Assembly Standing Committee on Utilities and Energy

Okay. Good morning, everyone, and welcome. I'd like to call to order this hearing of the Assembly Committee on Utilities and Energy in the first extraordinary session. We've not gathered a quorum yet, so we will start as a Subcommittee. Sergeants, please call the absent Members. Before we move to the agenda, I have a few housekeeping announcements to make. Today, we have one measure on the agenda.

And, of course, as always, it is important that we maintain decorum during the hearing, as customary, in order to hear as much from the public within the limits of our time. Thank you so much for following those instructions. We'll ask secretary to call the roll when we have a quorum. I know we have an author, so we will introduce item one, SB 2, and Skinner. Senator Skinner, please. You may begin. And I see that you have your witnesses that will be testifying there as well.

We will limit their testimony to two minutes, please.

Thank you. Chair and Members, very pleased to present SBX 12. This is a Bill which is designed to protect Californians against oil company practices that have led to outrageous gasoline price hikes. Californians were charged. The amount we were charged for a gallon of gasoline was higher than charged to anyone in any other state. Now, some of you may think, well, that's normal. It is not normal. When, on average, that higher price was $2.61 higher than what other states paid.

Now, any of us who do our homework can give a very. We can calculate exactly what the additional charges are in California for our good clean air blend, for a variety of good practices, for the support for our road maintenance and other transportation activities. We can calculate that, and we can debate perhaps what that amount is. But it is nowhere, and I am saying nowhere near $2.61. And those shocking prices were charged at a time when oil companies were pocketing record profits.

In 2022 alone, oil companies reported more than 200 billion in profits. If you or I made $98 million a year for 2000 years, we still wouldn't make as much as oil companies did last year. Californians deserve to be protected against any business that may unscrupulously pad its profits at our expense. SBX 12 is a consumer protection regulation that can safeguard all of us from an industry whose practice may do us harm.

Specifically, the Bill creates a new independent watchdog, the Division of Petroleum Market Oversight within the California Energy Commission. And that agency or that division. Excuse me, the division will be responsible for monitoring California's petroleum market to ensure that market participants play by the rules, it also creates an Independent Consumer Fuels Advisory Committee made up of experts that will be appointed by the Governor and the Legislature.

It establishes new data reporting requirements on oil companies and refineries to provide the information necessary for the new watchdog agency to conduct its analysis. It gives the new division subpoena power to ensure that we have the data and the records that we need to determine if there is a pattern of misconduct or price manipulation. It gives the division the authority to refer violations of law to our California Attorney General for prosecution.

And it authorizes the Energy Commission to establish a maximum gross gasoline refining margin that is based on the analysis provided by the new division, which, of course, the new division will conduct that analysis based on the data and information they collect by virtue of the data reporting requirements that are included in the Bill. And then, it enables the CEC to set a penalty only if the price of gasoline is determined to exceed the gross gasoline refining margin.

And that would be after the CEC undertakes a public rulemaking process. So this does not guarantee a penalty. It sets up a mechanism to do so if it is warranted. But, of course, if the oil company's practices are such that it is not warranted, then the penalty would never be used.

If in case the penalty is used, the Bill establishes a price gouging penalty fund in the State Treasury, and it ensures we the Legislature's authority to appropriate any monies that are in that fund and for the purpose of addressing the consequences of price gouging. This also provides for an annual report to the Legislature that includes a review of gasoline prices in that year and to protect the Legislature's ability to intervene if necessary.

If we feel that it is not working, the program as we've just designed it, it requires the State Auditor no later than March 1, 2033 to complete an audit of the program and make a determination as to whether the program is achieving the intended goal of reducing gasoline price spike hikes, price spikes and stabilizing the gasoline fuel supply market.

If the Auditor concludes that the program is not working as intended, then the Energy Commission itself will be required to cease implementing the maximum gross refining margin and the penalty provisions within 180 days. And if the Legislature chooses to do so, they can intervene and end it faster. Now, the transparency measures that I mentioned, those data requirements have the potential to deter excessive pricing if the oil companies so choose. And that's what we hope that this does.

But if not, it creates that ability to have a penalty. Thus, it will hold Big Oil accountable to prevent future excessive profits at the expense of our hardworking California families. And now I would like to have my lead witnesses in support Lauren Sanchez, who is the Senior Climate Advisor from the Office of Governor Gavin Newsom, and Jana Stanford, who is from the Office of Attorney General Bonta from Department of Justice.

Thank you, Senator. Before we proceed, I'm going to ask the secretary to call the roll so that we may establish a quorum.

[Roll call].

Buenos Dias, Chair. Members of the Committee, thank you so much for having me here today. I'm Lauren Sanchez, the Governor's Senior Climate Advisor, and I join you today on behalf of Governor Newsom. Last fall, gas prices spiked in this state to an average of $6.41 in many of your districts, climbing above $7 or $8 a gallon. As the Senator outlined, that was a record $2.61 above the national average. California gas prices increased 84 cents in just 10 days.

Energy and market experts, economists, industry partners, and state government itself could not explain why. In fact, no one knew why these five companies that control 97% of our market had let inventories drop to decades lows or how their changes in production were impacting our prices. But what we do know is that just a few weeks later, oil companies reported historic profits, posting $63 billion in just 90 days.

That's $700 million a day for the Governor and for every single one of us who were paying record prices at the pump. Enough was enough. We had to take action. He called a special session to hold these oil companies accountable and demand that they stop fleecing Californian families. Since last fall, we've worked tirelessly and collaboratively with legislative leaders, experts, and stakeholders on how to address this problem. And it keeps coming back to one issue, which you all heard exhaustively at the info hearing last week.

Unlike commodities, electricity and many other markets, this is an industry that has been allowed to operate in the shadows. It has lacked the accountability, the transparency, and the oversight that we have long required of other critical sectors. The state doesn't yet have the data, the information needed to protect hardworking families from oil companies taking advantage of them at the pump. This proposal does just that.

The Bill you see today that the Legislature and our tireless working groups contributed to is a better Bill than what was introduced last fall. It provides the Administration and the Legislature with the tools to mitigate these price spikes going forward. And with the transparency measures to finally look under the hood of this industry and ask, what are these companies hiding?

It empowers the Energy Commission to set a price gouging penalty and establishes an independent watchdog that will provide the oversight that this multibillion dollar market has evaded for too long. And it does so while protecting confidentiality and developing the plan to transition off petroleum while ensuring reliable and affordable fuels for Californians. Thank you for pushing us to make this proposal better by questioning our staff in the Governor's Office and across the Administration and digging into the smallest details.

On behalf of the Governor, thank you for taking a bold stance for your communities and for your constituents. I will be available for any questions you may have.

Thank you very much. I'll remind the witnesses if we could stay within the two minute mark. Thank you.

Good morning, Mr. Chair and Committee Members. My name is Janice Stanford. I'm a Deputy Attorney General and Legislative Advocate in the Department of Justice. And on behalf of Attorney General Rob Bonta, I want to start by thanking Senator Skinner for carrying this historic legislation. The Attorney General is proud to stand with Governor Newsom and co-sponsor this Bill to take on big oil and protect California consumers. Last year, oil companies raked in record profits while Californians struggled to make ends meet.

High gas prices and excessive profits reaped in by the oil industry have come at the expense of hardworking Californian families, and the financial burden of skyrocketing prices has been shouldered disproportionately by lower-income Californians. This Bill would authorize the Energy Commission, through a public process to impose a price gouging penalty to curb excessive profits and return the funds to hard-working California families.

It would also 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 potential violations of the law to the Attorney General. For decades, the Attorney General's Office has investigated gas prices, looked for price fixing and market manipulation, and prosecuted bad actors that schemed to drive up the price of gas during previous periods of market disruption.

We're still actively involved in litigation against two multinational gasoline trading firms that allegedly manipulated California's gas prices and cost consumers more at the pump in the wake of the 2015 explosion at a gasoline refinery in Torrance, California. The Attorney General stands ready to enforce and defend this Bill as well, and prosecute bad actors rooted out through the increased transparency and oversight included in the Bill. California consumers have been paying too much at the pump while oil companies continue to report record profits at their expense.

