive disadvantage.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee:

• Should the CEC exercise authority that would be established by this bill to require refineries to maintain minimum fuel supplies and resupply plans, as specified, there would be several fiscal effects:
  • Unknown, potentially significant one-time costs (Energy Resources Programs Account [ERPA]) for the CEC to make a finding that the likely benefits of any requirements on refiners related to resupply plans or minimum levels of supply inventories would outweigh potential costs for consumers and promulgate regulations establishing such requirements and associated enforcement mechanisms.
  • Unknown, potentially significant ongoing costs (ERPA) for the CEC administer, oversee, and enforce these requirements.
  • Unknown, potentially significant ongoing costs (various funds) for the Attorney General to bring enforcement actions against any refiners in violation of these requirements.
  • Unknown, potentially significant cost pressure to the state funded trial court system (Trial Court Trust Fund, General Fund) to review and enforce orders imposing administrative civil penalties authorized by this bill. While the superior courts are not funded on a workload basis, an increase in workload could result in delayed court services and would put pressure on the General Fund to increase the amount appropriated to backfill for trial court operations. For illustrative purposes, the Budget Act of 2024 includes a $97 million reduction to the trial courts and a $37.3 million General Fund backfill for the Trial Court Trust Fund to address the continued decline in revenues.
  • To the extent that refiners fail to meet requirements established by the CEC and the civil penalties created by this bill are collected, there would be potential ongoing revenue increases of an unknown amount.
  • To the extent that the CEC seeks any form of injunctive or remedial relief to enforce compliance with its regulations authorized by this bill, unknown, potentially moderate workload cost pressures (General Fund, Trial Court Trust Fund) to the courts. Additional cost pressures could result to the extent that CEC seeks a preliminary injunction or any other type of remedial relief that is given calendar precedence over other civil matters on the court’s calendar, likely at the expense of other civil cases that have already been calendared.
• The CEC estimates that its costs in the near-term would be absorbable within existing resources. It notes, however, that additional resources may be needed once the full scope of regulatory analyses and activities are known and better quantified.
• The California Air Resources Board, Labor & Workforce Development Agency, and Department of Industrial Relations anticipate that any costs would be minor and absorbable.

SUPPORT: (Verified 10/8/24)

Governor Gavin Newsom, State of California (co-source)

Attorney General Rob Bonta, State of California (co-source)

350 Bay Area Action
Asian Pacific Environmental Network
Active San Gabriel Valley
California Environmental Justice Alliance
California Nurses Association
Campaign for a Safe and Healthy California
Center for Biological Diversity
Center for Community Action and Environmental Justice
Center on Race, Poverty & the Environment
City of West Hollywood

Communities for a Better Environment
Community Energy resource

Consumer Watchdog
Environmental Working Group
Fossil Free California

Interfaith Climate Action Network of Contra Costa County

Labor Network for Sustainability
National Nurses United
Natural Resources Defense Council
Physicians for Social Responsibility - Los Angeles
Physicians for Social Responsibility - San Francisco Bay Area Chapter
Service Employees International Union California
Monica Montgomery Steppe, San Diego County Board of Supervisors District 4

Sunflower Alliance

The Climate Center
Union of Concerned Scientists
United Domestic Workers/AFSCME Local 3930

United Food and Commercial Workers, Western States Council

Vicente Sarmiento, Orange County Board of Supervisors District 2

OPPOSITION: (Verified 10/8/24)

Bay Area Council

California Business Properties Association

California Chamber of Commerce

California Fuels & Convenience Alliance

California Independent Petroleum Association

California Manufacturers & Technology Association

Central Valley Business Federation

Chamber of Commerce: Garden Grove, Greater Bakersfield, Greater Conejo

Valley, Kern County Hispanic, Long Beach Area, Los Angeles Area, Port

Hueneme, Redondo Beach, South Bay Association, South County, Torrance,

and Wilmington

Coastal Energy Alliance

Council of Business & Industrial West Contra Costa

County of Fresno

County of Kern

East Bay EDA

East Bay Leadership Council

Harbor Association of Industry & Commerce

Industrial Association of Contra Costa County

Inland Empire Economic Partnership

International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths,

Forgers and Helpers

Kern Citizens for Energy

Kern County Economic Development Corporation

Kern County Taxpayers Association

Los Angeles County Business Federation

Orange County Business Council

PTS Advance

SAGE

San Gabriel Valley Economic Partnership
State Building & Construction Trades Council of California

Valley Industry & Commerce Association

VC CoLAB

Ventura County Taxpayers Association

West Ventura County Business Alliance

Western States Petroleum Association

ARGUMENTS IN SUPPORT: A coalition of environmental organizations, including the Asian Pacific Environmental Network, Natural Resources Defense Council, and Communities for a Better Environment state:

The oil industry has a long history of taking advantage of Californians through toxic oil drilling near schools, polluting communities through refining, and exporting oil and gas products outside of California, all while making billions by profit spiking at the expense of hardworking Californians. This measure will continue supporting the authority of the CEC to counter industry market manipulation and price spikes by maintaining minimum gasoline inventories. Many of our organizations have engaged throughout the valuable SBX1-2 implementation process at the California Energy Commission (CEC) and strongly support a regulatory framework that protects frontline communities as well as all Californians, holds refineries accountable for unnecessary price spikes, and continues to support a transition away from fossil fuels.

ARGUMENTS IN OPPOSITION: The California Fuels and Convenience Alliance contends “the bill could lead to unintended consequences that would destabilize the fuel market, impose undue financial burdens on consumers, and exacerbate existing infrastructure and regulatory challenges.” They express concerns that requirements to maintain minimum contingency reserves could impact downstream fuel supplies, as refiners may be compelled to withhold stocks that would otherwise be distributed to meet market demand. Additionally, they argue that these requirements would increase refiners’ operational costs to develop and maintain storage capacities which would then be passed along in the supply chain.

ASSEMBLY FLOOR: 44-18, 10/1/24

AYES: Addis, Aguiar-Curry, Arambula, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Juan Carrillo, Connolly, Mike Fong, Friedman, Gabriel, Garcia, Haney, Hart, Holden, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Pacheco, Papan, Pellerin, Petrie-Norris, Ramos, Reyes, Rodriguez, Santiago, Ting, Valencia, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NOES: Alanis, Bains, Chen, Megan Dahle, Davies, Dixon, Flora, Gallagher, Hoover, Lackey, Mathis, Jim Patterson, Joe Patterson, Sanchez, Soria, Ta, Waldron, Wallis

NO VOTE RECORDED: Alvarez, Bryan, Calderon, Wendy Carrillo, Cervantes, Essayli, Gipson, Grayson, Irwin, Stephanie Nguyen, Ortega, Quirk-Silva, Rendon, Luz Rivas, Blanca Rubio, Schiavo, Villapudua

Prepared by: Nidia Bautista / F.S. & P.S. /

10/10/24 15:31:32

**** END ****

SENATE COMMITTEE ON

Senator Nancy Skinner, Chair

2023 - 2024 2nd Ext. Session

ABX2 1 (Hart) - Energy: transportation fuels: inventories: turnaround and maintenance

Bill Summary:

This bill would authorize the California Energy Commission (CEC) to increase transportation fuel supply through various actions, including by authorizing the CEC to develop requirements on refiners to maintain resupply plans to cover production loss during maintenance events and to maintain minimum levels of supply inventories, among other things.

Fiscal Impact:

• Should the CEC exercise authority that would be established by this bill to require refineries to maintain minimum fuel supplies and resupply plans, as specified, there would be several fiscal effects:
  • Unknown, potentially significant one-time costs (Energy Resources Programs Account [ERPA]) for the CEC to make a finding that the likely benefits of any requirements on refiners related to resupply plans or minimum levels of supply inventories would outweigh potential costs for consumers and promulgate regulations establishing such requirements and associated enforcement mechanisms.
  • Unknown, potentially significant ongoing costs (ERPA) for the CEC administer, oversee, and enforce these requirements.
  • Unknown, potentially significant ongoing costs (various funds) for the Attorney General to bring enforcement actions against any refiners in violation of these requirements.
  • Unknown, potentially significant cost pressure to the state funded trial court system (Trial Court Trust Fund, General Fund) to review and enforce orders imposing administrative civil penalties authorized by this bill. While the superior courts are not funded on a workload basis, an increase in workload could result in delayed court services and would put pressure on the General Fund to increase the amount appropriated to backfill for trial court operations. For illustrative purposes, the Budget Act of 2024 includes a $97 million reduction to the trial courts and a $37.3 million General Fund backfill for the Trial Court Trust Fund to address the continued decline in revenues.
  • To the extent that refiners fail to meet requirements established by the CEC and the civil penalties created by this bill are collected, there would be potential ongoing revenue increases of an unknown amount.
  • To the extent that the CEC seeks any form of injunctive or remedial relief to enforce compliance with its regulations authorized by this bill, unknown, potentially moderate workload cost pressures (General Fund, Trial Court Trust Fund) to the courts. Additional cost pressures could result to the extent that CEC seeks a preliminary injunction or any other type of remedial relief that is given calendar precedence over other civil matters on the court’s calendar, likely at the expense of other civil cases that have already been calendared.
• The CEC estimates that its costs in the near-term would be absorbable within existing resources. It notes, however, that additional resources may be needed once the full scope of regulatory analyses and activities are known and better quantified.
• The California Air Resources Board, Labor & Workforce Development Agency, and Department of Industrial Relations anticipate that any costs would be minor and absorbable.

Background:

Gasoline prices trend higher in California compared to the rest of the nation.

Californians, generally, pay higher prices for gasoline compared to the rest of the country. According to the CEC, there are five main reasons why California retail gasoline prices are higher than the average price in the United States, specifically: higher taxes on gasoline, higher gasoline production costs, environmental program costs, California’s shorter winter season, and the isolated nature of the California fuels market. California’s unique, cleaner-burning gasoline blend costs more to produce than other types of gasoline, accounting for an additional 10 to 15 cents per gallon (according to the CEC). The summer-blend gasoline is designed to evaporate at a higher temperature than winter-blend gasoline so as to minimize its contribution to unhealthy ground-level ozone (also known as smog). However, the summer-blend gasoline is more expensive to produce and tends to be used for longer stretches of the year, given California’s warm climate.

California gasoline fuels market is isolated. California’s gasoline fuels market is geographically isolated from other locations in the U.S. that produce refined fuel products. As of March 2024, California has nine refineries that refine crude oil into gasoline fuel that meets state requirements; the majority are located in and around the South Bay region in the Los Angeles Basin, a few in the East Bay region of the Bay Area, and the smallest by volume produced is located in Bakersfield. The state’s refineries process over 1.6 million barrels of crude oil per day. In 2021, 88 percent of gasoline production was used in-state and 12 percent was exported. These refiners produce transportation fuels that meet the specially formulated gasoline to meet California’s air quality standards mandated by the California Air Resources Board (CARB), known as California Reformulated Gasoline Blendstock for Oxygenate Blending (CARBOB) gasoline. The number of refineries has been decreasing as some have shuttered and others have transitioned to producing alternative fuels. The CEC has noted that as demand for gasoline declines due to the state’s adoption of zero-emission vehicles, more refineries may close or convert to renewable fuels, and, as a result, supply conditions may increase baseline prices and add to price spike risk.

Unexpected disruptions and facility outages can result in reduced supply and price spikes. California has no ability to deliver gasoline into the state via pipelines, as the existing pipelines deliver gasoline and other refined fuels out of the state. Gasoline imports, generally, provide a smaller portion of overall supply. However, when needed, California imports gasoline via marine shipments, which can take three to four weeks to deliver and with prices that account for the additional costs of transporting via international marine vessel. As a result of California’s isolated gasoline fuels market, unexpected and unplanned disruptions on the system, including unplanned refinery outages, can impact the supply and often result in price spikes. This was the situation after the unexpected outage at the then-Exxon Mobil Torrance Refinery in February 2015 due to an explosion of the facility that resulted in an extended outage. Gasoline prices were immediately affected, as prices increased $0.25 per gallon within a week of the outage.

Extraordinary session and passage of legislation. In late 2022, in response to spikes in the retail price of gasoline, Governor Newsom called the Legislature into an extraordinary session to consider ways to address the gasoline price spike. The Legislature, in turn, approved SBX1-2 (Skinner), which among its many provisions, required petroleum refiners to notify the CEC, under specified timelines, of any planned, unplanned or turnaround scheduled maintenance. SBX1-2 also directed the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public and authorized the CEC to regulate the timing of turnaround and maintenance.

DPMO sends letters regarding gasoline price increases. In September 2023, DPMO Director Tai Milder sent letters to the Governor and Legislature providing an interim update. The letter noted that the average price for gasoline was $5.78 per gallon, 25 cents higher than the previous week, and 52 cents higher than the previous month. DPMO cited three reasons for the higher gasoline prices: (1) an increase in global crude oil prices; (2) refinery maintenance events causing decreases in supply that “refiners did not adequately prepare for by increasing inventories and imports; and (3) an unusual spot market transaction on September 15, 2023 that has had an outsized impact on gas prices, causing prices to jump $0.50 per gallon. Director Milder suggested the situation highlighted “several market flaws that make California gasoline prices vulnerable to price spikes.” These include: spot market volatility and its outsized impacts on prices, lack of spot market liquidity, inadequate inventories, of gasoline and blend stocks, and refinery undersupply during maintenance.

Governor Newsom responds to DPMO letter. On September 27, 2023, Governor Newsom directed DPMO to identify “initial proposals” of potential spot market reforms. In addition, Governor Newsom, as he had the previous year, directed CARB to allow for an early transition to winter-blend gasoline in order to quickly increase fuel supply in the market. In January 31, 2024, DPMO sent a letter to the Governor outlining two policy options that can improve how California’s spot market functions and help protect consumers. Specifically, DPMO recommended near-term options: (1) publishing a California spot market report and (2) establishing minimum inventory and resupply obligations on refiners. The CEC moved forward with adopting new spot market reporting requirements, utilizing the authority in SBX1-2, including utilizing emergency regulations. On March 26, 2024, the California Fuels and Convenience Alliance (CFCA) filed a lawsuit against the CEC for failing to observe the requirements of CEQA and the California Administrative Procedures Act (APA) and other provisions of California law. The lawsuit remains active. With regards to establishing minimum inventory and resupply obligations, the CEC held a public workshop in August to discuss the issue.

