Assembly Standing Committee on Utilities and Energy

Good afternoon. We're going to get started as a subcommitee, I do see one author and so we may be able to get to at least hearing that bill, but before like to welcome everyone as we convene the Assembly Committee on Utilities and Energy hearing sergeants, will you please call some of the absent members? Before we move to the agenda, we'll have to establish a quorum, but we have a few housekeeping announcements to make.

Assembly Member Mathis will not be in committee today and will be abstaining from all those votes today. We have seven measures on the agenda. One is on the consent calendar. I'll maintain a decorum during the hearing, as is customary. Any individual who is disrupted may be removed from the room. We want to be able to hear from everyone during public comments as well as the testimony. The testimony is limited to four minutes.

I'm being told to pause, so we'll wait for Mr. Patterson to come in, but in the meanwhile, still read off the housekeeping matters here. Testimony is limited to four minutes total two minutes support two minutes opposition. For any additional witnesses on the measure, only state your name, position, and affiliation, if any. If we exceed this time, please submit your testimony through the email address on our website.

So we'll have to wait to, one, establish a quorum, and two, wait for the Vice Chair for purposes of hearing a bill as a committee, subcommitee that is.

All right, we will begin as a subcommitee. We have one author here to present item three, AB 463. Assemblymember Hart, if you want to bring your key witnesses up, you may do so at this time. Okay, floor is yours.

Thank you, chair Garcia and members, I'm pleased to be presenting AB 463 to the committee today.

I'd like to thank staff for working with my team on the Bill. AB 463 will help California build a more resilient public transportation infrastructure. The Bill adds transit agencies to the Public Utilities Commission's essential use customers list in order to provide critical transportation services to meet the state's climate goals. The California Air Resources Board has mandated that all public transit agencies transition their entire fleet to zero emission buses by 2040, when flex alerts are in place or during public safety power shutoffs.

Public transit agencies still need electricity to power their fleets and safety-related infrastructure. Members of our community who rely on public transportation need the reassurance that services will remain stable during flex alerts or PSPS events. During emergencies, public safety officials need to know transit buses will be available to support disaster response and recovery. Adding transit agencies to the essential use customers list is critical to protect the health and safety of our communities that rely on these services.

Speaking in support of the Bill with me today are Steven Jones, representing Alameda Contra Costa Transit, who'll speak to the benefits of basic transit service, and Michael Pimentel, representing the California Transit Association, who will speak to the emergency preparedness portions of the Bill.

Good afternoon, Chair Garcia and Members of the Committee. Steven Jones, External Affairs Representative at the Alameda Contra Costa Transit District, based in Oakland, speaking in support of AB 463.

We appreciate the Committee considering this Bill and Assembly Member Hart for introducing it. AC Transit is the largest bus only public transit system in California. Every day, we, like other transit operators across the state, provide an essential public service to some of the most vulnerable residents in our communities.

Our riders include seniors and people with disabilities who may have no other option than to take public transportation, students who rely on transit to get them to and from school, essential workers who often don't have the option to work remotely, and people from low-income households who may not even own a car. Not delivering reliable transit service for those who depend on it could have devastating consequences. Seniors could miss important medical appointments to the detriment of their health.

Students could miss school and lose out on an education. Workers could lose their jobs. AC Transit is a leader in the industry when it comes to meeting the state's zero emission mandate. We're rapidly putting pollution free buses on the road, but not having uninterrupted access to electricity already impacts our ability to deliver service. When the power goes out, our backup generators go on. But these emergency generators can't charge even a single electric battery bus.

Simply put, we can't serve our riders if we can't keep our buses charged. Without power, we could lose the ability to communicate with our drivers and track our buses. This puts our drivers and our customers at risk. Even our maintenance division, which keeps our buses on the road, is affected. Without power, our crews have to use hand or battery powered tools. Disruptions like these threaten our ability to get people to school, jobs, and more.

As we move towards 100% zero emissions, AC transit and other transit agencies must have uninterrupted access to electricity so we can continue to support our communities. AC Transit appreciates your time and urges your support for AB 463. Thank you.

Good afternoon, Mr. Chair and Members. I'm Michael Pimentel, Executive Director of the California Transit Association, and on behalf of our more than 220 Member organizations, including 85 transit and rail agencies in the State of California.

I'm here today to voice our support for and to acknowledge our proud sponsorship of AB 463 Hart. Now, in recent years, as you know, while California has experienced extreme weather patterns and events that have presented some challenges for Californians across the state and that are clear for transit agencies as they transition to zero-emission technologies, and here I just want to acknowledge that extreme heat and atmospheric rivers often lead to planned power outages that, when mixed with increasingly zero-emission transit fleets, undermine a critical function for transit agencies and that is emergency response.

Now, during these events, transit agencies, working with the respective county offices of emergency services are often activated to help riders escape harsh environments, whether that means through ordered evacuations or simply transportation to warming or cooling stations. Now, in the future, this function, as well as the basic service that transit agencies provide, as Mr. Jones noted, may not be possible when transit fleets are 100% zero emission and agencies are subject to planned outages.

Now, for context, CARB has enacted several mandates, including the Innovative Clean Transit Regulation, and is contemplating the proposed in-use locomotive regulation, which will require agencies to transition fully to zero-emission technologies by 2040 and 2047, respectively. As an association, we have a long track record of supporting a broad range of policies to address barriers, whether they're current or future, that would impede compliance with these mandates and ultimately the fulfillment of our core functions.

And we have long broadcast and tried to address the challenge of grid resiliency which is essential to the successful transition to 100% zero emission technologies. Now here I do want to acknowledge the CPUC does maintain policies that incorporate transit when considering resiliency investments in zero emission technologies and grant transit agencies critical facility status which qualifies them to receive support for backup generation.

However, these policies fall short in providing agencies with that dedicated, uninterrupted access to electricity that is afforded to various customers that hold the essential use customer status. And so, to remedy this, this Bill aims to grant transit agencies that status of essential use customer, which would help create some parity in electricity prioritization during planned outages with other first responders and proactively address what we see as a looming concern about access to electricity in this transition. We respectfully ask for your I vote thank you.

At this time, I'll ask if there are any key witnesses that will be speaking in opposition to this Bill. Seeing no one coming forward, we will open it up for public comment. Those wanting to speak during public comment, please again, your name, affiliation and your position.

Good afternoon, Mr. Chair and Members. Alchemy Graham on behalf of the San Joaquin Regional Transit District, San Francisco Water Emergency Transportation Authority, and Monterey Salinas Transit in support.

Amara Eger on behalf of CALSTART, in support.

Steve Wallach. On behalf of the Alameda County Transportation Commission, The Golden Gate Bridge District, and the Napa Valley Transportation Authority, in support.

Thank you very much. I'll bring the item back to the dais. This has a do-pass recommendation. Any questions, comments of a motion, Mr. Connolly? Second? Mr. Hart, would you like to close?

Chair Garcia, I do respectfully request an aye vote. Thank you.

All right. When we establish a quorum, we'll come back and take the actual item back up for a vote. Thank you very much.

Villapudua, you may begin.

All right. Thank you, chair and members. I want to start off by accepting the committee's amendments. AB 982 is a rate reduction measure. AB 982 will ensure more funding for the programs under the public purpose program. By establishing the Public Utilities Public Purpose Program Fund, this bill ensures California do not shoulder the costs of these public benefit programs. California has been hit hard by the pandemic and inflation.

The past couple years have been especially challenging for low income customers. The cost for all goods and services includes essentials. Utilities is skyrocketing. On top of these current day issues, utility bills are saddled with a series of add on costs through the PPP. These costs include low income assistance program as well as programs that advance state climate goals. These programs are all important because they support the environment and those among us who we need the most to support.

However, these costs are not all related to the cost of providing electricity and the benefits extending beyond those who fund it to the entire state. AB 982 will ensure more equitable funding for the programs under the PPP. The bill is well timed, given the state of our economy. Changing the funding source keeps those vulnerable programs intact while easing the burden on electricity utility customers. This is critical, important as we move forward on our ambuxuous 2045 climate goals.

With me today to testify and to answer any questions is Scott Crider, Senior Vice President of external and operational support at San Diego Gas and Electric.

Great. Chairman Garcia and Committee Members again, Scott Crider, Senior Vice President at SDG and E. And I'm here to speak strongly in favor of AB 982. As you heard, California is transitioning to a clean energy economy. And as we invest in critical infrastructure to ensure climate resiliency and safety, customers across the state are experiencing higher electricity bills.

And at SDG E, we've been laser focused on identifying opportunities to provide relief to customers, especially lower and middle income families who are also struggling from higher prices on water, food and housing. AB 982 is a common sense measure that, when combined with equitable rate reform that the legislature approved last year, will alleviate rate pressure and provide bill stability by requiring that state mandated public purpose programs be paid through the state's General Fund rather than through customers electricity bills. Let me put this in perspective.

Since 2012, public purpose program costs, at least for SDG and E, have increased more than 230% or 10% per year on average. And in 2023, SDG and E will collect nearly $500 million from customers to fund 15 state mandated programs. By moving all these programs to the state's General Fund, ratepayers could see an immediate rate reduction of up to 7%. That's a significant savings to customers at such a critical time. With the amendment that has been agreed to, the reduction drops to about 3%. That's still a significant savings for customers, and we need to continue to find opportunities to continue to increase that. But in the end, the PPP really should be part of California's progressive tax system, where tax burden increases with income.

This is a more fair and equitable approach to funding these important programs because currently PPP is paid volumetrically, meaning the more you use, the more you pay, and higher usage does not mean higher incomes, and it really has a disproportionate impact, especially on lower and middle income families. So with that, I would respectfully ask for your support on AB 982.

Yeah, great. Thanks. Adam Smith, Southern California Edison strongly supporting AB 982. AB 982 would Fund public purpose programs, as you've heard, more equitably among taxpayers. This would ease the pressure on electric customers most in need. Funding programs through electric rates, as you've heard, has been broadly documented. It's actually in the analysis as well, citing some of the papers from Berkeley's Haas school that funding these programs through electric rates is regressive. It impacts lower income ratepayers more profoundly.

In contrast, California's progressive tax structure, as we just heard, is based on taxpayers'ability to pay taxes increase as income increases. We think that's more equitable way to pay for these programs. By shifting PPP costs to the General Fund, the state can ensure electric customers most burdened by the cost of electricity are supported more equitably. Funding public purpose programs through the General Fund would result in a meaningful rate reduction for electric customers, which would improve the affordability of electric bills for all.

I think our stats are very similar to the stats you just heard from San Diego Gas and Electric about the reductions our customers would see if these were moved to the General Fund. I'd also just add, and I think it was briefly mentioned, that the bill would make the funding source more equitable while leaving program implementation with the utilities to avoid interruption in service.

This allows the benefits of these programs to be delivered just how they always have, just how customers are used to achieving them, which minimizes any potential or customer confusion. As electric rates continue to increase due to a number of factors which I know this committee has spent a lot of time discussing, it's time to remove these costs from electric rate pairs. For these reasons, SCE supports this author and this Bill and respectfully asks for your aye vote. Thank you very much.

We'll ask to see if there's anyone testifying in opposition. Anyone testifying in opposition? We see no one come forward. We'll move on to the public comment. Please step forward. Name? Affiliation? Position?

Good afternoon. Brandon Ebeck with Pacific Gas and Electric in support.

Thank you. Okay, see no one else will bring this back to the dais and questions. Comments. Appreciate you accepting the amendments. We have a motion. Is there a second? Would you like to close?

Yeah. Thank you, Mr. Chair and members. As legislators, we just need to do more, and I respectfully ask for an aye vote.

Thank you. We'll be taking that item back up once we establish a quorum for an action. Thank you. Assemblymember Pacheco. You may begin. Remind witnesses. Two minutes, please.

Hello. Good afternoon. I hope you're doing well. Mr. Chair and members of the committee. Today I present before you Assembly Bill 324. I want to start by thanking the committee staff for all their work on this bill and will be accepting the committee amendments. The state's recently adopted scoping plan as well, has a litany of academic and scientific institutions which have concluded that renewable hydrogen is crucial for us to meet our climate goals.

The Federal Government passed legislation supporting this conclusion through billions of dollars in funding for grants to states with a supportive renewable hydrogen policy framework like the one proposed in this current bill. AB 324 will help us take a small step forward in establishing state utility policy on renewable hydrogen by simply requiring the California Public Utilities Commission to consider adopting renewable hydrogen procurement goals for gas utilities. Because the bill's language only authorizes the CPUC to consider, no new mandate is being established.

AB 324 would also require the CPUC to weigh costs, cost effectiveness, safety, and environmental concerns before adopting goals or targets. For safety, this bill even goes further and specifically requires the CPUC to establish a pipeline safety and monitoring program for renewable hydrogen. AB 324 expands SB 1440 by Senator Wessel to also include renewable hydrogen. With me today, I have two witnesses in support.

We have Neil Navin, chief clean fuels officer and clean energy innovations at SoCal Gas, and Scott Wetch from the California State Pipe Trades Council, who will be testifying and also will be answering any questions that you may have.

Good afternoon, committee chair Garcia and members. In 2018, SB 1440, which authorized the commission to consider adopting biomethane procurement targets for gas corporations, was passed by the legislature and signed by the Governor. AB 324 simply makes a minor but important adjustment to SB 1440 by authorizing the commission to consider renewable hydrogen procurement targets for gas utilities.

AB 324 maintains all the benefits and safety provisions initially envisioned in SB 1440 and simply adds to this program by ensuring the Public Utilities Commission is empowered to consider renewable hydrogen as a resource for decarbonization and to help California reach our ambitious climate neutrality goals. Since signing SB 1440 almost five years ago, hydrogen has increasingly become recognized for its potential to reduce GHG emissions and provide a source for hard to electrify sectors of the economy.

Additionally, through previous legislation and budgetary action, the legislature has recognized the relevance and potential of hydrogen as a decarbonization tool. AB 324 simply adds renewable hydrogen as another clean fuel that can be considered in meeting the goals of the renewable gas standard. This is very similar to California's leadership with the renewable portfolio standard for framework, which has been a resounding success in lowering prices for renewable power clean electrons now it is time to apply this approach to clean molecules. We are respectfully asked for your aye vote.

Mr. Chairman and members, Scott Wetch, on behalf of the California State Pipe Trades Council as well as the California Coalition of Utility Employees. I'm here today to ask this Committee to work with us collaboratively because my clients have worked collaboratively with this body on decarbonization, even though it ultimately is going to mean the end to thousands of jobs for my plumbers and pipe fitters and for my utility gas workers.

When you decarbonize a building, you remove about 15% of the plumbing that goes into a building, which translates into thousands of lost jobs on the utility side. We're going to lose thousands of utility gas jobs. We have to move the ball forward on hydrogen. There's billions of dollars at stake from the Federal Government, and California has to show a signal that we're serious. Folks who are going to testify in opposition are going to talk about that utilities shouldn't be in the hydrogen game.

That is completely and utterly ridiculous. If you don't have utilities accessing existing pipelines, accessing existing right of ways. What is the alternative if we want to build out hydrogen? It's trucking it. It's like delivering it like propane. How is taking hydrogen and creating all those trucks, trips and miles traveled to deliver it via trucks good and consistent with our climate policy? The opposition is also going to say that hydrogen is too expensive. Well, you know what? Solar was too expensive 20 years ago.

And I sat right here in this committee and heard people rail against why we shouldn't invest in the solar industry. And look where that has taken us today. Mr. Boccadoro will come up and say that rates are too high. But you know what else is more expensive than solar today? Biomass. And when he comes up here on behalf of his ag clients and biomass clients, he doesn't talk about rates. This is a nascent industry. We have to help it get off the ground.

We have to sign the signal. And if we're going to eliminate jobs in the carbon based economy, you got to step up and work with us to help create jobs in the new green economy. So we would respectfully ask for your aye vote, thank you.

All right. Thank you. We'll ask to see if there are any key witnesses speaking in opposition. Key witnesses speaking in opposition, and then we'll take the public comments after that.

Thank you, Mr. Chair and members. Michael Boccadoro. Scott's already given me a great introduction in terms of what some of my concerns might be today, which is always interesting. Let me just say a few things about this bill. It's highly premature, highly unnecessary.

It is very costly, not comparable to solar And there are already companies with hydrogen pipelines in this space today. We don't need to authorize the gas company to do this. Premature. There is already a proceeding at the Public Utilities Commission that has been open on putting hydrogen into the pipelines. It was opened under the same proceeding as Senate Bill 1440 that you heard reference. This is not a simple little addition, as you heard several times today.

This is an entirely different gas that when put into an existing pipeline not designed for hydrogen, can go boom. It's very dangerous. Which is why the commission, as part of their due diligence, conducted a study and until several pilot projects have been completed and show that it can be safe, they have not moved forward with procurement targets, which they could do today. They've done that from a safety standpoint, those pilot projects have not been initiated, let alone completed.

Second, so premature, unnecessary, costly, very expensive hydrogen is five to 10 or more times expensive than conventional gas. We all sat here two weeks ago and talked about energy affordability. This will drive natural gas rates for customers in California far higher than the three to four times that we already pay more than the rest of the country. So for these reasons, and then finally, there are already companies in this space, we can show Mr. Wetch a hydrogen pipeline. They exist.

Air products, air liquid, and other companies build private hydrogen pipelines for customers who want them. We expect that will continue. If Sempra wants to get into the hydrogen business, they should do that with shareholder dollars. SoCal gas wants to get in because, guess why? They can use rate payer dollars to make their investments for them, reduce their risk, while maximizing their profit for their parent company. Let Sempra do this.

We don't have to have SoCal gas do this and let Sempra compete with the private companies that are already in this space. Thank you.

Thank you. Do we have another witness in opposition? Is that what it is?

Yes. Thank you, Mr. Chair. Mark Fenstermaker, on behalf of Earth Justice in opposition, respectfully agree with many of the points by my colleague Mr. Boccadoro on the fact that this is premature, which is add to the proceedings happening at the PUC.

Also, this body last year passed SB 1075 by Senator Skinner directing CARB and consultation with the PUC as well as the CEC, to study green hydrogen and the costs associated with it and the environmental impacts associated with the use of green hydrogen. We need to let that play out, just like we need to see the CPUC process play out, so that we can have a better understanding of not just the cost, but also the environmental impacts associated with this hydrogen use.

When we talk about putting hydrogen into the pipeline, there are studies out there that show that the gas blend is only going to be about five to 20% hydrogen. So we're still going to see a lot of methane gas mixed into the pipeline. So even at a 20% renewable hydrogen, green hydrogen, whichever term you want to use, blend, we're only going to see a 7% GHG emission reduction associated with that use.

