Senate Standing Committee on Appropriations

[Roll Call]

We have four Members, so we have a quorum. So we're going to move to the business of the day. But before we do that, I want to remind all of our witnesses to limit their testimony to the fiscal aspects of the bill. And please refrain from repeating prior testimony. As most of you know, this bill has had a lengthy public policy hearing yesterday in Senator Bradford's Committee.

We have floor session at nine, so we'll also need to try to keep the testimony and witnesses to a reasonable time. I'm going to put some limits. If we have a long list of folks, we want to make sure we have equal time for both supporters and opponents. So today we're hearing item SBX 12 by Senator Skinner. So welcome, Senator Skinner, to tell us about energy, transportation, fuel supply and pricing, maximum gross gasoline refining margins.

Thank you so much, Mr. Chair and Members. I want to first thank the Chair and the Committee staff for their analysis. The analysis reflects the content and the purpose of the bill and our understanding of the estimated cost. There is one point I would like to make, and that is that we, meaning my office and the Administration, are working to bring down the cost that is associated with the work product this bill has included in the bill to the Air Resources Board.

We are also working to identify other cost savings that may be achieved while still retaining the full strength and intent of the bill and the full suite of provisions outlined in the bill. We hope to have these cost saving measures fully identified prior to the budget action that would appropriate funds related to this bill. We did, as the chair mentioned, have a very thorough hearing yesterday, and I am happy to answer any questions about the content of the bill or to discuss it.

But I think since this is the appropriate Committee, I did stick to the cost implications. There is a new division that's created. There is an advisory committee that is created. There is an ask to the state auditor's office and a number of other things that, of course, will have costs, some of them well into the future, some of them currently. But as I mentioned, we are working with the administration to try to use existing resources where possible and bring those costs down.

And with that, I'm happy to answer any specific questions related to the content of the bill. Yes, finance, yes, apologies, but otherwise there's not a lead witness. No apologies. We didn't feel since it's not the policy Committee, that we would need that.

All right. Well, we'll hear from finance.

Great.

Good morning, Chair Portantino, Committee Members. Michelle Perrault with Department of Finance. I'm going to keep my remarks brief as well, but I wanted to just provide a preliminary fiscal overview of the current version of the bill. And so based upon the current language of the bill, it's estimated that the overall cost starting in fiscal year '23, '24 is around $7 million.

Most of these cost assumptions are associated with staffing for the Energy Commission to fulfill its obligations under the proposed statute and to develop and staff the independent division laid out in the proposal. The independent division is expected to require 2.5 million ongoing to support 10 staff, and then the Energy Commission will require 4.4 million, consisting of 2.8 million for 14 staff and contract dollars totaling 1.6 million.

It should be noted, however, as was mentioned, that the Commission is largely supported by special funds and those are being evaluated to support some of these functions as well as the Commission is looking at the ability to redirect some of their current resources and staff to meet some of the new requirements laid out in the proposal.

Again, additional costs that are noted for '23, '24 could consist of contracting costs of up to $1 million for the Air Resources Board. That's to prepare the transportation fuels transition plan that's called out for to be done by December 31 of 2024, and then potentially ongoing costs of between $50,000 and $250,000 annually for the California Department of Tax and Fee Administration to develop some processes to request required data that's also laid out in the proposed statute.

As the Senator mentioned, we recognize that as the bill moves through the process, that there could be some amendments taken that relate to the fiscal impact. And so finance will continue to monitor the bill and update any financial impact as we see it move through. And with that, I'm happy to answer any questions related to potential fiscal impact. Thank you.

We take public comment. So is there anyone here who would like to support the bill? We have no lead witnesses, so if you could confine your testimony to your name, your organization, and your position, that would be great.

Thank you very much. Kim Stone of Stone Advocacy on behalf of Consumer Watchdog and a coalition of over 100 environmental, consumer, and advocacy groups in support. I have a number of logos and three pages of names of organizations. Will not read them in the interest of time, but we're very supportive.

Good morning, Mr. Chair. Justin Fanslau here on behalf of the California State Association of Electrical Workers, the Western States Council of Sheet Metal Workers, the California Coalition of Utility Employees, and also representing Elected Officials to Protect America. And there are over 100 signatory elected officials from California, all in support. Thank you.

Good morning, Chair, Committee Members, and staff. Christof Meyer with the American Federation of State, County, and Municipal Employees in support of SBX 12.

Bill Allayaud, Environmental Working Group, part of that large coalition. Just one sentence on fiscal impact. The oil companies often tout the positive multiplier effects of their product. We know it does affect the whole economy, but they won't talk about the negative multiplier effects when you raise the price of gas, $2.00-2.50 a gallon through low and moderate income people. It's a huge negative impact which then echoes through the economy. So thank you very much. We urge your aye support.