Proposed Law:

This bill would authorize the CEC to increase transportation fuel supply through various actions. Specifically, this bill would:

1. Expressly require the refinery turnaround regulations authorized by SBX1-2 to protect the health and safety of employees, local communities, and the public, and to include criteria that are required to be met before a refinery commences a turnaround or maintenance event, including, demonstrating to the satisfaction of the executive director of the CEC that a refiner has made resupply plans for other arrangements sufficient to ensure that the loss of production during the turnaround or maintenance event does not adversely affect the California transportation fuels market.
   1. Provide that it does not modify any requirements of, or standards issued pursuant to, Section 6311 of, or Part 7.5 (commencing with Section 7850) of Division 5 of, the Labor Code, including the authority of employees to perform an emergency shutdown of the refinery and necessary maintenance work for safety.
   2. Provide that a regulation adopted, or action taken, pursuant to this section shall not excuse an employer’s compliance with the skilled and trained workforce and wage requirements set forth in Section 25536.7 of the Health and Safety Code.
2. Require the CEC, in consultation with the ICFAC, to consider the effects of refiners’ inventories of fuel and feedstocks and blending components on the price of transportation fuels in California. Authorize the CEC, by regulation, to develop and impose requirements for refiners operating in the state to maintain minimum levels of inventories of refined transportation fuels meeting California specifications, including any feedstocks and blending components, as specified.
   1. Require the regulations adopted by the CEC to provide for a multitude of considerations, adjustments, requirements, including:
      1. A process to for establishing minimum inventory levels for each refiner or refining region, defined as the two in-state regions of concentrated refineries (San Francisco Bay Area and the Los Angeles Area).
      2. A process for maximizing the use of existing storage infrastructure.
      3. A process for waiving, if appropriate, minimum inventory requirements (as specified) for a small refinery, as defined, if the refiner demonstrates that those requirements would impose a disproportionate economic hardship.
      4. A process for adjusting, if appropriate, minimum inventory requirements for one or more refiners based on region, season, refinery size and storage capacity, and changes in regional or statewide supply and demand for refined transportation fuels meeting California’s specifications.
      5. Market conditions under which a refiner would be permitted or required to draw down its inventories.
   2. Prohibit the CEC from adopting a regulation unless it finds that the likely benefits to consumers from avoiding price volatility outweigh the potential costs to consumers. Require the CEC to consider specific factors in making that determination, including whether it is likely that the minimum levels of inventories of refined transportation fuels will lead to lower average retail prices on an annual basis than would exist without the minimum level of inventories.
   3. Provide that the CEC may consider the use of a compliance mechanism for each refiner that is tradable between or within each refining region for refiners to meet the minimum inventory requirements adopted pursuant to this section.
   4. Prohibit the CEC from applying a minimum inventory requirement to a refiner in a manner that would be met only by the construction of additional storage infrastructure, as determined by the CEC.
   5. Require the CEC to submit a report to the Legislature one year after the adoption of the regulation, and each year thereafter, that includes an evaluation of the effectiveness of the regulation, including whether the regulation continues to meet the cost-effectiveness test.
   6. Repeal these provisions on January 1, 2033.
3. Impose an administrative civil penalty on a refiner or person who fails to comply with regulations adopted pursuant to the minimum inventory requirements authority of not less than $100,000 and not more than $1 million, per day for each day that the noncompliance occurs. Authorize the CEC to seek any form of injunctive or remedial relief to enforce compliance with those regulations, as provided. Repeals these provisions on January 1, 2033 for the regulations authorized as noted above in paragraph (4), but remains operative for those regulations authorized under paragraph (3).
4. Expand the information required to be disclosed to the Speaker of the Assembly, the Senate Committee on Rules, and the relevant policy committees to also include provided under contract entered into the emergency regulations pursuant to Public Resources Code §25367 and the information shared with the ICFAC pursuant to Public Resource Code §25373.
5. Provide that any regulation, guideline, other standard adopted, or decision rendered, by the CEC under Chapter 4.5 Petroleum Supply and Pricing, also known as the Petroleum Industry Information Reporting Act of 1980 (PIIRA), is not a project for purposes of the California Environmental Quality Act (CEQA). Make explicit that projects undertaken pursuant to a regulation, guideline, other standard or decision adopted (including the minimum inventories regulation) are not exempt from CEQA. Expressly state that the subdivision is declaratory of existing law and applies to all regulations, guidelines, other standards adopted, or decisions rendered, under this chapter before or after the effective date of this subdivision.
6. Require that the CEC’s SBX1-2 Assessment, beginning with the first Assessment submitted after the effective date of the bill, also include an evaluation of California’s future petroleum product and crude oil import needs, identification of steps that can be taken to ensure that marine infrastructure and port facilities will be adequate to accommodate the efficient movement of petroleum products to meet those needs, an evaluation of ways to maximize use of existing infrastructure and minimize cumulative pollution burdens, and an evaluation of the effects on supplies of transportation fuels of state regulations that the CEC identifies may be causing supply constraints, or for which the CEC believes alternative compliance pathways should be considered by state agencies to mitigate potential impacts on supply.
7. Provide that the director of the DPMO is a “head of a department” and may undertake investigations in the manner prescribed in Article 2 (commencing with §11180) of Chapter 2 of Part 1 of Division 3 of Title 2 of the Government Code. Authorizes the DPMO to confidentially refer violations to the Attorney General.
8. Specify that the prohibition for participating on the ICFAC does not exclude a representative of a labor organization whose membership consists of, in whole or in part, individuals employed by a company that produces, refines, distributes, trades in, markets, or sells any petroleum product.
9. Require the ICFAC to meet no less than annually, instead of exclusively as prescribed by the CEC.

Related Legislation:

SBX1-2 (Skinner, Chapter 1, Statutes of 2023-24 First Extraordinary Session) included several policies to address gasoline supply and pricing, including authorizing the CEC to establish a maximum gross gasoline refining margin and penalty on gasoline sold by refiners in the state.

SB 842 (Bradford, 2023) would have required the CEC to also consult with the DIR, in addition to the Labor and Workforce Development Agency, when considering ways to manage necessary refinery turnarounds and maintenance. Would have required the CEC, for any adopted regulations regarding scheduling or rescheduling of maintenance, to consult with labor and industry stakeholders and aim to avoid any adverse impacts to the safety of employees and surrounding communities, labor and equipment availability, other market impacts, and cost. The bill was vetoed.

SB 1322 (Allen, Chapter 374, Statutes of 2022) required the CEC to collect specified pricing data from each oil refinery operating in the state.

SB 448 (Leno, 2013) would have required the CEC to collect and analyze specific information regarding petroleum pricing, establish the Motor Vehicle Fuel Market Advisory Committee to provide subject matter expertise on fuel pricing, and include specified recommendations regarding its findings, including an analysis of potential market manipulation in the Integrated Energy Policy Report. The bill was vetoed.

AB 2076 (Shelley, Chapter 936, Statutes of 2000) required the CEC, by January 31, 2002, to examine the feasibility of operating a strategic fuel reserve to insulate California consumers and businesses from substantial short-term price increases arising from refinery outages and other similar interruptions.

SB 1444 (Holmdahl, Chapter 1055, Statutes of 1980) established the PIIRA which requires specified monthly and annual reporting requirements for certain members of the petroleum industry and quarterly and annual reporting of the CEC. The bill includes confidentiality protections for the data submitted so as to prevent unfair competitive disadvantage.

Staff Comments:

Cost to implement SBX1-2. This bill would make additional changes to and expand on SBX1-2, which authorized the CEC to establish a maximum gross gasoline refining margin, establish and enforce penalties, collect additional data from the transportation fuels industry, including refiners, and develop reports and an assessment and plan ensuring a reliable supply of affordable and safe transportation fuels in California.

In order to implement SBX1-2, the CEC requested $3.8 million in the first year (ERPA) to develop the programs and reports for the Legislature, and $3.8 million annually thereafter (ERPA) to continue to support the program and staff and generate subsequent reports. This corresponds to 14 permanent positions and $1 million to provide ongoing technical support to support the triennial assessment and market analysis. The CEC also requested $2.1 million ERPA ongoing to support 10 positions that were redirected internally to support the new independent Division of Petroleum Market Oversight utilizing existing position authority. In addition, the Department of Industrial Relations requested 1.0 position and $286,000 in 2023-24 and $272,000 in 2024-25 and ongoing from the Occupational Safety and Health Fund to implement SBX1-2.

Subsequently, as part of the 2024-25 budget, the CEC requested an additional $493,000 annually (ERPA) to hire more specialized staff and fund contracting services. In addition to the $2.048 million for ten positions DPMO received in 2023-24, DPMO requested an additional $231,000 ongoing to adjust the classifications of those ten positions in order to hire individuals with specialized backgrounds as well as an additional $240,000 ongoing for contracting services, specifically for consulting experts in the California fuels industry.

ERPA structural deficit. The main funding source supporting CEC is ERPA, which was established to provide funds for ongoing energy programs and projects. ERPA is supported by a statutory surcharge on electricity consumption. According to the CEC, as building and appliance energy efficiency and the increase of behind-the-meter solar produce customer savings and flatten statewide electricity consumption, ERPA revenues have decreased, and the costs have been borne by fewer and fewer customers. Even as revenues drop, ERPA is repeatedly tapped to support new programs and must cover increases in employee compensation and benefit contributions.

The primary source of revenue for ERPA is a surcharge on retail electricity sales, which is currently set to the statutory maximum of $0.0003 per kWh. This surcharge generated $71.6 million in 2022-23. On average, a California ratepayer pays about 16 cents per month for the surcharge—or about $2 annually.

According to the administration, the current level of revenues generated by this surcharge is insufficient to support CEC sustainably. In 2024-25, the Governor’s proposed budget included $95.7 million in expenditures from ERPA, which continues a structural deficit in the fund. Absent any changes, ERPA is projected to become insolvent in 2027-28.

The administration reports that this imbalance between revenue and expenditures stem from a variety of factors. First, one factor is the growing capacity of BTM rooftop solar, wind, and non-utility generation. Because the ERPA surcharge only applies to retail electricity sales, revenues are expected to decrease as BTM makes a growing share of the total electricity consumption. Although transportation, building, and other forms of electrification is expected to increase electricity consumption in the coming years, the administration claims that the growth of ERPA expenditures currently outpace the growth of electricity consumption.

Second, the scope of CEC’s roles and responsibilities have grown in the last several years, as clean energy, electrification, and energy reliability have become key in reaching the state’s climate change goals. For example, ERPA expenditures grew about $6.5 million in 2023-24, in part to implement legislation, such as SB X1-2, SB 1158, and SB 1112.

To address this structural deficit, the Governor proposed, as part of the 2024-25 budget, trailer bill language that would, beginning January 1, 2025: (1) adjust the surcharge cap to $0.00066 per kWh; (2) tie the surcharge cap to the Consumer Price Index; and (3) apply the ERPA surcharge to BTM energy consumption. This proposal was ultimately not adopted in the final 2024-25 budget, but the proposal does highlight the ongoing budgetary issues with ERPA.

Any increase in ERPA expenditures may accelerate the need for an increase in the statewide surcharge on electricity consumption that provide revenue for this fund.

Trail court cost pressures. This bill would authorize the CEC to impose an administrative civil penalty and to seek any form of injunctive or remedial relief to enforce compliance with its regulations, as provided.

The fiscal impact of this bill to the courts will depend on many unknown factors, including the numbers of violations alleged to have occurred, if parties settle the matter before the filing of an action, and the factors unique to each case. An eight-hour court day costs approximately $8,000 in staff in workload. If the bill results in only 12 or more days spent in court, trial court costs could be in the hundreds of thousands of dollars. While the courts are not funded on a workload basis, an increase in workload could result in delayed court services and would put pressure on the General Fund to fund additional staff and resources and to increase the amount appropriated to backfill for trial court operations. The Budget Act of 2024, for the fiscal year beginning July 1, 2024, includes a $97 million reduction to the trial courts, a commensurate reduction of up to 7.95 percent to the budget for the state-level judiciary, and a reduction of the trial court state-level emergency reserve in the Trial Court Trust Fund from $10 million to $5 million. The Budget Act also includes a $37.3 million General Fund backfill for the Trial Court Trust Fund to address the continued decline in civil fee and criminal fine and penalty revenues expected in fiscal year 2024‒25.

Staff notes that “preliminary injunctions” get preference on the court calendar. Should the CEC seek a preliminary injunction under its authority that would be established by this bill, it could result in moderate staff workload impacts associated with ensuring the bill’s calendaring requirements are met in court, likely at the expense of other civil cases that have already been calendared. Staff notes that there are currently other calendar preferences given to civil matters such as CEQA, protective orders, and motions to strike, as well as cases where certain personal conditions are met. Continuing to add to the expedited cases list requires clerks to make a determination on which cases take preference over others and then move hearings around, as deemed necessary. Creating preferences for certain civil case types creates an access to justice issue for all court users whose hearings will be postponed in order to meet the bill’s requirements.

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SENATE COMMITTEE ON FUEL SUPPLY AND PRICE SPIKES

Senator Steven Bradford, Chair

2023 - 2024 2nd Ext.

Bill No: ABX2 1 Hearing Date: 10/7/2024

SUBJECT: Energy: transportation fuels: inventories: turnaround and maintenance

DIGEST: This bill makes additional changes to and expands on SBX1-2 (Skinner, Chapter 1, Statues of the 2023-2024 First Extraordinary Session) related to transportation fuels. Specifically, this bill authorizes the California Energy Commission (CEC) to increase transportation fuel supply through various actions, including by authorizing the CEC to develop requirements on refiners to maintain resupply plans to cover production loss during maintenance events and to maintain minimum levels of supply inventories. The bill also includes other related provisions.