So we really need to ask ourselves if putting hydrogen into the gas pipeline is the best utilization of this fuel going forward from an emission standpoint. I'll conclude right there. Thank you, Mr. Chair.

Thank you. I'm going to open up to public comments. Those wanting to state their position for the record, in support or opposing, please state your name. Affiliation?

Thank you, Chairman Garcia. Teresa Cooke, on behalf of the California Hydrogen Coalition, very excited about this bill. Thank you for bringing it forward. Again, we've been safely working with hydrogen in California for the last hundred years and look forward to continue doing so.

Chair Members John Winger, on behalf of the Coalition for Renewable Natural Gas and support.

Julia Levin, Bioenergy Association of California in strong support.

Orien Olmeros, on behalf of the Rincon Band Luiseno Indians, in support.

Melanie Morales with the Green Lighting Institute with the late opposition.

Dean Talley with the California Manufacturing Technology Association. We do have a respectful opposition position, but looking to work with the author on this.

Hello. Sakereh Carter with Sierra Club California in opposition. Thank you.

Marquise Mason with California Environmental Voters. We respectfully oppose and we look forward to continued conversations. Thanks.

Thank you very much. We'll bring back to Dais, ask any questions. I'll start to my left. She did accept the amendments and do pass reco, please.

Thank you, chair, and I appreciate the author bringing this forward and duly noted that the amendments have been accepted. I think that's a step in the right direction. I do have some concerns around kind of a point that was raised by one of the witnesses, and maybe I'll just ask the question, how does this bill intersect with the Governor's Budget proposal for four permanent positions at CARB to develop and publish an evaluation and provide policy recommendations on the issue of hydrogen, specifically green hydrogen? I'm on budget subcom three. So we actually had this come before us. It's by virtue of SB 1075 by Senator Skinner. So why don't we start with that? The idea being is this, putting the cart before the horse, given that that baseline work is in process and that money has been allocated for positions in that regard.

And I will have Neil Naven respond to that.

This bill, including looking at the issue of green hydrogen, also looks at the issue of renewable hydrogen and would suggest that the CPUC look at the opportunities to look at once safe blending targets have been established, to understand whether or not targets could be established. So I'll have to actually understand whether or not it's truly duplicative. I don't think it is.

Yeah. I mean, another way to put it is actually, shouldn't we wait until the green hydrogen report from CARB is released before setting procurement targets?

I guess my would consider that this allows the CPUC to consider those targets and it could run in parallel.

And everything that the CPUC will be considering is actually outlined within the bill itself. So everything they're supposed to look at is within the bill.

And then finally, and as I mentioned, I think the acceptance of the amendments is a step in the right direction. How do the committee amendments take and ensure that the generation of renewable hydrogen will not increase emissions or set the state back in meeting its climate goals? Again, this is always of asking, hey, why don't we wait for this preliminary work to be done? But if you have an answer to that question, it would be great.

So certainly in the current language, the CPUC does need to consider the climate attributes of this procurement. So, again, I would suggest that that can operate in parallel.

Great. So, as you can tell, I have some concerns. I think, is this bill baked? At this point, I'm going to be looking for some additional conversations, some additional work harmonizing with, particularly SB 1075, and.

I look forward to those conversations.

I'm going to just pause for a minute, establish a quorum, adopt the rules real quick, and we've got about three other folks that have questions, so, Secretary, will you please call the role?

[Roll Call]

Okay, I'll make a motion to adopt the Committee rules. Second.

[Roll Call]

Thank you. Now next question. From Assemblymember Schiavo.

I know there was a concern raised around safety and existing pipelines, and so I wonder if you have a response to that?

Yeah, thank you again, Scott Wedge. So the opposition mentioned or gave the impression that we have vast amounts of privately owned hydrogen pipelines in California, and he mentioned air products. There are a few, like can count on one hand, very small, one-mile, two-mile hydrogen pipelines in California. What we're talking about in this Bill, potentially, is if we really want to build out the hydrogen infrastructure throughout California, is taking advantage of the existing natural gas pipeline systems that we have throughout the entire State of California.

And I think it's important for the Committee to know that last week, the CEO of Air Products, the company that was mentioned here at a energy conference in Houston, stated and announced that they had entered into a joint partnership with the government of Saudi Arabia to build the world's largest hydrogen production facility. And when he was asked by reporters, this was widely reported, they asked, where's the market?

And he said, well, we're going to ship a little bit of it to Europe, but because California has a low carbon fuel standard and they potentially are going to become a hydrogen hub, the plan is to ship this, tanker it to Los Angeles and use it in California. So, the folks who are opponents to having utilities involved in distribution of hydrogen, their game plan, just so we're transparent, is produce it in Saudi Arabia, tanker it to Southern California, and then truck it out of the port.

So I think the question was about the safety of the pipelines. So that is actually one of the recommendations that we're asking for the CPUC to look at the safety as well. So it's actually outlined in the.

And if I can, since I made the point on safety and existing pipelines, which I think was the question that was asked, existing pipelines are old, brittle, and this gas can further and brittle pipelines. It's a smaller molecule, it is more prone to leakage. And we all know what happens, unfortunately, when pipes leak under residential communities. We only have to look as far back as San Bruno and PG&E's catastrophe that killed, I believe, nine individuals. So that's the issue. It's putting it into existing pipelines. Hydrogen has a role to play in the California economy. This isn't it.

Let me bring it back to the Dais and ask a Member if she has any follow-up questions. I'd love to hear the Bocadero Wetch back and forth all day, but let me see if the Members have any questions here.

Yeah, I mean, I guess the question is, is there, because I've heard this same issue before, that it's a smaller molecule, that you can't use existing pipeline, or it's challenging to do that. So is there a plan on how that can be done or that the sources are also different? Right? If you're talking about natural gas and you're talking about hydrogen, different.

So that's actually embedded in the legislation. That is one of the things that the PUC, with their safety division, will have to go in and assess in regards to San Bruno. I'm glad he brought it up, because after San Bruno, PG&E was required to spend billions of dollars and we went in and retooled almost the entire distribution network of PG&E's complete gas distribution network, this brand new pipe. And that's one of the things that PUC were looking at.

If you look at SoCal Gas, Neil can speak to this. They have invested a considerable amount of money already into the engineering, looking at their existing pipeline system and exactly what it would entail to go in and ensure that it would be safety. The Federal Government regulates this, PUC regulates it, the State Fire Marshal. I mean, there's a whole set of regulations out there and that are being developed to ensure that if we do this, that it will be safe.

And then I just want to add upon that, that the Bill actually says, and I'll read it in verbatim. "Hydrogen shall not be transported in pipelines until the Commission acts to set safety standards and the pipelines meet those standards."

Thank you.

Assemblymember Calderon.

Thank you, Mr. Chair. I think Mr. Wetch answered my question. I just say move the Bill.

We have a motion. Mr. Holden, you did have a question.

I just wanted to make sure I'm clear, and I'm not 100% clear just yet, because I know that there's already PUC opening proceeding to look at this issue of hydrogen and its applicability. And I just want to understand, what is it that your Bill is looking to do that the proceeding is not already covering?

So the current PUC proceeding looks at establishing blending targets specifically from a safety perspective, but not from a procurement perspective. The UC Riverside recent UC Riverside study, which was commissioned by the CPUC, established that the current piping system within California for natural gas can accept up to 5% blend today and called for tests to establish a higher blending standard in real world tests. But it didn't establish actually the effort to consider a procurement target itself.

Under this proceeding or any other legislation that's before the PUC that addresses the issue of hydrogen and how it would be used, addressing safety and how it would be applied and whether or not how it would be used in existing infrastructure and all of the other elements of the science. This is not something that this Bill is going beyond what the PUC's already existing proceedings is governed to evaluate.

And so it's necessary to move this in order to expand the conversation to address safety and other issues that is not already under their purview.

Well, the current CPUC efforts look at the safe blending standards. This Bill includes those safety provisions, but also asks the CPUC to consider a procurement target.

So it's the procurement target that's going the step further.

Any other questions from Members? Ms. Reyes.

I appreciate the conversation, Assemblymember, that you and I were able to have, and I know I'm coming in on the tail end. It may have already been mentioned about the fact that the feds are putting together their definition of clean hydrogen or green hydrogen. PUC is in proceedings now and going to have a pilot project to test. And CARB also is waiting for the feds to come up with the definition.

One of the things, a question that I would ask is, if the feds come in with a definition, is it something that you will consider to be the definition for green hydrogen?

I would definitely look into it and consider it.

Thank you.

Any other questions, please.

Thank you. And I guess this is a little bit of a piggyback on Mr. Holden's question. I noticed that one of the things not listed in the considerations from the PUC is the impact to rate pairs. Because that's currently part of the conversation, or is that something that we need to add? Because obviously the impact to ratepayers is something I think we should always have the PUC analyzing and making these decisions.

We would certainly support that.

Is that something you're open to?

Yes.

Thank you. Any other questions? There is a motion on the floor. We need a second that does have a dupast recall to natural resources. I was going to ask the opposition and the key witness if they had any closing comments. I told you I'd come back and entertain. All right. To the author.

Perfect, Thank you.

Thank you, and I appreciate the time and opportunity to present this Bill. I also appreciate all the questions and the dialogue. I appreciate the opposition who I will be working with. But just as a reminder, AB 324 simply requires consideration of the use of renewable hydrogen in the utility pipeline system. If again appropriate by the PUC. Again, I'll reiterate. I look forward to further conversations. I look forward to further dialogue with opposition and perfecting this Bill. I respectfully ask for your aye vote and thank you.

Okay, there is again a do-pass recommendation. There's a motion. I'll second the Bill and we'll ask for a roll call.

Item number one, AB324. The motion is do-pass as amended to natural resources. [Roll Call]

Ok, we'll keep that open for other Members to add on.

Thank you.

I'll ask Assemblymember Alvarez to come forward as he sets up with his key witnesses. We'll go to the top of the agenda and do a roll call on the bills that we took up in Subcommittee with motions and seconds. So, secretary, please.

Okay, this is to adopt the Committee rules. [Roll Call] Okay, that's nine. This is back to the rules to adopt the Committee rules. [Roll Call] Item number two, AB344. Do pass to appropriations recommended consent. [Roll Call] Item number three, AB 463.

The motion is do pass to appropriations. [Roll Call] Item number six, AB 982. The motion is do pass as amended to appropriations. [Roll Call]

Thank you, we will leave the roll open to those bills for other Members to add on. We'll now move on item five. Senator Alvarez, Florida.

Thank you, Mr. Chair, and thank you, colleagues. It's really an honor to be able to present SB 67H to you today. I want to start by acknowledging the work done by the Committee and let you all know that we're happy and appreciate the Committee's amendments in which we are taking today. And thank you for the staff's work on this with us.

First, a little bit of history, which I had to learn and maybe useful to you, but in 2018, the Legislature authorized the PUC to consider adopting biomethane procurement targets or goals for utility companies. This is in recognition of the importance that biomethane can play in our zero emission goals. Those procurement standards and targets have been set by the California Public Utilities Commission, and it will help displace fossil fuel natural gas that utilities supply to their customers.

As many of you know, biomethane is a biogas that is produced by waste such as decaying organic matter like wastewater treatment, sludge, food waste, animal manure, landfill gas, and other items that can be used to create renewable energy. Importantly, biomethane can be used interchangeably with conventional natural gas without the need for any changes in transmission and distribution infrastructure that exists.

However, the procurement requirements from 2018 do not extend to core transport agents, core transport agents, which are non utility gas suppliers that purchase gas on behalf of some residential and small commercial end use customers. It's a little bit analogous to those of us who know the community choice aggregators for electricity. Consumption of electricity at its core, 678 supports the state's net zero emission goals and levels the playing field by requiring that the California PUC also consider biomethanethane procurement targets and standards for core transport agents.

I would like to now turn it over to our witnesses who are going to share more. First, I think we're going to start with Julia Leven, and then Lourdes Ayon will go first.

Hi, Chair Members. Good afternoon. I'm Lourdes Ayon. I'm the government affairs manager for San Diego Gas and Electric. I want to thank the Committee staff in particular for all the hard work that they put into not just this Bill, but a lot of bills. I was conversing very late at night with some of your staff. So thank you so much, and I appreciate all that you do for this Committee. As I said, I'm here in support of SB 678, the core transport agent Bill, Agents Bill.

And what this Bill, in essence, what it does is just simply closes a loophole in current law related to the renewable gas standard that was established in SB 1440, Wesso. I think that the spirit of Wesso lives on. We have a couple of bills here that came out of this particular piece of legislation, and so the Bill supports decarbonization for efforts and levels of playing field for all gas customers. By requires that CTAs also comply with the renewable gas standards.

When SB 1440 was enacted as the Assembly Member mentioned CTAs were inadvertently left out of the Bill, and we hope that with this Bill, with SB 678, we can level that playing field to fix that loophole to ensure that gas costs are not disproportionately shifted to gas corporations and customers that are serviced by those gas companies.

Also, the CPUC has agreed, and they noted in a recent decision, that CTAs should be required to meet or exceed biomethane procurement targets set for our use, and that legislation should be enacted to make that happen. So AB 678 is that Bill, and we ask for your aye vote good afternoon.

Julie Levine with the Bioenergy Association of California. We represent more than 100 local governments, public agencies, private companies and others that are working to convert organic waste to energy to meet the state's clean energy and climate change goals. We strongly support this Bill. The climate science is very clear that the most urgent thing we can do to address climate change is to reduce short lived climate pollutants, primarily methane and black carbon, which are overwhelmingly emitted by organic waste.

That organic waste can be converted instead to biomethane. More than 80% of California's methane and black carbon comes from landfills, compost facilities, dairies, and the open burning of agricultural and forest waste. All of those sources can be reduced or eliminated when that organic waste is converted to biomethane. According to the airborne and the Legislative Analyst Office, the state's investments in organic waste to energy projects are by far the most cost effective investments the state has made in tackling climate change.

That's both the Legislative Analyst and the airborne, and this relates to the previous Bill as well. In the conversation about cost effectiveness, SB 1440 required that biomethane procurement be a cost that the PUC find that biomethane procurement is a cost effective way to reduce greenhouse gas and short lived climate pollutants. And the PUC did find that when it adopted the procurement targets under SB 1440, this would further those cost effective procurement goals.

Both the Airborne and Energy Commission have also called for increased biomethane production and use for energy reliability because it can provide firm renewable power. It also can be the transport agent for hydrogen. You can transmit biomethane in the pipeline and then it convert it to hydrogen once it comes out of the pipeline. We need renewable gas. That is very, very clear from the climate change scoping plan to meet our energy reliability and carbon reduction goals. So we respectfully ask this Committee for your aye vote. Thank you.

Thank you. I'll ask are there any primary witnesses speaking in opposition? All right, good.

In any of that

Take that as a compliment.

Michael Boccadoro, on behalf of the Ag Energy Consumers Association, and let me be very clear. We are strongly supportive of SB 1440. When it passed in its final form. We had a lot of concerns. When it went through, those concerns got addressed.

And I very much appreciate the staff analysis, because it pointed out a massive loophole that the Gas Company was trying to blow into biomethane procurement, which was allowing out of state biomethane to be procured, rather than focus on in state, where we get the methane reductions here. So that alleviates one of our concerns. Our second concern can easily be alleviated as well, and that's a cost issue. It's not about cost effectiveness. It is about cost to ratepayers. Rather than setting additional procurement standards.

There's already a proceeding going on at the Public Utilities Commission to simply share the costs of the procurement that's already been ordered by the Commission under 1440 amongst a broader array of customers, including core transport agents. That would be a much better outcome than it would level the playing field for the gas company and others. Be a much better outcome than doing additional procurement, which is simply going to increase the costs for all customers. Additional procurement of biomethane in a supply market that is very short.

My clients produce more biomethane than any other group of clients in California. My dairies produce a lot of biomethane, but we're going to be short in state biomethane for the procurement targets that have already been set. This Bill would establish additional targets leading to higher prices for everyone. So there's a simple solution. Either just spread the cost, as the Commission is proposing to do, or just require the Commission to spread the existing procurement requirements to include core transport agents.

And reducing the burden on SoCal gas and PG E to procure for their customers. We'd still accomplish the same thing, which is achieving the state's methane reduction goals. But we do so in a way that doesn't impact ratepayers as. Thank you. I'm going to ask if there are any individuals in the audience wanting to speak. Public comments in support or opposition of this item, please come forward. Name, affiliation and position. Dean telly with the California Manufacturers and Technology Association. Respectfully opposed. Thank you.

See no one else. We'll bring it back to the dias. Any questions?

Thank you.

Before you go, someone wants to add on real quick.

Sorry. John Winger, on behalf of the Coalition for Renewable Natural Gas and support. Thank you. Sheriff, please.

Thank you. Christina Scaringe for the Center for Biological Diversity and Opposition.

Thank you, Senator Reyes.

Thank you. Now, as I understand this is, I think, as Lourdes said, it's closing a loophole. And in the analysis, CPUC had noted that ideally, legislation should be enacted requiring CTAs to procure biomethane at the same rate as the joint utilities. Similar to legislation enacted in 2005 that requires community choice aggregators to comply with the RPS compliance obligations established by the Commission. So, basically, as I understand it, it has to be shared by all. And they were left out. The CTAs were left out in error. Am I correct in my reading of this?

Yes, Ms. Reyes. That is our understanding as well that they were left out of the 2018 legislation.

Thank you.

Thank you.

With that, I would move the Bill.

All right, we have a motion. I heard second, Ms. Calderon, questions to my right.

I just wonder if you could respond to the comments about the effect to rate payers using the POC process versus the impacts of the Bill. I don't know who wants to do. That, but I open the floor. Fully understanding the comment. And having heard it before, I would say that the goal here is to ensure that procurement of biomethane is something that is a shared goal. And certainly, anytime that you add procurement or that you are looking to do something with the source of energy, there's a cost associated with it. So there's also a cost to not making them do this, which is a cost to our goals and our climate goals.

So those are the costs that are against each other at this point. But we think that it makes sense that all of the procurement of biomethane are treated equally. And that's the attempt with this.

Yeah, we'll continue working with the author on that point. But it is a much easier path to just share the existing costs rather than put additional costs on all ratepayers. Pretty straightforward. If he understood the proceedings.

Sure, he understands. He's a very intelligent Member of this esteemed body. But this has been one of the most interesting, as an environmentalist myself, conversations to be involved in. Because there isn't a clear side, I don't think. Right. I mean, this waste is produced, and we have to figure out what to do with it. And creating energy out of it seems like sort of maybe the best case, despite the fact that it has environmental impacts. Because not creating energy also has environmental impacts. Right.