Anyone here who would like to oppose this bill? And I'll give you a moment to make a few comments.

Good morning, Senator and Members of the Committee. Zach Leary, on behalf of the Western States Petroleum Association. Unfortunately, we continue to oppose this unprecedented and untested experiment in the California fuel market. We still believe it will lead to the same unintended consequences as the previous proposal, of less investment, less supply, and higher costs for consumers. On the fiscal notes, we have concern about the costs related with this proposal.

The nearly $7 million ongoing, likely from special funds, which come from fees levied on the industry, and then the $1 million to the cost of Implementation Fund at the Air Resources Board, also fees levied on the industry. Unfortunately, we have to remain opposed to this unprecedented and untested experiment in our market. Thank you.

Thank you. Others in opposition?

Mr. Chairman and Members, Paul Yoder, on behalf of the Kern County Board of Supervisors. They're adamantly opposed to this bill. Kern county is the energy capital of California and produces the most alternative energy in addition to oil production west of the Mississippi. Last year, this Legislature chose to extend the property tax exclusion in Senator Hertzberg's SB 1340 on the fiscal that continues to cost Kern County $15 million a year to produce green electrons for other parts of the state.

I just hope that this Legislature can take into account everything that Kern County does to power, literally power, California. And I just would beseech you to do that in the future. Thank you.

Thank you. Anyone else in opposition? And we'll go to only name, organization and position. There's no one else here. We're going to go to the phone lines, right? So let's queue up the phone lines, the teleconference service. Please prompt the individuals waiting to testify in support or opposition. Again, at this point, we're only going to hear name, organization and position. Moderator, do we have anyone on the phone line?

Thank you, Mr. Chair. Ladies and gentlemen on the phone lines, if you wish to testify in support or opposition to SBX 12 please press 1-0 at this time. One followed by zero. One moment, Mr. Chair. We do have a few queuing up. All right. Line 15, please go ahead.

Mr. Chair, Members. John Winger, on behalf of the California Fuels and Convenience Alliance, opposed to the cost that this will have on our small businesses.

Next is line 16. Please go ahead.

Good morning, Chair and Members. Brady Van Engelen, California Chamber of Commerce, opposed. Thank you.

Line 17, you are open.

Good morning. This is Natalie Boust on behalf of the California Business Roundtable. We are opposed.

Line 20, please go ahead.

Good morning, Chair and Members. Janice Danaford calling in on behalf of Attorney General Rob Bonta, proud co-sponsor of the bill in support.

And you are open, line 11.

Chair and Members. Ethan Nagler, on behalf of the City of Mountain View, in support.

Please go ahead, line 18.

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

And Mr. Chair, we have exhausted the queue.

We've exhausted the queue. We've heard from Finance. Does any Member of the Committee have a question for the author or for Finance? Mr. Seyarto?

Hello. There we go. So staff from both sides agree this is going to be $7 million between five and $10 million cost for operations. And right now, the CEC is already funded by a fee or tax on electricity to run that, and that fund's running out. It's not sufficient to go forward. So is the Governor going to commit to not raising taxes or fees on consumers to pay for this?

As I mentioned, we're kind of preliminarily looking at all those funds, including--

We haven't had enough time to even venture into those things.

We haven't had a lot of time to figure out all the details, but we are looking at all the special funds and we're aware of some of the pieces that come along with that.

Yes, I appreciate that. Thank you.

If I may respond, there is no intent at this point to raise any of those fees.

There's no intent. Doesn't mean we're--

All of the discussions about how to address the costs and also to do our best to reduce those costs, that is not on the table.

Thank you. Gross margins. This is part of the revenue side of this. And so it is part of the financial part of this. There's monthly gross margins for some businesses, and there's yearly longer gross margins, and then there's also even longer than that ,depending upon the size of business. I know gross margins in my wife's business as a tax person, they're great in January, February and March and April, but the rest of the year, not so much.

So when you're averaging that out, it depends upon what month you're averaging out to determine what you're going to--in this case--what we're going to determine is an excess margin. So is this going to be longer term or is this going to be shorter term? Is it going to be a monthly thing or a yearly thing?

Because the oil company is a huge thing, and if they have to make profits year over year and make up for some profits when they have a bad year, like they were having a few years back, how are they going to arrange those?

if I may, through the Chair, that is the purpose of the establishment of the division as well as the Advisory Committee, to have a set of experts that can analyze the data, as the content of the bill describes, and to then make certain determinations. And, of course, there is nothing in the bill that in any way would either counter or--the bill is structured to accept, of course, that oil companies, like every other company, has the right to make profits. So there is nothing about the bill that would impede upon profits.