ANALYSIS:

Existing law:

1. Requires the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public, and minimize the impacts of maintenance-related production losses on fuel prices. Authorizes the CEC, by regulation, to impose requirements governing the timing of turnaround and maintenance. (Public Resources Code §25354.2)
2. Requires the CEC, on or before January 1, 2024, and every three years thereafter, to submit an SBX1-2 Transportation Fuels Assessment (Assessment) to the Governor and the Legislature that, among other things, identifies methods to ensure a reliable supply of affordable and safe transportation fuels in California. (Public Resources Code §25371)
3. Establishes, pursuant to SBX1-2, beginning on June 26, 2023, the Independent Consumer Fuels Advisory Committee (ICFAC) within the CEC to advise the CEC and the Division of Petroleum Market Oversight (DPMO) within the CEC. Prescribes the composition of the eight-member ICFAC to include six specified members appointed by the Governor (including a member representing labor), one member appointed by the Speaker of the Assembly, and one member appointed by the Senate Committee on Rules. Prohibits a member of the ICFAC from having been employed by, contracted with, or received direct compensation from, a company that produces, refines, distributes, trades in, markets, or sells any petroleum product in the preceding 12 months, except as provided. Specifies that the schedule of meetings of the ICFAC is to be prescribed by the CEC. (Public Resources Code §25373)
4. Establishes the Department of Industrial Relations (DIR) within the Labor and Workforce Development Agency and designates DIR to be responsible for administering the state plan for the development and enforcement of occupational safety and health standards relating to issues covered by corresponding standards promulgated under the federal Occupational Safety and Health Act of 1970 (Public Law 91-596). Requires the state plan to be consistent with the provisions of state law governing occupational safety and health, including, but not limited to, Chapter 6 (commencing with Section 140) and Chapter 6.5 (commencing with Section 148) of Division 1, and Division 5 (commencing with Section 6300), of the Labor Code. (Labor Code §50 et seq.)
5. Establishes the California Refinery and Chemical Plant Worker Safety Act of 1990 which states the intent of the Legislature that the Occupational Safety and Health Standards Board and the Division of Occupational Health and Safety (Cal/OSHA) within the DIR promote worker safety through implementation of training and process safety management practices in petroleum refineries and chemical plants and other facilities deemed appropriate. Defines “process safety management” to mean the application of management programs, which are not limited to engineering guidelines, when dealing with the risks associated with handling or working near hazardous chemicals. Process safety management is intended to prevent or minimize the consequences of catastrophic releases of acutely hazardous, flammable, or explosive chemicals. (Labor Code §7850 et seq.)
6. Requires every petroleum refinery employer to provide to the Cal/OSHA a full schedule of planned turnarounds for all affected units for the following calendar year, and defines the schedule submitted to be treated as a “trade secret.” Defines “turnaround” to mean a planned, periodic shutdown, total or partial, of a refinery process unit or plant to perform maintenance, overhaul, and repair operations and to inspect, test, and replace process materials and equipment. (Labor Code §§7872, 7873)

This bill:

1. Expressly requires the refinery turnaround regulations authorized by SBX1-2 to include: 
   1. a provision establishing that the health and safety of employees and the public are the primary consideration and that any harm to employees and local communities from changes to the timing of turnaround or maintenance is to be minimized, and 
   2. criteria that are required to be met before a refinery commences a turnaround or maintenance event, including, demonstrating to the satisfaction of the executive director of the CEC that a refiner has made resupply plans for other arrangements sufficient to ensure that the loss of production during the turnaround or maintenance event does not adversely affect the California transportation fuels market.
2. Requires the CEC, in consultation with the ICFAC, to consider the effects of refiners’ inventories of fuel and feedstocks and blending components on the price of transportation fuels in California. Authorizes the CEC, by regulation, to develop and impose requirements for refiners operating in the state to maintain minimum levels of inventories of refined transportation fuels meeting California specifications, including any feedstocks and blending components. 
   1. Requires the regulations adopted by the CEC to provide for a multitude of considerations, adjustments, requirements, including:
      1. A process to for establishing minimum inventory levels for each refiner or refining region, defined as the two in-state regions of concentrated refineries (San Francisco Bay Area and the Los Angeles Area).
      2. A process for maximizing the use of existing storage infrastructure, a recognition that the health and safety of employees and local communities are the primary consideration.
      3. A process for adjusting or waiving minimum inventory requirements (as specified), market conditions under which a refiner would be permitted or required to draw down its inventories.
   2. Prohibits the CEC from adopting a regulation unless it finds that the likely benefits to consumers from avoiding price volatility outweigh the potential costs to consumers. Requires the CEC to consider specific factors in making that determination, including whether it is likely that the minimum levels of inventories of refined transportation fuels will lead to lower average retail prices on an annual basis than would exist without the minimum level of inventories.
   3. Provides that the CEC may consider a market-based compliance mechanism for refiners to maintain a minimum inventory at a regional level.
   4. Prohibits the CEC from applying a minimum inventory requirement to a refiner in a manner that would be met only by the construction of additional storage infrastructure, as determined by the CEC.
   5. Requires the CEC to submit a report to the Legislature one year after the adoption of the regulation, and each year thereafter, that includes an evaluation of the effectiveness of the regulation, including whether the regulation continues to meet the cost-effectiveness test.
   6. Repeals these provisions on January 1, 2033.
3. Imposes an administrative civil penalty on a refiner or person who fails to comply with regulations adopted pursuant to the minimum inventory requirements authority of not less than $100,000 and not more than $1 million, per day for each day that the noncompliance occurs. Authorizes the CEC to seek any form of injunctive or remedial relief to enforce compliance with those regulations, as provided. Repeals these provisions on January 1, 2033 for the regulations authorized as noted above in paragraph (4), but remains operative for those regulations authorized under paragraph (3).
4. Expands the information required to be disclosed to the Speaker of the Assembly, the Senate Committee on Rules, and the relevant policy committees to also include provided under contract entered into the emergency regulations pursuant to Public Resources Code §25367 and the information shared with the ICFAC pursuant to Public Resource Code §25373.
5. Provides that any regulation, guideline, other standard adopted, or decision rendered, by the CEC under Chapter 4.5 Petroleum Supply and Pricing, also known as the Petroleum Industry Information Reporting Act of 1980 (PIIRA), is not a project for purposes of the California Environmental Quality Act (CEQA). Makes explicit that projects undertaken pursuant to a regulation, guideline, other standard or decision adopted (including the minimum inventories regulation) are not exempt from CEQA. Expressly states that the subdivision is declaratory of existing law and applies to all regulations, guidelines, other standards adopted, or decisions rendered, under this chapter before or after the effective date of this subdivision.
6. Requires that the CEC’s SBX1-2 Assessment, beginning with the first Assessment submitted after the effective date of the bill, also include both an evaluation of California’s future petroleum product and crude oil import needs and identified steps that can be taken to ensure that marine infrastructure and port facilities will be adequate to accommodate the efficient movement of petroleum products to meet those needs and to evaluate ways to maximize use of existing infrastructure and minimize cumulative pollution burdens, and an evaluation of the effects on supplies of transportation fuels of state regulations that the CEC identifies may be causing supply constraints, or for which the CEC believes alternative compliance pathways should be considered by state agencies to mitigate potential impacts on supply.
7. Provides that the director of the DPMO is a “head of a department” and may undertake investigations in the manner prescribed in Article 2 (commencing with §11180) of Chapter 2 of Part 1 of Division 3 of Title 2 of the Government Code. Authorizes the DPMO to confidentially refer violations to the Attorney General.
8. Specifies that the prohibition for participating on the ICFAC does not exclude a representative of a labor organization whose membership consists of, in whole or in part, individuals employed by a company that produces, refines, distributes, trades in, markets, or sells any petroleum product.
9. Requires the ICFAC to meet no less than annually, instead of exclusively as prescribed by the CEC.

Background

1. California gasoline fuels market is isolated. California’s gasoline fuels market is geographically isolated from other locations in the U.S. that produce refined fuel products. As of March 2024, California has nine refineries that refine crude oil into gasoline fuel that meets state requirements; the majority are located in and around the South Bay region in the Los Angeles Basin, a few in the East Bay region of the Bay Area, and the smallest by volume produced is located in Bakersfield. The state’s refineries process over 1.6 million barrels of crude oil per day. In 2021, 88 percent of gasoline production was used in-state and 12 percent was exported. These refiners produce transportation fuels that meet the specially formulated gasoline to meet California’s air quality standards mandated by the California Air Resources Board (CARB), known as California Reformulated Gasoline Blendstock for Oxygenate Blending (CARBOB) gasoline. The number of refineries has been decreasing as some have shuttered and others have transitioned to producing alternative fuels. The CEC has noted that as demand for gasoline declines due to the state’s adoption of zero-emission vehicles, more refineries may close or convert to renewable fuels, as a result, supply conditions may increase baseline prices and add to price spike risk.
2. Unexpected disruptions and refinery facility outages can result in reduced supply and price increases. California has no ability to deliver gasoline into the state via pipelines, as the existing pipelines only deliver gasoline and other refined fuels out of the state. As a result of California’s isolated gasoline fuels market, unexpected and unplanned disruptions on the system, including unplanned and planned refinery outages, can impact the supply, which often affects price. This was the situation after the unexpected outage at the then-Exxon Mobil Torrance Refinery in February 2015 due to an explosion of the facility that resulted in an extended outage. Gasoline prices were immediately affected, as prices increased within a week of the outage.
3. Extraordinary session and passage of legislation. In late 2022, in response to spikes in the retail price of gasoline, Governor Newsom called the Legislature into an extraordinary session to consider ways to address the gasoline price spike. The Legislature, in turn, approved SBX1-2 (Skinner), which among its many provisions, required petroleum refiners to notify the CEC, under specified timelines, of any planned, unplanned or turnaround scheduled maintenance. SBX1-2 also directed the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public and authorized the CEC to regulate the timing of turnaround and maintenance.
4. DPMO sends letters regarding gasoline price increases. In September 2023, DPMO Director Tai Milder sent letters to the Governor and Legislature providing an interim update. The letter noted that the average price for gasoline was $5.78 per gallon, 25 cents higher than the previous week, and 52 cents higher than the previous month. DPMO cited three reasons for the higher gasoline prices: (1) an increase in global crude oil prices; (2) refinery maintenance events causing decreases in supply that “refiners did not adequately prepare for by increasing inventories and imports; and (3) an unusual spot market transaction on September 15, 2023 that has had an outsized impact on gas prices, causing prices to jump $0.50 per gallon. Director Milder suggested the situation highlighted “several market flaws that make California gasoline prices vulnerable to price spikes.” These include: spot market volatility and its outsized impacts on prices, lack of spot market liquidity, inadequate inventories, of gasoline and blend stocks, and refinery undersupply during maintenance.
5. Governor Newsom responds to DPMO letter. On September 27, 2023, Governor Newsom directed DPMO to identify “initial proposals” of potential spot market reforms. In addition, Governor Newsom, as he had the previous year, directed the CARB to allow for an early transition to winter-blend gasoline in order to quickly increase fuel supply in the market. In January 31, 2024, DPMO sent a letter to the Governor outlining two policy options that can improve how California’s spot market functions and help protect consumers. Specifically, DPMO recommended near-term options: (1) publishing a California spot market report and (2) establishing minimum inventory and resupply obligations on refiners. The CEC moved forward with adopting new spot market reporting requirements, utilizing the authority in SBX1-2, including utilizing emergency regulations. On March 26, 2024, the California Fuels and Convenience Alliance (CFCA) filed a lawsuit against the CEC for failing to observe the requirements of CEQA and the California Administrative Procedures Act (APA) and other provisions of California law. The lawsuit remains active. With regards to establishing minimum inventory and resupply obligations, the CEC held a public workshop in August to discuss the issue.