But I think it is important, and what I have always understood this conversation to be is that we need to create the market for this in order to produce a system where we will use these wastes in order to produce energy. And that's part of what's trying to be achieved through these pieces of legislation. Although I will say that overall, I think we all, when the PUC comes in for their oversight hearing, it's our fault now that they can't get everything done.

We just keep putting more on the CPUC and I don't know how they're going to achieve it all. They can't do their job today. But with that, I do think that this is worthy because we do have to be conscious of how we're using these materials and disposing of them and creating energy is wise.

Assembly Member Schiavo.

Could you also respond to the opposition's point about you would have to create more, basically biomass to be able to meet the demand? If you're creating additional demands or additional levels and targets, then you would have to create more to meet those?

Yeah, we're setting procurement goals. So yes, that would be the case.

Okay, just so I'm clear. Is your point that you're going to be creating more methane emitting sources so that you can produce this fuel?

No, my point is that it makes total sense, as you just heard from your colleague on the dais, to capture and put to beneficial use methane that is in our environment, from dairies, from wastewater agencies, from landfills, that methane is limited when you look at it from an in state perspective. And this Bill will add additional demand through additional procurement targets for another group of suppliers that will strain that existing supply that we have in California.

And we all know what happens when demand for gas outstrips the supply of gas, the price spikes. So the concern is, let's just share the procurement that we've already established, rather than trying to add even more. Most of us who work in this space, who are honest, do not believe we can achieve the goals that the Commission has already set with in state biomethane. And that's the only biomethane that makes sense in this process. So adding more procurement is going to put us in a supply short situation.

As we're all getting educated on this issue. I would just add that the goal is about our climate policy and trying to make sure that we capture and use as much as possible to the extent that what that does to our supply. Hopefully there's more clean supply coming through this. That's the intent and that's why the targets were set. And that's where we hope the conversation goes with the PUC. Okay, thank mean we have someone else wants to comment.

Mr. Boccadoro is correct that currently in state production is much lower than we need it to be. But that's one of the reasons why a procurement program is important. The potential for in state biomethane production from landfills, from dairies, from wastewater treatment facilities, from agricultural waste. And the biggest category that he neglected to mention is forest waste. We have a wildfire crisis in California. We have an agreement with the US Forest Service to do thinning on a million acres a year.

You'll hear about this more with Assembly Member Aguiar Curry's Bill. We have enormous potential for biomethane or renewable hydrogen production from organic waste, and we need to get to that potential because the alternative is what I was talking about, which is emissions of methane and black carbon into the atmosphere. This is infinitely better from a climate and air quality and a sustainability standpoint.

So I'm not expressing an opinion on whether bringing CTAs into this program should be done within the existing procurement target or it should be an additional procurement target. I think that the PUC can figure that out within its direction already, only to do it if it's cost effective. So I think the concern for ratepayers has been considered by the PUC would be considered again. If this legislation becomes law, which the PUC has recommended, it should become law.

So there's an ongoing process, really to be able to evaluate this and prevent the kind of situation we're talking about, of where prices are going to spike or there's not enough supply for demand. But built into the PUC process.

The PUC has to find that procurement targets are a cost effective way to reduce short lived climate pollutants. There are various ratepayer protections in SB 1440, which is why Mr. Boccadoro supported that legislation, and the PUC will revisit this. So I don't think we're facing a risk of the PUC adopting a program that's going to cause spikes in gas.

There's. I guess I would just say if there's clarity that seems like it needs to be included in the Bill to ensure that these kinds of reviews are happening, then hopefully folks can work together to figure those out as well. Thank you.

Thank you. I see no other questions. Bill does have a do pass recommendation with amendments. Should be going to the natural resources Committee. Would you like to close?

Like to add additional comment?

I just wanted to make a correction for the record. I'm here on behalf of SoCal Gas and at SDGE. I work with both, but SoCal gas for today. Thank you.

Thank you.

I appreciate your recommendation and your. I vote. Thank you.

Thank you. We do have a motion in a second. Roll call.

Item number five. AB678. The motion is do pass as amended to natural resources. [Roll Call]

Okay. Thank you. We'll leave the roll open for the Members to add on. We'll take on item four. Member Aguiar -Curry. Bill does have, do pass with amendments.

Okay. We have a motion and a second.

It helps when you take these people out to your area to see the fires. Good afternoon, Mr. Chair and Members. First, I'd like to thank the Committee staff for all their work on this Bill. I will be accepting the Committee's amendments and look forward to continuing discussions with the chair to make sure that the CCAs have enough time to participate in the BioMap program. This Bill addresses a growing problem that, you know, I've been working on since I started in 2016.

Because you joined me in my effort on this my very first year. We must figure out what we do with the forest biomass waste that we create during wildfire mitigation projects. And you also know that's just a start. Members, the Air Board's 2022 climate change scoping plan calls for the forest thinning and management on 2.3 million acres of forest a year to reduce wildfire risks and restore healthier, more resilient forests.

Some of that forest thinning will be done with prescribed fire, but a lot will have to be done mechanically and will generate tons of millions, millions of tons of forest biomass waste. We're not talking about healthy trees. We're talking about dead and dying trees and small underbrush that accelerates wildfire and leads to a much more catastrophic fires. Once that material is mechanically thinned, we need to do something with it.

Without the capacity to use this waste productively, it will be piled and burned or left to decay, both of which release greenhouse gases. This Bill is about making sure that forest biomass waste is used in a way that is beneficial to the environment and the communities that are impacted by the wildfires. This Bill does not require specific alternatives to pile and burn.

It asks the experts at state agencies to figure it out in a collaborative, instead of siloed way, what California should do, and to make recommendations back to the Legislature. It would establish a forest biomass utilization program at the Board of Forestry to coordinate efforts and ask multiple state agencies to examine ways to use this way and incorporate the recommendations into ongoing efforts.

This Bill will help reduce future emissions related to the open burning or natural decomposition of forest waste, and it will help increase energy reliability and resiliency in those communities at greatest risk of losing power at a time when we hope not to repeat the blackout threats of the past summer. With me to testify in support of the Bill are Julia Levin, Executive Director of the Bioenergy Association of, California, and Christiana Darlington, an attorney with the California law empowering renewable energy. Thank you.

Good afternoon, Members. Thank you for having me today. I'm Christiana Darlington, and I'm representing the Placer County Air Pollution Control District. Our district has been working with these issues since 2010, and we have produced a study that shows that in comparison to open pile burning of forest biomass bioenergy is 98% cleaner when it comes to particulate matter and two-thirds cleaner in terms of NOx pollution.

Newer bioenergy technologies that avoid early combustion processes and apply advanced emission control technology are even more impressive in providing public benefits, especially the public health benefits. When forest biomass is left on the ground, as the Member mentioned, it also contributes to the pollution to pollution by releasing methane, which is a climate-forcing agent that's 24 times more potent than CO2 alone. Another effect of leaving forest biomass waste on the floor of the forest is that it contributes to the next wildfire.

Wildfire not only emits the kinds of pollution that open pile burning does, that we just mentioned like particulate, but it also releases toxic air contaminants when you burn things like homes and cars. So remember, when considering bioenergy, when we talk about bioenergy, we're talking about a waste disposal process for organic waste from the forest that must be dealt with. And it also brings many ancillary benefits that I'm sure Julia will talk about, like energy production.

And this is vastly different than digging up fossilized natural materials from under the ground and using it for energy. It's quite different. So forest biomass waste is supposed to be to increase drastically, as was also mentioned, through the ARB scoping plan, and this will bring from that 2.3 million acres I was mentioned, at least eight and a half to 9 million bone dry tons of organic forest waste material that we need to figure out how to deal with.

I think you heard about the purposes of the Bill, but I just want to emphasize the district is really interested in seeing a central hub of research and work done through the Joint Institute for Wood Products at the Board of Forestry so that the state agencies can be coordinated in this effort. Thank you, and we're available for any questions you might have.

Good afternoon. Julia Levin with the Bioenergy Association of California. AB 625 provides a very badly needed framework to convert forest biomass waste to beneficial uses. It doesn't mandate specific uses, but it does provide a framework to coordinate and to ensure that we are achieving the greatest environmental, economic, energy, and other benefits from forest waste biomass. On the bioenergy side, AB 625 will help to increase the production of firm renewable power. The chair knows well from authoring several book bills, books, bills, not books, on firm renewable power.

And I think all of you as Committee Members know that we desperately need more firm power for energy reliability, and converting forest waste biomass to energy can provide that firm renewable power. The Public Utilities Commission has mandated additional procurement of clean, firm power from renewable sources like forest waste. And the California Energy Commission, in its SB 100 modeling, found that we may need as much as 15,000 MW of new clean firm power, which, again, this is a great resource to convert to that power.

AB 625 would also extend the BioMap program, which requires only 50 MW from three MW and smaller facilities, 50 MW using the byproducts of sustainable forestry. The CPUC in 2014 adopted 23 page guidelines to define what the term byproducts of sustainable forest mean. And they limited it really to two categories, forest waste materials that are removed for wildfire mitigation and forest waste materials that are removed for forest restoration projects. That's it. That is the only material that is eligible under the BioMap program.

AB 65 is a sensible approach to California's forest biomass waste that will ensure it is used to meet the state's climate change, air quality and clean energy goals. And we urge the Committee to pass this important legislation. Thank you.

Okay, we'll ask for key witnesses in opposition. Please come forward. Seeing no one. We will open it up for public comments.

Good afternoon, Mr. Chair and Members. Chris Micheli, on behalf of Pioneer Community Energy and in strong support of the extension of the BioMap program to CCAS. Thank you, Mr. Chair.

Good afternoon, Chair and Members. Amara Egar, on behalf of the California Compost Coalition, in strong support.

Good afternoon. Julia Hall with the Association of California Water Agencies here in support. Thank you.

Hello again. Lourdes Ayon with San Diego Gas and Electric this time. We're in opposition, but working with the author's office on amendments and hope to be able to support soon.

Hello. Sakereh Carter with Sierra Club California, in opposition.

Hello. Christina Scaringe with the Center for Biological Diversity in opposition.

Kris Rosa, on behalf of Calforests, in support.

Thank you. We will bring the Bill up to the dias. Any questions? Comments? Do we have a motion? We have a motion to second on the Bill already. Would you like to close?

I respectfully ask for your Aye vote.

Okay. Secretary.

Item number four, AB 625, the motion is do pass as amended to Natural Resources. [Roll call]

Okay. Thank you. We will keep that open for other Members to add on. We are now item seven. Assembly Member, please come forward. Mr. Valencia. Bill does enjoy a do pass recommendation. Motion and a second.

Okay, Muy buenas tardes. Good afternoon, everyone. Mr. Chair and Members, proudly here advocating on behalf of AB 1068. I want to start off by thanking your Committee team for the diligent engagement with the team that we've put together on this Bill. I'll be accepting the Committee amendments as described on page 8 of the analysis and I will continue to welcome further dialogue and collaboration as this Bill hopefully moves forward.

I'd also like to quickly introduce our team's Legislative Director, Nathaly Teran, who has been taking the lead on this Bill on behalf of our office, and then also Nicolina Hernandez, who is the Government Affairs Manager of SDG&E and SoCal Gas, who will be testifying on behalf of the Bill in a bit. AB 1068 aims to provide greater accountability and transparency of the CPUC's decision-making process by ensuring all interested stakeholders are able to participate. Our democracy rests on transparency and accountability.

Anyone who has comments, questions or concerns should be able to voice those points to the CPUC. AB 1068 streamlines communication access by allowing written ex parte communications at all times. The CPUC regularly makes changes to proposed decisions, which affect all of our constituencies, regardless of geographic location. It is not uncommon for proposed decisions to be modified as close to as up to three days, leading to the voting meeting.

In these instances, when written ex parte is prohibited, there is no opportunity for an interested person or entity to comment. Prohibiting communication is a disservice to all affected ratepayers and goes against our Democratic values. The CPUC and their staff should be able to take in comments and concerns from the public and interested stakeholders and consider those points leading to a voting meeting.

The CPUC is responsible for implementing a growing number of state priorities related to rate setting, wildfires or transition of clean energy sources, and much more. We need those who are making decisions in the regulatory process to hear from all interested stakeholders prior to making a final decision. And now I'd like to hand the mic over to Nicolina Hernandez. Thank you.

Thank you very much. Nicolina Hernandez, Government Affairs Manager for San Diego Gas and Electric and Southern California Gas Company, here in support of AB 1068. Also want to thank the Committee for their work on this Bill and the author for bringing this measure forward. Last year you may recall SB 599 by Senator Hueso. This was generally a cleanup Bill. It amended several different code sections. One of the things it aimed to do was recast the "quiet period" section of law.

In doing so, we believe it inadvertently made a drastic change, which was to remove the ability for all parties to be able to transmit written ex parte communications during the quiet period. And with that, we now are coming back to the Committee after that discussion last year and hoping to fix that and bring back our ability to do that.

And again, this fixes what SB 599 did on a written ex parte communications process specifically, and it's a process whereby all interested parties would be able to do that, not just investor owned utilities. As the Assemblymember said, the main reason why this is so important to do is because there are instances in cases where the CPUC will issue modifications to a proposed decision on a Tuesday, during a quiet period, right before the Thursday vote.

And so with the law that we have today, any party would not be able to, even, at a minimum, transmit written comments. Perhaps there's new data that would help in this decision, whether it's support or an opposition or concerns that, again, are specific to those modifications. We, as SDG&E, just exercised this process that we had last year in 2022. But as of January 1 2023, we don't have that opportunity anymore. And this is why we need this Bill.

So, as you all know, the CPUC does very important work, and it affects all ratepayers, and equally important are the voices of constituents and ratepayers as well. So with that, we appreciate, again, your attention and respectfully request an aye vote.

Thank you. Before I proceed, I dare to maybe declare today Senator Hueso Day. We're doing a lot of homage to him, either clean up bills or fix his bills, or building on his bills. But nevertheless, today is, I guess, Senator Hueso Day in this Committee. I'm going to ask if we have any key witnesses, primary witnesses in opposition to this matter, please come forward.

Good afternoon, Mr. Chair, and Members. Ignacio Hernandez on behalf of the Utility Reform Network, or TURN. We are unfortunately opposed to this Bill. A couple of things: the prohibition on written ex parte communication is long standing. SB 599 from last year did not change that. The prohibitions existed before 599, and they exist today. What happened in 599 last year is that the Bill gave the CPUC, it changed the authority of the CPUC to establish quiet periods.

Instead of it being discretionary, it mandated that quiet periods be imposed. As a result, anytime there's a quiet period before 599, and there was a strict prohibition on oral and written ex parte communication. Now that there's an expanded quiet period for more proceedings mandated by 599, those prohibitions on ex parte communications still attach to quiet periods, so nothing changed as far as what happens during a quiet period. That's why they call it a "quiet period." There's no ex parte communication.

What this Bill would do would undo what the law had been for many, many years, which is there's no ex parte communication during the quiet period. So let me be very clear. It's not a fix, it's not a cleanup. And we've had a lot of good discussions with the author's office and also the sponsor. But as we reviewed it, this is definitely a rollback on what was already in place. We do understand that there are more quiet periods now than there were before 599.

But the protections that connect to a quiet period remain exactly the same. TURN has been involved in this for quite a while, in ex parte communication and transparency, going back to the Leno Bill and Hill bills in 2015/2016. I was involved in those personally, as well as the TURN lawyers. So this is a long standing provision.

I did review our letter from 599 last year, and there was a line in there from TURN that says, we support the Bill in part because it, quote, "preserves the prohibition on ex parte communications." And that's exactly what 599 did. And we ask you to do the same today by voting no on this Bill.

Thank you. I don't see any other witnesses in opposition. I'll open it up for public comments. Those wishing to speak in favor, opposition, please state your name, affiliation, position.

Good afternoon. Ashley Johnson on behalf of Pacific Gas and Electric Company, in late support. Thank you.

Mr. Chair and Members, Madison Dooley Pigozzo, on behalf of the California Water Association, in support.

Good afternoon, Mr. Chair. And Members. Brady Van Engelen, here on behalf of the California Chamber of Commerce, here in support.

Thank you very much. See no one else coming to public comment. We'll bring it up to the dais. Questions or comments, please.

Thank you, Mr. Chair. So, I'm sensitive to the concerns of TURN, and I think I hear what you're saying about changes that can come days before. You do have the opportunity to show up at the public hearing and make comments, so it's not as if you don't have an opportunity to respond. And it's my understanding that the communications will have to be circulated to all parties to the hearing, but they will not be publicly available. Is that correct?

Um, I'll have to get back and check, but I do believe that they may not be part of the official evidentiary record, but they do are transmitted to all interested parties who are signed up.

So, how do we define interested parties? I guess would be, so it'd be all parties to the hearing, but I don't know who.

interested parties are those who have indicated so in a filing at the PUC. And so they become part of a Listserv.

Right. So I guess my concern is that. It's that I think that this should be part of the public record. I think any communications as it relates to rate payers should be available for people to see and know happened. And that's why I actually really appreciate the amendments that were accepted that limit it to written communications, because then it's not a closed door meeting where nobody can know what happened. Right? It is actually in writing and it is distributed to a list.

But that scope seems, could be limited, could be large, depends. And so I think this Bill would be much better if it was a part of the public record and that written communication, although ex parte, is something that anybody had access to to know how we got to where we were at the end of a proceeding.

I don't know if that's something that everyone here is open to, but I just want to put it out there because I think it is a limitation of the Bill. Any desire to respond?

If I may, ex parte communications do have rules. There are oral ex parte communications and there are written ex parte communications. And based on what you're saying, we agreed; the Bill is about transparency and access to government. So absolutely, we want to be able to communicate impacts and have that open door policy with the PUC. Happy to continue having that conversation and seeing what makes sense, and with the spirit of the Bill, I totally see what you're saying.

We're operating under the current rules, and it's a very complex process at the PUC in and of itself. But I totally hear what you're saying and want to continue having those conversations. But we really want to get back to how we were operating at a minimum last year, which did allow written ex parte communications.

I'm confused why the two sides don't agree about what happened last year. It seems like there's complete disagreement about what the rules were. It might be concerning if you were operating under different rules at the PUC a year ago.

Yeah, I mean, we've had quite a bit of communication the last couple of days, no pun intended. And I reviewed the statute. I mean, the statute is very clear. Anytime there is a quiet period, there's no written or oral ex parte communication. That was before 599 and after 599, and that's also incorporated into the rules of the CPUC.