This has gone on far too long. And Attorney General Bonta urges your Aye vote on this historic legislation. And I also just want to take a moment to introduce Michael Jorgensen, who's with me from our antitrust section, if you have any antitrust-related questions.

Thank you very much. Do we have any primary witnesses testifying in opposition? Please come forward.

Mr. Chairman and Members Eloy Garcia for the Western States Petroleum Association, representing the state's refiners and major oil and gas producers. We continue to oppose this Bill because it fails to address the core issues facing California's fuels market, that's supply and infrastructure. The Assembly Select Committee examined gasoline pricing last summer, received information, written testimony, and beyond that clearly identified California's growing supply and demand imbalance as the issue. That was in July.

That was before the summer break, and we certainly encourage you to go back and take a look at that testimony and that written material. Professor Bornstein, who you've heard from consistently, you heard from last week, at that hearing and written testimony clearly stated that refiners were not the issue. His mystery surcharge is not a refiner issue. We've heard that consistently. But yet this Bill focuses on refiners, and the only solution is refiner-related.

The Bill that you're rushing through the process adds bodies, adds bureaucracy at the California Energy Commission, adds audit requirements, adds penalties. What it does not do is add supply, does not expedite port or pipeline infrastructure. California drivers, your constituents, are going to need fuel supply. Not bureaucracy, not audits, not penalties. They need fuel. They need affordable fuel. We're still reviewing the specifics of the massive new data reporting requirements, and it is massive. It is an incredible amount of new data that's required.

But most immediately concerning is the confidentiality of this new information. The Bill now makes some of that critically important, market-sensitive information available to an unappointed new task force bureaucracy. Some of it, again, non-appointed, politically appointed, not state employees, makes it available to legislative staff and ultimately makes some of that confidential information available to the public, including potentially some of the actors that the Attorney General just mentioned, are in current litigation.

We think you ought to act with caution here in terms of the information and how it's protected. The delegation of authority to the Energy Commission to implement a maximum refinery margin in Section Five is a mistake and could make a supply and demand imbalance situation worse. It sends a clear signal not to invest in California if California is short of fuel supply. The authority that you're granting, the Energy Commission is the wrong one.

You heard that from your economist in informational hearings Again, we urge you to take time to evaluate the right solution and the delegation of authority. Also, a major concern is the new language in Section Three of the Bill that authorizes the Energy Commission to dictate refinery maintenance schedules. That's also a mistake from our perspective. One thing is to find out when it's happening.

To be informed, to try to avoid unexpected losses in supply, but to dictate schedules is a step too far, and it's potentially dangerous not only to our employees, but to our communities. This Bill is moving fast, and it was clear in the Senate Energy Committee that there are language issues. There are issues that need to be cleaned up. I'm sure you're going to hear over the next couple of months. We need to clean up that Bill that we rushed through.

One of the issues that was clear was that producers were unintendedly caught in this Bill. Senator Grove asked the question. I believe the Administration agreed to that maybe that was not intended, but we would certainly like clarity on that. Is that intentional? Is it not? Because there are clearly language issues that need to be addressed here.

30 seconds.

As amended, this Bill calls for studies and evaluation of supply and demand, but only after it first delegates critical authority to the Energy Commission. We would encourage you to take a look at page 10 of the analysis. All of the so-called evaluation that's going to take place is clearly weighted toward an affirmative answer. It's clear that the Energy Commission will find a way to exercise its authority.

So we urge you to take the time, get it right, make sure that this does not make this summer situation worse.

Thank you.

Thank you very much, sir.

Very generous of me. Four minutes. Please, if you will keep your comments.

Absolutely, Mr. Chair. And, yeah, I will work on brevity on my side here. Mr. Chair and Members, good morning. Brady Van Engelen here on behalf of the California Chamber of Commerce, and we remain opposed. This Bill sets a bad precedent and sends a wrong message to other industries here in California. Allowing an unelected body that is not accountable to any one constituency determine what a reasonable profit margin is, sends a wrong signal to the business community, and leaves them asking if they will be next.

The measure will not lower the price of fuels or transportation fuels here in California, quite frankly. To be clear, price is a byproduct of supply and demand. This measure will not impact either one of those, but rather focuses on setting price caps on refiners that are trying to meet the demand for transportation fuels here in California. If anything, this could lead to higher prices, which will only exasperate the affordability crisis we're facing here in California.

This will hurt small businesses and those that can afford it the least. Just a few weeks ago, we heard from other experts that a tax on profits won't work, as Eloy mentioned a moment ago. Whether that tax increase is implemented by the Legislature or the CEC is irrelevant. To that end, we look forward to working with the Legislature and identifying ways to address affordability crisis.

However, we believe this measure will not help to lower the cost of transportation fuels here in California, and for that reason, we stand here opposed to this Bill.

Thank you very much.

Thank you, Mr. Chair.

Thank you. We'll now open it up for public comments. Those wishing to speak in favor or against this proposal, please state your name, affiliation, and your position. Give one second. Get the mic on for.

Mr. Chair and Members, John Winger on behalf of the California Fuels and Convenience Alliance, in opposition.

Good morning. Chair and Members James Michael Apollo with the American Federation of State County and Municipal Employees, in strong support of this Bill. Thank you.

Good morning. Tobias Wilkin with the California Taxpayers Association, in opposition.

Sakereh Carter on behalf of Sierra Club California, in support.

Good morning, Mr. Chair Members. Justin Fanslau, on behalf of the California State Association of Electrical Workers, the Western State Council of Sheet Metal Workers, and the California Coalition of Utility Employees, all in support. Also representing over 125 signatory members of Elected Officials to Protect America, in support. Thank you.

Megan Shumway, representing Fossil Free California and Sacramento 350, in support.

Good morning, Christina Scaringe for the Center for Biological Diversity, in strong support.

Melanie Morelos with the Green Light Institute, in strong support.

Good morning. Steven King with Environment California, in strong support.

Good morning, Chair and Members. Tyson Bagley, representing several hundred members of USW Local 326 in strong opposition because of the threat of safety to the members that we represent.

Bill Allayaud, Environmental Working Group, in support. Thank you.

Kim Stone, Stone Advocacy, on behalf of Consumer Watchdog and a large coalition of over 100 environmental, consumer, and other groups that I won't read each of them aloud to you, but copy of the letters outside, and it's a big and mighty group.

Good morning. Matt Lege, on behalf of SEIU California in support.

Good morning. Dr. Gleo Sava with 350 Sacramento, in support.

Thank you. Seeing no one else lining up, I will bring back conversation to the dais and look to my left, see if there are any questions, please. Vice Chair.

Thank you, Mr. Chairman. First of all, I really do want to object to the process that is happening here. This has by, I think, this Committee's own admission, something like a $9 million price tag to the state, and yet it will be passed to the floor without going to the Appropriations Committee. I've been here 10 years. I don't think I have ever seen anything pushed through with this kind of price tag without the oversight and the look by the Appropriations Committee.

Secondly, I think with due respect to the claims of what the Bill is going to do, in a thorough analysis on this, I have taken a hard look at it and there are a number of concerns, obviously. I do think that there is a real risk for price controls here. And as the UC Berkeley economist Bornstein testified back in June of 2022, creating price controls discourages production and leads to shortages and gas lines. We're not addressing, as been said earlier here, the supply challenges.

California's production of crude oil has tumbled to one third of what it was in 1985, and it is sure to continue declining due to the, in large part, two state policies. There's also, I think, a concern with respect to the process of creating this unelected bureaucracy and giving them power to impose what amounts to a tax. Also object to the end run that this Bill does around the responsibility, I think, of the elected bodies here to vote in a two-thirds majority for a tax increase.

You can call this a penalty if you want to, but I think anybody that really takes a thorough look sees that this is called a penalty, but it is a windfall profits tax. And so here we have one of the most significant pieces of legislation to come before this body, and it dodges a singular important vote, that's the two-thirds vote, to impose a tax.

You can call it a penalty if you want to, but the fact remains that it acts as a tax and it creates the kinds of difficulties that a tax creates. Again, as was mentioned by the representative of the workforce in the refineries, for me, this is one of the significant threats of this Bill.