Comments

1. Fuel supply inventory reserves. This bill explicitly authorizes the CEC to require refineries to maintain minimum fuel supplies during refinery turnarounds and maintenance outages. SBX1-2 authorized the CEC to develop regulations on the timing of refinery turnarounds and maintenance developed through consultations with the Labor and Workforce Development Agency and labor and industry stakeholders. This bill would require criteria that are required to be met before a refinery begins a turnaround or maintenance event, and explicitly states a criteria can be a requirement that the refinery has demonstrated resupply plans or other arrangements sufficient to ensure the loss of production during the event does not adversely affect the state’s transportation fuels market.
2. CEC discussing resupply and supply reserves. The CEC has hosted public workshops to discuss options for resupply or supply reserves during refinery turnarounds and maintenance events. Both CEC staff and DPMO have suggested that some level of resupply or supply inventory reserves may help reduce price spikes during refinery turnarounds, with DPMO noting that recent price spikes have been at times of refinery outages. At the August workshop, the CEC staff suggested a 15-day supply may be a helpful timeframe for days of storage that could stave off price spikes. In 2000, then-Attorney General Lockyer, convening with a taskforce of experts, had similar recommendation in a May 2000 preliminary staff report, Report on Gasoline Pricing in California, which also sought to address gasoline price spikes. That report suggested a state reserve or some on-hand inventory (perhaps including stored at facilities owned by electric utilities) may be helpful. However, the efforts to establish a state reserve of fuel supply never gained enough traction and in a 2003 report in response to legislation requiring an assessment of this option, the CEC recommended against such an approach due to several unintended consequences, including raising the costs to consumers of eliminating lower-than-average prices. However, the concept of additional gasoline inventories has continued to be raised in policy discussions over the years, particularly when gasoline prices increase.
3. CEC SBX1-2 Transportation Fuels Assessment. More recently, the CEC Transportation Fuels Assessment required by SBX1-2, and recently finalized in August, provides several preliminary options to ensure a reliable supply of affordable and safe transportation fuels in California, including a preliminary scope of requiring supply inventories. In considering storage options, including stock minimums and state run reserves, the Assessment noted these options are likely to require large investments or other spending for infrastructure construction or leasing. With regards to stock minimums for refiners and terminals, the Assessment suggests that contingency reserves of gasoline fuel at refiners could mitigate short-term price spikes by providing a quickly available supply reserve.
4. Concerns about impacts to fuels market. The Assessment also acknowledges challenges with requiring contingency reserves during refinery turnarounds and maintenance events, including many raised by the industry opposition to this bill. These include the potential to artificially create shortages in downstream markets, increase average prices for refiners to maintain storage, and the need to develop a process or program to orchestrate the use of the volumes held in reserve. Additionally, the Assessment notes that downstream impacts could impact spot market prices in uncertain ways, although a market equilibrium may likely emerge at a higher price level. This bill attempts to mitigate some of these concerns (while also acknowledging these risks) by prohibiting the CEC from adopting a regulation to require refiners to maintain minimum levels of inventories of refined transportation fuels, including feedstocks, unless the CEC finds that the likely benefits to consumers from avoiding price volatility outweigh the potential costs, among other considerations and requirements. Nonetheless, the concerns about potentially increasing overall costs for gasoline, even as temporary price spikes and volatility may be reduced, are important considerations for the Legislature to consider in whether to explicitly authorize CEC regulation to require inventory contingency reserves.
5. Available existing storage? In testimony at recent Assembly hearings and public workshops, the CEC has stated their analysis finds there is available storage capacity within the existing storage infrastructure of refinery operations in the aggregate to provide for the resupply or minimum inventory requirements to help reduce the likelihood of future price spikes. However, the CEC and DPMO have noted the need for continued analysis on an individual refinery level to assess how a regulation to require minimum inventories and resupply plans during refinery turnarounds and maintenance events would occur. DPMO explicitly testified to the need for this legislation to ensure the participation of refineries in this endeavor. The opponents of this bill, including the Western States Petroleum Association, raise concerns that the CEC and DPMO analysis does not fully consider the many variables associated with existing storage capacity, including the number of other owners and operators, beyond refineries, that participate in the petroleum market and own storage. The provide an analysis by the Brattle Group that further notes the complicated nature of the petroleum system and the challenges of requiring minimum inventories due to the complicated gasoline supply system and the cycling of the fuel, including the important role of marine terminals. The opponents raise concerns that an aggregate amount of capacity may not be indicative of actual available capacity at refineries or consider the complicated system of cycling fuel and feedstocks to supply the market. In this regard, the bill attempts to address these concerns by requiring the CEC to make specific determinations and include specific considerations prior to adopting regulations, including regarding available existing storage capacity at refineries and the effects on overall gasoline prices. However, given the CEC’s analysis would be conducted as part of the regulation authorized by this statute, the opposition remains opposed.
6. Worker safety. SBX1-2 requires petroleum refiners to notify the CEC, under specified timelines, of any planned, unplanned or turnaround scheduled maintenance. SBX1-2 also directed the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public and authorized the CEC to regulate the timing of turnaround and maintenance. This bill attempts to further address worker safety; however, numerous public comments, including from those representing workers at refineries, have raised concerns that the language is not strong enough to ensure the safety of workers and local communities.
7. Advisory committee. It’s been over a year since SBX1-2 has been chaptered into law, soon after, the Assembly and the Senate each made their respective appointment to the ICFAC. However, the Governor has not made the appointments of the six remaining members. As such, the ICFAC has not been convened or provided input into the development of the any of the assessments or regulations stemming from SBX1-2. This bill would individuals representing unions who represent members employed by a company that produces or refines petroleum would not be considered a conflict-of-interest to prohibit participation in the advisory committee. Given that the committee has yet to meet, even as the CEC and DPMO have proceeded to develop reports and regulations authorized by SBX1-2, the bill would require the ICFAC to meet at least annually.
8. CEQA language. As noted above, in March, the CFCA filed a lawsuit against the CEC for failing to observe the requirements of CEQA and the APA and other provisions of California law in proposing to adopt spot market reporting requirements. Presumably, the CEQA language proposed in this bill is an attempt to make explicit that the agency is protected against CEQA-related litigation for regulations related to PIIRA statutes, including those authorized in SBX1-2 and this bill, which includes the proposed spot market reporting requirements currently subject of litigation.
9. Amendments proposed (Attached Link). The following amendments have been negotiated by Senate and Assembly leadership and the Governor’s Office, they are proposed for this bill as reflected in RN 2422991 and characterized below:
   1. Clarification that the regulations must protect the health and safety of employees, local communities, and the public.
   2. Strengthening and clarification of worker safety protections, including reference to existing law regarding process safety management, California Occupational Safety and Health Standards, and worker protections in the Health and Safety Code, which shall be unaffected, and not compromised, by the authorized regulations in this bill.
   3. Clarification of the ability of the CEC to waive minimum inventory requirements for small refineries, specifically referencing the federal definition under Section 80.2 of Title 40 of the Code of Federal Regulations, as currently in effect, which provides that a small refiner is one where the average aggregate daily crude oil throughput does not exceed 75,000 barrels.
   4. Clarifications concerning the authority to authorize trading of the use of compliance mechanisms for each refinery that is tradeable between or within each refining region to meet the minimum inventory requirements and deletes reference to authorizing “a market-based compliance mechanism.”
   5. Clarification that a member on the ICFAC representing labor is from a labor organization with experience in refinery operations.
   6. Additional clarifying amendments.

Prior/Related Legislation

SBX1-2 (Skinner, Chapter 1, Statutes of 2023-24 First Extraordinary Session) included several policies to address gasoline supply and pricing, including authorizing the CEC to establish a maximum gross gasoline refining margin and penalty on gasoline sold by refiners in the state.

SB 842 (Bradford, 2023) would have required the CEC to also consult with the DIR, in addition to the Labor and Workforce Development Agency, when considering ways to manage necessary refinery turnarounds and maintenance. Would have required the CEC, for any adopted regulations regarding scheduling or rescheduling of maintenance, to consult with labor and industry stakeholders and aim to avoid any adverse impacts to the safety of employees and surrounding communities, labor and equipment availability, other market impacts, and cost. The bill was vetoed.

SB 1322 (Allen, Chapter 374, Statutes of 2022) required the CEC to collect specified pricing data from each oil refinery operating in the state.

SB 448 (Leno, 2013) would have required the CEC to collect and analyze specific information regarding petroleum pricing, establish the Motor Vehicle Fuel Market Advisory Committee to provide subject matter expertise on fuel pricing, and include specified recommendations regarding its findings, including an analysis of potential market manipulation in the Integrated Energy Policy Report. The bill was vetoed.

AB 2076 (Shelley, Chapter 936, Statutes of 2000) required the CEC, by January 31, 2002, to examine the feasibility of operating a strategic fuel reserve to insulate California consumers and businesses from substantial short-term price increases arising from refinery outages and other similar interruptions.

SB 1444 (Holmdahl, Chapter 1055, Statutes of 1980) established the PIIRA which requires specified monthly and annual reporting requirements for certain members of the petroleum industry and quarterly and annual reporting of the CEC. The bill includes confidentiality protections for the data submitted so as to prevent unfair competitive disadvantage.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT:

Governor Gavin Newsom, State of California (co-source)

Attorney General Rob Bonta, State of California (co-source)

Supervisor Vicente Sarmiento, Orange County District 2
350 Bay Area Action
Action Asian Pacific Environmental Network
Active San Gabriel Valley
California Environmental Justice Alliance
California Nurses Association
Campaign for A Safe and Healthy California
Center for Biological Diversity
Center for Community Action and Environmental Justice
Center on Race, Poverty & the Environment
City of West Hollywood

Communities for A Better Environment
Consumer Watchdog
Environmental Working Group
Labor Network for Sustainability
National Nurses United
Natural Resources Defense Council
Physicians for Social Responsibility - Los Angeles
Physicians for Social Responsibility - San Francisco Bay Area Chapter
Service Employees International Union California
The Climate Center
Union of Concerned Scientists
United Food and Commercial Workers, Western States Council

OPPOSITION:

Bay Area Council

California Business Properties Association

California Fuels & Convenience Alliance

California Independent Petroleum Association

California Manufacturers & Technology Association

Central Valley Business Federation

Chamber of Commerce: Garden Grove, Greater Bakersfield, Greater Conejo

Valley, Kern County Hispanic, Long Beach Area, Los Angeles Area, Port

Hueneme, Redondo Beach, South Bay Association, South County, Torrance,

and Wilmington

Coastal Energy Alliance

Council of Business & Industrial West Contra Costa

County of Kern

East Bay EDA

East Bay Leadership Council

Harbor Association of Industry & Commerce

Industrial Association of Contra Costa County

Inland Empire Economic Partnership

International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths,

Forgers and Helpers

Kern Citizens for Energy

Kern County Economic Development Corporation

Kern County Taxpayers Association

Los Angeles County Business Federation

Orange County Business Council

PTS Advance

SAGE

San Gabriel Valley Economic Partnership
State Building & Construction Trades Council of California

Valley Industry & Commerce Association

VC CoLAB

Ventura County Taxpayers Association

West Ventura County Business Alliance

Western States Petroleum Association

ARGUMENTS IN SUPPORT: A coalition of environmental organizations, including the Asian Pacific Environmental Network, Natural Resources Defense Council, and Communities for a Better Environment state:

The oil industry has a long history of taking advantage of Californians through toxic oil drilling near schools, polluting communities through refining, and exporting oil and gas products outside of California, all while making billions by profit spiking at the expense of hardworking Californians. This measure will continue supporting the authority of the CEC to counter industry market manipulation and price spikes by maintaining minimum gasoline inventories. Many of our organizations have engaged throughout the valuable SBX1-2 implementation process at the California Energy Commission (CEC) and strongly support a regulatory framework that protects frontline communities as well as all Californians, holds refineries accountable for unnecessary price spikes, and continues to support a transition away from fossil fuels.

ARGUMENTS IN OPPOSITION: The California Fuels and Convenience Alliance contends “the bill could lead to unintended consequences that would destabilize the fuel market, impose undue financial burdens on consumers, and exacerbate existing infrastructure and regulatory challenges.” They express concerns that requirements to maintain minimum contingency reserves could impact downstream fuel supplies, as refiners may be compelled to withhold stocks that would otherwise be distributed to meet market demand. Additionally, they argue that these requirements would increase refiners’ operational costs to develop and maintain storage capacities which would then be passed along in the supply chain.

-- END --

SENATE COMMITTEE ON FUEL SUPPLY AND PRICE SPIKES

Senator Steven Bradford, Chair

2023 - 2024 2nd Ext.

Bill No: Hearing Date: 10/7/2024

SUBJECT:

DIGEST: This bill makes additional changes to and expands on SBX1-2 (Skinner, Chapter 1, Statues of the 2023-2024 First Extraordinary Session) related to transportation fuels. Specifically, this bill authorizes the California Energy Commission (CEC) to increase transportation fuel supply through various actions, including by authorizing the CEC to develop requirements on refiners to maintain resupply plans to cover production loss during maintenance events and to maintain minimum levels of supply inventories. The bill also includes other related provisions.

ANALYSIS:

Existing law:

1. Requires the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public, and minimize the impacts of maintenance-related production losses on fuel prices. Authorizes the CEC, by regulation, to impose requirements governing the timing of turnaround and maintenance. (Public Resources Code §25354.2)
2. Requires the CEC, on or before January 1, 2024, and every three years thereafter, to submit an SBX1-2 Transportation Fuels Assessment (Assessment) to the Governor and the Legislature that, among other things, identifies methods to ensure a reliable supply of affordable and safe transportation fuels in California. (Public Resources Code §25371)
3. Establishes, pursuant to SBX1-2, beginning on June 26, 2023, the Independent Consumer Fuels Advisory Committee (ICFAC) within the CEC to advise the CEC and the Division of Petroleum Market Oversight (DPMO) within the CEC. Prescribes the composition of the eight-member ICFAC to include six specified members appointed by the Governor (including a member representing labor), one member appointed by the Speaker of the Assembly, and one member appointed by the Senate Committee on Rules. Prohibits a member of the ICFAC from having been employed by, contracted with, or received direct compensation from, a company that produces, refines, distributes, trades in, markets, or sells any petroleum product in the preceding 12 months, except as provided. Specifies that the schedule of meetings of the ICFAC is to be prescribed by the CEC. (Public Resources Code §25373)
4. Establishes the Department of Industrial Relations (DIR) within the Labor and Workforce Development Agency and designates DIR to be responsible for administering the state plan for the development and enforcement of occupational safety and health standards relating to issues covered by corresponding standards promulgated under the federal Occupational Safety and Health Act of 1970 (Public Law 91-596). Requires the state plan to be consistent with the provisions of state law governing occupational safety and health, including, but not limited to, Chapter 6 (commencing with Section 140) and Chapter 6.5 (commencing with Section 148) of Division 1, and Division 5 (commencing with Section 6300), of the Labor Code. (Labor Code §50 et seq.)
5. Establishes the California Refinery and Chemical Plant Worker Safety Act of 1990 which states the intent of the Legislature that the Occupational Safety and Health Standards Board and the Division of Occupational Health and Safety (Cal/OSHA) within the DIR promote worker safety through implementation of training and process safety management practices in petroleum refineries and chemical plants and other facilities deemed appropriate. Defines “process safety management” to mean the application of management programs, which are not limited to engineering guidelines, when dealing with the risks associated with handling or working near hazardous chemicals. Process safety management is intended to prevent or minimize the consequences of catastrophic releases of acutely hazardous, flammable, or explosive chemicals. (Labor Code §7850 et seq.)
6. Requires every petroleum refinery employer to provide to the Cal/OSHA a full schedule of planned turnarounds for all affected units for the following calendar year, and defines the schedule submitted to be treated as a “trade secret.” Defines “turnaround” to mean a planned, periodic shutdown, total or partial, of a refinery process unit or plant to perform maintenance, overhaul, and repair operations and to inspect, test, and replace process materials and equipment. (Labor Code §§7872, 7873)

This bill:

1. Expressly requires the refinery turnaround regulations authorized by SBX1-2 to include: 
   1. a provision establishing that the health and safety of employees and the public are the primary consideration and that any harm to employees and local communities from changes to the timing of turnaround or maintenance is to be minimized, and 
   2. criteria that are required to be met before a refinery commences a turnaround or maintenance event, including, demonstrating to the satisfaction of the executive director of the CEC that a refiner has made resupply plans for other arrangements sufficient to ensure that the loss of production during the turnaround or maintenance event does not adversely affect the California transportation fuels market.
2. Requires the CEC, in consultation with the ICFAC, to consider the effects of refiners’ inventories of fuel and feedstocks and blending components on the price of transportation fuels in California. Authorizes the CEC, by regulation, to develop and impose requirements for refiners operating in the state to maintain minimum levels of inventories of refined transportation fuels meeting California specifications, including any feedstocks and blending components. 
   1. Requires the regulations adopted by the CEC to provide for a multitude of considerations, adjustments, requirements, including:
      1. A process to for establishing minimum inventory levels for each refiner or refining region, defined as the two in-state regions of concentrated refineries (San Francisco Bay Area and the Los Angeles Area).
      2. A process for maximizing the use of existing storage infrastructure, a recognition that the health and safety of employees and local communities are the primary consideration.
      3. A process for adjusting or waiving minimum inventory requirements (as specified), market conditions under which a refiner would be permitted or required to draw down its inventories.
   2. Prohibits the CEC from adopting a regulation unless it finds that the likely benefits to consumers from avoiding price volatility outweigh the potential costs to consumers. Requires the CEC to consider specific factors in making that determination, including whether it is likely that the minimum levels of inventories of refined transportation fuels will lead to lower average retail prices on an annual basis than would exist without the minimum level of inventories.
   3. Provides that the CEC may consider a market-based compliance mechanism for refiners to maintain a minimum inventory at a regional level.
   4. Prohibits the CEC from applying a minimum inventory requirement to a refiner in a manner that would be met only by the construction of additional storage infrastructure, as determined by the CEC.
   5. Requires the CEC to submit a report to the Legislature one year after the adoption of the regulation, and each year thereafter, that includes an evaluation of the effectiveness of the regulation, including whether the regulation continues to meet the cost-effectiveness test.
   6. Repeals these provisions on January 1, 2033.
3. Imposes an administrative civil penalty on a refiner or person who fails to comply with regulations adopted pursuant to the minimum inventory requirements authority of not less than $100,000 and not more than $1 million, per day for each day that the noncompliance occurs. Authorizes the CEC to seek any form of injunctive or remedial relief to enforce compliance with those regulations, as provided. Repeals these provisions on January 1, 2033 for the regulations authorized as noted above in paragraph (4), but remains operative for those regulations authorized under paragraph (3).
4. Expands the information required to be disclosed to the Speaker of the Assembly, the Senate Committee on Rules, and the relevant policy committees to also include provided under contract entered into the emergency regulations pursuant to Public Resources Code §25367 and the information shared with the ICFAC pursuant to Public Resource Code §25373.
5. Provides that any regulation, guideline, other standard adopted, or decision rendered, by the CEC under Chapter 4.5 Petroleum Supply and Pricing, also known as the Petroleum Industry Information Reporting Act of 1980 (PIIRA), is not a project for purposes of the California Environmental Quality Act (CEQA). Makes explicit that projects undertaken pursuant to a regulation, guideline, other standard or decision adopted (including the minimum inventories regulation) are not exempt from CEQA. Expressly states that the subdivision is declaratory of existing law and applies to all regulations, guidelines, other standards adopted, or decisions rendered, under this chapter before or after the effective date of this subdivision.
6. Requires that the CEC’s SBX1-2 Assessment, beginning with the first Assessment submitted after the effective date of the bill, also include both an evaluation of California’s future petroleum product and crude oil import needs and identified steps that can be taken to ensure that marine infrastructure and port facilities will be adequate to accommodate the efficient movement of petroleum products to meet those needs and to evaluate ways to maximize use of existing infrastructure and minimize cumulative pollution burdens, and an evaluation of the effects on supplies of transportation fuels of state regulations that the CEC identifies may be causing supply constraints, or for which the CEC believes alternative compliance pathways should be considered by state agencies to mitigate potential impacts on supply.
7. Provides that the director of the DPMO is a “head of a department” and may undertake investigations in the manner prescribed in Article 2 (commencing with §11180) of Chapter 2 of Part 1 of Division 3 of Title 2 of the Government Code. Authorizes the DPMO to confidentially refer violations to the Attorney General.
8. Specifies that the prohibition for participating on the ICFAC does not exclude a representative of a labor organization whose membership consists of, in whole or in part, individuals employed by a company that produces, refines, distributes, trades in, markets, or sells any petroleum product.
9. Requires the ICFAC to meet no less than annually, instead of exclusively as prescribed by the CEC.

Background

1. California gasoline fuels market is isolated. California’s gasoline fuels market is geographically isolated from other locations in the U.S. that produce refined fuel products. As of March 2024, California has nine refineries that refine crude oil into gasoline fuel that meets state requirements; the majority are located in and around the South Bay region in the Los Angeles Basin, a few in the East Bay region of the Bay Area, and the smallest by volume produced is located in Bakersfield. The state’s refineries process over 1.6 million barrels of crude oil per day. In 2021, 88 percent of gasoline production was used in-state and 12 percent was exported. These refiners produce transportation fuels that meet the specially formulated gasoline to meet California’s air quality standards mandated by the California Air Resources Board (CARB), known as California Reformulated Gasoline Blendstock for Oxygenate Blending (CARBOB) gasoline. The number of refineries has been decreasing as some have shuttered and others have transitioned to producing alternative fuels. The CEC has noted that as demand for gasoline declines due to the state’s adoption of zero-emission vehicles, more refineries may close or convert to renewable fuels, as a result, supply conditions may increase baseline prices and add to price spike risk.
2. Unexpected disruptions and refinery facility outages can result in reduced supply and price increases. California has no ability to deliver gasoline into the state via pipelines, as the existing pipelines only deliver gasoline and other refined fuels out of the state. As a result of California’s isolated gasoline fuels market, unexpected and unplanned disruptions on the system, including unplanned and planned refinery outages, can impact the supply, which often affects price. This was the situation after the unexpected outage at the then-Exxon Mobil Torrance Refinery in February 2015 due to an explosion of the facility that resulted in an extended outage. Gasoline prices were immediately affected, as prices increased within a week of the outage.
3. Extraordinary session and passage of legislation. In late 2022, in response to spikes in the retail price of gasoline, Governor Newsom called the Legislature into an extraordinary session to consider ways to address the gasoline price spike. The Legislature, in turn, approved SBX1-2 (Skinner), which among its many provisions, required petroleum refiners to notify the CEC, under specified timelines, of any planned, unplanned or turnaround scheduled maintenance. SBX1-2 also directed the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public and authorized the CEC to regulate the timing of turnaround and maintenance.
4. DPMO sends letters regarding gasoline price increases. In September 2023, DPMO Director Tai Milder sent letters to the Governor and Legislature providing an interim update. The letter noted that the average price for gasoline was $5.78 per gallon, 25 cents higher than the previous week, and 52 cents higher than the previous month. DPMO cited three reasons for the higher gasoline prices: (1) an increase in global crude oil prices; (2) refinery maintenance events causing decreases in supply that “refiners did not adequately prepare for by increasing inventories and imports; and (3) an unusual spot market transaction on September 15, 2023 that has had an outsized impact on gas prices, causing prices to jump $0.50 per gallon. Director Milder suggested the situation highlighted “several market flaws that make California gasoline prices vulnerable to price spikes.” These include: spot market volatility and its outsized impacts on prices, lack of spot market liquidity, inadequate inventories, of gasoline and blend stocks, and refinery undersupply during maintenance.
5. Governor Newsom responds to DPMO letter. On September 27, 2023, Governor Newsom directed DPMO to identify “initial proposals” of potential spot market reforms. In addition, Governor Newsom, as he had the previous year, directed the CARB to allow for an early transition to winter-blend gasoline in order to quickly increase fuel supply in the market. In January 31, 2024, DPMO sent a letter to the Governor outlining two policy options that can improve how California’s spot market functions and help protect consumers. Specifically, DPMO recommended near-term options: (1) publishing a California spot market report and (2) establishing minimum inventory and resupply obligations on refiners. The CEC moved forward with adopting new spot market reporting requirements, utilizing the authority in SBX1-2, including utilizing emergency regulations. On March 26, 2024, the California Fuels and Convenience Alliance (CFCA) filed a lawsuit against the CEC for failing to observe the requirements of CEQA and the California Administrative Procedures Act (APA) and other provisions of California law. The lawsuit remains active. With regards to establishing minimum inventory and resupply obligations, the CEC held a public workshop in August to discuss the issue.

Comments

1. Fuel supply inventory reserves. This bill explicitly authorizes the CEC to require refineries to maintain minimum fuel supplies during refinery turnarounds and maintenance outages. SBX1-2 authorized the CEC to develop regulations on the timing of refinery turnarounds and maintenance developed through consultations with the Labor and Workforce Development Agency and labor and industry stakeholders. This bill would require criteria that are required to be met before a refinery begins a turnaround or maintenance event, and explicitly states a criteria can be a requirement that the refinery has demonstrated resupply plans or other arrangements sufficient to ensure the loss of production during the event does not adversely affect the state’s transportation fuels market.
2. CEC discussing resupply and supply reserves. The CEC has hosted public workshops to discuss options for resupply or supply reserves during refinery turnarounds and maintenance events. Both CEC staff and DPMO have suggested that some level of resupply or supply inventory reserves may help reduce price spikes during refinery turnarounds, with DPMO noting that recent price spikes have been at times of refinery outages. At the August workshop, the CEC staff suggested a 15-day supply may be a helpful timeframe for days of storage that could stave off price spikes. In 2000, then-Attorney General Lockyer, convening with a taskforce of experts, had similar recommendation in a May 2000 preliminary staff report, Report on Gasoline Pricing in California, which also sought to address gasoline price spikes. That report suggested a state reserve or some on-hand inventory (perhaps including stored at facilities owned by electric utilities) may be helpful. However, the efforts to establish a state reserve of fuel supply never gained enough traction and in a 2003 report in response to legislation requiring an assessment of this option, the CEC recommended against such an approach due to several unintended consequences, including raising the costs to consumers of eliminating lower-than-average prices. However, the concept of additional gasoline inventories has continued to be raised in policy discussions over the years, particularly when gasoline prices increase.
3. CEC SBX1-2 Transportation Fuels Assessment. More recently, the CEC Transportation Fuels Assessment required by SBX1-2, and recently finalized in August, provides several preliminary options to ensure a reliable supply of affordable and safe transportation fuels in California, including a preliminary scope of requiring supply inventories. In considering storage options, including stock minimums and state run reserves, the Assessment noted these options are likely to require large investments or other spending for infrastructure construction or leasing. With regards to stock minimums for refiners and terminals, the Assessment suggests that contingency reserves of gasoline fuel at refiners could mitigate short-term price spikes by providing a quickly available supply reserve.
4. Concerns about impacts to fuels market. The Assessment also acknowledges challenges with requiring contingency reserves during refinery turnarounds and maintenance events, including many raised by the industry opposition to this bill. These include the potential to artificially create shortages in downstream markets, increase average prices for refiners to maintain storage, and the need to develop a process or program to orchestrate the use of the volumes held in reserve. Additionally, the Assessment notes that downstream impacts could impact spot market prices in uncertain ways, although a market equilibrium may likely emerge at a higher price level. This bill attempts to mitigate some of these concerns (while also acknowledging these risks) by prohibiting the CEC from adopting a regulation to require refiners to maintain minimum levels of inventories of refined transportation fuels, including feedstocks, unless the CEC finds that the likely benefits to consumers from avoiding price volatility outweigh the potential costs, among other considerations and requirements. Nonetheless, the concerns about potentially increasing overall costs for gasoline, even as temporary price spikes and volatility may be reduced, are important considerations for the Legislature to consider in whether to explicitly authorize CEC regulation to require inventory contingency reserves.
5. Available existing storage? In testimony at recent Assembly hearings and public workshops, the CEC has stated their analysis finds there is available storage capacity within the existing storage infrastructure of refinery operations in the aggregate to provide for the resupply or minimum inventory requirements to help reduce the likelihood of future price spikes. However, the CEC and DPMO have noted the need for continued analysis on an individual refinery level to assess how a regulation to require minimum inventories and resupply plans during refinery turnarounds and maintenance events would occur. DPMO explicitly testified to the need for this legislation to ensure the participation of refineries in this endeavor. The opponents of this bill, including the Western States Petroleum Association, raise concerns that the CEC and DPMO analysis does not fully consider the many variables associated with existing storage capacity, including the number of other owners and operators, beyond refineries, that participate in the petroleum market and own storage. The provide an analysis by the Brattle Group that further notes the complicated nature of the petroleum system and the challenges of requiring minimum inventories due to the complicated gasoline supply system and the cycling of the fuel, including the important role of marine terminals. The opponents raise concerns that an aggregate amount of capacity may not be indicative of actual available capacity at refineries or consider the complicated system of cycling fuel and feedstocks to supply the market. In this regard, the bill attempts to address these concerns by requiring the CEC to make specific determinations and include specific considerations prior to adopting regulations, including regarding available existing storage capacity at refineries and the effects on overall gasoline prices. However, given the CEC’s analysis would be conducted as part of the regulation authorized by this statute, the opposition remains opposed.
6. Worker safety. SBX1-2 requires petroleum refiners to notify the CEC, under specified timelines, of any planned, unplanned or turnaround scheduled maintenance. SBX1-2 also directed the CEC, in consultation with the Labor and Workforce Development Agency and labor and industry stakeholders, to consider ways to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public and authorized the CEC to regulate the timing of turnaround and maintenance. This bill attempts to further address worker safety; however, numerous public comments, including from those representing workers at refineries, have raised concerns that the language is not strong enough to ensure the safety of workers and local communities.
7. Advisory committee. It’s been over a year since SBX1-2 has been chaptered into law, soon after, the Assembly and the Senate each made their respective appointment to the ICFAC. However, the Governor has not made the appointments of the six remaining members. As such, the ICFAC has not been convened or provided input into the development of the any of the assessments or regulations stemming from SBX1-2. This bill would individuals representing unions who represent members employed by a company that produces or refines petroleum would not be considered a conflict-of-interest to prohibit participation in the advisory committee. Given that the committee has yet to meet, even as the CEC and DPMO have proceeded to develop reports and regulations authorized by SBX1-2, the bill would require the ICFAC to meet at least annually.
8. CEQA language. As noted above, in March, the CFCA filed a lawsuit against the CEC for failing to observe the requirements of CEQA and the APA and other provisions of California law in proposing to adopt spot market reporting requirements. Presumably, the CEQA language proposed in this bill is an attempt to make explicit that the agency is protected against CEQA-related litigation for regulations related to PIIRA statutes, including those authorized in SBX1-2 and this bill, which includes the proposed spot market reporting requirements currently subject of litigation.
9. Amendments proposed (Attached Link). The following amendments have been negotiated by Senate and Assembly leadership and the Governor’s Office, they are proposed for this bill as reflected in RN 2422991 and characterized below:
   1. Clarification that the regulations must protect the health and safety of employees, local communities, and the public.
   2. Strengthening and clarification of worker safety protections, including reference to existing law regarding process safety management, California Occupational Safety and Health Standards, and worker protections in the Health and Safety Code, which shall be unaffected, and not compromised, by the authorized regulations in this bill.
   3. Clarification of the ability of the CEC to waive minimum inventory requirements for small refineries, specifically referencing the federal definition under Section 80.2 of Title 40 of the Code of Federal Regulations, as currently in effect, which provides that a small refiner is one where the average aggregate daily crude oil throughput does not exceed 75,000 barrels.
   4. Clarifications concerning the authority to authorize trading of the use of compliance mechanisms for each refinery that is tradeable between or within each refining region to meet the minimum inventory requirements and deletes reference to authorizing “a market-based compliance mechanism.”
   5. Clarification that a member on the ICFAC representing labor is from a labor organization with experience in refinery operations.
   6. Additional clarifying amendments.