So the only thing that changed is the number of quiet periods that are imposed and the types of proceedings. It's now mandated, as opposed to being discretion. I'm very careful in trying to parse words of another witness for a long time, but what I can say is that there are certain cases where ex parte communication were allowed before 599 because a quiet period was not instituted.

But now that a quiet period is instituted, you must comply with that prohibition. And for turn, a quiet period means a quiet period. And anything that allows for ex parte communication, whether we think there's justification or not, then it is not a quiet period. And we are out-resourced and out-numbered at the Commission. So we have these restrictions on ex parte communication for a reason, and we fought for those in 2015, 2016 and 2017, and we don't want to see those rolls back.

Got it.

May I respond?

Please.

May I respond? The introduced version of SB 59 last year, you'll find section, PU Code Section 171.3 H 6, A through D. So a long one. Here, it's permissive to establish a quiet period. The current law says now it's required. I'm glad that TURN also brought up the rules, because if the statute says when and under what cases a quiet period may or shall be established, that's one thing.

The CPUC rules and code of procedure then overlay with that specifically, say, of the four different scenarios, this is the type of communication that you can have and that you cannot have. If you establish a quiet period under one of these scenarios, specifically when a proposed decision is issued, then at a minimum, written ex parte communications are allowed. And that's in rule 8.2 C, 3 through 4.

Thank you.

So that's why we're here, to clean it up.

I must join with my colleague. Very concerned about the exchange of dialogue and the confusion, because we should have no confusion. If we're trying to change a statute, we should know what it says already. And to have two completely opposing opinions about what it says, for me, is of great concern. And I will be voting aye as a courtesy to my colleague, Mr. Valencia.

But this is an issue that, by the time it comes to the floor, it must be resolved, and we must know whether the quiet period now allows for written communication or doesn't. And if it doesn't, then it is important that I would like to confirmation that it has been confirmed that TURN is correct in their assumption. Or, TURN, if you are incorrect, I'd like to hear that the information was incorrect.

At this point, when we're voting, we do want to know what we're voting on and what we are changing. So with that, as I said, I will be providing a courtesy vote, but do want to see this issue resolved before it comes to the floor.

Thank you, Assemblymember. Any other questions from Members? Would you like to respond?

Thank you, Mr. Chair. And I appreciate the comments and recommendations from the Committee Members. You have my commitment when it comes to addressing the matter that was presented, the information that we had, we felt comfortable with moving in this direction because that's what our analysis of the statute is. And to Committee Member Bauer-Kahan, I completely understand your sentiment about coming to a CPUC hearing. However, this expands further than just entities, right.

This is also about the average resident who may not be able to attend a hearing. So I do believe it's important for them to be able to submit something in writing as well. So point well taken. And with that, I do ask for an aye vote. Thank you.

Bill does enjoy a do pass reco, and I believe there was a motion. Floor? Do we have a second? Mr. Holden? Thank you. We'll take that as your close. Roll call.

Item number 7, AB 1068. The motion is do pass as amended to Appropriations. [Roll Call].

All right, thank you very much. We're going to go up on the agenda items to have Members add on. And for those who have not come to Committee, we will leave the roll open till 4:10 for those Members that have not added on to Bill. So please, Madam Secretary.

The adoption of the Committee rules. [Roll Call] This is the consent file. Item number two, AB344. The motion is do pass to appropriations recommended consent. [Roll Call] Item number one, AB 324. The motion is do passes. Amended to natural resources. [Roll Call] This is item number one, AB 324. [Roll Call] Item number three, AB 463, the motion is do pass to appropriations, [Roll Call]

Item number four, AB 625, the motion is do pass. Is amended to natural resources Mersuchi Ting Wallace item number five, AB 678 the motion is do passes. Amended to natural Resources [Roll Call] Item number six, AB 982. The motion is do passes. Amended to appropriations, [Roll Call] Item number seven, AB 1068. The motion is due. Pass, as amended to appropriations.[Roll Call]

We're going to leave it open for a few minutes. It's Muratsuchi, Mr. Ting and Mr. Wallace, if sergeants could please call them at this time, we'll be waiting for those members to add on. We will gavel down at 410 and start the special session soon after that.

Members, we're going to open the roll and allow others to add on votes who have come here for that purpose.

Please read.

This is for adoption of the committee rules. Ting, Ting aye. This is for the consent file. Item number two, AB 344. The motion is due. Pass to appropriations. Recommended consent. Ting, Ting aye. Item number one, AB 324. The motion is due. Passes. Amended to natural resources. Ting, Ting not voting. Item number three, AB 463 the motion is do pass to appropriations. Ting, Ting aye, item number four, AB 625 the motion is do passes. Amended to natural resources.

Ting, Ting aye, item number five, AB 678 the motion is do pass as amended to natural resources. Ting, Ting aye. Item number six, AB 982. The motion is due pass as amended to appropriations. Ting, Ting aye. Item number seven, AB 1068. The motion is due. Pass. Is amended to appropriations. Wallace, Wallace aye, it's on. Everything.

Okay?

We're going to open the roll. This is for adoption of the committee rules. Muratsuchi. Muratsuchi, aye.

That's 14:0 that bill gets out. The rules are adopted, officially adopted.

Item number two, the consent file, AB 344. The motion is due. Passed to appropriations recommended consent. Muratsuchi. Muratsuchi aye.

14:0. That bill gets out.

Item number one, AB 324. The motion is due. Pass, as amended to natural resources. Muratsuchi. Muratsuchi aye.

That bill gets out.

Item number three, AB 463 the motion is due. Pass to appropriations. Muratsuchi. Muratsuchi aye.

14:0. Bill gets out.

Item number four, AB 625 the motion is due. Pass, as amended to natural resources. Muratsuchi. Muratsuchi not voting.

That's 13:0. Bill gets out.

Item number five, AB 678 the motion is due. Passes. Amended to natural resources. Muratsuchi. Muratsuchi aye.

12:0. The bill gets out.

Item number six, AB 982. The motion is due. Pass. Is amended to appropriations. Muratsuchi. Muratsuchi aye.

14:0. Bill gets out.

Item number seven, AB 1068. The motion is do pass as amended to appropriations. Muratsuchi. Muratsuchi aye.

13:0. Bill gets out at this time, we will adjourn the regular hearing of the utilities and energy.

All right. Would like to now call this hearing of the Assembly Committee and Utilities energy in the first extraordinary session to order. We're here for an informational hearing to discuss the issue of high and volatile gasoline prices in California, as well as the Governor's proposal to address this ongoing concern. Some of our panelists will be participating remotely. I will maintain decorum as we normally do here to avoid any disruptive conduct. You may be removed if the chair deems that you've been disruptive in this hearing.

I'd also like to take the moment. We will have some Members that are not part of the Committee joining us along the way, and so welcome them beforehand. For decades, Californians have seen gas prices rise, fluctuate wildly. Higher gasoline prices can be particularly crippling for residents on fixed or limited incomes and those who have long commutes to work or require driving as part of their job. We are here today to examine aspects of gasoline production that lack transparency and may be contributing to high gasoline prices.

We will also discuss policy proposals for ways to increase transparency and stabilize gas prices. This conversation will provide a forum for Members of the Committee to discuss aspects of the governor's recently amended proposal. SBX 1-2 proposal promises to increase transparency in gasoline pricing and empower the CEC to establish a penalty on windfall profits in the oil and gas industry. We're joined today by regulators, market experts, industry representatives, and consumer advocates.

They will each provide perspectives on the State of the gasoline market in California and policies to address high gasoline prices. With that, I'd like to turn to any of my colleagues who would like to make any opening remarks. I'll look to my right. To my left. Please.

Thank you, Mr. Chair. I'm grateful for the opportunity to discuss the gasoline price volatility and high gas prices. The past year, we have been hearing from our constituents on this high cost of gasoline. My office received a letter earlier this week indicating that California refineries' profits were 30% greater compared to anywhere else in the world.

It also indicates that in the first three quarters of 2022, California's five biggest refiners, Chevron, Marathon, PBF Energy, Phillips 66, and Valero, brought in $67.6 billion in profits, nearly four times during the same period in the prior year. These profit margins seem astronomically high, as Californians were paying as much as $2.60 more than the average American. It's clear that there's a discrepancy between what Californians are paying compared to the rest of their national peers.

I look forward to hearing from the panelists and discussing the governor's proposal so that our constituents are not price gouged. Thank you.

Thank you, Assembly Member Reyes. Thank you for sharing that perspective. As we will hear from a wide range of perspectives on this panel that will be coming up, I will ask that all the panelists provide their opening statements, then we can turn to the Committee for questions. We will start with Commissioner Siva Gunda, Vice Chair of the California Energy Commission, and I'd ask everyone who is on the panel, if you'll please join us up at the front for efficiency purposes. Thank you. You may begin.

Thank you, Chair. Good afternoon, Chair and Members of the Committee. I'm Siva Gunda, Vice Chair of the California Energy Commission. For the record, thank you for holding this important hearing and for the opportunity to provide you with the details of the Governor's proposal for bringing greater oversight and accountability to gasoline pricing.

The CEC has a critical role in the Governor's proposal, and today I hope to provide you with the background information on the rationale for the Governor's proposal and how it will provide more transparency and oversight into California's petroleum market to protect California consumers. Next slide, please. In 2022, gasoline prices attracted California gasoline prices attracted national attention relative to the rest of the U.S. The chart here shows the average retail gasoline prices in California in green and the U.S. in blue.

And I would like to point out, highlight a few elements of the graph for your consideration. One, prices both nationally and in California track very closely with the prices of the crude oil, which are globally indexed. As the global crude oil prices go up and down, the retail prices follow. Gasoline prices in California have been somewhat higher on average, than the rest of the United States for a few reasons, including environmental programs and our unique fuel blend.

Historically, the difference between California and U.S. gasoline prices were stable and as you see that, the two prices used to track closely in how they move up and down. Since the Torrance Refinery incident in 2015, however, the data suggests two phenomena. One, the difference between the California and the U.S. gasoline prices begin to grow. And two, there are times of price spikes in California that diverge from the national trends significantly. We highlight three spikes on the chart.

In 2015, we had a price spike following the Torrance Refinery incident. The second, highlighted in 2019, resulted in Governor Newsom asking the Energy Commission to develop a report and respond to the experts, raising the concerns of the mystery surcharge. Finally, the third extraordinary spike in prices we saw last year, which we will delve into more in the next few slides. Next slide, please. Now, taking a closer look at just the difference between California and the U.S. retail prices.

The red line is the daily difference and the blue line step curve is the annual average for a specific year. As you see there, the daily changes are much more noisy than the annual averages, which mask that. As noted before, the annual average difference continues to grow. In 2014 the difference was 40 cents and in 2021 it grew to $1.14. On October 4, 2022, we reached an all-time high difference of $2.61, much of which was driven by the refinery margins.

As we'll show you on the next slide, the recurrence of the spikes and their extraordinary high levels is a concern, and we present to you in the next slide a breakdown of the contributing factors. The next slide, please. The graph gives you a more focused view on the refinery margins over the past decade. We can see that there have been tremendous spikes in the gross refining margin. The linear trend is much lower, which really highlights the point at which the refinery margin spiked.

The goal of the governor's proposal is to address these extreme spikes in pricing. The Bill provides the CEC with data, we currently need to understand these hikes in prices, and charges the CEC with scrutinizing this further and determining whether and way to set a maximum margin and penalty. Next slide, please.

Here is a breakdown of the California gasoline prices in terms of components we can discern from the data we currently have access to. Consistent with the CEC's approach since 2019, we break the retail prices into four components that align with the stages of gasoline production. As you can see, crude oil prices and taxes and fees remain fairly constant or even decreased over the 10-week period and did not contribute to the price spikes.

In fact, the retail price continued to grow as the crude oil prices declined between August and October. The driver of this price spike was the refinery margins and the refinery margins and retail margins. You see the refinery margins quadruple, growing from $0.64 to $2.48 between August 29 and October 3. You also see abnormalities in retail margins. Next slide, please. Another fact that informs policy in these areas is demonstrated with decline by the decline in demand.

The CEC is still collecting data for 2022, but analysis show that the demand for gasoline continues its decline since its peak in 2017, which is partly due to the shift to EVs or electric vehicles. CEC's forecasting suggests that the California likely has passed its peak gasoline consumption levels. Even with these declining levels, though, California is still the third largest market for oil, behind U.S. and China, and continues to be a pretty large market for the oil industry. Next slide, please.

Given the transition in the transportation sector, it is important that the state takes actions to ensure the California consumers are protected. There is a lack of complete transparency into how the refining industry operates today. The CEC collects data from refiners and third-party sources, but it does not answer critical questions on why price spikes occur and how supply will be affected by various events such as refinery outages. There are market participants that undertake these buying and selling events.

Transaction level data would provide valuable insights into price pressures and profits potentially and help us understand not just after-the-fact price and capacity correlations, and not just the correlations of spiking prices and global corporate profits, but the buying and selling events actually occurring during the price spikes. Required reporting of this data would also provide a strong deterrent to pricing misconduct.

The price spike events themselves need to be understood more and ameliorated because the transition away from gasoline-based transportation is going to further disrupt the historic market as we transition from 150 years dependence of oil to clean energy. As noted, the decreasing competition in the refining sector is something a transition plan and long-term solution has to consider, and market incentives to mitigate price spikes do not exist.

Industry generally admits that future price spikes will occur and that those price spikes do result in large profits for their industry and they have not developed a strategy to protect consumers for high prices at the pump. Next slide, please. Before I go into the governor's proposal, it is important to note that the CEC, under existing PIIRA authority, collects and reports in aggregate information on petroleum supply and has experience in protecting confidential data, and takes extreme care in handling it.

PIIRA restrictions keep this sensitive information confidential and in 43 years of this law, there has not been a single breach of confidentiality from CEC. SB 1322 that was signed into law last fall provides CEC with further information that will continue to help deconstruct gasoline pricing and answer key questions. All refiners provided the first set of required data earlier this month, and the data was posted to the CEC website on March 17.

CEC continues to review the reported numbers and may publicize additional information from this evaluation as we continue to verify the reported data. For the record, I would like to reiterate the CEC does not and will not reveal any confidential information provided or reported to us that is proprietary or could impact market competition. This is already prohibited by law. Next slide, please.

The Governor's proposal includes four elements that will improve transparency, accountability, oversight and planning, penalty and enforcement authority data collection and monitoring, independent oversight and investigation, review, recommend, and plan. I'll go into more detail of each of the activities on the following slides. Next slide, please. The Bill would give the CEC authority to establish a maximum margin for refiners and impose a price gouging penalty and margins above the maximum.

Consider and grant a refiner's request for an exemption subject to criteria and conditions as the Commission may set to exercise this authority. The Bill first requires that the CEC take into account the benefits to consumers and the possible risks. For example, could a penalty affect supply or lead to higher prices in the long term? The CEC will examine these issues and cannot proceed with setting a maximum margin and penalty unless we find after a public process that the benefits outweigh the risks.

Next slide, please. The governor's proposal includes a new data collection authority to provide even more transparency into pricing, inventories, and other factors affecting supply from refiners down the supply chain to distributors and retailers. The proposal includes collection of information from refiners for better insight on refinery maintenance, including what refiners have done to make plans to have adequate inventory or otherwise make plans to meet contractual supply commitments during maintenance and information on unplanned refinery outages.

It also includes spot market transactions to create greater transparency and give insight into supply stressors, market responses, and how participants are behaving in the market and to deter price manipulation. Inventory holdings by type of market participant so that we can see the definer's contractual supply obligations are, as well as traders who do not have supply obligations but can sell to those who do, especially after unplanned outages.

Overall, this data will give CEC insight into who is acting to decrease upward pressure on prices and who is not. Next slide, please. The Governor's proposal seeks to establish a new watchdog unit within the Commission with greater expertise for independent analysis and oversight. To do this, the proposal establishes an independent division of Petroleum market monitoring housed within the CEC to provide independent oversight and analysis of the petroleum transportation fuels markets, detecting market design flaws, and market power abuses.

The division will have access to confidential data collected by the CEC and subpoena power to obtain additional information from California refiners and ability to refer cases to the Attorney General for investigation. The proposal also includes a new Independent Consumer Fuels Advisory Committee of experts to provide analysis, guidance, and recommendations to the CEC and the independent division. Confidential information shared with this new division and Independent Committee will remain confidential except that it may be shared with the Attorney General for investigation. Next slide, please.

Finally, the proposal also includes activities that will enable us to leverage information collected to assess, plan, and make recommendations and the profit that will benefit Californians over the long run. Specifically, the proposal calls for four distinct reports. Annually, the CEC and CDTFA will submit a report to the Legislature, including a review of price of gasoline in California and its impact on state revenues.

Two, annually the independent division will report on its findings and recommendations to improve market performance based on analysis of information collected and requested in prior year and the advice of the Advisory Committee. Three, CEC and CARB will prepare a transportation fuel transition plan, including a discussion on how to ensure supply of petroleum and alternate transportation fuels is affordable, reliable, equitable, and adequate to meet the demand.

CEC, CARB, CNRA, and CalEPA will consult with a multi-stakeholder, multi-agency working group, including environmental justice groups and industry representatives, in crafting this plan. And finally, every three years, CEC will submit an assessment to the Legislature identifying methods to ensure a reliable supply of affordable and safe transportation fuels in California. Thank you. That concludes my presentation and look forward to the questions later.

Thank you. We're going to hold off to questions, so after all the panelists present, so we'll ask the next person on the agenda, please.

Thank you. Good afternoon. My name is Eleanor Blume and I serve as a special assistant attorney general at the California Department of Justice. I lead Attorney General Bonta's economic justice portfolio, including our consumer protection and antitrust work.

Thank you, Chair Garcia, for inviting me to participate in today's informational hearing addressing the lack of transparency in California's retail gas market, one that enables exorbitant prices and profits on the backs of California families, is a matter of paramount importance in the state and of paramount importance for our environment and the future of the planet. Attorney General Bonta is proud to stand with Governor Newsom in cosponsoring SBX 1-2 to take on big oil and protect California consumers.

Record high retail gas prices and record eye-popping profits for big oil hurt most those who can least afford it. While many factors contribute to the price of gasoline in California's unique fuels market, we cannot let obfuscation facilitate big oil pulling excessive profits out of consumers' pockets. The Governor's proposal would authorize the Energy Commission, as Commissioner Gunda has just noted, through a public process to impose a price gouging penalty to curb excessive profits and return the funds to hard-working Californians.