If we mishandle refinery safety, that's going to be a significant issue for health and for the operations of refineries that we need to be at their maximum to be safe and to be online as much as possible. We are allowing, we're empowering the CEC to manage the timing of planned refinery maintenance, allowing it to interfere and to micromanage this very sensitive work. And the warning here is, if this is poorly done, this is going to threaten employee safety, the equipment, and the state's supply of fuels.

Think about this for a minute. We are going to place into the hands of appointed political bureaucrats the authority and the power to dictate the maintenance schedules and how these maintenance schedules are concluded. I also want to just remind everybody that this focus on the refinery-level activity, this is not just misdirected, this is a head fake. Professor Borenstein made that clear back in that hearing that I just mentioned. Most, I'm quoting him now.

Most of the mystery gasoline surcharge is downstream, occurring after the refinery level, but nonetheless, the maximum margin and penalty would apply only to the refinery operations. And the fact that this is being rushed through, the fact that we are hearing this on a Monday morning and we'll see it very shortly as it bypasses the Appropriations Committee and heads to the floor, I just want to point out that this is unprecedented use of Legislative and Executive power, and I object to it strenuously. Thank you.

Thank you, Mr. Vice Chair, for that statement. Do you have a question? Do you have a question for any of the panelists?

No.

Okay. Thank you, Ms. Eloise Gomez Reyes, followed by Mr. Muratsuchi.

Thank you, Mr. Chair. First, it's not on. First, I want to thank Senator Skinner for championing this effort. As has been noted earlier, we did have that informational hearing. We heard about the volatility of gasoline prices and the discrepancy between what Californians were paying, what other states were paying, and the profit that was realized by our refiners. Consumer Watchdog noted that refiners made 30% more profit in California than anywhere else in the world. And we've heard about the $2.61 per gallon profit that has been seen.

Another note was that top executives and insiders at California's five big refiners cashed out $590,000,000 in stock in 2022. And also that they posted profits of 67.6 billion in the first nine months of 2022, compared quadruple of what they had received just the year before of 17.6 billion. And of the 590,000,000 refiner stock cash out in 2022, 231,000,000 went to 29 executives and directors, who took home more than $1.0 million each.

And at Chevron alone, executives and directors cashed out $150,000,000 worth of stock in 2022. I hear the comments about supply and demand, but nowhere in what we've heard in the informational hearings has there been an explanation of these profits related to supply and demand. The worker safety, I think, is something that is going to be extremely important for all of us.

For me and so many other of my colleagues. That is an issue that absolutely needs to be looked at to make sure that our workers will always be safe and that whatever schedules are set up does not in any way infringe upon their safety. We have lots of laws that direct us or direct the Attorney General to protect Californians against price gouging. We saw during the pandemic, even if there was price gouging of hand sanitizer, the Attorney General was there.

And yet here we have this type of profit price gouging, by all accounts. And yet nothing could be done. Nothing was done. So I think that making sure that this is something that is going to be addressed again, I thank the Senator for her work in this regard. I do have one question, and this was brought to us by a number of our environmental justice groups. They had noted the need to include within the Commission the group environmental justice voices.

These environmental groups have talked about the need to establish an Inter-Agency Petroleum Fuels Infrastructure Transition Working Group and that it can be housed in the CalEPA and led by CalEPA to ensure communities are at the table and public health is at the forefront. I know that in conversations with the Governor, this is something that he will consider. And so my question to you, Senator Skinner, is, is this something that we can expect in this Bill or perhaps in cleanup legislation?

It is not in this Bill, but I'm sure there's any number of legislators who might be willing to introduce such a bill.

Thank you. Thank you, Mr. Chair.

Thank you very much. Ms. Gomez Reyes, Mr. Muratsuchi, followed by Senator Bauer-Kahan.

Thank you very much, Mr. Chair. First of all, I want to thank Senator Skinner and Governor Newsom for their leadership in bringing this measure forward. Contrary to the Vice Chair's comments about how this is being rushed through, I know that ever since the Governor first called for the original windfall profit tax penalty that we have had extensive discussions among my colleagues.

And frankly, I want to thank Governor Newsom for working closely with the Legislature to come up with this Bill, which I believe is much stronger than what the Governor originally proposed. What the Governor originally proposed I was reluctant to support, primarily because my main objective with this measure is to protect California consumers from gas price gouging.

And I was concerned that the original proposal for imposing penalties without the transparency and the data necessary to make sure that we penalize the price gouging actors rather than having the prices passed on to California consumers in the form of higher gas prices. That was my concern with the Governor's original proposal. With this measure, number one, it is clearly the emphasis is on transparency.

And as the Los Angeles Times indicated in their editorial on Friday, no one should be concerned about transparency if you have nothing to hide. And so I believe strongly that this is going to be, first and foremost best in the interest of California consumers by having that transparency, by empowering the Energy Commission, along with the Attorney General's Office, to have greater subpoena power, to have greater transparency, to make sure that the oil companies are serving California interests and not the other way around.

Having said that, you know, I want to remind you, not that you need reminding, Senator Skinner, that I have three refineries in or just right outside of my district, the PBF Refinery in Torrance, the Chevron Refinery in El Segundo, and the Phillips 66 Refinery just outside of my district on the border of Wilmington and Palace Verdesy. Your old stomping grounds senator, I know you know the community very well.

As a representative of communities on the front lines of three refineries in the State of California, I am concerned about making sure that, going to the comment raised by the United Steel Workers, that somehow having the Energy Commission participating in efforts to regulate the schedule of the maintenance turnarounds, the concern was raised that it would put not only the safety of workers at risk, but I'm also very much concerned about the safety of the frontline communities.

I see in the Committee analysis that your Bill, Senator, is authorizing the CEC to regulate, in consultation with the Labor and Workforce Development Agency, the timing of turnaround and maintenance, if such a regulation can protect worker and public health and safety while also minimizing the risk of maintenance driven supply shortages or price shocks. Could you, Senator, or any one of your witnesses respond to the concern raised by the steelworkers?

I will absolutely respond, and thank you for sharing the location of the refineries in your area. I actually have two refineries directly in my district and three adjacent. So five refineries, and of which my constituents have already experienced both explosions and fires and had to have not only evacuations, but also stay-in-place orders for days at a time. So refinery safety is very important to me. It's why I authored a Bill with Senator Hancock back in 2014 regarding these turnovers and maintenance.

And we, in the construction of this Bill, even though there is the addition of the Energy Commission having a role in this, their role does not supersede OSHA's, and that's under the Department of Labor. And the 2014 Bill is, of course, governed by OSHA. So the safety would always come first.

And the purpose of the Energy Commission's reviewing of that maintenance time is purely to assist or to help us achieve there not being all the refineries down at the same time and creating a false or artificial supply problem in terms of a refined product. Now, obviously, if they all need to be down because each of them have been cited for a safety issue, a legitimate safety issue, they will all be down. But if not, then the Energy Commission would help to ensure that they are not.

So this does not supersede the 2014 Bill or other statutes that we have passed to protect both communities and workers in terms of the refineries.

Thank you, Senator. If I may, Mr. Chair. My next question is for Mr. Garcia. So you raised the concern, Mr. Garcia, that this measure is going to impact supply and that it ultimately is going to impact higher prices at the pump for California consumers. And yet I'm looking at the plain language of the Bill, which indicates that the Energy Commission is specifically seeking to address the regulations as well as the potential power to impose penalties that it specifically is required to consider those exact considerations.

Number one, whether it's likely that the max-margin and the penalty will lead to a greater imbalance between supply and demand in California. And second, whether it is likely that the max-margin and penalty will lead to higher average prices at the pump. And so I don't understand, Mr. Garcia, where the legislation specifically addresses your primary concerns of the supply and the gas prices, why you continue to claim that this is going to work in direct contradiction to the specific language in the Bill.

Thank you, Mr. Muratsuchi. I appreciate the question. I would direct you to the first line, page 10, right below that requirement there, the Energy Commission's requirement, which you just read. The barrier to an affirmative conclusion, appears low. It is an absolutely low barrier for the Energy Commission to conclude that it does not impact, it won't be the penalty itself. It's the imposition of the authority granted to the Energy Commission. Today, likely you're going to vote today out of this Committee to the floor, to the Governor.

Governor will sign. You're sending signals immediately to the market. We don't know what may or may not happen at some point in the future. You have no date specific here of when the Energy Commission should establish that penalty, when it should evaluate whether that penalty should be implemented or not. You're completely silent on the timing of that, that analysis. The supply and demand imbalances should be done on the front end.