Prior/Related Legislation

SBX1-2 (Skinner, Chapter 1, Statutes of 2023-24 First Extraordinary Session) included several policies to address gasoline supply and pricing, including authorizing the CEC to establish a maximum gross gasoline refining margin and penalty on gasoline sold by refiners in the state.

SB 842 (Bradford, 2023) would have required the CEC to also consult with the DIR, in addition to the Labor and Workforce Development Agency, when considering ways to manage necessary refinery turnarounds and maintenance. Would have required the CEC, for any adopted regulations regarding scheduling or rescheduling of maintenance, to consult with labor and industry stakeholders and aim to avoid any adverse impacts to the safety of employees and surrounding communities, labor and equipment availability, other market impacts, and cost. The bill was vetoed.

SB 1322 (Allen, Chapter 374, Statutes of 2022) required the CEC to collect specified pricing data from each oil refinery operating in the state.

SB 448 (Leno, 2013) would have required the CEC to collect and analyze specific information regarding petroleum pricing, establish the Motor Vehicle Fuel Market Advisory Committee to provide subject matter expertise on fuel pricing, and include specified recommendations regarding its findings, including an analysis of potential market manipulation in the Integrated Energy Policy Report. The bill was vetoed.

AB 2076 (Shelley, Chapter 936, Statutes of 2000) required the CEC, by January 31, 2002, to examine the feasibility of operating a strategic fuel reserve to insulate California consumers and businesses from substantial short-term price increases arising from refinery outages and other similar interruptions.

SB 1444 (Holmdahl, Chapter 1055, Statutes of 1980) established the PIIRA which requires specified monthly and annual reporting requirements for certain members of the petroleum industry and quarterly and annual reporting of the CEC. The bill includes confidentiality protections for the data submitted so as to prevent unfair competitive disadvantage.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT:

Governor Gavin Newsom, State of California (co-source)

Attorney General Rob Bonta, State of California (co-source)

Supervisor Vicente Sarmiento, Orange County District 2
350 Bay Area Action
Action Asian Pacific Environmental Network
Active San Gabriel Valley
California Environmental Justice Alliance
California Nurses Association
Campaign for A Safe and Healthy California
Center for Biological Diversity
Center for Community Action and Environmental Justice
Center on Race, Poverty & the Environment
City of West Hollywood

Communities for A Better Environment
Consumer Watchdog
Environmental Working Group
Labor Network for Sustainability
National Nurses United
Natural Resources Defense Council
Physicians for Social Responsibility - Los Angeles
Physicians for Social Responsibility - San Francisco Bay Area Chapter
Service Employees International Union California
The Climate Center
Union of Concerned Scientists
United Food and Commercial Workers, Western States Council

OPPOSITION:

Bay Area Council

California Business Properties Association

California Independent Petroleum Association

California Manufacturers & Technology Association

Central Valley Business Federation

Chamber of Commerce: Garden Grove, Greater Bakersfield, Greater Conejo

Valley, Kern County Hispanic, Long Beach Area, Los Angeles Area, Port

Hueneme, Redondo Beach, South Bay Association, South County, Torrance,

and Wilmington

Coastal Energy Alliance

Council of Business & Industrial West Contra Costa

County of Kern

East Bay EDA

East Bay Leadership Council

Harbor Association of Industry & Commerce

Industrial Association of Contra Costa County

Inland Empire Economic Partnership

International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths,

Forgers and Helpers

Kern Citizens for Energy

Kern County Economic Development Corporation

Kern County Taxpayers Association

Los Angeles County Business Federation

Orange County Business Council

PTS Advance

SAGE

San Gabriel Valley Economic Partnership
State Building & Construction Trades Council of California

Valley Industry & Commerce Association

VC CoLAB

Ventura County Taxpayers Association

West Ventura County Business Alliance

Western States Petroleum Association

ARGUMENTS IN SUPPORT: A coalition of environmental organizations, including the Asian Pacific Environmental Network, Natural Resources Defense Council, and Communities for a Better Environment state:

The oil industry has a long history of taking advantage of Californians through toxic oil drilling near schools, polluting communities through refining, and exporting oil and gas products outside of California, all while making billions by profit spiking at the expense of hardworking Californians. This measure will continue supporting the authority of the CEC to counter industry market manipulation and price spikes by maintaining minimum gasoline inventories. Many of our organizations have engaged throughout the valuable SBX1-2 implementation process at the California Energy Commission (CEC) and strongly support a regulatory framework that protects frontline communities as well as all Californians, holds refineries accountable for unnecessary price spikes, and continues to support a transition away from fossil fuels.

ARGUMENTS IN OPPOSITION: The California Fuels and Convenience Alliance contends “the bill could lead to unintended consequences that would destabilize the fuel market, impose undue financial burdens on consumers, and exacerbate existing infrastructure and regulatory challenges.” They express concerns that requirements to maintain minimum contingency reserves could impact downstream fuel supplies, as refiners may be compelled to withhold stocks that would otherwise be distributed to meet market demand. Additionally, they argue that these requirements would increase refiners’ operational costs to develop and maintain storage capacities which would then be passed along in the supply chain.

-- END --

(Without Reference to File)

ASSEMBLY THIRD READING

ATR Bill Id:AB 1 X2

Author:(Hart and Aguiar-Curry)

As Amended Ver:October 1, 2024

Majority vote

SUMMARY

Authorizes the California Energy Commission (CEC), if necessary and justified, to increase transportation fuel supply through various actions; principally, by authorizing the CEC to develop requirements on refiners to maintain resupply plans to cover production loss during maintenance events, and to maintain minimum levels of inventories.

Major Provisions

1. Requires the CEC, in adopting regulations governing the timing of turnaround and maintenance, to include a provision establishing that the health and safety of employees and the public are the primary consideration, and that any harm to employees and local communities from changes to this timing is to be minimized.
2. Specifies the CEC may establish criteria that refiners must meet before commencing a turnaround or maintenance event, including requiring California’s petroleum refiners to have resupply plans and arrangements to cover their loss in production, as specified.
3. Authorizes the CEC to develop and impose requirements on California refiners to maintain minimum levels of inventories of refined transportation fuels meeting California specifications. Specifies such regulations shall provide:
   1. A process for establishing a minimum level for each refiner, each refining region (as defined), each fuel, and each blending component;
   2. A process for maximizing the use of existing storage infrastructure;
   3. A recognition that the health and safety of employees and local communities are the primary consideration;
   4. A process for adjusting or waiving the minimum inventory requirements, as specified;
   5. Market conditions under which a refiner would draw down or rebuild its inventories, including a metric or threshold based on market conditions that would automatically require a refiner to draw down inventories and provide that fuel to the market.
4. Prohibits the CEC from adopting minimum inventory regulations unless it finds that the benefits outweigh the potential costs to consumers. As part of this cost-benefit requirement, the CEC must factor how potential regulations would:
   1. lead to greater fuel supply in California’s market;
   2. lead to lower average retail prices on an annual basis;
   3. reduce the severity of retail price volatility;
   4. result in greater supply than easing supply chain inefficiencies or constraints;
   5. not be offset by actions of market participants not subject to the inventory regulations.
5. Requires the CEC to annually re-evaluate these factors and provide a report to the Legislature concluding whether the regulation meets the cost effectiveness test.
6. Permits the CEC to consider a market-based compliance mechanism for refiners to maintain a minimum inventory at a regional level.
7. Prohibits the CEC from applying a minimum inventory requirement to a refiner in a manner that would be met only by the construction of additional storage infrastructure.
8. Defines "refining region" as the two instate regions of concentrated refineries, specifically in the San Francisco Bay area and the Los Angeles area.
9. Sunsets the CEC's authority to develop and impose minimum inventory levels on refiners by January 1, 2033.
10. Establishes a civil penalty, ranging from $100,000 to $1 million per day for each day of noncompliance, which the CEC may levy on refiners who fail to comply with the resupply plans or the minimum inventory regulations, beginning on the third day following notification.
11. Specifies that data provided to the CEC or Division of Petroleum Market Oversight (DPMO) through contracts shall also be available alongside other confidential disclosures at the request of specified Members or staff of the Legislature.
12. Requires the Independent Consumer Fuels Advisory Committee to meet annually, and clarifies representatives from labor organizations are not excluded due to their membership being employed by refineries or other petroleum supply chain companies.
13. Updates reporting requirements in the CEC's existing Transportation Fuels Assessment, which is submitted to the Legislature every three years, to include an evaluation of California’s marine and port infrastructure, of ways to maximize the use of existing infrastructure and minimize cumulative pollution burdens, and of the effects of state regulations on supplies of transportation fuels that may be causing supply constraints.
14. Exempts any regulation, guideline, or other standard or decision by the CEC related to their petroleum oversight authority from the California Environmental Quality Act (CEQA), but maintains that any project undertaken pursuant to these CEC actions would still be subject to CEQA.
15. Establishes that DPMO's director is the "head of a department," pursuant to Government Code authority, which authorizes the director to investigate and prosecute all matters related to DPMO activities and to inspect all books and records, issue subpoenas, administer oaths, collaborate with other law enforcement entities, and present information to a court, among other powers and duties

COMMENTS

Gasoline prices at Californian pumps have been increasing over time and showing concerning volatility month-to-month, significantly impacting the budgets of Californians. In the last two years – 2022 and 2023 – California had two gasoline price spikes in September and October. These prices were historic for California, topping near or above $6 per gallon for regular grade retail gasoline. The price spikes were not seen in regions outside the West Coast. Higher prices of gasoline can have crippling effects for residents on fixed or limited incomes, especially those who rely on long commutes to get to work. Higher gasoline prices also take a toll on the overall economy, impacting goods that use gasoline fuels to get to market. According to analysis by the DPMO, the price spike of fall 2023 cost Californians up to $2.2 billion.

California is in a period of transition in its petroleum market. Supply is tightening, as demand is declining. These trends are unlikely to subside. Rather, more volatility – not less – is likely if the state does not strategize and appropriately plan for smoothing the transition. During an oversight hearing of the Assembly Committee on Utilities and Energy in May 2024, the CEC presented findings from their work authorized under SBX1-2 (Skinner, Chapter 1, Statutes of 2023). Included in that presentation were data comparing impacts on spot market prices against days of supply for 2022 and 2023. The CEC's chart showed (in both years) that when petroleum inventories dipped below "15 days of supply," gasoline prices began to increase. The recommendation at the time to address this observed behavior was to collaborate with industry on solutions to encourage them to "voluntarily" increase supplies and supplement stocks.

It is unclear the status of those voluntary efforts. Nevertheless, this bill provides the CEC the expressed authority to impose requirements on Californian refiners to not only maintain resupply plans to cover production loss during planned maintenance events, but to also establish minimum inventory requirements of refined fuels on refiners. Such supply obligations are suggested by the author and the administration (as sponsor) as being necessary tools the CEC needs to blunt the price spikes of recent years. The administration points to two recent examples where planned maintenance led to loss of gasoline supply in the state, with resultant increases to prices at the pump. However, what these new tools will actually look like in practice, and the potential realized savings from this proposal are topics of ongoing dispute.

For more information on California's oil and gasoline market, recent price fluctuations, and supply impacts see the background documents prepared for the informational hearings by the Petroleum and Gasoline Supply Committee during the Second Extraordinary Session on September 18 and 19, 2024.

According to the Author

According to the author, "Governor Newsom called for this second extraordinary session to address one goal—reduce gasoline prices for Californians. This effort builds on the foundation laid by last year's special session legislation, SBX1-2 (Skinner), which established the Division of Petroleum Market Oversight (DPMO). Since SBX1-2's passage, the California Energy Commission (CEC) has gained critical insights into refiner storage capacity and operations. In September 2023, gasoline prices in California soared to more than $6.00 per gallon. With enhanced data and oversight, the CEC and DPMO have identified clear trends in price spikes. ABX2-1 aims to protect consumers from surging gas prices by giving the CEC the authority to assess whether implementing minimum inventory requirements and resupply plans can lower average retail fuel prices, boost supply, and reduce market volatility. This common-sense legislation will require oil companies to better plan for refinery shutdowns and supply chain disruptions, ultimately saving Californians billions at the pump."