It would also critically improve transparency into California's petroleum market and create an independent watchdog within the Energy Commission to investigate the industry's market activities and refer violations to the Attorney General's Office for prosecution. This is how California resets the stakes with big oil. For decades, the Attorney General's Office has investigated gas prices, looked for price fixing and market manipulation, and prosecuted bad actors that scheme to drive up the price of gas during previous periods of market disruption.

In 2017, we stopped a proposed acquisition by Valero of the last major independent refined product storage and mixing facilities in Northern California. We have ongoing litigation against two multinational gas trading firms for allegedly manipulating California's gas prices and costing consumers more at the pump in the wake of the 2015 explosion at the Torrance Refinery. And as we have seen so clearly over the past year with those price spikes that we just saw, California needs more.

The new market oversight body will be another cop on the beat, one that will enable sophisticated market monitoring and prosecution by our office when appropriate. Transparency helps markets work better, and having more and better information reported to regulators upfront so that it does not need to be reconstructed after the fact will make the California Department of Justice a more effective law enforcement agency. California's gasoline market is shockingly opaque and we know that it is vulnerable to manipulation.

As Commissioner Gunda noted, the information reporting in the Governor's proposal builds off of a structure that has been in place for more than four decades. The Petroleum Industry Information Reporting Act of 1980, PIIRA, provided for CEC collection and analysis of industry data. In last year's SB 1322, took additional steps toward transparency, requiring monthly reports on certain data points. With SBX 1-2, now the oil companies will need to provide greater transparency about the operations and trades that translate to greater costs for consumers.

The refineries and other market participants that run this market will need to provide more granular, more timely, and more relevant information to the CEC. A lot of this is pretty basic information like who is buying and selling, what the price is and for how much fuel, what day and time the transaction takes place. But this is information that market regulators currently do not have on a marketwide basis. In our enforcement experience, my office has found that this mandated reporting is critically needed.

Right now, we go hunting and then have to unscramble the eggs that have been so expertly scrambled by the market participants who have them. We do it and we are hard at work making the most of what we have, but Californians deserve better. The proposed reporting system in SBX 1-2 is a sensible approach, building on a four-decade-old structure to enable market monitoring and referrals to the Attorney General when there is reason to believe that big oil is not playing by the rules. California is ready.

It is time to end the obfuscation and the opacity that facilitate extraordinary profits for big oil at the expense of hardworking California families. Thank you.

Thank you very much. We'll go down the list to the next person. I believe they were going to be providing some words via remotely.

Hi, I'm trying to share my slides, but I cannot share content. Perhaps there's... oh, there we go. Okay.

So if I can share that, I'm hoping you can see those slides. I'm going to just say a couple of words, sharing slides, and then I will make some comments on the new legislation. The discussion so far has very much focused on price spikes, but I want to remind you that that's not where most of the money that Californians are paying for excess payments for gasoline is going.

This is California compared to the rest of the country over the last 20 years after you take out the higher taxes and environmental costs. And there are a couple of spikes in there, and they occur briefly, but that's not what's really draining consumers' pockets. What's really draining consumers' pockets is the continuous high prices that we've seen since the beginning of 2015, which I have called the mystery gasoline surcharge. That's not just in a few spikes. It's been constant since 2015.

And if we're really going to try to save consumers money, focusing on the price spikes is really not going to address it. In fact, most of the mystery gasoline surcharge isn't even coming at the refinery level. This is the spot price of gasoline since 2015. Sorry, since 2003. And you don't see a trend upward after 2015. You saw somewhat higher prices in 2015 and 2022. But by and large, actually, the spot price relative to the rest of the country has not been increasing.

Most of it has been occurring downstream from the refinery. That doesn't let the refiners off the hook. The refiners have a lot of power downstream and have complex contracts with downstream marketers, distributors, and retailers that allow them to extract profits from downstream. But we really can't just focus on the refineries or we're going to miss most of where this money is going. This, by the way, is the price spike that occurred last fall.

The spot price and the rack price went up briefly, but they came down very quickly, particularly after Governor Newsom moved forward the winter blend gasoline. But that top line is the retail prices, and they did not come down for another couple of months. Policy to go after the excess profits at the refinery would not touch that extra gap at the retail level. And so that's why we need to go beyond just looking at refineries, and we need to examine the entire industry.

So most of California's gasoline price problem is not at the refinery. It's not showing up at the rack, that is the wholesale level. Most of it is downstream in what the industry calls marketing, distribution, and retailing. California refiners are in those sectors as well, directly or through complex contracts they have with downstream firms. California downstream markets seem to be less competitive than elsewhere. We have fewer stations, we have fewer unbranded stations. We have fewer stations per driver or per gallon sold.

We have fewer unbranded stations, and we have bigger price differentials between branded and unbranded stations. Those are puzzles that we really need to sort out and figure out why the market is not as competitive. I don't know the exact cause of this mystery gasoline surcharge. I think we need an investigation done by real experts in competition policy and gasoline markets. So let me now stop sharing slides and just talk for a moment about the policies that we've seen. I very much... for the new proposal.

I very much like the idea of a new independent division within the CEC focused on competition issues and gasoline. In fact, I would probably make it broader and mandate it to study competition and market functions across California energy markets more generally. We saw recently the need to study it in natural gas, and there have been many times in electricity. The skills one needs to study these different industries are very similar. So if we're establishing this division, I would actually establish it more broadly.

My main concern with the draft legislation is that it seems to create a single advisory committee called the Independent Consumer Fuels Advisory Committee. That is a combination of two different groups, stakeholders and independent experts. I really think that's not a good idea and will ultimately not be helpful. I agree with the need to have a stakeholder committee with representatives from consumer advocates, environmental groups, justice groups, labor, the oil industry, and others, so that advocates of all parties are heard in the process.

But that is a very different mission than the one that would be the case for a committee of independent experts who can evaluate and help guide the analysis of the new CEC division. And I think the need for that committee of independent experts is quite great. I think the new division needs that committee of experts in competition, policy, and law, such as the Petroleum Market Advisory Committee was the one that I served on and chaired for most of the time. It existed from 2014 to 2017.

This is going to be a very complex analysis that will require a lot of economic and legal insight. The oil industry will have a lot of arguments for why what we see is perfectly normal market function, and sorting out those really the non-competitive behavior from normal market function requires quite a bit of expertise.

While I think it's possible the CAC can recruit some young motivated analysts who can get quite a lot of work done, I am not at all confident that they can recruit economists and lawyers with deep experience in competition policy because those people are unlikely to leave much more lucrative positions in less bureaucratic organizations to become full-time employees at the CEC.

On the other hand, I think it would not be hard to create a committee as we did with the PMAC of top economists and lawyers who would be willing to serve probably with little or no compensation to help guide that analysis and investigation.

To be completely honest, without such an external advisory committee of experts, I think it is much less likely that the new division's powers and resources will allow them to effectively analyze and sort out competing possible causes of the mystery gasoline surcharge. So I really like this new proposal. I think it's very much headed in the right direction. The one strong suggestion I have is to separate these two committees.

Have a committee of stakeholders, but have a separate committee of Independent experts who can really bring to bear the experience of doing this sort of competition policy analysis in order to make this investigation more effective. Thank you.

Thank you. We'll move on to the next person who will be also checking in remotely. Robert McCullough.

Afternoon. Thank you, Chairman. Thank you, Committee Members, for the invitation. I thought about flying down to California so I could enjoy some Oregon weather, but instead, it's sunny and warm in Portland, Oregon. I apologize for me enjoying the good weather today. I've been working on this issue for the past 13 years. Oh my God. After being invited to testify as the U.S. Senate by Washington Senator Maria Cantwell.

The reason why Maria Cantwell and Ron Wyden, and Senator Feinstein were interested in this was because the prices set at the LA Market Hub rapidly, almost daily, translate to higher prices across the West Coast. So you have your neighboring states watching very carefully what you're doing and I believe very happily. I agree with Severin that this is a great step and Severin's argument that stakeholders and experts should not be allowed in the same room. Stakeholders are critical, but some of these discussions are frankly arcane.

I'm going to hit the share button now and hopefully, this will work.

Good. Here's the bottom line. And I was taught years ago when I was a utility Executive, to always start with the bottom line. The contracts that set the prices at the gas stations are not ma pa contracts. These are driven directly from the gasoline spot market at the LA pipeline. The market down there is an obscure market based on a limited number of trades, and they're self reported. The calculation of the spot market price is neither transparent nor subject to any official review.

Now, this is pretty important issue. As far as I know, not one regulatory party at either the federal level or the state level takes the opus index. I'd be happy to hear that I'm wrong, but that is very scary. The spot market price itself has absolutely no relationship to the cost of production or to supply and demand in California.

And I'll put a regression slide up, not because I believe everyone will be very impressed, but simply to note that if asked on the stand under oath whether the prices in California were driven by supply and demand in 2022, I would have to say that hypothesis would be rejected by the statistics. 2022, as we all know, the price is inexplicably high. So this is why we need a limit on price gouging.

Now, just an aside, 20 years ago, the Federal Energy Regulatory Commission, actually now it's 22 years ago, finally set a west side price lid on electricity sales. That removed the incentive for the manipulations in the California market crisis. On the next day, the prices fell. The power plants that were suspiciously offline went back online. That cap never was invoked. The elimination of the incentive was enough to make the market repair itself. What's the bottom line there?

Transparency is critical, and eliminating the incentive to cheat is also critical. I believe this new law will do both. A little quick background, which is almost never discussed in these hearings. An independent firm, very highly respected, been around forever, is called the oil price Information Service. This is the primary source for pricing on the West Coast. The contracts, from gas stations to racks to middlemen to speculators, almost always reference the opus price indices.

Inexplicable changes in those indexes are common, and I'll talk about one in a moment. U. S. Senator Maria Campbell has remarked that we know more about the market for soybeans than we know about the markets for oil and gasoline. Absolutely correct. Here's a chart of Opus prices across California for the first 11 months. Now let me talk a little bit about the weird transparency here. All of the opus materials are secret. Everyone has them. However, we're not allowed to talk about them.

In this case, luckily, it was possible to take these prices off the world wide Web, though none of these came from data that we might have or was supplied by anyone other than material that's freely available on the web. And the important part here is that the gray line is the spot price minus the specific taxes. And you will notice that the spot price is very volatile. The hellish fall that California had was based on a very narrow period of spot prices.

And Severn said something very important. This is the rocket and feather phenomena. The price shot up and then subsided in the spot market where it set, but floated down in the retail market that's been observed for many years. I think the explanation is that the contracts force the price up the next day when the spot market goes up. But the contracts do not force retailers to compete immediately.

So the impact of normal econ 101 competition often takes weeks or even months to get the price back to where it should be. So what happened in 2022? Well, I testified at the US Senate on this approximately a year ago when we noticed that for two weeks, the price of the opus index in LA did not change. Now just think about that for a moment. This is one of the most important markets in the world, and nobody traded for two weeks.

Now, we've heard great shortages, enormous interesting events, but nobody traded. Nobody ran out, ran to the store and bought anything. Nobody sold anything. There was only one self reported trade to the Opus index. This is very suspicious. Not the first time that we've had suspicious trading in this area. In fact, by far not the first time, but it's an example of a market that we know very little about. Here are the data on three items that we use in statistics.

Carbon production, carbon inventory and taxable sales. Now, California maintains enormous data, but each agency has kept its data separate. It has different definitions. Case in point, the all important taxable sales of gasoline includes jet fuel. Not an obvious connection to me. Let's see. I'm going to do the regression out of sync. I just ran that data against the retail prices in 2022 for the first 11 months.

And for those of you who remember freshman statistics, and don't worry if you don't, you'll notice the significance of this was very Low. If you look to the upper and lower confidence intervals, we can't tell whether taxable sales was relevant. We can't tell whether inventory was relevant. We can't tell whether production was relevant. This is discouraging. This should not happen in any efficient market.

So, takeaways, these are the conclusions that I prepared for an appearance of the US Senate, California consumers paid 4.7 billion more for carbon in 2022 than 2021. Even after the costs are corrected for inflation, the wholesale markup was an increase of 30.6%. In real terms, the cost of crude added 55.6 billion to consumer bills. That doesn't surprise us. Jamie Court always points this out to me and says, well, but that's not what it cost us because we produced a lot of our own oil. Fine argument.

I'll leave that to Jamie. But by any standards, Putin's adventures in the European War were very costly to everyone, including ourselves. But here's an interesting statistic. At the end, the retail margin actually fell in 2022. The wholesale margin surged upwards by almost 50%. That's a hell of a change. And we're not talking now about the Brent crude index, where we buy crude across the world. We're just talking now about California and who got the money in the end. So, final words.

There's been substantial evidence of market power in gaming in California for many years. When I was asked into this by Senator Cantwell, we saw very little evidence for the 2012 October 1 price increase. One day, enormous increase, no real shortages. Market surveillance is a valuable tool. Quite often when I give a lecture on this, I quote Adam Smith and he says something much better than I will. Now, the first thing that men of the same trade discuss at lunch is how to defraud the public.

He invented the invisible hand, but he was not naive. Simply put, street lights reduce crime. When I talked to the Senate, by the way, I got chewed out for this. I have to admit to you, I know a hell of a lot more about oil and gasoline and wooden fall profit caps and price gouging limits remove the incentive for market misbehavior. The easiest way to get a stable market is to make sure that wild gyrations are discouraged and costed out.

So the bottom line is, I think you're doing a hell of a good job. I don't have a client in this. I'm not paid here today. I don't buy gasoline. Like any good economist, I drive an electric car. But I do know that our economy will be better served with market surveillance, which we've not had and with limits. One last item. We have an enormous amount of these materials on our website, if you're interested. Thank you very much, Chairman.

Thank you very much, members of the committee.

Thank you. And again, we'll hold any questions to those who are participating remotely, after all the presenters make their opening remarks. So we'll go on to the next presenter. Please proceed.

Thank you. Good afternoon, Mr. Chairman, members of the committee, and thank you for the opportunity to speak today. My name is Catherine Reheis-Boyd and I'm president and CEO of the Western States Petroleum Association, and I'll be sharing, not surprisingly, a little different perspective. 108 days into the special session, we now have details of the windfall profits tax approach, so we'll be able to share information with Californians in the short time we've been able to review the details.

It is clear in these 108 days this approach is just as expensive, just as onerous, unhelpful to our energy future and is not going to help California consumers. The proposed profits penalty on California's remaining in state refiners does nothing to increase the supply of gasoline or reduce the cost of the pump. And in fact, it could have unintended consequences of limiting supply and exasperating price spikes for California drivers.

Before experimenting with California's transportation fuel supplies, we strongly encourage all policymakers to take the time to understand the state's unique fuel market, including the primary drivers of supply and demand that impact cost. SBX 12 misguidingly focuses on profits rather than the root cause of price in spikes, shortages and lack of available supply due to California's unique fuel blend and geographic isolation. Price caps, taxes, tax like penalties do not increase supply.

They don't reduce price, but instead they have the opposite effect of reducing supply and increasing cost. The focus of the special session should be on providing relief to Californians to ensure that ongoing access to affordable and reliable fuel everywhere, to everyone, all the time, as the state transitions to a lower carbon economy.

But the special session has now become a rush on policy that unfortunately will not provide the relief to Californians because there has not been enough discussion and there is failure to address the root cause, which is adequate supply. We stand ready to address the real issues that are impacting the pain at the pump. They include adequate supply, refining capacity, infrastructure and storage.

I very much hope Commissioner Gunda includes in the fuels transition study these extremely important elements, and there has been, no matter what has been said, little consultation with WISPA or the industry in crafting SBX 12. When we received these amendments on March 20, it was the first time we saw the language that was called a deal. As the Legislature is an equal branch of government.

Again, we implore that you take the time to make sure we get this right, because there's too much at stake not to. There is no evidence to support the bill's finding or assertion or declaration that refiners engaged in price gouging in the third quarter of 2022. Purported market manipulation by refiners has been studied and investigated repeatedly. I've been through many of the investigations personally. Given it's my 40th year in the industry.

As the California Energy Commission and several state attorney generals have repeatedly acknowledged, there is simply no evidence that refiners manipulate the fuel supply to cause price spikes. Rather, California is subject to constraints of crude oil, gasoline, diesel, and jet fuel due to public policy. I'm not saying the public policy is not meritorious, but there's been little discussion here today about the other elements that we should be talking about.

The supply constraints coupled with the demand by the world's fourth largest economy and 35 million internal combustion engine vehicles are the primary drivers of fuel costs in the state, the Energy Commission themselves has stated, reportedly taxes, production costs, environmental costs, blends and isolation has been the cause. I have been through eight integrated energy policy reports, fondly known as the IPER. Commissioner Gunda is going through one as we speak, that looks at the fuel issues that we should be talking about today.

And in every one of those, it concluded it was supply constraints, infrastructure, refining capacity, to which we have still not addressed since the IPER. In 2000, as amended, this Bill still proposes the same concept of taxing and penalizing the industry.

But now it's shifting to empower that to the officials of the California Energy Commission who are unelected, who are not accountable to voters, to implement this untested experiment, empowering the CEC and giving them the authority to tax and penalize refiners will likely lead to the same unintended consequences we feel as the governor's initial proposal. Less investment, less supply, higher gasoline prices in California.

Given the Legislator's authority to the CEC to set a maximum gross gasoline refining margin and to develop penalties for refiners that go above those margins is effectively a tax. It gives the CEC very broad authority to adopt this tax at any time without regulation, by simply an order of the commission.

The bill lacks clarity around the timing and the information that is supposed to inform the commission's decision on whether or not they think the governor's tax penalty is a good idea or a bad one if it's implemented.

If this policy is implemented, it could lead to potential supply reductions, higher costs, job losses, especially for unionized labor potential reduction not only of gasoline, but diesel and jet fuel reduced funding for schools and local governments, greater reliance on expensive and uncertain supplies of foreign imports to meet demand, increasing the frequency and duration of price spikes because of California's isolation and reduced capital for refinery investment that potential refinery closures could result.

It requires very extensive new information to report it to the CEC on planned and unplanned maintenance. But unfortunately, the Bill also gives the CEC authority to dictate when a refinery can and cannot do critical maintenance deemed necessary, absolutely necessary to ensure safe and efficient operations, creating new risks for health and safety of employees and surrounding communities. Planned turnarounds and major maintenance involves years of planning.

If we had had discussions on this bill, we could talk about how we have to go through and what we have to go through to establish turnarounds and major maintenance events. We have to acquire fuel to fulfill contracts. We have to coordinate thousands of skilled and trained workers to repair or replace the complex units that are needed to produce gasoline, diesel, jet fuel, and many other products that California use every day.