You should understand what that situation is and whether a market signal like that will implement an impact supply. You're doing it after the fact, but you're sending an immediate market signal whether the Energy Commission ever establishes it or not. You're doing that today. And so the language here, we see it as essentially window dressing. That evaluation could be happening. Absolutely. But it is not one that's going to prevent the Energy Commission from implementing what you're giving them the authority to do here.

So we don't see that. And if I can, I'd also like to address the issue. I've heard it in two committees already. This language does not trump our OSHA standards. There is no OSHA standard that says that they cannot set schedules. There is an OSHA standard that says they have to protect safety. But you are now passing a subsequent legislation with clear and unambiguous language. They may schedule. That does supersede language that's not in the code and that this is unambiguous.

Under statutory construction, you're clearly trumping what is in prior in law. We don't see it any other way, and I'm not sure any court would see it any other way.

Mr. Garcia, I would just again emphasize what the Senator, well, what I emphasized earlier, that the language specifically calls for the Energy Commission, in consultation with the Labor and Workforce Development Agency, to specifically focus on protecting worker and public health and safety. Again, as a representative of a district that has three refineries that are going to be on the front lines of these refineries, I would only vote for a Bill where we can ensure that workers and the frontline communities are protected.

As to your argument as to the market signals, Mr. Garcia, California has already sent the strong market signal that we are going to achieve carbon neutrality by or before 2045. We've already sent the signal that all new cars and trucks are going to be zero-emission vehicles and not internal combustion engines by or before 2035. I think those market signals are intentionally being sent in the effort to fight climate change.

I am fully in support of. Last, Mr. Chair, I'd like to join my colleague from Riverside in expressing support to the Governor's Office for a follow-up cleanup language to protect our frontline environmental justice communities, for a working group with representation from environmental justice communities organizations to make sure that we work on the fuel transition, that we have the frontline communities represented in this effort. Thank you very much.

Thank you. Assembly Member Bauer-Kahan followed by Ms. Assembly Member Schiavo.

Thank you, Mr. Chair. And I want to thank Senator Skinner, who, as she noted, represents two of the refineries that are in my backyard, and we neighbor the other three as well. And so this is really important. And I think that one of the things that I want to start by saying is that this is really important to Californians, and it's really important to the Californians who need us most.

The Californians who are driving 4 hours from the Central Valley to come into the Bay Area to do their job, who are just barely making ends meet. And when prices double at the pump, going to work all of a sudden doesn't make a ton of sense because they can't afford to get there. And so as we saw in the hearing last week, the profits in those charts are not explained by anything that we or the economists understand.

And since Professor Bornstein isn't here, let me just reiterate something he said in the hearing the other day, which is that he supports this legislation that was very clear in the hearing. So the fact that the opposition has now cited him twice I find disingenuous. And one of the reasons that he had come around, he said, was exactly what we just heard from Mr. Muratsuchi, which was that he was concerned about the effect that this might have on supply and demand.

He was worried about the effect on prices. But this legislation is carefully crafted, to be very clear, despite what the opposition says to ensure, and it says the Commission shall not set a maximum gross gasoline refining margin or penalty. So it's very clear that they shall not set that unless they find exactly what we heard, that it will not make prices go up and that it will not negatively affect supply and demand.

So there are protections in here for California consumers that are really clear and that I believe are sufficient to address the concerns that Professor Bornstein had previously noted. Touching on the maintenance issue, I just want to highlight, because I think you didn't have a chance to respond, but Section 25354.2 makes very clear exactly what Senator Skinner said, that labor standards and safety come first. It is in the plain language of the Bill, and I'm a little bit confused that anyone would say otherwise.

And I'm also concerned both about the environmental impacts of not allowing maintenance, the safety impacts of that. But I think the Bill is careful in ensuring that safety comes first and that we are allowing turnarounds that help with air quality in surrounding communities. There's just going to be little coordination required. And so I think those are carefully crafted. And I don't know if you want to add anything on that point, Senator?

You did very well.

Okay. Thank you. So one thing I did, I had two questions. One is one of the things we've heard from the opposition on this is about the privacy and trade secret information. I want to reiterate what we heard from my colleague, which is I'm excited about the information that's going to be gathered in this Bill. I think it's really, really critical that we understand what is happening for the prices in California. Those charts we saw last week were inexplicable, inexplicable to the smartest economists in the world.

That's because we don't have the information. And the truth of the matter is, and I said it last week, and I'll say it again, is that sunshine is the greatest disinfectant, that if we force folks to turn over this information, I actually don't believe we'll ever need the penalty because the fact that they have to tell us what's going on will stop them from gouging our consumers. And so I think the information will be sufficient and we won't ever need to see a penalty to follow.

But I think that given the protections here, it's fine. But California is the home of innovation. It is the beautiful state that we have here because we protect our companies from secret, we protect their confidential information. My reading of this Bill, actually, I think it goes to great lengths to protect the information that is disclosed. Although requiring it to the Commission, it actually even limits your disclosure to us, the Legislature, to ensure the protection of the information.

So wanted you to address that comment from the opposition.

Thank you, Assembly Member. Very good points that you made. And absolutely, the Bill not only adds explicit protections, recognizing the privacy laws and antitrust laws that exist both federally and in the state that protect businesses from information about their practices that could compromise, if the competition were to have that information, would compromise their ability to do their business. And so the provisions are carefully constructed to respect all of those laws and add additional.

And any information that was then given to the Legislature, for example, would be aggregated data without any identification of companies. So non-company specific. But I'd like to turn to the Attorney General's Office to see. We have our antitrust specialists here if they want to add any other points.

Mike Jorgensen with the California Attorney General's Office. I'm a Supervising Deputy Attorney General in the Antitrust Section. What we're concerned about is collusion efforts created through the sharing of competitively sensitive business information. The California Rules of Court operate in a manner to protect the sharing or disclosure of competitively sensitive information. It's a legitimate concern. In the antitrust arena, we want to eliminate opportunities for collusion through sharing that information.

The Bill and other pieces of law under the California Rules of Court, under the Government Code of Section 11-180 protect that information from being shared in a collusive matter. That said, should the opportunity to file a law enforcement action related to collusive, anti-competitive conduct arise, that information after the passage of time would need to be part of a litigation effort.

But as time passes, the sensitivity of that competitive, sensitive information diminishes. If we have to litigate conduct that happened four or five years ago, sharing that in a court of law in litigation setting is less of a concern because there's no immediate opportunity for collusion. I hope that clarifies the concern.

Thank you. And then I think it is one of the things that we did hear from the opposition, which I think is accurate, is we have been hearing from Professor Borenstein for years about this mystery surcharge. Part of the reason it's a mystery is because he doesn't have the information that we're trying to get in this Bill. So we may finally understand why California pay more at the pump than is explained by basic economics.

But one of the things that he does talk about is that he doesn't believe that the prices that we're seeing are driven by the refineries. Right. That they're driven downstream. And we heard that last week at the hearing, and we've heard it before. And one of the things that is concerning to me here in California is that we don't have as much competition at the pump, we don't have as much, many independent gas stations as other states, which is a problem.

The more competition, the more you have competition in the market that drives prices down. And so I'm wondering, I think the information we gather that will help us understand the price dynamics may allow us to make moves that enable competition. But I would wonder if somebody would like to remark on that and how we're also going to drive competition at the pump to drive down those prices that are past the refining point. Ifhis Bill addresses that at all.

If there are thoughts about how to do it in the future.

Apologies. I will turn to my Bill sponsor to answer the question. Lauren Sanchez.

Thank you so much, Assembly Member, for the question. It is true that Dr. Borenstein is very focused downstream of the refinery.

I would remind the Committee briefly that there were a number of other experts that are really focused on issues at the refinery level as well as issues at the spot market, which is why what you have in front of you is a comprehensive proposal looking into each parts of the supply chain, from refining to retail station, and making sure that our experts have access to the data along there and can identify pricing irregularities at the refining level and at the retail level.

Assembly Member we do also ask the Energy Commission every three years to work on an assessment looking into exactly the issues you've raised, the number of retail stations here in California, also unbranded versus branded retail stations in California, and pricing differences we see there alongside a number of other kind of issues that have been raised at the state level related to how we bring fuel and refined product into the state.