It is only about an excessive or price spiking. So those analyses, why we are establishing the division and the Advisory Committee is to have experts who can analyze that data.

And understand the difference between long term and short term margins.

Yes.

Okay. Thank you. I don't have any questions right now anymore.

Thank you. One, I really want to thank you, Senator Skinner, for presenting this and to our Governor, who's also trying to keep the best interest of the public available. So the number one selling vehicle in the country is a Ford F-150 pickup truck. We know that more and more people, especially in regional areas, have been moved further and further away because of the cost of housing.

And a lot of these individuals are driving to metro areas, such as the Bay Area to be able to work and provide for their families. We saw a significant spike in gas prices for these working-class people. And I believe that Californians buy roughly 30 million gallons of gas a day, and roughly at an average of $5 a gallon average or so, which equates to about $150,000,000 a day.

I do believe that we do need to do more, a little bit about monopolies, especially on the state level, and having significant control on the market. So I will be moving this item, and, Senator, I'd love to co-author this as well. Thank you.

We will see if that's possible. We will try our best to accommodate that.

All right. Any other questions or comments from my colleagues? Mr. Jones, Vice Chair.

Thank you.

Thank you, Mr. Chair. I don't know if I need to make a substitute motion, but I would like to make a motion to move SBX 12 to the suspense file. We have not yet adopted the Committee rules this year for this Committee, so I assume we're operating off last year's rules.

I have a copy here, and the bill far exceeds the limits to be put onto the suspense file. This bill does not have an urgency clause, so I don't see why we need to be pushing it through so quickly, especially with the state budget deficit estimates getting worse. We need to give this bill's costs the proper consideration and can be better done by placing it on the suspense file and considering it later in the year when we have a better grasp on our budget restrictions.

It would also give the Administration time to work out some of the amendments that were mentioned this morning and just give this bill some more time to get worked out and get more final answers on it, please. So I'd like to make that motion.

All right. So since we had the statement that a motion was going to be made, I'm actually not going to accept that at this point. We're going to take this motion, but the Chair is going to recommend a no vote, and so we're going to take the motion to place it on the suspense file first. Chair is recommending a no vote. The Vice Chair is recommending an aye vote. And so, Madam Secretary, if you could call the roll on this motion. Again, Chair's going no.

The motion would be to send SBX 12 to the suspense file. Senator Porntino. [Roll Call]

Vote is two to five. The motion fails, two to five. Now, Senator Wahab, would you make a motion, please?

I'm making a motion to move the items.

Mr. Bradford has a comment? I'm sorry.

Thank you, Mr. Chair. And I want to also thank Senator Skinner for leadership on this issue. I just needed some clarity from the Department of Finance. Was the eight to 10 million ongoing cost of overseeing this program? And if so, then what is the cost of standing up this program from going from start to finish? Where do you go? Because it's a whole lot of moving parts here. So what does that cost?

Absolutely. I appreciate the question, and I'm just going to caveat this with the same thing that Senator Skinner has indicated. We're still kind of working with some of the departments to make sure we can finalize actual costs based on the current language. It's about 7 million at the moment, ongoing for the staffing, the portion of it that is one-time. But again, we're working with this Air Resources Board, has indicated a cost of about up to 1 million.

But that would be a one-time cost. So that five to 10 or seven to 10 million to stand it up is about accurate, based on what we know right now, with about 7 million of it ongoing at the moment.

There was a reference that--so I opened indicating that we are looking carefully at how to achieve some cost savings. That does not necessarily require amending the bill. There may be the ability, as was mentioned by Department of Finance, to move positions in various departments rather than having to create new ones. Those are the kinds of things that we are looking at.

So while that does not reduce an ongoing cost, it reduces it being newly appropriated because it would be from existing funds or know something that's already been appropriated.

Senator Skinner, would you like to add anything else as a close?

Yes, thank you. What I would add is that the potential of this bill to save our consumers billions of dollars when they experienced, as we all did, costs gallons, an average cost of a gallon of gas, $2.60 above, above the average of any other state in the nation. And it seems to me a very wise expenditure of these funds to potentially save our consumers those billions. And with that, I ask for your aye vote.

Thank you. We have a motion. We've heard from finance. We've had our questions. We've heard from the public. But did you know in 1967, Martin Luther King first opposed the Vietnam War? And the best picture was a man for all seasons? You all didn't know that, did you? With that, Mark will call the roll.

On SBX 12, the motion is do pass to the Senate Floor. Senator Portantino. [Roll Call]

The bill is out. Five to two. bill is out, five to two. We did have a motion by Senator Wahab, and we are concluding our agenda for today's hearing. This meeting in the meeting on appropriations. You did make the motion, right? Yes. Just want to make sure you made a motion. All right. What, three times? This meeting is adjourned.