And this Bill adds an additional layer of complexity for companies to ensure refineries can operate safely. It also requires the CEC. Or has the CEC tell a refiner when they cannot perform maintenance. That could create a legal question on who ultimately is liable if a refinery has been told to not do maintenance and then something goes wrong, property is damaged and God forbid someone is injured. This Bill substantially expands the amount of data.

I think my colleague will be discussing this, that is required to be reported to the CEC under Pyra. That includes daily reporting and adds an additional level of complexity for refiners, non refiners, copies of contracts, agreements, new reporting obligations to pipeline operators, petroleum product marketers, terminal operators, port operators, oil producers and importers of refined product via marine terminal.

There are roughly 10,000 retail locations in California, 60 distribution terminals, several entities at each of those locations, nearly 5000 distribution truckloads every single day for finished gasoline and diesel. So this would now require all of that, every contract, every transaction to be reported to the CEC. There will be hundreds of thousands, if not millions of documents that the CEC will need to collect.

And it is unclear how this data will be quantified, if we can even do it, or if they can even do it, and what benefit will have for the market and consumers. Again, all could have been discussed if there was the adequate time to address this bill as it should have been, rather than rushing it through the process which we are doing now.

It also amends SB 1322 from last year to now include a net gasoline refinery margin, which means the gross gasoline refining margin minus any refining operating costs. Now, unfortunately, it doesn't capture other costs that are associated with refining like other regulatory programs, administrative costs, branding, depreciation, hedging the risk of double counting sales and volumes. Many, many details, again, which we could be discussing, and hopefully we will, if given more time. Given WISPA's history with the CEC.

Commissioner Gunda and I have gone back and forth on this over the last month. They have not provided the guidance we believed was essential to this industry for reporting data under SB 1322. And so we do not have great confidence that we'll be given additional guidance on how to report under SBX. One.

I was appalled that we were denied our petition, and WisPA rarely asks for a rulemaking, which we did because we wanted to ensure greater transparency, ensure data was given to the Energy Commission, not given in different interpretations by our Members. That petition was denied not once, but twice.

It also requires, the bill also requires refiners in the state to report to the CEC at least 12 months in advance if a refinery operator intends to permanently shut down, shut down to reconfigure or sell a refinery in a transaction that may result in a refinery shutting down or reconfiguring.

And given the State of California has been in the business of trying to shut down refineries in California, as the state has gone from over 30 refiners down to nine that provide traditional transportation fuels, we will soon be down to eight by the end of the year. It is hard to believe that the CEC could report to the Legislature on the shutdown, conversion or sale of a refinery without potentially disclosing which refinery has those plans given.

There are so few left in the state, this very report could create prudential unfair competitive disadvantages or could adversely affect market competition. So, as I close, I'd like you just to consider the precedent of this approach. Even if you don't like our industry, or perhaps you like the idea of penalizing us. I ask you, and I ask yourself, what industry might be next to be subject to this type of government control?

What kind of precedent for state management of an entire economic sector could this bill be setting? Who would be next? And so, for all these reasons, in state above, we strongly oppose SBX 1-2.

We ask the Legislature at a minimum, at a minimum, to slow the process down, to slow the process down, to not rush this bill, so that a full vetting of these details, these extremely important details, to an extremely tight transportation market that is extremely vulnerable to upset, to supply fuel every single day to 40 million people who drive 30 million, 35 million internal combustion engines, that's not going to stop tomorrow. And it's not going to stop in the near future.

And it's not even going to stop in 2035 when the sale of new engines are banned. We will still have a boatload, it's a very technical term, boatload of internal combustion engines that we still have to supply fuel from these refiners every single day. We cannot afford to lose another refinery in this state. And every signal that the State of California sends is to not invest. And when you don't invest and you have restrictions on supply, you have impact on price.

So my plea today is to ask for more time so that we as an industry actually can be brought into this conversation, that we actually can talk about these details and that we can collectively work to improve upon what is in print today. Thank you.

Thank you very much. We'll move on to the next presenter.

Thank you, Mr. Chair, and appreciate you picking me to go after that. John Wenger here for the California Fuels and Convenience alliance. We make up the fuel supply chain below the refinery level. So that includes fuel transport and retail gas stations, which are primarily small family and minority owned businesses. Historically, California has always had higher gas prices, taxes, environmental costs, higher land costs. That's not disputed. In the last decade, we've definitely seen that gap widen and we've seen a lot more price volatility.

None of that current situation is really surprising to us. State policies have reduced refinery capacity, which was just discussed, and has strangled supply in the state, which when you have no slack in the system, if you have undisclosed or unknown disruptions, then you're leading to more reliance on the spot market with imported carbon compliant gasoline. And so that's subject to traders, subject to price volatility, which we have seen.

I would also be remiss if I didn't mention that the supply and demand imbalance is not really going to be fixed anytime soon if we don't continue to embrace alternative fuels and only stick to EV vehicles. And so as we move forward with state energy policy in general, I would encourage the Legislature to look at alternative fuels to help reduce the demand and bring that back to balance.

On the retail side, in the last decade, we've certainly seen a significant increase in fixed costs for our members. Labor costs have gone up significantly. We have to comply with 42 different state and local agencies with redundant and unnecessary reporting requirements. We have EMV upgrades. We have increased costs in trucking regulations. Our utility costs are going up. Swipe fees have increased dramatically in the last few years. And so we keep seeing more and more fixed costs.

This keeps getting discussed as the mystery surcharge, it's not really a mystery. It's just increased cost of doing business for our Members. And we're going to continue to see, as Mr. Borenstein noted, more shifting to the branded stations because a lot of our independent station owners can't keep taking on all of these mandates, all of these changes in law, all of the POGA lawsuits coming along, maintenance that we need to do.

And so having that branded agreement can help with protecting against some of that and getting some help from a corporate oil company. And so we're seeing a shift to branded. We're seeing a reduction in competition. There's 11 new gas station bans now in the state, and that's continuing to grow. And so certainly concerned with the price volatility in the market. We definitely don't think SBX 12 currently would solve that problem. I think the penalty was discussed about having unintended consequences on supply.

We saw that in the 1970s with us instituted price controls which led to long lines and rationing. We saw that in the 1980s with a crude oil windfall profit tax which reduced supply and increased prices. Additionally, specifically to SBX 12, it has a lot of new reporting requirements on marketers. Marketers is a very broad definition which goes all the way down to an individual station owner. Our owners, they're still trying to review the language. It's only been in print for two days.

But the initial reaction is how are we going to comply with this? For our medium sized folks, they would have to hire a significant amount of more staff, significant amount of consultants just to figure out a way to comply, which is just going to add more and more to that fixed cost on top of the price of gasoline. And so we're certainly concerned with the current language.

We think it's going to increase costs, especially for our members, which is going to get passed on at the pump. And so we would certainly encourage the Legislature to slow down the process. We would love to be a part of the process in discussing and would also encourage the Legislature to look at supply, stabilizing supply when there's unexpected interruptions, looking at deploying alternative fuels to reduce demand, and then also looking at the redundant and somewhat unnecessary regulations that are getting placed on our retail members.

I think there's a lot we could clean up there if we had the time to discuss it. So we welcome the conversation and happy to answer any questions.

Thank you very much. We have our last presenter.

If I could get my slides up, that'd be great. I'm Jamie Court. I'm president of Consumer Watchdog.

Someone working the slides, or. There we go. Thanks. I've been watching the gas market for 22 years. I was appointed to represent the Assembly, actually, by Antonio Viragosa, on the Attorney General's Gas Pricing Task Force at the time, Bill Lockheers. So I learned about gas pricing then, and I've seen this market over the last two and a half decades, or two decades. The big problem we have is consolidation. We have five oil refiners now making 98% of the gasoline in the state.

And when they want to squeeze us, they can. And what this bill gets at is the different ways they squeeze us. Next slide, please. This year we were squeezed really intensely. We have never experienced this type of gap with gas prices with the US before. $2.60 gap, it's unprecedented. Next slide, please. The last time we faced a big gap, it was after the explosion and torrents and the Exxon refinery. It was about a $1.50, $1.60 was the biggest gap, and there was a reason for it.

Now we're at $2.60. All the same environmental formulas are in place, all the same taxes, and we're at $2.60 a difference. If you add the cost of what California gasoline should be priced at, based on the low carbon fuel standard, the cap and trade standard, we get to, in my calculation, 69 cents and severance calculation, $0.80, not $2.60, different from US gas prices. It's unheard of. Next slide, please.

And where does this take its toll the most? It takes its toll the most on low-income workers at $4 a gallon. A minimum wage worker pays 9% of their out-of-pocket income on gas at $6 a gallon, which we transgressed that this year they pay 13% of their out-of-pocket income. So these are the people we're protecting. This is why we're acting quickly. We're acting quickly because what happened this year can happen again. And when you see where those profit. What happened?

Why did we pay those prices? It shows up in the profits reports. Next slide, please. The five big oil refineries in the first three quarters nearly quadrupled their profits from the first three quarters of last year, 67 billion versus 17 billion. Next slide, please. More granularly, we looked at their refining profits per gallon. These are gross refining margins as reported to. I know it's hard to see, but you can take my word for it. I'll give you a copy later.

These are gross refining margins for the last 20 years, as reported by the oil refiners themselves. To their investors in the West Coast/California. So you'll see the average over the last 20 years was 32 cents per gallon they made as a gross refining margin this last year. If you go to the next slide, all of them broke the 50-cent margin by an awful lot.

Only three times in the last 20 years have any refiners broke that 50 cent per gallon margin on an annual basis. All three times it was Chevron. This year, they all broke it. And they broke it by an awful lot. Next slide. An average of gallon. If you total all of the refining margins for all the refiners in the West, and that's so it's double their average refining margin. That's where that extra we're paying at the pump goes.

And there's no question that that's where it went, because this is their refining margins. It didn't go to the dealers, didn't go to the gas stations. This is the margins that are made at the refinery, the difference between the price of crude oil and the price of gasoline on the other side. So it's empirical fact that they doubled their margins. Next slide.

They also made, if you look at their margins anywhere in the world, in the US versus California, they made 30% more profit on their margins in California than anywhere else. 30% more. It's profit. It's not taxes, not environmental carbon taxes, it's profit. And that's just there. Next slide. This shows the difference between the straight line is the profits everywhere else, and the dotted line is the profits in California. Again, this is right out of their own investor reports, which are audited investor reports. Next line.

So we wanted to get an idea of if we had to have a rebate, a price gouging rebate, or a price gouging penalty, how much would it have come to last year if we drew that line at 50 cents per gallon, which is pretty high, again, only three times in last 20 years has anyone crossed it. And we found for four of the five refiners, we're looking at $1.8 billion. That would be what that penalty would be if we had applied it. Next slide.

And that's for four of the five refineries. I'll get to Chevron in a moment. Next slide, please. Why create a price gouging penalty? Why do it? It creates price consistency. Because when you limit the price spikes, the spikes that can occur on these big price spikes, you limit the ability for prices to go up significantly in a short time.

That creates price consistency, you deter profiteering, you level the playing field, and you also prevent oil refiners from undermining environmental laws, which is what we believe happened this year. We believe they raised prices as an attempt to undermine California's laws. Next slide, please. Now, after the Governor announced the price gouging penalty and the special session, something interesting happened. Now, these are quarterly profits, so they're amortized over a quarter because we only have quarterly profits until SB 1322 kicks in, where we'll have monthly profits.

But this shows that after the Governor announced the penalty, Valero's profits took a nosedive, went from almost from 60 cents to down to 36 cents, which is this historical norm. Next slide. And not only that, their profits per gallon everywhere else in the world and the nation have traditionally, in all other quarters, were lower than in California. California is the highest, but in the fourth quarter, suddenly now California is the lowest. So something happened in their behavior. Next slide. PBF follows the same pattern and Chevron.

Next slide. Chevron follows the same pattern, but Chevron is an extraordinary circumstance. Chevron had an 85 cent per gallon profit for the entire year, which is extraordinary. The last time it had anything like that was $0.65 in the wake of Torrance refinery explosion in '25. So their profits took a slight dive. Next slide. If you apply the penalty of the Chevron at the 50-cent line, we'd have 1.4 billion in penalties for Chevron. Next slide.

And if you add the Chevron penalties, the other four refiners, you'd have a total of 3.1 billion. That's just saying at the 50 cent per gallon line, that's how much extra we were charged. And we could deter it if we put a line at 50 cent per gallon. Next slide. Now, we also did a little research into where that money went in terms of the executives and remarkably, the executives, directors, and insiders.

The five big oil refiners cashed out $590,000,000 in stock during 2022, which is unheard of. Extraordinary. Chevron executives and directors cashed out $150,000,000. One family, one insider family was the only insider on this list of PBF. The slim family cashed out $350,000,000 right after the Ukrainian war took on. So that was not a grant, but it was wartime profiteering. So this is where our money went. Our money went into the pockets of the executives, the directors, and an insider.

And when you have a half $1.0 billion going into the pockets of a few dozen people, you have to ask, this is why we have a price pouching penalty. This is why we are getting this done. In the next 10 days because people cannot afford to pay $6 a gallon for gas. That is why the urgency. Next slide. There's an unbelievable amount of precedent in this because everyone says it's never been done before. We did this with the insurance industry.

The entire property casualty insurance industry operates under the basis of a rate of return. We did it with Prop 103, which is a ballot measure I was involved in in 1988. It regulates the insurance industry, but more importantly, it sets a reasonable rate of return. Every time insurance companies come in for a rate hike, they have to justify no more than a reasonable rate of return, which is set by a formula.

The whole property casualty insurance operates under the same formula because we need insurance just like we need gas. And I'll tell you another precedent, the medical loss ratio under Obamacare. Every health insurance company in America cannot spend more than 15% on Administration and profit. That's the law. Because we all need health insurance, but we all need gasoline, too. The point is, if you set the penalty high enough, $0.50 is pretty high, but it's up to the CEC what they would do under this proposal.

You create competition, you create profit, but you stop this pig in the trough level we saw last year, which was unheard of. We've never seen anything like 2022. Next slide. The oil refiners are saying what the insurance said after Prop 103. These are editorials from 1990. The insurers said, we're going to leave the state. We're going to leave the state. They sued to leave the state. They got the right to leave the state. They never left the state.

And the reason they didn't leave the state is because it's too profitable here. You've got to mark to 25 million drivers. You have a market of 25 million drivers for gas. It's too profitable to leave a state. Next slide. The last slide I'm showing you is the popular support behind this proposal. More than six in 10 voters backed the proposal. And that's after being read the detractors arguments. It starts out at 64%, goes back up to 60% after the back and forth.

That was before the election. This poll was before the election. Another poll by David Viner in January found the group support had grown to 66%. And that's when gas prices had come down substantially. So people don't like being gouged. The public understands what gouging is. It's when people make too much money off of you. It doesn't necessarily involve market manipulation because getting that smoky back room, we may never get that smoky back room.

Although some of the information that we're getting might help us get that smoky back room. We shouldn't have to depend on finding that smoky back room to pay what everyone else in America is paying for gasoline. And that's what this proposal is about, is getting us level with America and preventing those price spikes. The price gouging penalty deals with the price spikes. It doesn't deal with the long-term higher prices in California, that 40-cent mystery surcharge that's hung on since 2015.

But these other transparency proposals do, they help us get to it. So between those two components, this proposal is well-balanced, and I urge you to take it up. Thank you.

Thank you. And thank all of the presenters. I'm going to turn to the members up here and look to my right and start the questions, please.

Thank you. Thank you, Mr. Court and all of the Committee Members today. It was really helpful to get this information and really illuminating, I think. And Mr. Court comes in to really fire you up at the very. You know, there are so many things to know. Obviously, I was just elected, so I was running in an election, talking to a lot of voters during these two big spikes, which, coincidentally, were right before the primary and right before the general.

And it leaves a lot to be questioned there, I think, around collusion, but I had a friend of my daughter in school. Her mom was telling me that if she didn't work from home, she couldn't afford to drive to work. People were having to make unbelievable choices around the prices of gas during this past year.

And it was choices around whether or not they could afford medication, whether or not they could go to the Doctor, whether or not they could pay rent, whether or not they could put food on the table for their families. And meanwhile, we see that executives are cashing out on $500 million in stock, and there's a 30% increase compared to other states in profits.

And so talking about whether or not there's a smoky back room, it almost feels like the system is set up just to function in this fashion. It's not even really a lot of smoky backroom deals, necessarily. It's just how the system works, and that we in California are systemically being gouged more than anyone in the rest of the nation. You know, I want to ask a little bit about the supply chain details that have been laid out before us.

You know, as has been talked about today, if it was a matter of inflation or supply chain disruptions, market volatility, summer blend, what have you, that could all be adjusted while not drastically impacting the profit margin. However, that's not what we saw. We saw that before us was a number of excuses of why refiners were able to rake in profits nearly double what they made in 2021.

Not gross income, not 7% profit increases tracking inflation, but 100% increase in the per-gallon profits in a year and 30% more, as we just talked about, than anywhere else in the US. So, President Reheis-Boyd, if you can explain the profit jump for your Members in WSPA, what is this based on?

Thank you very much for the question and thank you for your concern. I understand, especially being newly elected, what you have to deal with in answering questions for your constituency. So I appreciate that very much. There is no smoking back room. Let's go back to what is the situation we find ourselves in today and how has it been created. This is an extremely tight market. We are already down a half of a refinery. We will be down a full refinery by the end of the year.

Why? Because two refiners did, what you asked was to convert two refineries to renewable diesel, which is occurring. This is a good thing, but it also limits the capacity of gasoline in a tight market. So if we, we also have to understand there are no, and I know this is getting a little deeper than perhaps you want, but there are no crude oil pipelines that bring crude oil here to make gasoline, diesel, or jet fuel. And there are no pipelines that bring crude product here.

You can't have a pipeline ship in more gasoline, diesel or jet fuel. You have what you have, or it's coming by a ship from foreign places that we particularly don't share our values and particularly don't have the environmental standards that we benefit from in refining those same products here in the State of California.

So to really address this issue, to really get at what you're pointing to, which is the public's concern about what they pay at the pump, we have got to do what the Energy Commission has been saying since the year 2000. We have got to find a way to increase capacity. If you have more supply, you have less cost. It's that simple. And so we have got to make sure this bill, and I see some evidence of the ill, will look at these issues.

I want to see a lot more from the Energy Commission, but these are the types of issues we have to look at if we're going to change this dynamic at refinery, this, this tax penalty or tax or penalty or refinery margin, gross, whatever you want to call it, it is not going to solve this problem. You've heard this from Severin Bornstein. Yes. He talks about a mystery surcharge. I tell you right now, and I agree with John, there's no mystery.