We're very excited for the Energy Commission to finally have the underlying data to inform that assessment and come back to the Legislature with additional regulations or bills that might be needed to address those specific issues.

Thank you. I appreciate that. So I just want to close by saying I think I hear the concerns of how this Bill is moving. But I also want to be really cognizant that this isn't going to happen overnight. This Bill sets up a scheme for us to get at a very large problem for everyday Californians. And again, I think that problem is already hitting the most vulnerable Californians the most.

And that's only going to exacerbate as the years go by and we move to less demand on the fuels market than we see today as we move to a clean energy future. And so I think that we need to take swift action to protect Californians.

I think we need to ensure that the profit margins that we saw that outpace anywhere else in the world are taken care of for the Californians who every day are just trying to get to work and take their kids to school and do the everyday things that they want to do. But right now, they're having to make choices about whether to drive all the way to work or buy dinner for their family that night.

And so I really appreciate your incredible hard work on this, the partnership of the Governor to, we've seen a very large move from the first introduction of the Senator's Bill. And I think it is in a right place that really puts guardrails around and protects Californians from increased prices and ensures that we are making sure that Big Oil isn't profiting off the backs of vulnerable Californians. So thank you.

Thank you, Assembly Member. Now we'll go to Assembly Member Schiavo, followed by Member Mathis and Mr. Ting.

Thank you. So first, I want to thank the Senator and the Governor's Office for bringing this know, I had a meeting in my community this weekend. This was a hot topic that was discussed and I know some feel like this is moving very quickly, but folks in my community feel like this can't be moving fast enough. And no one is forgetting the sting of these spikes that impacted them.

And I heard from a parent in my district during, when these increases were happening who said if she had to go into the office, she wouldn't be able to afford to go to work. And fortunately, she could work from home. But many people don't have that luxury. And this was crushing for people who are already experiencing the increased costs of inflation and all the other impacts in people's wallet and people's budgets.

And this is not only something that hurts people at the pump, but when prices go up on gas, it also increases inflation. It also makes other goods and services more expensive. So there are ripple effects when gas prices go up that impact people many, many ways. And people are having to make these decisions about whether or not they can afford to go to the doctor, get medicine, put food on the table, or put gas in the tank.

And these are choices that people should not have to make. And so my frustration is that there's been a lot of talk about completely legitimate reasons that oil and gas prices would have risen. It's because oil refineries were down due to maintenance or the war in Ukraine or strain supply, et cetera. But if that were all true, then they would not have made huge profits. You would have been paying those higher costs and making either more narrow margins or trying to maintain current profits.

So when you make a 30% increase in profit over anywhere else, and you are getting an average of. Some companies were getting an average of 40 and 50% higher profits and $590,000,000 in stock cash outs happen collectively for refinery executives here in California. There's truly no other explanation for this historically high prices other than greed. The problem is we don't have the information that we need to prove this, and we don't have the ability to penalize the kind of historic price gouging we saw last year.

And I say historic because there are only three spikes like this, and one of them was two decades ago where the Torrance Refinery fire happened. So two of them were last year, which is a debatable cause. So it's getting really old to hear the oil industry and oil executives and companies talking about they're making massive profits on the backs of Californians who had to choose between, make these choices, between their survival and putting gas in the tank. And we can't have this situation anymore.

We know that other industries are regulated where it's this kind of monopoly behavior, and we need to have this information so that we can make these decisions to be able to hold folks accountable. If there is price gouging happening. We as Californians deserve this, they deserve this information. We are literally just talking about transparency and possibly a penalty. There is no requirement for a penalty. No one says it's going to definitely happen, but this is just getting the information we need to be able to know if there is manipulation of the market.

And when these kinds of profits are made. You can't say it's a supply and demand issue. You can't say that that was what's going on. And I know there was a back and forth between Mr. Ting and the WISPA representative last week about why in California were profits 30% higher. And the WISPA representative kept saying supply and demand. And I know it was asked a few times and it was the same response.

And I think that why that didn't feel like an answer, but I think is actually an answer to Mr. Ting is because if I translate that supply and demand, it basically means because you can, the prices were so high because you can, because you can raise prices without anyone knowing why, without anyone understanding why and make billions and billions of dollars in profits. And we have no way to know what's going on.

And so oil and gas, I don't see the oil companies leaving California because California is incredibly profitable. You make 30% more here than anywhere else. And if this were true, if it were supply and demand based, then we would see gas prices going down then in the future. Because clearly, as we implement zero-emission vehicles, there's going to be less demand for gas. So then we can look forward to very low gas prices in the future, I expect, if that's the case. Right.

So it is the bare minimum that we can do to get this information so we know what's going on. This happens again in other industries, and it's the least that we can do for people in our communities who are suffering because of this kind of greed.

I did want to address the concerns around the maintenance schedules, and I am not an attorney, but I have read lots of union contracts over the years, and I just want to read the language so that I want to make sure everyone is on the same page in terms of what the language is. So it says, in consultation with the Labor and Workforce Development Agency, and labor and industry stakeholders shall consider ways. So it doesn't say you got to do it.

It says you need to consider some ways to do it to manage necessary refinery turnarounds and maintenance that would protect the health and safety of employees and the public and minimize the impact of maintenance-related production losses on fuel prices. The Commission may, by regulation, impose requirements governing the timing of turnaround and maintenance developed through the consultation in this section.

So there is nothing saying right here that I'm reading unless I'm wrong and there's a whole Committee of people who can correct me and please the speakers today correct me, but there's nothing I am reading that says there is a requirement to manage the maintenance schedule of refineries. Is that correct, Ms. Skinner?

Correct.

Thank you. So I think it's important, as someone with 20 years in the labor movement, it's critical to me that the language is in here, that it is in consultation with the Labor and Workforce Development Agency, and also that labor will be a stakeholder in this process.

And I just want to emphasize that as this is being figured out, that labor is very much at the table as a partner in figuring out how we can prevent what happened last time where a bunch of refineries are down at the same time when it is preventable theoretically. Right. So I think that when gas prices spike, it also hurts workers, it also hurts union brothers and sisters, and we need to prevent that from happening, too.

And then just a couple of questions I had around the supply modeling, if I could. So I really appreciate the provisions evaluating the current supply and affordability of various transportation fuels. And as you know, the state has made and will continue to make significant investments in vehicles which run on renewable fuels such as hydrogen and electricity. So my first question is, is the definition of transportation fuels, does it include renewable fuels, and whether or not those include both hydrogen and electricity for electric vehicles?

I'm going to have Ms. Sanchez answer that.

Thank you.

Thank you, Assembly Member. As you'll see on page 33, Article One in the, I presume you're speaking to the assessments that the CEC and CARB will be doing. The definition of transportation fuels does include renewable fuels, biodiesel, hydrogen. As you know, a number of our refineries here in state are transitioning to produce those renewable fuels.

Okay. Great. Yeah, I just, I wanted to make sure that those are included because I think it needs to be included in a plan for monitoring the transition away from fossil fuels and to also include forecasting for ZEV adoption as a contributor to demand the reduction. So thank you very much. And I just again want to thank you for bringing this forward. As I said, people in my community couldn't see this happen soon enough.

And I'm really looking forward to seeing the information that we'll be seeing going forward. Thank you.

Thank you, Assembly Member. We'll go with Assembly Member Mathis followed by Assembly Member Ting, Assembly Member Connolly, Carrillo, then Holden.

Thank you, Mr. Chair. I think my colleague just brought up a good point with inflation, but I think the most important thing that we have to look at is margins of inflation. Oil is not the only industry that has, quote, record-breaking profits. And part of that is due to the cost of inflation driving everything in every sector up.

And this starts with our taxes and fees here in California. That pushes the cost of things up. Then you have the cost of labor. We have increased minimum wage again and again and again. That's pushing cost higher. Then we have the overall cost of energy production just to keep the lights on. That's another additional cost that's gone up. That has to get factored in to the margin.

Then you have the increase of water, because water production in the State of California takes up 10% of all of our electricity use. Let's not forget that. Then we get into fuels. But that's where it gets really tricky with this conversation, because you have to add in there the cost of fuel production, but you also have to look at the cost of rendering the raw material and the cost of processing that material.