Arguments in Support

This bill is supported by a coalition of consumer groups, board of supervisors, labor organizations, equity groups, the Los Angeles Cleantech Incubator, and the State Attorney General (AG), as cosponsor. The Service Employees International Union California State Council (SEIU) notes the bill includes "important steps to curb the profit seeking strategies by oil companies." The AG notes this bill imposes requirements "to prevent supply disruptions from maintenance that leads to unnecessary price spikes."

A number of environmental and environmental justice organizations have a Support if Amended position, seeking language that regulations would maximize existing storage and minimize cumulative pollution burdens, citing harms caused by the expansion of fossil fuel infrastructure. Recent committee amendments included some points raised by these organizations; though it is unclear if their position has changed.

Arguments in Opposition

This bill is opposed by a coalition of labor organizations, petroleum industry association, convenience store representative, the California Chamber of Commerce, and the County of Kern and Board of Supervisors of Fresno County. The State Building and Construction Trades Council of California writes, "This bill will inadvertently put our members who work inside the fence line of the refineries in danger by dictating when refiners can perform mandated turnaround and maintenance work on their infrastructure." They also note the changes to the advisory committee in the introduced version of the bill and concern about compliance and safety should "massive tank farms" be required to comply with the regulations; however, recent committee amendments have sought to address both these points.

FISCAL COMMENTS

Unknown. This bill has not received a hearing in a fiscal committee.

VOTES

ASM : 13-2-4

YES: Petrie-Norris, Aguiar-Curry, Alvarez, Bennett, Friedman, Garcia, Hart, Jackson, Lee, Papan, Pellerin, Wood, Zbur

NO: Jim Patterson, Joe Patterson

ABS, ABST OR NV: Flora, Gipson, Muratsuchi, Blanca Rubio

UPDATED

VERSION: October 1, 2024

CONSULTANT: Laura Shybut / P. & G. S. / (916) 319-2083 FN: 0005133

Date of Hearing: September 26, 2024

ASSEMBLY COMMITTEE ON PETROLEUM AND GASOLINE SUPPLY

Cottie Petrie-Norris, Chair

ABPCA Bill Id:ABX2 1 (

Author:Hart) – As Introduced Ver:September 3, 2024

SUBJECT: Energy: transportation fuels: inventories: turnaround and maintenance

SUMMARY: Authorizes the California Energy Commission (CEC), if necessary and justified, to increase transportation fuel supply through various actions. Specifically, this bill:

1. Specifies the CEC may establish criteria that refiners must meet before commencing a turnaround or maintenance event, including requiring California’s petroleum refiners to have resupply plans and arrangements to cover their loss in production, as specified.
2. Authorizes the CEC to develop and impose requirements on California refiners to maintain minimum levels of inventories of refined transportation fuels meeting California specifications. Specifies such regulations may provide:
   1. A process for establishing a minimum level for each refiner, each fuel, and each blending component;
   2. The locations of inventory storage and additional storage considerations;
   3. A process for adjusting the minimum inventory requirements, as specified;
   4. Conditions under which a refiner would draw down or rebuild its inventories.
3. Prohibits the CEC from adopting minimum inventory regulations unless it finds that the benefits outweigh the potential costs to consumers. As part of this cost-benefit requirement, the CEC must factor how potential regulations would:
   1. lead to greater fuel supply in California’s market;
   2. lead to lower average retail prices on an annual basis;
   3. reduce the severity of retail price volatility;
   4. result in greater supply than easing supply chain inefficiencies or constraints;
   5. not be offset by actions of market participants not subject to the inventory regulations.
4. Requires the CEC to annually re-evaluate these factors and provide a report to the Legislature concluding whether the regulation meets the cost effectiveness test.
5. Establishes a civil penalty, ranging from $100,000 to $1 million per day for each day of noncompliance, which the CEC may levy on refiners who fail to comply with the minimum inventory regulations, beginning on the third day following notification.
6. Dissolves the Independent Consumer Fuels Advisory Committee (ICFAC), an eight member body tasked with advising the CEC and DPMO on the fuels market and regulatory development. Establishes an Expert Advisory Committee (EAC) to assist the CEC in data analysis, identification of market behaviors, and development of regulations. Requires the EAC to be comprised of six members who either hold an academic appointment in, or demonstrate expertise of, economics or business operations of the transportation fuels market. Establishes cooling off and revolving door protections for members of EAC where no member shall have been employed or otherwise received direct compensation from any oil market participant within a year both preceding and following their appointment. Requires the EAC to have access to all information submitted to the CEC and DPMO, and that members of EAC shall agree in writing to maintain the confidentiality of such information.
7. Updates reporting requirements in the CEC’s existing Transportation Fuels Assessment, which is submitted to the Legislature every three years, to include an evaluation of California’s marine and port infrastructure and an evaluation of the effects of state regulations on supplies of transportation fuels that may be causing supply constraints.
8. Exempts any regulation, guideline, or other standard or decision by the CEC related to their petroleum oversight authority from the California Environmental Quality Act (CEQA), but maintains that any project undertaken pursuant to these CEC actions would still be subject to CEQA.
9. Establishes that DPMO’s director is the “head of a department,” pursuant to Government Code authority, which authorizes the director to investigate and prosecute all matters related to DPMO activities and to inspect all books and records, issue subpoenas, administer oaths, collaborate with other law enforcement entities, and present information to a court, among other powers and duties.

EXISTING LAW:

1. Establishes the State Energy Resources Conservation and Development Commission, also known as the CEC, consisting of five members appointed by the governor, and specifies the duties of the CEC. Requires the CEC to assess trends in energy consumption and analyze the social, economic, and environmental consequences of these trends. (Public Resources Code § 25200 et. seq.)
2. Establishes the Division of Petroleum Market Oversight (DPMO) as an independent division within the CEC tasked with providing oversight and analysis of the transportation fuels market. Grants DPMO the power to subpoena witnesses, compel testimony, and take evidence, as specified. Treats data provided to DPMO as presumptively confidential and not subject to public disclosure. Requires DPMO to annually publish a (aggregated and anonymized) report on recommendations to improve market performance, and the director shall appear, when requested, before the appropriate Legislative policy committees. (Public Resources Code §§ 25372-25372.4)
3. Establishes the Petroleum Industry Information Reporting Act of 1980 (PIIRA). (Public Resources Code §§ 25350 et seq.)
4. Requires major oil producers, refiners, marketers, oil transporters, oil producers, pipeline and port operators, and destination facilities to submit certain information to the CEC, as specified. These reports are mandated to be generated annually, monthly, weekly, and daily, depending on the market participant and the specific data requested. Specifies reporting from processes in the oil production supply chain that use renewable feedstock and fuels shall be included. (Public Resources Code § 25354)
5. Requires operators of refineries operating in the state that produce gasoline meeting California specifications to submit a report within 30 days of the end of each calendar month with certain information, including the max margin of gasoline sold in that month. Requires the CEC within 45 days of the end of each calendar month to post certain information on its internet website. The section is known as the California Oil Refinery Cost Disclosure Act of 2022. (Public Resources Code § 25355)
6. Subjects a person who fails to provide information to the CEC, after being notified of the failure, to civil penalties in specified amounts. (Public Resources Code § 25362)
7. Requires that information presented to the CEC is held in confidence by the CEC or aggregated to the extent necessary to ensure confidentiality if public disclosure of the specific data would result in unfair competitive disadvantage to the person supplying the information. (Public Resources Code § 25364)
8. Requires the CEC, upon request, to share confidential information to the Assembly Speaker, Senate Rules Committee, and the appropriate policy committees in the Assembly or the Senate and their staff members, so long as the information is provided in aggregated or other anonymized form, and each person receiving the information agrees in writing to keep the information confidential. Requires that aggregated or otherwise anonymized information disclosed to the Legislature shall be made available to the public no more than quarterly, if requested by the Legislature. (Public Resources Code § 25364 (h))
9. Authorizes the CEC to establish a max margin; which, simplistically, would be the maximum amount a California refiner could earn without incurring a penalty. Requires if the CEC sets a max margin, it must set a penalty for any refiner exceeding that max margin. Establishes three tiers of penalty depending on how egregiously the refiner exceeds the max margin. Prohibits the CEC from establishing a max margin and penalty, unless the CEC finds that “the likely benefits to consumers outweigh the potential costs to consumers.” Authorizes the CEC to petition the court to enjoin a refiner from exceeding the max margin. (Public Resources Code § 25355.5)
10. Requires the California State Auditor (Auditor), no later than March 1, 2033, to complete an audit and performance review of the max margin and penalty. Requires the Auditor to make a determination in a report to the Legislature and the CEC, by no later than June 1, 2033, as to whether the max margin and penalty is achieving the intended goal to reduce gasoline price spikes and stabilize the gasoline fuel supply market. Requires the CEC, within 180 days after the issuance of the report, to cease implementing the max margin and penalty, if the Auditor concludes that the max margin and penalty should be terminated. (Public Resources Code § 25355.5 (p))
11. Requires the CEC, in cooperation with the California Department of Tax and Fee Administration (CDTFA), to submit a report to the Legislature, by March 1 of each year that includes a review of the price of gasoline in California and its impact on state revenues for the previous calendar year. Authorizes CDTFA to request from any person certain records required to be maintained and any records in the person’s possession, custody, or control that the CDTFA deems necessary to facilitate the report or to assist the CEC. (Public Resources Code § 25355.7)
12. Requires the CEC, on or before January 1, 2024, and every three years thereafter, to submit an assessment – known as the Transportation Fuels Assessment – to the Governor and the Legislature that identifies methods to ensure a reliable supply of affordable and safe transportation fuels in California. Requires the CEC to use reasonable means necessary and available to seek and obtain information from any sources for purposes of preparing the assessment and would authorize the CEC to impose a civil penalty if a person fails to timely provide information necessary for preparing the assessment. Requires the CEC and the California Air Resources Board (CARB), on or before December 31, 2024, and taking into account the assessment, to prepare a Transportation Fuels Transition Plan. (Public Resources Code §§ 25371-25371.3)
13. Requires every petroleum refinery employer to provide to the Division of Occupational Health and Safety (Cal/OSHA) a full schedule of planned turnarounds for all affected units for the following calendar year, and defines the schedule submitted to be treated as a “trade secret.” Defines “turnaround” to mean a planned, periodic shutdown, total or partial, of a refinery process unit or plant to perform maintenance, overhaul, and repair operations and to inspect, test, and replace process materials and equipment. (Labor Code §§ 7872, 7873)
14. Establishes the ICFAC, within the CEC, consisting of six members appointed by the Governor, one member appointed by the Speaker of the Assembly, and one member appointed by the Senate Committee on Rules. Requires ICFAC to advise the CEC and DPMO, and provides ICFAC with access to all the information provided to the CEC and DPMO. Establishes revolving door protections for members of ICFAC where no member – except the representatives from labor and the petroleum fuels industry – shall have been employed or otherwise received direct compensation from any oil market participant within a year both preceding and following their appointment. Requires the executive director of the CEC to ensure any confidential information shared with the members of the ICFAC is subject to a nondisclosure agreement. (Public Resources Code § 25373)
15. Requires refiners to report maintenance activities to the CEC under specified timelines, including turnaround, planned, and unplanned maintenance, and specifies that information shall be treated confidentially. Requires refiners to report on inventory drawdown levels, imports, planned purchases, and planned reductions of gasoline and gasoline blending components and other materials during the planned maintenance or turnaround. (Public Resources Code § 25354 (m))
16. Authorizes the CEC to regulate – in consultation with the Labor and Workforce Development Agency, labor, and industry stakeholders – the timing of turnaround and maintenance, if such a regulation can protect worker and public health and safety while also minimizing the risk of maintenance-driven supply shortages or price shocks. (Public Resources Code § 25354.2)
17. Requires any in-state refineries to report to the CEC at least a year in advance if the refinery intends to permanently shut down, shut down to reconfigure, or sell a refinery. (Public Resources Code § 25354 (p))

FISCAL EFFECT: Unknown. This bill has not received a hearing from a fiscal committee.

BACKGROUND: For more information on California’s oil and gasoline market, recent price fluctuations, and supply impacts see the background documents prepared for the informational hearings by this committee during the Second Extraordinary Session on September 18 and 19, 2024.