None of this cost we've been talking about, which a dollar 20 of it, not 60 cents. I don't know where. 60 cents, a dollar, 20 of it is very definable. I'm sure you've all seen our gas, right?

But that hasn't changed,

However, what has changed,

If I could just ask, because you just said that there's all these other reasons that this is happening, right? Refineries changing, all of that. But then why was this huge drop happen when the Governor announces his penalty? Because nothing changed from before that announcement to after that announcement in terms of the conditions, right, for prices.

There is no relationship to the Governor's action or announcement or anything that has to do with supply and demand.

And what do you have to say about prices also rising right before the two elections last year?

I say the same thing and I apologize. With all due respect, there's no relationship to the fact that there were two elections and what was happening in the marketplace. Certainly geopolitics, certainly decisions that are made by OPEC, this is a global market. This is a global commodity. Any kind of decision, any kind of signal to the market can always have an impact.

And there's know, obviously we don't need to talk about it here, but obviously the Russian invasion of Ukraine had a serious impact on the market. Those big geopolitical events will always have a disruption of supply in the marketplace. But what I do want to make the point that what is not in here, and I guarantee you we will be looking at this in detail. And I think even if you asked Severin Bornstein, he would agree on the mystery surcharge.

There are so many costs we have not even thought about in these numbers. I testify at the Bay Area Quality Management district on the billions of dollars every single regulation has. Same in the south coast. And again, I'm not saying they're not meritorious, but they're costly. None of that is accounted for here. And so we are going to be looking at in detail and supplying that information to you so that as we look at this differential that everyone is concerned about, it is explainable.

Okay, thank you. And just one other question. I really appreciate the work of Committee staff on this issue in the background and specifically the deep dive into the spot market and the concerning lack of transparency that California has again and again had to peel layers back to understand more about the various trends in oil and gas in the industry as a whole. In oil and gas. In your opinion, Commissioner Gunda and President Court, do the updated reporting and data disclosures required in SBX 12 provide confidence that should an occurrence similar to 2022 happen again, that we would be able to quickly identify whether the market manipulation had occurred?

Thank you Assemblymember for that question. So there's two elements to this. So one is just the CEC, the Commission's work on looking at the long-term trends and then doing some assessments, and then, as you kind of allude to, so we have the independent entity within the Commission who will be looking at the data. So I think the short answer would be, we will be in a much better situation to answer those questions.

So today, in last year, a number of our staff were clearly asked by the Legislature, the Governor's office, and the public on what was going on and the kind of data we had. The lack of disaggregated information, either temporarily or geographically, really limits our ability to answer questions. So what we're hoping for is the level of information that we are provided will definitely enhance our ability to answer those questions. So I don't know if the AG's office has anything else they might want to mention.

Yeah, thank you for that. If I can jump in here and then hand it over to Mr. Court. So right now, when we launch an investigation, we see something weird going on in the market. We launch an investigation. It is, as is the case with law enforcement, a laborious process of identifying the various entities involved, identifying the transactions involved.

Right now, we are in a position of needing to unscramble eggs, and we will be, if the Governor's proposal here is enacted, we will be in a better position the next time that we see some market disruption to more swiftly identify what is happening. Right.

And what is happening on a daily, weekly, and monthly basis between the various entities involved in the market. And again, as I think I addressed, some of this information is really quite basic when it is provided to a market regulator at the outset, and it is provided by those entities that have this information very readily available, but is information that is very hard to reconstruct after the fact coming in without the benefit of that sort of reporting structure.

Let me make it real for you. Here's how gas prices go up by a dollar in a week. Someone makes a purchase on the spot market, which is a market that is controlled by the five refiners and a small number of traders. I don't know, maybe a dozen, two dozen, maybe more. Someone makes a purchase on the spot market, and it's a very high number.

That spot market purchase then dictates, as Mr. McCullough said, every retail gas station contract, every retail gas station pays more for gas because of that high spot market price. And we all pay more for gas. So that spot market price, the longer it stays high, the more money everyone makes. And we don't know now who made that purchase for how much or even if it was a real purchase. And that's because there is no ledger of that information anywhere.

This bill creates a ledger who bought, who sold when. And the reason that's important goes to the Attorney General's case, because they caught two traders making a phony transaction on the spot market, which drove the price up. Now, Mr. McCullough added something interesting, the spot market price. And this is all reported to Opus. This is an oil information price newsletter. That's all it is. And if it's self-reported, you don't have to report it under the bill, you would have to report every transaction made.

So now it's self reported. So maybe there were transactions, but they weren't reported to Opus. He's, as Bob said, there was one transaction in two weeks which kept the gas price high. We don't know who made it. I don't know if you know who made it, you'd have to do subpoenas to make it, or now we will know who made it, and we will know why they made it, and we'll know everyone who made every transaction. It's that basic information. This isn't bureaucracy.

This is basic operations on commodities market. The electricity market accounts for every transaction in the same way. And they did it because of Enron. Well, we're getting Enron in California. This is our Enron act for gasoline.

There was one thing the Governor did that was helpful, and that was he put a waiver in place so that we could bring more supply to market by not having to produce more costly gasoline because of environmental regulations. He allowed us a waiver so we didn't have to do that. He brought more supply to market and the price decreased.

Thank you.

Thank you, all of you. This is an incredible group of folks here today to help us unscramble a lot of eggs, as Ms. Bloom has said many times. So I just wanted to, in a follow up to Ms. Shchiavo's points, I don't think anything that I've heard from President Boyd Reheise explains this right, this chart that shows this incredible spike, as opposed to other states in 2022, when no regulations changed. Nothing changed on that time period. That would have explained that spike.

And so I think when you look, I'm a former regulatory lawyer, I understand the costs. I was part of the cost. And so I'm not saying that those are inexpensive things, but that doesn't explain these charts. Right. It explains some of the underlying costs, but not the changes we're seeing in the marketplace. And so I think that's really important to say. The other thing I wanted to say is one of the things that was said was that no Attorney General has found evidence of price manipulation.

And I think what we're hearing Ms. Blume say, which she said so eloquently, was they haven't found it because they don't have the information. And so maybe there isn't any. Maybe there is, but we should know. And the information in this bill will give us those answers. And at the end of the day, if what we find is there's none, that seems like a good thing for your industry for us to say, zero, look, this all makes a ton of sense.

And I don't know why anybody wouldn't want sunshine on that. And I actually think that if we do what is in this bill from an information-gathering perspective, Miss Blume will have less work to do because sunshine truly is the best disinfectant. If that market is transparent, people will not manipulate it because she will come after you. But right now, people can manipulate it without any knowledge and without anyone coming after you.

And there is no question that that is worse for California and worse for Californians. And so knowing what those cost drivers are, and maybe it is just as purely simple as supply and demand. Although I will point out that we export oil right now, we export gas at more than 10%, as I understand. So to say we don't have enough supply in California feels a little bit disingenuous.

One correction to that, we do export gas to the State of Arizona and Nevada. And I would say it would probably be a few phone calls made if that stopped by some Governors and some people in those states. Just like gas is exported out of the Gulf of Mexico to other states, that's what we export to supply affordable fuel to the citizens of Arizona and Nevada who do not have refineries.

Well, the chart shows theirs is more affordable. So they're not saying, oh, we have a hand up from one of our. I don't know how we would have did. Do you want me to finish, Mr. Chair?

Okay, finish your comments.

Comments. And I do have questions. I do have questions. So I do think, I mean to say that there wasn't enough supply. I still find disingenuous that we're exporting oil, and that is my point to make. But I think that there is a lot in the information gathering part of this ill that is really beneficial and I think will help Californians know for sure what's happening and explain these spikes and give us the information we need.

And again, as a former environmental regulatory lawyer, I hate red tape. I used to have to be the person who dealt with the red tape. I think we should be careful about it.

But I also think after years and years of Californians paying more than every other state, it's time for us to put a little bit of process into place to understand that, because Mr. Bornstein, who is a constituent of mine, so we met even before I was elected, has been talking to me about this mystery for a long time. And I'd like to get him an answer because I think Californians deserve an answer. So I just wanted to make those points.

But I have a lot of questions as well. So let's go there. Mr. Borency, I actually wanted to say, is he still on?

He should be. Yeah.

Yep, I'm here.

Perfect. So I had a question for you. I actually, first of all, want to say I really liked your comments regarding the expert committees. I think that, I just want to reiterate that I hope that's something that we do look at really seriously, because I think there is a lot of expertise in California that we could bring to bear to better use this information.

In the absence of that, what I wanted to understand from you is one of the other things in the bill that I think was misrepresented here today is that there are great lengths in this bill regarding protecting trade secret, protecting confidential information, and I do actually believe that that will be protected even with these disclosures.

So my concern is actually that if we don't have that expert panel you talked about, that those who are not a part of the CEC process as described in the bill won't have enough information like you as a Professor, may not be able to make the analysis you need to make as an economist to advise the press or whoever about what's happening.

And I wanted you to shine a little bit of light on, if you're not a part of this process, what information you had and how helpful that would be to us.

Are you asking would I be able to do much analysis if I didn't have access to that information?

Well, some of the information is publicly available, but it seems like it's anonymized.

No, but basically, I think I have to start by repeating once again most of the mystery gasoline surcharges downstream from the refineries. So we need to understand what those relationships are between refineries and the downstream that requires understanding what those contracts are. And although Ms. Reheis-Boyd said, well, that's hundreds of thousands of contract of transactions. It is, and every one of them is recorded. These companies are not doing this on a cash-in-the-hand basis. This is all recorded.

So turning over that information is really not going to be very onerous. It's all on computers. It can all be made available. It will be challenging to evaluate it all. If you don't have that information, you're back to where I was as Chair of the Petroleum Market Advisory Committee with my colleagues on the PMAC, which is you're looking at prices, but you have no other information about what's going on behind those prices, retail prices. And I don't think you can make much progress at all.

And so I think we need to have a panel of really seasoned experts from the legal and economic and industry side who can advise this division of the CEC.

Got it. Thank you. That was helpful. And then I wanted to touch on one other issue. First of all, I want to say that one other thing that was said was that this could drive prices up. And one of the best, I thought, additions to this proposal were the pieces that say that there will be no refining margin fee. I'm with you, Ms. Reheis-Boyd, whatever it's called, unless the CEC finds that prices will not go up.

So this will not result in prices going up, because that finding will have to precede any fee, whatever the fee is called. Okay. One question I really had in this was related to the people of California. So I think a lot is good here related to the economics and et cetera. But I want us to make sure, and I know we put environmental justice into that panel, the advisory panel that exists in the bill.

But it's really important to me that the communities that live around these refineries are a part of this consideration, that what happens to those communities as it relates to air quality is really, really important. And I know, as I represent a community that isn't far from many of the refineries in Northern California. And those people that live on the fence line are the ones that are heavily impacted. And a lot of the maintenance that has happened over the years, there has improved air quality.

As the refineries improve technology, they tend to be better, and we see less emissions coming out in the neighboring communities. And so I was slightly concerned around the maintenance piece of this in ensuring that the maintenance that needs to happen happens for those communities. That's really, really critical. And as I read it, it is just a notice requirement a year in advance for planned maintenance and no notice requirement until after 48 hours after for emergency maintenance, as I understood it.

But I wanted someone to sort of highlight that piece of it because I think it's really important that we talk about the maintenance that happens and how it affects those communities.

Yeah. Thank you, Assemblymember. Remember, on that question, just on the bill itself, there are two specific things. On the maintenance, as you mentioned, it's important that we do the necessary maintenance for ensuring number one safety, and then two, safety, and three, the workforce. We have been since late September last year meeting with a number of refiners and trying to understand how they go about planning these complex maintenance issues.

And I will agree with Kathy here that some of these maintenance schedules are long-term and things like that. And we need to think through how best to work with both the industry and the workforce to make sure that the labor and the industry to make sure that we are not inadvertently impacting the supply. But there are other things. For example, last year, when the price spikes were really high, the inventories went the lowest ever in California. Now, we want to understand what caused that.

And to the extent that there are differable maintenance issues that do not cause safety implications or potentially the employment and labor work, to be able to be scheduling those in the timely fashion, we would like to have those conversations to ensure if there is an opportunity for deferral while ensuring supply safety, but also the prices. So that's one thing I would offer for the Committee.

The only other thing I would add to that, if I may, is we don't have a problem giving the CEC information on the timing of turnarounds. We don't have a problem giving them information on maintenance information. What we would ask you to consider is to not provide the authority for the CEC to impose requirements governing the timing of the turnarounds or the authority to schedule them.

Because of all of the things I went through, it doesn't mean you can't have conversations, but the authority to give them the authority for the decisions the refineries themselves have to make is a concern we have in the bill.

Just to add to Kathy here, just want to make sure that the bill reads that the CEC, in implementing this regulation, has to consult with the industry labor. So that's something we would take into account in developing those regulations. So the industry input will be a part of that.

Thank you. And then the last question I have is one of the reports here in Section 25355.7. I don't have my reading glasses, so I think I got that right. Requires an annual report back to the Legislature on a review of the price of gasoline and its impact on state revenues. And my question there is actually very similar to my question before. It doesn't contemplate talking to us about the impact on consumers. Right.

I guess the price of gasoline inevitably affects consumers, but it's talking about state revenues more than the impact on communities and our communities who commute 4 hours a day because their jobs are so far. And I really wish that that contemplated the impact on people and on Californians because I think that's a really important piece of what we're trying to achieve here. And that report does not specify that specifically. So I just wanted to highlight that. I don't know if you want to say anything in response.

I would just continue to work with you on those elements. I think you absolutely are right. This is what we are hearing from the panelists today. We all bring different perspectives. There's an industry perspective, there's an academic perspective. From the CEC's perspective, our singular role is reliable, affordable and equitable transition of energy industry.

So from where we sit on this, we are looking at gathering the information and doing whatever is required under this law and the Bill to really protect California. So your point is very well taken. Thank you.

Thank you. And so I'll just close with saying that the voice that isn't at this table is the labor workforce. I think that's really important. I know many of them have come out in support of this proposal, although there were comments made to the contrary. And I really do appreciate the transition plan here because I think it's important. It highlights the need to focus on the labor workforce that's impacted by that. And hopefully that will put California in the direction we need to go in.

And lastly, I want to thank the chair who put together a really wonderful hearing. Thank you, Mr. Chair.

Thank you. Before we go on to more questions, I know Mr. Robert McCullough had his hand up, so I want to give him an opportunity to weigh in on the comments and questions that were just asked and answered.

That's very kind, and I apologize if raising my hand was less appropriate than it was when I was a school child. I just wanted to note that the discussion about exporting to the neighboring states really is a much less important market in California than the exports to Mexico and South America. This is not only a US issue. And so when prices go up here, they also go up in foreign countries. And we've followed that very carefully over the years.

Thank you. And I guess it goes to show that those skill sets that we learned in kindergarten to work all the way through our lifespan.

Thank you, Chairman.

Any other questions? Mr. Ting.

Thank you, Mr. Chair. I just wanted to go back to Ms. Reheise Boyd. I think my colleague from Los Angeles had a question about profit, and I think you answered her about cost. So could you illuminate why many of the refineries, many of the companies end up earning greater profit in California versus other parts of the country?

Can I also illuminate on the fact that there is no one in this hearing or the previous Senate hearings who have looked at the periods of time when this industry has lost millions, if not billions of dollars during the pandemic over a longer period of time. It's quite convenient to pick one snapshot and have an entire conversation around it.

So it's a cyclic industry, and it goes up, it goes down, and industries, like many, have got to make those decisions based on the long term planning of being able to be profitable as an entity. The other chart I wish I had brought, hindsight is always great, is the information that's been put out by both the industry with both the entities that look at forecasting in the Federal Government that shows this industry's rate of return is far below the majority of S&P 500s rate and returns and yet there's no conversation about that.

Would you like to answer my question? The question is why there appears to be a higher profit per gallon in California than other parts of the country.

Well, I think we talked about the majority of that being a $1.28 of taxes, fees. No, we're talking trade.

This is profit. Profit is above taxes, fees, cost. You talked about cost. You didn't talk about profit.

You talked about gross profit without taking into effect, into effect cost? You have to deal with.

So I'll ask him if that's the case.

Yeah, but you have to deal with both also the cost piece of that. Right. It's not just the gross margins. It's not just the gross profit. It is the net dealing with the cost of what it takes to go back in those investments. That's rate of return. That's what is looked at when you look at earnings.

Profit is what you earn net of cost and taxes. That's the definition.

That's why you see two definitions of a gross refining margin and a net refining one has cost that taken to implant and one that does not.

Why is the profit higher in California?

The cost of doing business is higher in California.

So because the cost of doing business is higher, then you want to make a higher profit.

It's supply and demand. It is all in incorporated into what it takes to do business here, what it takes to sell your product, what it takes to make your product, and how it's influenced by a global marketplace and.

Why is the profit higher here?

Sorry, Assemblymember, you don't like my answer, but it's the same one I just.

I didn't get an answer. I didn't get an answer. What I got was a lot of generality. I didn't get an answer. I didn't get an answer that you could tell Standard & Poor's.

I continue to try to explain the difference between the market in California, which is an extremely tight market. We don't have enough refining capacity to meet demand. We only produce 1.8 million barrels a day and we only produce 1.4 million barrels a day. We need 1.8 million barrels a day. So it is all based on supply, demand, and what it takes to do business.

And Professor Borenstein would tell you that explains why your cost is higher. Why is your profit higher?

I've explained it. I apologize you don't like my explanation.

No, it's not an explanation.

In my view it is.

It's not an explanation that you could tell your regulators. Mr. Court, you want to say why you want to give any supposition as to why in your chart?

Well, look, we compared the gross refining margin here and elsewhere. The gross refining margin is the difference between petroleum that comes out of the refinery and the crude that goes into it, excluding taxes, environmental costs, any of that. And I think the reason they charge us more here is because they can, because they have a consolidated market, because they have the ability to do it through a spot market that isn't transparent.

They do it because I believe, and this is just my belief, that they want to punish us for our environmental policies and say, California, you wanted to go green, you're going to pay more. Regardless. The numbers are the numbers. And that's why the price gouging penalty takes care of that issue. Because if they come out above a certain level, they're zapped. And that's the point is they will take as much as they can take because they control the market.

So you're telling me they have an oligopoly?

They have an oligopoly.

They have an oligopoly. They have a few people who can control the market so they can set the price. Generally, if you have an oligopoly or you have an monopoly like we do in the utility industry, you have regulation and you actually have a certain level of.

That's what this proposal is in reaction to. That is the oligopoly got out of hand and went overboard last year. And this proposal is saying, yeah, we got an oligopoly and we got to answer it.