And then you get to resell, which gets you this conversation of, are we price gouging or not? Or what's happening? That has driven the cost on everything in the State of California up. Now, what's interesting is that all of our money is now kept on our devices and is all electronic. It's not like it was post-World War I, where you see pictures of people with wheelbarrows full of money where they could actually pay attention to how inflation is affecting them.

So we have to look at these things, not in this vacuum, just saying, well, it's just the oil companies that are doing this. Every single underlining thing that gets to the bottom line has increased in this state. But we're not talking about all of that in this conversation.

I've got a question for Ms. Sanchez, and this was something that I had heard from the committee hearing. Just for clarification. It was mentioned that are you removing oil extractors out of this or are we including them?

Thank you for the question, Assemblymember. So existing law, the Petroleum Industry Information Reporting Act, as we were referencing earlier, does require annual reporting from our oil producers in state. This legislation would only require an additional reporting of major owners in those annual reports. That is to say, the focus of this legislation is not on the firms that are extracting crude oil here in California. It is downstream of that process.

And I appreciate that Assemblymember Patterson raised earlier the issues of crude oil production in California. I think you've heard from Dr. Borenstein and others that the global price of crude, while a big driver of gas prices in California, does not differentiate between crude that is produced here in the state versus imported.

Correct, I just. You're going to exclude our extractors? Correct.

They are included in the legislation by reference. Again, because of that new reporting requirement, the major owners that will now be a part of their annual reporting, they are subject to reporting to the Energy Commission under other state statute.

What is this going to do for out-of-state producers, whether it's Texas importing oil in, or Saudi or India? Because we know the Saudis are building refineries to make California-grade fuels. India's already done so. So what is this going to do to ensure that they're not spiking the ball?

I'm sorry. Refineries abroad that are producing refined product?

Correct.

So included in the additional reporting requirements is the detail on imports into the state of both refined product and unfinished product that is, again, desperately needed so that the state knows how much supply of which type of product we have on hand or coming in via imports, or is being, frankly, exported out of state. Because we know that our refineries also export refined product. We hear a lot of discussion around supply and demand.

And the bottom line is the state doesn't know, have enough granularity around the supply.

But, yeah, we're not doing anything to increase supply here.

I would reference the assessment that I mentioned to the Assemblymember earlier in asking.

That's fine. I'll also reference the fact that we had a gentleman that ran CalGEM who suddenly decided to leave on his own terms after processing applications. So our state seems to have, and the Governor said it publicly that he is not interested in increasing oil production here.

Again, Assemblymember, I think you're referring to crude oil production. This legislation is very much focused on refined product and gasoline.

Yeah. How do you get refined product?

I would note, Assemblymember, that during the time where we experienced those very high prices, there was not a supply issue that the data we've gotten so far showed. So while clearly supply could very well be a factor, which is why it is part of the data collection and is part of the requirement of analysis on the part of the division before the Energy Commission could act.

As was also pointed out, the global supply price on the barrel of oil is independent of where that oil comes from.

Well, that'll be fun to see how that fleshes out then. Final question here. When in the history has adding another regulatory burden decreased cost?

If we want to speak to price gouging, for example, after a number of areas were hit by fire, we enacted a rent cap, for example, and we empowered the Attorney General to enforce if that was exceeded, because knowing that housing supply in the area was down, we did not want owners to basically exploit the tragedy that people experienced. So that kept prices down.

For example, during the pandemic when we had runs on certain products and we started to see prices go up like in hand sanitizer and such. Again, the Attorney General's Office already has the power for that price gouging. We did keep prices down as a result of the actions we took.

Those are great examples. Yet costs still continue to rise. So clearly what we're doing isn't working. Housing is still through the roof. Cost in retail is still through the roof. So I think the largest concern that we have, and this is probably why we have so much opposition to this, is this is one of those key pivotal factors that affects cost across the board.

Whether you're a small business, a large business, a family, or just newly out the gate trying to get started, I know for many of my colleagues, the cost of transportation is not the same. But if you live in a rural area like mine, frankly, an area that's halfway covered with water right now, or an electric vehicle just won't work.

This is very concerning, and there are other ways that we could go about looking at what is happening with our oil cost, but having a fixed perspective, whether you can call it they may or shall or what. But to say there's going to be any type of windfall on the table, frankly, for any industry, is not acceptable. Since when do we, as a republic, as a democracy, say we're going to penalize any industry?

That's a very scary question and a very scary future, and I'm not supporting this.

Thank you Assemblymember. Assemblymember Ting?

Thank you, Mr. Chair. I think I'm going to pick off where my colleague from Tulare left off, which is, I think he went through and educated us on where the price and the cost comes from. I'm going to go back to where my questions left off at the informational hearing because I couldn't get an answer last time, which is why there's a higher profit in California than in other parts of the country. Mr. Garcia is nodding his head.

I think maybe he's more ready to answer the question than the last representative.

Thank you for the question Assemblymember. Competition. It's about competition. We heard earlier from Mr. Muratsuchi. We've been sending market signals in California for a long time. We have. We've driven out a great number of refiners out of California. And one thing I haven't heard at all as a consideration is we are a fuels market. Fuels island, we start that way. We continue to be that way. So we have a unique fuel specification in California. We have absolutely limited to no import capacity when we're short.

We are more short than the rest of the country. We have less ability to respond to fuel shortages. We don't have pipelines coming into California. We don't have the amount of port capacity. Last summer and last fall, we had a global shipping issue. I'm sorry for the mic here. We had a unique set of circumstances where global shipping was at an all-time low. We had a war in Europe. We were post-pandemic. We had incredible set of circumstances.

And one thing I learned in law school is bad facts make bad law. So if we focus on a bad set of facts and say, what's happening here? And we don't understand the fuels market, a global fuels market. So we are operating in a global fuels market as an island here. That is a fact that we absolutely have to factor in here. We're not like Texas. We're not like Louisiana. We're not like the Northeast. We don't have a fungible fuel supply.

We have chosen to do that. We have set ourselves up by 30 years of public policy. So to sit here now and be surprised that something's going on and not understand we don't have enough competition. So when we're short, prices go up. When prices go up, those who are in the market make a profit.

And I will point to you to the Select Committee last fall or last summer, actually, when Professor Bornstein, again, before we settled on a windfall profit as the focus, he told you then, it's just like your housing market. We didn't make it. But yes, refiners got the benefit of it, but we didn't make up this market. We were short, and we had a small number of refiners domestically and abroad that could supply this market. So I hope that helps.

It's competition, and it's the uniqueness of California's fuel specification.

I appreciate the question. So I think you're saying that the lack of competition allowed the industry to earn a greater profit.

I think that's one way to put it. It allowed for prices to go up.

Well, that's what I heard. That's what I heard what you said.

Absolutely. Again, but we didn't establish this market.

I didn't say you did. And I think going back to my colleague from Tulare County's point, he asked the question about regulation. When does regulation actually create a lower price? And as any economist would say, it's when you have a monopoly. When you have an oligopoly, you have to have a regulation. And I think Mr. Garcia put it quite well, because you have less competition, you have fewer players controlling more of the market. What's happening? They get to set the price.

We have to pay whatever they charge. And when that happens, consumers are taken advantage of. And so just like we saw with the electricity industry where we had to come in, you have a monopoly. We have to make sure that there's a certain way, certain profit that the electricity companies can earn. That's reasonable. They have a reasonable rate of return. That's something that our committee discusses quite a bit. That's what's happening now. You have five companies controlling 90% of the market. The definition of an oligopoly.

Now, you need actually a regulatory body to come in because they can set the price whatever they want. There's no one stopping them.

In addition, Assemblymember, utilities also have an obligation to serve. They have a guaranteed market, a guaranteed rate of return. Is that what you're proposing for the refiners?

Not at this point. Right. But that's going to be up to the CEC to research. Here's one of the big problems. We don't know. We don't have that information. That's one of the challenges. There were three, and there's been a lot of discussions around the price spikes. Three price spikes, two of which we absolutely can't even explain. One we can, which is where my next questions are going to go. Six refineries went down in October. Right.

That's why I think it absolutely would be remiss of us not to deal with refineries going down. Can you walk us through what happened in October with the refineries going down.