COMMENTS:

1. Author’s Statement. According to the author, “Governor Newsom called for this second extraordinary session to address one goal—reduce gasoline prices for Californians. This effort builds on the foundation laid by last year’s special session legislation, SBX1-2 (Skinner), which established the Division of Petroleum Market Oversight (DPMO). Since SBX1-2’s passage, the California Energy Commission (CEC) has gained critical insights into refiner storage capacity and operations. In September 2023, gasoline prices in California soared to more than $6.00 per gallon. With enhanced data and oversight, the CEC and DPMO have identified clear trends in price spikes. ABX2-1 aims to protect consumers from surging gas prices by giving the CEC the authority to assess whether implementing minimum inventory requirements and resupply plans can lower average retail fuel prices, boost supply, and reduce market volatility. This common-sense legislation will require oil companies to better plan for refinery shutdowns and supply chain disruptions, ultimately saving Californians billions at the pump.”
2. Technical Amendment Adoption. This committee received author’s amendments making minor, technical changes that correct drafting errors and add statutory clarity. These amendments will be adopted ahead of the committee hearing as author’s amendments.
3. Regulating Against Price Spikes. Gasoline prices at Californian pumps have been increasing over time and showing concerning volatility month-to-month, significantly impacting the budgets of Californians. In the last two years – 2022 and 2023 – California had two gasoline price spikes in September and October.^[1] These prices were historic for California, topping near or above $6 per gallon for regular grade retail gasoline. The price spikes were not seen in regions outside the West Coast. Higher prices of gasoline can have crippling effects for residents on fixed or limited incomes, especially those who rely on long commutes to get to work. Higher gasoline prices also take a toll on the overall economy, impacting goods that use gasoline fuels to get to market. According to analysis by the DPMO, the price spike of fall 2023 cost Californians up to $2.2 billion.^[2]

California is in a period of transition in its petroleum market. Supply is tightening, as demand is declining. These trends are unlikely to subside. Rather, more volatility – not less – is likely if the state does not strategize and appropriately plan for smoothing the transition. During an oversight hearing of the Assembly Committee on Utilities and Energy in May 2024, the CEC presented findings from their work authorized under SBX1-2 (Skinner, Chapter 1, Statutes of 2023). Included in that presentation were data comparing impacts on spot market prices against days of supply for 2022 and 2023. The CEC’s chart showed (in both years) that when petroleum inventories dipped below “15 days of supply,” gasoline prices began to increase. The recommendation at the time to address this observed behavior was to collaborate with industry on solutions to encourage them to “voluntarily” increase supplies and supplement stocks.^[3]

It is unclear the status of those voluntary efforts. Nevertheless, this bill provides the CEC the expressed authority to impose requirements on Californian refiners to not only maintain resupply plans to cover production loss during planned maintenance events, but to also establish minimum inventory requirements of refined fuels on refiners. Such supply obligations are suggested by the author and the administration (as sponsor) as being necessary tools the CEC needs to blunt the price spikes of recent years. The administration points to two recent examples where planned maintenance led to loss of gasoline supply in the state, with resultant increases to prices at the pump.^[4] However, what these new tools will actually look like in practice, and the potential realized savings from this proposal are topics of ongoing dispute.

1. To Build or Not to Build? One primary area of dispute with this proposal is how the regulations around minimum inventory requirements will or will not result in additional build out of storage infrastructure across the state. This topic was raised extensively throughout the informational hearings held last week by this committee, with the administration resolute that no new infrastructure would be necessary for refiners to meet their minimum inventory requirements; while the refining industry was adamant that it would.

As part of the new reporting requirements under SBX1-2, the CEC receives data from refiners during planned maintenance or turnaround events on inventory drawdown levels, imports, planned purchase, and planned reductions of gasoline and gasoline blending components and other materials. They likewise receive data from refiners, marketers, oil transporters, and oil storers on current inventory volumes. Given this, the CEC presumably has insight into the storage volumes and capacity utilization in the state.

However, most of these data are confidential, and therefore not readily available for the Legislature to analyze. What is public includes W800 reports which track how much motor gasoline and blending components are held by California refiners on a weekly basis, inclusive of those stored on refinery premises and at bulk terminal tanks leased by refiners.^[5] As shown in Figure 1, these data show a cyclical pattern, where refiners hold more inventory in the winter (around 13-14 million barrels in 2022-2024) than in the late summer/early fall (around 10-11 million barrels); with this cyclical behavior more pronounced in Northern California than Southern.

Figure 1: Gasoline inventories from 2020-2024 for Northern California, with average (dark orange) and 90^th/10^th percentiles (faint orange lines), and Southern California, with average (dark blue) and 90^th/10^th percentiles (faint blue lines), shown.^[6]

Figure 1 demonstrates that during periods where inventories dip, there is clearly storage capacity available to absorb extra volumes. However, what is not clear from this measure is whether the minimum inventory requirements will only be present to cover these late summer/early fall troughs (essentially turning this cyclical pattern into more of a flat line) or will it result in raising the overall stock amount uniformly (essentially maintaining the cyclical pattern, but everything is raised by a specified amount, even during time of peak inventory). In such circumstances, establishing a requirement that might result in more inventory on hand during periods where inventories are already shown to be high (the peaks in Figure 1), makes it uncertain whether there is enough existing storage capacity to hold that additional supply. While the name, “minimum inventory,” is suggestive that it would only be triggered during periods of low inventory – and thus when storage is present – the bill does not guarantee this.

This uncertainty and the disparate positions on this point likely arise from the broad sweep of this measure’s language, which only specifies the CEC can adopt regulations that provide “a process for establishing minimum inventory levels specific for each refiner” without acknowledgement that the requirements may only apply during seasons of low supply or differences in storage capabilities across the different refineries and regions (as shown by the orange curves of Northern California versus the roughly flat line of Southern California).

Regardless, concern has arisen from environmental, environmental justice, labor, and the industry itself about the potential harms – to the environment, to consumer costs, to workforce and public safety – caused by a minimum inventory requirement that results in new tank buildout. The authors have likewise shared it is not the intent of the legislation to require new storage; and the administration has stated such new storage is not required to implement this measure. Given this seemingly universal consensus, the committee recommends amendments to the bill which clarify new storage is not necessary as a result of establishing minimum inventory requirements, and that regulatory development of minimum inventory requirements shall maximize the use of existing infrastructure.

1. Safety is Paramount. As part of its investigatory authority under SBX1-2, DPMO has raised concern around refinery behavior before and after planned maintenance events, such as their recent Market Update which observed: “California is once again seeing a significant spike in gasoline prices and a troubling lack of liquidity on the wholesale spot market in response to refinery maintenance.”^[7] [emphasis ours] The Update goes on to note: “In late summer and early fall of 2023, refinery maintenance contributed to a significant price spike that cost Californians up to $2.2 billion. There was also a major price spike in September and October of 2022, which occurred when planned maintenance at four refineries significantly reduced production.”

However, solutions to mitigate costs by better managing turnaround or planned maintenance events are not without their challenges and tradeoffs. Under SBX1-2, refineries are required to provide the CEC with their planned schedule for turnarounds and maintenance. The statute also authorizes the CEC – in consultation with the Labor and Workforce Development Agency, labor, and the industry – to issue a regulation governing the timing of the maintenance in a way that protects health and safety of workers and the public, while minimizing production losses. At the time of discussions around that bill, it was not clear whether the CEC had or would have much knowledge – beyond the supply of fuels – to inform such a regulation. Concern was raised by the refinery workforce that such a regulation was flipping the goal of turnaround scheduling from one of safety to one of price minimization or price stability. Both the refineries and their workforce have emphasized safety must be paramount, and distrust the ability of the CEC to appropriately balance ensuring safety if faced with a simultaneous price increase. Unfortunately, California has experienced explosions at refineries, including where workers have been harmed. The need for safety – especially for workers and the local community – is imperative. As such, the committee recommends amendments that specify regulations not only result in increased supply and reduced cost, but minimize impacts or harms to the workforce, the environment, and local communities; and ensure the health and safety of employees and the public are the primary consideration in regulatory development.

1. Redesigning Committees. The Independent Consumer Fuels Advisory Committee (ICFAC), an eight-member, stakeholder body created under SBX1-2, is tasked with advising the CEC and DPMO on the fuels market and their various regulatory development. While the Legislature has made appointments to the ICFAC, to date the Committee has not been stood up nor convened. This bill dissolves the ICFAC, and establishes an Expert Advisory Committee (EAC) in its place. The contours of the EAC’s duties are similar – and similarly vague – as the ICFAC; with the main difference being the EAC has access to confidential, non-anonymized data and that all members of the EAC must be experts in the “economics or business operations of the transportation fuels market.” Labor representatives have raised concerns about the changes to the EAC made under this measure, specifically asking for an explicit labor representative to be reinstated and to softening of the revolving door clauses for that labor representative, given their likely ongoing employment (or retirement benefits) arising from refineries. Both of these items already are present in the ICFAC structure. As a result, the committee recommends deleting the EAC and reinstating the ICFAC. However, the lack of action to date in either appointing or convening the ICFAC speaks to potential structural issues that the change brought forward under the EAC were meant to navigate. The committee recommends further changes to the ICFAC, including an annual meeting requirement and a provision to ensure labor organizations’ dues do not present a disqualification of participant eligibility.

Finally, the function of either committee is to provide advice to the CEC and DPMO in order to help inform recommendations. The administration reports most of this advice is currently offered by consultants working under contract with the CEC and DPMO; however, as contracted entities, such information is not readily shared with the Legislature. Existing law allows for the CEC to provide, upon request by specified Members and staff of the Legislature, aggregated and anonymized, confidential data. As a result, the committee recommends an amendment specifying that contracted experts providing analysis and recommendations to the CEC and DPMO are subject to the same legislative disclosure.

1. Further Guardrails. As noted above, the exact parameters of the potential regulations developed under this measure are uncertain. This bill currently provides the CEC the authority to adopt regulations that “may provide for, but are not limited to…a process for establishing minimum inventory levels specified for each refiner and for each fuel or blending component type.” It further provides that the regulations may provide for a process to adjust these minimum inventories based on “region, season, and changes in regional or statewide supply and demand.” However, nothing compels the CEC to adopt such considerations as part of its regulatory development. This point has been raised by stakeholders as concerning due to the broad discretion provided to the CEC. To this point, the CEC has acknowledged further analysis and data collection will be necessary to appropriately craft the regulations; much of which will likely be considered confidential. This broad avenue upon which the CEC may act has likely also led to the disparate viewpoints on the impacts of this measure. As a result, the committee recommends additional guardrails to help guide the regulations in the intended direction; namely, specifying:
   • • • 1. that minimum inventory requirements may be on the refining regions of the San Francisco Bay and Los Angeles, rather than individual refiners;
         2. that refiner size and storage capacity may provide cause for excluding certain refiners from the regulation;
         3. that the commission shall establish a predetermined metric based on market conditions for triggering a drawdown of the minimum inventory;
         4. a statutory sunset of the minimum inventory regulation authority; and
         5. the regulations adopted must provide for various processes which consider maximizing storage, criteria to adjust the requirements, and drawdown provisions.
2. Prior Legislation.

SBX2-1 (Skinner), among its many provisions, updates data reporting requirements from various specified entities along California’s oil and gasoline supply chain to the CEC; authorizes the CEC to establish a maximum gross gasoline refining margin (max margin) and penalty on gasoline sold by refiners in the state, pursuant to certain findings; establishes DPMO and ICFAC; and requires various reports and assessments by the CEC to be submitted to the Legislature regarding the current status and future managed decline of transportation fuels. Status: Chapter 1, Statutes of 2023.

SB 1322 (Allen) required the CEC to collect specified pricing data from each oil refinery operating in the state. Status: Chapter 374, Statutes of 2022.

SB 448 (Leno, 2013) would have required the CEC to collect and analyze specific information regarding petroleum pricing, establish the Motor Vehicle Fuel Market Advisory Committee to provide subject matter expertise on fuel pricing, and include specified recommendations regarding its findings, including an analysis of potential market manipulation in the Integrated Energy Policy Report. Status: Vetoed.

SB 1444 (Holmdahl) established the PIIRA which requires specified monthly and annual reporting requirements for certain members of the petroleum industry and quarterly and annual reporting of the CEC. The bill includes confidentiality protections for the data submitted so as to prevent unfair competitive disadvantage. Status: Chapter 1055, Statues of 1980.

REGISTERED SUPPORT / OPPOSITION:

Support

Alliance for Community Empowerment
California Nurses Association
California State Council of Service Employees International Union (SEIU California)
City of Redondo Beach
Consumer Protection Policy Center/usd School of Law
Consumer Watchdog
Consumers for Auto Reliability & Safety
Los Angeles Cleantech Incubator
Office of Chairwoman Nora Vargas San Diego County Board of Supervisors
Orange County Board of Supervisors - Supervisor Vicente Sarmiento
Udw/afscme Local 3930
West Hollywood/hernan Molina, Governmental Affairs Liaison

Support If Amended

Asian Pacific Environmental Network (APEN)
Campaign for A Safe and Healthy California, Sponsored by Environmental and Health Organizations
CEJA Action
Center for Biological Diversity
Center on Race, Poverty & the Environment
Communities for A Better Environment
Labor Network for Sustainability
Natural Resources Defense Council (NRDC)
Physicians for Social Responsibility - Los Angeles
Physicians for Social Responsibility - San Francisco Bay Area Chapter
The Climate Center
Union of Concerned Scientists

Oppose

California Chamber of Commerce
California Fuels and Convenience Alliance
California-Nevada Conference of Operating Engineers
County of Kern
District Council 16, International Union of Painters and Allied Trades
District Council 36, International Union of Painters and Allied Trades
Fresno County Board of Supervisors
International Brotherhood of Boilermakers, Western States Section
State Building & Construction Trades Council of California
Valley Industry and Commerce Association (VICA)
Western States Petroleum Association

Concern

350 Bay Area Action
Earthjustice
East Yard Communities for Environmental Justice
Healthy Martinez
Sierra Club California

Analysis Prepared by: Laura Shybut / P. & G. S. /(916) 319-2083

1. Figure 9, pg. 14, Bailey, Andrea, et al., Quarterly Petroleum Supply and Pricing Report, October 2023 Through December 2023. CEC, Pub # CEC-200-2024-002. ↑

2. AB X2-1 “Frequently Asked Questions,” September 18, 2024. ↑

3. Slide 22, “Joint Agencies” presentation, California’s Petroleum Market & SBX1-2 Implementation Update, May 15, 2024. https://autl.assembly.ca.gov/media/1189 ↑

4. One in Sept/Oct 2022 where four refiners conducted planned maintenance reducing capacity by >2 million gallons/day; and one in Sept 2023 where the net loss for the entirety of the maintenance event was 60 million gallons. Price spikes were present during both periods. From: ABX2-1 FAQ Ibid. ↑

5. https://www.energy.ca.gov/data-reports/reports/weekly-fuels-watch/refinery-stocks ↑

6. https://www.energy.ca.gov/data-reports/reports/weekly-fuels-watch/refinery-stocks; accessed on September 24, 2024. ↑

7. DPMO, “California Gasoline Market Update and Consumer Advisory,” September 13, 2024. https://www.energy.ca.gov/sites/default/files/2024-09/DPMO_Market_Update_and_Consumer_Advisory_ada_09-13-24.pdf ↑