I was just going to ask Professor Borenstein, just to see if he had a guess as to why the profit, and again, not the cost, but why the profit is higher in California.

Well, I think that the profit is higher in California. I suspect it is due to less competition. I don't have enough information to give you the details. What I do know is that most of that profit is not being earned in the refinery price. Most of it is being earned through downstream transactions. And that makes it much more complex. There are a lot of contracts between those refiners and the downstream firms. And so we really need to stay focused on where that money is being earned.

And it's going to require a pretty detailed investigation to really understand why that's happening. Now, the oil industry will say there's a lot more regulation in California, and some of it may actually be contributing to having less competition. And all of those are possibilities. But I think that none of us in this room, virtually or physically, really know the answer to how all of those contribute.

And that's why we need an arm of the CEC that can really dig into this, have the resources and have the expertise to do so.

I just wanted to make one point because Severin keeps saying this, that it's mostly downstream, and that may be true in 2015. In 2022, the numbers for the CEC, the numbers McCullough crunched, and the SCC reports, all show a huge increase in the refining margin, not the downstream margin. Am I correct?

No, you're not correct. Can I just say that there are many.

I'm not asking you, I was asking CC.

Do this with the spot price. And I think Bob is right. The spot price is not a completely liquid, transparent market. You will find that most of the downstream profits actually are between the spot price and retail. If you do it with rack, which is a much more transparent price that is posted at all the racks, you will also find that most of the profits are.

That's not accurate.

I am not disputing that. There were also a lot of profits upstream in 2022.

But look, the refining margin is reported to the SCC by the company, specifically for the western region. Then the CEC takes the rack price, subtracts the taxes, the carbon taxes, and then subtracts it from the retail price, and they get the refining margin. That's why these are refining margins. These spikes in his chart are refining margins, aren't they?

No.

Well, it's not his charts.

To be clear, there was a large spike in the refining margin.

Yes.

And it went down very quickly after Governor Newsom.

No, they didn't

Move forward the winter blend, and then the retail price stayed very high. The spot price was way down by then. And that's the graph I showed. And most of the money, the extra money, that's not to minimize the stuff that went into the refining it. But I don't think that this is.

Okay. Thank you. I am just a channel kindergarten. If two of you want to take into a corner and have a conversation, that'd be great. So I would have to go in the corner with them. We can all go in the corner in a second, Commissioner Gunda, if he could respond. And then I want some follow-up questions.

Yeah. Thank you, Assemblymember. And I just want to make sure the importance of what Professor Borenstein is talking about in terms of the margins in the retail contributing to the price spikes over time.

And I think one of the two things we indicated in our presentation is it's both, you have to look at both the refinery margins, which were extraordinary last year, which was atypical, it's record-breaking, and the retail level, which we have these dealer tank wagon contracts and such, that could be causing also pricing. So I think it's, both of them are important, and both of them need to be studied and understood.

I would agree.

Thank you, and just appreciate my colleague from the East Bay talking about the three different price spikes in the last 10 years. Actually, we do know one of the reasons why one of the prices spiked, and that's because a number of refineries had to shut down because of that supply went down. That makes to me complete sense.

One thing I would love to sort of ask Ms. Reheis-Boyd, is my understanding is when you are doing, and you had sort of alluded to this, when you're doing these planned shutdowns, I'm not talking about unplanned shutdowns. To me, those are something that cannot be controlled. And when you have health and safety, plants need to be shut down as quickly as possible to do whatever maintenance you need to do. I absolutely, completely understand and completely agree with that.

But when you have these scheduled shutdowns, my understanding is these are pretty big events and they are planned years in advance. Is that correct?

Turnaround.

Yes.

Basically they come turnarounds.

And so I think the way I read the Bill, and I think the understanding of what that part of the Bill is trying to accomplish is that, I don't know, again, how much communication happens between the different refineries and coordination.

My understanding is there's only limited amounts of time, spring, fall, that you really try to do your turnarounds, but that if there is inadvertent scheduling at the same time, I think the point of the way the Bill is to have a discussion with you, to work with the industry, to not have it overlap, so that it's not trying to get in your way of doing the turnaround, but just making sure that it's not happen at the same time so that there's not a supply issue.

Yes, please.

Yes, that is very correct. And what I would say to that is that a lot of that goes on now. And I think, as Commissioner Gunda would report, it's not formalized with the energy. It's formalized with other agencies, but not the Energy Commission. But those conversations do occur. We do get calls from the Energy Commission, our Members do on refinery turnarounds to make sure, which is why you haven't seen any problems relative to them being scheduled. You know? Where there would be a supply disruption.

And so that goes on now. This formalizes it. And again, we have no problem submitting the information. We have no problem having conversations about it. We do have issues with an outside entity being able to dictate what those specific time frames are.

And I totally understand that. I think the challenge is if you had, let's say, two refineries and they were just dead set on doing repairs, and, I don't know, did they last for a week or they last for days, roughly, do you know?

Yeah, they can definitely be a period of time.

Right. So let's just say for whatever reason, they're just adamant they both have to happen on September 15. I guess the issue is the Energy Commission would have absolutely no ability to be like, hey, can somebody move to September 1 or can someone move till September 30? I don't think the Energy Commission is trying to say, hey, you're going to cancel this. It's just making sure that we're coordinating to not overlap and to make sure that we're having that proper coordination.

I don't think anybody's trying to stop you from doing it or to stop you from doing it the way you want to do it. I think it's just making sure that there's that coordination.

Yeah. And again, that happens now. That actually happens now. And that's why there hasn't been issues. And so I don't see the need to have the more enforcement sort of exertion on forcing that, because I think that happens now. And those conversations occur. And again, we have no problem formalizing the reporting, but we do have a problem with turning over that responsibility, which is the refiner's responsibility. It is their job to ensure safety of their facility to the employees that work there in the communities.

And I know the Energy Commission is taking that into full account. I'm not saying that's not the case, but that is happening as we speak, so we don't see them.

And I don't foresee that if that continues to happen and we don't have what happened before where we had sort of uninspected shutdowns because of maintenance, then I wouldn't foresee them forcing anyone to move off their timeline. I think that timeline would stay as long as that coordination occurs and as long as no one is stubbornly saying, hey, regardless of, I'm not saying that this would happen.

I'm just saying if that situation occurred that you said, hey, we have to do it then, and otherwise forget it, that's when I would foresee them potentially using that authority to coordinate and really move somebody off that timeline so we wouldn't have a supply issue.

Remember, these refineries are doing all of this planning for safety concerns. So if somebody is making a decision that is different than the decision that they made for their refinery for safety concerns, that's a concern for us. But again, we have no problem with those conversations. We haven't had a problem with making adjustments, and so we don't see the need for this kind of an additional provision.

I appreciate it. I totally understand your concerns. Based on what you said has already occurring, I would actually not foresee, if this continues to occur, this coordination, cooperation, I would not see any involvement to interfere with that particular.

It's probably not a liability the State wants to take on.

Okay. Well, I think the concern is that we saw the price spike happen because refineries went down before. And knowing that that's one of the reasons why prices spiked, it would seem odd to me to not address that issue if we were trying to actually address the issue. Some of these spikes, we don't know exactly why they went sort of unexplained. Right? We've had conversations. There's exclamations, but even the people who are experts who do this every day for a living can't exactly explain.

The one thing we could explain was when refineries went down. So it seemed to me very important to be addressed in this Bill.

And thank you for the distinction of planned and unplanned.

Absolutely. I think it's a very important distinction, and I appreciate that. And I think, again, I don't think, again, there's nothing in here about unplanned shutdowns, and I think we want those unplanned shutdowns to be dealt with immediately. Again, appreciate your indulgence, Mr. Chair. Thank you for allowing me to the questions.

Thank you. Mr. Muratsuchi.

Thank you very much, Mr. Chair. A question for Commissioner Gunda. So I think Mr. Borenstein made it clear his opinion that most of California's gas price problem is not at the refineries, but it's downstream. But I wanted to ask you. Is putting a limit on refinery, notwithstanding Mr. Borenstein's opinion, do you still believe that putting a limit on refiners profit will, bottom line, reduce prices at the pump?

Yeah, I think the short answer, thank you Assemblymember, for that question. Would be yes. I think the issue that we're trying to look at here is through the Bill. There's a number of provisions. If the Bill were to pass, it gives CEC a public process to really evaluate the benefits and the risk. At the high level, as we heard from Dr. Borenstein today, we have consulted with a number of economists over the last 3-4 months.

The opinion is very varied, and we don't have that in a public testimony. We don't have public discourse on those issues. So what CEC would do, whether it's a rulemaking process or an informational proceeding, would really take all those things into account. And then if we see that the penalty could help, is where we would go. So I think it's public process. We think there is opportunity here to move towards that way.

And then Dr. Borenstein's question or concern about mixing stakeholders, including oil industry representatives and the Advisory Committee, what is your opinion on that?

Yeah, it's an interesting argument. I think we at CEC have a number of different independent Advisory Committees. We do have both experts as well as stakeholders in those, and we have seen beneficial efforts. And I think, I understand that there's opportunity to dig into this data. Some of the observations we have at CEC is when we have a diverse group of Advisory Committee.

The specific, for example, experts tend to have submeetings and provide more analysis and thought leadership. So from our perspective, it could have some beneficial.

But it's the proposed independent consumer fuels Advisory Committee. I would hope that that does not in any way restrict the Energy Commission's ability to, and opportunities to consult as necessary with industry experts.

Yeah, absolutely. So I think, thank you for kind of adding those additional thoughts there. So we do have a couple of opportunities. One would be the Advisory Committee.

And obviously, as Mr. Borenstein mentioned, it'll be a group of stakeholders and experts, but as CEC, as we go through the budget process and the Trailer Bill Language, we would definitely need additional resources to consult with experts specifically on this area.

Okay. And last, but certainly not least, I don't know if Ms. Reheis-Boyd probably knows this, but I have two refineries in my Assembly District.

I do know that.

Okay. So one in El Segundo and one, of course, in Torrence. And I know that Ms. Bauer-Kahan asked the question, and I apologize. I may have missed some of the responses, but obviously, you know my constituents in El Segundo and in Torrance are going to be concerned, share the concerns that the environmental justice advocates were raising. I wasn't sure if the beach cities and Torrance would qualify as environmental justice communities, but nonetheless, I know that they would be concerned about the transportation fuels transition plan.

Commissioner Gunda, can you talk to what opportunities my constituents, the residents of the beach cities and Torrance, what will have in participating in this multi stakeholder, multi agency work group?

Yeah. And thank you, Assemblymember for that. You know, we also recognize that a number of the electricity reliability conversations were also impactful to your constituents. So I think one of the things that we are continuing to learn is the importance of engaging local communities. So what we as CEC would do is ensure that we have regional, whether it's town halls or working groups, to really take into account the perspectives of every region that's going to be impacted here.

All right, thank you very much, Mr. Chair.

Senate Member Valencia. Questions? Comments?

Thank you, Mr. Chair. Just a thought, and help me walk through this scenario. I think it's important to think through these policies. Right? We're hearing that the profit has been downstream, and this policy is intended to address the price gouging. If and when this policy does get passed, the evaluation of those contracts takes place. We find out that the profiteering has been taking place in that component. How will this Bill address that component, and also what happens if that is not the case as well? And how will that help reduce costs in gas prices? Thank you.

Yeah. Thank you, Assemblymember. I just want to begin by stating I think the 30,000 foot level, the singular focus and the intent of this is to begin with deterring the behavior. If there is market power and if there is inefficiencies in the market design, the Bill is really set to expose that conversation and make shed light. Shed light. And I think Assemblymember Bauer mentioned, you know that sunshine is the best way to kill the infection.

I think the importance here is to make sure that we have the analysis, we have the data, and we have the pathway to bring that transparency to you all as things are occurring. I think we believe that would be a huge deterrent. And from our perspective, if we never collected a single dollar in this, that would be great.

So then the question becomes, as we dig into this information, if we find that the actual impacts of the retail margins are higher, that's something that CDTFA and CEC is asked to review, and we'll come back to you with that data and then we will continue to look into it.

In that scenario, if that were to be the outcome, then it would be the first step in a continued process? Awesome. Thank you.

Thank you. Any other questions or comments, please?

Yeah, thank you, Chair, and really appreciate the discussion. I have a few questions, but wanted to start with noting I think this approach is long overdue and appreciate the work that's gone into the Bill so far. What we know is a fact is that California residents are paying higher prices at the pump than any other state. We know for a fact it's having tremendous impact on consumers in all of our districts.

We know as a fact from what we're seeing, this is not explained by taxes or regulations alone. And from the evidence we're seeing, and I know there's a debate going on, but I happen to believe that we are seeing excessive profiteering. It could be happening at various levels in the chain, but it's something we need to get to the bottom of. And that there is outright price gouging going on by the oil industry doing business in this state.

So where this is long overdue is really creating a mechanism for more transparency, data collection, providing the tools for detailed investigation. One of my questions, I was going to throw it over to Ms. Blume and Commissioner Gunda. And as a former Deputy Attorney General, I'm very cognizant of the value of the subpoena power to explore issues. How would the subpoena power be kind of addressed in this situation? What's the importance of it? Maybe if you can elaborate for members of the public on that.

So I think there are two different pieces of this proposal you're referencing there. One is giving subpoena power to CC. I will leave that to Commissioner Gunda to talk about. The other is the opportunity for the CEC to refer matters over to the Attorney General's Office for prosecution. That is something that we very much welcome. We will welcome those referrals.

I think having a market oversight body, having a regulatory body in place that is gathering information with granularity, with specificity, and information that is timely and relevant to what we and what CEC need to know about what's happening in this market in order to identify potential illegality in the future. Having that oversight body have that information, have the opportunity to analyze it and then refer it over to the Attorney General's Office is potentially a very powerful tool for the state.

We know, as has been expressed throughout this conversation, that transparency drives market integrity, can drive market integrity. We may see that entities throughout this market behave better when they have to report a lot of fairly basic but important information to the Energy Commission, and there's the opportunity for that to be analyzed and scrutinized and understood. We also know that there will be future disruptions. There will be future refinery outages. There will be potential geopolitical concerns.

There will be other reasons why there is disruption in the market. And that disruption creates opportunity for market manipulation. And so I think that there's a lot to be gained just from the transparency piece here so that we and the CEC have the opportunity to have that information at the outset and also then can take those referrals from CEC for potential prosecution.

Yeah, thank you. Thank you, Assemblymember, for that question. So historically, in most of the AGS investigations, that you might already know that CEC does have a role in providing information. We typically take whatever information we have and provide that as information for them to take into account as they're pursuing their work. And also we provide our expertise to the extent that we can. In this case, we're just acknowledging that this independent division is something that the expertise we do not currently have.

We are calling for new expertise here that, as Dr. Borenstein talked about competition policy. How does that work? And that's not what the bread and butter for CEC today is. So this independent division really is a bridge between what CEC currently does and what the AG's work is and really help with bridging that information by doing more and having that subpoena power for them will help gather additional information as needed.

Great. Another question. So if penalties are assessed, would those be passed on to the consumer? Alternatively, what guarantees would consumers have that they would not be passed on to the consumer?

Assemblymember, thank you again. My current understanding from the Bill and from the discussions is that would be put in a special fund for the Legislature to appropriate as they see fit, in ensuring customer protection.

In terms of an oil company having to pay a penalty, though, are there guarantees or assurances that that would not itself create price increases?

Yeah, that's a great question, and I think a part of the statute would be for CEC to weigh that, as we develop our penalty. And I think as we heard over the last two months, there are really good arguments on every side that we as an agency has to consider in making sure that we set one, the margin in a level, but also then executing that penalty.

And I want to take this opportunity to just also mention that this will not be delegated to an Executive Director or somebody. This will be a staff recommendation coming up to the Commission, and all five commissioners have to act on that information.

Thank you. Any other questions or comments, please?

Thank you. I appreciated Mr. Connelly's questions about the dual roles of the CEC and the Attorney General's Office.

Also, as a former Deputy Attorney General, I wanted to, going back to Dr. Borenstein's concern about how the biggest cost is down stream. Does the Bill provide sufficient subpoena power to get those complex to try to understand the complex downstream contracting scheme?

Yeah. Thank you, Assemblymember. We believe so. I think you know, you're already specifying a number of data streams that would be extremely helpful based on our best understanding of the market today. Again, our understanding is limited based on the opaqueness of the industry today.

And so some of the data information is kind of consulted with experts in the industry as well as academia. But this additional subpoena power will allow us to dig into any other details we have been missing.

Thank you.

Great questions. Thank you. We see a hand up, please. You are on mute.

When we don't know history, we have a great disadvantage. All of the data and electricity was basically secret in 2000. By 2002, we had preliminary systems up. I helped work on those at FERC. Today on the web, there are 600 million trades over the last year. Anyone here can log into the FERC, go to the electric quarterly report page, and find out the specific trades of any market player. That's had a tremendously positive effect.

Severin's comment about making sure the experts can exchange data is critical, but the more public that data is, the less regulatory intervention will be required. There is nothing particularly secret about this data. The Opus subscribers talk together on a chat room to set rates. Anyone who's on the chat room will know what's going on. So what we're talking about is just leveling the playing field between the consumers and the producers. And one last comment. I enjoyed Severin's debate with Jamie. Both of whom, I respect highly.

But this is the old story of the six men, the six wise men and the elephant. Until we actually have access to data that we can talk about. We're not going to have a clear answer. I've had access to the contracts. They aren't particularly secret. Well, of course, they're all subject to confidentiality. But all the players in the market know what the contracts are like. We are the only people who can't talk what the contracts are like.

So everything we can do to level that playing field will lower prices, certainly, but also make our lives easier.

Thank you very much, Mr. McCullough. I'm going to ask Mr. Severin Borenstein if he'll like to close with 1 minute wrap up, and then we'll go back up to the agenda, go down the panelists, as we wrap up this conversation, go to public comments, bring it back to the dais, and then close this out for the day. I'm just grateful to the dialogue that we've had here today. We've learned a lot and looking forward to the continued conversation.

So please, Mr. Borenstein, and then we'll start at the top of the agenda. One minute in closing, please.

I'm not sure I have a lot more to add. I think that this Bill is moving in the right direction. I don't think it is locking in a particular price gouging penalty, but rather giving us the resources to do a good analysis. And I think that that will help us really understand where the profits are coming from or the higher prices are coming from.

My own work suggests that it's going to be largely downstream, and that means we're going to have a lot more work to do. But I think that the transparency and ability to have real expertise is a big step in the right direction. And I will just say once again, it will be much more effective if there is a Committee of Experts in competition policy who can work together with this division. Thanks.