Are you speaking about planned outages, turnarounds, or unplanned?

You're the industry representative. We can't get information. Six refineries went down. What happened?

I'm asking you to clarify what went down means.

Oh, sorry. My understanding is when there was maintenance.

So planned maintenance.

I don't know, you tell me. Was planned or unplanned? I can't get the information we've been looking.

If you would just ask the Department of Industrial Relations, you would have that information, because they have that one year in advance. So if it's a planned maintenance, you do have that as a state agency.

So in October, what happened? Was there planned maintenance or is that.

I suspect there was some planned maintenance because it happens every fall to keep up with California's fuel specifications, to make a switch over to a winter blend fuel. We have turnarounds.

Through the Chair, please. If we did have a representative from that division here, they would tell you that the original plan maintenance that dates that were submitted to them were then changed towards the fall. So what was submitted did not have six refineries, in effect, not operating at the same time.

Senator, I think my understanding was the refinery's plans were changed because they were making too much money in the spring. They opted not to have the plan maintenance that they had requested over a year ago, but because they were making so much money, decided, hey, we're making so much money, we're going to wait. Was that your understanding?

I can definitely, from the data, know that they were making a great deal of money, whether that was their motivation or something else. But certainly one could come to that conclusion.

Appreciate that, Senator. I mean, what I find is insincere is when the industry comes and says, hey, maintenance is so important, health and safety is so important, but not more important than making money, because when it came to making money, then we're going to delay the maintenance that we planned a year ago.

So, again, this is where I feel like I'm a little bit frustrated with industry obfuscation, industry double-speak, where we really can't get a lot of answers, which is why this legislation is so important. I think all we're looking for are some answers to our questions. We ask about profits. We don't get answers back. I want to go to Ms. Sanchez, just about supply. How much of our supply that's produced here? Do we have enough supply to sort of fund our California market here?

Thank you, Assemblymember, for the question. I believe you all heard from Vice Chair Gunda from the Energy Commission on this topic last week. It's important to note that for the most recent data we have on annual reporting, our refiners met our entire in-state demand. That was 88% of their product. They then exported an additional 12% of their product. I think you all heard about the 85% of Nevada's market that we refined fuels for.

I also want to highlight for the committee, Vice Chair Gunda did reference data suggests that 2017 was peak gasoline demand in California, which is to say, for the last six years, gasoline demand has been on the decline. So as we think about these issues of supply and demand, ensuring that demand decline as we transition away from petroleum fuels is another reason why we've asked the Air Board and the Energy Commission to create our transition plan.

The industry is saying that, hey, we don't have enough supply. We need more supply. We need more supply. But you're saying, in fact, we have enough supply for California. We had so much, we actually exported 12% to Arizona and Nevada.

That's correct. We're also the third-largest gasoline market in the world for these companies and the third-largest state in terms of refining capacity.

Appreciate that. Thank you. So I think, Mr. Chair, I think you see the legislation here that's completely meeting this moment. What we have is we have less competition driving prices through the roof, because you have five companies that can charge whatever they can charge. We're not able to get enough information or data onto why they have these record profits. I appreciate Mr. Garcia's response, and that's why we need this information.

We need more transparency, and we need a regulatory body to come in to ensure that the pricing is fair to our consumers. Lastly, we have so much supply of our California oil, we not only are supplying our in-state market, which I believe peaked a few years ago, demand for oil is going down in our state. We're actually supplying almost all of Nevada's gas and oil demand, as well as some of Arizona's.

So, again, I think appreciate the Senator, appreciate the governor's office and working with the legislators to really develop, I think, this very sensible piece of legislation to attack a problem that is on many Californians'minds to try to get these gas prices under control. Thank you.

Mr. Connolly.

Thank you, Chair. And I'm going to really piggyback on that. I think it was well said. And going back to the question posed by our colleague from Tulare, when does regulation create lower price? Yeah. That, frankly, is the basis for antitrust law, for unfair competition law. Where you have an industry subject to market manipulation. Well, okay. With due respect, I think my colleague put it well. We have a situation here where we have five market players.

We know as a fact that the prices are not simply explained or the record profits are not simply explained by the level of taxes and regulation. At a minimum, we need more transparency to understand what's happening in the market. But by all available evidence, this industry is gaining excess profits at the expense of California consumers.

Serving as a former Deputy Attorney General during the energy crisis that our state faced, I've seen firsthand how our energy markets are vulnerable to manipulation and price gouging. And during a record time of inflation and economic uncertainty for consumers, now is not the time to retreat from what's before us. We need to protect working families and consumers in the state.

So as mentioned at the informational hearing, I think giving the Attorney General and the new division within CEC subpoena power, I think that's a key aspect of this. To obtain information will help construct a clearer picture around recent price spikes and the disproportionate cost impacts that Californians are facing at the pump. And I think this is just a first step.

The rulemaking process laid out in this bill creates a pathway for all stakeholders to engage with the CEC to determine the most effective process for actually requesting and analyzing the relevant information. So I look forward to continuing to engage with my colleagues, and I appreciate, Senator Skinner, your work in bringing this forward. The governor's office, AG Bonta, and members of this body who have engaged in the work to this point. I, for one, will continue to be very engaged on this issue. Thank you.

Thank you, Senator. Assemblymember Carillo, followed by Senator Holden.

Thank you, Mr. Chair. And just a special recognition to all of the members in the Assembly who worked really hard to land us to where we are today. I think a lot has been said about the reasons as how we got here, price gouging, and the impact to families across the State of California.

I want to focus a little bit more about future and the implications of this bill in particularly establishing the division of Petroleum Market Oversight within the CEC, whose independent authority and director would be appointed by the Governor, as well as the establishment of the independent Consumer Fuels Advisory Committee within the CEC, consisting of six members appointed by the Governor, one appointed by the speaker, and one appointed by the Senate Committee on Rules.

My general concern, and I'd love to figure out more details about this if maybe this is something in the works that I'm not aware of. My general concern related to appointments on such two huge oversight commissions that are being introduced and established is really the priorities of whomever is Governor. So Governor Newsom, clearly a priority, clearly a priority to the legislature now. What happens when we leave, what happens when Governor Newsom terms out? What happens when the members of the current legislative body term out?

And so my concern is mostly if the positions are appointed, they're under the whim and priority of whomever is in charge. And so I'm cautious about that. I'm also cautious about any regulations or any, how is the Governor's office selecting individuals to be part of this committee? What are the requirements to serve? Is it an appointment based on who's available? Are they recommendations by the legislature? How would those recommendations play out?

And ultimately, what are the requirements for the Director of the Division of Petroleum Market Oversight, who would be appointed by the Governor? And I'm continuing to read that this would have an annual cost of over $9 million. And again, it's not a question of the importance of what we're discussing. I'm talking about future. What happens in the future? Thank you.

Would you like a response? Thank you. First, on the definition of who would be appointed to the independent Consumer Fuels Advisory Committee, as I mentioned, there are appointments that would be by the Governor but approved by the legislature. On page 39, Article four, it lists that the appointments would include a person who holds an academic appointment with knowledge of economics or business operation of the fuels market.

Another member would represent the California petroleum fuels industry, another representing consumers, another representing labor, another with expertise in community, environmental or environmental justice issues, and then another with expertise in antitrust law. And then there would be a member appointed by the Speaker of the Assembly at the discretion of the Speaker of the Assembly. So in other words, without a definition of a particular expertise, and same by the Senate Committee on Rules.

And there's also restrictions on those individuals taking any contracts or income from the petroleum industry during the time that they are served. Obviously, the person from who is representing the petroleum fuels industry, there's language that obviously allows for that in that circumstance.

Now, as to your concern about if the legislature changes or the Governor changes. That we face in every single, in the Governor's office, every appointment that is made, who serves in the Governor's office, who serves as in every commission and regulatory agency, who serves as the department head. And, of course, some of those also have legislative appointments, though not all. So that's just a factor, I think, of all. I mean, any governmental entity has such structures.

So that concern of who is the future Governor, who's the future legislature exists for every aspect of our state operations, but this is designed, I think, carefully with knowing that that particular aspect is not fully under our control.

Thank you, Senator, for the response. I think what comes up for me, and I think as we do a lot of oversight with different agencies and departments, is that appointments are different than management of an office that is more long term, that's more of an employee structure. I find that-

Those are not.

I'm talking specifically about the Governor's appointments as related to the bill, is that they vary in experience and they vary on commitment depending on who they are. And so simply because it is the structure of what we've done in the legislature, in my opinion, doesn't mean that that's the structure that we need to use moving forward, especially when establishing something so big and monumental. So again, it's a concern just based on other oversight hearings in which folks come in and out.

And so in trying to establish something that's more long term visionary in terms of longevity and institutional knowledge on the issue, it's a concern that I share because I've seen it in other oversight hearings in which folks are not as prepared. And so it's just something that I wanted to raise in addition to the individuals that would be appointed. We talk a lot in oversight related to diversity on gender, race, ethnicity, and the composition of what those commissions can potentially look like.

Again, it's something that we see in other oversight hearings, as well as to who in particular is known by the Governor or known by us to be able to put a recommendation forward. And so in an effort to try to establish two new commissions, or committees. I'm sorry. I'm also concerned about who actually gets appointed and what that body looks like moving forward. So just things that I wanted to flag with you, and hopefully we're able to figure out as this moves forward. Thank you.

Thank you. Holden.

Thank you, Mr. Chair. I just wanted to say thank you to the Senator. Every time there's a big bill, I look up and there you are. So we know that your wisdom and history and understanding of how important bills like this are to meet the times is what's spoken.

I like to thank the Governor's office and the Governor for providing leadership through clarity to bring the legislature together to focus on an issue that is very critical and very timely for us to finally get our arms around in a meaningful way and to show how we can devise creative approaches to bring transparency and understanding to complex issues. Rome wasn't built in a day. This bill is a step in the right direction.

I think that the elements of the bill that have been clearly talked about, that there may need to be some ongoing conversations and maybe clean up language at another state, another time are probably apparent. But I think generally people are hurting. Inflation across the board, people are hurting.

And I think the way that this has played out has come at a time that has elevated in a very significant way and for the industry that has kept the California consumer in the dark for so long on this kind of issue, this issue of price gouging at the pump, that the legislature taking up this issue at this time to do anything less would be a dereliction of our duty. For us to get into this and to understand the complexity, to understand the economics, the ramifications to working men and women and families and who are on the margin.

The time is now. And so I do support the legislation that's before us and not unlike SB 901, welfare mitigation issues that were needed to be addressed at the time or destabilization in the energy market. And 1054 was approached to address that. All of those record-breaking time in terms of when they went from concept to signed legislation.

And I believe that in most of those cases, that didn't make its way back to the Appropriations Committee, maybe in the Senate in the early forms, but in the latter end, it did not make its way to the Appropriations Committee. And even on our RPS bills from the early days, not all of those made their way to appropriations either, because of the timeliness and the urgency of the matter and the time that we need to address it.

And so I think that this is an opportunity for us to move forward in a meaningful way. This report shows Appropriations Committee has weighed in, the staff has given their cost estimates, so it's not devoid of any review from appropriations. I would say that one of the things that this committee and probably on the Senate side should consider during a budget process is maybe making sure that there's resources that can be made available to this committee and on the Senate to have appropriate staff.

I mean, we've got tremendous staff, don't get me wrong, but we're delving into another area, very complex area, that the legislature needs to have the resources to meet the moment. We appreciate the CEC and CARB and the Governor's office, but we want to make sure in our legislative review we have the folks who can also evaluate the complex nature of this industry.

And I know how challenged this committee can be in terms of making sure we get our arms around all of the things that are already on the table. So I would say that time is now, and you have my support. I know that this is obviously for the industry, a change, but it's one that's important. And the providing of the information and what you feel is confidential. We have a Justice Department who will be part of this conversation as well.

So I'm sure that all of that will be evaluated in due course of time and make sure that nothing is done to injure, inadvertently, the industry. But at the same time, information that helps us be in the strongest position to make the best decisions and understand how this industry works and how the prices are impacted at the pump. The time is now. So, Mr. Chair, I would, if the time is appropriate, make the motion that we adopt the bill before us.

We have a motion by Mr. Holden, second by Mr. Ting. We have one additional Member who would like to speak. That is Assemblymember Wallis.

Thank you, Mr. Chair. Appreciate it. Well, I want to just first say thank you to the author and the Administration for acknowledging gas prices and how they impact our constituents. Back in my district, similar to Assemblymember Mathis, inland community, we're very dependent on our vehicles to get to and from work.

So when we do see these massive gas price spikes, that has a very negative impact. I did just want to ask one question to Ms. Sanchez here. We're talking about supply and demand, and we're talking about how we have a refinery supply that outweighs demand, right? Is that correct?

Over the course of annual demand for the product, yes.

Okay. Does California produce enough feedstock to meet our demand, or are we importing the raw crude in order to refine it?

We do import crude into the state.

Do you know what percentage California crude makes up for our total gas supply?

For our total gas supply? No. In terms of the balance between imports and California crude, I think it's about 30% in-state production, 70% imported. But again, that is a global price. And so the global price of crude oil is the same for the barrel of oil that's coming from out of state versus in-state, and it does not affect gas prices.

Okay, just humor me here. Do we know what the percentage of California crude that made up our supply was? About 10, 20 years ago? Was it about the same or has that changed?

It was higher.

It was higher. We produced more locally. Okay, great.

But again, I think you've heard from a number of professors and experts and economists who will tell you the price of crude oil is globally set, and therefore, it does not matter if the barrel is coming from Kern or from elsewhere, the input is the same.

Are there transportation costs associated with that that get passed along?

Yes, in both cases.

In both cases. Okay, great. Thank you. And then, Mr. Garcia, I just wanted to touch on one more thing with. So was the industry consulted on the feasibility of reporting all this data?

No Assemblymember, we were not.

Is that something that you'll be engaged in as we move forward? I know we've talked about some cleanup.

We hope to be. I mean, I think we're dealing with a data issue today based on last year's legislation, where we specifically asked for a rulemaking to clarify all of the inaccuracies, the inconsistencies in language. And we're still struggling with last year's bill, but this is a tremendous amount of new data with some inconsistencies also built in. And I think the committee analysis reflects that.

But we hope to, and we will engage with the administration if they allow us to, to make sure that you get good data, consistent data, and hopefully useful data.

Thank you so much. Appreciate it. Thank you very much. I think that ends the questions from all the Members up here on the dais. We will ask the author of the bill if she would like to close. There is a motion and a second that this bill has. It does enjoy a due pass recommendation to the Assembly floor.

Thank you so much. I want to thank my sponsors, the Governor's office, and also the Attorney General Banta's office, for their work on this bill. I also want to thank, there were members of both the Assembly and the Senate that worked very hard in. If we take the bill as introduced back in December, and obviously the bill that's before us is quite revised, there were many great conversations and work with stakeholders, meetings with stakeholders, including the industry.

And I think this is a far better product, what we have before us than what was presented in December. And it was that work and the input of members of the legislature and the responsiveness of the Governor's office to that input from members of the legislature, that improved the product.

And when we think about if you have a typical family in California who owns two vehicles, if they're having to, given the amount of the distance from their workplaces and such, if they have to fill both vehicles, the tanks once a week, and you think about $2 extra a gallon and the cost that puts on that family, that's a minimum of 300 extra a month and upwards to 500 or so, depending on what the fuel efficiency of their vehicle is, what families have an additional 500 a month to spend .

Many are especially as was pointed out by a number of our colleagues on the dais, that you then have to start wondering, okay, is it worth it to go to work? So I think that what we are doing, not only think, what we are doing, and many of you spoke to this, and I greatly appreciate the conversation from the dais. We are putting in a good consumer protection regulation that hopefully will never have to be used.

And the oil companies, if they respond and refineries as appropriately, then perhaps we will not have such price hikes and thus we will not ever have to use the penalty. But I really appreciate all of the conversation today and all of the good work on this. And with that, I ask for your aye vote.

Thank you, Senator Skinner. I will ask the secretary to call the roll. The motion and second that is on the floor.

SB two, the motion is due pass to the floor. [Roll Call] 11-4.

11-4, the bill is out in direction to the Assembly floor. At this time, we will adjourn.